All Eyes on Asia
By Karyn Strauss, Senior Editor -- Hotels, 4/1/2007
With a population of 1.1 billion yet fewer hotel rooms than Orlando, India is a prime example of the multitude of opportunities for hotel companies in Asia. And undoubtedly the biggest stories in the region remain China and India. Here, where secondary cities represent populations in the 1 million to 2 million range, nothing is done on a small scale. In fact, listing all of the hotel development under way in these two countries could take up the length of this article. Yet these are not the only stories to tell. As HOTELS has reported previously, after more than a decade of recession, Japan is now in its fourth year of positive growth, and operators are anxious to establish— or expand—their presence there. Meanwhile, Vietnam is emerging as a top tourist destination and will add some 170,000 hotel rooms over the next three years to meet the growing demand. Thailand and Singapore also continue to grow their offerings and attract new visitors, while Macau—where gaming revenue has surpassed Las Vegas—quickly has become the new juggernaut of the casino-hotel business.
While broad generalizations are always risky, several identifiable fundamentals across the region, including rapidly growing economies, booming high-tech industries and low-cost airlines, the rise of a large middle class, and governments more dedicated to tourism growth and improving infrastructure than ever before, make expansion here a top priority for globalminded operators. Even weathering setbacks like terrorist bombings, political instability and health crises have not dampened the spirits of pioneering hoteliers and investors from around the globe.
Despite the bullish outlook, however, getting hotels built in these emerging countries comes with a long list of challenges. From inexperienced local developers to miles of bureaucratic red tape and myriad human resources issues, building a portfolio in Asia Pacific takes patience and a long-term vision.
|
China and India remain top priorities, with India “looking like China did a few years ago”
China Vs. India: Getting Deals Done
Although China and India are both top of mind in terms of growth potential, operators say it is still easier to move deals forward in China. “Things are more difficult to happen in India than China. For the most part it’s similar to how China was a few years ago,” says David Kong, CEO, Best Western International. “India offers a great opportunity, but it takes a long time to get the land and go through the necessary paper work to complete a project.”
And while both countries have similar infrastructure issues, Scott Woroch, senior vice president of development, Asia, for Four Seasons Hotels & Resorts, which has 12 announced Asian projects in its pipeline, explains that addressing those issues is easier in China. “From airports to bridges—things that assist with movement of people—those issues in China are a bit easier because the government is involved. India is more democratic, but as a result, the process takes much longer.”
Having to deal with private companies and multiple local or regional laws rather than one government entity also slows the development process. “The challenge in India is that land, construction costs and room rates have run up so quickly, it’s hard to think you can create value there right now. That’s why you need local partners with access to off market deals and market knowledge,” adds Tom Storey, executive vice president, development, Fairmont Raffles Hotels International. “In China the situation is a bit different because while the cost of land has been going up, the bigger issue is having the right partners—period. If you have the right partners who have done a lot of transactions with Chinese government, that helps get entitlements.” With limited distribution in Asia to date, and no announced projects in India as yet, Storey says the luxury operator is focused on finding the right partners for the key gateway markets. Raffles just debuted in Beijing and will open resort properties in Thailand, Bali, the Maldives and Vietnam. Swissôtel will open in Shanghai in late 2007 and China’s Guangdong Province in 2008. The company is searching for partners in gateways cities, including Tokyo and Hong Kong, to bring the Fairmont brand to the region, he adds.
Multibrand Approach
With the right partners in place, as development ramps up across the region, Western hotel companies, including Hilton, Marriott, Best Western, Accor and Starwood, are becoming savvier about not only what product for what market, but also how to adapt that product to appeal to local populations. Their growth plans across segments show the broadening diversification of the hotel sector in Asia today. Further, in many instances, the under-represented mid-market is emerging as the biggest opportunity.
And the newly reunited Hilton Hotels Corp. is ready to take advantage of that opportunity by introducing its domestic U.S. brands into Asia. “We’ve been focusing on what brands to take overseas and to what markets,” says Tom Keltner, president, brand performance and development group, Hilton Hotels Corp., Beverly Hills, California. “For us, the biggest risk is trying to do too many things in too many places and winding up not doing them as well as we should.” Over the next three to seven years, Keltner says, Hilton plans to focus on growing its flagship Hilton brand as well as Hilton Garden Inn, Doubletree, Homewood Suites, Hampton Inn and its luxury Conrad brand, already a well-established name in Asia. “We’re not going to sprinkle the world with our brands. You need to get a critical mass. We’ll look at opportunities wherever they come up, but the danger of doing one to two hotels in a country is that we can’t support them,” Keltner says.
