Internationalization in the Hospitality Industry Term Paper

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Internationalization Within the Hospitality Industry

The objective of this work is to choose one foreign market entry option for internalization within the hospitality industry and to critically evaluate this option in terms of its feasibility. This evaluation will be supported with a range of hospitality examples. For the purpose of this study an investigation will be made into entry of the foreign market in the mid-size hotel industry in the countries of India, Mexico and China with Mexico ultimately being the market chosen for entry into the hotel industry.

The hotel industry is rapidly becoming internationalized as reported in the work of Dunning and Kundu (1995) in the work entitled: "Internationalization of the Hotel Industry - Some New Findings from a Field Study" which reports an examination of the growing importance of the international hotel industry on the world economy. Scoviak states that the study reported focuses on shedding light "on the three most important questions pertaining to the foreign value added activities of multinational hotels, that is, the 'what', the 'where', and the 'how' of internationalization." (1995)

According to Dunning and Kundu each of the three categories of ownership, location and internalization advantages, certain factors were perceived by the senior executives of the parent hotel firm to be critical for deciding to set up an operation abroad." (1995) Dunning and Kundu believe that services growth mirrors demand and supply driven factors in combination such as the following examples:

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1) the growth of per capita output and high-income elasticity of demand for some consumer services in industrialized countries;

2) the increasing role of producer services in the value-added process;

3) the increasing tendency of firms in non-service sectors to externalize less productive service activities;

4) the growing importance of marketing, distribution and after sales maintenance and servicing activities to the value of a physical product;

Term Paper on Internationalization in the Hospitality Industry Assignment

6) the growth of finance, banking, legal, insurance, transport, and other support services;

7) the emergence of new intermediate markets for services; and 8) the liberalization of markets for several services, notably insurance and financial services. (Dunning and Kundu, 1995)

Resulting is: "...the growing internationalization of service firms. The number of multinational enterprises to enter into services activities in both developing and developed countries has risen quickly due to foreign direct investment favoring the "general demand and supply-led characteristics added to the useful modality of FDI for implementation of the production and transaction of services cross-border. (Dunning and Kundu, 1995; paraphrased) it wasn't until the late 1960s that the services sector came into its own in terms of the contribution of the services sector to the national income, productivity, employment generation, and balance of payments...and employment increased significantly.

The following figure shows the services GDP changes for Canada, West Germany, Japan, the United Kingdom and the United States at intervals beginning in 1960 and until 1992.

Share of services for Gross Domestic Product and Employment in Selected Developed Countries (in Percentages)

Country 1960

Canada

West Germany 38.7

Japan

U.K. 47.7

U.S.A. 58.3

Source: Dunning and Kundu (1995)

Country Employment for Five Developed Countries between 1980 and 1992

Country Employment

1990 1992

Canada

West Germany

Japan

U.K.

U.S.A.

Source: Dunning and Kundu (1995)

III. ENTRY POTENTIAL in the HOSPITALITY INDUSTRY

The Work of Scoviak entitled: "New Territory" (2008) published in the Hotels publication relates that demographics are changing and the result is an "opening up [of] the pipeline for hotel franchising." (2008) Scoviak relates that "this era of consumer centrism is rewriting the development rules." (2008) Scoviak relates that Canada and Mexico are "prime markets for franchise sales - especially in the case of Mexico as prime markets for franchise sales - especially in the case of Mexico, where an expanding middle class is looking for 'branded hotels with an authentic Mexican flavor." (2008)

Scoviak states that the "short-term, pent-up demand should drive growth numbers for franchisors' mid-scale and select-service brands." (2008) Further stated in this analysis is that investors have been receiving advice that "it is a good time to go internationally, particularly in Europe" and growth rates in the United States will be "flattering." (Scoviak, 2008)

India is stated to have its franchising regulations in place however land is expensive in India. China has not yet worked out its franchising model. Scoviak states a belief that "India and China offer tremendous opportunity for strong hotel brands. Scoviak states that customization of products in delivering to consumers, developers and owners will be "a deciding factor in who wins the race to Europe -- and around the world." (2008)

