AMMIEZA ERMA BINTI MARLEH

BB12160808
BE31503 (INTERNATIONAL HOTEL MANAGEMENT)
TITLE : CHAIN HOTELS AND GLOBALISATION
1.0 Introduction
According to BBC Website, globalisation is the process by which the world
is becoming increasingly interconnected as a result of massively increased
trade and cultural exchange. Globalisation has increased the production of
goods and services. The biggest companies are no longer national firms
but multinational corporations with subsidiaries in many countries.
Globalisation also has resulted in increased in international trade, a
company operating in more than one country, greater dependence on the
global economy, freer movement of capital, goods, and services, and also
recognitions of companies. Globalisation has relatively closing the gap
between countries across the world. Hospitality industry saw this concept
as a stepping stone of widening the range of the industry.
In many countries, where tourism has become a major export
industry, the hospitality sector is the focal point for concepts of
globalisation to take root. Indeed, tourism has become the worlds largest
export industry, involving as it does enormous cross-border flows of
people and capital (Cline R. S., 2015).
In this case, hotel chains also started to develop more interests
towards globalisation. According to the article from Business Destinations,
dated on April 2nd 2012, a number of major hotel chains are expanding
their global presence by opening at new locations around the world.
Despite the fact that economies are still struggling in many countries,
luxury hotels are constantly opening. The main reasons that are
motivating these chain hotels to go global are because of a global
competition, and to strengthen their brand name. In addition, there are
also other considerations that influenced chain hotels to go global, which
are cost drivers, and also market drivers.

2.0 Understanding Hotel Industry

Hospitality, as a service industry, is one of the fastest growing industries
globally. According to the Travel Industry Association of America, in 1997
more than 16.2 million jobs in the U.S. were supported directly or
indirectly by the hospitality industry. The hospitality industry, then,
includes hotels and restaurants. It also refers to other kinds of institutions
that offer shelter or food or both to people away from their homes (Hyun
Jin Yun, 2000).

2.1 Hotel Industry Development

1

In earlier times, the hotel industry emphasised more on local markets

which generally based on skilled workers who assumed that knowledge
and work were unchanging. However, over the past generations, the hotel
industry has evolved in a continued boom to accommodate explosive
growth and radically changing consumer demand and has adjusted itself
to different social and economic environment. More varied types of hotels
have been brought. This matter resulting in a fierce competitions among
hotel chains.

2.2 Growth of Hotel Chains

According to Hyun Jin Yun (2000), A hotel chain is defined as any group of
two or more properties operated under a common name owned by the
entity. In modern hotel business practices, hotel chains have grown
rapidly, armed with expertise in feasibility study and implementation,
economies of scale in purchasing, advertising, central reservations,
human resources, advanced management, brand powers, and others. The
combinations of these characteristics has driven hotel chains to develop
more.
In addition, hotel management companies which are internationally
reputable hotel chains in common, provide the property owners with a
variety of services under management contracts. Chain companies must
operating the hotel properties in accordance with the terms and
conditions of these management contracts. These companies may also
give expert advice and provide financing services to their clients in
addition to the allowance of using chain names and for professional
management of the hotels while they enjoy their own strategic and rapid
expansion of business.
Another forms of hotels that are similar with hotel chains is
franchises. Franchises allows a hotel company to remain independent, yet
gain many advantages of management by a chain company. A hotel
company adopts the franchisers name and trademarks, and receives
operation supervision services. In addition, the franchisee may make the
most of the merits, such as worldwide advertisement, promotion,
purchasing, central reservation, and human resources. As chains play a
dominant role in the growth of the global company, franchises have been
invaluable in helping hotel companies to develop and refine their global
strategies.

3.0 Main Considerations

The hotel industry is often perceived as one of the most global in the
service sector (Mace, 1995; Litteljohn, 1997). Despite the fact that
economies are still struggling in some countries, it does not stop hotel
chains to expands their global presence. The question is why does these
chain hotels continues to global? What are the considerations that are
motivating these hotels to make such decisions?
2

