Palmer (2008) points out that hospitality industry has its unique feature such as intangibility referring to that the customer has to purchase the service or products that cannot be assessed by any physical senses which increase level of uncertainty. Therefore, hotel companies have to be ubiquitous so that customers always choose their brand in every country. For doing this, hotel companies need to expand its brand with property widely in order to give tangible evidence and for the sake of the company growth. One of the best ways of being internationalization is to choose right partners and affiliation strategies. There are 4 different types of affiliation: wholly owned subsidiary, lease, franchising with master franchising, and management contracts. Litteljohn and et al (2007) have argued that it is important to know the nature of organization in different places as well as geographical feature when a hotel company goes international and forecasted that the future trend for internationalization would be successful if a hotel company concentrates on local rather than international which means there would be needed detailed strategies for smaller area in order to meet specific needs from local area.

Wholly owned subsidiary means that the hotel company invests directly to the foreign or domestic markets. For example, IHG operates 17 out of 4,438 hotel properties as their own property (IHG, 2009). In terms of percentage, Hyatt operates 33.70% of total property owned by their own. In that case, although Hyatt could control the hotels with high flexibility because they could make decision regards hotel plan or any strategies, the speed of expanding the brand name and properties would be relatively slower than other hotel companies. Further, it entails high risk as they have to invest directly to the properties in foreign country. Franchising and master franchising means that the company provide its brand and know-how for a fee and give the authority to franchisees to have sub franchise in order to expand its brand name faster, respectively. Franchising is seemed to be used by most international hotel companies as it has an advantage as fast growing with low risk strategy (Hoffman and Preble, 2004 cited in Altinay, 2007). Having looked IHG’s status, they operate 3,479 (85%) out of 4,438 properties (IHG, 2009) and Hilton and Hyatt have about 60% and 25% of total properties as franchising strategy. In terms of management contract, IHG, Hilton, and Hyatt own 14%, 19% and 38% of managed properties, respectively. For managed properties, the hotel companies would have low level of flexibility that reluctant to accept changing.

The implication would be different for each hotel companies. For example, while there is low level of control, resource utilities, and flexibility for hotel properties, IHG has focused on franchising and as a result, they managed to operate the most number of hotel properties in terms of number among the three international hotel companies because of characteristic of franchising which allows fast growing with low risk according to Bender et al (2008). He also points out that hotel business is not about real estate business anymore but about brand management. Further, considering the service characteristic (intangibility), IHG provides the most tangible evidences in terms of number of hotel properties by presenting in most major places in the world. The matter is whether the properties are concentrated in a limited place or disseminated. That would be location of properties strategy for international hotel companies’ success.

Location of properties

Fitzsimmons and Fitzsimmons (2006) observe that strategic location of hotel (locating where the customers are) is crucial key for success unlike other industries such as a factory which could be running located in isolated area. Whitla and et al (2007) manifest that there are four factors should be considered in order to be internationalized: cost, market, government, and competitive drivers. Cost driver refers to that there are some areas where could be beneficial from integrated system such as back office and reservation system and market driver with local adaptation. Government of most country sets legal constraints to protect its citizen rights and it is important to know what the rules are for adaptation. Lastly, carefully considering the competitors is primary to choose location of the properties.

Unlike any other industries, location is decisive a factor to determine the international hotel success because of one of the service characteristics known as inseparability which means that consumption of service is different with consumption of the product because when a customer consumes the service, the customer is meant to be involved with the consumption activity and therefore, hotel location could be first priority for customer as they need to go where the property is located (Palmer, 2008). According to the poll result conducted by independenttraveler.com (2010), 36.60% out of 153 people consider the location as the most important factor when they decide hotels (see Figure 1). Furthermore, USATODAY.com (2010) has also conducted a research the same question with independenttraveler.com and the location factor ranked 1^st position (38% out of 4878) as the most important factors when people choose a hotel (see Figure 1-1).

In order to response this result, many hotel companies focus on its property geographic diversification which is referring to build hotel properties as many and wide area as they can rather than property concentration indicating building hotel properties in limited area by setting various strategies such as expanding number of franchise, concentrating on affiliation, and expanding its business to abroad with one integrated brand name. Hyatt operates 415 hotel properties in 45 different countries which cover 20 out of 25 most populous urban centers based on the company’s demographic research (Hyatt.com, 2009). However, 303 hotels are located in the US soil which means that Hyatt is seemed to be focusing on geographic concentration rather than diversification. In that case, the market growth, sales stability, product adaptation, and constraints would be higher than other companies with leading the market according to Ayal and Zif’s (1979) discussion. Although Hyatt, a hotel company, might be considered as successful hotel company in the U.S. but it might be hard to say that they are successful international hotel company comparing to IHG in terms of location factor.

