ASCOTT GROUP IN TIANJIN, CHINA: A STUDY OF BUSINESS AND CULTURAL OBSTACLES

AYUSH AMATYA LIM SIEW LENG, THERESA TRULY MASNIARI SETIANA HUTAPEA CHONG SHENG JIAT, COREY

NANYANG BUSINESS SCHOOL NANYANG TECHNOLOGICAL UNIVERSITY 2009

ASCOTT GROUP IN TIANJIN, CHINA: A STUDY OF BUSINESS AND CULTURAL OBSTACLES

Submitted by:

Ayush Amatya Lim Siew Leng, Theresa Truly Masniari Setiana Hutapea Chong Sheng Jiat, Corey

Supervisor ASSOCIATE PROFESSOR OLEXANDER CHERNYSHENKO

MBA DISSERTATION THROUGH BUSINESS STUDY MISSION Submitted in partial fulfillment of the requirements for the degree of Master of Business Administration in the Nanyang Business School Nanyang Technological University (2009)

ACKNOWLEDGEMENTS

This dissertation reflects the help and effort from a great many people whom we are fortunate to have met. We would like to thank the Ascott Group and Somerset Tianjin for granting us this opportunity to conduct interviews with their staffs and a tour of their properties in Tianjin. We are also grateful for the insights and reviews of this dissertation by Associate Professor Olexander Chernyshenko, and the Nanyang MBA faculty members for successfully organizing the Business Study Mission to Tianjin, China.

CONTENTS

DESCRIPTION

PAGE NO.

1. 1.1 1.2 2. 2.1 2.2 2.3 3. 3.1 3.2 3.3 3.4 4. 4.1 4.2 4.3 5. 5.1 6. 7.

CHAPTER 1: INTRODUCTION Objective of Study Research Setting, Design and Empirical Context CHAPTER 2: BACKGROUND ON CHINA Cultural Universals Communication Cultural Values CHAPTER 3: THE ASCOTT GROUP: SECONDARY CASE ANALYSIS Background Competitors in China Anticipated Business & Cultural Challenges for Ascott Group in China Strategies CHAPTER 4: THE ASCOTT GROUP: PRIMARY CASE ANALYSIS Interview Strategy Findings Verification of Challenges & Strategies CHAPTER 5: LESSONS LEARNED AND RECOMMENDATIONS Lessons Learned & Recommendations REFERENCES APPENDICES Appendix A: BSM Proposal Appendix B: Search Assignment Appendix C: Interview Protocol & Transcripts Appendix D: BSM Trip Presentation Slides

3 4

7 17 18

28 37 38 45

50 52 57

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ABSTRACT

The immerse growth in Chinas economy provides the promise of profit for multinational companies to enter the Chinese market. No global enterprise would want to miss the chance to jump into this bandwagon to remain viable in their business. But will all foreign investors who enter China truly succeed in the highly complex cultural, regulatory and political environment? What are the operational issues or challenges that foreign investors will face on the ground in the culturally diverse Chinese provinces? All these questions perplex us and drive us to study into core Chinese cultural characteristics, as well as Chinese communicative traits and habits, and other business challenges in operating in China. We have chosen to research into the Ascott Group operations in Tianjin, China, particularly the Somerset Serviced Residence brand. As a result, we integrate our findings to propose a framework that conceptualizes the business and cultural challenges of service-based (hospitality) firms in entering and sustaining their business in Tianjin, China. This framework also centralizes service excellence and is achievable through corporate understanding of geographical-cultural differences, and how to align business goals with local talents by training and effectively utilizing them.

CHAPTER 1 INTRODUCTION

Just 120 kilometers southeast of Beijing, Tianjin is the third largest city in China after Shanghai and Beijing with an area of 11.9 thousand square kilometers and a population of 11.5 million. Because of its size and importance, Tianjin is granted provincial-level status and is one of the four special municipalities (apart from Beijing, Shanghai, and Chongqing) of China. Located within the Circum-Bohai economic circle, it is the largest port city in northern China (ranked as the worlds sixth largest port in 2006), making it an important distribution center for northern China. Tianjin is also famous for its

manufacturing industries, which set an example for other cities in China. For example, one of Chinas earliest domestic car manufacturers, Xiali, is located in Tianjin. More recently in March 2005, Chinas first private airline, Okay Airways launched its first flight in Tianjin. Looking forward, Tianjin will serve as the base of European aircraft maker, Airbus, which has plans to manufacture three hundred A320 aircraft on its assembly line in Tianjin by 2016. The Circum-Bohai economic circle has been undergoing rapid development, and in the 14 years from 1993 to 2007, accumulated foreign capital of up to USD 23.17 billion, and the worlds top 500 transnational corporations have made more than 70 investments in the district. More importantly, the Tianjin-Binhai New Area (located along the east coast of Tianjin) has been designated by the Chinese government to be a comprehensive systematic reform experimental area, with the aim of attracting and growing capital intensive industries into one growth area (China Daily, 6 August 2006). When the

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government plan to develop the area is fully implemented, it would rival Shenzhen Special Economic Zone developed in 1980s and Shanghai Pudong New Area developed in the 1990s. In terms of high skilled labour, the presence of 30 universities and about 140 research institutes in Tianjin, both local and foreign, serves as a valuable source of manpower for various industries (Dezan Shira & Associates). There are also many expatriates working in Tianjin on a long-term basis. The potential growth of the Information Technology (IT) and Electronics industries in this region also promises future influx of more expatriates. In particular, about 35,000 Koreans live and work in Tianjin in 2006, according to Mr. Yo-Han Park, Regional Manager of Korea Airlines1, and IT companies like Samsung, LG and Motorola have already set up large facilities there - the Motorola factory in Tianjin itself is the world's largest mobile phone manufacturing plant, involving a total investment of U.S. Dollars 3.6 billion and the factory hired more than 10,000 employees. With the on-going development of automobile, electronics and high-tech industries and the construction of energy bases and transportation channels, business opportunities are aplenty as tourism, cruise operations, marine parks, high technology firms, factories and energy firms converge into Tianjin and the Bohai industrial region. In light of such trends, many hospitality industry investors have been eyeing the business opportunities inherent in this area. As expatriates from multi-national corporations settle in Tianjin, its hospitality industry have grown to include well known names like Sheraton, Holiday Inn,

Mr. Yo-Han Park, Regional Manager of Korea Airlines. Available: http://www.expatriate-jin.com/022006/spotlight.htm

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Renaissance and Somerset, in addition to smaller local players, to cater for this customer segment. The Tianjin Binhai New Area is also designated as a test-bed for advanced international eco-city concepts and aims to transform into a prosperous, socially harmonious, new eco-Livable City. According to Mr. Li Ming Lin, Minister Counselor (Economic & Commercial) of the Embassy of the People's Republic of China in the Republic of Singapore, the Tianjin Municipal Government plans to make use of ecological habitat and cultural concepts, harmonious community planning, scientific management skills, advanced polymer for ecological living, environmental protection and energy-saving technologies, to create a natural and harmonious living environment. The Binhai New Areas enhanced image will help promote it as a tourist destination, and a preferred living environment for expatriates.

1.1

Objective of Study

The objective of this study seeks to identify the business and cultural challenges faced by a foreign hospitality company operating in Tianjin, China, and to conduct a general assessment of the companys business strategies in overcoming these challenges whilst achieving its business goals in the Chinese serviced residence industry. Our focus on culture serves to provide deeper insights into foreign organizations operating, or intending to operate, in Tianjin. We aim to study and analyze the cultural challenges faced by foreign companies sending managers to work in China, and hope to garner and detail the learning experiences from these leaders in mapping to Cultural Intelligence (CQ) concept and theories.

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Additionally, this report shall include an analysis of the impact of doing business in Tianjin by applying CQ concepts to management style, staff training, human capital management, sales strategy and service culture of case company. Finally, every company has its own "personality" or culture and is one of the key factors contributing to organizational success in the long run. The nationality of the management team will in effect extend their cultural style throughout the organization, affecting the way it is run. With the higher mobility of better educated Chinese managers, who are less bound to local job markets (Ahn et al., 1999), the management culture can be learnt by the locals, and as managers job-hop, the learnt culture be reapplied to another organization in China. Chang & Xu (2008) also noted that local Chinese firms, who do not compete directly with foreign firms in their own regional markets, can learn from foreign or other local firms by hiring managers and engineers from them. Specifically, we desire to identify whether a successful synergistic merging of foreign culture to local Chinese culture can contribute to a companys operational effectiveness and profitability in China.

1.2 1.2.1

Research Setting, Design and Empirical Context Research Setting

China provides an ideal setting for our research. Firstly, China has opened up her economy and the 2008 Olympic Games debut in Beijing formally sets China on the global stage. Secondly, Chinas tourism sector has been booming, especially with the surge in Foreign Direct Investments (FDI), many expatriates were sent to manage these investments in China. Thirdly, high value-add and R&D-intensive industries are major sector thrusts set by the Chinese government in certain provinces like Tianjin. Finally,

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China has many large heterogeneous regional markets, with keen competition among the provinces, which makes it worthwhile to observe the competition and cultural effects on its people along a geographic-market dimension. Our target company of the case study is the Ascott Group, particularly the Somerset Serviced Residence brand in China. The Groups 268-unit Somerset Youyi in Tianjin is located close to the Tianjin International Exhibition Centre, and this location is key to serving two zones: Tianjin Economic Technological Development zone and Xiqing Economic Development zone. The Group also has a remarkable serviced residence portfolio that spans 53 cities in 23 countries and being the market leader of the serviced residence business in China will be able to provide valuable business insights of the hospitality industry. Therefore, insights and results from this case study will be able to apply to other companies in the hospitality sector.

1.2.2

Research Design

Our research design is largely based on open-source information search in the Internet, followed by on-site interviews with key personnel from the Ascott Group. Our first approach was to interview Ascott Corporate Office in Singapore so to gain insights into the challenges faced by Ascott in entering and surviving in China. Thereafter, we

researched into secondary information about Ascott and Tianjin on the Internet. Finally, through our study trip to Tianjin, we will be able to observe, confirm or disconfirm our findings, and gather new insights.

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1.2.3

Empirical Context

The empirical context of this study involves in-depth interviews with Ascott Group personnel. Prior to the trip, we had interviewed two personnel from Ascott and will conduct face-to-face interviews with personnel from various departments from Somerset Serviced Residences in Tianjin. The pre-trip interviews include Mr. Darren Cher, GM, Somerset Serviced Residences, Tianjin and Ms. Chung Li Ren, Manager & Trainer, Ascott Singapore. Questions for Mr. Darren Cher focused on business development and preparation of staff for commencement of hospitality operations. In Tianjin, we interviewed the Residence

Manager, HR Manager, Guest Relations Manager and the Sales & Marketing Manager. Questions were asked to affirm the findings from the pre-trip interviews, and to obtain first-hand accounts of cultural challenges. Following the interviews, we conducted further observations at both Somerset Serviced Residences and at their competitors to affirm the quantitative findings.

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CHAPTER 2 BACKGROUND ON CHINA

2.1

Cultural Universals

Cultural universals are aspects that are present or are exhibited across different cultures worldwide despite the contextual and situational differences that each culture represents or experiences. This chapter elaborates the systems, practices and values that are wholly or mostly relevant throughout China, with a focus on Tianjin and our observations during the trip, and its relevance to the hospitality industry.

2.1.1

The Economic System

The economic reforms initiated by Deng Xiaoping in 1992 had lead to todays China becoming the worlds premier manufacturing base. Dengs definition of the Chinese economic system is widely known as socialism with Chinese characteristics, commonly defined to be socialism looking after the welfare of ordinary people (Gittings, 2005). The success of the Chinese economic reforms leads to its GDP (Purchasing Power Parity) amounting to US$ 7.8 trillion in 2008, ranked 2nd after the United States, and with a huge foreign reserves of US$ 1.95 trillion, making it one of the worlds fastest emerging economic power. China's per capita income has grown at an average annual rate of more than 8% over the last three decades, drastically reducing poverty but leads to a widening income disparity. From 1993 to 2001, China was the world's second-largest recipient of foreign direct investment (FDI) after the United States. Currently, China is one of the leading FDI recipients in the world, receiving almost US$ 80 billion in 2005, according to World Bank statistics.

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The Chinese government has several incentive schemes to encourage foreign direct investment in areas of Research & Development, Energy, Communication, Finance, Education and Vocational-Training. While there is no direct incentive scheme for the hospitality industry, the influx of foreign investment would bring growth opportunities that cater to the needs of employees of hospitality players. In fact, this is precisely Ascotts strategy, which according to Mr. Darren Cher Ascott has formed corporate partnerships with multi-national corporations to host their employees in cities around the world, including Tianjin under its Somerset Serviced Residence brand. The Central Committee of the Party (CCP) and the State Council identified the Tianjin Binhai New Area (), for further development succeeding the Shenzhen Special Economic Zone and Shanghai Pudong New Area. The Binhai New Area is designated for pilot reforms implementation and opens up measures in ten aspects including enterprise reform, science and technology, foreign-related economy, financial innovation, land management, management of urban and rural planning, resources conservation and environmental protection (TBH, 2008). After more than ten years of development and construction of Tianjin Binhai New Area has achieved remarkable results. GDP in 1993 increased from 112 billion Yuan to 236.4 billion Yuan in 2007, with an average annual increase of more than 20%; financial revenue increased from 23.6 billion Yuan to 47.5 billion Yuan; and export growth grew from 500 million U.S. dollars to 24.527 billion U.S. dollars. According to the Administrative Committee of Tianjin Binhai New Area (TBNA - ), the world's top 500 transnational corporations had made more than 70 investments in this area. With these rapid developments, many multi-national

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corporations have set up bases in the Tianjin city.

Expatriates including Japanese,

Koreans and Europeans have set up residences, bringing growth to the hospitality industry and business opportunities to the Ascott Group. However, in spite of the immense progress China has made in its economic sphere, during our tour of the Binhai New Area we observed that the economic growth has yet to uplift all Chinese citizens equally as well as other interesting disparities. One observation that struck us is the income disparity between Chinese locals or migrant workers and the advanced high-speed trains and clean, well-furnished train station located at Tianjin itself. Other disparities include the landscaping of Government-designated economic development zones, while the rest of the land remains barren and under-developed, and lastly there is a visible lack of vibrancy in the Binhai New Area compared to other cosmopolitan-status cities like Shanghai or Beijing. One can relate the landscaping to the Chinese culture of beautifying ones home area with gardens and ponds; whilst the lack of vibrancy is perhaps due to the building up phase of the economic zones and industrial value-chains have yet to set up bases here. Should China experience continued success of high GDP growth and global economy to recover for the next five to ten years, we can expect the Tianjin Binhai New Area to be a bustling site for targeted industries.

