How will growth be financed by the international
hotel companies?
Keywords
Hotels, Shareholders,
Stakeholders,
International organizations,
Globalization
Abstract
This paper presents a set of
secondary findings about the
environmental factors influencing
the international expansion plans
of Bass Hotels and Resorts.
Literature indicates that different
factors in the business
environment influence decisions of
the organizations as they plan
expansion into new international
markets. A case study approach
was chosen for this study to
investigate these issues and the
organization was researched from
the outside through company
publications and analyst reports.
The findings of this study reveal
that capital markets and the host
country hotel market conditions
play the determinant role in the
expansion plans of the hotel
organization. This paper evaluates
these factors and discusses their
influence on the organization's
expansion decisions.
International Journal of
Contemporary Hospitality
Management
15/5 [2003] 274-282
# MCB UP Limited
[ISSN 0959-6119]
[DOI 10.1108/09596110310482191]
[ 274 ]
Levent Altinay
Department of Hospitality, Leisure and Tourism Management, Business School,
Oxford Brookes University, Oxford, UK
Mehmet Altinay
School of Tourism and Hospitality Management, Eastern Mediterranean
University, Famagusta, Cyprus
Introduction
Globalization is a major trend for today's
organizations. Accelerated by the
organizations' desire for growth and profit,
incentives provided by the host governments
and a freer flow of capital throughout the
world, industries have become more global.
As a result of the saturation of domestic
markets, international organizations have
discovered that their future survival and
growth depend upon offering a unique
product and/or extending their services
around the world. Olsen and Roper (1998)
state that limited theoretical and empirical
research has been undertaken into the
internationalization of hospitality
businesses. The article written by these two
authors considers research into the
internationalization of hospitality
organizations and suggests the topics for
future investigation. According to them, the
extant literature on the internationalization
of hospitality organizations mainly focuses
on hotel groups. These analyses are mostly
based on a numerical framework and the
importance of growth in internationalization
of travel, and they have added little
theoretical knowledge about the
internationalization of hospitality
organizations. Zhao and Olsen (1997) also
stated that literature about the
``globalization'' of the hospitality
organizations is still in embryonic stage and
according to these scholars, there is still a
need to explore what events in the business
environment are factored into expansion
decisions by hotel multinationals to enter
existing and/or new markets. Given this, this
research effort is designed to seek an answer
to the following question:
What are the industry specific factors in the
business environment that will influence
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future international expansion plans of a
multinational hospitality organization?
Literature review
The most widely quoted work with regard to
the internationalization of hospitality
organizations is based on the eclectic theory
developed by Dunning (1981). According to
this theory, the extent, pattern and growth of
value-added activities undertaken by
multinational organizations outside their
national boundaries, is dependent upon the
value of and interaction between three main
variables; ownership-specific advantages of
multinational organizations,
location-specific advantages of countries and
market internalization or coordinating
advantages. The concept of ownership
advantage refers to the competitive
advantage of multinational corporations over
other firms in the country in which they are
producing. This typically arises from the
multinational corporation's ownership and
ability to combine geographically scattered
activities. Another dimension of the eclectic
paradigm is internalization. It is exercised
through the acquisition of control over
resources, either through ownership of
equity capital or through contracts.
Location-specific advantages are also
essential in determining the firms that will
engage in cross-border value-adding
activities. Although the decision of where to
set up production facilities is treated
separately from the other two advantages, it
cannot be seen as an independent decision.
With particular focus to the hotel
corporations, Go et al. (1990) stated that
variables such as the size and growth of
demand; the policy of the host government
towards foreign enterprise; and the general
political, social, and economic stability of the
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Levent Altinay and
Mehmet Altinay
How will growth be financed
by the international hotel
companies?
International Journal of
Contemporary Hospitality
Management
15/5 [2003] 274-282
country are some, but not all, of the factors
that determine whether the multinational
hotel organization will become involved in a
country. Dunning (1997) has cautioned that
full account must be taken of location factors,
such as the structure of the host economy,
the policies of the host government and the
nature of local business culture, in
explaining the comparative success and
failure of foreign direct investment.
