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BE31503 INTERNATIONAL HOTEL MANAGEMENT

(GROUP ASSIGNMENT)
AMMIEZA ERMA BINTI MARLEH (BB12160808)
REBECA LAKOU (BB12110491)
Title: Discuss why do hotel companies choose to
invest in an international market
1.0 INTRODUCTION
According to BBC Website, globalization is the process by which the
world is becoming increasingly interconnected as a result of
massively increased trade and cultural exchange. Globalization has
increased the production of goods and services. The biggest
companies are no longer national firms but multinational
corporations with subsidiaries in many countries. Globalization also
has resulted in increased in international trade, a company
operating in more than one country, greater dependence on the
global economy, free movement of capital, goods, and services, and
also recognition of companies. Globalization has relatively closing
the gap between countries across the world. Hotel company saw
this concept as a stepping stone of widening the range of the
industry.
Tourism has become the worlds largest export industry,
involving as it does enormous cross-border flows of people and
capital (Cline R. S., 2015). In many countries, where tourism has
become a major export industry, the hospitality sector is the focal
point for concepts of globalization to take root.
Therefore, many hotel companies choose to invest in
international market along with the development of globalization.
According to the article from Business Destinations, dated on April
2nd 2012, a number of major hotel chain are expanding their global
presence by opening at new locations around the world. Despite the
fact that economies are still struggling in many countries, luxury
hotels are constantly opening. The main reasons that are motivating
these hotel companies to invest in an international market are
because of growth and profits, and economies of scale.

1.1 What is Hotel Industries


Hotel is an establishment that provides lodging to anyone wishing to
stay for a day or more to be paid in the short term (Wikipedia). It
serves as temporary accommodation to tourists from home and
abroad who live far away who need a place to relax and get cleaned
up in time. According to Wikipedia sources, amenities available in
the hotel is a bed and storage for clothes, special features such as
en-suite shower room. In addition, other facilities such as swimming
pool, business center, childcare, conference facilities and social
function services.
Assessment system was also introduced to determine the
feedback from customers on satisfaction they get after staying at a
particular hotel (www.bizymoms.com). With that, the hotel will be
marked from one to five stars, where star hotel that has a lot of star
(5 stars) is much better than a hotel that has a little star. Indirectly,
this allows the next user can get references from previous users.
Among these hotels are famous and often get visits from tourists
from home and abroad is the Le Meridien Hotel, Shangri-La Tanjung
Aru, Nexus Resort & Spa, Four Points by Sheraton Sandakan, Gayana
Eco Resort and Hyatt Regency Kota Kinabalu.
While, hospitality as a service industry, is one of the fastest
growing industries globally. According to the Travel Industry
Association of America, in 1997 more than 16.2 million jobs in the
U.S. were supported directly or indirectly by the hospitality industry.
The hospitality industry, then, includes hotels and restaurants. It
also refers to other kinds of institutions that offer shelter or food or
both to people away from their homes (Hyun Jin Yun, 2000).

2.0 REASONS
Why do hotel companies choose to invest in an international
market? Absolutely, due to gain higher profit by traveling to the
other places. On this paper work, we only discuss only two main
reason that we think it is suitable, there are, growth and profitability
and economic of scale.

2.1 Growth and Profitability


The most important reason for going international is growth and
profitability. Of course every hotel concerned about profits and
growth of their branches. Opportunities to earn high profits are not
necessarily only in their own country, sometimes we also can
successful on the other county. But before that, a good strategy and
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can contribute effectively to receive high profits while broaden their


consumer base, sales and revenues.
As proposed by Prof. Czinkota M. (2012);
Profits are the major proactive motivation for international
business. Management may perceive international sales as a
potential source of higher profit margins or of more added-on
profits. Reactive motivations influence firms to respond to
environmental changes and pressures rather than blaze new
trails. Competitive pressures are one example. A company
may worry about losing domestic market share to competing
firms that have benefited from the economies of scale gained
through international business activities.
Therefore profits should be in line with a proactive attitude from
the company itself that measures should be effective to enhance
the
hotel
chain
management
system.
For
example,
InterContinental Hotels groupwork were in first place for the
largest hotel chain was founded by William Bass in 1777. With the
strategy of making some of their brands and develop themselves
in the hotel industry, he just kept on developing well and until
now no turning back. Until now, this hotel network in cooperation
with the franchise, managers and owners of more than 2,000
hotels worldwide, the group aims to enhance the brand and
continue to increase the number of hotel rooms around 5.9% per
year.