2.1.2

The Marriage and Family System

China primarily practices the monogamist and patrilineal marriage system, which is generally accepted and in line with most Asian countries. However, there are some parts of China that continue polygamy (i.e. some parts of Tibet) and/or matrilineal system.

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Marriage is of utmost important in the Chinese culture; it is traditionally considered the most basic social unit. Generally, the family system is still largely patrimonial, with the bride taking on the husbands surname upon marriage. This is, however, being challenged due to the comingof-age of Chinas one-child-policy. The one-child policy was created to restrict the number of children married urban couples can have to one, although it allows exemptions for several cases, including rural couples, ethnic minorities, and parents without any siblings themselves. Approximately 35.9% of China's population is still currently subject to the one-child restriction but enforcement varies by provincial governments. The Chinese government introduced the policy in 1979 to alleviate social, economic, and environmental problems. The one-child policy has perhaps created social consequences for the country. The traditional preference for male children resulted in gender disparity. According to a report by the State Population and Family Planning Commission, there will be 30 million more men than women in 2020, potentially leading to social instability (Gupta, 2005).

2.1.3

The Educational System

Chinas education system can be divided into three main categories, which comprises basic, higher, and adult education. The Compulsory Education Law of stipulates that each child have nine years of formal education. In China, the average year of schooling by adults over age 15 is 6.4 as at 2008 (United Nations Educational Scientific and Cultural Organization, 2008).

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After 1949, when the People's Republic of China was founded, Tianjin's education grew vigorously and formed an integrated educational system from elementary education to higher education progressively, including preschool education, special education, adult education and cadre education (become cadres to work in public capacity at the local level (Pepper, 2000). Now, Tianjin has more than 30 institutions of higher education and national research centers (Mr. Li Ming Lin, 2009; Denza Investment Guide). The increasingly educated workforce bodes well for multi-nationals operating or intending to operate in the Chinese hospitality industry. A well-trained workforce will provide

excellent service to expatriates and tourists, becoming the firms competitive advantage. Particularly relevant to hospitality industry is the existence of specialized hospitality schools that train students for the service industry. There are several such schools in Tianjin including (loosely translated to English): Civil Aviation College (), Tianjin University (), the Model School (), Institute for Tourism Studies (), College for Tourism Specialization (), and Tourism Vocational Studies ( ). However, such specialized schools may lead to

constricted exposure of hospitality staff, leading to lower service standards custom-built for China-only hospitality sector. As we will discuss in Chapter 4, the Chinese service staff displays high collectivism behavior unfortunately at the expense of guests or customers who often had to make an effort to gain their attention for service needs.

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2.1.4

The Social Control System (Political & Legal)

2.1.4.1 Political Factor Despite considerable liberalization of the economy, the China Communist Party (CCP) remains to be firmly in control. The Central Committee of the CCP is the final decisionmaker in major governing policies of China (Figure 2-1). China is distinctively different from Western societies because of the important and direct role that it plays in steering the nations economy. Firms doing business in China need to understand the political structure of China as they face government regulation and the Chinese Government controls a wide range of resources and capital. Therefore, political influences of officers remain strong, and companies have to build relationships or guanxi with these officers who have monopoly over supportive or restrictive regulatory powers.

FIGURE 2-1 Organization Structure of Central Communist Party (CCP)

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Existing myths about doing business in China is dispelled by Mr. Wee Hui Kan2, who says that it is not really true that one must pay your way in China. Depending on corporate policies, a firm can choose the corporate strategy in China, either by choosing the deals that do not need to pay or finding innovative methods to bypass paying through careful aligning the interests of the company to that of the local powers. In doing business with government officials, alignment of interests had thus expanded beyond monetary incentives. With the Chinese Government flushed with capital, it has becoming increasingly important to align companys business strategies with the reform or direction passed down by the CCP.

2.1.4.2 Legal Factor The vigorous growth of private businesses in China during the past two decades is partly the result of the country's consistent work to build a favorable legal environment for the non-public sector of the economy. Many of China's most important laws, such as the Constitution, Civil Code, Criminal Law, Corporation Law, Partnership Law as well the law on the promotion of small and medium-size businesses, have included clauses defining the development of private businesses. Further legal improvements for the country's private businesses have come in 2004. In March 2009, clauses called "the state encourages, supports and guides the private economy" and "legal private property is not to be encroached upon" were added into the Constitution.

Mr Wee Hui Kan, CEO, CapitaRetail (Beijing) Investment Consulting Co., Ltd

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Amended Bankruptcy and Administrative licensing laws gave China's State Owned Enterprises, private enterprises and foreign companies equal footing in the market economy. Government intervention to the market was reduced, giving private businesses a more equal and efficient market environment in which to operate. Although the legal environment for private businesses has been improved a lot, problems still exist. For example, some local regulations and policies for non-public sector of the economy are always changeable, posing difficulties to safeguard interests and rights of private businesses (People's Daily Online, 2 August 2004). Success in getting rapid legal justice is still considered to be remote for individuals and companies without extensive ties in the province. Chinas labor have traditional been seen as cheap, but new labor laws introduced in 2008 that granted new rights to workers, including open-ended work contracts and severance pay (New York Times, 1 January 2008). These new laws would result in higher costs to companies, potentially driving companies with low margins out of China in search of cheaper labor. Ascott would similarly be affected by the labor laws in Tianjin, and it would have to factor in the potential costs in its feasibilities and costs of operations. Ascott might have to consider termination of staff carefully and be forced to keep non-performing staff on the payroll.

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2.1.5

The Supernatural Belief System

Broadly, there are two cultural fundamentals that bring about the other aspects of Chinese cultural beliefs shaped by generations; namely the importance of face, Confucianism and fengshui. Concept of 'face' is roughly translated as 'honor', 'respect', or good reputation in the Chinese context. For the Chinese, it is critical that one avoids losing face or causing loss of face at all times. In order to maintain a sense of harmony, they will act with decorum at all times and will not do anything to cause someone else public embarrassment, even suppressing their own feelings for the betterment of the group. If one disagrees with another, rather than disagree publicly, the person will remain quiet. This gives face to the other person, while speaking up would make both parties lose face. Face saving and giving are critical aspects to take note of, as perceived lack of respect would make or break a deal (according to Mr. Wee Hui Kan). Confucianism is a system of principles, behaviors, and ethics that emphasize peoples obligations towards one another based upon their relationship. The basic tenets are based upon five different relationships, namely between: Ruler and subject, Husband and wife, Parents and children, Brothers and sisters, and lastly, Friend and friend. The Confucian mindset emphasizes duty, sincerity, loyalty, honor, filial piety, respect for age and seniority. Through maintaining harmonious relations as individuals, society itself becomes stable. Fengshui, or geomancy, may play a role in the structure and physical environment of buildings. For example, fengshui experts were consulted in the architectural design of the planned 117 building in Tianjin (Figure 2-2). Ascott, on the other hand, does not take

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fengshui into account in its construction and development of properties, nor in its operations in terms of room artifacts placement.

FIGURE 2-2 Tianjin 117 Building Development Site Map Reflects Geomancy Concepts in Mountain Building I-III, with Back Facing a Protective Barrier

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2.2

Communication

Understanding the concepts and subtleties of communication is important in order to be effective in any cross-cultural, or even intra-cultural, interaction. As its nature of being such a big country, China faces communication challenges on both the verbal as well as non-verbal front. The following section discusses the verbal language and non-verbal language use in China.

2.2.1

Verbal Language

From a verbal standpoint, the Chinese language comprises a family of closely-related but mutually incomprehensible languages. These languages are known variously as regional languages, dialects of Chinese or varieties of Chinese. Out of the total population, over 1.2 billion people speak one or more varieties of Chinese. China is a high context society, where choice of words are implicit, suggesting an indirect form of communication (Hall, 1977). Knowledge of language in the Chinese culture, where both verbal and non-verbal communications may convey multiple messages to people with similar cultural background, goes beyond knowing the language to understanding the meaning and implications behind the words, and such knowledge is essential in doing business in China. During our primary interviews, stark communication differences were also observed between Tianjin people who had international exposure and those who did not. Those with international exposure were less high context in their communication, and conducted business with a more strategic, international outlook. They were also able to understand and communicate with foreigners better. In comparison, Tianjin people who did not have

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international exposure conducted business with a silo, internally focused mentality, were more high context and cautious about revealing too much, and had frequent miscommunication when interacting with foreigners.

2.2.2

Non-Verbal Language

Generally, Chinese have a very indirect approach in their communication. Their nonverbal communication speaks volumes. Since the Chinese strive for harmony and are group dependent, they rely on facial expression, tone of voice and posture to tell them what someone feels. Frowning while someone is speaking is interpreted as a sign of disagreement. Therefore, most Chinese maintain an impassive expression when speaking. It is considered disrespectful to stare into another person's eyes. In crowded situations the Chinese avoid eye contact to give themselves privacy.

2.3 2.3.1

Cultural Values The Individual-Collective Dimension

According to the Geert Hofstede analysis, the Chinese rank lower than most Asian countries in the Individualism ranking, at 20 compared to an average of 24 (Figure 2-3). The low Individualism ranking is manifest in a close and committed member 'group', be that a family, extended family, or extended relationships. As such, the Chinese are a collective society with a need for group affiliation and fosters strong relationships where everyone takes responsibility for fellow members of their group. In doing business, it is also important to learn the Chinese way of thinking relating back to low Individualism, which shows their close loyalty to stay with groups such as

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their family, work, and team. Loyalty in a collectivist culture is paramount. Chinese business habits tend to stay with the same partners or suppliers to keep loyalty and not deteriorate relationships. So when doing business with others, it is important to establish a good strong partnership that has potential to last a long time, and is looked down upon if one frequently changes business partners (Geert Hofstedes Cultural Dimensions).

FIGURE 2-3 Geert Hofstede Cultural Dimensions: Individualism (IDV)

The Chineses collectivism and focus on building relationships are main components in the well known term guanxi. Guanxi is literally translated as connections. In the Chinese business world, it refers to the network of relationships among various parties who cooperate together in business. Guanxi is an important concept to understand if one

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is to function effectively in Chinese society, as the right guanxi makes all the difference in the success of conducting business in China. According to Mr. Wee Hui Kan, alignment of interests is more important than simply wining or dining with business partners and authorities. The Chinese feel obligated to do business with their friends first, hence, exchange of favors and a you scratch my back and I will scratch yours mentality would help in establishing the right guanxi.

2.3.2

The Equality-Hierarchy Dimension

The Chinese are highly hierarchical in nature and they identify themselves with a certain level in the society or organization (Figure 2-4). As such, they openly show and express an appropriate level of respect for those that ranked higher or perceived to be above them. An observation of the Chinese business formalities with respect to the equalityhierarchy dimension was made during a presentation given at the Tianjin Port Trade Zone. Referring to Figure 2-3-1, the speaker on the right of the photo (higher rank) had presented in Chinese, while the speaker on the left (lower rank) translated his speech into English. Later on, it became evident that both speakers were actually fluent English speakers as once in a while he would correct the translator if his statement was misinterpreted. However, due to the high power distance and perhaps also the increased confidence of speaking in mother tongue, the higher ranking officer preferred to present in Chinese, and leave the task of translation his subordinate although he was likely capable of doing so himself.

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FIGURE 2-3-1 Chinese Official (right) and Chinese Staff English Translator (left)

This value is probably derived from a strong Confucian mindset which emphasizes relationships across vertical positions (lowest to highest in scale and importance). To note, China's Power Distance (80) is significantly higher compared to the Asian Average (60) and the World Average (55). This is indicative of a high level of inequality of power and wealth within the Chinese society, which is accepted as their cultural heritage.

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FIGURE 2-4 Geert Hofstede Cultural Dimensions: Power Distance (PDI)

This power distance remains high whether it is within the company or in society. When doing business in China one must be aware of this large hierarchy gap which often makes it hard to move up on their corporate ladder as compared to other cultures. Chinese managers are expected to operate within clearly defined lines establishing their authority. Primary interviews also showed that power distance between government officials and companies is high. Officials do not tolerate feedback about bureaucracy nor perceived unfair treatment. Companies that are unwilling to accept certain norms would have to make the strategic decision of withdrawing from the market.

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2.3.3

The Tough-Tender Dimension

According to Figure 2-5, the tough-tender aspect of Chinese culture is geared more towards a masculine culture (66) as compared to the world in general (49). Dominant values of masculinity are that of assertiveness, money, and material possessions; while caring for others and quality of life is less stressed (Matthew Earnhardt).

FIGURE 2-5 Geert Hofstede Cultural Dimensions: Masculinity (MAS)

In masculine cultures such as China, the "heroic" manager is decisive, assertive, and aggressive; he makes decisions with confidence and directness and does not allow his subordinates to question authority. However, it is important to note that honor and saving face are extremely important concepts to Chinese business people, and a direct style may be viewed as insulting and can harm employee/manager relationships.

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2.3.4

The Uncertainty-Avoidance Dimension

In general Chinese can be categorized as b`eing moderate to low in terms of uncertaintyavoidance. Based on Figure 2-6, the Chinese scored evidently lower than those in the U.S., Asian and World Averages in uncertainty-avoidance. This relatively low index may have been linked with the harmonious interpersonal relationship of the Confucian teaching. Interestingly, there is an observable discrepancy between the UA scores of China and Hong Kong (30 and 28, respectively), Singapore (8), and Taiwan (69), despite all four countries representing the Chinese ethnicity. This gap is likely driven by differences in economic, political and legal factors implemented across the countries.

FIGURE 2-6 Geert Hofstede Cultural Dimensions: Uncertainty Avoidance (UAI)

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In doing business, this is portrayed in their seemingly informal and indirect approach to negotiations, wherein the Chinese seem to follow set rituals but not western rules and formalities. Thus, they appear to be more flexible in dealing with changes occurring inside and outside of business. This may in fact be more of a reflection of their pragmatism in approaching change and obstacles, For example, given that Chinese policy officially follows 5, 10, and 20 year plans, it is interesting that individual officials are often evaluated on yearly performance targets. Thus, one may find that official statistical figures on performance are often disregarded by foreign economists or even that the targets and the definition of success has changed over time. For example, a reflection of their uncertainty avoidance was observed during presentations with Chinese officers on Tianjin Binhai New Areas development plan and 20-year target. When asked how the government would ensure that the target was met, the officer replied that the target was not cast in stone, but would be revised along the way. Alternatively, the Chineses indirectness could also be due to attempts to highlight only the positive and hide the negative/weaknesses in their positions, or as a way to establish and maintain long-term business relationships that benefit both sides by means of greater tolerance for different thoughts and opinions. For example, when doing business, Chinese people say often say Maybe, or Ill think about it, or Well see to indicate negative replies instead of saying No directly. This creates uncertainty and ambiguity so as to avoid business conflicts (Dong & Lee, 2007).