3.1 Global Competitions

Hotel companies can be grouped as either limited-service organizations
or service intensive operations (Hyun Jin Yun, 2000). In hotel industry,
polarization is being accelerated. Limited-service and full-service
properties are the most basic divisions. Hotels are increasingly targeting
specific market segments because in most markets, there is more than
enough hotel capacity to go around. In years ahead, competitions will be
even tougher. Tightly controlled operations especially try hard to survive
due to the growth in the competition.
Competitions nowadays is getting fierce, and accordingly,
decreasing profits which force hotel companies to explore new markets
and form alliances and coalitions with other companies in the same or
different industry. Hyun Jin Yun (2000), also stated that in order to secure
the continual growth of business and market share, international hotel
companies are increasingly entering into strategic alliances and tie-up
relationships with other companies including, but not limited to, airline
companies, travel companies in the form of short-term opportunistic
relationships, medium-term tactical relationships, or long-term strategic
relationships.
According to Davies H., Walters P. G. P., Whitla P. (2007), The experts
pointed out that there is multi-pronged competition with chains based in
North America, Europe and Asia competing in most of the worlds largest
markets. The performance of hotels in each country therefore affects the
revenues and costs of other hotels within the network. In addition, in
areas such as reward, reservation and information systems, international
chains that did not adopt uniform worldwide systems would find it difficult
to compete.

3.2 Brand Expansion

A hotels brand identity is a very important matter. Brand recognition of a
hotel by publics is necessary for its fundamental popularity and growth.
Brands that are worldwide known will has the upper hand because it is
trustable and could attract more customers easily. For example, large
hotel brands such as Hyatt and Hilton has continuously increasing their
number of hotels in various countries. Their brands itself could attract
more and more people or customers because their credibility and services
are already well known. It could save the international marketing and
advertisement. Companies can also compete easily by using their brand
name. This shows that brands is an important characteristic in expanding
hotels businesses.
According to Cline R. S. (2015), A number of international hotel
companies have sought the economies of scale attendant to developing
single brands and products, and providing them in a uniform fashion to as
many markets around the globe as possible. A countervailing trend is that
many people (both tourists and business travellers) seek the unique
qualities and customs of an individual locale. In response, some
3

international hotel companies have tried to reflect local culture in the way
their hotels are designed and operated.
Cline R. S. (2015) also stated that this is clearly an arena in which
there is no right answer, but rather a balance of complex factors required.
For example, there is a general consensus that "global travelers," who
travel frequently whether for business or recreation, usually prefer a
uniform product, because they want the convenience and comfort of
predictability, and they demand a high level of service. Those who travel
less frequently, but have a fairly high level of sophistication may avoid
such dominant global brand and product concepts. A third group is looking
for what they are accustomed to, and are attracted by brands they are
familiar with; in essence, they prefer to stay in environments that reflect
their home-based experience.
Customer expectations are related to the level of the product, and
hotel products at the lower end of the spectrum tend to be easier to
standardize globally, in part because these properties are more clearly
defined by physical attributes, which can be duplicated. At the upper end
of the product quality spectrum, customers seek subtle differences in
services and quality, which are not easily replicated (Cline R. S., 2015).

4.0 Other Considerations

The evidence gathered from industry experts which influenced chains
hotel to go global is reviewed below.

4.1 Cost Drivers

There are three potential areas where hotel chains may gain cost
economies through integration of worldwide activities. The first was
purchasing, where quantity buying may allow for sourcing efficiencies.
However, savings in this area was seen as limited (Cline R. S., 2015).
The second area concerns the concentration of back-office
services, such as the location of accounting services in a low-wage
environment. Most of these functions are inefficiently replicated on a hotel
by hotel basis, and the hospitality industry bears relatively high cost for its
finance and accounting processes compared to other industries (Andersen
A., 1999). However, the experts has suggested that achievement of such
economies was problematic on an international basis, with savings more
related to size rather than global reach.
The third area is where cost factors favour an integrated worldwide
which concerns on guest reservation and information systems. According
to Cline R. S. ( 2015), international chains can generate cost savings,
while improving revenues through yield management systems which can
also direct potential customers to other hotels within the chain where
appropriate. It is necessary for integration when developing a single
worldwide system due to the high cost of the systems, and the
importance of all hotels in a chain co-operating for efficient performance.
4

4.2 Market Drivers

Hotel chains need to balance the allocations of a standardized level of
services and facilities with customers interest in some degree of local
adaptation. The feedback shows that guests, especially business
travellers, expected a similar range of services. Thus in-room international
direct dialling (IDD), internet services, a business centre, 23-hour room
service and a gymnasium, are seen as minimum entry standards for an
international business hotel (Cline R. S., 2015).
The experts however, also saw responsiveness as important,
especially for leisure travellers. The role of hotels within countries was
actually differed. Hotels in western countries typically rely on
accommodation charges for the majority of their sales. Meanwhile, Asian
hotels rely more on their food and beverage charges. Therefore, Asian
hotels need to concentrate on providing more and larger restaurant
outlets, targeting local diners as well as overnight guests.
In addition, many global customers purchase hotel services
centrally and multinational firms often appoint particular hotel chains as
preferred suppliers for their employees. This has implications for global
participation as many corporate customers will only deal with chains
having adequate geographic coverage (Cline R. S., 2015). Second, the
chains need to integrate marketing resources to sell the worldwide chain
where the customers are making decisions. Information systems also need
to be coordinated so customers can access guest reservation systems and
make bookings from a central location.

