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1 Executive Summary
2 [Background]
3 Levendary Café, which headquarters is in Denver, is a $10 billion dollar publicly traded company in the US, and
4 is a well-know café brand looking to expand into China. Currently, their , only international operation was only
5 in Dubai. The company built its reputation by using high-quality ingredients and offering a comfortable dining
6 atmosphere. About two-thirds of their 3,500 stores are franchised. After 32 years, Howard Leventhal, the
7 founder and CEO left the restaurant chain to explore new opportunities, and in 2010, Mia Foster became the
8 new CEO of Levendary Cafe’.
9
10 [Problem They Faced]
11 Levendary’s shares were traded at a discount to relative to comparable restaurant stocks.
12 Wall street was cautious about the stocks. There were two reasons for this. First, analysts were concerned that
13 their domestic business was nearly tapped out. Second, given Foster's lack of previous international
14 management experience, they were skeptical of her ability to build a multi-national brand. The new CEO,
15 Foster faced challenge of wiping out Wall Street’s skepticism. She believed that solution was to expand into
16 business in China, although, which she was anxious about. In particular, she was worried about A & B.
17 A. The brand concept and image has not been protected
18 B. Headquarters could not control and manage the Chinese branch
19
20 [Objective]
21 It is necessary to reexamine the strategy for Chinese operations, which faced numerous challenges. The result
22 will lead Levendary Café to more stable growth, and gaining the share of Wall Street and investor increase
23 confidence.
24
25 [Means to Achieve the Goal]
26 We do not only analyze the characteristics of the Chinese market or company by the bellow methods; it may
27 also find hidden initial voids. It should be reexamine the strategy for business in China by considering.
28 (1) Porter’s Five Forces, (2) SWOT, (3) Hofsted’s Dimensions, and (4) the CAGE framework
29 When developing a global business, it is impossible to ignore cultural gaps. We use a framework to compare
30 and understand the patterns of behavior between both cultures.
31
32
33 Q.1
34 [Muti-unit Restaurant]
35 A multi-unit Restaurant Business is the concept of owing more than one unit of a franchise and/or being the
36 franchise owner owning more than one unit or store. In other words, running more than one unit of the same
37 business is considered “A multi-unit Restaurant” (hereafter called “MuR”).
38

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1 The MuR concepts usually are generally categorized into three segments:
2 A. Specialty Establishments - like Starbucks and Dunkin Doughnuts, primarily selling items for under $5.
3 B. Quick Service Restaurants - like McDonalds, which is the most famous and has dominated globally. The
4 idea or concept of the quick service is the “fast food” model, with average tickets between $4 and $10.
5 C. Casual Dining - like Chili’s and Friday’s, which its concept providing table service for guests with average
6 tickets between $8 and $20.
7
8 Levendary café is in the intermediate position, between “Quick service restaurants” and “Casual dining”.
9 Levendary café promised more wholesome choices like casual dining, however a more informal and relax
10 self-serve like quick service restaurants.
11
12 According to this study case, in 2010, the U.S. restaurant and contract food service industry was estimated
13 around $600 billion; the MuR concepts represented approximately 30% of the 960k units that were in
14 operation.
15 It is also assumed that the MuR is a highly fragmented industry; which means no one vendor has significant
16 market share. For instance, McDonalds only generated $12 billion in revenue that was only 2% of the $600
17 billion of US restaurant business.
18
19 The MuR has relatively simple cost structures. Principally, it consists of four elements; occupancy, labor, food
20 and supply cost. In a best-case scenario, a restaurant might make up to 35% gross margin, however 20% to
21 25% is more typical and usually operated on narrow margins. It depended on a brand’s appeal, marketing
22 effectiveness, real estate location, and store experience.
23
24
25 Q.2
26 [Expand into China]
27 After reviewing research, Levendary’s board and top management decided to enter China, and entrusted
28 Levendary China to Louis Chen. He was familiar with neighborhoods in Shanghai and Beijing and also had
29 network of contacts to help speed up the process. In addition to the slow domestic business growth in the US,
30 the reasons why they decided to enter China is as follows.
31 A. China’s Growth
32 (1) Population: 1.4 billion people and the urban population rose from 36.2% of the total to 46.6% in five years.
33 (2) Annual GDP: Growth of 14.5% over the past decade
34 B. Change of Life Style
35 (1) A middle class emerged whose per capita income surged from RMB 6,282 to 17,175. (In 2010)
36 (2) More women in the workforce, and an affluent middle class
37 C. Growth of the Industry
38 (1) The success of many American restaurants such as McDonald’s, KFC and Pizza Hut’s

