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Vol 39 February 2014

KING OF THE KITCHEN Combi ovens offer space-saving versatility

The FINE PRINT Industry leaders discuss management contracts

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A N A G eme N T

Moving with the times

By Kurt Walter
here are many different ways to structure management contracts and what works for some might not necessarily work for others. However, we have observed some changes in this very competitive hospitality market, and the way management agreements have been structured in the past may no longer be valid in todays business environment. Previously it was lucrative for operators to enter into management agreements as these deals were tailored and structured to give operators a certain percentage on revenues and profits. These so-called three plus 10 agreements (3% of revenue and 10% of profit) are not aligning the risks and benefits for both parties equally and can result in one of the two parties getting demotivated over time. Focus is now put on a more balanced remuneration mechanism whereby risks and rewards are aligned in a more balanced fashion. At the same time, it is for an owner equally important not to demotivate the operators, as an enormous amount of time and effort goes into managing any hospitality property. Hence, fee configurations are now less focused on base fees but more on the profitability of the operation; the higher the operating profits, the more attractive the rewards for the operating company and ultimately for the owners. In fact I like the rewards based on profitability a lot and perhaps operators should be incentivised on the maximum sale value of the property too, in addition to operating performance. Such benefits are quite attractive for both operators and owners and result in a win-win scenario where fees could end being higher than with the common fee structure being a certain percentage of revenue, regardless whether the hotel is profitable or not. My philosophy going into any meetings/negotiations is that it must be a win-win for both parties. As soon as one feels that they were cheated into an agreement, the relationship usually ends up being a painful experience for everyone involved and will likely be dissolved. In addition to this, one must be sensitive to different cultures and religions and show an interest in matters that may be important to the counterpart. With some, it might be pure business, short, sweet and to the point; with others the approach might be a game of golf, a meal or perhaps as simple as inquiring about the family. For some it is all about the business/contract and for others it is all about the relationship one has with his/her counterparts. As for me, it is a bit of both and although the correct and detailed contract terms are paramount in any contractual obligations, to get to a mutually agreeable management contract can in my experience

be best achieved via relation building process, especially in Asia but also in other parts of the world. C o n t r a c t negotiations are fundamentally different between Asian and Western counterparts. The way people think, act and behave is different from continent to continent, from country to country and even from region to region, which at times puts even the best contract negotiators in awkward situations, no matter how skilled. Different countries mean a different way of doing business and it is astonishing how different contracts are negotiated even within the various Asian countries, let alone between East and West. I observed this during one of my assignments early on in the mid1990s when I was hired to manage a hospitality business in Vietnam for an US-based company. Any contracts that were negotiated were based on relationships first, even before we headed to the boardroom to discuss the finer details. This could happen over a game of golf or a meal and drinks. In the Western world it is all about the technicalities of agreements and contracts into the finest details and the getting to know the other party appeared to be almost non-existent, while in Asia it is to this day about trust and about getting to know one another first. Another interesting comparison is the fact that some cultures in the West go into negotiations with the intention to win whereas some Asian cultures tend to find common ground via a win-win brokering [arrangement]. And there are numerous other components important to either side, such as how formal negotiation/meetings are, the sensitivity of timing, the direct or indirect form of communication, all which make such management contract discussions, if not paid attention to, a challenge that could lead to success or failure in the negotiation process. Kurt Walter is group general manager, hospitality division, Apple Tree Asia, a diversified group operating in Vietnam, Laos, Cambodia, Myanmar, Thailand and India. With more than 30 years experience in 12 countries, Walter is currently based in Hanoi, Vietnam, as group general manager, managing 10 properties in Vietnam, Laos, Myanmar and Thailand with 500-plus employees.

www.asianhotelandcateringtimes.com

AHCT February 2014

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