Strategic Hospitality Management - A Plan for the Expansion of Accor - Essay Example

Strategic Hospitality Management: A Plan for the Expansion of Accor INTRODUCTION Accor is one of the largest hotel corporations in the world. At present it owns more than 4000 hotels, with more than 450,000 rooms in 90 countries (Accor, 2003). More than a quarter of its hotel holdings are presently in the USA, with their flagship being the legendary budget motel chain Motel 6. As the Cornell University study (2003) suggests, “Accor thrives on a balanced diversity in its portfolio.” Diversity in the current world economic climate needs to involve expansion into A PESTEL analysis of Accor reveals a number of changes that are expected in the future: Political/Legal: Changes in Europe with increased transport and movement of people between countries. This provides new opportunities for growth in the hotel industry that provides for many of these people. Opening up of national borders in countries such as China will also provide massive new markets. Economic: Expansion into emerging markets is needed as the economies of Europe and North America are relatively stagnant. Massive economic growth is occurring in emergent economies, with special emphasis on the development of a middle class. Social: An emerging middle class in developing countries provides a new market opportunity. Technological: Technological advances, especially through the expansion of the ease and use of the Internet will provide opportunities for booking/reservations that had not previously existed. The current breakdown of Accor Hotel holdings is as follows: REGION HOTELS % ROOMS North America 1339 30 France 1292 26 Europe (minus France) 836 25 Asia Pacific 210 9 Africa 156 5 Latin America 148 5 (www.accor.com) So Europe as a whole (including France) has a total of about 50% of Accor’s business, but the Asian market has only 9%. Considering the populations of Asia and their growing middle class, this seems a somewhat skewed proportion with ample room for improvement. The proportions hotel business are as follows: (Schroeder, 2002) As the company has been successful within the Economy sector it seems logical to plan for the future using the paradigm that has succeeded thus far. GOALS The Accor Board is planning on continued expansion with 10,000 rooms per annum over 2007/2008. This represents a fairly modest 2.2% rise per annum. This growth is planned across both established markets, such as in Europe and North America, and emerging markets in the developing world, such as Latin American, the Middle East and Asia. PROPOSAL Established Markets Country The country chosen for expansion in the established market is Switzerland. The brand that will be expanded is the budget ETAP band. Switzerland is a logical and promising choice for the following reasons. 1) The Swiss economy is one of the most advanced in the world and has a broad range of economic activity, with a main focus on the banking and tourism sectors: “Switzerland’s economy is based on a highly qualified labour force performing highly skilled work. The main areas include micro-technology, hi-tech, biotechnology and pharmaceuticals, as well as banking and insurance know-how. Most of the people working in Switzerland are employed by small and medium-sized enterprises, which play an extremely important role in the Swiss economy.” (www.swissworld.org) 2) Accor already has a presence within the Swiss economy, although not as large as it might be within the economy hotel market. This provides room for expansion where name recognition already exists. 3) Switzerland increasingly relies on the tourist industry as some other sectors of the economy have recently stagnated. PESTEL factors are important here because of the growth in the European Union (Political/Economic/Social) and the growth in the computer industry in general and the internet in particular (Technological). These combing to make Switzerland an ideal site for opportunity and growth for Accor. Choice of Brand The brand chosen is the ETAP brand. Accor currently has 283 hotels throughout Europe and Israel. Less than 30 of these are currently located in Switzerland. Switzerland is perceived as an expensive country in which economical but quality accommodations are not commonly available. An expansion of the ETAP brand would fill this void. ETAP and similar hotels internationally are some of the most successful Accor ventures. Some questions need to be addressed regarding this choice: 1) Why is this brand being chosen over any other? Accor has a number of different brands that could be chosen for the Swiss market. As the only international group that is present in all hotel market segments, it could choose to locate from upscale to economy hotels in the country. The reason that an upscale brand such as Sofitel would not be a good choice is that Switzerland is already fully serviced a a number of upscale hotels, from the brand-name Hilton, Mandarin Oriental and Four Seasons to a number of prestigious individually owned hotels such as the Hoteld’Anglettere and the Hotel Beau-Rivage in Geneva, as well as the Hotel Scweizerhoff in Zurich. It would be unlikely for Accor to seriously challenge the market share of such hotels with its excellent, but not as prestigious upscale brand, Sofitel. The mid-scale offerings within Switzerland are similarly well-represented, so it is within the economy brand that Accor can most successfully compete. At present Etap has the fewest number of rooms available within Europe for an Accor economy offering (22,337 rooms as of 2003) and thus the brand will not suffer from the problem of being “too well-known” and thus perceived as “cheap” (Accor, 2003). Thus if a traveler sees a hotel that is part of a chain of budget hotels that is commonly seen within countries that he travels within, he may want to stay at a less common place in order to experience the ‘reality’ of Switzerland. Etap is not as common as some other budget offerings and thus will be not be perceived in this manner. This is one important reason for the choice. 