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2.3.5

The Time Dimension

Figure 2-7 shows that China is a country with long-term orientation at the highestranking factor (118), which is higher than the Asian Average (88), and significantly more so than the World Average (45). This indicates that China as a society has a futurefocused perspective of time and an attitude of perseverance; that is, overcoming obstacles with time, if not with will and strength.

FIGURE 2-7 Geert Hofstede Cultural Dimensions: Long-Term Orientation (LTO)

This is in line with Chinas uncertainty avoidance score of 30, a medium score, which indicates flexibility in changing short term action plans while moving towards a long term goal. The concept of needing time to resolve issues is demonstrated in the many levels it takes for a business approval submission to reach the Central Committee of the

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Communist Party of China.

A submission would have to go through the Central

Committee Secretariat, the General Secretary, the Standing Committee of the Political Bureau and the Political Bureau before reaching the Central Committee.

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CHAPTER 3 THE ASCOTT GROUP: SECONDARY CASE ANALYSIS

3.1 3.1.1

Background Overview of The Ascott Group

The Ascott Group (known henceforth as Ascott or The Group) headquartered in Singapore is a key player in the business of international serviced residences. With over 25,000 operating serviced residence units in 66 cities of Asia Pacific, Europe and the Gulf region, as well as about 7,000 units currently under development, it is the largest serviced apartment owner-operator outside of the United States (Shankari, 2009). The Group operates under the wings of its parent company CapitaLand one of the largest listed real estate companies in Asia with core businesses in real estate, hospitality and real estate financial services in major cities of Asia Pacific, Europe and the Middle East (Ascott Annual Report, 2007). The Group established presence in China in 1998 when it completed Somerset Grand Shanghai, a multi-storey residential complex, and in 2001 with the Somerset Fortune Garden in Beijing making them the largest serviced residence chain in the Chinese capital. They also secured management contracts in 2004 to operate Somerset Chongrui serviced residence in Suzhou Industrial Park, and Citadines Jinqiao in Shanghai. Their cumulative investment in China for the last 10 years amounts to about US$ 409 million (RMB 3,272 million). In Tianjin specifically, The Group owns a 268-unit Somerset Youyi is located close to the Tianjin International Exhibition Centre, and the 169-unit Somerset Olympic Tower Service Residences located at the scenic Five Major Avenues () of Tianjin.

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Each of these residences is designed with the discerning executive and his family in mind, and furnished with the Ascott signature contemporary decor. The Group operates a portfolio of three brands Ascott, Somerset and Citadines. The Ascott is the luxury brand targeted at top executives; the Somerset is a contemporary brand for senior and upper management executives; while the Citadines brand is targeted at mid-level managers and executives without their families. Since the customer base of the Ascott brand are at the higher end, these service apartments aim to lavish business travelers with excellent service in an exclusive environment. For example, such properties often come with lobby bars and classy restaurants. The Somerset brand, on the other hand, more 'warm' and 'caring', and are designed to ideal for executives and their families who are looking for good work-life balances. Thus, some Somerset properties have playrooms for children and help organize special activities for their guests. The Citadines brand, being less up-market, is designed for 'individuals on the go' and therefore stays at Citadines tend to be no-frills. Instead, guests have to choose the services they want to suit their lifestyle and budget (Shankari, 2009).

3.1.2

Recent Performance of The Ascott Group

Ascott has not only been growing rapidly for the past four years, as reflected in its growth in revenue, but also grown increasingly profitable. However, there are economic signs that there may be trouble for the Group ahead. The last publicly available Ascott Groups financial statements were from 2007, in which the Groups revenues grew from S$ 200.2 million in 2003 to S$ 435.277 million in 2007 (Compound Annual Growth Rate of 17%). While Earnings before Interest Taxes Depreciation & Amortization (EBITDA) remained

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fairly constant at approximately 30% of revenues, Net Income also grew from 9% in 2003 to 41% in 2007. Similarly, Return on Equity (ROE) grew during this period from 1.5% to 15.8% (Ascott Annual Reports). Given that publicly available information does not reveal what has happened since then, we assumed that current financial health of the company may be somewhat reflected by its sister company, Ascott Residence Trust (ART). ART holds the first right of refusal to all Ascott Group property divestments. ART mirrors, to some extent, properties from Ascotts geographic and market segment portfolio. Therefore, we believe that ART financials and figures could be taken to be indicative of its sister company Ascotts performance (Figure 3-1).

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FIGURE 3-1 Various Properties in ARTs Portfolio, Including Somerset Tianjin OCBC Investment Research

ART has attained impressive growth recently, with revenues rising from S$ 155 million in 2007 to S$ 192 million in 2008, it is not expected to perform nearly as well in the near future, with revenues expected to drop by more than 10% in 2009 (Figure 3-2). In fact, in 2009 revenue is expected to decline in all of the countries it is currently operating in, China being no exception. In China alone, analysts predict that Revenue per Average Unit will decrease by almost 29% in 2009, before the decline slows down to 5%

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in 2010 (Figure 3-3). This is a significant challenge for ART, as bulk of its revenues originate outside of Singapore, with China alone forming 25% (Figure 3-4). Despite the drop in revenue, ART is expected to remain profitable, with net profits at levels achieved in 2007 as direct expenses involved in operating properties is held at a relatively stable fraction of revenue at 54%, despite drops in revenue generation (Figure 3-1). If we are correct in our judgment that ARTs performance is indicative of that of its sister company the Ascott Group, and then we can expect Ascott to have patchy performance until the global economy recovers and in turn allows Ascotts customers to retain its services.

FIGURE 3-2 (a) Historical and Forecasted Revenue of ART, DBS Analysts DBS Vickers Research

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(b) Historical and Forecasted Revenue of ART OCBC Investment Research

FIGURE 3-3 Revenue Per Average Unit Expected OCBC Investment Research

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FIGURE 3-4 Portfolio Breakdown of Ascott Properties by Asset and Revenue OCBC Investment Research

The drop in Chinese revenues as indicated by ART figures stems from two key factors: Firstly, the 2008 Olympics had artificially raised short-term demand beyond that justified by the long-term market. In its aftermath, increased competition as well as a fall in occupancy among Ascotts Beijing and Shanghai units has led to a significant drop in the room rates, thereby affecting revenues (Figure 3-5). Secondly, this situation had been made worse by the current economic crisis, which we anticipate, leads to a decrease in the size of Ascotts customer base (Figure 3-6).

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FIGURE 3-5 (a) Overall RevPAU Trend OCBC Investment Research

(b) Overall RevPAU Trend OCBC Investment Research

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FIGURE 3-6 Various Industries that Ascott Derives Revenue from OCBC Investment Research

Interestingly, Tianjin has been an exception with revenues remaining fairly stable despite drops in other Chinese cities elsewhere. We speculated that the most probable cause of this anomaly is due to Tianjin having only the mid-tier Somerset properties. The Somerset properties had the luxury of having a stable customer base of industrial managers and expatriates including their families, while Shanghai and Beijing hosts more short stay travelers. Moreover, the average length of stay at the Tianjin property is typically more than six months (OCBC Investment Reports, April 2009). The actual occupancy levels at the Ascott properties, however, were unclear from online sources. But quoting the Thai Press Reports dated March 2009, it stated that during normal business periods Ascott has been able to maintain approximately 90% occupancy

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throughout its properties. In addition, Ascott hopes to maintain at least 80% occupancy rate during the current downturn.

3.2

Competitors in China

Some of Ascotts competitors in the area include major hotel chains like Ritz Carlton, Sheraton, and Shangri-La. However, as these companies primarily function as hotels and their service apartments are often an augmentation to their core business, they do not hold a large block of the market share. More serious competitors include Oakwood, Marriot, and Frasers Hospitality, with 4000, 2500, and 2483 estimated units in the entire Asian region, respectively. Thus, Ascott with its 25,000 units in the Asian region, including China, is by far the largest among its peers (The Business Times, 3 April 2009). According to Mr. Darren Cher, Residence Manager of Ascott Tianjin, Ascotts Somerset property faces direct competition from a Sheraton offering 60 apartments on top of 300 hotel rooms, a residency TJ International, and a local brand called Kyuga, which was developed by Mitsubishi specifically to target Japanese clientele. Advantages of being so large and diversified across the region include a diversified client base. With reference to the Ascott Annual Report 2007, economies of scale allows Ascott to be present in cities with different industrial or commercial focuses, therefore, fluctuations in one sector may have lesser impact on company as a whole. Another advantage includes Ascotts ability to service the same corporate customer across international borders, giving its customers an ease in choice and familiarity in settings. Economies of scale provide Ascott an advantage in terms of cost as it allows Ascott to gain competitive advantages in terms of development and operating. For example, many

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of Ascotts residences are relatively standardized therefore costs involved in designing and furnishing the residences are reduced. Similarly, Ascotts large market share allows it to leverage its marketing spending and brand equity across many properties, spreading out overhead, as well as, diversify nation-specific risks. Despite competition from such heavy international players, Ascott has consistently garnered several awards, including Forbes China 2008 Chinas Best Serviced Apartments (CIMB-GK Research, January 2009). Disadvantages associated with economies of scale may include the added cost and difficulty the management incurs in ensuring that each Ascott property is consistent in the delivery and quality of its services. Factors that would make this increasingly difficult include the wide variety of nationality, employment, and other backgrounds their customers come from, as well as, unique characteristics of the host nations. For example, in some Islamic countries there may raise complications regarding the service provided by single female guests by conservative male employees.

3.3

Anticipated Business & Cultural Challenges for Ascott Group in China

In this paper, we propose three intersecting main elements to conceptualize the business and cultural challenges of service-based (hospitality) firms in entering and sustaining their business in Tianjin, China (see Figure 3-7), specifically: (a) Business Strategy, which refers to the firms positioning or value proposition to customers relative to their competitors; (b) Human Resource Management, which refers to the issues and challenges faced by the firm in recruiting, training and retaining local talents in China; and (c)

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Cultural Aspects, which refer to cultural issues faced by firm in host country (China) and the existence of synergistic or conflicting values due to cross-cultural differences.

FIGURE 3-7 Framework for Conceptualizing Business & Cultural Challenges in China

The intersecting sub-elements at the 2nd level of the framework are defined as: (a-b) Business Strategy and Human Resource Management refers to the challenges for Ascotts management to fully utilize local talent pool and develop them into leaders (Residence Managers) for their properties in the long term; (b-c) Human Resource Management and

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Cultural Aspects refers to challenges in providing tailor-made service training, specifically by country, provincial and city, due to salient cultural differences between these geographical levels, and focus on communication between staff and foreign guests; (c-a) Cultural Aspects and Business Strategy refers to alignment issues for corporate and management culture with Ascott properties and staffs in diverse locations, in achieving business goals set by management. At the core of our framework is achieving service excellence. Robert Johnston (2004) states that service excellence is more than simply exceeding expectations but requires organizations to do no more than they promise. In effectively addressing and managing these business, human resource and cultural elements, the firm essentially works towards achieving Service Excellence for the benefit of stakeholders and customers.

3.3.1

Revenue Growth Challenge

In terms of business challenges, we anticipate that Ascott faces rapidly declining revenues in Tianjin due to the ending of the Chinese Olympics and the current economic fallout, which have already hampered their other properties in the region. Post-2008 Olympics causes Ascott China serviced residences room rates to fall significantly as compared to the highs of 2008 as described in Chapter 3.1.3, and could continue to fall further should the current economic crisis hurt global consumers spending power. Specifically, since Ascotts Tianjin property is a Somerset mainly catering to Japanese and Korean managers and their families, Ascott faces a challenge of ensuring retention of as much of their client base as possible, as well as maintaining revenue levels. Journalists have noted that Japanese and Korean expatriates are being shipped back home from

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Shanghai due to the current economic crisis (Financial Times, February 2009). Therefore, as multinational companies are badly affected in the current crisis, it is foreseeable for them to cut costs by either cutting expatriate staff in Tianjin, or at least negotiating harder for discounts to current room rates. Another challenge stems from the difficulty in sustaining the performance of Ascotts China properties due to customer variability. Given that guests at Ascotts Chinese properties tend to remain for less than nine months while the industry norm is closer to a year, worsening or prolonged conditions elsewhere may result in knock-on efforts to Ascott due to financially-challenged customers or its own inability to provide enough resources to support its operations. As rental charges for high end apartments decline throughout China, low and mid-tier products of Ascott may be forced to discount to compete effectively; Ascotts higher tier Ascott brand properties may largely be insulated from this pressure due to their client base (Figure 3-8).

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FIGURE 3-8 Average Length of Stay of Ascott Guests: Except for Japan, Bulk of Ascotts Customer Base Likely Stay for Less than 1 Year OCBC Investment Research

On the other hand, current economic environment may also present Ascott with an opportunity to differentiate itself and maintain its occupancy levels by adding value to the customer experience. In essence, Ascott must seek ways to help its guests maintain a work-life balance, especially as Japanese companies trying to cut costs may choose to pull back families and similar non-essential personnel back to Japan and those who may increasingly find living in upper-tier service apartments untenable (Thai Press Reports, 2009).

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3.3.2

Human Resource Management Challenges

In terms of Human Resource Management, Ascott has a pre-established reputation for its staff exhibiting patience, professionalism, efficiency, and customer service excellence. Somerset Tianjin in particular is able to control staff attrition at the Olympic Towers despite the growth of competitor presence. We will discuss on Somerset Tianjins talent retention strategies in Chapter 4. From the perspective of China in totality, we anticipate that the Ascott Group is facing constant challenge in fighting for good human resources with the influx of competitors to meet serviced residence demand and other similar industrial or commercial cities of China. As discussed in the Worldwide Hospitality and Tourism Trend article (Zhang, 2004), a lack of qualified staff at both operational and managerial levels, a high staff turnover rate and a wide reality gap between academic experience and the real world experience have resulted in shortages for the hospitality industry.