As a result, Hilton is focusing on China, India, Japan and Australia. “It doesn’t mean we won’t do deals in, say, Singapore, but it’s not a prime target,” Keltner says, adding that new prototypes of its brands are being created to adapt to local needs. “We’ve been working hard over the last 10 months to redefine the product for what market to ensure they are properly positioned.” That includes expanding food and beverage offerings and creating larger meetings facilities. “And we spent the last year not only educating ourselves on how hotels must look outside of North America, but training our Hilton International folks—who were experts in running hotels in this part of the world but not from a multibrand approach—on what it is like to operate a Garden Inn. A challenge is that mid-scale brands do not really exist—they often turn into a much more luxurious hotel. So we have to figure out how to be in the middle market.”
Moving forward, in late 2006, the company announced a new joint venture with RREEF, the real estate and investment arm of the Deutsche Bank Group, and private equity firm H&A Asia Pacific to develop more than 20 Hilton Garden Inns across China, in primary and secondary markets. And on an even larger scale, in India, a new joint venture with Delhi-based real estate developer DLF Limited will bring 75 hotels and serviced apartments under the Hilton, Garden Inn, Homewood Suites and Hilton Residences brands over the next seven years.
|
|
Also addressing the growing demand for mid-market product, Accor is targeting most of its expansion to the budget and mid-market. “Seventy percent of our business in China comes from the domestic market, and while the expansion of our [luxury] Sofitel brand will see the international component of our business increase (a new flagship Sofitel Wanda Beijing will open this year), domestic business to our economy and mid-tier Ibis, Mercure and Novotel brands will grow at an even faster rate,” says Michael Issenberg, managing director, Accor Asia Pacific. The majority of these budgetfriendly hotels will be concentrated in regional centers and secondary cities that offer new business parks and transport hubs. And Ibis expansion is not limited to China as similar growth plans are under way in India, Thailand, Indonesia and Australia. Accor also partnered with The Emaar Group to open the Hyderabad International Convention Center and Novotel Hyderabad last year and recently expanded that partnership to develop 100 budget Formula 1 hotels across India over the next decade.
Meanwhile, for less-established Western brands operating in markets like India, development has been led by upscale and luxury product—which still represents more than half of the new product under development. “To lead with Courtyard [by Marriott] would send a confusing signal,” explains Ed Fuller, Marriott International’s president and managing director, international lodging, which has seven hotels in India with another 12 in the pipeline, including two Courtyards set to open in 2008 and another two in 2009. Rather, it has been concentrating on its core Marriott, JW Marriott, Ritz-Carlton, Renaissance and Marriott Executive Apartments brands. Fuller says Renaissance has been particularly well received in Asia because it is all new-build product—so the brand identity is clearer there than in even North America. “That’s the advantage of being able to build new,” Fuller says. He tells a similar story with JW Marriott, the operator’s 4-star-plus brand. “There’s a very clear understanding of the JW brand in Asia. It is about ‘approachable luxury,’ and the product is very consistent across the region,” he says.
|
|
|
Domestic Developments
While to date Western companies in Asia have been competing with each other to capture predominantly international visitors, with expanding middleclass populations and the growing focus on domestic and intra-Asia travel, homegrown brands now are better positioned to compete with those hotel giants. While established players in the luxury segment such as Shangri-La, Peninsula, Mandarin Oriental and Taj continue to expand into new markets, particularly new business centers in China and various resort destinations, the real story among these brands is their expansion beyond their Asian roots. Therefore, when talking about the growing domestic hotel market in Asia, it is the mid-market and budget players that are grabbing headlines.
Aggressive growth plans are brewing among China’s domestic brands, including Jin Jiang International Hotels, Jinling Hotels and Resorts, and budget players Home Inns, which now has 134 hotels in 39 cities, and the new City Inn, which with eight properties today plans to grow to 50 in the next five years. In building their brands, these companies aim to attract domestic travelers who now seek international service standards yet the familiarity of a brand that understands Chinese culture.
As China’s largest hotel group, Jin Jiang International Hotels, Shanghai, which operates in both the upscale and economy categories and has more than 20 hotels in its development pipeline, recently completed a new branding initiative to stay competitive in the increasingly crowded marketplace. “With the growing market economy, Chinese customers focus more on brands [today],” explains Lawrence Lee, senior vice president of Jin Jiang International Hotel Management Co. Ltd. The goals with the branding initiative are to both unify the market image of its hotels and distinguish the different hotel categories. According to Lee, the overall aim is to set up a family of brands comprising “five to seven multi-positioned sub-brands within three to five years,” similar to how its Western competitors are positioned.
|
|
New budget players beyond China include Malaysia’s Tune Hotels.com, a new “no-frills” concept similar to the UK’s easyHotel, that touts a 5-star sleep experience at a 1-star price. The first hotel will open in Kuala Lumpur this month and include 250-thread count, white duvets, a private “power shower,” and a 24-hour retail/food outlet on the ground floor. The company will sell its inventory online. “Much like no-frills air travel has revolutionized Asia’s skies, Tune Hotels.com is poised to radically change the economy hotel industry in Asia,” explained founder Dato Tony Fernandes in addressing local press at the company’s media launch in February. “The economy segment in Asia has often been characterized by messy rooms, stained sheets and carpeting and bad service. Safety in these hotels is also a major issue for travelers. Tune Hotels.com will deliver safe, clean and high-quality rooms at an incredible price.” More locations are planned.
