Global_Expansion

Examples of good assignments from previous years Why do many hotel organisations seek global expansion and evaluate the factors they would need to consider in order to realise such expansion. In the post-modern information society one is amidst, the local market seems as a relic of an earlier era -the traditional industrialised society. The technologically potent society has broadened out its arms embracing growth in trade and travel, leaving the local market appearing as an obsolete phenomenon. Defined market borderlines are dissolving and the only limitation is within the capabilities of the expanding company itself. Globalisation appears to be a general trend but there seems to be a similar tendency of global growth within hotel organisations or maybe rather one derived from the former. Growth in international trade has brought along an increased amount of business travellers in need of high standard accommodation, and the decrease in airfare prices has resulted in a growing tourist market. This essay shall consider hotel organisations as defined by their ownership, the global expansion as the drawing in of local businesses into the global arena and finally the various factors decisive for the successful expansion. The changing business environment, demand for accommodation and the feasibility of the selected area will also be considered. Furthermore the essay will attempt to prove or rebut if the hotel industry is loosing its foothold within its own orbit due to the divorce of ownership from control, which presumably is a natural consequence of seeking global expansion. The importance of the UK hospitality industry, (HI) became evident with the improved transportation system in the mid-nineteenth century. Hotels and resorts were constructed , but it was only around the 1960s that global expansion took place. (Knowles, 1994). This change is confirmed by Go & Pine (1995: 102) ‘During the 60s and 70s the US lodging industry experienced a switch from independently owned and operated hotels to properties with a chain affiliation’. The advantages of hotel chains enabled expansion and US franchise and management contract systems became dominant in the development of the major business centres in Europe in the 60s and 70s. Albeit the development became significant later in Europe, companies such as Forte and Club Med were important on the European scene. In the late 70s and 80s globalisation was at its peak with the occurrence of south-east Asia-based companies, as well as internationals expanding globally, and constructing new sites. In the 90s however multi-nationals (MNC) will have to turn away form the power centralised geocentric orientation towards a policy involving the host-country for a more healthy and vivid future for the MNC. (Go & Pine, 1995). Hotel organisations are as any other businesses concerned with profitability and growth. As diverse as the structure and ownership of the MNC is, so is the way in which they approach the achievements of these goals. According to Go & Pine (1995: 6) there are five principles or ways to gain profit. Firstly, expanding within the domestic market. Secondly, the ethnocentric principle where expansion takes place in countries similar to the home-country. Thirdly, the polycentric principle, expansion abroad with decentralised power, where companies are managed from the host-country. Furthermore the regiocentric principle, similar to that of ethnocentrism, but characterised by a clear regional orientation. Finally the above mentioned geocentric principle, expanding globally with a standardised product, and a centralised power constellation. It is however rather simply put that an organisation selects an environment to work in, and there might be more reason to the statement that firms in industrialised slow-growth economies are forced to expand abroad due to lack of growth opportunities. (Go & Pine 1995: 3). It seems logical that it is the world economy that influences the HI and not the contrary. Throughout history Europe has seen itself as the cradle of civilisation and economic trends have been set from here since the industrialised society was invented by the UK. (Encarta, 1995) The distribution of power however changes and the Pacific Rim has become a centre of interest. This region has seen a tremendous growth within the last four decades, a growth similar to the industrialisation process in Europe. If the development in Asia follows that of Europe one can expect a similar pattern, de-industrialising towards the service society. The result of the industrialisation in the Pacific Rim is according to Go & Pine (1995: 194) that ‘...wages go up, payrolls increase and profits decrease.’ The loss of the low-cost labour force will inevitably diminish the competitiveness of the Asian tigers. There are though, according to Robinson (1995), other emerging development opportunities. The Middle East: Lebanon, Israel and Jordan, Latin America and South Africa will all be targets for multinationals if political stable situations can be guaranteed, Eastern Europe and the NICs with their up-coming democracies all provide excellent expansion opportunities as well. The occurrence of potential growth areas, as mentioned above, causes a demand for accommodation which MNCs will make the most of. Whereas prime locations in western European cities are difficult to get hold of, eastern European cities have prime locations within reachable price ranges, meeting the demands of the discerning business traveller. (Robinson 1995). Accommodation for the pleasure traveller are furthermore of immense importance for the HI. Cheaper air-fares commencing with the first transatlantic flight in the 60s, has resulted in a steady annual growth of 6% in the air transport sector. (Vellas & Bécherel, 1995). The Inter-Continental Hotels is one example of how accommodation succeed air transportation. The company was started in 1946 by Pan American Airways, in need of supplying their customers with high standard accommodation in the Latin American Region. (Go & Pine, 1995: 269) An important economic factor influencing the demand of accommodation is the elasticity of demand, the relationship between the real disposable income and the spending on leisure services. This factor combined with the changing demographic situation the ageing population, has created a potential group of wealthy travellers. Another important issue is that of budget accommodation. Cheap air-fares has resulted in an awareness of the possibilities of travelling. The French Hotel Group Accor has seen the potential of this market, and concentrated highly on budget accommodation. (Knowles, 1994) This trend is reflected in Granada’s future plans for Forte, with the intentional selling of the groups luxury standard hotels. (Blackwell, 1996). All MNCs are PLCs today which means the companies are based on equity capital. Selling out equity is a way to raise capital for expansion and thereby maximise profit. One option for independent hoteliers is to operate under the hotel consortia umbrella. Consortia is an excellent opportunity for small scale companies, especially if MNCs turns towards budget accommodation, eg Accor. Companies such as Hyatt and Hilton are according to Go & Pine (1995) exclusively management companies, whereas Marriot who did not have anything to do with property either, has turned towards franchising. Franchising seems useful in the aim for global expansion, but there is a certain danger for the franchiser to lose control of the end-product as managed by the franchisee. Some companies such as Forte are however still involved in real estate ownership, and own some of their properties. Though the divorce of ownership form control is less apparent in this case, recent events have shown the fragility of the company. Granada, the leisure, television and catering company made a bid on Forte, which might be an end to the Forte empire. What the outcome will be is actually less interesting than the fact that a non-hospitality firm is capable of shaking the grounds of the most powerful UK hospitality organisation. Granada will change the plans for the company completely but a third party, the Mercury Asset Management, has an important say in whether Forte or Granada stands out for victory. (Blackwell, Gapper, 1996). The constellation of the hotel organisation, its goals and the outer factors such as the business environment, demand for accommodation and customer profile have now been discussed, enabling an evaluation of how global expansion is achieved. The growth of Forte was constituted by the merger of Forte Holdings and Trust Houses Limited back in 1970. (Go & Pine, 1995) Branding is the keyword in Accor’s expansion success. Each brand aim for a certain market share, e.g. Pullman and Formule 1, respectively upper and budget. The Formule 1 with its Fordistic expansion methods, prefabricate hotel rooms in France, assemble them on site and run the units with three employees. (Euro Trends 1993) By working with a highly standardised product, a minimal amount of resources can increase productivity. Capital though is not the only ingredient. If companies underestimates the importance of information technology they might be ignored by tour operators for not being linked to a global reservations system, and if the popularity of the internet keeps on increasing, companies ought to create home pages allowing reservations to be made by individuals. It would be of relevance to do a thorough S.T.E.P.L analysis of the potential growth area and the probable success of the expansion, but the limitations of the essay will only allow referring to it briefly. Hospitality Consultants Kett & Stanton (1993) suggest a feasibility study to be carried out, to determine the effect upon the existing business and whether the outcome will have economic relevance. They suggest five areas of research: location, accessibility, catchment area, market sectors and competition. Will the location attract customers, are the transportation and infrastructure working, what is the amount of disposable income locally, size and industry of the area, influx of tourists and profitability of the competitors. As the article suggests it might be worthwhile employing professional guidance for such an extensive search. This essay has shown that hotel organisations seek expansion foremost for reasons such as growth, profit and survival in an exceedingly competitive environment. This was pushed forward due to a weakening of growth possibilities in the industrialised countries. Cheap air-fares and demographics however encouraged expansion in other areas. Types of business formats has been discussed and their advantages/disadvantages for expansion. Strategies such as branding and market segmentation has been touched on as well as the steps to be taken preceding expansion. Success though is not guaranteed by taking all the above mentioned factors into consideration. All the business formats carry within them potential undermining aspects and the recent bid on Forte has shown the vulnerability of the hotel organisation. Is the traditionally defined HI disappearing' This is a question for hoteliers in MNCs to consider when expanding into the global market. References Blackwell, David. Granada squares up for final round. Financial Times. Weekend January 13/14, 1996. Encarta, The Complete Interactive Multimedia Encyclopedia. Microsoft. 