For instance, IHG hotel properties are located over 100 countries by accepting franchising more than 85% so the brand name is all around world (IHG, 2009). IHG also concentrated on the USA because the country is regarded as lucrative market for hospitality industry but they also focus on Europe where IHG leads the market as they have set the business since 1980 and Asian countries to disseminate its brand name (Johnson, 2005). Therefore, IHG could be considered the successful international hotel company in terms of location strategy as they utilize both concentration (in the US) and diversification considering the potential market growth and other environmental factors such as politics (e.g. establishing hotels after identifying that the country adopted the law (REIT and ERTA) which give the company advantage in terms of tax) with the most number of rooms (capacities) among three companies (Campbell et al, 2002). Location strategy usually links to branding strategy because it is related to market segment and uniform of service quality under the same brand name in different area.

Branding and customers

In order to success internationally, the global hotel companies are required to adopt branding strategies to give image to customers that they are delivering best quality of service consistently because brand is one of the symbols that represent the hotel company all around world (O’Neill, 2010). Although there are lack of understanding of the definition of brand among hotel executives, branding strategy has positive impact on the hospitality industry as it gives tangible evidence that reduce the customers’ uncertainty of the product or service which is one of the hospitality characteristics called intangibility such as the company’s specific physical design in order to transfer the know-how with image to the foreign markets (Palmer, 2008; Dev et al, 2007; and Olsen et al, 2004). Furthermore, O’ Neill (2010) points out that most customers choose the well-known hotel brand or the brand that they have experienced in the past in order to reduce the risk of purchase and it is connected to customer’s emotions as it has something to do with customers’ pleasure and senses. There are several advantages in terms of both customer and business perspective: the former could get identification with a clear image about the hotel and low risk to choose and the latter could take an advantage of “securing premium price and consistent income from franchise and management contract, faster growing comparing to unbranded equivalents, attracting different market segments by multiple branding”. Olsen et al (2005) manifest the brand critical success factors (CSFs) for international hotel companies: location, reservation system, revenue management system, technology utilization, in-room amenities, and loyalty program.

Having looked IHG’s branding strategy, they have adopted the multiple houses of brands strategy which is indicating that there are multiple brands under IHG’s govern, but sharing few commons each sub-brands. For example, Holiday Inn, itself part of IHG, is using its independent brand name rather than following by the name of IHG. The company divided that its sub-brand as 7 major brands: Intercontinental Hotels& Resort (9% of its whole capacities), Crown Plaza Hotels & Resorts (16%), Hotel Indigo (1%), Holiday Inn (38%), Holiday Inn Express (30%), Staybridge Suite (3%), Candlewood Suite (9%), (IHG, 2009). With wide location presence, IHG have attracted wide range of customer segment including businessperson by having full range of business facilities in Crown Plaza Hotels & Resort, travelers by adopting reasonable price in Candlewood Suite, and Holiday Inn provides competitive geographical presence so that customers could use accommodation simply everywhere without taking a risk in terms of choosing a brand. IHG’s loyalty scheme, Priority Club, which is divided as three such as Club level, Gold Elite, and Platinum Elite, provides wide range of service from free IHG accommodation to other services such as more than 10,000 restaurants, rental, and co branding with many airlines and credit card company so that more than 48million customers could take advantage of the points as well as making a point other way in order to keep using its loyalty card (IHG, 2010).

Managers and People

International hotel industry where is considered to be heavily depending on human resource to maximize the customer satisfaction needs to develop more efficient and effective strategic human resource management in order to adapt both internal and external environmental changes and to survive and continue to grow in a high competition with other hotel companies (Mather, 1996). Strategic human resource management (SHRM) has been the focal interest both in the academic and practical management and as Becker and Huselid (2006) discuss that SHRM is one of the key elements for success. Therefore, it is useful to the effectiveness for international hotel companies as they are getting bigger and expanding geographically wider. As the hotel brand is expanded, wide range of cultural consideration becomes the first priority for hotel organizations. Roper et al (1999) state that there are different ways of approaches for centric human resource management: ethnocentric approach referring to that there is a standard for business performance no matter where the hotel is operated, polycentric approach meaning that host country would be the center in terms of any business performance such as recruiting home-country people and geocentric approach indicates that making decision based on different national backgrounds so the products are also adapted for the world standard and lastly, region-centric approach is added to explain about business decision and performance based on regional level for hotel companies.

Applying those approaches into the international hotel company, IHG, with considering the importance of consistent service, could be categorized as geocentric because key decision makers in IHG are from different background and selected based on their ability to contribute to the hotel company as their executives are diverse in terms of race, though IHG is UK-based hotel organization (IHG, 2010). Langton (1995, p. 16 cited in Roper et al, 1999) states as following:

“Uniformity in customer service, quality and value need not ignore the unique local character. Individual franchisees and general managers can offer additional services that uniquely meet the needs of their markets and guests…, the key to success is getting the balance right.”

Altinay and Roper (2005) found the correlation between entrepreneurial activity and positive or negative business performance in a hotel company by setting clear organization structure, identifying cultural differences which are important in that there are dilemma between standardization and local adaptation, and reward system especially in some European countries. IHG operates more than 85% of its property as the way of franchising. Therefore, the relationship and the role of entrepreneurs are extremely important in order to operate the brand name world widely.

 

 

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