The China Challenge (Case Study Sample)

Levendary café: The China Challenge
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Institution
Levendary Café: The China Challenge
Introduction
In business, expansion is very important to increase sales margins and in turn profits. This however can be a big task if not managed properly in terms of the researching the proposed market. Challenges are bound to be encountered especially when diverse cultures are involved. Levendary café, a big restaurant chain in the US has been seeking to expand to China, which has a fast growing market guaranteed to provide good returns. The restaurant chain whose concepts are US based had to deal with some changes in the new market including strategic location, menu selection and store design. With the challenges expected, Levendary cafes’ CEO had to make visit to china to oversee the planning and the reporting processes addressing concerns at various levels. The paper seeks to address the challenges the company went through in its expansion process. These challenges are experienced at different dimensions such as environmentally, economically, demographically, culturally, ethically and financially.
Case summary
The restaurant and contract food service industry in the year 2010 was estimated to be worth $600 billion in the US with approximately 960,000 locations. With Levendary cafes’ multi-unit concept, the company managed to capture 30% of this market clearly demonstrating its strength. The dreams of expansion to China however are expected to face many challenges based on the concepts of operation, marketing, food, business development, administrative staff, and generally the underlying cultural practices. With a population of 1.4 billion people, Chinas’ annual GDP of 14.5% provides a good market for Levendary Café to develop (Alon, 2003). The rise in urban population from 36.2% in the year 2000 to 46.6% in the year 2009 together with the emergence of a strong middle class provides a great opportunity for business growth. With the operations of other restaurant chain companies like KFC and McDonalds in China, Levendary Café seeks to expand globally. KFC operates over 3,000 restaurants in 450 Cities in China becoming one of the most successful fast food chains owing its success to the joint venture partnership and local management operations. It is important to note that although the foreign owned fast food restaurants were getting customers, restaurants serving Asian foods attracted a larger percent of the industry share. This can be attributed to the locals’ preference of rice based dishes which are also cheaper. Levendary café faced some challenges which are normal in business but must be addressed urgently.
Environmental Analysis
China being a communist state is going through rapid economic and social changes which have created social costs. It is important when seeking expansion to analyze the environment as some of the changes may affect business severely. With the ambitious growth targets set by the government, China also has dreams of expanding internationally. This therefore creates a relatively volatile environment for doing business, which can discourage foreign investors. Over the years, pollution in china has been on the rise. Public health problems, forced resettlement, social unrest, and mass migration are some of the major problems due to the rise in environmental pollution (Alon, 2003). This prompted the country’s’ leadership to institute aggressive legislation to address the issue. These laws are likely to have two effects, one being that they may hinder economic growth since China is a highly industrialized country. The other effect is that it will control the rampant pollution in the country. Since the enactment of the stiffer environmental laws, Chinas double-digit growth rate has reduced to less than 8% in the year 2013. It is estimated that in the year 2008, the countrys’ environmental cost was 9% of Gross national income. This showing the magnitude of continued environmental pollution on national revenue.
Economic and Demographic Analysis
Over the years, Chinas’ economy has been growing tremendously at an average growth rate of 8% attributed to the growth in population and diversifications in the economy. However, there are still many economic challenges likely to face businesses in the foreseeable future. Though the current trends including the rise in urban population are likely to improve business revenue, the cost of operation is still a major obstacle. The human resource cost is one of them, involving the recruitment and selection of employees (Sinha, & Sinha, 2008). Companies like Levendary Café seeking to improve its revenues will be severely affected by this. This is because when businesses are still new, they make small profits or none but still pay high salaries. This poses a great challenge to businesses continuity and should be addressed accordingly. Increased competition from Chinese companies and other foreign owned companies has also increased over the years (Alon, 2003). 
With the presence of KFC who have more than 3,000 restaurants and McDonalds another US giant restaurant chain company, the competition for the food industry is stiff. With Joint ventures from Chinese Partners and incorporating local managers, these global restaurant chains have managed to stay profitable over the years adopting the local operations. KFC for instance have had to add a few items on their menu to appeal to the local Asian community including congee rice porridge and changes to the renowned seasoning on fried chicken. McDonald having entered China in 1992 has had 1,100 restaurants operating in 110 cities across China. Special local meals also had to be featured including China Mac laced with black pepper sauce, red bean ice cream, and pork burgers. Despite the low cost of similar food at Chinese restaurants, KFC and McDonalds still manages to attract Chinese youth even when charging a higher cost. Other competitors include Pizza Hut, which has managed to open 560 outlets at high-end locations still attracting a sizable amount of customers.
Administrative licensing is another challenge posing problems to doing business in china. This problem not only occurs not only in national government but also in the provincial and the municipal governments. This prevents prospective foreign investors from settling in China to do business. Although several administrative licensing laws have been put in place to oversee the licensing processes of businesses, unequal treatment is rampant mostly if companies are foreign (Sinha, & Sinha, 2008). Human resource management has also been a challenge in China a large size of the population being unskilled. Existing companies are struggling to retain employees raising their salaries, which affects the business negatively. The uneven implementation of laws and the general treatment has also been a great challenge for businesses in China. This has been promoted by the unequal treatment of foreign investors resulting to bias in terms of transparency regulations, standards, and conformity assessment.
Cultural differences Analysis
With china’s rapid growth, companies seeking to start up in the country have had to deal with so many cultural issues. The cultural differences between the US and China are huge especially on matters including law, language, delivery, information, and price competition. Concerning language, China uses the Chinese language while Americans use English, this can be a great challenge to business transaction therefore should be avoided by employing locals and enrolling American managers in Chinese language Classes to ease communication. It is estimated that two thirds of the total population live in rural areas, cultivating wheat and rice. Primarily, Chinese agriculture is communal and not individualistic like in the US. Therefore, the well-being of the community depends on the group harmony and cooperation. Even with the recent trend of rise in city dwellers, most of them were raised in rural areas regaining their agrarian values (Alon, 2003). This social structure therefore differs with the one in the US where individualism is practiced. Government control has also been an important cultural factor, which has show the presence of authority in every aspect of the Chinese culture. This is because it seeks to regulate the level of ownership of businesses in a bid to share resources.
Ethical Practices
For a very long time, China has had teachings influencing their social values and morality. China employs Confucianism ethical system, which believes in attaining personal salvation by doing the right thing, which is contrary to, believes in other countries such as the US. These believe are constructed on ethical codes of conduct that lays down the rules of relating with others. Chinese therefore believe that committing a wrong is not only morally wrong but also severely punishable in the community (Alon, 2003). The cultural practices demands that one needs to maintain high moral standards and ethical codes promoting loyalty to ones master. In other cultures for instance the US, different standards of morality are applied although there is emphasis on the practice of good ethical codes. This poses a great challenge to international businesses, as they have to conform to the social norms in the country. Since the China government does not encourage wholly owned businesses, Levendary café china should therefore enter into joint venture partnerships, which allow management to have a sizable control over the business, but at the same time incorporates local businesspersons.
Hofstede’s Cultural Dimension Analysis
According to Hofstede, cultural differences exist from country to country therefore cultural management is...