Outline of the Chosen International Organisation
Levendary Cafe is a fast food chain of restaurants that is headquartered in Denver, in the USA. The company operates in two countries, the USA and China.
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Levendary Cafe has a total of 3,500 restaurants. It has adopted a mixture of both standardisation and market adaptation strategies for its global business. In this strategy approach, the company’s subsidiaries in China have been adopting a unique business plan and focus to suit the market needs in some areas, while maintaining the standard practise of Levendary as is done in the USA.
As part of its business foundation, Levendary menu mainly deals in wholesome soups, salads, as well as sandwiches throughout its cafes in America. In addition, the company uses uniform furniture and cafe design for all its restaurants in the USA. While some locations in China emulate this design and plan, some have adopted different furniture design and planning for their cafes.
The global expansion into China was mainly informed by slowing domestic growth. Levendary had failed to register positive growth, particularly in smaller towns located in the South and Midwest within the USA. The choice of China was mooted as a result of the rush by other American fast food brands that were establishing their activities in the market. The company has opened 23 restaurant locations in China, with some directly owned by the company while others are franchises.
The Global Business Environment of the Company
Levendary operates in the fast foods industry. This industry entails a restricted food menu, which provides themselves to techniques of production. The industry players mainly specialise in such products as hamburger, chicken, pizza, as well as sandwiches (Bender, 1995).
The changing lifestyles throughout the world have compelled people to rely more on the convenience of fast foods than do the actual cooking on their own. Although the global financial crisis has affected virtually every business sector, the fast food industry has remained buoyant, posting faster growth and resulting in more fierce competition. Most consumer expenditure is precautious, particularly on food that is cheaper, rather than on luxury restaurants that are expensive (Mashhadi & Ijaz-Ur-Rehman, 2012).
According to Sipahi (2010), China has the world’s fifth largest consumption rate as far as the fast food industry is concerned. The market has been registering phenomenal growth within the sector, with its compounded growth rate annually exceeding 25%. The fast growing middle class in China, compounded with the country’s surging disposable income is particularly the main fuelling agent of the high growth rate in the sector.
The UK fast food stores have also been on the rise, particularly during the recession period. For instance, Subway, which is a UK fast-food chain, increased the number of its outlets by 25.9% to have a total of 734 restaurants in 2009. Another outlet, Domino’s, expanded by 19.8% to have the number of its restaurants rise to 260.
Eat, a fast food chain of restaurants, grew by 17.8% during the same period to expand the number of its outlets to 86 (Sipahi, 2010). With the positive growth within the UK fast food industry, a move by Levendary Cafe to establish its activities in the country would result in higher profitability and fast-paced growth for the company.
The fast food industry is particularly reliant on the franchising model as a strategy for growth and expansion of its business (Chaudhuri, Ghosh, & Spell, n.d.). Fast food restaurant brands, such as the McDonalds and KFC, have expanded throughout the world to serve the global fast food industry mainly by way of franchising.
The strategy entails independent business enterprises in foreign markets adopting the strategy of a fast food chain, including its brand names, restaurant design, as well as furniture style, and menu offerings. The franchisee pays royalties for using the brands’ structures and model, but runs the business as a private entity. Franchising helps businesses to gain entry easily into foreign markets, while also permeating for customisation in order to enhance business performance.
Competition within the global fast food industry has increased in intensity in the recent years. This is attributable to the removal of market barriers, as well as trade restrictions, thus making internationalisation smoother for the leading firms. McDonald’s is the world’s leading fast food chain.
The brand had 31,967 restaurants worldwide in 2008, with 56% of the restaurants being based in foreign markets while the remainder are in the USA. In China alone, McDonald’s had up to 1,021 restaurants, thus making it the company’s leading market in the world in 2008 (Christian & Gereffi, 2010).
Yum! Brands comprises of several smaller brands, including Pizza Hut, KFC, Long John Silver, Taco Bell, as well as A&W. The brand had in 2008 opened up 36,000 units in at least 110 countries. The KFC brand is the strongest under the flagship, with more than 10,327 units throughout the world.
