Hotels to feel the pinch

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 ◆ Hotels to feel the pinch

Revenues of the domestic hospitality industry risk being further eroded with WTO entry.

In the face of intensifying competition from abroad, hotels like Jinjiang Inn, under the management of Jinjiang Corp, look to place emphasis on lower-grade chain hostels, catering to lower- and medium-income people.

The (domestic) hotels have always emphasized that they were limited by capital. On the other hand, they spent large amounts of money inviting experienced foreign groups and staff to manage their hotels.

INSIDERS from China's hospitality industry have recently pointed to a terrible fact.

In future, they say, hotels in the country will all have Americans as general managers, Japanese as department directors, Taiwanese and Hong Kong people managers.

And the Chinese mainlanders will work as gaffers.

Since 1982, when the first joint-venture hotels were opened on the Chinese mainland, foreign-invested and foreign-managed hotels have overrun China's market at rapid speed.

An iron fact was that they earned 95 to 98 per cent of the gross profits of China's hospitality industry with only 10 per cent of the total bed resources.

The list of the 10 Shanghai hotels with the highest revenue last year was topped by the Grand Hyatt, the Pudong Shangri-La and the Portman Ritz-Carlton. Only two locally owned and run hotels - the Jin Jiang Tower and the Hua Ting - made it onto the list.

Chinese mainland is considered a unique high-profit and promising market for the hospitality trade.

Influenced by the withering world economy this year and the decrease in the numbers of tourists, the revenue of the Shangri-La Group in the Hong Kong SAR is expected to decline by nearly 4 per cent, while that on the mainland will rise by 4 to 7 per cent.

With China's entry into World Trade Organization and Beijing's fronting of the 2008 Olympics, the hospitality business in China is being coveted by most international hotel groups.

Experts estimate that by 2020, China will become one of the world's largest tourism destinations and will see 130 million travellers annually. Meanwhile, domestic tourism will expand. All these factors make for a prosperous future for hotels in this country.

As the most promising city in China, Shanghai has attracted a great number of renowned international names: Hilton, Hyatt, Holiday Inn, Shangri-La, Marriott and Nikko.

What are the problems for domestic brands?

He Jianmin, an expert in tourism management, said the main problem was failed management practices.

And local hotels lacked recognition of the need to foster their human resources, he said.

The hotels have always emphasized that they were limited in capital. On the other hand, they spent large amount of money inviting experienced foreign groups and staff to manage their hotels.

United front

Many domestic hotels are subject to some governmental department or State-owned unit, and most of their services are not aimed at the market but at a settled number of government-related customers.

He said such hotels should be washed out.

The scattered hotels with good facilities in China's market should now be united under one name, he said.

The Xingguo Hotel, which previously only provided accommodation for government VIPs, recently invited the US-based group Radisson Hotels & Resorts Worldwide to manage the property. It opened to the public after a new building was set up in the well-protected garden as a five-star hotel.

Jin Jiang International Management Corp has also made some practices to walk out of the ebb.

Since 1996, it adjusted sales tactics to move a great portion of investment into lower-grade chain hotels targeting domestic wage-earning travellers; a method that has earned the most profits for high rated hotels.

So far, there are 11 chain hotels around Shanghai and nearby cities with four under construction.

Fang Fuhui, a director of the corporation, said they got the idea when they saw that many tourists coming from other provinces to Shanghai had to stay in cheap hotels in nearby Suzhou and Wuxi because they couldn't afford hotels in the city, while some inns and hostels had poor standards of hygiene and sanitation.

The approach was a success. Since the first chain hotel was set up in 1997, the profit rate has reached 40 per cent.

The chain hotels have united their logo, service standards and price.

Fan Min, an expert in the trade for more than 10 years, said setting up chain hostels is wise for domestic hotels, and they can raise their grade when expanding in scale, which has been a successful card played by many leading international groups.

Marriott International began as a soda kiosk, for example. It now owns 2,000 hotels.

With the improvement of the financial status of domestic customers, the chain hotels, which are moving to higher grades, will win a steadfast group of customers, and China's domestic high-grade hotels will then have competition.

Chinese brand

He predicted that within three to five years, a competitive Chinese brand will emerge among the high-grade hotels. However, he said it is more likely to be a private entity than a State-owned hotel.

Lu Haiyan, deputy director of Jinjiang Corp, said the group doesn't plan to give up its portion in the market for four- and five-star hotels because it also has good roots in that field. But in the coming years, it will place emphasis on lower-grade chain hostels.

Meanwhile, he said Chinese domestic hotels did not have the abilities to bear a multinational brand to open hotels in other countries, lacking governmental policy support and lagging in management skills and a grasp of the market.

Three hotels are considered China's national brands: Jin Jiang in Shanghai, Jin Ling in Nanjing, and White Swan in Guangzhou. So far, only Jin Jiang has set up chain hotels.

Some international groups have focused their attention on this piece of middle-market hotels in China's market.

Accor, the world's leading hotel and tourism company, and Beijing Tourism Group (BTG) have committed to a new joint venture hotel management company, with master franchise rights to manage and expand the three-star Mercure brand to the north of the Yangtze River.

Each of them will take a 50 per cent stake in the new enterprise. The initial objectives call for a minimum network of 20 Mercure hotels during the first three years, growing rapidly to over 50 Mercure hotels after five years by the 2008 Beijing Olympics.

Accor's Shao Donglai said the co-operation will help tap the Chinese hospitality market, especially for three-star hotels, and will be a success with BTG's experience in the local market and Accor's in the world market.

Under current conditions, foreign groups entered China's market through buying out, controlling or sharing stocks, devolving management, and franchised operation.

"Actually sole-invested foreign hotels are permitted now," said Chen Xueyu, official of the Shanghai Municipal Tourism Administrative Commission.(China Daily)(12/20/2001)