Hotel Management Lecture Notes Joana Mills Quarshie M Hotel Management Lecture Notes Joana Mills Quarshie M.Phil (Tourism Management) 5th December, 2017

Introduction

Introduction cont’d Introduction of Topic – Strategies for Entering International Markets One of the greatest challenges facing most hospitality businesses is how to successfully break into foreign markets (Mensah & Mensah, 2013). This is because such hospitality businesses may not be very conversant with the prevailing socio-economic factors in such countries. It is therefore risky for these businesses to start operating in foreign markets all by themselves. In spite of these challenges a number of multinational hospitality enterprises such as MacDonald's and Golden Tulip have grown internationally by adopting strategies such as franchising.

Introduction cont’d Order of Presentation Main Strategies for Entering Foreign Markets Wholly-Owned Subsidiaries Long-Term Leasing Joint Ventures Mergers and Acquisitions (M&A) Franchising Management Contract Strategic Alliance Consortia / Review /Conclusion

Strategies for Entering Foreign Markets WHOLLY-OWNED SUBSIDIARIES: With wholly-owned subsidiaries, a multinational hospitality firm invests directly into the host countries tourism industry by providing capital assets, manpower, technology and distribution channels. The parent company therefore, assumes full responsibility for the day-to-day operations of the overseas subsidiaries.

Strategies for Entering Foreign Markets cont’d WHOLLY-OWNED SUBSIDIARIES: The advantage of this strategy is that the parent company has full control over the operations of the subsidiary. The disadvantage of this mode is the high risk factor, since political and economic instability can collapse the business. A number of hospitality facilities in Ghana are wholly owned by private foreign entrepreneurs, especially Indians and Lebanese. For instance the Biriwa Beach Hotel at Cape Coast is entirely owned by a German family.

Strategies for Entering Foreign Markets cont’d Fig (1): A Rear View of Biriwa Beach Hotel, Cape Coast

Strategies for Entering Foreign Markets cont’d 2. LONG TERM LEASING: This strategy requires the multinational company to assume a certain period of financial obligation and control of a foreign property. The multinational company will usually enter into agreement only after careful consideration of the long-term viability of the business. This mode has become necessary due to the non-availability of good locations for hospitality businesses, especially in the city centre.

Strategies for Entering Foreign Markets cont’d LONG TERM LEASING: For example a restaurant or a hotel that wants to locate at the city centre may not be able to acquire a land in such a place. This strategy has been used by multinational enterprises such as Marriott and Hilton to obtain properties in very good locations all over the world. One disadvantage is that it places long term financial responsibility in terms of rent royalties that must be paid to the property owners.

Strategies for Entering Foreign Markets cont’d 3. JOINT VENTURES: This strategy allows multinational enterprises to form partnerships with one or more foreign enterprises in order to own and operate an international business. The multinational enterprise provides partial equity involvement in capital assets, personnel and technology in relation to its shareholding

Strategies for Entering Foreign Markets cont’d JOINT VENTURES: This is a common strategy used by multinational enterprises to enter Ghana’s accommodation sector. For example La Palm Royal Beach Hotel is a joint venture between Rexol and SSNIT. Rexol has 30% shares whilst SSNIT owns 70% (Mensah, 2009).

Strategies for Entering Foreign Markets cont’d Fig (2) La Palm Royal Beach Hotel

Strategies for Entering Foreign Markets cont’d 4. MERGER & ACQUISITIONS (M&A): This Strategy is also becoming increasingly popular among multinational enterprises to enter foreign markets. A merger is the legal combination of two or more companies, in which one of the companies survives and the other ceases to exist. It could be a combination of two multinationals or a multinational and a local company.

Strategies for Entering Foreign Markets cont’d MERGER & ACQUISITIONS (M&A): Acquisition involves a multinational enterprise providing a substantial amount of capital in order to procure an existing business. In Ghana, both Ambassador Hotel in Accra and City Hotel in Kumasi were state hotels which were acquired by Ghana Libya Arab Holding Corporation (GLAHCO) from the government of Ghana and converted into Golden Tulip Hotels.

Strategies for Entering Foreign Markets cont’d Fig (3): Golden Tulip, Kumasi

Activity (1) Discuss the need of franchising in the hospitality industry.

