Hote­liers eye out­bound deals for business growth

Mid-range chains ex­pand across Asia, spurred by Chi­nese tourists

China Daily (Canada) - - BUSINESS - By FAN FEIFEI and ZHENG XIN

China’s ex­press or midrange ho­tel brands are rapidly ex­pand­ing across Asia, pro­pelled by the im­pres­sive growth of Chi­nese out­bound tourism.

In 2011, Jin­jiang Inn, a ma­jor ex­press ho­tel brand founded in 1996 in Shang­hai, took a step to­ward over­seas ex­pan­sion through part­ner­ship with Oishi, a Philip­pines-based company best-known for its snack brands. This marked the first over­seas Chi­nese ex­press ho­tel to be built on a grand scale.

In Jan­uary 2014, Jin­jiang Inn granted a fran­chise to Mas­pion Group, an In­done­sian company, which be­came the fourth off­shore lo­ca­tion of Jin­jiang as it ex­panded its over­seas mar­kets. In Novem­ber, the firm ven­tured into South Korea by open­ing a ho­tel in Myeong-dong, tar­get­ing Chi­nese tourists in the com­mer­cial area of Seoul.

With the rapid de­vel­op­ment of China’s econ­omy and ris­ing wages, the num­ber of out­bound trips has also in­creased. China has emerged as the big­gest out­bound tourism mar­ket in the world.

Based on data from the Na­tional Tourism Ad­min­is­tra­tion, the to­tal num­ber of Chi­nese tak­ing out­bound trips reached 98.19 mil­lion in 2013, grow­ing 18 per­cent year- on- year. Out­bound tourists from China are pro­jected to ex­ceed 100 mil­lion this year.

Ex­press ho­tel brands have been grow­ing rapidly in the do­mes­tic mar­ket, but the thriv­ing out­bound tourism mar­ket has also stim­u­lated over­seas growth and prompted some firms to pur­sue brand li­cens­ing agree­ments with off­shore part­ners.

“We are mainly fo­cus­ing on mid-range ho­tels in our over­seas ex­pan­sion. And many in­vestors in South­east Asia are will­ing to in­tro­duce our brand into the lo­cal ho­tel mar­ket,” says Wu Shenshen, deputy di­rec­tor of in­vest­ment de­vel­op­ment at Jin­jiang Inn.

“The method of co­op­er­a­tion with our Philip­pine and In­done­sian part­ners is brand li­cens­ing,” says Wu. “Our re­gional agent in In­done­sia is now look­ing for a ho­tel lo­ca­tion in Jakarta and Bali, which are hot des­ti­na­tions for many Chi­nese tourists.”

Based on Jin­jiang Inn’s 15-year brand li­cense agree­ment with Mas­pion, the In­done­sian company will de­velop no fewer than five ho­tels in the first three years and at least 10 ho­tels in the first five years.

“Although the tourism mar­ket in South­east Asia is very large, we are very cau­tious about our in­vest­ment and se­lect part­ners very care­fully,” says Wu. He ex­plains that his firm does not di­rectly invest in ho­tels in South­east Asian coun­tries.

“We just ex­port our brand, dis­patch our man­age­ment teams to help our part­ners to open a new ho­tel and give them guid­ance about ho­tel man­age­ment meth­ods. Our part­ners pay roy­al­ties to us, and they are self-fi­nanc­ing.”

Jin­jiang Inn has met some chal­lenges in the process of its over­seas ex­pan­sion. Wu cites the Philip­pines as an ex­am­ple.

“We signed a co­op­er­a­tion agree­ment with our Philip­pine part­ners in 2011,” he re­counts. Owing to un­sta­ble po­lit­i­cal ties be­tween China and the South­east Asian coun­try, his company’s ho­tel project with its Philip­pine part­ner is mov­ing very slowly, he says. How­ever, two ho­tel projects in Manila are ex­pected to be fin­ished in 2015.

Green­Tree Inn, a business ho­tel chain in China, has also ex­panded over­seas. It opened its first branch in Dhaka, the cap­i­tal of Bangladesh, in March 2014, and is now eye­ing South­east Asia.

“We have cho­sen part­ners in Viet­nam and ex­plored the ho­tel mar­ket sit­u­a­tion in In­done­sia. Apart from South­east Asia, we set up a branch in South Korea,” says Alex Xu, pres­i­dent of Green­Tree Inn.

“The rapid de­vel­op­ment of bi­lat­eral trade be­tween China and South­east Asia, es­pe­cially the ever-in­creas­ing num­ber of Chi­nese go­ing on business or leisure trav­els to South­east Asia, has brought about a large de­mand for ac­com­mo­da­tions.”

He says that Chi­nese tourists pre­fer ho­tel brands that they are al­ready fa­mil­iar with, par­tic­u­larly home­grown ones. “This is an im­por­tant rea­son why we are de­vel­op­ing ho­tels here,” says Xu, re­fer­ring to off­shore mar­kets.

In South­east Asia, the company con­cen­trates on medium- and high- end ho­tels, tar­get­ing white-col­lar and business trav­el­ers.