5.0 Issues Arised

In todays intensely competitive hotel industry, a company striving to
succeed must not merely meet industry standards. It must participate in
driving industry change.

5.1 Technological Development

The hospitality industry nowadays must overcome its general reluctance
to invest in new ideas and technologies and look for new applications that
will drive the growth of the industry. This includes using the distribution
channels, agents, and intermediaries to develop customer information
sources and using technology to provide customer what they want, in real
time anywhere in the world (Hyun Jin Yun, 2000).
With the growth of digital technology, industrial sector
reorganization is being more accelerated and efficient. The development
of information and telecommunication technology is connecting the entire
industrial sector and increasing the specialization of the value chain. Thus,
this matter has set up a new trend in various industries, where companies
or industries that cannot adjust with this situation or changes cannot
compete with others and consequently will be left out. Internet will take

hold of businesses and individuals. It will set new opportunity especially

for businesses.
For example, a large internet based company, Pegasus Solutions.
Pegasus Solutions is the single largest processor of electronic hotel
transactions, delivering advanced and affordable connectivity and
distribution solutions to nearly 100,000 hotels worldwide (Hospitalitynet,
2015). Pegasus connects hotels to crucial sources of business, facilitating
almost $16 billion for its clients annually. Pegasus delivers online, social
marketing and booking solutions through its Open Hospitality division, and
powerful reservation tools to convert and capture booking in addition to
foundational global distribution system (GDS). Pegasus ia a trusted
partner in generating guest room demand and sales. It also offers hotels
actionable business intelligence through its PegasusView Market
Performance reports to help hotels understand and respond to changing
market conditions.
According to the PegasusView (2014), first quarter of 2014 global
performance for the GDS channel reflects strong corporate travel demand
that continues to expand. January kicked of the year with business
booking ahead of January 2013 by +1.0%, with February and March
bookings growing by +1.5% and +4.1% respectively. Overall, business
travel demand is experiencing a steady rise that is affecting both the
number of trips taken over prior year and room rates. Meanwhile, leisure
travel delivered a powerful first quarter performance (PegasusView, 2014).
Bookings increased by +3.1% over prior year in January, reaching growth
of +4.3% for February. Reservation growth accompanied by rate growth
demonstrates increasing demand. This situation shows a relatively
increased in demand for technologies within the industry. People are being
more comfortable and preferred more in such technologies.
Chuck Martin asserts in his book Net Future: The 7 Cybertrends
That will Drive Your Business, Create New Wealth, and Define Your
Future, ebusiness goes beyond electronic commerce. Electronic
commerce involves the buying and selling of products, information, or
services over the Net. E-business, in other words, involves the Netting of
the entire value chain, from product conception and creation, all the way
through manufacturing, production, distribution, and ultimately
consumption. Companies that understand this and are willing to undergo
the close self-scrutiny involved in becoming Netted will be the winners
in the Net Future (Hyun Jin Yun, 2000).

5.2 Foreign Direct Investment (FDI)

Tourism or hospitality is an activity where capital, infrastructure,
knowledge and access to global marketing and distribution chains are
critical. FDI is often considered one of the most effective engines for
harnessing these elements. Hence most developing countries place a high
priority on attracting such investment, some by experimenting with a
variety of policies (UNCTAD, 2007).
6