3.3.3

Cultural Challenges

On Cultural challenges, the Ascott Group has an intrinsic advantage as an Asian Chinese institution in entering China. Language and cultural barriers are easiest to overcome with the presence of their bilingual management team in both the English and Mandarin language. However, there are still salient differences between Singapores management style and work culture compared to the Chinese. We anticipate engrained cross-cultural differences between expectations of the Singapore service and the level of service able to be provided by Tianjin locals, especially in the hospitality industry. These differences

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may be due to different upbringing, personal comfort zones, family culture, and predetermined mindset related to service. But, through our interviews with Ms. Chung Li Ren, Manager of Ascott Centre for Excellence, Ascott International Management, we learnt that the biggest challenge for human resource staff and managers in China is the language barrier. As Ascotts target customers are expatriates and foreigners, service staffs are required to address questions or queries posed by these customers using English. But local Chinese staffs find difficulties in communicating in English and this caused disparity in service standards or expectations. It also took much effort from the Singaporean managers to impart

differentiated customer service skills targeted at diverse cultures to the local staff. Li Ren stated an example that the front desk reception should not assign queen size bed to old Japanese couples staying with Ascott, emphasizing the need for staff to have knowledge on diverse cultures lest they unintentionally angered the guests. Xu XF (2007) also noted that inadequate training provided by a China-based company forms the basis for cross-cultural obstacles to effective communication with other staff with diverse cultures for expatriates sent overseas. Xus perspective can be interpreted vis--vis with other diverse cultures working in China. Pre-trip teleconference interviews with the Ascott Group staff had shown that, although hospitality-specific training were in place, cross-cultural training were not thoroughly emphasized within the organization and sometimes it was left to individual expatriate Residence Managers to adjust to their assigned citys local culture. This form of experiential training seems to work well for the Group thus far, given that there are intrinsic advantages of these Residence Managers with Chinese language as their mother tongue. However, we

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anticipate salient differences to surface during our ground observation of Ascott staffs in Tianjin.

3.3 3.3.1

Strategies Business Strategy

The Ascott Groups key Enter China strategy is to use primary Chinese cities as springboards into high-potential secondary cities and enhanced its China portfolio to 10,000 serviced residence units. It has built a strong local management team in China, operating within social sensitivities, and selling high international standard properties to an urban middle class. The company has currently an employees strength of 250 people in China. Particularly, the Ascott Group is able to re-create their corporate culture of human-orientation and leaderships in China, as well as pursuing the diversified strategy of localization. The greatest strength of the Group lies in its powerful and internationally experienced management team, and its unique positioning in the industry. As an Asian Chinese institution, one of the Ascott Groups core strength in entering China is that language and cultural barriers become easier to overcome with the presence of their bilingual management team. As an owner-operator, which essentially means that the firm owns, leases, and manages serviced residences, Ascotts revenue is derived from management fees comprising a percentage of gross operating revenue and a percentage of gross operating profit. As an investor, Ascott also earns yields on investments while simultaneously enjoying capital gains from the divestment of properties if sold at a profit.

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Ascotts mainly Singapore-sourced management also allows it to deliver consistent service excellence, as they have been trained or recruited to meet international standards. The Ascott Groups general strategy is to buy and sell properties to gain higheryielding assets and enter new markets, as well as pursuing robust expansion into large financial and commercial cities with a critical mass of business activities and expatriates. In such cities, Ascott clustered its properties so as to enjoy economies of scale in lowering developing and operating costs, as well as, to be able to employ a producttiering approach with its clients, giving an option of its global brands Ascott, Somerset and Citadines (Ascott Annual Report, 2007). The Ascott Group also cleverly devised their signature Ascott Residents Programs to help guests feel at ease and assimilate into the local lifestyle, allowing them to have a whole new travel experience minus the hassle. These self-enrichment programs and local activities bring guests up-close with each citys unique culture and practices. Therefore, Ascott must continue to gauge the different demands of its various tier customers and respond accordingly. One of the objectives of our Tianjin trip is to unravel the cultural thinking process in making the Ascott Resident Program successful.

3.4.2

Human Resource Strategies

According to ETN (Global Travel Industry News, 21 June 2008) and pre-trip interviews with Ascott staffs, the Ascott Group has already implemented two initiatives to maintain service standards throughout its serviced residences as follows: The Ascott Centre for Excellence (ACE) provides staff with training to equip them with knowledge, skills and best practices according to industry service standards.

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 The Product and Technical Services provides consultancy for pre-opening phase of new residences. ACE trains Ascotts 5,000 employees located in Asia Pacific, Europe and the Gulf region to support its global expansion. ACE is the only training center in Singapore to offer the Workforce Development Agencys (WDA) full range of Hotel and Accommodation Services programs. These initiatives would serve as a value-add on how Singapores management and operations culture is imbued within a China context in that they help top level staff continuously upgrade or retrain their skills to meet the latest standards in hotel operations management and subsequently pass on that knowledge to local directly. These initiatives also allow all of Ascotts regional human resource trainers to maintain similar standards and practices throughout all Ascott properties by giving them central location to pool their experience. . In addition to the training programs, Ascott also stresses the need for managers to have hands-on experience. Therefore, all managers, including those from outside the hospitality industry, are expected to either already know every operational job under their control or take an intensive crash course to do so. Furthermore, managers are encouraged to rotate among Ascotts various properties inside and outside of China to gain deeper insight on international standards.

3.4.3

Ascott Strategies to Address Cultural Challenges

In terms of cultural challenges, the greatest strength of the Group lies in its powerful and internationally experienced Singaporean Chinese management team (King, 2007). Therefore, in entering China, Ascott is able to overcome the language and cultural

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barriers with the presence of their bilingual management team with Mandarin as their mother tongue. What was culturally challenging to Ascott is how to manage local Chinese staff and how to train them using made-in-Singapore hospitality service training, all in Mandarin. Through our interviews with Ms. Chung Li Ren, Manager of Ascott Centre for Excellence, Ascott International Management, we learnt that Ascott sent Managers bound for overseas assignment on a special training program lasting three to six months called the Accelerated Residence Manager Program (ARMP). For example, Singaporeans like Mr. Darren Cher, Residence Manager of Ascott Tianjin underwent such a training stint prior to taking the post in China. On the other hand, Chinese Residence Managers, promoted or appointed in China, had to go through the Ascott Culture training and induction program at the Singapore HQ Office. They have to undergo cross-function office briefings and to thoroughly understand the policies and processes within the corporate office. Not taught in classroom settings, these trainings emphasize on the placement of the managerial staff and experiential exposure to the city-assigned culture. Questions were asked if these trainings involved detailed walkthrough on local city cultures and using certain Cultural Intelligence frameworks. Ascott appears to leave cultural adaptation of its managers to fate. Human resource staff of local offices will brief managers on local information, including policies and rules governing the area. Pre-trip interviews with Ascott staff in Singapore revealed their acknowledgement of the Chinese locals as being hardworking and relatively fast learners, coupled with an intrinsic drive to achieve in the workplace. They also suggested that the service levels of local Chinese staff in China are also well known for subservience to customers and high

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level of personalized service, accompanied by the Chinese saying customers (guests) are always right. As we will discuss in later chapters, this perception of Chinese service staffs being subservience and high level of personalized service is not true from our on ground findings. On an organization-wide level the Ascott Group has devised a signature Ascott Residents Programs to help guests feel at ease and assimilate into the local lifestyle, allowing them to have a whole new travel experience minus the hassle. These selfenrichment programs and local activities bring guests up-close with each citys unique culture and practices. In China, Ascott local offices have launched initiatives to cater to local cultures, such as the Heartware Program in China since 2006. Each residence in China has specially designed programs for residents to adapt to local city culture and environment. For example, the residence organize tours to public celebrations during Chinese New Year, dumpling festivals, and movie nights, specifically designed based on local flavor as well as on the basis of customers profile. In terms of catering to customers profile, Ascott will organize activities for residents with families to help children and spouses to adapt to the new living environment. Our trip to Somerset Tianjin will confirm or disconfirm these Ascott strategies to address the cultural challenges.

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CHAPTER 4 THE ASCOTT GROUP: PRIMARY CASE ANALYSIS

This chapter discusses ground observations and findings from face-to-face interviews obtained from our trip to Tianjin, with serviced residences, hotels, restaurants and Ascott Somerset Tianjin staffs.

4.1

Interview Strategy

Following the conceptualization framework in Chapter 3, namely Business Strategy, Human Resource Management and Cultural Aspects, we have designed our interview strategy to address issues pertaining to each element and the intersecting sub-elements. The following personnel from Somerset Serviced Residences were interviewed in Tianjin: the Residence Manager, HR Manager, Guest Relations Manager and the Sales & Marketing Manager.

Mr. Koh Yan Leng, Residence Manager. Mr. Koh signed up with Singapore Ascott and was sent to China under an expatriate package. He was previously with

Singapore Airlines and had worked in London, Madrid, Auckland, Beijing and Shanghai, prior to joining Ascott. Ms. Cindy Zhang, HR Manager, joined Somerset Olympic Towers in April 2008. A Tianjin native, she was in a pharmaceutical company in Hangzhou before joining Ascott. Ms. Maggie Deng, Sales Director, joined Somerset in Nov 2008. She worked in Hyatt Regency in Tianjin for 4 years as a secretary, and moved to Singapore and worked for 5 years in SingTel as a customer service officer and in telemarketing. She - 50 -

also took her MBA in Singapore, before returning to Tianjin and joined River Club Tianjin for 2 years before joining Somerset. She was born in Hubei and moved to Tianjin at 3 years old. Ms. Annie Lee, Guest Services Manager, joined Somerset in Sep 2008. She studied hotel management in Nankai University, and after graduation, had worked in Shenzhen and Shanghai for a Hong Kong company and MNC respectively. She was born in Tianjin, and returned to Tianjin and worked in Sheraton and Hilton before joining Somerset.

An analytical reader would have noticed that the Ascott Somerset staffs we interviewed at the newly established Somerset Youyi had joined the company for less than two years and their work experiences were brought from working at other Chinese provinces. These managers brought in new insights to Somerset, in terms of crosscultural perspectives and different work ethics from outside of Tianjin but perhaps lacking in terms of thinking inline with the Ascott Culture (Letters from the Heart, AIM China E-Newsletter). Questions were asked to affirm the findings from the pre-trip interviews for all the interviewees and to obtain first-hand accounts of cultural challenges on:

Customer profile and preferences, and their expectations Differentiation strategies, Tianjin staff profiles, human capital management and operational challenges;

Training for different levels of staff, and how it differs for expatriates and locals. Dynamics between expatriates and locals.

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We also customized questions for each interviewees specialized area of work. For example, we focused on sales and marketing strategies when interviewing Ms Maggie Deng, the Sales director. Following the interviews, we conducted observations at

Somerset Youyi Serviced Residence and at several competitors to observe and contrast the physical, visual, and service-related differences.

4.2

Findings

The interviews provided new insights into Somersets business and human capital management strategies will be discussed in the following sections.

4.2.1

Customers Profiles, Preferences & Their Expectations

In Somerset Olympic Towers, 85-90% of customers are Japanese, with 97% of them classified as long stays (6-12 months). In Somerset Youyi, 50% of customers are

Japanese with only 70% long stays, as a result of having more studio apartments in Somerset Youyi compared to the Olympic Towers. The Tianjin serviced residence market is predominantly Japanese as they are more able and willing to pay Somersets rates compared to the Korean group. Somersets focus on the Japanese market is intentional, following market research and sales leads. According to Somerset, the Japanese like to stay put in a familiar community and currently, expatriate packages have lowered in budget due to the economic downturn. Somerset lowered prices as a result of the situation and some Japanese guests have opted to do without certain facilities or amenities. Youyis greater units of studio apartments

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are timely to current market conditions and appealed to expatriates with smaller accommodation budgets. Somerset is starting to target the Koreans in Tianjin, who thus far have preferred to lease non-service apartments and they are more budget conscious, preferring cheaper or no facilities. Still, they are a bigger market than the Japanese in terms of numbers.

4.2.2

Differentiation Strategies

Somersets differentiation strategy is to provide personalized service that exceeds customers expectations. The Ascott Heartware program is a customer service program that gives guests what they want, with the objective of making them feel at home. On top of the Ascott Standard Operating Procedures (SOPs), each branch can go over and above SOPs to achieve service excellence and deliver surprises for the guests. This dont give no for an answer approach is standardized across Ascott. Furthermore, Ascott has international conferences to share such best practices and experiences across different Ascott branches. For longer-term guests who stay more than 6 months, Somerset has a special check-in process by which check-in is not done upon the guest's arrival. Instead, guests are shown directly to the room, and the Residence Manager, the housekeeper and security guard will be there to greet the guest and introduce themselves. The Guest Services Manager will then bring the guest around the surroundings, including nearby facilities, to orientate them. After one week of stay, guests are invited to special activities specially organized as a form of celebration.

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Somerset also conducts activities for wives of expatriates, provides weekly shuttle buses to send the wives for shopping and to golf on weekends. Somerset Olympic Towers has a childcare centre, and Somerset sends the children to international schools. Somerset also celebrates the guests' native festivals. According to ,Ms. Annie Lee, Guest Services Manager, training is conducted on how to provide warm customized service e.g. celebrating birthdays, remembering what guests shared informally. This particular aspect differs from the way traditional hotels provide customized service and is a differentiation key to the Somerset brand in the serviced residence market. In order to move ahead or to keep abreast with competition in Tianjin, Ascott seeks to evolve in the following areas: New products and services. Building the right culture. Getting the right people to train staff. Refine marketing and sales strategy.

4.2.3

Training for Different Staff Levels in Somerset

According to Mr. Koh Yan Leng, Somerset has put in place a train-the-trainers scheme, whereby a Singaporean trainer is flown into China to train the Shanghai office's trainers, who in turn train the staffs in Beijing, Tianjin and Dalian. Basic orientation is conducted for new staff members. Specialized training is also provided for functional areas, and Somerset also has monthly training on various areas on top of daily operational briefings. Training materials are developed locally in Tianjin itself, with periodical training guidelines communicated down from the headquarters in Singapore. Lastly, Somerset

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has a job rotation program for staff to work in different countries. In terms of difference in training for expatriates and locals, we have observed no disparity.

4.2.4

Tianjin Staff Profiles, Human Capital & Operational Challenges

With regards to staffing, 99% of Somerset's managers are recruited from within the industry as Somerset prefers recruiting people with relevant and transferable experience. While some management level employees come from various recruitment avenues such as other service-oriented companies, front level staffs are typically recruited from hospitality schools. Tianjin staffs in particular are typically contented and turnover is low compared to other China cities like Shanghai, Beijing and Shenzhen. provided for the staffs because most of them are locals. In Tianjin, dorms are not In comparison of Tianjin

workers with other Chinese provinces, the locals typically do not wish or like to work overtime and are generally lazy, according to on ground sources. Tianjin staff also faced communication problems in terms of language which resulted in few locals venturing for job opportunities abroad. Most staffs in Somerset Olympic Towers have worked for more than seven years. As culturally Tianjin people tend to miss home with family pressures to settle down in Tianjin, the attraction of serviced residence in attracting and retaining staffs is due to the easy contentment of the local people a stable job environment prevalent in serviced residences due to longer-stay customer profiles attracted the locals. Moreover, interaction and guest-staff relationships are generally longer-lasting as compared to normal hotel guests which attracted certain staffs.