“The to­tal num­ber of ho­tels we ex­pect to open in this re­gion could reach at least one-third of the num­ber mak­ing up the do­mes­tic mar­ket,’’ Xu says.

He says that there were about 2,000 ho­tel chains in more than 400 ci­ties across China at the end of 2013, and that ap­prox­i­mately $50 mil­lion is ex­pected to be in­vested in ho­tels in South­east Asia each year.

Green­Tree’s strate­gies for over­seas ex­pan­sion in­clude ac­qui­si­tion, leas­ing and pur­chas­ing.

“Com­pared with lo­cal ho­tel brands in South­east Asian coun­tries, we have our own ad­van­tages, such as high pop­u­lar­ity and high brand recog­ni­tion among Chi­nese tourists,” Xu says.

“How­ever, due to lan­guage bar­ri­ers and cul­tural and man­age­ment dif­fer­ences, we need to make ad­just­ments timely and adapt to the de­mands of the lo­cal mar­ket, while tak­ing into ac­count the re­quire­ments of in­ter­na­tional business trav­el­ers.”

Xu is quite op­ti­mistic about the prospects for Chi­nese ho­tel brands in South­east Asia, adding that th­ese ho­tels will con­tinue to in­crease in num­ber along­side the growth of out­bound Chi­nese tourists.

“We will also ac­cel­er­ate our over­seas ex­pan­sion,” he says.

The short­age of ho­tels in some South­east Asian coun­tries and the strong pur­chas­ing power of Chi­nese tourists have brought about op­por­tu­ni­ties for mid-range Chi­nese hote­liers.

Ac­cord­ing to a 2014 re­port on China’s ho­tel in­dus­try by For­ward Business and In­tel­li­gence Co, an in­dus­try in­for­ma­tion ser­vice provider in China, tourist ar­rivals from the main­land to Myan­mar reached 1.06 mil­lion in 2012, re­flect­ing a sig­nif­i­cant rise over the pre­vi­ous years. They are ex­pected to reach 3 mil­lion in 2014.

Tourists from Thai­land, Ja­pan and China com­prise the top three trav­el­ers to Myan­mar.

How­ever, fewer than onethird of the ho­tels in Myan­mar meet in­ter­na­tional stan­dards, so the room for ex­pan­sion into this mar­ket is huge for Chi­nese hote­liers, es­pe­cially op­er­a­tors of high-end ho­tels, eye­ing this coun­try.

More­over, based on the re­port, the num­ber of for­eign tourists in Sin­ga­pore reached 15.6 mil­lion in 2013, ris­ing 7 per­cent from 2012. The oc­cu­pancy rate of high-end ho­tels in Sin­ga­pore was pegged at 88 per­cent in 2013, while Chi­nese tourists have been shown to have the strong­est pur­chas­ing power among other tourists, spend­ing a to­tal of S$2.98 bil­lion ($2.3 bil­lion) in 2013. Such spend­ing presents a tremen­dous op­por­tu­nity for Chi­nese ex­press ho­tel op­er­a­tors eye­ing a for­eign mar­ket like the city-state.

Ac­cord­ing to Li Xin­jian, a pro­fes­sor of tourism at Beijing In­ter­na­tional Stud­ies Univer­sity, China’s ex­press ho­tels play a key role in the in­ter­na­tional mar­ket. Ex­press ho­tels, after years of de­vel­op­ment, have gained vast ex­pe­ri­ence in mar­ket op­er­a­tions, cap­i­tal uti­liza­tion and brand man­age­ment, and have be­come very com­pet­i­tive in the global mar­ket.

“The South­east Asian coun­tries were the ear­li­est and (have emerged as) very at­trac­tive des­ti­na­tions for the Chi­nese out­bound trav­el­ers,” he says.

“The Chi­nese swarm­ing into South­east Asian coun­tries, in­clud­ing Thai­land, In­done­sia, Sin­ga­pore and Malaysia, cre­ate a great de­mand for ho­tels.”

Chi­nese ex­press ho­tels ex­pand­ing into the re­gion is a wise move, Li says, given their af­ford­able prices and be­cause some brands are al­ready fa­mil­iar to Chi­nese tourists based on their years of op­er­a­tion in the main­land. It also il­lus­trates how out­bound tourism helps pro­mote over­seas in­vest­ment, he says.

But whether the con­sid­er­able suc­cess of ex­press ho­tels in the main­land will be repli­cated over­seas is another ques­tion.

“It re­mains un­sure whether those suc­cess­ful ex­press ho­tels could con­tinue to write their leg­endary sto­ries abroad and adapt well to the for­eign en­vi­ron­ment,” Li says.

We are mainly fo­cus­ing on mid-range ho­tels in our over­seas ex­pan­sion.” WU SHENSHEN DEPUTY DI­REC­TOR OF IN­VEST­MENT DE­VEL­OP­MENT AT JIN­JIANG INN

Con­tact the writ­ers at fan­feifei@chi­ and zhengxin@chi­nadaily.

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