EXECUTIVE VIEWS: CONTRIBUTING FACTORS TO INTERNATIONAL BUSINESS ALLIANCE SUCCESS IN THE HOTEL INDUSTRY IN THAILAND Gamon Savatsomboon, Mahasarakham

University, Khamriang, Mahasarakham, THAILAND Karun Pratoom, Mahasarakham University, Khamriang, Mahasarakham, THAILAND ABSTRACT This research examines factors contributing to the success of international business alliance in the hotel industry in Thailand. Business alliance in the context of this study refers to monetary and nonmonetary investments between Thai and foreign partners (e.g. Americans) in hotel business operations in Thailand. This research relies upon the views of hotel executives participated in this research project. Prospective contributing variables to business alliance success in the hotel business were identified through the literature review. These variables were grouped into four factors by content-relatedness: ability of alliance partner, resources commitment, goals commitment, and compatible cultures. In addition to descriptive statistics, t-test, correlation and regression analyses were performed. Based upon the results of t-test, the views of the Thai versus the non-Thai executives were differed on the level of business alliance success and contributing factors. The views of the two groups of executives were differed only on one contributing factor: ability of alliance partnership. Based upon a correlation analysis, all four contributing factors are significantly correlated with the level of business success. Regression analysis was employed to weight the effects of the four contributing factors on the level of business alliance success. Based upon a regression analysis, ability of alliance partner has the highest significant positive effect on business alliance success. Contributions, limitations, and recommendations for further research are also presented. Keywords: Business Alliance, Contributing Factors, Level of Success, International Hotels, Hotel Industry in Thailand 1. INTRODUCTION This research study aims to examine key contributing factors to the success of international business alliance in the hotel industry in Thailand. Business alliance is certainly not a new phenomenon in the hotel business in Thailand and around the world. However, it is expected that the hotel industry will continue to grow and expand around the globe, but on various scales depending upon the geographical locations. The hotel business in Thailand continues to attract international investments, because Thailand is one of the top 20 tourist arrivals of the world. Thus, many new and existing international hotel operators, hotel chains in particular, still have a strong interest in investing in the hotel business in Thailand. These international hotel operators usually form business alliances (both equity and non-equity) with the Thai partners. Non-equity is more populous. However, based upon a review of existing literature, there is very little attempt to learn about factors contributing to the success of business alliance partnership of the hotel industry in Thailand. From a practical point of view, it is important for both Thai and foreign hotel operators to know what the key contributing factors to the success of business alliance partnership are. This survey research is designed to gather the views of the Thai and foreign executives of international hotels in Thailand to elicit what the key contributing factors to the hotel business alliance success are. It is important to know these underlying contributing factors for successful and sustainable business alliance. 1.1 A Brief Overview of International Business Alliance in the Thai Hotel Industry Hotels in Thailand could be broadly classified into three categories, in term of equity ownership, domestics (wholly owned by the Thai operators), joint-ventures (owned by Thai and foreign partners), and management agreements/contracts (hotels own by Thais, but managed by international hotel chains). Based upon the study of Panvisavas et el (2006), foreign hotel operators rarely provide loans and/or equity to the Thai partners. Thus, management agreement seems to be a common form of international business alliance in the hotel industry in Thailand. About 20 percent of the 300,000 hotel rooms in Thailand are operated by international hotel chains and the rest by independent operators (Intarakomalyasut 2004), mostly Thais. International hotels in Thailand mainly are four- and five-stars hotels. International hotels in Thailand enjoy higher room rates in comparison with the majority of their domestic rivals, with few exceptions such as Dusit Thani. Thus, Thailand is attempting to turn local brands into international brands, but it is probably not easily achieved. A major reason why international hotel chains expand into the international markets, such as, Thailand, is to fulfill their

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strategic growth strategy. On the other hand, those local partners (e.g. Thais) who formed partnerships with international hotel chains operators for at least two apparent reasons: hotel operations know-hows and brand names. 2. LITERATURE REVIEW This literature review has two primary objectives. One is to provide a definition of the term, business alliance, for the context of this study. The other is to develop a conceptual framework of the study. The purpose is to capture critical variables for this study. 2.1 Definition In business contexts, business alliance typically refers to the partnerships between at least two parties which could be in forms of equity (e.g. capital investment) and non-equity (e.g. management contract/agreement) investments. Business alliance in the context of this study shares this same meaning: equity investment (e.g. joint-venture hotels in Thailand) and non-equity investment (e.g. contract agreements: hotels in Thailand managed by international hotel chains; franchise: franchisees of international hotel chains). In addition, the partners must be at least one Thai and one foreign partner. However, a composite foreign investment in hotel business is capped at 49 percent by the Thai laws. This means that the investment of the Thai side must be at least 51 percent. Many WTO members (mostly developed nations) are attempting to change a foreign investment equity restriction from 49 percent to 100 percent through General Agreements on Trade in Services (GATS) hosted by World Trade Organization (WTO). Thus, management contract and franchise are more popular for international hotel operators engaging in investing in the hotel business in Thailand. Non-equity typically involve lower risks, but greater controls. 2.2 Conceptual Framework This research is designed to gather four major types of critical information (the questionnaire design reflected this) relevant to the context of this study; namely, 1) demographic data of participants, 2) description of business alliance, 3) reasons for development of alliance, and 4) level of business success (dependent variables) and contributing factors (independent variables). The first threes involve descriptive statistical analyses. The last part involves inferential statistical analyses. Lets jump to the reasons for the development of business alliance. This research study follows Rigsbees suggestions on why businesses form alliance. Rigsbee (2000) has suggested that alliance partnerships generally could profit in seven areas: products, access, operations, technology, strategic growth, organization, and finance. Critical dependent and independent variables were identified for the context of this study. Four dependent variables (success variables) were identified: financial success, operational success, success based upon the alliance agreements/contracts, and strategic growth success. On the other hand, twenty-two independent variables were identified. These are contributing variables to the business success. Twenty-two independent variables were derived from a comprehensive review of the literature by Whipple et el. (2000). These twenty-two variables were grouped by content-relatedness into for factors as described in Figure 1 below. 2.3 Hypotheses Four hypotheses were developed based upon the conceptual framework described in Figure 1. Hypothesis 1: Ability of alliance partner has a significant effect on business alliance success. Hypothesis 2: Resources commitment has a significant effect on business alliance success. Hypothesis 3: Goals commitment has a significant effect on business alliance success. Hypothesis 4: Compatible cultures have a significant effect on business alliance success.

