Levendary Café: Analyzing the China Challenge - A Case Study

This case study analysis examines Levendary Café's expansion into the Chinese market, focusing on the challenges of standardization versus localization, the qualities of successful international managers like Louis Chen, and the strategies CEO Mia Foster could implement to build effective multinational teams. It also explores the role of global headquarters in managing foreign subsidiaries and the level of decision-making autonomy that should be granted. The analysis evaluates examples of foreign subsidiaries with direct global headquarters involvement versus those with more freedom, referencing the Levendary Café case to illustrate the complexities of international business management. Desklib provides access to similar case studies and solved assignments for students.

Levendary Café: The China challenge case study analysis
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Question 1-a: The advantages and disadvantages of standardization of operations of
multinational enterprises offering a brand in multiple international locations
Globalization has impacted the international business widely, as the business activities have
witnessed an acceleration across the national boundaries. As a result of globalization, the
development on a side of the globe affects another side at the same time (Shenkar, Luo & Chi
2015). The multinational organizations (MNEs) start their global business with the knowledge
advantage of the home country. Although, the knowledge of the home country provides different
advantages. The standardized components are usually associated with the home knowledge
activities. The subsidiaries might be operating in emerging markets with lower cost resources
and at the same time, they cooperate with subsidiaries located in knowledge-intensive markets
through standardization (Meyer, Mudambi & Narula 2011).
A Significant imbalance exists between the global and local literature of international business
(Cheng 2007). The homogeneity of the markets allows for standardized strategies.
Standardization is the process of applying the standards of the domestic market, including the
tangible and intangible attributes in the foreign markets. The standardization supporters assume
that the greater marketing incentives, communication technology and the increasing global
rivalry have resulted in standardization. They also assume that standardization has advantages
represented in the attractiveness of it as a global marketing strategy for many global companies.
According to Haron (2016), it results in economies of scale, uniform global image, knowledge
transfer and easier control, as follows:
 Economies of scale: Companies are allowed to obtain a competitive edge, business
significance over the nationally oriented competitors. The mass production of the
standardized product results in cost reduction and higher profits.
 Uniform global image: As product dynamics are constant, advertising and services are
introduced in the same way regardless of the market of destination, a uniform global
image is represented.
 Knowledge transfer: experience is likely to transfer from one international market to
another as a result of cooperation and integration of the marketing activities.
 Easier control: As the same product and marketing strategies are used across
international markets, standardization facilitates monitoring, coordination and control.
Quality standards are easier to be implemented, production methods and brand
awareness.
On the other side, the opponents of standardization argue that it leads to lower sales and
revenues when the product and its marketing strategy are inconsistent with the environment
of the foreign country. The disadvantages could be discussed according to Haron (2016), as
follows:
 Governmental and trade restrictions: the legal framework in the host country might
limit the product standardization through imposing a local tariff, promotional rules and
pricing.
 The marketing infrastructure: The nature of the marketing infrastructure differs
according to the level of economic development. This is likely to work against the
standardized strategy.
 The differences between the customers' interests, preferences and needs.
 The variations in the competitive conditions between the world countries.

