The Challenge for International Budget Hotels in Shanghai Market - Essay Example

A study of the challenge for international budget hotel in Shanghai market Executive Summary This study has focused on the existence of budget hotelsin China. It had shown that the existence of budget hotels in Shanghai is not enough to support domestic and foreign travels. As tourism expands, there are also plans to development of chain of budget hotels. Some locals complained about government policies that set barriers to entry of interested investors. The advantages and disadvantages of budget hotels have been discussed. I have arrived at a conclusion that based on evidences evaluated; the market potential for budget hotels is big. Introduction Globalization has created an economic impact to developing countries around the world. Globalisation refers to the system wherein people around the world are unified into a single society and function together. Prof. Donald Hawkins, (2006) in his report about the impact of globalization on national tourism, said that it increases the cross border movements of goods, exchange of ideas and provides information, money and people. Globalization has created the inter dependency of people and institutions from over the world, and has formed opportunities and challenges. One of these opportunities are the challenges to international budget hotels to meet the tourism demand and face stiff competitions from luxury hotels. The hospitality industry in China is one of the sectors that benefited from globalization on national tourism. In the recent years, China has established international budget hotels to serve the growing demands of tourism to the country. According to statistics report from the China Hotel Association, there are 300,000 hotels in China, 8,800 are star rated hotels, and only a few dozen are standard budget hotels. Comparing this to the 1.3 billion population of China, the number of budget hotels is rather small. This gap of number of budget hotels and its underlying reasons are discussed in this study Purpose of the study. There are many disturbing questions that need to be analyzed to determine if the international budget hotels in China are ready to accept the challenges and opportunities opened for them by globalization. The purpose of this paper is to study the impact of the government policy on budget hotels, and to present the market situation of the budget hotels in China The study answers the following questions: 1. Describe the Internal Budget Hotels in China, particularly Motel 168.and compare this to the 4 and 5 stars international hotels, and that of other domestic budget hotels. 2. What are the advantages and disadvantages of international budget hotels. 3. How to improve their marketing strategies. 4. What are the government policies that impede development of economy hotels in China? Methodology Research methods used in this study are data collection and gathering to draw together evidence necessary for building and testing theories. A theory, according to Communications Resources is “is a way of making sense of a disturbing situation”. (Honors Communication Capstone) The disturbing situation in this study is the economic situation of international budget hotels in Shanghai. Data collection is thru published journals and website information. Data collected are tourism figures, number of budget hotels, hotel occupancy and other related information. According to the International Assessment Resource, there are ten methods of data gathering, and document analysis is one of them. I have used document analysis to arrive at a conclusion on the needs for international budget hotel in Shanghai. Review of literature. The review of literature is premised on the theory of “Does international budget hotel boost tourism? First let us have a definition of an international budget hotel. International budget hotel is a place for travellers which provide basic accommodation demands, professional service at reasonable prices It boasts of economic price, cleanliness safety and convenience. It is a simple lodging place with no swimming pool and health centers. (Meggaessays) Budget hotels in European Union and United State account for 70 percent of the hotel industry. (Mega essays). For instance, the Ibis Inn in Paris owns 71 inns for a population of 4 million people. News reports from Daily Express (2009) and C.S. Tan of Star Malaysia (2007) carried stories citing that budget hotels boost tourism as small traders prefer it for convenience and for its budget room price accommodations. Economy hotels in China as of 2007 has reached to 1689. Shanghai has 286 economy hotel at present, and ranking it as the first place to host the most numbers of economy hotels.(China Tour) As of 2000 population of Shanghai is 16.738 million (Wikiedia). This makes the number of budget hotels in Shanghai too little as compared with other countries. Asiaone reported that China has the potential to be the world’s biggest budget hotel market, as its population is four times larger than US. The continuing development of Shanghai has increased domestic and foreign tourism, and it could be concluded here that there is a market for economy hotels in Shanghai. PRESENTATION OF DATA AND DISCUSSIONS 1. Description of the Internal Budget Hotels in China. Motel 168. Motel 168 is an economy hotel designed for budget travellers where rooms are charged from $30 to $50 a night. It has a twin bed, TV, bathroom and an internet hookup. A traveling salesman finds the deal perfect for his travel itinerary. Other tourists look for this motel to save on cost and spend more money in sightseeing, shopping and tours. It has 60 branches spread all over Shanghai.