Several studies have attempted to utilize
the eclectic framework. Agarwal and
Ramaswami (1992) investigated the impact of
the ownership-location-internalization
advantages on the choice of foreign market
servicing mode. With particular focus on the
impact of different country markets, they
found that where a high level of country and
political risk is perceived then firms will
tend to favor those entry modes with a lower
level of resource commitment, such as
franchising and management contracts.
Contractor and Kundu (1998) also
re-evaluated some of the reasons for the
increase in multinational activity in the
hotel sector by applying the eclectic theory to
a sample of multinational organizations that
develop internationally. These scholars
found that franchising and management
contracts are preferred in high-income
countries. Equity based arrangements are
preferred where country income levels are
lower. Where political and economic risk is
perceived to be high then non-equity based
arrangements such as franchising and
management contracts will be favored. In
addition, several studies suggest that
``cultural distance'' between the home base of
the organization and the intended foreign
market also exposes risk (Gatignon and
Anderson, 1988; Kogut and Singh, 1988; Chu
and Anderson, 1992). Miller (1992) defines
cultural distance as the similarity or
difference between the culture of the
consumers in the home market versus in the
target market. This scholar further argues
that in highly different cultures,
management will perceive increased levels of
country risk because of their lack of market
knowledge, particularly the knowledge about
the target market customers. An
organization should therefore assess the
nation's environment. Otherwise, they may
lose opportunities, allocate their resources
improperly, take unnecessary risks and end
up losing their assets.
Taking unnecessary risks and ending up
losing assets might also negatively influence
the perceptions of the organizations'
shareholders of the organizations' activities
and create anxiety among these stakeholder
groups. This is not what organizations want
and, as Olsen et al. (1998), Carati and Rad
(2000) and Yoshikawa and Phan (2001) stated,
organizations seek to answer the demands
and norms expected from their investors.
These scholars further postulated that
meeting the expectations of the shareholders
appears to be particularly important
because their influence on the
organizations' functioning is growing.
Charkham (1994) argued that although an
organization has accountability to different
parties, such as employees, suppliers,
shareholders, customers and community,
shareholders are the ``anchormen''. If the
board's accountability to them is lessened it
will be altogether weakened. Selznick (1996)
also noted that an organization is a
voluntary association of shareholders who
own the enterprise and are the only
members who really count. Whilst
discussing the roles that key stakeholder
relationships may play in corporate decision
making, Berman et al. (1999) cited Freeman
(1984) and commented that although
different stakeholders exist in the
organizations, managers care more about
serving shareholders interests and treat
other stakeholders only as a means to
realizing that goal. Whilst defining
corporate strategy Olsen et al. (1998) stated
that no matter what arguments are put forth
for other measurements; the long-term life of
any organization will depend on its ability to
generate value for its owners. If it cannot do
that successfully, then the organization will
not continue to exist. Moreover, the value
that must be generated must exceed the cost
of the capital invested to create that value;
otherwise owners or investors will look to
place their funds elsewhere. This is a simple,
basic value of life in today's business world.
Research approach
A case study approach was chosen for this
study as it allows the researcher to develop
theoretical insights when theories need to
be developed or the existing theories are
inadequate and incomplete (Otley and
Berry, 1994; Yin, 1994). It was thought that
this approach would provide the
opportunity to generate new theoretical
insights into the factors that might well
impact upon the organization's expansion
decisions. Bass Hotels and Resorts acted as
a participant in this research. It is a hotel
company with global representation which
mainly franchises but also contracts, leases
and jointly and partially owns hotel
properties. The company is one of the most
international in the sector, its portfolio of
[ 275 ]
Levent Altinay and
Mehmet Altinay
How will growth be financed
by the international hotel
companies?