2.2 Economies of Scale


Economies of scale occur when the cost of a product unit decreased
due to increased in production. From Wikipedia, economics scale is
where the companies gain cost advantages due to their size,
production, or scale operation, with the cost per unit of output
usually decreases with increasing scale as fixed costs are existed in
more units of output. Through international approach provides
economies of scale while sharing the cost and risk of the market.
This economics scale usually occur in the long-term period. The
graph below show the relationship between the average cost and
output in the economics scale.

As quantity of production
increases from Q to Q2, the
average cost of each unit
decreases from C to C1.
(source:Wikipedia)

From the graph above, LRAC (long run average costs) curve is due
to the increasing of economics scale. Therefore the average cost will
goes down (C to C1) due to the increasing of the output (Q to Q2).

2.2.1 Resources
Resources can contribute to the motivation to go international
market. Due to the lack of resources in the domestic country or in
companies that are better prioritize rate turns into global markets.
International companies also continue to gather different ideas in
different styles from different people, culture and surrounding.
According to Wikipedia, is the source or sources of supply resulting
benefits. Usually it is a source of materials, energy, services,
personnel, knowledge, or other assets are altered to produce
benefits and in the process made it edible or non-existent.
Advantages of using resources may include increased wealth,
meeting the needs or wants, to work with the system, or improve
welfare. Furthermore, the source is to meet human needs.
Resources may includes capital and employee:

i. Capital
To start a business hotel chain, a business must have adequate
resources and ideas to become a successful hotel in the whole
world. Resources such as capital, labor and location should be
identified. Capital can be obtained from their own savings or loans
from family members, friends and bank. Meanwhile, the labor force
can be found everywhere in accordance with the qualification that
employers need. Location is also determined by the selection of
strategic locations.
Another common source of economies of scale in purchasing
bulk purchase of materials through long-term contracts, increasing
specialization manager (management), get lower interest charges
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when making loans from banks and have access to a larger network
of financial instruments (finance), spread the cost of advertising in a
higher range of products in the media market (marketing) and take
advantage of returns to scale in the production function
(technology). Other example, for a 1 hotels you may only buy 1000
bar soap. But if you have 10 hotel you will buy 10,000 bars of soap.
Then, you will be able to buy cheaper soaps because you buy a
higher quantity and they will give you a better price or lower. Just as
if a hotel has accounting department. But if you have 10 hotels you
probably will not need 10 accounting department, maybe just in four
until six accounting department. Thus, the hotel chain can reduce
cost to produce a good service.

ii. Employee
According to business dictionary, employees or worker is an
individual who work part-time or full-time under a contract of
employment, whether oral or written, express or implied, and has
recognized rights and duties. Workers is an important component
in a business. workers also be considered as a very valuable capital
in a business, because without workers manufacturing processes
and production can not be carried out. the quality of the work
produced is also very important, therefore, the employer is entitled
to seek the best and skilled workers in a business.
Employees also play the important role in consideration of the
hotel chain go to global. All organization wants skilled and well
trained employees, as company goes to worldwide marketplace to
find alternate source of the labor at lower cost such as from Russia
to Malaysia. But, hotel chain also can suffer loss if the employee is
not doing their job properly and systematically. Take the example of
the hotel chain originating from Russia, namely Accor Group which
operates The Hotel Novotel, Pullman and Ibis. Accor Group already
operating in nearly 100 countries with 150,000 employees. It offers
more than 40 years of expertise in hotel management, with 4,000
hotels in 90 countries, as well as business services that include
employee and public benefits, rewards and motivation, and expense
management (www.sabah-hotels.com). But The Novotel 1Borneo
Kota Kinabalu had to be closed because of management and
unsatisfactory services, additional liabilities they incur are high and
this has made a cover and they had acquired by 1Borneo Hotel.