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In terms of Tianjin human capital challenges, we noticed that at both Somerset Youyi and Sheraton Tianjin, the front desk receptionist did not greet nor take the initiative to welcome visitors who came in looking for assistance. Observably as well in government offices and restaurants, female receptionists also tended to huddle behind desks near the entrance (see Figure 4-2). To some extent, these behaviors appear to reflect the reluctance to do beyond what they have been assigned, coupled with a sense of power distance as well as the Chinese high collectivism and need for group affiliation. This culture is an operational as well as a mindset challenge for Somerset Tianjin and China in general to be able to adopt a more service-oriented attitude that is not hindered by the ways and approaches they are accustomed to. This is in direct contradiction to the training

provided by companies in the service industry (for example Ascott training), versus the actual service standards provided by the local staffs, which is capped by the prevalent local Tianjin culture, leading to expected service behavior not following suit. FIGURE 4-2 Chinese Staffs Displaying High Collectivism and Group Affiliation

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4.2.5

Dynamics between Expatriates & Locals

While nationality did not pose major issues in day-to-day operations, in terms of building business relationships, the Chinese are more aware of the need to build relationships with the government. Ms Maggie Deng said that the Chinese drink to do business; it is more than just the act of dining and drinking. She cited an example of Mr. Koh, the

Residence Manager, having to call upon the ex-owner of Somerset Olympic Towers, a Hong Kong local who had good relationships with local government officers. Culturally, Singaporeans do tend to ignore the need to build relationships with the Chinese government.

4.3 4.3.1

Verification of Challenges & Strategies Verification of Business Challenges & Strategies

In verifying the business challenges of Ascott Somerset Tianjin, the Residence Manager confirmed that evolving value proposition and maintaining service excellence are key business focus of the Ascott management. In fact, increasing competitive pressures has recently driven Somerset Tianjin (Youyi) to venture out of their comfort zone and come into greater direct competition with hotels due to the fact that with the new property they have excessive studio room capacity. Still, Somerset is well placed to compete due to its competitive room rates (usually cheaper than comparative hotel rates) and favorable location at the bank street of Tianjin. Ascott, in response to competition, intends to extend and explore other creative ways to surprise and please their residents with special events or rewards. For example, the Ascott Link Club is a privileged membership program that rewards corporate clients who make frequent reservations at their serviced

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residences around the world. In Somerset Tianjin specifically, they offer free beers for residents in their club lounge during certain timing in the evenings. In terms of new strategies, Somerset Tianjin has also shifted way they do business in response to tougher business climate in China through a major change in their target market segments and several other promotions to gain market share. Specifically, the management is looking at expanding their target market segment by selling to other international clientele like the Koreans (LG, Samsung) and Europeans (Airbus and industry value chain), other than their traditionally targeted Japanese customers. This new business strategy is within our expectation as we did expect business conditions to have deteriorated in China in our pre-trip analysis (see section 3.3.1). These new customer groups present new challenges for Somerset because they are culturally more frugal and tend to prefer independent private living rather than opting for serviced residence. We also verified that the Ascott Resident Program is highly attuned to guests requirements. Somerset Guest Relations staff attempt to make new guests feel right at home by offering customized services such as conducting activities for wives of expatriate guests, providing weekly shuttle buses to send the wives for shopping, or to play golf on weekends. In addition, Ascott has a childcare centre in Somerset Olympic Towers and they do help send children of guests to international schools by chartered buses. In fact, if asked by the guest, Somerset would even help them fulfill local government requirements like acquiring residency permits. Unexpectedly, Ascott has a decentralized operational style such that managers are given responsibility for Profit and Loss (P&L) in their properties. In this management

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model, Ascott managers have executive power on major decisions at the local level except investment decisions. Since P&L responsibilities of each property lies entirely with the Residence Manager, they will attempt to maximize profits by creating new marketing programs and alliances with local travel agents or real estate groups.

4.3.2

Verification of Human Resource Management Challenges & Strategies

We have discussed in Chapter 3 that the hospitality industry faces the challenge of recruitment and retention. This challenge is exacerbated by the fact that students who enroll in hospitality schools, which are considered second-tier universities, are often not the crme of the crop, and therefore, might prove to be less adept in terms of communication and provision of excellent service to an international clientele. Somerset Tianjin in particular is able to control staff attrition at the Olympic Towers despite the growth of competitor presence. This is partly due to Somersets positioning as a family-oriented, perceived by Tianjin employees that serviced residence has a higher profit margin than hotels and therefore longer employment term or job for life, as well as a different guest-staff relationship structure that attracts hospitality talents. Since Tianjin locals are traditionally more family-oriented compared to people from other parts of China, they would naturally find it attractive to work for Ascott Somerset. In terms of training, it is conducted by the HR department on how to provide warm customized service, for example, celebrating birthdays and by providing the personal touch of remembering guests sharing of their good performance during work and congratulating them.

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With regards to Ascotts information dissemination and sharing strategy, amongst leaders, Residence Managers are expected to attend a yearly meeting of Ascott managers, where they are, among other activities, encouraged to share any local initiatives they have undertaken, hospitality best practices, or any unique means they have used to solve problems.

4.3.3

Verification of Cultural Challenges & Strategies

In terms of cultural challenges, Tianjin service staffs tend to huddle in groups, displaying high collectivism behavior, seeking close comfort and constant communication with one another, unfortunately, at the expense of guests or customers who often had to make an effort to gain their attention for service needs. According to our interviews with other Chinese locals, this type of behavior is most common for locals in northern Chinese developing cities, unlike the more developed ones like Shanghai or Shenzhen. This point is outwardly expressed by the Somerset Tianjins Residence Manager who commented similar observations where extra effort were needed to train Tianjin staff to adopt the Ascotts service standards and had to encourage them to take more initiatives in serving guests beyond what is required in their job descriptions. Our ground observations also reveal that Tianjin locals in the service industry may be lacking in self-driven initiative. This presents a challenge for Somerset Tianjin to transform local mentality into the Ascott Service mindset. For example, guests were pointedly ignored by front desk reception when their intention was to check out their rooms if the staff has his or her eyes fixated on her desktop screen or is set on another

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task; ideally from a service perspective, front desk reception staff should always address guests standing in front of them or at least acknowledge their presence and need. Culturally, influx of other cultures into Somerset properties in Tianjin may also create new challenges or psychological barriers for existing Japanese communities staying there due to dilution of culture dominance. For example, the mini-mart in Somerset Youyi sells mainly Japanese products and entry of other cultures may affect this aspect. Additional strategies to preplan accommodation may be necessary for diverse conflicting cultures (Japanese vs. Koreans) to prevent cultural clashes and unnecessary complaints. The change in Somersets targeted market segment indicates a pressing and important need for Somerset Tianjin to enhance their local staffs service capabilities with cultural training so as to meet the expectations of these Korean and European guests. We have affirmed that cultural trainings of local staffs on knowledge of diverse cultures are done entirely by their own local office, independent of Ascott HQ office support. For example, most of the training materials are locally developed in Tianjin and not from the Singapore corporate office. Tianjin HR and Department managers conduct their own training, and they were, in turn, trained by Ascott trainers from Shanghai. This cultural strategy allows for customized localization based on local circumstances, rather than forcing all properties to conform to HQ doctrine.

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CHAPTER 5 LESSONS LEARNED AND RECOMMENDATIONS

5.1

Lessons Learned & Recommendations

The following lessons learned and recommendations comprise of information analysis collected through secondary research, as well as findings observed during primary research in Tianjin, China. What is often said in secondary sources are too general to truly apply to each individual property; therefore we would attempt to capture the lessons learned from a broad business and cultural perspective, as well as from more specific perspectives related to each element in the proposed framework. These recommendations are directed towards the interest of the company in point, as well as any other similar organization, facing such challenges.

5.1.1

Lesson Learned

From a business perspective, an unexpected key learning is that local reality can be infinitely more complex than the theoretical perception and approach of doing business in china. Local political realities, more often than not, are more complicated than as appears on the surface. For example, while Ascott at the corporate level may not utilize

monetary incentives to obtain governmental approvals, it is not above using political influence of its friends or partners to do so (regardless of how they garnered the influence). Therefore, while corporate policy makers may expect local transactions and business relationships to be conducted on a hands-length basis, local managers should

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expect politics and relationships to remain pertinent issues that they must face when starting work in China. During the trip, we perceived that while the various economic zones were seemingly following clear and distinct marketing strategies (i.e. focused on specific industries) there was in fact considerable competition amongst them in trying to attract companies and industries that do not fit cleanly into their preset labels. For example, in talking with one of the zone spokesmen regarding whether the various zones cooperated in pursuing conglomerates like Omron, it was revealed that there was actually much consternation between the zones on how to achieve this. Ascott, should it ever consider expanding into the new economic zones, must therefore keep in mind this dynamic between the local governments when it is contemplating where its international customers are heading or perhaps when negotiating incentives prior to investment. For a foreign firm entering the Chinese market for the first time, it is imperative that the company has a pool of home-grown and cross-culturally competent talent, should local talents prove unable to handle responsibility, or to meet corporate business expectations. This is especially important if the organization is using a decentralized management system that gives local managers considerable latitude in fulfilling their duties, as this opens up the potential to do both considerable good or harm to ones corporate reputation. Another lesson is that simply entering China because the local labor may be cheaper does not automatically makes business sense to enterprises planning to use local labor as replacements for expatriate staff. In Tianjin, we observed that though local staff can be significantly cheaper, they often lack the exposure and experience that internationally-

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exposed expatriates offer. The local staff may also hold cultural values that are not in line with the organizations own values. Therefore, while Ascott emphasized the need to localize, they still retain Singaporean staffs in their top positions due their perception that local staff may lack in some corporate values to work independently. A personal learning lesson for our team was that when looking at building business relationships from a cultural standpoint, for non-Chinese speakers, it is imperative that they take significant time in getting to know and trust their interpreters to such an extent that they were able to sit after the meeting and discuss his or her interpretation of the other partys behavior, fully trusting or at least understanding that the interpreters perspectives and biases. Not only are the complexities and undercurrents of the Chinese verbal language lost in translation, the non-verbal language also doesnt come across to non-Chinese speakers. A straight forward translation is not sufficient to fully understand the intentions of the other party and it is also not enough to facilitate the building of relationships with the other party.

5.1.2

Recommendations

In handling local government politics and relationships, Ascott must first acknowledge that such operational issues do arise and therefore give empowerment to the local managers, enabling them to tackle the grey area issues. To allow local managers to meet regulatory and operational challenges in China so without violating ethical concerns, it is recommended that Ascott should initiate a training process where veteran managers from China or similar environments conduct post-action reviews. Such reviews will allow

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these veterans to brief and familiarize their subordinates or successors with ground realities, as well as, help institutionalize and diffuse knowledge beyond just individuals. From a customer receiving a service standpoint, it is the moment of truth that makes a company stands out among its competitors. As Jan Carlzon, former president of Scandinavian Airlines and Continental Airlines puts it customer satisfaction and value results from thousands of encounters between employees and customers each day. These moments of truth continuously determine each customer's satisfaction through his/her daily encounters with, in the airline industry context, ticket agents, sky caps, gate agents, baggage handlers, flight attendants, pilots, etc. Fundamentally, the level of employee empowerment impacts service standards and employees must know the importance of the "moment of truth", be empowered with the authority, training and responsibility to create and deliver value to customers; and actually treat customers the way they would like to be treated and exceed their expectations. . Thus, Ascott employees most likely to have frequent interactions with guests should be given the freedom to make decisions or take actions to meet their expectations. For example, housekeeping staff may be given leeway in making incremental changes to some of their guests rooms when requested rather than having to ask management for permission. In parallel across its properties, Ascott should encourage all employees to take such initiatives. To better institutionalize Ascotts ability to deliver consistent customer service and exceed customers expectations, especially to guests who move across its various properties in different cities or states, Ascott may want to consider instituting a formal intercultural training program for its managers. The fact that regardless of CapitaLands Beijing CEOs professed strategy to try to localize as much of its talent as possible its

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subsidiary Ascott is forced to staff almost its entire executive-level staff directly from Singapore might highlight the possibility that Ascott is failing to properly impart its corporate cultural values, such as integrity and self-motivation, to its local staff, According to Earley & Ang (2003), the Intercultural Assessment Center (IAC) can be used to identity international management talent. Similarly, Ascott should develop and utilize in-house consultants dedicated to systematically collecting and analyzing behavioral and cultural observations at some of their sample properties (setting up of IACs) that may be representative of the total population. Subsequently, these consultants should then assess the intercultural communicative ability and intelligence of all potential managers, Singaporean and otherwise. Having been satisfied that the potential recruit as the proper base, the consultants must then be able to impart the localized knowledge so Singaporean managers are prepared beforehand for local challenges or train potential local managers to be better able to meet Singaporean value expectations, or at the very minimum these consultants can help prepare cultural-specific manuals that alert new managers to potential on-ground realities. In Ascotts quest to retain its customer base in the face of current crisis, Ascott should continue to leverage its global contacts with multi-national companies, looking to enter or are already present in the Tianjin market, using Business-to-Business (B2B) sales and marketing strategies. Essentially, Ascott should use its international contracts with

MNCs to try to support its local operations and insulate them from the current economic fallout. For example, Ascott can leverage the Global Rate Agreements (GRA) already formed with companies to try and get advanced notification on when potential longstay/short-stay guests will be coming to its locations, after which Ascott can conduct a

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targeted ad campaign to smoothen the guests arrival, enhancing the consumer experience. In the current economic climate Ascott should also be more flexible and innovative in the manner it approaches rental contracts. Perhaps, this should be implemented by temporarily transitioning more of its fixed-rate items into incremental rates such as usage of internet or swimming pools. If it is possible and economically attractive, Ascott should also consider leasing out a greater portion of their current properties in Tianjin to external commercial renters as a means to bring in additional fixed income. Other than targeting Koreans and Europeans, Ascott Tianjin could try to use its national base and look into diversifying its customer base with local customers. For instance, Ascott China could identify and approach Chinese companies of sufficient size that need to rotate their executives outside their home base, have executives that travel frequently, or simply have long-stay foreign guests. Subsequently, Ascott could then try to negotiate national rate agreements similar to the global rate agreements it negotiates with MNCs. Ascott should also look to work with Mayor Dai Xianglung and explore whether there are opportunities in serving the new financial, high tech and environmental sectors the Mayor is actively pursuing as part of Beijings 11th five year program to establish Tianjin as the Shenzhen of the North. For instance, instead of simply waiting to determine whether and when it should create a new property in one of the economic zones, Ascott could work with the Mayors office to try to lobby friendly Singaporean companies and other contacts to enter a specific zone along side it. As part of the deal, Ascott could also be aggressive in securing concessions from the local government in freezing out competitors from the same zone as well as locking customers from among the companies entering the areas.

