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Mar 12, 2019 in Review

Levendary Subsidiary Café in China

Introduction

Managing international businesses presents for investors both challenges and opportunities. Strategies that have worked successfully in one country may not be beneficial in another. As such, corporations must choose strategies and approaches that can maximize opportunities. However, the modification of plans must keep a company’s identity. This essay will explain the decisions that Mia Foster must make with regard to Louis Chen, who is the country manager for Levendary subsidiary company in China. Additionally, it will explore Levendary’s network relationships that have been formed to create a competitive advantage and their implications on how the company managed its international business. Finally, the paper will provide recommendations on the strategies to be used by Levendary in China, the people responsible for their implementation and the changes that should be made between the China team and the main office.

Question One

From the information provided in the case, we can conclude that Chen is an appropriate manager for various reasons. First, he managed to start 23 restaurants within one year, in a market with high competition. Secondly, his approach to expansion may have deviated from the plans of the parent company, but he used the freedom given to exploit available opportunities. Chen is highly motivated and can achieve good results when supported by Levendary headquarters. His real estate experience has proved to be essential to the expansion of Levendary in China. The case illustrates the merits of his local knowledge by comparing his competition for prime locations with other competitors. Therefore, there should be no doubt that Chen is a good general manager who can assist the restaurant to achieve its expansion strategy. However, there are issues that he has not handled well because they have not conformed to the parent company’s strategy. While response to local tastes is critical to the success of the subsidiary, the changes required should not make the subsidiary look like a different company from Levendary. There are some core features of the subsidiary that should reflect the company’s overall strategy. Therefore, Chen should remain the general manager of the subsidiary, despite the problems that are associated with him.

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When Foster is making the decisions on how to deal with Chen, she should be objective and consider both merits and demerits of having him as the general manager of the China subsidiary. The first thing Foster should do is to establish a strategy that the company wishes to utilize in order to expand its operations in China. From the conversation between Chen and Foster, it emerged that Chen did not have a specific strategy. Likewise, Foster and his executive team did not have one. 

Therefore, the first step that Foster should take is to ensure there is a strategy for the international expansion. The crafting of the strategies should not be made at the headquarters without the involvement of Chen and his managers in China. Participative decision making is critical for company’s success. People appreciate and support decisions in which they contributed. Failure to involve them would create resistance because they have an established way of managing the restaurants. Resistance would result in losses because the decisions made in the United States (US) are unlikely to be implemented. The presence of Chen at the meetings discussing the expansion strategies in China is necessary. He can provide useful information that managers in the US may not have, given his knowledge of the China market. Consequently, the company can avoid making decisions that do not fit the market. The decisions made on the right strategy should conform to the company’s mission and vision. Avoiding deviation from the company’s strategic goals provides a sense of direction to the company. The effectiveness of the decisions should always be measured by the way they have contributed to the achievement of the strategic goals. 

The second decision that Foster and his corporate level managers should make is the features of their products and services that should be changed to take care of local preferences. The case has quoted cases of McDonald’s changing its products and services to promote the best customer experience. McDonald’s strategy worked and led to its successful performance in its international ventures. Therefore, while Levendary may wish to maintain its current products and services, it is important to acknowledge the effects of different tastes and the need to satisfy them.

The final aspect that Foster should deal with is to convince Chen on the importance of having a unified method of accounting and reporting. Accounting principles and reporting in an organization influences the way stakeholders view the company. Companies with clear financial reporting procedures are perceived to be transparent, which can gain the confidence of investors and governments. Foster is known for her communication abilities. Convincing Chen about the importance of having standardized accounting procedures should be a manageable task. Chen complained that such a system would be costly. Foster should be willing to commit resources towards the process and support the transition.

Levendary can succeed in franchising industry by ensuring that several parameters are considered at all times before starting a franchise. First, the leaders of a corporation should have a tight control of how the franchises carry out their operations because they affect its image. The company’s culture must be maintained without compromise because it forms the basis of operations. An organizational culture guides employees on the acceptable and unacceptable behaviors. Therefore, culture can help managers to engage and manage employees. It was a mistake to let Chen make all the decisions without the involvement of the main office. 

Secondly, the restaurant must be consistent in its service and products with few variations to accommodate regional tastes. Its main menu items should be available, regardless of the restaurant’s location. Globalization has made collaborations easy. When people travel around the world for business or leisure, they expect the same standards in Levendary’s restaurants at all locations. The success of the company depends on the satisfaction of these customers and should strive to ensure that their expectations are met and even exceeded. The expansion in the international market should have an executive vice president at the main office. It is justifiable to create this position in the organization, given the potential of the market. The vice president should be in charge of all the subsidiaries and expansions abroad. His role is to coordinate operations and ensure that the strategies of the franchises are aligned with the company’s strategic goals. 

 
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Question Two

The relationship channels created at Levendary have provided the organization with a competitive difference. As a result, it has differentiated itself from competitors by delivering value that they cannot provide. The relationship between the chefs, the food laboratory and the test kitchen forms the basis of superior quality products. The collaboration ensures that every Levendary restaurant in America offers standard menu items, with minor changes/ adjustments. The consistency of the similar ingredients creates an attractive image of Levendary restaurants. All the customers who have enjoyed a meal at one of the stores can always get it in the same manner from any other store. The customers may develop loyalty and become regular visitors. Consequently, the business gains competitive advantage that comes from the teamwork.

Making bread from organic grains and hormone free meat was a result of close relationship between the CEO and the Chief Concept Officer (CCO). The CEO identified the ability of the CCO to sense changing food trends and gave him the freedom to become adventurous. The CCO led his team to create these organic food items that attracted premium prices. Unlike fast food restaurants that face aggression from customers who dislike fatty foods, Levendary created a competitive difference by offering what the customers wanted. 

