Lan Kwai Fong: Expansion in China
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STEVE YANG AMY YIP LAU YAN YAN LAN KWAI FONG: EXPANSION IN CHINA Successful entrepreneurs aim high. They are not content simply to improve on what already exists, or to modify it. They try to create new and different values and new and different satisfactions, to convert a “material” into a “resource,” or to combine existing resources in a new and more productive configuration. - Peter Drucker [1] Entrepreneurship has long been a subject of study in the academia, as entrepreneurship is a mechanism to improve business efficiency [2], stimulate and generate economic growth [3] and a driving force behind the social development through product and process innovation [4]. The research has tried to addresses three main issues: how and when entrepreneurial opportunities come into existence; how and when some people can discover and exploit these opportunities and why not other people; and how entrepreneurial opportunities are exploited [5]. This paper uses the case study of Lan Kwai Fong to show how an entrepreneur has made his strategic decisions in the different situational contexts to succeed in a number of entrepreneurial adventures over the years. It will shed some lights on our understanding of the existence of entrepreneurial opportunities, entrepreneurs’ recognition of opportunities, and entrepreneurial strategy. To successfully do business in China, I must understand the culture of Chinese people and try to fit the attraction that LKF has in the culture of each city…. China is changing rapidly and we need to keep up the change. - Dr. Allan Zeman, Founder of Lai Kwai Fong Group1 When you thought about where to go for a drink, party or nightclubs in Hong Kong, you would think of Lan Kwai Fong (LKF), an L-shaped street between Wyndham Street and D’Aguilar Street near the central business district. It is a trademark of food and beverages, 1 Zeman, A. Interview by the authors (19 October 2015). To order this case, please contact Centennial College, c/o Case Research Centre, Centennial College, Wah Lam Path, Pokfulam, Hong Kong; website: http://cases.centennialcollege.hku.hk. © 2017 by Centennial College, an Independent College Established by HKU. No part of this copyrighted publication may be reproduced or transmitted, in whole or part, in any form or by any means, whether electronic, mechanical, photocopying, recording, web-based or otherwise, without the prior permission of Centennial College. This case was prepared for class discussion purposes and is not intended to demonstrate how business decisions or other processes are to be handled. Ref. 17/002 Page 1 LAN KWAI FONG: EXPANSION IN CHINA (Ref.: 17/002) and an entertainment and lifestyle icon for locals, expatriates, and tourists from around the globe. Dr. Allan Zeman, founder and often called the “father” of Lan Kwai Fong, first set foot in Hong Kong when he, at age 20, set up his fashion export business in the city. Frustrated with the lack of causal western restaurants to entertain his Western clients, he established California restaurant in a narrow street near Central in 1983. He then acquired other properties in the neighbourhood and expanded the area into a cluster of international bars and restaurants.2 Under Zeman’s management, the area was transformed from a notorious area for prostitution, flower stalls, and hawkers in the 1970s into a landmark of bars and restaurants, representing a unique Hong Kong lifestyle and nightlife in the past three decades. In 2013, the South China Morning Post named LKF as the most romantic place in Hong Kong.3 In 2014, CNN listed LKF as one of 10 things that Hong Kong did better than anywhere else.4 Armed with its success in Hong Kong, Lan Kwai Fong expanded into Mainland China. Chengdu, capital of Sichuan province, was its first site. LKF Chengdu started operations in 2010 and shortly afterwards, the group established other flagship projects in two Chinese cities: Wuxi and Shanghai.5 To grow in these Chinese cities, LKF had to overcome some unforeseeable challenges in the cultural, economy, and political areas. What factors played crucial roles when the LKF brand was established in China? What were its opportunities and challenges in these chosen cities? With all these challenges, how did this sophisticated brand deal with different partners and major competitors? Literature Review Entrepreneurship can be broadly defined as “an activity that involves the discovery, evaluation and exploitation of opportunities to introduce new goods and services, ways of organizing, markets, processes, and raw materials through organizing efforts that previously had not existed.”