Development Trend and Business Potentials of China in Hospitality Industry - Essay Example

China’s Development Trend and Business Potentials in the Hospitality Industry Chinas Development Trend and Business Potentials in Hospitality Industry Chinese government announced the open door policy in the year 1978, which was meant to diversify and decentralization of hotel investment in China. The first multinational hotel chain to build in China was in the year 1982 referred to as Beijing Jianguo hotel, built by the Hong Kong Peninsula Hotel Group (Heung et al., 2008). Since then then there have been numerous business potential of Hospitality industry in China both for the domestic and international investors. China is a country that has a rich culture. Today China is characterized with many multinational hotel companies such as Accor Hotel Group, Intercontinental Hotel group, and Shangra-La, which is evidently indicate that China has great potential in hospitality. China has continued to be ranked hire in terms of the best tourism site globally, the World Tourism Organisation (WTO) ranked China fourth in arrivals and fourth in terms of receipts in the world (WTO, 2014). Recently, has experienced an increase in disposable income, infrastructure development and urbanization that viewed to favour the growth of China’s hospitality industry. There is a strong and steady growth in demand in leisure travel and business, and this makes China to be an investment paradise for hospitality industry. Development of Multinational Hotel Groups (MHGs) In China China’s hotel industry has experienced a spectacle growth for the last 40 years. This has been greatly influenced by macro-environment factors, and also the experience that MHGs have with expansion strategies and plans as well as enhanced management skills. The location of china is very strategic for tourism and hospitality development (Li and Park, 2006; Johnson and Vanetti 2005). Multinational hotel groups’ entry mode in China are vied as Foreign Direct Investment (FDI) and non-equity forms. Hotel business is a sub-sector within hospitality industry, there is great potential in China for this form of business since Chinese cuisines are becoming very popular globally. Franchising and management contracts is the major and most common form of business format in this sub-sector. Joint venture are also becoming popular but they are viewed to have an enhanced performance in the long-term rather than the short-term (Li et al., 2006). What is the international entry mode of any business potential in the hospitality industry in China? Numerous management journals have suggested different approach such as cultural distance, control, internationalization, institutional theory, knowledge-based view, organisational capabilities, uncertainty, risk, and resource based view, and transactional cost theory. Whichever the approach that a business might choose to enter the hospitality industry in China there is great business potential. WTO (2014) estimates international tourism receipts of FY 2013/14 as $51.7 billion, which most of this amount will go to hotel sector since each international tourist will need food and accommodation while in the country. The business potential in China can then be said to be very profitable. Developmental trends of MHGs Hotel development in China can be categorised in six different ways, the potential of the Chinese market; the trend of business format; local entrepreneurs; the direction trends of investment; government policies; and the influence of mega-events such as Olympics on hospitality development (Kivela and Leung, 2005; Li and Park, 2006; Tisdell and Wen, 1991; Xiao et al., 2008; Zhao, 1989). The most common developmental trend in Chinese hotel sector is franchising and direct investment. The current trends in relation to business formats in Chinese Hotel industry is management contract especially for MHGs (Qiu et al., 2005). China is part of World Trade Organisation (WTO) and there is no major restriction if an local entrepreneur had a joint venture with a foreign investor. Another developmental trend in hotel sector in hospitality industry is the emergence of Budget hotels. A budget hotel is a simple hotel that offers lodging facilities with simple accommodation ensuring that the basic needs of the customer is reached. The first budget hotel in China was Jinjiang Inn located in Shanghai in 1997 (Zhang, 2004). Budget hotels were not allowed to operate in China until 2000, the government policy restricted this type of hotels. Business opportunity therefore exist in this type of Hotels since they require minimum amount of capital to set-up. The budget hotel sector can be said to be very competitive but there seems to be much more room for expansion and development in in this sector. The market potential in China is very promising, and this is because China is one of the fastest growing economy in the world. A stable and growing economy favours any potential business since it is an indication of political and social stability, growing urbanization, abundant supply of workers and infrastructure development. The economy of china is very favourable for any trend that might arise in the hospitality industry, as well as business opportunities. Locations such as Shanghai and Beijing continue to be very attractive to any investor in this industry. Developmental Trends in the Hospitality Industry During the economic downturn, the Chinese hospitality industry was heavily hit as most people and companies reduced their leisure and business travel activities due to the finical crisis. Most hotels were compelled to reduce their room rates and the cost of offering services as people sought bargain services. Over the past years the developmental trends show massive improvements in the situation and the leisure and corporate segments of the Chinese hospitality industry are gradually improving in performance. Some of the indicators of the rapid development are related to the swift growth in vacation ownership, integration and ownership and new management trends (Yan, 2006). Swift growth in vacation ownership Vacation ownership segment in the Chinese hospitality industry is experiencing the fastest developmental trends and is expected to continue like this due to the favorable economic and demographic factors promoting its success. Hospitality companies are increasingly employing the concept of brand power as most of the foreign corporations such as the intercontinental hotel, and Hilton Hotels realize immense growth in their vacation ownership segment. Furthermore, the local tourists are have increased tremendously