International Journal of
Contemporary Hospitality
Management
15/5 [2003] 274-282
[ 276 ]
over 2,000 hotels are located in more than 98
countries worldwide. It is structured into
three geographical divisions: the Americas,
Asia Pacific and EMEA (Europe, Middle
East and Africa) (Hotels, 2000). Since access
was facilitated into the latter division, this
research focuses on the situation in the
Europe, Middle East and Africa division.
On 30 July 2001, the group was renamed as
Six Continents Hotels and Resorts.
However, as the data were collected under
the original name, it remains throughout
the paper.
Littlejohn and Roper (1999) suggested to
research organizations from the outside
through annual reports, corporate
brochures, Web sites, press releases and any
other published documents in order to
eliminate access restrictions and to save
some time. Moreover, this type of research
may be treated as preparatory to launching
of primary research. In line with the
suggestions of Littlejohn and Roper (1999),
document analysis was used as a data
collection method for this study. The variety
of documents for analysis included job
descriptions of the organizational members,
international expansion proposals, annual
reports, letters, memoranda, agendas,
minutes of meetings, formal reports and
publications about the company. Brokers
reports about the organization were
collected from different consultancy,
investment and research organizations. A
wide range of publications about the hotel
industry in general and the hotel
organization in particular was reviewed
through a number of databases such as
Infotrac, Emerald, CD-ROM databases such
as ABI/INFORM, Business Source Premier
and articles in Hospitality and Tourism
Database.
Findings
This section of the paper is structured into
two main sections. The first section reflects
on the expansion opportunities for the hotel
chains in Europe. The second section
introduces the hotel company and evaluates
its strategy for Europe.
Growth opportunities in Europe
According to Knabe et al. (2000) of Dresdner
Kleinwort Benson Research, the lodging
industry is one of the fastest growing
industries. A number of factors are driving
the growth of the industry, particularly in
Europe. These are growth in hotel demand
and brand penetration. These factors are
evaluated below.
Growth in global hotel demand
Analysts reports illustrated that there is a
continuous increase in the demand for
accommodation in Europe. As Figure 1
demonstrates, Europe accounts for eight of
the world's top 12 international tourist
destinations and it represents approximately
60 per cent of all international arrivals in the
world.
Brand penetration
The value of brands has been identified as
another factor which is likely to play a more
significant role in the industry's growth. In
Europe, the industry is traditionally
dominated by individually run properties
and the percentage of branded rooms stays
relatively low (see Table I). Since Europe
lacks brand penetration, it is considered to be
a niche market for the brand consolidators.
In addition, Europe appears to be the key
global lodging opportunity because although
the region generates the highest tourism
receipts worldwide, as stated before the
percentage of branded rooms stays relatively
low (Finnie et al., 2000).
A number of reasons have been identified
by Finnie et al. (2000) as to why international
hotel groups have made such limited
progress in Europe to date:
. The bed and breakfast/pension industry
has a substantial foothold in the lodging
industry in Europe, whereas in the USA,
it has never existed in any meaningful
way.
. The distinct national identities within the
region have historically favored national
organizations over international
operators.
. The language barriers and legislative
environments in Europe are far from
insignificant issues to US-based operators.
. The immaturity of the capital markets, in
contrast to the USA, where there is a
multitude of differing financing
alternatives, have made franchising in
particular a slow process.
The following section provides an
introduction to the company and evaluates
its expansion strategy for Europe.
Corporate strategy and expansion strategy
for Europe
In Bass plc (1998; 1999, p. 1) Annual Report
and Financial Statements, the strategy of the
company has been described as:
To be leading player in each of our
interrelated businesses, in our chosen
geographical areas. Across our businesses,
we continue to build the quality, scale and the
range of our brands for our customers and in
so doing create value for our shareholders.
Levent Altinay and In his statement in the Annual Report and
Mehmet Altinay Financial Statement (Bass plc, 1998), the
How will growth be financed Chairman of the company made it clear that
by the international hotel
companies? action was taken in order to enable the
International Journal of organization to out-perform in different
Contemporary Hospitality markets and deliver value to the
Management
15/5 [2003] 274-282 shareholders. He continued:
We have a winning combination of strong
brands and the ability and commitment to
invest behind them, which we are confident
will drive long term, sustainable growth in
shareholder value (Bass plc, 1998, p. 6).
