Chapter 1 The Hospitality Industry As an International Business

INTRODUCTION Hospitality is a very important component of the service industry in any country’s national economy. When a company decides to expand its operation into a foreign country, its overseas development is recognized as international business and its business revenues generated from overseas operations are described as a service export.

INTERNATIONAL BUSINESS International business is defined as business transactions taking place between two or more companies from different countries. These transactions can be in trade, manufacturing, investment, or services.

Service Exports and Imports Service exports and imports deal with the selling and buying of a business concept or format and the performance of management and services. The franchise of a quick-service restaurant concept or the management service performed by a hotel’s management contract company in a foreign country are examples of service exports.

SHIFT TOWARD SERVICE INDUSTRY Economists have classified nations as postindustrial if 50 percent or more of their gross domestic product (GDP) is accounted for by the service sector of the national economy. The service sectors in the developed countries have experienced dramatic increases in the past three decades. A large proportion of the workforce in these countries is engaged in providing services in such areas as transportation, tourism and hospitality, banking, insurance, advertising, education, retailing, wholesaling, mass communication, and government.

THE HOSPITALITY INDUSTRY AS A SERVICE EXPORT The international hospitality industry is often described as an invisible export because it does not normally involve the tangible shipment of goods from the place of production to the place of consumption. On the contrary, tourists travel a distance from their home to the destination to receive these services in person. Since there is no tangible shipment of merchandise, only the movement of people, the hospitality industry is thus described as an invisible export.

THE HOSPITALITY INDUSTRY AS A SERVICE EXPORT (Cont’d) The hospitality industry offers guests a memorable travel experience with a clean and comfortable room and a delicious meal. When guests check out of a hotel, they have nothing tangible to show to others to prove that they once stayed at that hotel.

THE HOSPITALITY INDUSTRY AS A SERVICE EXPORT (Cont’d) Labor intensiveness is a unique characteristic associated with the hospitality industry. This industry strives to provide a home away from home to international tourists. To provide effective personalized services, the industry relies on individual employees to perform various hospitality functions and services.

SERVICE INDUSTRY EARNINGS Service exports play a significant role in a nation’s balance of payments. A nation’s balance of payments summarizes all economic transactions between a country and the rest of world during a given period of time. The United States has a very large surplus in service exports, amounting to two-thirds of the merchandise trade deficit.

INTERNATIONAL TRAVEL AND HOSPITALITY The term “hospitality industry” is used to encompass all facets of the businesses that cater to travelers’ needs when they are away from home. The international tourism and hospitality industry is defined as the spatial movement of travelers, and the reception and entertainment of travelers away from their home countries.

Originating Market The originating market refers to the countries the international tourists come from. International travel is normally determined by three major factors: discretionary income, leisure time, and travel motivation.

International Transportation Speed and accessibility are two very distinct contributions that modern transportation has made to the rise of international travel and tourism. The jet passenger aircraft, the automobile, the cruise ship, and the high-speed train have redrawn the map for travel and tourism since World War Ⅱ.

Receiving Destinations Receiving destinations are the countries that receive and entertain international tourists. To accommodate tourists’ travel needs, receiving destinations provide them with attractions, lodging, food service facilities, and various other travel-related services.

MOTIVATIONS FOR GLOBAL EXPANSION When a hospitality company decides to expand its business into a foreign country, it is influenced by various motivations, including (1) sales expansion, (2) geographic diversification, (3) resource and labor acquisition, and (4) worldwide brand recognition. The following discussion explains how these motivations influence hospitality companies to develop overseas business.

Geographic Diversification The purpose of geographic diversification is to increase business in countries of economic upturn and hedge against economic downturns in other countries. For example, a hotel company develops three hotels in one country. If this country suffers from internal political unrest, these three hotels will all lose money, since it is dangerous to visit this destination.

Worldwide Brand Recognition Building worldwide brand recognition also motivates hospitality companies to expand operations overseas. Brand recognition and brand loyalty are important marketing strategies practiced in domestic operations.

Worldwide Brand Recognition (Cont’d) The development of brand-name hotels and restaurants can make the name and service known to the local people in a foreign country. As the local people travel to other countries, they may want to stay and eat at hotels and restaurants they know.

Worldwide Brand Recognition (Cont’d) For example, many U.S. brand-name hotels are now in Taiwan to serve both international tourists visiting Taiwan and the local Taiwanese. The Taiwanese now know the standards and quality of Hilton, Hyatt, Ramada, or McDonald’s. When the Taiwanese come to visit the United States, they may prefer to stay in the brand-name hotel they know best in Taiwan.