following the implementation of two-day weekend in China as well as the adjustment of public holiday increased the leisure time of most working people (Zhang et al., 2000). Integration and Globalization Vertical integration has become an international trend in the hospitality industry across the globe. The Chinese government has improved the economic atmosphere for foreign companies to invest in the hospitality industry thereby creating a diffusion of experience and trends from international markets. Since the government policies have led to opening up of China to foreign investors, there are many businessmen and corporate travels to China, which have led to increased need for accommodation facilities. Lodging companies are increasingly realizing that the accommodation segment needs not be in one level only, but should be varied in terms of amenities, facilities and consequently the price. This helps the hotels to cater for the needs of different segments of their clientele. The future of the hospitality industry in China involves globalization trends. The local hospitality industry is very limited if investments only focus on meeting the needs of the local people. On the other hand, focusing on vertical integration in the provision of services will improve the capacity of the industry to cater for the needs of the local population while observing the cultural context of their local market and at the same time, provide services fit for the international clientele (Stutts, 2001). Changes in Management Following the complex forces of globalization, changes in the services offered in most hotels to accommodate a variety of clientele, technology issues, capital movement, safety and security concerns as well as the capacity control, the Chinese hospitality industry recognizes the need to change the management styles and adopt the future management cadre. Most hotels, restaurants and motels are adopting a management style that has the capacity of adapting to the rapid-paced change in order to improve the traditional management functions. The changes in management are triggered by the growing complexities driven by the growing nature of the information age, technology and customer/employee relationships. For instance, with the increasing number of international corporate visitors in China, the frontline desk and the staff are expected to be more knowledgeable about the industry in terms of the offerings required for specific guests, cultural affiliations as well as their needs. This means that to envision the future, most of the traditional management trends of using low-skilled employees has to be reduced significantly thereby shaping the human resource needs of the industry. The changes in management has the potential of shaping all the sectors of service delivery depending on the complexities of the issues the industry is facing. Drivers of Business Potential in the Chinese Hospitality Industry The Chinese hospitality industry has great potential given the influx of international investors in the country. The local hospitality industry is in the infant stages following a long period of limited players. However, the industry is rapidly growing due to the huge population growth rate. Furthermore, the growing size of the middle class increases the need for domestic travel. Local investors prefer to invest in economy or budget hotels since it is greatly affordable to most people as is also more popular to domestic tourists. While the middle class are prone to travelling most of the time just like the wealthy international and local tourists, they have a relatively modest budget. In this case, the budget hotels are booming as an investment opportunity catering for the needs of the middle-class population segment. Moreover, major international events such as the 2008 Olympics games held in Beijing and the 2010 Exposition held in Shanghai have been a major boost for the growth of the mid-market levels in China. Most of the companies in the hospitality industry in China had already invested in luxurious hotels which offer luxurious tour products to foreign and international markets. Prior to the last decade, the local hospitality industry was underdeveloped by the luxurious segment was booming with international clients. Such hotels were developed targeting international trade and are among the hotel chains in China. The hotels are beyond the reach of common local people who want hotel services with a touch of their cultural and local feel as opposed to very expensive hotels offering international services. With time, the local market has by far surpassed the globe-trotters by increasing the demand for domestic travelling services as well as the food sector. As such, many investors are exploiting the welcoming opportunity to encroach and expand their hospitality services by developing tertiary and secondary markets. The government of China has made great strides in promoting the development of the hospitality industry through formulation of economic policies that promoted international trade as well as foreign investments. Furthermore, the local infrastructure increases the opportunities and the potential of the rapid growth in this industry as it open up access for local tourists to travel the country with a lot of ease. For instance, the fastest train in the world was launched in China in 2010 which allowed the hospitality industry to take advantage of taking their clients to tours across major tourist destinations such as the mountains in the Southwest. Furthermore, the travelling time was enormously shortened thereby enabling tourists to visit many places in a day. The Chinese government is also increasing the potential of the hospitality industry by planning the development of domestic air travel (Hua, Chan & Mao, 2009). The plan of the government is to build an estimated 100 new airports which are projected to be completed in a span of ten years. For instance, the largest airline terminal in the whole world was opened up in Beijing in 2008 in preparation for the Olympic Games. Moreover, the passenger capacities of the airports in Guangzhou and Shanghai were also significantly improved. The country targets to have not less than 1600 jets by 2020 (Market Overview, 2010). References Aurelio, G. M., (2007), Yield Management and Perceptions of Fairness in the Hospitality Business, International Review of Economics. Hua, W., Chan, A., & Mao, Z. X. (2009). ‘Critical Success Factors and Customer Expectation in Budget Hotel Segment — A Case Study of China.’ Journal of Quality Assurance in Hospitality & Tourism, 10(1), 59-74. 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