On the other hand, there appeared to be
diverse views among the business analysts
with regard to the recent performance of the
company. Table II incorporates the views of
the different institutions which prepared
reports for the shareholders of the
organization or for prospective shareholders.
In terms of international expansion, the
Bass Hotels and Resorts has set itself a target
of achieving a top three position in five core
markets; UK, USA, Germany, China and Italy
and a ``major'' position in three others;
France, Japan and Spain. It is targeting
upscale market (particularly in the USA);
midscale market in Europe (UK, Spain, Italy,
Germany and France are all listed as
priorities), and Asia. According to Rollo et al.
(2000a, b) of Morgan Stanley Dean Witter
these eight countries comprise 65 per cent of
international travel and 58 per cent of
international hotel rooms. This means that
there are growth opportunities for Bass
Hotels and Resorts in these niche markets
and the organization has therefore focused
its expansion activities on these markets.
Within these regions, whereas the
organization has a 25 per cent market share
Figure 1
The world's top 12 tourism destinations
Table I
The European hotel opportunity (1998 data)
Regions Percentage of branded rooms Tourism receipts ($ billion)
Americas 69 120
Europe 18 229
Asia/Pacific 15 69
Source: WTO, Deutsche Bank estimates in Finnie et al. (2000, p. 11)
in the US midscale market, it has only a 6 per
cent market share in the European midscale
market (Rollo et al., 2000a, b). Rollo et al.
(2000a, b) argue that this leaves ample scope
for expansion.
Although the organization recently
established targets of achieving a top three
position in five core markets and a ``major''
position in three others, it also continues to
insist that it does not intend to invest
significant capital into the mid-market hotel
sector. If the organization is committed not to
invest significant capital into the mid-market
hotel sector, it will be forced to rely on
securing franchise and management
agreements in order to realize these
international ambitions.
The following section informs the reader
about the organization's strategic markets
within Europe and evaluates the
organization's position within each market.
These sections are important in terms of
assessing the feasibility of the expansion
strategy set by the hotel chain. It begins with
the evaluation of the Italian market. It then
evaluates Germany, UK, France and Spain
respectively.
Italy
Italy is Europe's largest hotel market (23 per
cent of European room supply) but has the
lowest brand penetration (4 per cent). Unlike
most of the West European markets, there is
no dominant group in Italy and therefore
with Bass Hotels and Resorts already
operating just over 2,300 rooms at the
beginning of 1999, there were a number of
opportunities that could emerge to move the
company into a top three position in the
territory.
Holiday Inn signed a franchising
agreement for 20 new hotels with the
US-based Westmont Hospitality in 2000, its
largest ever franchising deal in Italy. With
31 properties, this made Holiday Inn Italy's
number two mid-scale brand, up from
number seven (Rollo et al., 2000a, b). This
deal also made Westmont its largest Bass
Hotels and Resorts franchisee in Europe
(SG, 2000). According to the company, this
deal will contribute to brand awareness and
to the funds available for investment in
marketing and information technology in
Europe. Although this transaction has not
required Bass Hotels and Resorts to commit
capital investment, according to Rollo et al.
(2000a, b), this must be seen in the context of
one of the most fragmented hotel markets on
the Continent. With such a low level of
branding and hotel chains, it is believed
that growth through acquisition will
be difficult.
[ 277 ]
Levent Altinay and
Mehmet Altinay
How will growth be financed
by the international hotel
companies?
International Journal of
Contemporary Hospitality
Management
15/5 [2003] 274-282
Germany
Germany is Europe's number two hotel
market. It is characterized by low occupancy
rates (a function of the post-reunification
construction boom, fuelled by tax breaks on
new infrastructure) and low operating
margins (30 per cent GOP margins) (Rollo
et al., 2000a, b). Although Bass Hotels and
Resorts is the third largest hotel chain in
Germany, profit contribution is modest and
scope for further consolidation appears
significant.