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Question 2-a: The qualities of Louis Chen that led to success in the Chinese market
Louis Chen has the management qualifications that enabled him to earn the confidence of the
CEO Leventhal and the key stakeholders of Levendary Café. He is energetic and have an
entrepreneurial spirit that enabled him to establish a strong position in the market to franchise
outlets throughout the Chinese market. Chen has adopted the localization strategy to be able to
connect with the younger generation in China that represent the future. Also, he made many
changes in the menu in general and it was also differentiated among the several locations within
the Chinese market (Bartlett & Han 2013).
The national diversity is very important as it is related to the variation of skills due to different
nationalities. According to Watson et al. (1993), as cited in Haas & Nuesch (2012), the project
team with national diversity are likely to outperform the homogenous teams in the long run.
Chen could expand in 23 locations in Beijing and Shanghai. The first location in Pudong was
established according to Levendary's design standards and the menu as well, but the other
locations witnessed wide changes (Bartlett & Han 2013).
The multinational business requires a manager who can be the main responsible for setting the
goals of the team, directions, teamwork organization and support to fulfill the business goals
(Hajro 2010). Chen as an experienced manager could manage the team in China, he could
manage the business with full freedom before the Foster time as CEO.
Question 2- b: CEO Mia Foster’s ability to effectively train an international manager
The multinational teams could be evaluated in a negative way according to their nationality.
They might be considered as less job-related based on the social identity theory. The
development of the skills of the international manager determines the team performance.
Conflicts occur between the members of different subgroups that affect the decision-making
process in the main group and negatively affect the team outputs (Haas & Nuesch 2012; Kraus et
al. 2017). This is the case between Foster the CEO and Chen the manager of the Chinese
operations. As she has faced many difficulties in running the business in China due to Chen
resistance to change. They had completely difference views of the best way to run the business
(Bartlett & Han 2013).
In order to effectively train an international manager, Foster could act according to McDonnell et
al. (2010) and Cerimagic & Smith (2011), as follows:
 Continuously identify the main positions that contribute significantly in the business and
the areas of development.
 Training and development of a talent pool of the high-performing leaders to fill these
positions.
 Development of a differentiated human resource management to facilitate the learning
process and enhance the skills of the managers to be able to lead these positions.
 A preparation training including induction programs relevant to the foreign country
should be provided to the international manager. Mangers should consider the importance
of such training programs that should be dynamic and up to date.
 The quality of the provided training should be revised regularly and matched to the skills
required to fill the position of international managers.

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Question 2-c: Strategies that Mia Foster could implement to develop a highly effective
multinational team
The multinational teams share some characteristics and differ in others due to cultural diversity.
The multicultural teams are likely to bring different perspectives based on their culture with
respect to work procedures, decision making and norms. Most of the multicultural teams could
only meet virtually through computer-mediated communication tools rather than face to face
meetings due to the geographical distance. Foster needs to hire multicultural, highly skilled and
well-trained leaders with special characteristics to be able to influence the followers' attitudes
and master the global environment. This leader should be able to communicate with the entire
team and helps in creating shared meanings and trust among the team members (Lisak & Erez
2015). Also, providing the suitable training to the team members is likely to result in better
communication, enhanced learning and positive attitude towards colleagues and work (Mabey
2014). Moreover, the international business environment has to be dynamic and adaptive to
changes. Foster has to implement managerial strategies to ensure that conflict in the workplace is
prevented. The conflict is sourced from the nature of the operations of the international business
organizations. They are affected by the political, social and economic environment of the host
country. Their impact on the organization is mainly represented in the organizational culture, the
perception of wage, opposition against ethnicity and inequality (Zorlu & Hacıoglu 2012).

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Question 3-a: The role in which global headquarters should play in managing the
operations of a foreign subsidiary
The headquarters are units responsible for performing managerial and administrative tasks, they
are usually separated in location from the other production units of the organization. They are the
units that have the power of decision making, they decide the nature of the organization, the
breadth of geographical operations and the nature of the decisions they take. The separation of
headquarters from other facilities is symbolic. They exist in order to add value to the
organization beyond the value added by the other business units. It is responsible for achieving
the economies of scale and raising capital through the managerial functions. It also deals with
corporate governance issues concerning the rights of the shareholders and the legal obligations to
manage the organizational activities and the corporate finance. The headquarters are responsible
for attracting and pooling the various financial resources. Bloom & Grant (2011) argues that a
shared service model could be employed by the headquarters to provide services to other
organizational units, including human resources, finance and marketing. Moreover, as senior
executive work in a common location, communication becomes easier and taking collective
decisions is facilitated.
On contrary to these suggestions, the larger organizations might have multiple management
centers and multiple headquarters. The CEO and the direct reporters are usually based in one
location. The other headquarters vary in the functions they do, the size, geographic location and
the relations that take place among the headquarters (Bloom & Grant 2011).
The multinational corporations are described as a semi-autonomous of units responsible for
controlling different resources. The subsidiary-headquarters involve mixed motive relationships
as both of the two sides try to optimize their own interests and contribute to the organizational
efficiency as a whole at the same time. Accordingly, headquarters manage the organizational
resources of the subsidiary units and attract ideas and strategic insights from them in return. The
organizational strategic thinking is usually dominated by the thoughts of the subsidiaries. The
most important thing to the subsidiaries is to take independent strategic decisions and to gain
bargaining power over other players (Ambos & Birkinshaw 2010).