And in India, where branded hotels outside the luxury sector hardly exist, The Roots Corp. Ltd., a subsidiary of Indian Hotels Co. Ltd., parent of the luxury Taj Hotels, Resorts & Palaces brand, continues to leverage that opportunity with the growth of its Ginger “Smart Basics” brand. The concept debuted in Bangalore (under the name IndieOne) in 2004 and now has grown to seven hotels with another seven in the development stages. “We hope to have more than 20 hotels operational by March 2008. This will mean the presence of Ginger across most parts of India,” explains Raymond Bickson, managing director for Taj. “The Ginger concept has been well appreciated, especially in business destinations. Currently it is the only significant branded product in the country addressing this market segment.” No doubt establishing an impact with this growing sector before Western operators get their properties up and running will play a beneficial role in Gingers’ performance going forward.
|
|
Labor Crunch
With so much new product coming online over the next few years, the primary concern on operators’ minds is labor. It is not just a matter of finding or training employees, but retaining them. “In China and India, it’s a major challenge to find staff. We compete in the hospitality sector but others, too. One of the key growth markets in India in the next five years will be retail. It has been dominated by the mom-and-pops, and now Wal-Mart is joint venturing to bring in big box retail,” explains Paul Kirwin, president Carlson Asia Pacific. “Those companies will find managers in our hotels who would be good candidates for their rollout plans. So we’re faced in the region with the challenge of recruiting and retaining good people. Staff is probably the most significant issue.”
Adds Kong: “You spend a lot to train employees, and then they leave, so it is a real issue.” Some Best Western hotels in China, therefore, have developed employee incentive programs. For instance, those employees who take courses to improve their English language skills can earn trips to sister properties across Asia. “The program has been outstandingly successful, so we’re looking at how to promulgate that throughout the region,” Kong says.
|
|
Numerous hotel companies, including Best Western, also have either set up their own training academies or have partnered with local universities and industry-leading hospitality universities to develop training programs. Five years ago, Starwood launched a sales and marketing management trainee program with Cornell University and Fudan University in China, the goal of which “is to identify talented graduates from good universities in Asia to join Starwood as management trainees and groom them as future leaders in sales and marketing,” say Tom Monahan, head of acquisitions and development, Starwood Asia Pacific.
Similarly, one unique aspect of Taj’s employee development efforts is its “Emerging Leaders” program, which also aims to identify and develop high potential candidates for future roles. “The employees are assessed on leadership and operational competencies through assessment cum developmental centers and given feedback in a systematic manner,” explains Bickson, calling this program the company’s most ambitious to date. “They are then put through a developmental program that has specific, tailor-made inputs such as special projects, stretch assignments and are provided with specific training inputs. An individual development plan is drawn up for each individual.”
|
|
Looking for a fully comprehensive approach, last summer InterContinental Hotels Group launched the InterContinental Hotels Group Academy in partnership with Shanghai University’s Advanced Polytechnic College and two specialist hospitality education providers in Australia—the William Angliss Institute and Box Hill Institute. The academy’s first course is a two-year advanced certification program that combines lectures with university professors to address theoretical issues surrounding tourism, lectures by IHG executives and internships at IHG properties. There are also four- to eightweek certification programs for front-line employees like housekeeping, front desk and F&B to further develop their skills.
The question remains, will these programs be enough to foster loyalty despite the growing competition? Another significant issue is that, while labor costs in Asia are still much lower than in other parts of the world, as the markets mature, this will not always be the case; hotel companies need to be prepared. As Edward Tai, area vice president, Hyatt International Hotels & Resorts, explains, more can and should be done to help retention:
“Like any other industry, a fair compensation system is the cornerstone for maintaining a strong work force. Although the labor cost in China is still in the low level as compared to other Western countries, we need to prepare ourselves for a faster increase in salary during the next few years and onward as the competition gets fiercer, and the Chinese currency appreciates against the U.S. dollar. We need to work with owners to develop attractive compensation packages addressing many local employees’ concerns such as housing, medical and education. We need to realize the good old days when a hotel can charge the ‘developing country’ rates but only pay ‘developing country’ salary will not be sustainable.”
| Sound Bites |
|
Scott Woroch, Four Seasons Hotels & Resorts: “The perception is that labor costs are lower, so luxury hotels can operate at lower rate and can still be very profitable, but that will change as the economies develop. Labor costs will increase. The free pass of operating at a lower top line with great operating leverage will tighten a little bit. That’s something to watch.” |
View All Blogs