It could be argued that Bass Hotels and
Resorts is already a long way towards
meeting its objective of establishing itself as
a top three operator within Germany. It owns
just over 2,350 rooms and franchises a further
6,800 rooms, leaving the group ranking third
within Germany. However, it is clear that
Bass Hotels and Resorts' ambitions for
Germany extend far beyond 10,000 rooms.
Furthermore, the scope for further
consolidation among the top ten operators
appears significant, with no one dominant
hotel chain within the territory, but a
number of medium-sized privately owned
groups.
According to Finnie et al. (1999) of Deutsche
Bank, there are clear signs of recovery in the
German hotel market. The prospects should
be improving for some liquidity to be
injected into the property market and, with
Germany being earlier in the hotel cycle
than any other major European hotel
market, the attraction of buying assets now
for international operators are obvious.
Furthermore, changes to the historic tax
breaks given to private investors to invest in
hotels should also lead to a large number of
the long leasehold properties being offered
for sale. However, the same report states
that convincing family-run companies of the
logic of a franchise or management deal is
likely to prove far from easy. Additionally,
finding deals in Germany will be one thing,
finding deals at the right price quite
another.
The UK
The UK is characterized by Europe's highest
operating margins (44 per cent of GOP
margins), high occupancy rates (78 per cent)
and a large element of publicly quoted
companies (Rollo et al., 2000a, b). Bass Hotels
and Resorts is ranked fifth in the UK hotel

Table II
Views on Bass plc's performance
Source of the
investment view Comment Investment view
Parson et al. (2000) The organization to pursue the myriad of opportunities in the hotel arena, Buy
(WestLB Panmure) where it is performing well
Hill et al. (2000) The key call on the organization now, is whether the cash raised from the Hold
(HSBC) brewery disposal will be returned, or spent on acquiring hotels. The risk is
that it will spend the receipts on overpriced hotels
Price et al. (2000) Reluctantly we are downgrading our recommendation on the organization Hold
(Credit Suisse) from Buy to Hold. First, it has remained adamant that the retail division
will remain an integral part of the business portfolio. Second, there are
some questions concerning the use of the £2.3 billion proceeds from the
disposal of the brewing division to Interbrew. Third, we question whether
the group will overpay for any hotel assets it acquires
Knabe et al. (2000) Bass Hotels and Resorts needs to address its competitive advantage in Buy
(Dresdner Kleinwort US upscale. The transformation from a drinks-to-leisure conglomerate to
Benson Research) an industry leader in global lodging can only help the rating of the shares
in the medium term
Puleikis et al. (2000) In hotels, the anticipated slowdown in USA has been less than feared with Buy
(Merrill Lynch) room rates still rising well ahead of inflation. The EMEA region is seeing
good increases in both occupancies and room rates
Rollo et al. (2000) The organization has almost completed its repositioning process but the Attractive for medium-term
(Morgan Stanley Dean reinvestment of disposal proceeds has been as critical as selling the
Witter) business itself
Finnie et al. (2000) Bass Hotels and Resorts is a pivotal player in the hotel world. Although Post the organisation's underperformance
(Deutsche Bank) we have argued that growth at Holiday Inn is slowing and that the since the acquisition of up-scale brand, it is
organisation overpaid for the up-scale brand, we look for it to make further not a stock that we would be aggressively
strategic consolidation moves selling

[ 278 ]
Levent Altinay and
Mehmet Altinay
How will growth be financed
by the international hotel
companies?
International Journal of
Contemporary Hospitality
Management
15/5 [2003] 274-282
sector, albeit less than half the size of the top
three chains, Granada, Whitbread and the
Hilton Group. At the company's conference,
plans for an additional 7,500 rooms were
outlined. The company's reluctance to invest
more aggressively into the self-financed
development of Express Brand in the UK has
left it lagging behind competitors.