3.0 Challenges
3.1 Technological Changes
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Due to the fact that investing in international market will benefited


more to these hotel companies, they are willing to take the
opportunities eventhough there are high risks in doing so. However,
in order to survive in the international market, there are challenges
that need to be face by those companies. The hospitality industry
nowadays must overcome its general reluctance to invest in new
ideas and technologies and look for new applications that will drive
the growth of the industry. This includes using the distribution
channels, agents, and intermediaries to develop customer
information sources and using technology to provide customer what
they want, in real time anywhere in the world (Hyun Jin Yun, 2000).
With the growth of digital technology, industrial sector
reorganization is being more accelerated and efficient. The
development of information and telecommunication technology is
connecting the entire industrial sector and increasing the
specialization of the value chain. Thus, this matter has set up a new
trend in various industries, where companies or industries that
cannot adjust with this situation or changes cannot compete with
others and consequently will be left out. Internet will take hold of
businesses and individuals. It will set new opportunity especially for
businesses.
For example, a large internet based company, Pegasus Solutions.
Pegasus Solutions is the single largest processor of electronic hotel
transactions, delivering advanced and affordable connectivity and
distribution solutions to nearly 100,000 hotels worldwide
(Hospitalitynet, 2015). Pegasus connects hotels to crucial sources of
business, facilitating almost $16 billion for its clients annually.
Pegasus delivers online, social marketing and booking solutions
through its Open Hospitality division, and powerful reservation tools
to convert and capture booking in addition to foundational global
distribution system (GDS). Pegasus ia a trusted partner in
generating guest room demand and sales. It also offers hotels
actionable business intelligence through its PegasusView Market
Performance reports to help hotels understand and respond to
changing market conditions.
According to the PegasusView (2014), first quarter of 2014 global
performance for the GDS channel reflects strong corporate travel
demand that continues to expand. January kicked of the year with
business booking ahead of January 2013 by +1.0%, with February
and March bookings growing by +1.5% and +4.1% respectively.
Overall, business travel demand is experiencing a steady rise that is
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affecting both the number of trips taken over prior year and room
rates. Meanwhile, leisure travel delivered a powerful first quarter
performance (PegasusView, 2014). Bookings increased by +3.1%
over prior year in January, reaching growth of +4.3% for February.
Reservation growth accompanied by rate growth demonstrates
increasing demand. This situation shows a relatively increased in
demand for technologies within the industry. People are being more
comfortable and preferred more in such technologies.
Chuck Martin asserts in his book Net Future: The 7 Cybertrends
That will Drive Your Business, Create New Wealth, and Define Your
Future, ebusiness goes beyond electronic commerce. Electronic
commerce involves the buying and selling of products, information,
or services over the Net. E-business, in other words, involves the
Netting of the entire value chain, from product conception and
creation, all the way through manufacturing, production,
distribution, and ultimately consumption. Companies that
understand this and are willing to undergo the close self-scrutiny
involved in becoming Netted will be the winners in the Net
Future (Hyun Jin Yun, 2000).