The relationship among those who manage the daily operations of all the restaurants also improves competitiveness. A good example is the reporting procedure that moves from managers at individual restaurants through other managers to marketing vice presidents. Such a procedure controls costs. The competitiveness of a business depends on its ability to control costs and make profits. When a business is profitable, it can spare money to pursue expansion ventures. However, poorly controlled costs may lead to a company’s bankruptcy and pull it out of competition. Levendary has gained competitive advantage by controlling costs, which has empowered it to generate profits. Its expansion overseas could not have been possible without profits from the American operations. The competitors without such controls cannot compete with Levendary because it has created a unique competitive difference. 

The company’s franchise system has been successful in America, but risky in China. The reason for the American success is attention given to the franchise system by the management of the company. The leaders of the organization have created the position of Chief Franchise Officer (CFO) who oversees the recruitment of new franchisees and the support of current ones. One critical role of the CFO is to ensure that all the franchisees maintain the original brand in their operations. The uniformity of operations, décor and service attracts customers even from competitors without such a unique difference.

In food establishments, the quality of service can be affected by small details, such as disorderly arrangement of menu boards on the table and table tent cards. A restaurant that can offer consistency in all aspects produces a wonderful customer experience. At Levendary, such a competitive difference is achieved by distribution teams that oversee the general outlook of restaurants. Their association with all the stores provides the customers with an excellent experience.

The close association of teams in the American operations and their success created a notion among the managers that every business must have such relationships. Such teams in China could create concepts relevant to that market as they provide support to the firm’s operations. However, not all of them should be controlled from the headquarters. As a result of success of the American model, the company’s management felt that the subsidiary should be managed in a similar way. Since the national managers have a better understanding of the local market needs, they should guide the managers from the headquarters. If this had happened, the information from Chen would have been used by the chefs and food laboratories to produce similar components for all the restaurants in China. Recommended changes would be approved by the CCO after evaluating each local case. The managers from the headquarters would have agreed with Chen on the elements that would remain unchanged, such as the fixtures, fittings and furniture. At least the design of the restaurant and its core products, such as salads and sandwiches should have remained on the menu. 

Therefore, the implication of the relationships was that they created high expectations from the leaders. When the subsidiary deviated from those expectations, the managers at the headquarters felt that Chen had failed. Additionally, the relationships made the parent company fail to see its short comings in the operations of the subsidiary. First, the management had given Chen total freedom to operate, as he wished for a period of 18 months. If they were keen on ensuring the relationships were formed for the China subsidiary, they would have put that as a condition for Chen’s freedom. Secondly, the parent company failed to provide guidance on the operations. Every important aspect in America was assigned a senior manager, who was a part of the corporate leadership. The absence of a person in charge of the China franchises at the head office was a mistake. The uniformity of procedures in America influenced the decision by the leaders of the parent company to demand for increased transparency in accounting and reporting. Although it was a sensible demand, it was based on the standardized procedures that emerged from the relationships among people and departments.

Question Three

The first recommendation to Foster is that Chen should remain in charge of the subsidiary because of his local knowledge of the market and ability to sense changing tastes. The initial mistakes that he made by changing the subsidiary’s strategy should not be used to stop his services because the headquarters had also made mistakes. Chen connects Chinese operations and the American office. During the video conference, he indicated that he wished to continue with the work even after his current contract expires. Foster should use this willingness to agree on the critical changes that need implementation. Therefore, one of the conditions for the renewal of his contract should be streamlining of the main strategic agendas between the Chinese franchise and the overall organizational strategy. 

In addition, there should be changes in the responsibilities and managerial structure of the subsidiary. Since the market in China has a great potential, there should be a similar organizational structure as that in America. The company should constitute CCO, COO, highly qualified chefs and an executive vice president in charge of the Chinese business division. Once the new team has been made, it should choose food items and marketing strategies. Chen should report to the executive vice president, who should be a member of the head office’s decision-making. The vice president can bridge the gap between the China operation and the United States’ office.

Once the alignment of strategies has been achieved, the Chinese team should be given relative operational freedom, so that they can easily take advantage of emerging opportunities. Foster should also decide on the number of restaurants needed in the market. Having too many of them could prove unmanageable and affect the quality of service. Once the number has been decided, the focus should shift to improving the quality of service. Although the team may borrow some of the successful service management practices from the parent company, they should adapt them to the local needs.

The Operating Tool and Learning (OTL) should play a vital role in the exchange of information between the subsidiary and the parent company. The successes achieved in China are vital to the entire organization. Some of the products developed for the Chinese market can gain popularity to the extent of being offered as a part of the company’s signature products. For example, popular food items in China can be offered to some of the stores in the United States in locations with large Chinese and Asian populations. Such products may increase the revenues of the company, especially during the slow market growth. The OTL team should gather information from both operations, which may help the headquarters in decision making.

Conclusion

In conclusion, the achievements of Chen have proven to be essential to Levendary’s expansion strategy. He should continue running the operations. Foster should use her excellent communication skills to convince Chen on the major changes that should be implemented. These changes affect the overall strategy and mission of the company. Foster’s increased support to Chen and the likelihood that his contract may be renewed can soften Chen’s stand.

The company needs to increase its control of business in China to avoid further deviation from its strategy, though some freedom should be given to Chen and his team to be successful. The operations should have some consistency to meet customer expectations. The success of the China business division can be realized by having an executive president to coordinate its activities. The relationships that have created competitive difference in the United States have affected the way the company relates to Chen and his work. The network increased the management’s need for relationships even for international subsidiaries. Learning between the China and the American business practices can help in identifying new avenues for generating company’s revenue.

 

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