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Question 3-b: The level of decision-making autonomy the management of a foreign
subsidiary should be given in strategic and operational level functions
The headquarters allow the subsidiaries to make strategic choices in order to acquire specific
knowledge of the host country. Subsidiaries could negotiate the strategic choices with
limitations. It could not be ignored that the subsidiaries benefit from the headquarters’ attention.
The strategic configuration reflects the ability of the subsidiary to attract resources from the host
country that decides the degree of autonomy from the headquarters. The strategic configuration
results in the variations among the headquarters’. According to Ambos & Birkinshaw (2010), the
subsidiaries have three strategic characteristics. The first is autonomy that accounts for the
decision-making hierarchy. The second is the inter-unit power that reflects the degree of
relatedness of the subsidiary to the other units in the MNC. Third, the subsidiary initiatives and
roles to achieve the entrepreneurial actions. Although the three factors usually work together,
sometimes they work in contradictory directions that result in the strategic choice that
determinate the subsidiary role in the MNC. In fact, subsidiaries strive to get a high level of
strategic choice to perform in the local market.
Many researchers as Chandler (1991), Rugman and Verbeke (2001) and Bouquet and
Birkinshaw (2008) as cited in Ambos & Birkinshaw (2010) argued that there is a role of
"attention" that describes the relationship between the subsidiaries and the headquarters as the
latest would like to identify and apply new ideas. The case of Levendary Café reveals that
Foster's attention to the China subsidiary has resulted in changing the accounting system from
the Chinese accepted format in the U.S. Generally Accepted Accounting Principles (GAAP). The
system adopted by Chen has contradicted the café chain main strategy of the accounting system.
Chen also conducted the adaptation strategy to match the local market needs which resulted in
conflicting issues with the CEO that judged him as managing the subsidiary with complete
autonomy (Bartlett & Han 2013).

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Question 3-c: Examples and evaluation of the foreign subsidiary which was supported by
direct global headquarters involvement and a foreign subsidiary which had more freedom
and minimal global headquarters intervention.
An example of the direct global headquarters, involvement could be the increasing attention of
the global companies devoted to their operations in India and China as they are highly interested
in expanding their business in the emerging markets. The degree of involvement in the
subsidiary business has exceeded the follow up of financial investments to become a daily follow
up to the top management in these markets. Cisco has moved its headquarter to India as the
market is growing and becoming more important over the last years. Despite this, the
headquarter attention did not introduce opportunities to the subsidiaries as the standardized
strategy adopted by them were implemented on a global basis that mismatched the local market
needs (Bloom & Grant 2011; Werner 2002).
In contrast, YouTube video service is a subsidiary of Google, but its strategies and operations
have the full autonomy even though it is owned by Google (Casini 2014). Another example is
from China, as it has no law on franchising which allowed the foreign companies to establish
many outlets as the chain restaurants. They are either operated by the headquarters or sold to
master franchisers that usually comes from Taiwan (Schlevogt 2000). For the subsidiaries, this
decision represented a chance for more autonomy to be able to use their bargaining power. I
believe that the second approach of giving more autonomy to the subsidiaries is more beneficial
to the MNC as it allows for future expansions and presence in the local market by adapting the
local market requirements.

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