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Mainland China had a total of 2,497 KFC units by 2008 within the country. Pizza Hut’s operation in India, for instance, straddles across 34 cities and with 120 functional stores. India is an important global fast food market basing on its huge population size and the fast rate for expansion (Christian & Gereffi, 2010).
The fast food industry has been plagued by health concerns that are associated with the overreliance of the food. Among the notable health conditions that have been on the increase as a result of the growth of the fast food industry include obesity (Currie et al. 2009). Experts warn that such foods as hamburgers, hot dogs, French fries, and pizza increase chances of becoming overweight.
The rise in obesity affects both children and adults. Other health conditions that are on the increase due to too much consumption of fast foods include type 2 diabetes (The McDougall Newsletter, 2004), cardiovascular disease, and hypertension (Alter & Eny, 2005).
These concerns have been of a great challenge to the fast food industry. Consumers have been watching their diets, with many people reducing their consumption of fast foods.
This, in turn, reduces the revenue to the industry, thus reducing profitability. In an attempt to counter the public outcry, fast food chains have been forced to rebrand themselves and portray themselves as a source of healthier food options. The shifts have led to significant changes within the value chain as fast food buyers continuously demand for healthier products (Yach et al., 2010).
Most governments have stepped in with regulatory conditions that require the fast foods restaurants to adhere. The most notable regulatory control has involved trans-fats, which is a common component in fast food products. The regulations imposed by the US government, for instance, also require that nutritional labels be put on such foods.
The leading chains, such as McDonald’s and KFC, have adopted new marketing campaigns that are aimed at highlighting their moves as far as the issue of nutritious meals is concerned. The Yum! Brands, for instance, indicates the calorie count on its menu board. KFC, on the other hand, has developed new healthier items on its menu, including the boneless as well as grilled chicken options, wraps, and salads (Christian & Gereffi, 2010).
Organisational Structure of Levendary Cafe
The firm has a somewhat flat organisational structure that includes a few number of command levels from the company’s chief executive officer to the lowest ranked workers. At the highest level of the firm, a chief executive officer heads Levendary cafe. The company is organised into five major divisions that include administration, franchising, concept, business development, and operations.
The organisational structure as adopted by Levendary is particularly important in enabling the company to achieve its objectives faster. The flat organisational structure makes communication within the organisation easier and faster, both upwards and downwards. There are few command levels between the CEO and the lowest ranked workers at the firm, thus implying that it is easier for individuals placed on both extremes to reach out to each other as concerns their duties.
However, there are also limitations that pertain to this structure. While it enhances easier communication and accomplishment of organisational objectives, it only seems to take into considerations the needs of the domestic operations of the company. The structure offers little support for the global operations of the company that currently involves operations in China.
For instance, the Chinese market has been placed as a department under operations, instead of being established as a stand-alone division. The Vice President in charge of China must be answerable directly to the CEO because this is a foreign market with unique challenges and characteristics to the company, compared to the domestic market.
The Impact of Culture on the Chosen Business’s Activities around the World
Religion is an important aspect of culture, which refers to shared beliefs as well as rituals closely concerned with the area of the sacred (Tu & Chih, 2011). The USA is Levendary cafe’s home country, and is a Christian dominated country. Thus, it is prudent to point out that the restaurant’s main ethical practices are intertwined closely with the Christian doctrines and teachings. This means even foods prepared by the restaurant are those that are considered as sacred by Christianity.
However, on its international business venture, Levendary does not only concentrate on predominant Christian countries. In China, for instance, folk religions, as well as Buddhism are widely practiced and followed. The teachings and beliefs of these religions widely vary from those of Christianity, thus making it a challenge for the company’s operations. While some foods may be considered as sacred in China, basing on the religious beliefs, they may not be considered as the same in the USA because of the variation in religious practices.