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1 (2) The competitive quick service segment was growing the fastest, from RMB 254 to 471 billion in five years.
2 For the above reasons, the Chinese market was very attractive and likely to be successful in investing.
3
4 [Entry Mode]
5 Leventhal chose Greenfield Venture as a final choice. He dropped his original idea of joint venture with an
6 established Chinese operator.
7 A. Greenfield Venture
8 Pros: Gain local market knowledge, Can be seen as insider who employs locals, High level of control over
9 business operations, the manufacturing, sale of products and/or services, staffing and branding
10 Cons: Potentially high market entry cost, An extremely high-risk due to unknowns, Slow entry due to set up,
11 Government regulations that may prevent foreign direct investments,
12 B. Partnering and Strategic Alliance
13 Pros: Shared costs reduce investment needed, Reduced risk, Seen as local entity, Quick entry due to set up
14 Cons: Integration problems between two corporate cultures, Risks that a good company cannot find
15
16 [Strategy]
17 At first, Louis Chen proceeded with the standardization strategy to protect the concept, and at the moment it
18 was not effective, he proceeded with the localization strategy. As a result, he did multi strategies.
19 He started the plan without any clear strategy; he was also given the discretion of the company to make any
20 decision as long as he does "do right by concept". It meant that the company told him the execute
21 standardization strategy. However he could not keep this. The first store kept the concept, but the others were
22 developed to localize the menu, appearance and furniture. In other words, even in China, the strategies were
23 different as you can see by referring to exhibit3. He did not follow any plan, did not follow the concept, and
24 moved with an emphasis on speed, as a result, ironically he achieved the success of 23 stores without losing to
25 competitors.
26
27 [Analyses]
28 A. Porter’s Five Forces (Refer to Appendix A)
29 We also should analysis industry how strong are competitive force by using Porter’s Five Forces.
30 (1) Threat of new Entrants: There are many competitive, however political risk is high.
31 (2) Threat of substitute: There are many competitions of substitute.
32 (3) Bargaining power of customers: Customers have considerable bargaining power.
33 (4) Bargaining power of suppliers: Suppliers are in a weak bargain position.
34 (5) Competitive Rivalry within industry: Rivalry is strong, however it is possible to approach different targets.
35
36 B. SWOT Analysis (Refer to Appendix B)
37 When we think entry mode and the strategy, we should analysis characteristic of Levendary cafe. Using SWOT
38 analysis, In particular, we should use this result to identify what to localize and what to standardize and

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1 incorporate into our strategy.

2 As a result above Five Forces analysis, in this industry, the competitive is unattractive, however we can avoid
3 reckless it by recognizing what adapt and what protect policy. And reading SWOT analysis, entering China was
4 a correct decision from “Opportunities”, Levendary Café should use Partnering or Strategic Alliance, not
5 Greenfield Venture from “Weaknesses” and “Threats”. However, Levendary café had “Strengths”; the good
6 service, policies and products.
7
8 [How to Match Against China Market Needs]
9 These results suggest that Levendary café should make a new standard for China was based on US concepts.
10 Business in China will always get stuck if it's all the same as the US standards due to clear differences in eating
11 habits and business practices. Louis Chen has to keep this, however he will never lose speed to promote
12 China market. On the other words, it is a fusion of localization and standardization.
13
14
15 Q.3
16 [Hofstede’s Dimensions of Culture] (Refer to Appendix C)
17 Power Distance: China is high while America is low. The statistics show that inequality is acceptable in China;
18 on the contrary, Americans are more equal. In America, the PDI is low, which means people may not obey the
19 leaders’ orders.
20
21 Individualism: We can see China is focus on groups more than on individuals while America is a country,
22 which focus highly on individuals. Chinese people like working with groups while Americans like working by
23 person.
24
25 Masculinity: Both of China and America are at a high score on masculinity, it indicates that people in China
26 and America pay much attention on competition, achievement and success.
27
28 Uncertainty Avoidance: China scored lower on UAI than America. Meaning they accept ambiguous situations
29 and are not deterred by them. It may seem like China has a lot of rules and regulations in place to avoid
30 ambiguous or uncertain situations, however they are willing to bend the rules, as situations require it.
31
32 Long Term Orientation: On the long-term orientation dimension, China has a overwhelmingly higher score
33 than America. In China, people emphasis on plans. I think with a good plan, people can do things better.
34
35 Indulgence: China is a restrained society as low score of 24. In contrast to Indulgent societies, restrained
36 societies do not put much emphasis on leisure time and control the gratification of their desires.
37
38 On these analyses, we would suggest proposal in our business in China. From the point of view "Power

