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(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.
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.
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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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).
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.
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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