International hotel giants are aggressively expanding their
networks on the Chinese mainland with increased investment,
according to an August 18 China News?Service report.
The report quoted an article from the latest issue of Time
Express, a Taiwan-based magazine, which says that China is
expected to replace the US by 2020 as the world's most popular
tourist destination.
Attractive travel destination
China's booming hotel industry is one of the fastest-growing in
the world. Foreign investment in China's newest hotel properties is
surprising. "It is hot to the highest point," said Patrick Ford,
CEO of US hotel industry research group, Lodging Econometric. "For
hotel operators, China is one of the most attractive places in the
world. Therefore, the funds are being invested in an endless stream
and major international hotel brands are vying to get in."
Ford said that 188 new hotels are being built in China, 145 of
them four- or five-star hotels each with at least 200 rooms. Even
if the project, estimated to cost about US$8 billion, isn't
completed, this wave of construction boom can still provide as many
as 30,000 new rooms.
Local hotels at a disadvantage
Many foreign investors seem to be confident about making huge
profits in China. A major reason for this assuredness is that local
hotels have poor brand recognition compared with their overseas
rivals and cannot match international standards in terms of price
and services.
"Prada or Mont Blanc (products) can be imitated, but it is
impossible to counterfeit luxury services," the Ritz-Carlton Hotel
manager Gong Borui said. "The living experience cannot be
imitated."
Ford is of the same view: "None of the Chinese brands can match
the Marriott, Hyatt, Hilton, Westinghouse and other big names."
Which is why domestic hotel operators are working toward
alliances with the international big wigs. In such alliances, the
local partner is typically responsible for funding the construction
of the hotel, while the foreign partner takes on the management and
operation of the business. In this way, the foreign brands, with
their professional experiences, would ensure that designs,
concepts, technical and service standards satisfy international
criteria.
Top tourist destination by 2020, surpassing US
Fuelling increased investment in China's hotel industry are
healthy forecasts for the inbound tourism sector. According to the
World Tourism Association, China is currently the fourth most
popular tourist destination in the world, and could reach the
number two spot in 10 years. More significant is that China could
become the world's most visited country by 2020, surpassing the US,
which welcomes 130 million visitors annually.
China's burgeoning domestic tourism market is also one of the
drivers of the rapidly growing hotel industry. By 2010, there will
be an estimated 1.8 billion domestic tourists traveling the
country, up from the current 1.2 billion.
Other factors contributing to the domestic tourism boom include
increased car sales and a national highway network, which makes
traveling more practical and more attractive. China currently has
some 34,000 kilometers of road and this is expected to double by
2020.
"Roads connecting Inner Mongolia's major cities are more
convenient than the roads between Sydney and Melbourne," said Bruce
McKenzie, regional vice president of InterContinental Hotels
Group's China operations. The group operates 54 hotels in China,
most of which belong to the Holiday Inn brand. The group has plans
to increase the number of its properties three-fold by the end of
2008.
Holiday Inn hotels rose to fame in post-World War II America
that was undergoing the same heady development that China is now
experiencing. Holiday Inn hotels capitalized on the expansive
national road network to grow from just four hotels in Memphis,
Tennessee in 1952, to some 1,000 hotels by 1968.
"We see a repeat of the US opportunity," McKenzie said.
Stiff competition in major cities
Because of increasingly stiff competition in major cities such
as Beijing and Shanghai, hotel operators are moving out to
secondary cities including Hefei, Harbin and Chengdu. However, it
might take up to 10 years to build the businesses in the secondary
cities. In spite of this, players like InterContinental Hotels
Group, one of the most active in China, are ready to make the move
now, if nothing else to secure the best locations and start brand
building.
"If I were a large hotel operator, the question is: should I
wait another 10 years before starting my enterprise in China?"
queried Swiss Bank (Hong Kong branch) real estate analyst Eric
Huang.
"Major chain operators are determined to launch a race to occupy
vantage grounds."
The fierce competition for prime land will result in a
reasonable rate of attrition, particularly eliminating those
without solid business models. Huang said: "Many newcomers are
getting into China because their headquarters have instructed them
to do so. 'Must enter China'."
For those left standing, the risks they face include scores of
vacant rooms. Even in metropolises like Beijing, Shanghai, Shenzhen
and Guangzhou, demand lags behind supply. "It's difficult to find a
good location in these cities when starting a business," Huang
said. "Some brand new luxury palaces will be forced to withdraw
over time."
Competition for business is fairly evenly spread out among all
classes of hotel. In fact, global brands such as the Hilton,
Marriott and Hyatt chains have plans to develop "economy class"
hotels in addition to luxury developments. Such projects would go
head-on against the three-star and below Chinese
establishments.
"China is experiencing an amazing change," said Brian Deeson,
Accor's CEO (Greater China). Accor currently operates four Ibis
budget hotels in China and plans to increase its network to 50 by
the end of 2008.
"To maintain superiority, we must take very quick action."
(China.org.cn by Wang Zhiyong, August 25, 2006)