2) Who are the major competitors to the Etap brand in Switzerland? As previously stated, hotel chain market penetration into the economy/budget market in Switzerland has not been as deep as it has been in other European countries. An “affordable” hotel list at the website www.myswitzerland.com offers a serious of rates that vary from 100 CHF to 160 CHF for a double room with two people occupying it. Accor would be the first major hotel chain to offer a series of recognizable brand hotels within Switzerland. Emerging Markets Market Emerging markets are some of the most important elements of any new international business plan. Emerging markets include those in Asia and other developing countries. The country that Accor should invest in is China. This country has a number of factors that makes it a very inviting prospects: 1) The largest total population in the world (United Nations, 2006). 2) This population provides a massive base market while the fact that China has the largest, and quickest growing, middle class in the world implies that it will have a large group of people with disposable income (Shenkar, 2006). 3) Having leverage within expanding economies will enable future growth. 4) Chinese hotel room capacity doubled from 1993 to 1997 (2552 to 5201 hotels) and doubled again in the next six year period. (CNTA, 2004) Choice of Brand The choice of brand is the ETAP brand. ETAP offers a range of budget options which offer reliable accommodations at a predictable quality. China has many budget hotels, but they do not have the safety and reliability of a brand-name with the standards that Accor can ensure. The expanding middle class in these countries increasingly seek a Western standard of service and reliability, especially with the increased mobility that their money and business enables. The Competition that Accor will face in China The period of economic growth that has been occurring in China over the last twenty years, something that has resulted from the slow but steady relaxation of Communist economic controls has led to a situation in which “39 indigenous hotel management companies have emerged in China” (hotel-online, 2006). This might superficially seem a large challenge to Accor entering the Chinese market. But a more promising environment is revealed upon closer analysis: “. . . . the complexity of the Chinese economic mechanism and business environment, and the lack of management expertise slowed the formation and expansion of these hotel chains” (hotel-online, 2006). It seems likely that the Western chains such as the Hilton and Marriot that have located in China (which exclusively relate to an upscale clientele) can be followed in their success by Accor with a budget, Etap, offering. Marketing Strategy for Established and Emerging Countries Marketing in the modern world depends upon a number of different factors: 1. Building and managing profitable customer relationships. 2. Building and managing strong brands to create brand equity. 3. Harnessing new marketing technologies in the digital age. 4. Marketing in a socially responsible way in a global market. (Kotler, 2006) #1 and #2 are related to one another in both the Established and Emerging Countries. In the established market of Switzerland there is already a degree of brand equity and a customer base, although these can be increased by a concentration on the fact that Accor is offering budget accommodations with quality. The Chinese market is emerging, both in a national sense and for Accor specifically. A more aggressive marketing campaign is needed in these markets. A concentration upon the fact that this is a Western company that has most of its holdings in Europe and the United States will enable Accor to take advantage of the desire to be identified with Western products and services that exists in emerging countries (Ries, 1994). Marketing strategy in Switzerland should concentrate on an Internet approach, as the country has one of the largest percentages of households that has high speed Internet access. (swiss, 2006) Marketing through the Internet should concentrate upon travel websites that offer the opportunity for customers to book their own plane, hotel and car accommodations. Thus purchasing a high search placement position on sites such as yahoo, expedia and cheaptickets will create both visibility for the brand and the ability of customers to easily reserve rooms. At present the competition (such as Hilton etc.) uses a traditional spread of advertising, from newspaper to magazine to Internet. However, they have been slow to realize the potential (especially within the international market) of the Internet approach. A rapidly growing proportion of consumers now book the whole of their holidays/business travel on their own, avoiding the old-fashioned travel agent. High placement within the most well-known online travel booking sites will enable a degree of very cheap but very visible marketing. One important aspect of the online marketing strategy will include the placement of glowing positive reviews on the individual Etap hotels from ‘customers’. This enables an essentially free marketing tool in which Accor can gain a high rating for its hotels through customer input. While there are ethical dilemmas posed by the placement of such reviews, the practice is now common in many industries. The marketing strategy for China should follow a contrasting approach to reflect the very different economic, social and political realities of that country. Thus a relationship both with national, regional and local governments, in which Accor is used to provide rooms