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1 Distance", it is important to create an organizational structure with clearly authorized leaders. In addition,
2 based on "Long Term Orientation", by creating a long-term plan, the will to work in a group to achieve the goal
3 works strongly ("Individualism"). It is important to set the goals and roles clarified. ("Uncertainty Avoidance")
4
5 Q.4
6 [Key Issues]
7 There were two key issues of Mia Foster facing.
8 A. Need to rebuild planning and tactics
9 B. Control over Chinese operation
10
11 [Recommendation]
12 (A-1) Get adequate information about the culture in China
13 It was the fact that the unsuccess as they unexpected in the Chinese market failed because of not only poor
14 management but also failure to conduct thorough and concise research. The culture differences between US
15 and China should be understood by the headquarters. Customers in China are different from those in US in
16 term of their habits and food preference.
17
18 (A-2) Recognizing Flexible Changes from the US concepts
19 We think a part of U.S concepts cannot adopt this market. Chen could not take U.S concepts easily into
20 Chinese market, and he killed the identify of Levendary and made a completely different restaurant to adapt to
21 the new culture. Levendary cafe needed to learn Denny's Case.
22 In China, Levendary Cafe should not be completely different from that of US yet the flexibility is a must to
23 survive. They should use a competitive advantage such as the fresh organic foods and the personalized
24 services to adapt into the Chinese culture. Levendary Cafe have to decide which parts of the concept to
25 localize and which parts to standardize, in addition, they have to make new standard of Chinese concept. For
26 instance, a part of menus should be localized and interiors and exteriors should be standardized of US
27 concepts. The OTL in US can help train employees on standards of China, by theheadquarters support.
28
29 (B-1) A proper communication with the management in China
30 Mia Foster needs to have a strong manager position “Global Operation Director” under her to oversee Chen's
31 work in detail. Chen has to conform to the company's planning and reporting processes and work in light of the
32 corporate strategy. So Mia Foster should try to make Chen appreciate that standardization is achievable and
33 relevant. Although Chen was disqualified as a project manager at that time, if it can be achieved, she should
34 not fire him since he has an ability of language and the connections in China.
35
36 (B-2) Standardize the reporting process to match US
37 Chen must conform to US GAAP. Any deviation is unacceptable. It would help the enterprise to conform to the
38 financial reporting standards in China hence avoiding confrontation with the law. Accounting aspect is strong

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1 and in line in the US and probably soon becoming profitable in China.

2
3 (B-3) Have clear goals common to the headquarters and Chen
4 It is seemed that Chen's objective did not match with the objective of the company. Chen's objective revolves
5 around minimization of costs, for instance, as not using US GAAP, in order to attain the break-even point within
6 a span of one year in the contract. On the other hand, company's objective was heavily dependent on attracting
7 a significant amount of customers. This contradiction in the execution of duties and responsibilities is
8 considered to be the core cause of the conflict between Chen and the managers in US. The headquarters
9 should drive the goal together with Chen.
10
11
12 [Conclusion]
13 The China operations had no strategy in place. Making a strategy is the most important and the first thing Mia
14 Foster does. They were lack of experiences and detailed investigation. Therefore, as we can see from the
15 culture analysis, we overlooked differences culture and institutional void in the two countries. (Refer to
16 Appendix D: CAGE Framework)
17 Levendary’s entry into the Chinese market has proven to be very difficult, the company has experienced some
18 valuable lessons on global growth. Also Levendary Café can use these knowledge and experiences to expand
19 into other foreign market, when they use the Chines market for comparison.
20 If the Mia Foster decides she definitely stick to operations consistent globally then they will not succeed out of
21 China therefore should not invest in expanding into China and concentrate on growing their business here in
22 US.
23
24
25 Appendix A [Porter’s Five Forces]

Threat of
substitute products
In city like C hina, there are m any different types of
restaurants are available offering different cuisines
that can be easily substituted.

Barganing power Competitive Rivarlry Barganing power

of customers within an industry of suppliers
C ustom ers in C hina m ay haggle over the price of There w ere several successful global com panies. Food inputs are relatively easy to com e by.
an item and thus reducing revenue for the restaurant. C onsidering a detailed segm ent, There is no problem to negotiate deals for the large purchases.
there are few com petitors.

Threat of
new Entrants
A lthough operating profits are low ,
m ultinational com panies are looking to expand.
26
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1 Appendix B [SWOT Analysis]

Strengths W eaknesses
their custom er oriented policies lack of oversea business experiences
the dom estic dem and Lack of hum an resources
the good sevice they provide N o strategy
excellent envirom ental N ew entrants
excellent interior designs C hen's goals do not coincide w ith the com pany's
the branding D ifference in accounting m ethod

O pportunities Threats
the dem ographic com position of the C hina culuture difference
the C hinese econm oy grow th the lack of inform ation about the C hinese food
the trend in the lifestyle of eating out N ew entrants
the slow dom estic business grow th in the U .S . S ubstitute products
P revailing com petition

3
4 [Appendix C Hofstede’s Dimensions of Culture]

5
6
7 [Appendix D CAGE Framework]
C ultural D istance A dm inistrative D istance G eographic D istance Econom ic D istance
The language and the culture There are difficulties of The difference in It has the largest m arket,
hard to adopt regardless expanding the business and infrastructure betw een urban higer incom ea and good sply
C hina variances. strict regulations. and suburbs is large. chains.
P opulation is concentrated in
8 urban areas.

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