Scoviak interviewed Russell Kett, Managing Director HVS International, London, who stated: "Franchisors need to loosen the reins a little more. If not, they will not get the increased distribution they are seeking."(2008) David Pepper, senior vice president, franchise growth and performance, Choice Hotels International, says that franchisors must adapt their produce "to fit the culture. Not having food and beverage (F&B) operations is accepted in U.S. mid-market hotels, but it is expected in other cultures." (Scoviak, 2008) in fact, Pepper states that amenity customization to the country of location is "the cost of doing business. It is all about what mid-market means in that [specific] country." (Scoviak, 2008)

Successful competition in the hospitality industry will be dependent upon a successful customer-centric model. Scoviak reports a case study conducted through the method of focus groups and states findings that customer want high-speed Internet connections, just like that have a home, and that do not want an upcharge for the service They want showers instead of bathtubs in many markets. They want more cross-use space in the public areas to make it feel more communal."(2008)

IV. HOTEL INDUSTRY OUTLOOK: INDIA, CHINA, & MEXICO recent industry report states that the economy in India is booming rate of growth between 7.5 to 8.0% over the period of 2007-2007 and growing at 9.2% in the following quarter. The report also relates that multinational companies are "flocking to India for a piece of the action." The estimate provided by Merrill Lynch & Company in a report states that construction of real estate in both commercial and residential will rise from the amount of 2005 at $12 billion to over $50 billion by the year 2010. The report says should one require a hotel room while in India or China then one had better book ahead of time in order to ensure a reservation and in addition, one best be prepared to pay high dollar for the accommodation in India.

Great investments in the countries of China and India have been made toward construction of necessary infrastructure including highway systems, airports, and convention centers to accommodate the doubling of tourism in India and China. Additionally reported is that India needs 100,000 more hotel rooms at the cost of $17.4 billion and has over 300 hotel projects in progress at various stages of development increasing hotel capacity by 75,000 rooms and more than 50% of these projects are luxury hotel construction. High prices and low availability are predicted to be the standard for a while to come in the country of India's hotel industry. Laws in India have been lightened to encourage foreign investment, which will allow new housing, commercial products, hotels and hospitals to be 100% foreign direct investment. (Butler, 2006; paraphrased)

Starwood Capital Group plans to invest approximately $500 million in the hotel industry in India in order to enter its Crillon, "1" Hotels and Residences and Campanile brands into the market. Canada's Four Seasons Hotels and Resorts Scott Woroch, senior vice president states that "The timing is excellent" to enter into the hotel industry in India. Four Seasons will open a hotel in Mumbai in a partnership with Magnus Hotel group of India. Woroch states: "There is a growing demand with respect to international visits to key urban and resort destinations." (Butlet, 2006)

Additionally entering the hotel industry market in the country of India is the Sheraton Group. Entering into collaboration with the Indian Tobacco Company, the Sheraton Group will be running ten total luxury hotels countrywide in India and looks to expand further.

London-based firm, India Hospitality Corporation is reported to have raised approximately $100 million for building and acquisition of mid-level hotels in the country of India. The mid-level or non-luxury hotel is reported to have been "overlooked by major India players like Taj Hotels, Resorts and Palaces and Oberoi Groups. Local hotels have not been aggressive about growing." (Butler, 2006)

The Gupta Group, a company which run five-star hotels under the Hyatt brand has formed a venture with a real-estate company that is U.S.-based company (Hillwood) in developing three hotels.

Donald Trump, Jr. has also reportedly announced in a keynote address in Dubai to the international property investment and development event delegates that his sister ad brother along with himself have been instructed by their father, real estate legend Donald Trump with taking the American brand overseas." (Butler, 2006) India is being eyed by the three along with the Middle East.

The "2007 Lodging Industry Profile" states that records… [END OF PREVIEW] . . . READ MORE

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