1995. Euro Trends, Formule 1 - the McDonald’s of the hotel industry. No. 7, April, 1993. Gapper, John. At the centre of the City Web. Financial Times. January 19, 1996. Go, Frank M. & Pine, Ray. Globalisation Strategy in the Hotel Industry. Routledge. 1995. Kett, Russell & Stanton, Leonor. What’s Feasible' Hospitality. August, 1993. Knowles, Tim. Hospitality Management - An Introduction. Pitman Publishing. 1994. Robinson, Sally. World Trends. Hospitality. October/November, 1995. Vellas, François & Bécherel, Lionel. International Tourism. Macmillan Press LTD. 1995. Bibliography (As above +) Daneshku, Scheherazada & Wighton, David. Granada buys up 9.2% of Forte shares. Financial Times. January 17, 1996. Drew, John. Readings in international enterprise. Routledge. 1995. Tuck, Allene. Oxford Dictionary of Business English. Oxford University Press. 1993. Williams, Allan M. & Shaw Gareth. Tourism and Economic Development. Belhaven Press. 1991. How would the implementation of the social charter affect day to day operations in any hospitality outlet' The Implementation of the Social Charter will affect many operations on a day to day basis in the hospitality industry. A hospitality outlet can be regarded as: a service that provides accommodation, food, and beverages; this could vary from a fast-food outlet to an upper class hotel. To create an understanding of the Charter the essay first states what the Charter is and why the United Kingdom rejected it during the Thatcher years. Then looks at the possible effects that the acts will have on the hospitality industry in Britain. The arguments put forward address the following areas: working conditions, health and safety, equality for employees (male, female and foreign) and dialogue between management and labour. The Social Charter was signed in December 1989 by eleven of the twelve member states of the European Community, Britain was the only country not to sign. Britain rejected the Charter whilst Margaret Thatcher was Prime Minister; it was rejected for three main reasons: it would cost UK industry many jobs, it did not take account of member states’ customers and practices, and not enough attention was paid to ensuring the effects of the Charter were the same across Europe. A Department of Employment spokesman stated that the implementation of the articles on part-time and temporary workers would add an estimated one billion to Britain’s business costs. Under the Charter the twelve countries of the European Community agreed to authorise the eleven member states to use the acts and mechanisms of the treaty in applying for decisions. The Charter is a list of twenty nine articles. Acts of the Council made under the protocol can only be implemented with a majority of forty four votes. Any financial consequences of the Charter will not be charged to Britain. The main objectives of the Charter are: promotion of employment, improved working and living conditions, proper social protection, dialogue between management and labour, the development of human resources with the view to lasting high employment, and the combating of social exclusion. To achieve this, the community will support and complement activities to help the other areas. The EC Charter will try to create the principle of equal pay for both female and male workers. The eleven note that the community does not intend, in laying down minimum requirements for health and safety of employees; to discriminate in a manner unjustified by the circumstances against employees inn small and medium undertakings. The Charter was drafted at the suggestion of the Council of Ministers of Social Affairs, and consolidated by Jaques Delors. (President of the European Commission). An important factor to consider about the Charter is that it is an expression of political intention, not a legal instrument. If the Social Charter was implemented, working conditions is one of the areas of most concern in the hospitality industry. This is highlighted by the fact that the British economy is in recession. Within the Charter (under articles 1 and 2) employees’ gains would include: the improvement of the working environment and conditions, social security and social protection of workers, protection of workers where their employment contract is terminated, representation and collective defence of workers and employers, including co-determination, financial contributions for promotion of employment and job creation, without prejudice to the provisions relating to social fund. The Acts of the Charter are all inter-related and therefore it is not always possible to separate the different concepts for argument. At present the hospitality industry has few laws about working hours. There are no laid down rules about holidays or night shifts; however under the Social Charter a policy of maximum hours worked will be introduced. If this is