If John Q. Hammons is right and nearly two-thirds of franchised hotels proposed for the United States will never come to pass, does that mean franchisors' hopes of driving 30% to 100% of their Asian development with franchise sales are just pipe(line) dreams, as well? Not necessarily. But any vision of new highways dotted with franchise flags at every exit is a long way from realization.

“The franchising business does make sense in Asia Pacific, but not to the same extent as in other regions,” says David Gibson, CEO, Asia Pacific, Jones Lang LaSalle Hotels, Brisbane. Cost is one hurdle. “In most instances, franchise fees are greater than management fees in Asia Pacific,” he says. Another is what Gibson terms “Asia's low propensity to brand.” Fortunately, that is changing thanks to globalization. While franchising is becoming more viable, few chains will meet their near-term Asia Pacific growth targets by franchising alone. “For a number of operators, that will happen through a combination joint ventures, management contracts and franchising,” he adds.

Although franchising giants such as Hilton Hotels Corp. and Carlson Asia Pacific have signed major deals in India, China is the big up-and-comer in the franchise market. “The country is in the early stages of a franchise boom of unparalleled magnitude,” says Mark Siebert, CEO, iFranchise Group, Homewood, Illinois.

The key term is “early stages.” As Paul Foskey, executive vice president of lodging development, Marriott International, points out, luxury hotels—not the very franchisable mid-tier and select-service concepts—still fuel chains' growth engines in China. A shift is coming, but it will be gradual, Foskey says. “In the past it was all high-end hotels; now, it is mostly high-end hotels. State-owned companies that invest in hotels are interested in profit but they also are interested in status. The privately owned companies that are starting to invest in hotels now are more pragmatic. They are interested in return,” Foskey says.

It is this wave of new investment capital from local sources paired with broader participation of institutions such as RREEF (the real estate and infrastructure investment arm of Deutsche Bank) and H&Q Asia Pacific that is getting deals with franchise components done in China.

Developers such as retail/real estate specialist Top Spring Group are looking for brand family solutions for secondary markets such as Changzhou, as well as major gateways such as Beijing, which face overbuilding in the 5-star tier. “Each individual city has different economic and consumption capabilities. Therefore, we tend to work with operators who are able to provide hotel brands of various levels that are ideal for the location and the marketplace,” says Wong Chun Hong, chairman and managing director of Top Spring Group, headquartered in Hong Kong and Shenzhen, who is adding a Crowne Plaza, two Holiday Inn Express hotels and a Holiday Inn to this retail/real estate development specialist's portfolio.

For the most part, the numbers in these deals are small—from two or three hotels to 20 at most. But, they are significant as indicators that China's investors are buying into franchising. “Coming out of the gate, we expected our growth in countries such as China would be primarily through management contracts,” says Ian Carter, CEO, Hilton International Operations. “But of the five multi-site deals that we signed in China since December, two were franchises. Franchising is becoming more accepted as a business model in China.”

Beyond China and India, Japan remains a tough but viable target. And now Thailand shows up on some hopefuls' lists. However, Australia and New Zealand may be the emerging as the destinations to watch. “Franchising has been the fastest growing aspect of our business in Australia over the last two years,” says Michael Issenberg, managing director, Accor Asia Pacific.

With so few new hotels being developed, there are fewer management contracts available. At the same time, says Issenberg, the Australian hotel industry “is beginning to understand the benefits of aligning themselves with a major operator to take advantage of their branding, sales, marketing and distribution systems.”

Still in its infancy, the franchise model isn't selling itself yet. “Hotel owners in Australia and New Zealand are only now beginning to fully understand franchising,” Issenberg says. “The more the industry comes to understand precisely what franchise contracts can provide for property owners and how they differ from other contracts such as leases and management contracts, the more franchise agreements will be signed.”