Problem
Several problems exists surrounding Levendary’s recent market entry into China, mainly revolving around a lack of communication between head office and Howard Leventhal’s hand-picked president of Levendary China, Louis Chen. The company seemed to give Chen a very «hands-off» approach, paying very little attention to his strategy and operations overseas while trying to maintain a level of standardization. Levendary is based on a rather vertically structured organizational chart that has made communications efforts problematic. The fact that the company does not have a separate international division made it crucial for the Denver office to have a close eye on its operations in China and to ensure that Chen was implementing company standards rather than taking many liberties and not developing a strategic plan.
Focusing exclusively on financial statements is not sufficient enough when accessing a new market. Chen has seemingly been redefining Levendary’s brand image based on market needs and sensing opportunities. Foster’s absence of previous international management experience can also be added to the problem, especially during a crucial period where the domestic market is being tapped out and the company is looking to expand internationally. Levendary has revealed poor planning and preparation for its international challenges, starting from its selection process of relying on Chen as their solely operator in an extremely complex market to the communication breakdown and a lack of support from head office. This has led to an increase of tension between Chen, Foster, and the
company’s headquarters.
Recommendation
The company must improve its communication by adjusting its organization to fit the needs of future international expansions. Adding a separate international division to its organizational chart (especially if it remains vertical) will help enhance its operations and strategic development overseas and assist the company keep better tabs on Levendary China. Training a team of Chinese accountants under GAAP principles must be implemented, while a quarterly review of Levendary China must be arranged rather than its existing one year operation statements. Foster must imply a mutual consensus between Chen and head office by conveying the needs of Levendary China and its operations. Setting up a corporate office in China should be followed shortly after.
Discussion
As the company’s domestic growth was slowing down, expanding overseas to an emerging market with an increasing GDP growth (14.5% over the past ten years), an affluent middle class, a large increase of women in the workforce, a growing lifestyle trend to eat out, and a population of 1.4 billion was effectively a clever decision from Levendary’s strategy team. However, with Howard Leventhal initiating the company’s international endeavors before moving on to new interests, made it a difficult task for current CEO Mia Foster who had no international experience. This wasn’t exactly a well-executed action as Leventhal had completely entrusted a single man to pursue the company’s operations in China based on the fact that Chen reminded him of an earlier version of himself; therefore dropping the idea of a joint venture.
Foster was forced to pick up from where Leventhal left off not fully understanding Chen’s vision or even meeting the president of Leventhal China in person. This created a major gap between domestic and international operations. In summary, the plan lacked organization within its international developments. Chen could have been more effective carrying out company strategies and standardization if he was given less freedom and was forced to communicate with head office more than once a week. It is no surprise that several locations carried alarming changes from Leclerc’s perspective. Levendary had fundamentally divided into two separate organizations with minimal integration as if Leventhal had unconsciously chosen two managers to operate two separate companies
The fact that head office, including Foster, was very hands-off during Levendary China’s initial phase complicated matters worse. Although Chen became a rotational intern in each of the major departments in Levendary’s Denver headquarters and stores over a six week period, Chen did not implement his mandate by replicating the business in China. Leventhal had given Chen complete leadership over Chinese operations, leading the expansion of the company on his own terms. Despite Chen having a network of contacts and a decade-long experience as a retail property developer in Shanghai and Beijing, the company barely took any tabs on Chen’s operations, which led Chen to disregard many elements that the company had established prior to his departure. The company’s vision to expand to China was wise, as well as their market entry in terms of discovering prime locations at good prices (23 locations all together) within a year courtesy of Chen; however Levendary’s brand image has been jeopardized due to its quick progression and insufficient communication between head office and Chen.
There are three different options Foster can choose from in regards to Chen:
1) Fire Chen as he did not standardize operations in China, which the company had initiated from head office This would be a poor decision as a great amount of investment had already been executed in terms of money, properties, and Chen’s network. Chen is also a very important asset to the company as he has a high level of understanding business in China.
2) Let Chen continue his current operations without the intervention of head office This would not be a suitable option for the company as it would see Levendary develop into a complete different company and create more of a headache from head office.
3) Negotiate with Chen by bridging the gap between company standards and current operations This is ideal as Chen has already established Levendary in the Chinese market. With a few brush ups in the menu, restaurant environment, personalized service, company philosophy, and better communication, Levendary can continue its business in current locations and create a win-win situation between Chen and head office. Mia Foster must integrate both domestic and international operations together. Applying option three and implementing an international division within the company’s organizational chart is recommended in order to ensure greater communication and effective operations in China.
Since the company’s head office is in Denver, an international division will guarantee a much needed bridge between headquarters and China, safeguarding standardization and establishing a recognized brand with consistency but still accommodating its customers to their regional preferences. In regards to Foster’s meeting with Chen, she needs to communicate with Chen and understand that she will have his support in terms of standardizing many elements to his operations. Acquiring a closer bond with the president of Levendary China will smoothen operations leading to company integration as a whole. Bridging the gap between headquarters and Chen will be a key success factor for the company’s future.
Quarter Year Action Plan:
May 25th
Meet with Chen and bridge the gap between him and head office. Ensure that Chen will be cooperative in regards to the company’s future in China. May 25th
Assist Chen in developing a supportive team for his needs in China June 7th
Start developing an international division with the company’s main headquarters (needs, strategies, etc.) June 12th
Start recruiting staff members based on the division’s need June 20th
Select positions within the international division (including its VP) June 25th
Integrate the international division into the organization
July 25th
Implement an official corporate office in China for Levendary China