Strategies for Entering Foreign Markets cont’d 5. FRANCHISING This strategy is a agreement between the holder of a named brand of product (franchisor) and another entity (franchisee), giving the franchisee the rights to use and market the franchisor’s name. The franchisor provides services and conveys certain rights to the franchisee and the franchisee in turn has certain financial obligations to the franchisor.

Strategies for Entering Foreign Markets cont’d FRANCHISING: There are three main forms of franchising, namely Direct franchise agreement – involves extending a domestic or established foreign regional system into new markets with minimum adaptation. Corporate franchise agreement – is an agreement in which a franchisor grants exclusive rights to a party known as the “developer”. This gives the developer the right to open a number of franchise outlets within a territory.

Strategies for Entering Foreign Markets cont’d FRANCHISING: Master franchise agreement – is when a franchisor provides another party with the right to open franchise outlets. Some examples of franchise in Ghana are as follows: Golden Tulip Novotel KFC

Strategies for Entering Foreign Markets cont’d 6. Management contract With this strategy, a management company manages a facility on behalf of the owner and receives management fees in return. Management contract is a concept which emerged in the 1950s, as a way of separating ownership from operation. A number of American hotel companies such as Hilton International, Hyatt, Sheraton and Westin, Intercontinental have adopted management contract to expand overseas.

Strategies for Entering Foreign Markets cont’d 7. STRATEGIC ALLIANCE: This strategy is a marketing agreement between two or more businesses who decide to serve each other’s interests in the markets or locations where they operate. It enables businesses to share distribution channels, reservation systems as well as management and technical expertise.

Strategies for Entering Foreign Markets cont’d STRATEGIC ALLIANCE: Strategic alliance allows participating businesses to benefit from greater market coverage, economies of scale, more visible brands and cross marketing. Five main purposes of establishing strategic alliance according to Olsen et al. (1998) are as follows: For marketing and reservations systems as well as gaining geographical market share For obtaining new information and communications technology

Strategies for Entering Foreign Markets cont’d STRATEGIC ALLIANCE: 3. For distribution of products and cross marketing 4. For distribution of products and cross marketing through co-branded credit cards between banks and hospitality companies. 5. For networking among travel agencies, airlines, hotels, entertainment companies and car rentals.

Strategies for Entering Foreign Markets cont’d 8. CONSORTIA: A consortium is an independently owned unit with voluntary affiliates, seeking benefits from access to significantly greater resources than would be possible on their own (Housden, 1984). Consortia have been used by independent hotels to establish themselves in international markets. They are set up to undertake marketing activities for member hotels to help them increase their revenue

Strategies for Entering Foreign Markets cont’d CONSORTIA: However, they do not have absolute control over the price and products of their members. The size, design, structure and other characteristics of member hotels often differ significantly. Consortia make use of brand names, logos and brochures to build very strong brand images for members.

Strategies for Entering Foreign Markets cont’d CONSORTIA: There are four main types of consortia, namely: Full consortia - which provides not only marketing services but also human resource and purchasing Marketing consortia - provides promotional activities Reservation systems - like Utell, provide a central reservation system for members Referral consortia – promote affiliation of member hotels with airlines and reservations systems.

Strategies for Entering Foreign Markets cont’d CONSORTIA: Hotels which join international consortia do so in order to benefit from the international clientele base of such consortia and to reach customers they cannot reach individually. Some of the popular consortia around the world are Utell International, Leading Hotels of the World and Small Luxury Hotels of the World

Review Main Strategies for Entering Foreign Markets Wholly-Owned Subsidiaries Long-Term Leasing Joint Ventures Mergers and Acquisitions (M&) Franchising Management Contract Strategic Alliance Consortia

Conclusion Both hospitality and tourism businesses adopt a number of strategies for entering international markets. These strategies include long-term leasing, mergers and acquisitions, franchising, management contracts, strategic alliances, wholly-owned equity strategies and joint ventures.

Suggested Reading Mensah, I. (2009) Management of Tourism and Hospitality Services, University of Cape Coast, Woeli Publishing Services, Accra, Ghana. Mensah, I., & Mensah, R. (2013) 2ndEd. Management of Tourism and Hospitality Services, University of Cape Coast, Woeli Publishing Services, Accra, Ghana.

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