The role of FDI in tourism and hospitality is however more nuanced

than it is in some other sectors of economy. FDI is valued because of what
it can provide, but also feared for its ability and impact upon economic
and cultural independence, and its potential damage to the communities
and the environment. According to UNCTAD (2007), in some countries,
efforts to attract FDI in tourism sit uneasily alongside complaints that
there is already too much FDI, or that foreign investors dominate the
sector and do not pass the benefits of tourism on to the domestic
economy.
In Malaysia for example, Malaysia is expected to see another record
breaking year of foreign direct investments (FDI) topping RM40 billion
(thesundaily.com, 2014). According to the Department of Statistics
Malaysia, actual FDI showed that the country attracted a higher net inflow
of RM38.8 billion in 2013, which was not only 25% higher than the
RM31.12 billion achieved in 2012, but also breaks the previous record of
RM37.77 billion in 2011.
In addition, United Nation Conference on Trade and Development
(UNCTAD) forecasted that FDI flows will rise gradually in 2014 and 2015,
to US$1.6 trillion and US$1.8 trillion respectively. However, the uneven
level of growth, fragility, and unpredictability in a number of economies,
as well as the risks related to the tapering of quantitative easing could
dampen the FDI recovery, said International Trade and Industry Minister
Datuk Seri Mustapa Mohamed (thesundaily.com, 2014).
The continual increase of FDI since 1990 shows the trend of
openness and integration of the world economy. Furthermore, the main
reason for the increase in FDI is due to an increase in international M&A
activities. The foreign capital flows can contribute to a countrys economic
through the provision of productive financial resources, the creation of
value-added job opportunities, and the transfer of technology and
management know-how.
The hospitality industry may also benefited from the FDI in many
ways. Thus, it is also clearly that chain hotels mission to go global can be
influenced by FDI whether in positive or negative ways. Any changes in
FDI will relatively effecting the entire industry. Clearly, a fine balance
needs to be maintained in order for developing countries to capture the
benefits of this growing economic activity at minimum or sustainable
costs.

6.0 Conclusions and Recommendations

World maps portray national boundaries, but those lines bely the
increasingly transparent nature of the global economy. Globalization is
denoted by the rapid movement of people, information and capital across
national borders worldwide in ways that would have been difficult to
envision not too many years ago. Yet 'globalization,' accepted though it is
as a contemporary force, is a big concept requiring careful definition. The
hospitality industry is thus at the very core of the globalization of
7

international business. Hospitality companies therefore need to consider

the implications of the global context in which they operate and must be
prepared to address the questions that arise from this changing
environment.
Although global hotel companies aim for worldwide-scale, this
momentum cannot be equally applied to all companies. Some hotel
companies, especially Asian hotel should reduce their dependency on the
global hotel chains and seek to differentiate their products, services, and
target markets. Asian hotel companies should strengthen their position in
the domestic market first. Then, they should be more aggressive to learn
and acquire core competencies from global leaders. They also need to
break away from dependency on the imported brands while establishing a
clear vision and strategies.
Strong global networks, improved image, and strong brands must
be concentrated first. Chain hotels should be enable to step into M&A and
cooperative ties with global leaders as FDI grows in importance. An
appropriate technologies and corporate resources are necessary to keep
pace with the evolving times and business environment from continual
investment in research and development which also growing in
importance.
The global hotel industry is facing continuous changes in the
business environment. Those hospitality companies that believe that they
can grow and retain a niche position without acknowledging the essential
of globalization need to take another look. In addition, most hospitality
businesses will need to think globally if they are to survive. For example,
organizations competing in the mature European and U.S. markets, which
are now seeing stiff competition from other parts of the world, especially
Asia. The sheer size of the vast U.S. market, in particular, can promote an
insular point of view, but hotel companies that concern themselves only
with the dynamics of this domestic arena also need to hear the wake up
call.
Globalization will ultimately covered all aspects of the hospitality
industry. Increasingly, customers, management processes, employees,
products, and sources of capital will be competed for and will move across
national boundaries. Companies which are unprepared for this will be left
behind. Local or regional entities may believe that globalization is not
their concern. However, competition in the future will come from global
entities with the advantages that globalization brings.

7.0 References
BBC, What is globalisation?, Retrieved from
http://www.bbc.co.uk/schools/gcsebitesize/geography/globalisation/gl
obalisat
ion_rev1.shtml

Cline, R. S. (2015) Hospitality adjusts to globalization, Hotel Online,

Retrieved from
http://www.hotelonline.com/Trends/Andersen/global.html
Davies, H., Walters, P. G. P., Whitla, P. (2007) Global strategies in the
international hotel industry, Hospitality Management; ScienceDirect,
pp.777-791.
FDI in tourism: The development dimension (2007), United nations
Conference on
Trade and Development, United Nations, pp.6-7.
Hyun Jin Yun (2000) A study on the globalization strategy of hotel
companies, School of Public Policy and Global Management, KDI,
pp.1-38.
Marvell, A. (2011) Foreign direct investment in tourism, Geography
Matters, Post-16 and HE Committee of the Geographical
Association, Spring, pp.5-9.
Retrieved from
http://www.academia.edu/1165345/Foreign_Direct_Investment_in_Tou
rism