France
Rollo et al. (2000a, b) of Morgan Stanley Dean
Witter stated that France is characterized by
being the world's largest tourism destination,
having highly regulated supply growth and
by being dominated by a few large, local
players. The same report states that it is a
very difficult market to break into and
become the ``natural alternative'' to the Accor
brands in France. According to Finnie et al.
(1999) of Deutsche Bank, it is almost
impossible for any family-owned hotel group
to undertake a master franchise agreement to
secure the midscale and budget brands.
Therefore, for the company to gain exposure
to the other hotel chains' portfolio would
necessitate capital investment ± clearly
contradictory to the company's declared
strategy of limiting investment into
mid-market hotel assets.
Spain
Spain is the world's number two tourist
destination and is characterized by low
brand penetration and the strongest revpar
growth in Europe (Rollo et al., 2000a, b). This
market is dominated by local players namely
Sol Melia, Riu Hotels and NH Hotels, and
Bass Hotels and Resorts has considerable
ground to make up if it is to regard itself as a
major force in the Spanish market on the
basis of total rooms in operation.
According to Knabe et al. (2000) of Dresdner
Kleinwort Benson Research, NH operates
predominantly mid-scale hotels in Spain and
has also begun to roll out a limited service
brand, NH Express. This similarity to Bass
Hotels and Resorts' own product
development would appear to make NH a
good fit for Holiday Inn Brand and would
give the company scale in Europe's fastest
growing hotel market. However, on the other
hand, Finnie et al. (1999) of Deutsche Bank
found it difficult to see the logic for NH
giving up this brand in return for a master
franchise operation.
Discussion and conclusions
Influence of the capital markets
In its Annual Reports, Bass Hotels and
Resorts clearly stated that its corporate
strategy is to be the leading player in each of
its interrelated businesses, in its chosen
geographical areas. It aims to build the
quality, scale and the range of its brands
across its businesses in order to satisfy
customers and, in so doing, create value for
its shareholders. In the Annual Report and
Financial Statement (Bass plc, 1998), the
chairman of the company made clear that
they take action to enable the organization to
out-perform in different markets and deliver
value to the shareholders. He emphasized:
We [the organization] are confident that we
will drive long term, sustainable growth in
shareholder value.
Indeed, throughout the research process,
with regard to international expansion, this
shareholder determined approach became
very apparent. The comments made by
analysts in their investment reports on the
organization reiterate these points. The
analysts' views ``the risk is that it will spend
the receipts on overpriced hotels'' and ``we
question whether the group will overpay for
any hotel assets it acquires'' all point to the
capital markets' pressure to expand via
secure and risk/cost-effective ways. They
have recommended that the organization
needs to look to expand in more cost-effective
ways rather than risk the capital of
shareholders.
Bass Hotels and Resorts therefore aim to
intensively operate in geographical areas
which possess growth opportunities and
where the organization will be more likely to
create value for its shareholders without the
need for substantial capital commitment. As
pointed out by the company and analysts,
Europe appears to offer the profitable growth
opportunities the organization seeks. It
became obvious particularly in the
secondary findings that economic prosperity,
increases in disposable income and a
reduction in the cost of air travel due to
liberalization of the European aviation
industry have all resulted in growth in hotel
demand within Europe. Moreover, Europe
seems to be a fertile ground as it generates
the highest tourism receipts worldwide.
Analysts have also pointed out that they
think the European region should contribute
more particularly to mid-scale brand's
profitability, and achieve this with speed.
Moreover, Bass Hotels and Resorts has
chosen to expand further via non-equity
involvement. It is a strong advocator of
franchising business internationally and it
continuously looks for partners in order to
expand through franchising and benefit from
the advantages of employing this business
format; fast growth with low risk. The
rational reason for choosing to expand via
franchising or management contract, i.e.
[ 279 ]
Levent Altinay and
Mehmet Altinay
How will growth be financed
by the international hotel
companies?