(Motel 168) Comparison with luxury hotels and other budget hotels. Budget hotels Foreign investment groups have joined the economy hotel business in China. There are eight groups operating motel chains, and five comes from foreign investors. However, Motel 168 has been ranked as 3rd among the group, with Holiday Inn Express coming in as 8th. According to Asiaone, the number of budget hotel rooms is now 100,000 managed by more than 100 companies. The emergence of budget hotels have been compared with the boom in US in 1950s which was due to the expanding highways and tourism. The number of budget hotel rooms has mushroomed in the past eight years from practically zero to over 100,000 with more than 100 brands competing for a bite of Chinas rapidly expanding domestic tourism market. More than a 100 brands have emerged. Luxury hotels There are top 7 luxury hotels in Shanghai. The list includes Portman Ritz Carlton, Westin, Four Seasons, The Intercontinental, Grand Hyatt, Pudong Shangrila and Jw Marriot. What sets them apart are the luxurious amenities offered to tourists and room rates which is about $176 per night. 2. Advantages and disadvantages of international budget hotels Disadvantages Competition has hurt the blooming industry and analysts feel this may lead to a shake-out common in Chinese industries. Competition for customers, location of properties and operating costs, and hurting rents are some complaints of budget hotel owners. According to the report of Shin, Samuel (2006) room rates for budget hotels, fell 45 percent and hotel average occupancy dipped down from 82.4 percent from 89 percent in 2007. Report said that level of occupancy at budget hotels is still above the average hotel occupancy rate of about 60%. Advantages Budget hotels provide same comfort and convenience with that of 5 star hotel minus the luxurious atmosphere. Travelers save on cost of lodging. With the economic down turn, tourism should adjust to the crisis. Budget hotels answer the need to curb decline on tourism because of cheap hotel accommodation. This will encourage businessmen to travel more and do business in several places. Income from budget hotels will spur economic development as more tourists are expected to come to International Events like the recent Olympic Games held in China. Fast mobilization of trains would encourage domestic tourists to avail of budget hotels to arrive at destination places. According to Shin Samuel, there are millions of tourists and businessmen, both Chine and foreigners take advantage of the low rate of China’s Budget hotel. (Shin, Samuel, 16 Jan. 2006) Millions of businessmen and tourists, both Chinese and foreign, are taking advantage of a boom in Chinas budget hotel industry, which offers rooms for less than US$50 (S$71) a night compared with around US$200 (S$286) at five-star hotels. 3. Government regulations affecting the hotel industry in China China is a country doing away from a centrally planned economic system of the communist system and slowly adapting to the Western style market economy. As such, there are factors that I consider as areas needing policy reforms. Findings of a two year research on hotel industry (Pine R. 2004) suggest examination of the development of budget hotels and stated that operational guidelines for expansion be done. This report cited four barriers to entry to the hotel business, namely, the hotel ownership, hotel management, capability and resources, competition between local and foreign firms and the economic and political system of the country. In a reading from Wikipedia, WTTC should look into government policies that favor foreign firms over the locals on opportunities for investment. WTTC suggests that policies that limits franchising opportunities particularly on budget hotels. Conclusion Studies and reports reviewed agree that budget hotels have a potential for growth. However, some limiting factors should be considered by the government and the hotel industry itself for the budget hotels to remain competitive. Definitely, I agree that there is a need for budget hotels as there is a need for budget fares to lift up the interest for tourisms. Domestic tourism alone is enough to fuel up tourism business in Shanghai as the government encouraged holiday vacations for workers. Shanghai is a beautiful and tourist destination. The entry of foreign competitors carrying with them known brand names of hotel may both be an advantage and disadvantage. Tourists expect an A-1 service because of their known brand. It will be a disadvantage to local budget hotels as they will have to work hard to win the competition. This study has showed the need for further development of chain budget hotels to boost tourism/ End. W.c. 1873. LIST OF REFERENCES China Tour n.d.” Cheap China Hotels.” [On line] 19 May 2009. Available fromhttp://www.chinatouronline.com/cheap-china-hotels/info.html Daily Express News. 17 May 2009. Boost for tourism and traders.[on line] 19 May 2009. Available from www.dailyexpress.com.my/news.cfm?NewsID=65075 Hawkins, Donald E. 29 Jan. 2007. “The Impact of Globalization and localization on national tourism investment. AILUN Personal page. [on line] 19 May 2009 Available from www.scienzesociali.ailun.it/st/docenti/hawkins.shtml Honors Communication Capstone. “Theory and research methods defined”. [on line] 19 May 2009. Available from Read More