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Furthermore, given that the new Somerset property is still largely empty in occupancy rate and it is not expected to have a sustainable set of long-term guests for some time, Somerset should try to cope with the current crisis as a short-term tactic copy the model of its more hotel oriented competitors like Sheraton. In essence, Somerset should look to collaborate with travel agencies, nearby institutions with conference facilities, and local governmental bodies to offer more flexible packages, host incentive and conference groups, and add tailored services. As the world recovers from the current economic malaise over the next few years, it is probable that Japanese MNCs that were already in Tianjin will restart their custom of placing their managers in larger suites. Additionally, as other MNCs attracted by Tianjins economic potential and the Chinese governments patronage enter the region, the two current Somerset properties in Tianjin to prosper in the long-run.

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Ang, A., & Kurtenbach, E. (December 17, 2008). 30 Years Transform China But Not Its Politics. Associated Press Writer. The Associated Press. FoxNews.com. Retrieved July 12, 2009, from the World Wide Web: http://www.foxnews.com/wires/2008Dec17/0,4670,ASChina30YearsRefor ms,00.html

Ascott Group Annual Report. (2007). Retrieved July 12, 2009, from the World Wide Web: http://www.theascottgroup.com/publications/annual_reports.html

Ascott Residence Trust. (March 18, 2008). Corporate Announcements. Retrieved July 12, 2009, from the World Wide Web: http://www.ascottreit.com/annoucements/117AV208.pdf

Byram, Michal. (1997). Teaching and assessing intercultural communicative competence. Multilingual Matters.

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China Daily. (August 6, 2006). Tianjin: A City of Bold Reforms. Retrieved February 2, 2009, from the World Wide Web: www.china.org.cn/english/GS-e/170766.htm

China Daily. (February 25, 2008). Bohai Bay to get 130 bln yuan clean-up. Retrieved February 2, 2009, from the World Wide Web: http://www.gov.cn/english/2008-02/25/content_899998.htm

CIMB-GK Research Pte Ltd. (January 28, 2009). Ascott Residence Trust.

Cline, Austin. Religion in China. Agnosticism / Atheism. About.com. Retrieved July 12, 2009, from the World Wide Web: http://atheism.about.com/library/world/AJ/bl_ChinaIndex.htm

Dezan Shira & Associates. Investment Guide to Beijing, Tianjin & North China. Retrieved July 12, 2009, from the World Wide Web: http://en.investteda.org/

Dong Qiumin, Lee Yu-Feng L. (2007). The Chinese concept of face: A perspective for Business Communications. 38th Southwest Decision Sciences Institute Annual Conference Proceedings: 401.

Earley P. Christopher, Ang Soon. (2003). Cultural intelligence: individual interactions across cultures. Stanford University Press.

Edward T. Hall. (1977). Beyond Culture. Anchor Books. ETN. (June 21, 2008). Ascott opens global hospitality center in Singapore. eTurboNews, Inc. Retrieved July 12, 2009, from the World Wide Web: http://www.eturbonews.com/3226/ascott-opens-global-hospitality-trainingcent

Gittings, John. (2005). The Changing Face of China. Oxford University Press, Oxford.

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Han, Angie. (2007). China, Peoples Republic of Market Development Reports Tianjin ECM: Gateway to the North 2007. USDA Foreign Agricultural Service, Global Agriculture Information Network (GAIN) Report Number: CH7417. informationcenter/publications/P020050126672660624740.pdf

Johnston, Robert. (2009). Towards a better understanding of service excellence. Warwick Business School, University of Warwick, Coventry, UK. Emerald Group Publishing Limited Vol 14 No. 2/3 pp 129-133.

King Sze Soon. (2007). Foreign Direct Investment in Chinas Real Estate Market After the Asian Financial Crisis. Kungliga Tekniska hgskolan.

Letters from the Heart. (May 2006). Compliments from Guests of Ascott Properties. AIM China E-Newsletter. Retrieved July 12, 2009, from the World Wide Web: http://www.xianzai.cn/theascott/fromheart_en.htm

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People's Daily Online. (August 2, 2004). China improves legal environment for private sector. Retrieved July 12, 2009, from the World Wide Web: http://english.people.com.cn/200408/02/eng20040802_151517.html

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Ramchandani, Nisha. (April 3, 2009). Ascott Group aims for bigger global presence. The Business Times.

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APPENDICES

Appendix A BSM Proposal

I.INTRODUCTION

With the near-perfect execution of the 2008 Olympic Games debut in Beijing, the international community had witnessed first-hand Chinas spectacular display of culture, people and history. This has had an immense effect on boosting Chinas tourism sector, especially with the boom in Foreign Direct Investments (FDI); many expatriates were sent to manage these investments in China. High value-add and R&D-intensive industries are major sector thrusts set by the Chinese government. With the development of automobile, electronics and high-tech industries and the construction of energy bases and transportation channels, Tianjin and its surrounding is a crucial area to watch. Within Tianjin, the Tianjin Binhai New Area is designated by the Chinese government to be a comprehensive systematic reform experimental area, drawing on the capital intensive industries into one growth area [1]. Business opportunities are expected to be bullish as tourism, cruise operations, marine parks, high technology firms, factories and energy firms converge into Tianjin and the Bohai industrial region, suggesting major foreign investments for years to come. Bohai Bay (), the geographical nexus of our project, is one of the three bays forming the Bohai Gulf, the innermost gulf of the Yellow Sea, in northeastern China. It lies to the east of Beijing, and borders the Hebei province and Tianjin Municipality. Bohai Bay is in a strategic position to benefit from the economic growth of the Shandong Peninsula in east China and the Liaodong Peninsula to the northeast. The industries located in Bohai Bay consist of Oil & Gas, Marine Activities, Petrochemicals, Logistics and Steel [1]. In February 2008, the Chinese Government

announced that it will spend 130 billion Yuan (US$ 18 billion) to clean up the Bohai Bay, which was considered one of the most contaminated marine areas within China [3]. This will open up opportunities for tourism to flourish. In light of such trends, many investors had been eyeing the business opportunities inherent in Chinas hospitality industry as foreigners and local affluent luminaries demand a higher standard of living in residences. Our focus on the cultural obstacles faced by the foreign hospitality entrants into China is well-timed. This study, using a multinational hospitality management business as the case in point, serves to provide deeper insights into organizations operating, or intending to operate, in Tianjin. We seek to study and analyze the cultural challenges faced by foreign managers tasked to work in China, and hope to garner and detail the learning experiences from these leaders in mapping to Cultural Intelligence (CQ) concept and theories. Additionally, we aim to analyze the impact of cultural intelligence on doing business in Tianjin, and how a successful synergy of organizational and local cultures can be a competitive advantage.

II.PROPOSED PROJECT

A. Theme of Business Study Mission Study of Cultural Obstacles Faced by New Hospitality Entrants in Bohai Bay

B. Target Company and Subsidiary The Ascott Group, Ascott International http://www.theascottgroup.com/index.html

The Ascott Group, headquartered in Singapore, is a key player in the business of international serviced residences, with over 25,000 operating serviced residence units in key cities of Asia Pacific, Europe and the Gulf region, as well as about 7,000 units currently under development. The Group operates three brands Ascott, Somerset and Citadines. Ascott's properties can be found in cities including London, Paris, Brussels, Berlin and Barcelona in Europe; Singapore, Bangkok, Hanoi, Kuala Lumpur, Tokyo, Seoul, Shanghai, Beijing, Tianjin and Hong Kong in Asia; Melbourne, Perth and Sydney in Australia, as well as Doha, Dubai and Manama in the Gulf region. The Ascott Group has also launched two initiatives to maintain service standards throughout its serviced residences as follows: The Ascott Centre for Excellence provides staff with training to equip them with knowledge, skills and best practices according to industry service standards. The Product and Technical Services provides consultancy for pre-opening phase of new residences. Importantly, these initiatives would serve as a value-add on how Singapores management and operations culture is imbued within a China context. Somerset Olympic Tower Service Residences - Bohai Bay, Tianjin http://www.somerset.com/china/tianjin/somerset_olympic_tower.html Leveraging on Ascott Groups Somerset Olympic Tower Service Residences (known hereinafter referred to as Somerset Tianjin), operating in Bohai Bay, will be our focal point. This would allow us to steer an in-depth research and analysis on a Tianjin-based business. The philosophy of Somerset Serviced Residence is to provide a comfortable home that meets all the lifestyle and business needs of its guests. Somerset offers guests a

menu of tailor-made facilities and service options that recognizes each guest's individuality. Target customers are executives and their families in Tianjin who seek a warm and stylish home with recreational facilities, lifestyle activities and business support services. Somerset Serviced Residence also helps these executives and their families to settle quickly into Tianjin, find the right schools and locate recreational and entertainment facilities. Such customized service makes it important to understand and embrace local culture. Somerset Serviced Residence is also planning to open another residence in Tianjin. Somerset Youyi, Tianjin, which is opening in the first half of 2009, is located in the up and coming financial hub of Tianjin, the residence is close to the international exhibition centre, two industrial parks, cultural destinations, restaurants and entertainment centers.

C. Study Objectives The main objective of this project is to assess the Companys ability to leverage Cultural Intelligence competencies in the planning, running, and evaluation of various aspects of its business. Moreover, this project aims to provide a concrete learning towards the practice of hospitality and international business development with respect to the cross-cultural settings according to the nature, challenge, and opportunity of the industry.

D. Business Scope Any company entering into a new market would need to make numerous adjustments to their usual business practices, not least among them cultural. Regardless of how

successful a business model has been implemented in other nations, the ability to account for and adjust to the new cultural differences can determine the probability of ultimate success. In working with Somerset Tianjin, we desire to capture a holistic understanding of its business across the companys multi-functional divisions and across various business aspects. By doing so, the range of cultural obstacles this project aims to cover would include, but is not limited to, the following items: Cultural introduction to Tianjin Original challenges faced by the Ascott group in entering market. Original and continued research process into cultural challenges faced by Ascott. Identification and selection of local partners (i.e. legal and non-legal cultural aspects). Interaction with the public and private spheres (between government and company). Management preparation pre-arrival training, transition and long-term establishment of international personnel in Tianjin. Cultural challenges, if any, in introducing and maintaining Ascott identity to Chinese market. Internal to the Company Interfacing dynamics between internationally sourced management and local staff and culture. Training of local staff in dealing with international culture and expectations. Language barrier and its role in cultural misunderstandings. Migrant labor from regions beyond Bohai Bay, if any. Leadership interaction with non-managerial or informal leaders.

Conflict resolution between staff and management. Continued learning transmission of learned but undocumented skills from current management to new staff (i.e. documentation of learned skills).

External to the Company Marketing of external business model in local cultural environment. Training of local and international personnel in meeting international / local expectations in service and hospitality. Setting expectations of guests (i.e. any challenge in dealing with noncosmopolitan guests with unexpected, abnormal, or excessive expectations). Competition interaction with and conflict against.

E. Desired Outcomes The final report would include, but is not limited to, the following key deliverables: A professional assessment of the organizations degree of cultural intelligence with respect to its current business model and operations. A comprehensive SWOT analysis of the organizations business aspects within abovementioned objectives and scope. A set of recommendations on how the organization can further leverage cultural intelligence factors to drive sustainable business performance (for Somerset Tianjin specifically, and for The Ascott Group as a whole). A non-exhaustive literature review on existing Cultural Intelligence frameworks or tools.

III. METHODOLOGIES The following methods would be used prior and during the BSM to gain a comprehensive understanding of the organization and its business aspects:

A. Face-to-face interviews Interviews would be conducted with key personnel from Somerset for an in-depth understanding on whether: Somerset Tianjin demonstrated cultural awareness and competency in its business operations and sales and marketing efforts in Tianjin; Somerset Tianjin successfully leveraged on Tianjins culture to provide a unique Tianjin experience to international guests, while retaining the internationally recognized Somerset experience for a competitive advantage; and The interviewees, who hold leadership positions in their respective divisions, are able to effectively engage and motivate the local Tianjin staff in providing service of a standard expected of Somerset Serviced Residences worldwide. The following personnel in Somerset Tianjin would be interviewed (subject to changes due to possible scheduling conflict): Mr. Darren Cher, General Manager, Singaporean Director, Sales and Marketing Director, Guest Relations Director, Human Resource Director, Food and Beverage Head, Business Development (Singapore office)

The above personnel would be able to provide comprehensive information on the major functions of Somersets operations in Tianjin, and the Singapore Head of Business Development would be able to share the decision criteria used in evaluating the attractiveness of setting up operations in Tianjin.

B. Field observation Due to possible window dressing of challenges by interviewees, field observation would be done to pick up cultural nuances in human interactions, both between staff members and between staff and guests.

C. Quantitative Analysis As the ability to demonstrate cultural intelligence is difficult to quantify, proxies, using published data where available, would be used to measure the success of Somerset Serviced Residences in Tianjin against its competitors in terms of financial performance, employee satisfaction and industry rankings.

APPENDIX [1]Tianjin: A City of Bold Reforms, August 6, 2006, China Daily. Available: http://unpan1.un.org/intradoc/groups/public/documents/apcity/unpan023562.ht m [2] Tianjin Binhai New District: new engine of Bohai Bay-rim, July 1, 2005, Peoples Daily Online. Available: http://english.peopledaily.com.cn/200507/01/eng20050701_193526.html [3]Bohai Bay to get 130 bln yuan clean-up, February 25, 2008, China Daily. Available: http://www.gov.cn/english/2008-02/25/content_899998.htm

Appendix B Search Assignment

STRATEGIES FOR INTELLIGENCE GATHERING Category Keywords related to Ascott Group Special Exclusion study, tourism, industry, china, tianjin, hospitality, ascott, training, branding, culture, challenges, Words / Terms supplier, network, swot, competitor, service, heartware, market share, (Ascott), , Ladies Ascott Club. "service culture", "five forces", "real estate", Phrases "business culture", "under commit but over deliver", "China's Top 100 Serviced Residences" Fraser, Lanson Place Hotels & Residences, Yingbin Competitors International Apartment, Crowne Residence, Emperor Palace, Tianjin Chateau Gongguan, Tianjin Centre, Marriott, SilverDoor. Locations Tianjin, Caofeidian, 1. , current CEO 2. Chong Kee Hiong, CEO of Ascott Residence Trust Management & Ascott Real Estate 3. Darren Cher, GM of Tianjin 4. Mr Gerald Lee, Ascotts Deputy CEO (Operations), 5. Mr Ee Chee Hong, Ascotts CEO, China 6. Jennie Chua, CEO 2007 Ascott, Somerset, Citadines, LIFE Hospitality, Hotel ascot (often appear during search)

Personal Names

Brands Industries

Case Questions: 1. What cultural challenges did Ascott face in Tianjin, China? 2. What management style did Ascott adopt in running its hospitality operations in Tianjin? 3. What are the cross-cultural challenges in doing business in China or Tianjin? 4. What are the business conditions for the hospitality industry in Tianjin, China?