[6] Origin of Entrepreneurial Opportunities In the literature of entrepreneurship, it is often assumed the preexistence of entrepreneurial opportunities which was waiting for entrepreneurs to discover and reap the benefits [7]. This assumption is criticized on two grounds. First, it is doubted whether these opportunities are visible to potential entrepreneurs [8]. Second, some argue that these opportunities are not preexisting in the external world but are created endogenously through entrepreneurial agency [9]. Therefore, a realism argument states that opportunities are objectively existing but the discovery and actualization of these opportunities are very subjective and depend on entrepreneurs [10]. In relation to the origins of entrepreneurial opportunities, therefore, entrepreneurs may have one of three venturing processes [11]: First, entrepreneurial opportunities may always be out there for alert entrepreneurs to discover and exploit [12]. Second, entrepreneurs and social systems, including the sources of opportunities, can co-evolve during the venturing process, turning the business ideas into entrepreneurial opportunities [13]. Finally, new opportunities 2 Lo, A. (28 May 2015) “The Complete History of Lan Kwai Fong” Hong Kong Magazine, http://hk-magazine.com/article/insidehk/interviews/13532/complete-history-lan-kwai-fong (accessed 10 January 2016). 3 For details, see LKF’s website, http://www.lankwaifong.com/ (accessed 20 October 2015). 4 Wong, M.H. (4 January 2016) “Lan Kwai Fong: The Hottest Place to Party in the World?” The Cable News Network, http://edition.cnn.com/2016/01/03/travel/lan-kwai-fong-allan-zeman-interview/ (accessed 10 January 2016). 5 For details, see LKF’s website http://www.lkfgroup.com/index.php/about-us/history-founde/ (accessed 17 February 2016). Page 2 LAN KWAI FONG: EXPANSION IN CHINA (Ref.: 17/002) may emerge as a result of the changes in external environment, which may attract entrepreneurs’ attention [1]. Entrepreneurial Opportunity Recognition Research on entrepreneurial opportunities has changed from opportunities themselves to the processes that form and exploit them [14]. The identification of new business opportunities is a cognitive process through which entrepreneurs can find meaningful patterns in complex arrays of events or trends, a process in which cognitive frameworks acquires through experiences play a central role [15]. Experienced entrepreneurs have a clearer idea, richer in content and more aware of the factors and conditions related to actually starting and running a new venture than novice entrepreneurs [15]. As opportunity recognition is a necessary precursor to entrepreneurs’ efforts to evaluate available opportunities [16], executive entrepreneurs often have the ability of aligning the superficial features and structural relationships of technology and market [17]. Entrepreneurial Strategy Different from well-established companies, entrepreneurial companies are facing some unique challenges, including resource constraints, market creation and opportunity recognition, and seeking their own ways to cope [18]. They often have few resources when they start. So, entrepreneurs may form partnerships to acquire financial capital [19] and secure social status [20], or recombine available elements to use for new purposes [21]. Entrepreneurial companies may also face the challenges of having no existing market for their new products and services. This requires entrepreneurs to create the infrastructure [22] and cognitive understandings [23] to enable new markets to emerge and grow [18]. Additionally, entrepreneurial companies are operating in an environment full of uncertainties, which requires entrepreneurs to look for the most valuable opportunities by learning and adapting to ambiguous environments [18]. They may develop simple rules to pursue growth opportunities [24] or test the market with their new products and services. The Lan Kwai Fong Business Model LKF was originally set up to attract Western expatriates, but it gradually became a hotspot for the younger generation in Hong Kong who came back from overseas studies as well as for visitors.6 After Zeman established California restaurant, he continued to open other bars and restaurants and invited other operators to join. Instead of paying rent, Zeman bought properties and became the major landlord of the LKF area.7 He leased property to carefully selected operators and tenants to make the place vibrant. Together, the restaurants held seasonal events at Halloween, Christmas, and New Year’s Eve as well as routine cultural events such as Beer and Music Festivals and the LKF Carnival. This innovative model transformed an ordinary street to one of the most famous entertainment districts in Hong Kong. Zeman became the CEO of the Lan Kwai Fong Group (the Group) that operated under a conglomerate business model with members including LKF Properties, LKF Capital, and LKF