As such, Levendary’s traditional menu in the USA may not necessarily be adoptable in China. For instance, while it is an uncommon practice in America to have people feeding on dog meat, most Chinese feed on dogs and appreciate the meat. Failure by Americans to consider dog meat as food could mainly be because of the Christian predominance. Christianity does not consider dogs as food (Winn, 2009).
Language is also an important aspect of culture that is used as a means of communication (Kim & Mattila, n.d.). In relation to Levendary cafe, the most common language in its home country, the USA, is English. Thus, this implies that the basic culture that defines Levendary’s operations in business is borrowed heavily from the English culture.
However, China does not use English as the main medium of communication. Thus, Levendary’s operations in China may suffer from the variation in languages, given that the company uses a different language from what the market understands.
The company might be forced to train Chinese nationals to be able to understand English in order to make it possible to achieve great success in the market. Alternatively, Levendary might also be forced to train its American workers to be able to understand Chinese in order to run its venture in the foreign market.
Different markets in the world adopt varying marketing practices and philosophies that mainly draw from the practices of their respective governments (Kim & Mattila, n.d.). For instance, the developed countries have adopted global market integration as the best way of enhancing growth and development of their organisations.
Many companies in the USA, such as Levendary cafe, are focusing on expanding their operations by entering into foreign international markets, such as China. These companies are focusing on the market potentials that are inherent in these markets with a view of growing their revenues and the profit margins.
However, the same cannot be said of the traditional Chinese system. Until recently, the Chinese authorities have been locking foreign companies from exploiting their markets. The argument has often been to protect the domestic Chinese firms from unfair competition from foreign firms. Thus, foreign firms gaining entrance into the Chinese market have often been viewed with a negative attitude, that of offering unfair competition to their domestic companies. This can affect Levendary’s operations, leading to reduced sales and revenues.
Key Management Issues Faced by Levendary
Levendary Cafe has just witnessed change of guard at its top-level management, with Mia Foster taking over as the new CEO from Howard Leventhal. The change in management has also come with changing management styles that are adopted by the two CEOs. In particular, former CEO Leventhal was more of a laid back manager who allowed too much freedom for his subordinates.
His practise of management has in turn promoted a culture in the company where managers, particularly those at the regional offices, device their own strategies of doing business that does not match with the corporate standard practice. Leventhal’s laid-back style of management had seen him hand pick the regional manager in China, Louis Chen, to head the market.
On the other hand, the new CEO Mia Foster is a stricter manager who insists on every small detail. She is more concerned with Levendary’s operations in China to an extent that she orders for her Chief Franchise Officer, Peter Steele, to make a visit to China and inspect Levendary’s operations in the country.
Foster has also attempted on several occasions to have discussions with the China regional vice president, Louis Chen, in an attempt to coerce him into following the standard management procedure adopted by Levendary. A case in point involves concerns by Mia that the Chinese subsidiary did not send its reports on management and finance in Generally Accepted Accounting Principles (GAAP). Attempts by Mia to have the China division adapt GAAP are not being welcomed by the foreign division’s management.
The management is also grappling with choice of strategy that would effectively enable operations in China to achieve its objectives. Although operations in China had posted some promising results, Mia needed to settle on a strategy that would enhance expansion even further.
The choice of the regional manager best suited to take charge of the Chinese market was equally taking its toll on the new CEO. Levendary needed a manager who would have the appropriate responsibility of executing his roles perfectly while maintaining the close relations between the subsidiary and the Denver office. Chen had showed little capabilities in these areas and the company’s CEO had a strong feeling that Levendary could not continue depending on him going forward.
However, despite the strong feeling and need of finding an alternative replacement to Chen, there was the looming danger of Levendary’s operations slowing down significantly especially at the time of the transition. Mia realised well that Chen had mastered the operations of the Chinese market.
He had played a leading role in helping Levendary secure prime business locations in China, and helped a great deal with the few existing franchising deals. Doing away with him, while could be profitable in the long run, could see Levendary’s operations lose the little ground it had gained under Chen. Mia’s idea is to see the company record continuous growth and thus, he is faced with the challenging of striking a balance to ensure this happens.
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