International Journal of
Contemporary Hospitality
Management
15/5 [2003] 274-282
[ 280 ]
non- or partial-equity forms can also be seen
to be as a result of the influence of
shareholders and the company's desire to add
value to them. International expansion
through this mode provides the ``secure'' and
fast return shareholders demand.
With particular focus on the hospitality
industry and international expansion of the
hospitality organizations, Zhao and Olsen
(1997) commented that factors in the dynamic
and turbulent environment shape the future
of the lodging industry and particularly their
international expansion plans. Among
different elements in the organizations'
environment, however, consistent with the
arguments of Zhao and Olsen (1997), findings
clearly illustrated that it is the economic
environment that appears to have a direct
impact upon the international expansion
plans of hospitality organizations. More
importantly, the findings of this study
provide support to Olsen et al. (1998) who
stated that the capital market system shapes
the organisation's international expansion
expectations. Indeed, if someone takes a
broader view and thinks about the
investment environment in which Bass
Hotels and Resorts operates and evaluates
the organization's approach to international
expansion, there is a real consistency
between this study's findings and previous
research into capital markets and corporate
governance. The findings of the study
particularly provide support to scholars such
as Charkham (1994) and Selznick (1996) who
argue that although there are different
stakeholder groups to whom an organization
has to serve, shareholders are the most
important stakeholders of the organization
and they receive priority from the
organizational members because they
control critical resources that are necessary
and important for the organizations'
survival. In response to what shareholders
want, findings clearly indicated that
shareholders look for a secure return on
their investments. This is what Olsen et al.
(1998) argued and it is obvious that if Bass
Hotels and Resorts fail to create that value,
shareholders will look to place their funds
elsewhere.
Influence of the host country environment
Findings of the study indicated that among
different markets within Europe, Bass Hotels
and Resorts has its own particular strategic
focus ± markets which possess potential in
terms of revenue and profit are given more
importance. For example, secondary findings
clearly illustrated that the organization has
set itself the objective of becoming an
important force in markets such as the UK,
Germany, Italy, France and Spain and these
are the markets which have got economic
potential for growth. They are among the
world's top 12 tourism destinations in terms
of the number of visitors. More specifically,
secondary findings indicated that:
. The UK is well known for providing the
highest operating margins and occupancy
rates.
. France is characterized by being the
world's largest tourism destination.
. Spain is the world's number two
destination and generates the strongest
revpar growth in Europe.
. Germany is Europe's number two hotel
market and the world's largest generator
of international travel.
. Italy is the largest hotel market with
lowest brand penetration.
The organization, therefore, focuses on
markets such as the UK, Italy, Germany and
Spain and puts large amounts of effort and
funding into these countries compared to
others. These are the economically stable and
growing countries where political and
economic risk is perceived to be low. These
findings provide support to the eclectic
theory (Dunning, 1981; Go et al., 1990).
Location specific advantages are key in
determining whether the hotel organization
will become involved in a country.
Particularly the general economic and
political stability need to be considered.
These findings are also in line with the
studies of Agarwal and Ramaswami (1992)
and Contractor and Kundu (1998) who found
that political and economic factors, and
particularly political and economic risk and
level of economic development, influence the
expansion strategies of organizations.
With particular focus to Bass Hotels and
Resorts strategy, however, it can be argued
that although its mid-scale brand achieved
great success in America, now it has to face
national challenges in EMEA, particularly in
the markets which have been identified as
strategic. In spite of the opportunities this
region has, international expansion does not
seem to be as easy as the organization
perceives. First, the franchise format, widely
used and preferred by the organization, is not
embedded in the business culture of Europe.
There is limited room for franchising in the
business context of Europe. For example, in
Germany leaseholds reflect the traditional
property investment practice. There also
appears to be a cultural characteristic that
German investors are not risk-oriented.
They, therefore, demand guarantees even if
they establish a franchise or/and
management contract partnership.