3.2 Foreign Direct Investment (FDI)


Tourism or hospitality is an activity where capital, infrastructure,
knowledge and access to global marketing and distribution chains
are critical. FDI is often considered one of the most effective engines
for harnessing these elements. Hence most developing countries
place a high priority on attracting such investment, some by
experimenting with a variety of policies (UNCTAD, 2007).
The role of FDI in tourism and hospitality is however more
nuanced than it is in some other sectors of economy. FDI is valued
because of what it can provide, but also feared for its ability and
impact upon economic and cultural independence, and its potential
damage to the communities and the environment. According to
UNCTAD (2007), in some countries, efforts to attract FDI in tourism
sit uneasily alongside complaints that there is already too much FDI,
or that foreign investors dominate the sector and do not pass the
benefits of tourism on to the domestic economy.
In Malaysia for example, Malaysia is expected to see another record
breaking year of foreign direct investments (FDI) topping RM40
billion (thesundaily.com, 2014). According to the Department of
Statistics Malaysia, actual FDI showed that the country attracted a
higher net inflow of RM38.8 billion in 2013, which was not only 25%
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higher than the RM31.12 billion achieved in 2012, but also breaks
the previous record of RM37.77 billion in 2011.
In addition, United Nation Conference on Trade and Development
(UNCTAD) forecasted that FDI flows will rise gradually in 2014 and
2015, to US$1.6 trillion and US$1.8 trillion respectively. However,
the uneven level of growth, fragility, and unpredictability in a
number of economies, as well as the risks related to the tapering of
quantitative easing could dampen the FDI recovery, said
International Trade and Industry Minister Datuk Seri Mustapa
Mohamed (thesundaily.com, 2014).
The continual increase of FDI since 1990 shows the trend of
openness and integration of the world economy. Furthermore, the
main reason for the increase in FDI is due to an increase in
international M&A activities. The foreign capital flows can contribute
to a countrys economic through the provision of productive
financial resources, the creation of value-added job opportunities,
and the transfer of technology and management know-how.
The hospitality industry may also benefited from the FDI in many
ways. Thus, it is also clearly that chain hotels mission to go global
can be influenced by FDI whether in positive or negative ways. Any
changes in FDI will relatively effecting the entire industry. Clearly, a
fine balance needs to be maintained in order for developing
countries to capture the benefits of this growing economic activity
at minimum or sustainable costs.

4.0 Conclusions and Recommendations


World maps portray national boundaries, but those lines bely the
increasingly transparent nature of the global economy. Globalization
is denoted by the rapid movement of people, information and
capital across national borders worldwide in ways that would have
been difficult to envision not too many years ago. Yet 'globalization,'
accepted though it is as a contemporary force, is a big concept
requiring careful definition. The hospitality industry is thus at the
very core of the globalization of international business. Hospitality
companies therefore need to consider the implications of the global
context in which they operate and must be prepared to address the
questions that arise from this changing environment.
Although global hotel companies aim for worldwide-scale, this
momentum cannot be equally applied to all companies. Some hotel
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companies, especially Asian hotel should reduce their dependency


on the global hotel chains and seek to differentiate their products,
services, and target markets. Asian hotel companies should
strengthen their position in the domestic market first. Then, they
should be more aggressive to learn and acquire core competencies
from global leaders. They also need to break away from dependency
on the imported brands while establishing a clear vision and
strategies.
Strong global networks, improved image, and strong brands
must be concentrated first. Chain hotels should be enable to step
into M&A and cooperative ties with global leaders as FDI grows in
importance. An appropriate technologies and corporate resources
are necessary to keep pace with the evolving times and business
environment from continual investment in research and
development which also growing in importance.
The global hotel industry is facing continuous changes in the
business environment. Those hospitality companies that believe
that they can grow and retain a niche position without
acknowledging the essential of globalization need to take another
look. In addition, most hospitality businesses will need to think
globally if they are to survive. For example, organizations competing
in the mature European and U.S. markets, which are now seeing stiff
competition from other parts of the world, especially Asia. The sheer
size of the vast U.S. market, in particular, can promote an insular
point of view, but hotel companies that concern themselves only
with the dynamics of this domestic arena also need to hear the
wake up call.
Globalization will ultimately covered all aspects of the hospitality
industry.
Increasingly,
customers,
management
processes,
employees, products, and sources of capital will be competed for
and will move across national boundaries. Companies which are
unprepared for this will be left behind. Local or regional entities may
believe that globalization is not their concern. However, competition
in the future will come from global entities with the advantages that
globalization brings.
In conclusion, investing in an international market will be able to
provide a greater opportunity to be more successful. Motivation to
start a business abroad is also very important in order not to deviate
from the path at a time in heading to success now and in the future.
Various factors can influence the success and failure in business.
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While it is true that successfully entered the global market can be