at subsidized rates for government employees should effectively increase exposure of the company. This will alleviate the natural suspicion that the Chinese have of foreign companies and what is perceived as their attempts to introduce alien ‘ways’ into the country (Shenkar, 2006). For example, a close relationship with the “China National Tourism Administration”, in which Accor ‘advertises’ its new Etap hotels through informational pages bought on the Administration’s website (www.cnta.com) will produce a degree of official government contact and also private interest that any penetration into the Chinese market necessitates. A respect for the still massive power of the Communist Party bureaucracy, together with an optimistic, forward thinking contact with the new private sector will ensure the greatest possibility of success in China. The Preferred Methods of Ownership and Finance Both the Established and Emerging sectors will benefit from the franchise model of ownership and finance. Accor already uses a franchise model in a number of its different business activities, most notably the Motel 6 franchise that it bought sixteen years ago (Accor, 2003). Franchising offers a number of advantages for companies in general and Accor in particular (Keup, 2004) Franchising enables Accor to increase its own bottom-line while risking little in terms of investment as franchisees must contribute most of the start-up costs for the individual hotels. The selling of franchise rights risks little (Spinelli, 2003) As the analysis of Accor suggests, “franchising is a cash-generative, low-cost way of expanding, especially with stronger brands . . . Accor uses this tactic in the midscale and economy segments.” (Accor, 2003). It might be argued that the ownership/leasing option might be needed in an emerging market in which assurances of brand quality will not be as certain. But these properties have higher profit sensitivity and Accor would be risking far more money than through the low-coast franchising approach. The management contract approach would not work in China, because of the already identified lack of management expertise in that particular region, although it might in the more developed Swissm market. However, as expansion should use a single approach to ownership to ease problems of complexity, the final decision should be made to have a franchising approach. The place where franchising might risk a decrease in brand quality (China) is remote from other Accor holdings in a geographical sense, and so any diminution would only occur within this market rather than spreading to the larger, and thus more important, European market. Franchising of the hotels also enables Accor to increase its visibility within the emerging middle class that it is aiming to market within. Thus the class of people (middle-class) that the hotel chain is aiming at attracting as customers will also be the population segment that will purchase the franchises. A dynamic equilibrium between the customers and the franchisee will thus occur in which visibility, marketing and involvement combine to create a dynamic market force in the emerging countries (Hoovers, 2005). This will occur especially in the large, densely populated cities (ie. Beijing) in which the first Etap hotels should probably be located. These cities are also the center of the massive economic expansion in China. Here is where the middle class is located, and here is where the hotel will gain most visibility. A similar relationship will not necessarily occur in the already advanced and sophisticated economy that exists in Switzerland, but the franchise paradigm is still attractive because of the innate benefits of this system that Accor has already shown it can take advantage of in other countries (Shenkar, 2006). The franchise system will also be of benefit because of the low marketing costs associated with a careful use of Internet penetration and visibility. Franchisees will be able to see what is being offered by other Etap hotels, and will be able to exchange information and ideas with them. A degree of healthy competition among the Etap hotels, as well as between Etap and other hotels, will occur. This can only raise standards and thus the profitability of the new ventures. CONCLUSION Accor has become one of the most successful hotel conglomerates in the world through a policy of careful acquisitions and steady growth. It must now move into the emerging markets in order to maintain its strong position within the world economy. Investment in emerging economies may involve more risk than that which exists in the developed world, but the concomitant benefits and possible rewards are equally large. The franchise system is an effective and tried paradigm that will succeed in both the established and emerging markets. ________________________________________ Works Cited Center for Hospitality Research, Cornell University, “Accor SA”. 2003. CNTA (1993-1997, 1998-2004) The Yearbooks of China Tourism Statistics. Beijing. Chinese Travel Tourism Press. Hoover’s Online, “Hoover’s Company Profiles”. http://ezproxy.library.cornell.edu Keup, Edwin. Franchise Bible. Entrepreneur Press, New York: 2004. Kotler, Philip. Et al. Principles of Marketing. Prentice-Hall, New York: 2005. Ries, Al. The 22 Immutable Laws of Marketing. Collins, London: 1994. Schroeder et al., Accor. 10/4/2002. p.60. Shenkar, Oded. The Chinese Century: The Rising Chinese Economy and its Impact on the Global Economy. Wharton, New York: 2006. Spinelli, Steven. Franchising: Pathway to Wealth Creation. Prentice-Hall, new York: 2003. United Nations, World Population Report 2005. www.un.org www.accor.com www.cheaptickets.com www.cnta.com www.expedia.com www.hotel-online.com/Neo/Trends/ChiangMaiJun00 www.myswitzerland.com www.swiss.org www.swissworld.org www.yahootravel.com Read More