SEARCH STRATEGIES AND TOOLS

Strategy Search Tool Google Overview Focused Search Ascott tianjin Ascott Tianjin filetype: pdf Description (Results = 29.2k hits) Created a focused search using specific keywords, company and country. (Results = 1.06k hits) Limit file type to pdf to generate results such as Savills Industry Reports, IE Singapore slides on Market Opportunities: China.)

Advanced Google tianjin site:www.savills.com.hk Ascott branding filetype:pdf www.theascottgroup.com/downloads/pdf/ AscottLiving/Highlight_2008_Q2/01_your _say.pdf tianjin real estate ascott filetype:pdf site:cn http://www.chinarealestate.cn/others/08Q2TJResidential.pd f Advanced Google Indigenous Perspective Ladies Ascott Club -ascot site:cn http://www.xianzai.cn/theascott/fromheart _en.htm (Results = 10) Highlights specifically Ascott Group approach to local culture in hospitality.

Industry Perspective

(Results = 10) Industry outlook specific to Tianjin

(Results = 828) Compliments from Ascott Guests on Ascotts Service Excellence Ascott Staff exhibit patience and professionalism and are efficient, knowledgeable and provide excellent customer service

Tianjin culture challenges filetype:pdf site:edu http://72.14.235.132/search?q=cache:eUsu 7Sr_WLwJ:research.yale.edu/sociology/fa culty/docs/davis/davis_bookrdg.pdf Cross Cultural Management Living and Working in China filetype:pdf http://www.businesscommunication.org/co nventions/Proceedings/2007/HongKong/1 6ABCAsiaPac07.pdf (Results = 9,510) Shows cultural history of local region and what it has meant to general challenges in tianjin. (Results = 993) Understanding about expatriates cultural differences in China and the relevant case studies. This gives insights into how to improve Ascotts business strategy and cross-cultural training to local staff to improve service or to attract expatriates to stay in their residences. (Results = 24) Market outlook on residential apartments in China general and Tianjin as well. Lists established major competitors and potential future entry barriers such as government regulations. General challenges faced by companies in the hospitality industry in China. Comparison of cost and location of serviced residences and apartments in Tianjin Human resource issues facing Chinas hotel industry How Not to Give Partners A 'Death Wish' in China - October 10, 2007

Scholarly Perspective

Competitor Perspective

China real estate ascott filetype:pdf site:cn http://72.14.235.132/search?q=cache:KExxroVaNkJ:www.chinarealestate.cn/Savills-Bres01-2007-E.pdf Hotels China Challenges Tianjin apartments Hotels China Human Resource Challenges

Community Perspective Cross Cultural Management Living and Working in China "Donny Huang" - Link

DATABASE SELECTION & SEARCH EXECUTION Database Selection Marketline Google (Advanced Search) Somerset: Link Ascott Tianjin ZhongGuanCun OR expatriates filetype:pdf Link Ascott Tianjin OR Economic Technological Development zone OR expatriates Link Tianjin Technological Development zone expatriates filetype:pdf site:china Link Found Link (Expatriates magazine for Tianjin Foreign Community) from above link. Results: AscottReit Strategy Slides Tianjin Expatriates Market Data. Advice for foreign businesses Important Facts: About 17,000 expatriates are working in Tianjin on a long-term basis. 268-unit Somerset Youyi, Tianjin is close to Tianjin International Exhibition Centre. Location key to serving 2 zones: Tianjin Economic Technological Development zone & Xiqing Economic Development zone. Full company profile listing major facts, board/executive management members. Search Term Search Execution Results

Database Selection

Search Term

Search Execution Results Tianjin has developed quickly in the past few years. It is a big city with a lot of potential with regards to IT and electronic industry (influx of expatriates). About 35,000 Koreans living and working in Tianjin in 2006. IT companies in Tianjin: Samsung, LG and Motorola. Service Revenue Stream Strategy The Ascott Group secured management contracts to operate Somerset Chongrui serviced residence in Suzhou Industrial Park, and Citadines Jinqiao in Shanghai latter 2004, and CapitaLand signed a co-operative agreement with Shenzhen International Trust and Investment Co., Ltd (SZITIC) to build and manage shopping malls across China. These malls will be anchored by Wal-Mart, the world's largest retailer. Management Team Dynamics Capitaland has built a strong local management team in China, operating within social sensitivities, and selling international standard properties to an urban middle class. The company has currently an employees strength of 250 people in China. Corporate Culture Capitaland China (Ascott China) adapt persistently to the corporate culture of human-orientation and leaderships, pursuing the diversified strategy of localization. Corporate Strength The greatest strength of the company lies in its powerful and internationally

entering Tianjin, China.

Scholar Google Search

ascott tianjin hospitality Result: High quality publication Link

Database Selection

Search Term

Search Execution Results

TouchGraph.com

Map High Quality Scholarly Publication Cross-cultural challenges when doing business in China using TouchGraph.com

experienced management team. One of the main strength of the company in China as being an Asian Chinese institution, is that the language and cultural barriers become easier to overcome. Food Supplies Challenge for Hotels in Tianjin As indicated by the Hyatt Regency Tianjin, sourcing for imported food supplies in the HRI sector is usually from local or Beijing sources, with a wide product range including individual ingredients, meat, seafood, fruit, and beverages. However, limited volumes are required in most cases, making it difficult for outside suppliers to provide market appropriate supplies.

Using Google Link => Found New Top Ten Cultural Rules for Doing Business in China Links via TouchGraph: 1. Form a connection with someone who has first hand experience conducting business and developing strategic relationships in China. One 2. When in China, cultivate contacts with many people in order to find the Two right decision makers. Three 3. Knowledge of the culture and language is key. Even basic understandings will go a long way and your hosts will appreciate your initiative. 4. The Chinese are very keen about exchanging business cards. Bring plenty with you to business meetings, preferably ones written in English on one side and in Chinese on the other. Learn how to present them to your Chinese counterparts. 5. Avoid the word "no" in your business dealings. "Perhaps," "we'll see" and other ambiguous words are more appropriate. 6. Humility is a virtue in the Chinese business culture. In most instances, exaggerated claims will be discounted. 7. Expect long and arduous negotiations, even at the very end.

Database Selection

Search Term

Search Execution Results

8.

Be prepared and be patient. Accept the delays that may occur. The Chinese prefer to establish strong relationships before closing deals because of the lack of a strong legal system to enforce contracts. 9. Before establishing a formal business relationship, understand the difference between a Joint Venture (JV), a Wholly Foreign Owned Enterprise (WFOE) and a Representative Office (RO). 10. Keep an open mind for new and creative opportunities.

ASSESSMENT OF THE QUALITY OF SEARCH RESULTS Note: The following table is color-coded based on five assessment metrics (legend as follows):
Article/Report Foreign Direct Investment in Chinas Real Estate Market After the Asian Financial Crisis First And Only Company To Offer Full-Range of WDA Hospitality Training Reliability High source is MSc Thesis from Kungliga Tekniska hgskolan Architecture and the Built Environment High High

>4 HIGHS

3 HIGHS, 2 MEDIUMS
Timeliness Medium - 2007

3 HIGHS, 1 MED, 1 LOW

Objectivity

3 HIGHS, 2 LOWS

<2 HIGHS

Authority

Depth of Information High Deep dive into Capitaland and Ascott Corporate Health and Strategy High Strategy of Ascott in focusing on employees education

URL Link

High Analysis is based on evaluation of Chinas realestate market and sought to forecast future opportunities High Editorially regulated according to news values, significance and accuracy, copyright protected, and independent of any advertising and sponsorship carried Medium

The Uneven Distribution of Cultural Capital Ascott Residence Trust THE TIANJIN BINHAI NEW AREA AS CHINAS NEXT GROWTH POLE

High scholarly article

High eTurbo News is an opt-in subscriber emailing list with current readership at 255,000+ worldwide, mainly travel trade professionals, specialist travel, tourism journalists High scholarly article

Medium Jun 21, 2008

Link

High

High

Link

High Investment Bank Report High scholarly article

High

High

High

High

Link

High scholarly article

High

High

High

Link

Article/Report Human resource issues facing China's hotel and tourism industry Tianjin China Residential sector briefing Differentiating Hotel Brands To Build Better Business Leading in China the worlds highest opportunity hotel market

Reliability High aource of article is the Worldwide Hospitality and Tourism Themes (WHATT) journal High source is a research and consulting company High on website of China Hospitality News, a portal for the MICE industry High internal presentation by Intercontinental Hotels Group High

Authority

Timeliness Medium within 5 years High

Objectivity

Depth of Information Medium the article provided only a brief summary of the WHATT journal article. Medium Describes current conditions in Tianjin Specifically Medium the article provided insights into challenges faced by hotels in China High Information on China growth opportunities for hotels, ways to optimise growth, building the right team, and financial analysis. Competitor provides insights into Ascotts China operations. High Lot of data present on other players in industry

URL Link

High source is a research and consulting company Medium

High

Medium

Link

High within 2 years High within 2 years

High

Link

Low

Medium internal presentation, but might contain biasness

Link

Beijing Residential Briefing - Research

High source is a research and consulting company

High source is a research and consulting company

Tianjin Apartments, China

High independent portal providing information on rates and location, with reviews, on Tianjin apartments

Low

Low 2006; however, given construction periods can take longer possibly still quite relevant High

Medium

Link

High

Low not many accommodation options are listed

Link

Article/Report Ascott Strengthens Foothold in China With S$151 Million Acquisition Of Two Properties Ascott garners seven awards in China in three weeks

Reliability Low source is company itself

Authority Low company bias present

Timeliness High

Objectivity Low company bias present

Depth of Information Medium information on growth opportunities and investments made Medium information provided on Ascotts strengths

URL Link

Low source is company itself

Low company bias present

High within 3 years

Low company bias present

Link

APPLICATION OF RESULTS TO BUSINESS FRAMEWORK

Government Analysis Heavy government support for Tianjin Bohai area from the federal level downwards. The area was designated the Shenzhen of north China during Chinas 11th Five-Year Program (2006-2010). Thus, government support to develop Tianjin and the surrounding areas are quite extensive. For example, various measures such as declaring the area as a experimental zone for comprehensive reform has meant that there is special support comes in the form of land use rights, preferential industrial policies to certain high-tech, investment and domestic-funded enterprises, and extension of financial support, especially for high tech and environmental industries. In particular, there has been the establishment of the Bohai Industrial Investment Fund , the Bohai Bank, and the overthe-counter market for stocks trading in Shanghai and Shenzhen. At the local level, however, there is high level of competition throughout the area between the various cities and districts located therein, often resulting in duplicated efforts. A widely considered to be capable, namely, Mayor Dai Xianglung, is also believed to have the personal backing of Premier Wen Jiabao. Thus, there can be seen a strong desire in the central government to build up Tianjin as an engine for economic growth.

Competitors: SWOT Analysis Strengths: Few international players within the serviced residence sector. Among them, Ascott group is the largest operator with more than 10,000 units. However, hotel groups like the Sheraton and Shangri-la are entering the market. International Recognized: the Ascott and Somerset brands are well known internationally for the quality of their service and management. The two brands have also consistently won awards over the past few years, including Forbes China 2008: Chinas Best Serviced Apartments.

Weakness: Most current leases are shorter than industry average, lasting usually up to less than one year rather than the customary one to two years.

Dependence on external demand, customers are not locals, therefore, any disturbance on international market could have severe repercussions to Somerset.

Opportunities: Long term FDI inflows into Asia still looking likely, this indicates that demand is for serviced apartments is likely to continue to grow over the long term as multinational corporations proliferate in the region. The growth in volume should also result in the growth in length of time.

Benefiting from spillover demand for hotels, specifically, in at least the short term there appears to be limited growth in supply of rooms in both hotels and the serviced apartment sector. Thus, the limited space in hotels is likely to benefit Somerset, as Asian hotels enjoyed double-digit revenue per available room (REVPAR) growth averaging 11% from 2005 to 2007 due to strong demand. In particular, REVPAR growth in 2007 was 12.4% yoy. With expected increases in business and leisure travel going forward, the REVPAU for serviced residences and REVPAR for hotels should rise in tandem.

International brands deliver the highest returns, compared to domestic brands, hence, there are significant growth opportunities for international brands like Somerset.

Diversified tenants. Somerset tenants come from several industry types with no more than 16% of its tenants from a single industry segment. Furthermore, none

of Somerset corporate clients accounts for more than 5% of its apartment rental income.

Threats: Global Recession changes pattern of FDI inflows to region permanently, if the current crisis ends up making China as a less attractive destination for global FDI, external demand for rooms may weaken tremendously.

Human resource challenges, for instance a lack of qualified staff at both operational and managerial levels, high staff turnover rate, university graduates not willing to join the hotel industry, and the big gap between what is taught in schools and what is happening in the real world. The rapid development of high star grade hotels in recent years has caused a lack of hospitality professionals and an unbalanced supply of human resources for the industry.

Appendix C Interview Protocol & Transcripts

Interview Protocol Somerset Serviced Residences, Tianjin

Introduction The focus of our case study is, briefly, on whether the Ascott group adapts its sales strategy and service culture for its Somerset Serviced Residences brand to the local Tianjin culture, and if so, how. We will also analyse whether Ascott uses cultural intelligence in the management of human capital in Tianjin. Our interview strategy takes 2-step approach. We interviewed 2 personnel from Ascott prior to the BSM trip, and would conduct face-to-face interviews with personnel from various departments from Somerset Serviced Residences in Tianjin.

Pre-trip Interviews Teleconferences were made with the following people prior to the trip: Mr Darren Cher, GM, Somerset Serviced Residences, Tianjin Ms Chung Li Ren, Manager & Trainer, Ascott Singapore

Questions for Mr Darren Cher focused on business development and preparation of staff for commencement of hotel operations in Tianjin: Reasons for Ascotts entry into Tianjin; Hospitality industrys development in Tianjin, and its impact on Ascott; Competitive strategy of Ascott in Tianjin; Market share of Somerset Serviced Residences in Tianjin; Customer profile and their preferences;

Training provided to deployed Singaporeans and to Tianjin locals; Cultural differences between Tianjin staff and staff in other Chinese cities.

Questions for Ms Chung Li Ren focused on the role of training in preparing Singaporean staff for deployment in Tianjin, and in preparing Tianjin staff for hotel operations: Selection process in deployment of Singaporean overseas; Training provided to Singaporean staff who are deployed overseas; Training provided to Tianjin staff; Observed advantages of such training; Observed cultural issues in the training of Tianjin staff.

The answers we obtained enabled us to better craft interview questions for Somerset Serviced Residences personnel during the BSM in Tianjin, and also what areas to observe.

Interviews in Tianjin We would be interviewing the following personnel from Somerset Serviced Residences during the BSM trip in Tianjin: Residence Manager HR Manager Guest Relations Manager Sales & Marketing Manager

Questions will be asked to affirm the findings from the pre-trip interviews, and to obtain first-hand accounts of cultural challenges:

Differentiation strategies and customer expectations; Customer profile and preferences; Operational challenges; Tianjin staff profiles; Human capital management challenges; Training provided for different levels of staff, and how it differs for expats and locals;

Dynamics between expats and locals; Any other cultural challenges.