challenging, complex, and time consuming, there are also many
benefits associated with global reach. These benefits include
increased sales, additional customers from countries all over the
world, increase your international image, and access many
businesses miss opportunities because they stubbornly refused to
consider the international market because of the perception that it
is, however, entered the global market is no more risky than expand
your business in the country too risky. The only risk is different and
they require the necessary research, preparation, and commitment.
The risks, benefits to be gained higher. Thus, dare to take risks can
also contribute to success in the future.

5.0 References
10 Best Hotel in Sabah. n.d. Retrieved March 31, 2015, from
http://www.sabah-hotels.com/toptenhotels.htm
Arnold, D. 2003. Strategies for Entering and Developing
International Markets. Pearson: Financial Times Express.
BBC, What is globalisation?, Retrieved from
http://www.bbc.co.uk/schools/gcsebitesize/geography/globalisat
ion/globalisat ion_rev1.shtml
Bosworth, P. 2014, April 1. New Revenue Strategy Needed to Stay
Profitable. Hotel News Now. Retrieved from
http://www.hotelnewsnow.com/Article/13433/New-revenuestrategy-needed-to-stay-profitable
Business Studies. Economies Scale. Retrieved April 1, 2015, from
http://www.bbc.co.uk/schools/gcsebitesize/business/production/
productioncostsrev1.shtml
Business Dictionary. Employee. Retrieved from
http://www.businessdictionary.com/definition/employee.html
Business Dictionary. Idea. Retrieved from
http://www.businessdictionary.com/definition/idea.html
Cline, R. S. (2015) Hospitality adjusts to globalization, Hotel Online,
Retrieved from http://www.hotelonline.com/Trends/Andersen/global.html

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Czinkota, M. 2012, January 31. Motivations in Going International.


Retrieved from
http://michaelczinkota.com/2012/01/motivations-to-gointernational/#sthash.jfz8RpgX.dpuf
Davies, H., Walters, P. G. P., Whitla, P. (2007) Global strategies in the
international hotel industry, Hospitality Management;
ScienceDirect, pp.777-791.
Do Accounting Rules Discourage Research & Development.
Retrieved March 31, 2015, from http://www.understandaccounting.net/ResearchandDevelopmentCosts.html
English Dictionary. n.d. Hotel Chain . Retrieved March 20, 2015, from
http://www.collinsdictionary.com/dictionary/english/hotel-chain
FDI in tourism: The development dimension (2007), United nations
Conference on Trade and Development, United Nations, pp.67.
How does a hotel benefit from economies of scale? Retrieved March
31, 2015, from https://uk.answers.yahoo.com/question/index?
qid=20100302111550AAS37Rr
Hyun Jin Yun (2000) A study on the globalization strategy of hotel
companies,
School of Public Policy and Global Management,
KDI, pp.1-38.
Investopedia. Research And Development (R&D) Expenses.
Retrieved April 1, 2015, from
http://www.investopedia.com/terms/r/research-anddevelopment-expenses.asp
Marvell, A. (2011) Foreign direct investment in tourism, Geography
Matters, Post-16
and HE Committee of the Geographical
Association, Spring, pp.5-9. Retrieved from
http://www.academia.edu/1165345/Foreign_Direct_Investment_i
n_Tourism
MBAnetbook.co.in. 2012, Jun 17. Motivation Factors or Reasons for
Entering in International Market. Retrieved from
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Spok.com. n.d. Case Study ACCOR Group Hotels.

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