Levent Altinay and
Mehmet Altinay
How will growth be financed
by the international hotel
companies?
International Journal of
Contemporary Hospitality
Management
15/5 [2003] 274-282
Moreover, operationalization of franchising
and management contracting is a difficult
organizational activity, particularly in the
markets like Spain and Italy where
family-run companies do not understand the
logic of a franchise and management deal.
The fact that capital investment needs to be
deployed in certain markets/countries such
as Germany and Spain can also be
interpreted as part of the problem of
resistance. Another piece of evidence for
socio-cultural distance is that, although the
organization signed a franchising agreement
in Italy which took the organization to the
number two position, the deal was made with
Westmont Hospitality which is a US-based
organization. This not only shows the
compatibility of the organization's
international expansion approach to US
business culture, but it also simultaneously
indicates the difficulty of implementing hotel
franchising with potential domestic partners
in Europe. Consistent with the arguments of
Zhao and Olsen (1997), therefore, this study's
findings indicated that nations'
environments within Europe act to constrain
Bass Hotels and Resorts's international
expansion plan, particularly in utilizing its
preferred modal choice.
These findings manifest what Miller (1992)
defines as a ``cultural distance''. However, the
cultural distance in this context is not
associated with the difference between the
culture of the consumers in the home market
versus the potential target market but is
associated with the difference between the
organization's way of doing business and
potential partners' (e.g. hoteliers and
investors) perceptions which derive from
their nations' environmental context.
Moreover, as the findings indicated Bass
Hotels and Resorts has other strong
European competitors such as Accor, Jolly
Hotels and Sol Melia and it will not be easy
for the organization to convince these leading
national chains to give up their own marques
in return for one of the organization's
brands. With these in mind, if the
organization is committed not to invest
significant capital into the mid-market hotel
sector and will rely on securing franchise
agreements, international growth will be
slow. Therefore, if it wants to be actively
involved in Europe, it will have to invest
significant capital into the mid-market hotel
sector and be prepared to acquire or merge
assets.
From the above analysis it can be
concluded that when an hotel organization
looks for international expansion, it needs to
analyze the external business environment.
Areas of the external environment that
require particular attention are those related
to the general economic conditions in
different geographical areas and the
influence of capital markets. Organizational
expansion decisions are driven by the global
economic trends and capital market systems
trying to meet the demands of the capital
markets. In addition, a hospitality
organization needs to consider all the
influences that exist in the local environment
of host country or countries. International
expansion involves environmental diversity,
complexity and uncertainty in the host
country hotel markets. It is obvious that
there are still differences between markets
and the extent of the national challenge is
tremendous. Political, economic, legal and
socio-cultural variations of multiple
environments render international
expansion of the hospitality organizations
difficult. Hospitality organizations,
therefore, need to be flexible and look for
different ways of doing things in host country
hotel markets. This approach might favor
taking equity participation and also
necessary risks. It certainly requires
relationships to be built in the host country
at a number of different levels with the
different parties to management and
franchise contracts.
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Further reading
Beyan, N. and Eadie, G. (2000) ``Bass Hotels and
Resorts'', Deutsche Bank, 14 June.
Beyan, N., Eadie, G., Finnie, M., Collyer, G. and
Noble, S. (2000), ``Still time for change'',
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Dresdner Kleinwort Benson Research, 25 May.
Cumming, R., Hargreaves, E., Knabe, R. and
Purdy, M. (2000), ``Bass Hotels and Resorts'',
Dresdner Kleinwort Benson Research,
10 August.
Olsen, M.D. (1980), ``The importance of
environment to the food service and lodging
manager'', Journal of Hospitality Education,
Winter, pp. 35-45.
Puleikis, M., Hawkins, P. and Beaumont, J. (1999)
``Beverages'', Merrill Lynch, 2 December.
Puleikis, M., Hawkins, P. and Beaumont, J. (2000)
```Next move' concerns outweigh solid
fundamentals'', Merrill Lynch, 30 May.