Following the interviews, we would be conducting observations at both Somerset Serviced Residences and at their competitors to affirm what we have been told.

Submitted by: Theresa Lim Truly Hutapea Ayush Amatya Corey Chong

Date: 21 May 2009

Mr Koh Yan Leng Residence Manager

Can you tell us about yourself? I used to work with SIA, and have worked in London, Madrid, Auckland, Beijing and Shanghai. I signed up with Singapore Ascott and was sent to China under an expat package. Ascotts Chinas HQ is located in Shanghai, with 20-30 staff. The Beijing office is in charge of the northern China cities of Beijing, Tianjin and Dalian. Only Dalian does not have a Singapore Residence Manager (RM); its RM is a local who was promoted within the ranks.

Why are GMs/RMs mostly foreign? Of all international hotel chains, only 1-2 have local GMs. This is due to the following operational difficulties in using locals: Language barrier Lack of knowledge of international practices Lack of integrity; bribery becomes an accepted practice For bribery, if you cant beat them, join them. It all depends on intention whether a person performs bribery for business or for personal gain. If it is necessary for business, then a company will have to decide to move out if it cannot accept unethical practices.

What is the selection criteria for expats who are deployed to China? Adaptability Independence As part of career progression

How did you adjust to life in Tianjin? I had a 3 months crash course, 3 weeks orientation and one months attachment in Shanghai to learn the ropes, as I had no prior hospitality experience.

What are the challenges that you face in Tianjin operations? The international exposure of Tianjin staff is insufficient. We need consistency across outlets, therefore Tianjin staff need to adopt Ascott way. However, Tianjin staff may be in their comfort zone and therefore take less initiative.

What kind of training is provided? We have a train-the-trainers scheme by a Singapore trainer who is flown in. Training is for functional expertise and there is no specific cultural training course. Tianjin staff are mostly given on the job training. Monthly training is also done in addition to emails and memos and daily operations briefing. Training is conducted in English but Chinese is necessary for clarification. We also have job rotation in different countries to: Develop an all rounded person

Minimise risk of having someone being complacent from being in the same place for too long

Prevent hanky panky that can develop from being too familiar in a place

What is your staff profile? 99% of managers recruited from within the industry as we need people with experience. Front level staff recruited from schools like Blue Mountain. Staff are rotated between Beijing and Shanghai, and sometimes sent on short stints overseas. However, they are not sent on long periods as China staff are not keen to work overseas. Tianjin staff are contented and turnover is low compared to other China cities. Most staff in Olympic Towers have worked for more than 7 years.

What is your guest profle? In Olympic Towers, 85-90% are Japanese, with 97% of them long stayers (6-12 months). In Youyi, 50% are Japanese with only 70% long stayers as Youyi has more studio units. Tianjin market is predominantly Japanese as they are able to pay compared to Koreans. Our focus on the Japanese market is intentional following market research and sales leads. Competitors are also coming into this segment now.

What are your occupancy levels? Tianjin is impacted by the recession like the rest of world, but as most business is domestic, we are not as affected by international economics. Some Japanese expats have been sent home but this is not a trend.

How do you market your units? Corporate marketing is done by Singapore office, with fixed corporate rates for one year; local sales team markets locally including in magazines. Rates have decreased with the recession. Given Tianjins large population, number of serviced residences units is low (2000 units in Tianjin) as demand is not as huge as expected, but in 3-5 years, if Tianjin develops as planned, demand may increase. At present, the Tianjin government is unable to name foreign investors. Developments are mostly domestically invested as central government forced provincial governments to invest in Tianjin.

What are Somersets differentiating factors? Somersets strategy is to give personalized service e.g. washlets. We are unable to meet all guests customized requests like Frasers unless the guest pays for it. Our Heartware program is a customer service program that gives guests that they want. On top of SOPs, each branch can go over and above SOPs, and Ascott has international conferences to share best practices. For guests who stay more than 6 months, Somerset does not do check in upon the guests arrival. Instead, guests are shown direct to the room, and myself, the housekeeper and security guard will be there to introduce themselves. The Guest Services Manager will bring the guest around the surroundings to orientate them. After 1 week, activities are organized for the guests. This dont take no for an answer approach is standardized across Ascott.

How does Somerset meet up and coming competition? Ascott has to keep evolving in the following areas: Products and services Building the right culture Right people to train staff Marketing and sales strategy

Without international competitors, Somerset stands out in Tianjin. Most of these international players are specialized in hotels and not serviced residences. Compared to our nearest competitor Frasers, Somerset is 5 times bigger in terms of units at 25,000 worldwide. Oakwoods does not even come close and is not considered a competitor. At present, we have no plans for Ascott to enter the Tianjin market as demand for premium hotels is not there, and Ascott cannot enter and then drop prices as it would affect Somersets market demand. In 3-5 years, as Tianjin develops, Ascott may enter. Ascott does not operate retail space; it leases space out to tenants instead. But in Youyi, the landlord does not have retail expertise and plans to rent planned retail space out to banks which would compromise Somersets attractiveness. Hence, Ascott leased the retail space and would operate retail outlets in Youyi through Ascott Property Fund.

What is Somersets value proposition for employees? We sell our business model as more stable and profitable than 5-star hotels, even if we lose out on glamour and facilities. We provide higher returns for shareholders and stakeholders, and we are a big company that allows career progression.

Does feng shui play a part in the design of the building and other operational matters? It is not a consideration for us.

Does Somerset have tie-ups with the government? In China, Ascott has tie-ups, but not in Tianjin. We expect more tie-ups as Tianjin develops.

How often do you report to HQ? Financial results are reported monthly. A customer service survey is done yearly by an outsourced party. I do ad hoc reporting on corporate matters.

Ms Cindy Zhang, HR Manager

Can you tell us about yourself? I joined Somerset Olympic Towers in April 2008. I was in a pharmaceutical company in Hangzhou before. I was born in Tianjin.

What is the selection criteria for staff? We need experience for managerial level and entry levels can be fresh graduates.

What are your recruitment methods? We do not restrict to recruitment from hospitality industry only. We tried to recruit from an airline school, but the salary gap too big. We dont pay as well. The schools we recruit students from include: We also poach and place internet advertisements.

What training is provided for staff? We conduct orientation for new staff. Specialised training is provided on functional areas, and we also have monthly training. Training materials are developed in Tianjin and not from Singapore. Tianjin managers conduct our own training, and we have Shanghai trainers train Tianjin managers.

What is the salary package like? Salary for managerial level is the same regardless of cities in China. Entry level salaries in Tianjin are lower than those in bigger cities like Shanghai and Beijing.

What is Somersets value proposition for employees? We are stable and established. We provide job security and growth opportunities. In addition, our company intends to develop in Tianjin with 3-4 more outlets planned in Tianjin at and . There are also job rotation opportunities.

Ms Maggie Deng, Sales Director

Can you tell us about yourself? I worked in Hyatt Regency in Tianjin for 4 years as a secretary, then I moved to Singapore and worked for 5 years in SingTel as a customer service officer and in telemarketing. I took my MBA in Singapore, returned to Tianjin and joined River Club Tianjin for 2 years. I joined Somerset 8 months ago. I was born in Hubei and moved to Tianjin when I was 3 years old.

What is the profile of your sales team? I have 2 sales managers who speak Japanese and 2 sales manager who speak English.

Can you describe your target market? Somerset Olympic Towers focuses on Japanese clients while Somerset Youyi focuses on a more international clientele.

Japanese like to stay within the community, and now have lowered budget with the economic downturn. They are opting to do without facilities and amenities. Somerset lowered prices in response. We are starting to target the Korean market. Koreans tend to lease non-service apartments and are more budget conscious, preferring cheaper or no facilities, but they are a bigger market than the Japanese in terms of numbers. Our customers are mostly managers and professionals who stay 2-3 years in Tianjin. The Japanese dont like change apartments. With the opening of Somerset Youyi, we have more units and we are now working with local agents who can poach customers from competitors. More than 90% of our customers work in MNCS or Japanese companies. General corporate agreements are signed in Singapore, e.g. with P&G, while local agreements are signed by the local salesforce.

What are your marketing channels? We market through companies, agents, magazines, referrals, website, and working with governments (Foreign Investment Division). It is important to build relationships with FID.

What are Somersets differentiating factors? We are a well known brand; Somerset Olympic Towers have been in existent for more than 10 years. We offer safety with 24 hours security. We are also easily accessible.

How does Somerset meet up and coming competition? We understand customers and provide personalized service. Competition is not all bad; there are also opportunities for Somerset to develop in TEDA. Somerset Youyi has smaller units for smaller budget. Occupancy rate in Somerset Olympic Towers dropped from 90% to 85% with the opening of Somerset Youyi with some customers changing location.

Can you tell us more about non-serviced apartments? The main difference is in the cost. For non-serviced apartments in the city centre, the cost is 20,000 yuan per month for a 2-3 bedroom apartment. At Somerset Olympic Towers, 20,000 yuan per month will get a smaller apartment. Prices at Somerset Serviced Residences: Studio - 12000 to 15000 yuan per month 1 bedroom - 15000 to 20000 yuan per month 2 bedrooms - 20000 to 30000 yuan per month 3 bedrooms - 30000 to 40000 yuan per month

What are some differences that you have observed between Singapore and Chinese managers? We Chinese are aware of the need to build relationships with the government. We drink to do business; it is more than just the act of dining and drinking. The ex-Hong Kong owner of Somerset Olympic Towers had a good relationship with the top government officials, and the current Residence Manager Mr Koh had to call upon the ex owner for

help in dealing with the officers once. Singaporeans tend to ignore the need to build relationships with government. However, times are changing, and younger officials with EMBAs are more systematic in their way of doing business.

Ms Annie Lee, Guest Services Manager

Can you tell us about yourself? I studied hotel management in Nankai University. I have worked in Shenzhen and Shanghai for a Hong Kong company and MNC respectively. I was born in Tianjin, and returned to work in Tianjin as I felt I should return to my roots. In Tianjin, I have worked in Sheraton and Hilton. I joined Somerset 10 months ago.

What is the profile of Tianjin workers? In Tianjin, workers are locals, hence, dorms are not provided. Tianjin workers do not wish to work overtime and are lazy. Attrition is lower, but 70% of workers can be poached with higher salary. Tianjin staff faces communication problems, and few

venture abroad. Tianjin people tend to miss home, with family pressures to settle down in Tianjin. In Shenzhen, all workers are migrants from Hunan, Hubei and rural areas. They are hardworking, diligent, take initiative, and are proactive in planning for their own career growth. Hotels tend to provide dorms for these migrant workers. In Shanghai, 50% of the workers are migrants. Workers in Shanghai work for money.

Singaporeans are materialistic, thrifty, superficial, bureaucratic, spend a lot of time on paperwork and are particular about presentation. Though I must say the current

Residence Manager, Mr Koh, is in tune with Chinas culture, economics and politics.

What customized services are provided for customers? Somerset conducts activities for wives of expats, provides weekly shuttle buses to send the wives for shopping, to golf on weekends, we have a childcare centre in Somerset Olympic Towers, we send children to international schools, and we celebrate their native festivals. Our objective is to make them feel at home. Training is conducted on how to provide warm customized service e.g. celebrating birthdays, remembering what guests share with us.

How are the operations of hotels and serviced residences different? Hotel operations are more complicated. Serviced residences have easier procedures and workers can easily be trained in them.

Appendix D BSM Trip Presentation Slides

Group Members: 1.Ayush Amatya

2.Corey Chong

3.Theresa Lim
4.Truly Hutapea

The Nanyang MBA Business Study Mission Tianjin, China 2009

Study of Cultural Obstacles faced by New Hospitality Entrants in Tianjin

Company Background
Capitaland
Singapore-based parent company focused solely on real-

estate development, management, hospitality, and financial services

Ascott Group: Serviced Apartments

Directly owned properties, as well as, managed properties Brands: Ascott: High-end luxury segment for top executives Somerset (focus): mid-tier segment for senior and upper management Citadines: Lower-tier segment for mid-level executives without families

Ascott REITs Trust (ART)

First purchase rights of Ascott Group Properties Allows rapid expansion of Ascott Group

Case in Point: Somerset Tianjin

Objective of Study:
General assessment of Ascotts business strategies in China. Study of cultural challenges faced by foreign firms in China. How successful integration of organizational and local cultures

can contribute towards business success

M0tivation of Study:
High growth in Binhai New Area. Expected influx of expatriates Application of CQ concepts to business and personal context.

Research Setting, Design & Empirical Context:

Market leader in Service Residences Industry. Open-source information from Internet. In-depth interviews with Somerset staff.

Interview Strategy
Pre-trip Teleconferences:
Mr. Darren Cher, General Manager of Somerset Serviced

Residences, China

Ms. Chung Li Ren, Trainer of Ascott Excellence Center

Face-to-Face Interviews (Somerset Tianjin):

Mr. Koh Yan Leng, Residence Manager Ms. Annie Li, Guest Services Manager Ms. Maggie Deng, Sales Director Ms. Cindy Zhang, HR Manager

Interviews conducted in following context:

Personal backgrounds Past and current experiences with foreign/local

cultures/colleagues

Personal perspective on cultural/business/strategic challenges

Ascott Property Tour

Challenges
Developing RM level managers from local talent Pool to takeover local properties in long term

Service excellence in Tianjin; Evolve value proposition How to deliver service excellence when local staff not keen to gain extensive international experience or take initiative or responsability Tianjin Values in direct contrast to Singapore Business Values

Recruiting, training and retaining local talents

Tailored-training for Tianjin culture; Communication between foreigners and locals

Strategies
Service excellence consistency

RMs from Singapore (standards, communication s ability, integrity, international exposure) Country rotation for identified talents for career progression, training RMs are empowered to make all decisions but investments New products and services New market segments New marketing strategies

Talent management

Constant improvement

Rate Contracts
Global Agreements with MNCs Agency & travel agency commissions to sell long-stay and short-stay rooms respectively Greater flexibility in cutting costs/providing incremental services to current/future guests

Expansion into TEDA

Insights
Customer segmentation
Over reliance on Japanese customers

Additional input of other ethnic groups (i.e. Koreans) can possibly breakdown current community feel Industrial mid-tier executives single bachelors or those with families in Japan

Overcapacity Total Tianjin Units: 475

In short-term: Recessionary impact on bigger units for long stay

guests

In Long-term: If Tianjin falls short of promise, overcapacity of short

stay units

Staff capabilities in achieving organizational strategies

Fundamental values differences, e.g. integrity, drive, responsibility,

productivity

International exposure and communication abilities