implemented a large shake up in the hospitality industry will follow. Effects will be direct and indirect factors. Directly, the employer will have to employ more staff, to compensate for the fact that workers will have more free time. During an unstable economic time this could create: a fall in profits, a rise in prices and structural changes. Small businesses would be hit worst; a spokesman for the department of employment, estimated accepting the articles on working times would add an estimated two billion pounds costs to British businesses. The permitted hours per working day would be restricted to no more than twelve hours a day. This would mean that the working weekend - (that is any work period between Friday and Monday) - should last no longer than thirty six hours. If implemented the average worker in the hospitality industry would gain more free time. However it would also restrict the amount of overtime for workers could take on. In effect this would prevent students, waiters and kitchen staff taking on more jobs and limit the amount of hours they could work, in the process raising costs for the industry. However it could be argued that a workforce that works fewer hours could be more productive and have more job satisfaction. It is possible that if the hospitality industry took more interest in understanding the acts of the Charter, then perhaps it could be used to the industry’s advantage. Michael Howard, Secretary of State for Employment stated: “There is too little information for us to make a judgement at this stage.” Once the Charter is more easily understood, then the outlets in the hospitality industry can organise themselves for Europe; as it is such a fragmented industry. Rest periods under British legislation are eleven hours, the Charter would increase this to twelve hours; so companies such as Forte and Queen’s Moat House would be breaking the law if they continue in their present practices. Again the money to employ more staff would come out of the pocket of the employer, this in turn would make them less competitive and cost them more money. According to Mike O’Conner of the Caterer & Hotel Keeper Magazine, many employers, if the Charter is introduced, may wonder whether it is really worth employing temporary workers and part-time staff. Grand Metropolitan estimated that the Charters could cost them four million a year within its one thousand six hundred strong Chef and Brewers group of pubs alone. The implication of the Charter could put great financial strain on British companies. The European Commission has also proposed equal access for training both temporary and full-time employees. If implemented the money to train the staff would come from the employers. This might create better quality of staff, but the employer would have to notify temporary staff of any permanent position which became available. Also if temporary staff were employed through an agency and the agency defaulted the payments, the employers would be liable. Indirectly these proposals mean if the employees had reduced capital, then a run ripple effect would follow, with employees having less income. This would mean contribution to the required level of money towards the GDP would lessen, the final result being a reduction in the profitability of the hospitality industry. The less hours staff can work, then the less money they can circulate and spend. The implementation of the Health & Safety laws under the Social Dimension will have a modest affect on the hospitality industry; this is mainly due to the stringent laws that already exist in Britain with the amendment of the Health & Safety Act in 1990 and the strong powers that Environmental Officers already have. The areas that the implementation of the Charter may affect are: hours that are considered detrimental to a person’s health and safety. This might affect night shift workers or those who work long hours discussed previously. Under Act 2 of the Charter there is a proposal for: “equality between men and women with regard to the labour market opportunities and treatment of work; the integration of persons excluded from the labour market”. The implementation of the Social Charter would change an industry with a large proportion of a female working force. One of the Charter’s proposals is to create social protection for pregnant and breast-feeding women, standardising maternity leave and pay. The maternity leave would be for a prescribed time of the fourteen weeks when away from work for all the workers. The acts would also assure protection for working women who become pregnant, for instance, no night work for them. These objectives would give more equal opportunities for pregnant women. However this would affect hotels who employ chamber maids and receptionists for example, at night. Women will also gain the right to sue an employer in the European courts if they believed they were being discriminated against, because they were pregnant. The EC stated that the member states “Will doubtless fear the cost of the proposed new protection for pregnant women”. These proposals would give women a fairer opportunity in a low paid fragmented industry. The employer would have to financially pay for any problems that arose. Yet men still have a longer service and higher salaries than women, and at the moment twice as many men are on pension schemes. So in effect pregnant and breast-feeding women would gain equal opportunities, but would the whole of the workforce' At the moment there are different retirement ages between men and women; the implementation of the Charter will make this unlawful and thus create some equality. It will also create opportunities for women to have more highly skilled jobs, if they can continue in employment while pregnant and breast-feeding. Tapping perhaps talent that is not exploited at present. The UK though is believed to be more equal in these areas than other European countries. If Britain was to confront these problems now then the hospitality industry could be more competitive when the Charter came into place. However it is estimated by the government that only around fifty per cent of British companies have prepared for Europe. A DTI spokesman stated: “It will affect nearly every UK company, large or small, whether they trade locally or nationally. Company law, product standards, public purchasing rules, professional qualifications, transport and VAT are just a few of the measures”. The DTI estimates that there are more than 340 million customers in what it describes as the: “the biggest market in the world”. Under the Charter it will be illegal to exploit a foreign workforce. In 1971 Knight revealed in a survey that one seventh of industry employees began their working lives outside the UK and one twentieth of the workforce was Irish. This information is dated, and with the increase of ethnic minorities in England it is likely there are even more employed in the industry. If implemented the Charter will create greater coalescence for the European community. With this Britain will experience an influx of European workers. Britain must if the Charter is put into operation look at the market available for business in the EC. John Burnham of the CBI estimates that Britain has already invested fifteen billion in Europe over the last ten years. However if the Charter is enacted the UK must adapt for Europe: she must develop foreign language skills and thinking on a European level. Especially in areas such as contract catering which is a relatively booming business. One commentator put forward the view: “In contract catering, there are a top five turnovers of two hundred million or less. There’s a massive void and a lot of scope to fill that void from the middle of the group.” Yet many are wary of the amount of member state nationals who could come into Britain. Any member of the European Community will be able to work anywhere in the UK as long as they comply with employment legislation and they have a valid passport. If implemented under the Charter would create for Britain competition. UK companies should take the initiative that some French companies have taken, such as Accor who are looking for a financial future using British business. UK companies must try to put themselves on the same level as European companies so that positive gains can be made out of the Charter. Dialogue between management and labour under British legislation is at the present time at a modest level; however the enactment of the Social Charter will introduce laws that would create a more effective workforce. If the employers have a good understanding of what the staff feel then it will create a more profitable and organised outlet. This is likely to have less impact than other acts in the Charter. To conclude, the Charter may be thought as a costly negative proposal from Brussels, and certain implications show that the Charter’s implementation would be costly in the short run. However it does represent equal opportunities, and many who do not have a say will benefit. It is far better to think as a positive European, than deprive social aspects that would benefit others. This essay has argued that if certain aspects of the Charter were introduced they would create a better working environment and subsequently a more productive workforce; despite an increase in costs in the short term. An NOP survey for the TUC in the UK estimated, seventy one per cent of the British public were in favour of the inclusion of the Social Charter. From this the Government should take the initiative and lead the way for Britain into a productive Europe. However as Mark Verstringhe of the FHCIMA stated: “To some people, the Channel is wider than the Atlantic and Pacific oceans put together.” This attitude will only widen the chasm between the UK and the rest of the European Community. Bibliography 1. John Hughes, The Social Charter and the Single European Market. (1991) 2. The Economist, November 23rd 1991, Europe Social Legislation. (Union Comeback). 3. The Times, Friday November 29th 1991, The Unsocial Charter. 4. The Economist, June 29th 1991, The Social Dimension of Europe’s Single Market. 5. Roy C Wood, Working in Hotels and Catering, 1992, Routledge. 6. European Community News, 9th November 1990, Pregnant Women. 7. Eurofile, February 1992, Was Maastrict the end of the Chapter. 8. Hospitality, December 1992, Are we ready for the Single Market' 9. Hospitality, September 1991, Social Charter or Employment Minefield. 10. Hospitality, September 1991, Working Together. 11. Caterer and Hotelkeeper, March 1992, UK Opt-Out Fails as EC Reintroduces Work Directives. (Richard Collings). 12. Caterer and Hotelkeeper, March 1992, Costs of Better Working Conditions. 13. Caterer and Hotelkeeper, November 1991, EC Charter and your Staff. (Richard Collings). ----------------------- 52 54 53 55 56 57 58 59 60