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FIGURE 1 CONCEPTUAL FRAMEWORK: CONTRIBUTING FACTORS TO BUSINESS ALLIANCE SUCCESS Contributing Factors

Ability of alliance partner

H1

H2

Resources commitment Business alliance success

H3

Goals commitment
H4

Compatible cultures
H = Hypothesis

3. METHOD This section describes data collection which comprises of two major subsections: participants and instrument. 3.1 Participants The participants included executives (such as general managers (GM) and resident managers (RM)) of the targeted international hotels in Thailand. Names of hotels were obtained from the 2008 directory of the Association of Thai Hotels. Two hundreds and twenty questionnaires were distributed by mail to the target participants. Forty-four questionnaires were returned. Thus, the response rate is twenty-percent. 3.2 Instrument The questionnaire for this research study is designed to gather four major types of critical information relevant to the context of the study. The questionnaire is divided into four major parts: Part A: respondent personal information (5 items), Part B: information on business alliance partnership (4 items), Part C: reasons for development of business alliance (7 items), and Part D: Level of business alliance success & contributing factors (variables) Part D(1): assessment of level of business alliance success (4 items) and Part D(2): assessment of key contributing factors (variables) to success (22 items). The questionnaire was developed based upon the conceptual framework described in literature review section. 4. ANALYSIS AND RESULTS The analysis focus on four critical types of critical information: demographic data of participants, types of business alliance, reasons for development of business alliance, level of business success and contributing factors to success. Both descriptive and inferential statistics are used where appropriate. 4.1 Sample and Hotel Business Alliance Characteristics Table 1 summarizes participants personal information based upon six variables: gender, nationality, position at the hotel, and years of experience in a hotel business. The total number of participants is 44 executives of international hotels in Thailand. Fifty-seven percent (57%) of participants were Thai and about forty-three percent (43%) were non-Thai (with a large number of Europeans and Americans). The majority of participants were general manager (GM) (45%) and residence manager

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(RM) (41%). Thirty-nine percent (39%) of participants have 16-20 years working experience in the hotel business and thirty-two percent (32%) with experience more than 20 years. The remaining characteristics of participants and hotel business alliance are presented in Table 1. TABLE 1 DEMOGRAPHIC CHARACTERISTICS OF RESPONDENTS AND HOTEL BUSINESS ALLIANCE Characteristics of No. % Hotel business alliance No. % respondents Nationality Types of business alliance Thai 25 57.0 Equity 10 25.0 Non-Thai 19 43.0 Non-equity 19 47.5 Total 44 100 Both 11 27.5 Total 40 100 Official rating of hotel Position 23.0 10 3 stars, or below 5.0 2 Chairperson of the Board 30.0 13 4 stars 2.0 1 Vice President (VP) 41.0 18 5 stars 45.0 20 General Manager (GM) 7.0 3 Above 5 stars 41.0 18 Residence Manager (RM) 100 Total 44 7.0 3 Assistant MD 100 Total 44 Years of experiences in hotel business 1-5 years 6 10 years 11 15 years 16 20 years More than 20 years Total Years of business alliance establishment 1 5 years 6 10 years 11 15 years 16 20 years More than 20 years Total

3 6 4 17 14 44

7.0 14.0 9.0 39.0 32.0 100

18 10 4 3 9 44

41.0 23.0 9.0 7.0 20.0 100

4.2 Results Table 2 presents reasons for development of business alliance partnerships of the hotels ranked from most selected reasons. Top three reasons are offering product/services (e.g. quality services) (83.75%), strategic growth (e.g. increasing market share) (81.40%), and market access (72.1%). TABLE 2 REASONS FOR DEVELOPMENT OF BUSINESS ALLIANCES Reasons No. Products/services. (e.g. quality service) 36 Strategic growth. (e.g. increasing the market share) 35 Access. (e.g. market access) 31 Operations. (e.g. management innovation, cost savings) 31 Finance. (e.g. capital investment, profit) 31 Technology. (e.g. technology transfer) 24 Organization. (e.g. formation of a business entity as required by the laws of 23 Thailand)
n = 44

% 84.0 81.0 72.0 72.0 72.0 56.0 54.0

Table 3 summarizes descriptive statistics of the level of business success ranked by mean from highest to lowest. The level of business success comprises financial success, operational success (non-financial), agreement/contract success, and parent companys strategic goals success. TABLE 3 DESCRIPTIVE STATISTICS OF LEVEL OF BUSINESS SUCCESS Level of business success Mean 1. Financial success 4.28 2. Operational success (non-financial) 4.31 3. Agreement/Contract success 4.10 4. Parent companys strategic goals success. 4.07
n = 44

SD 0.59 0.56 0.78 0.80

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Table 4 summarizes the results of independent t-test analysis. The independent t-test analysis was used to evaluate differences between the Thai and the non-Thai executives groups on level of business success and four contributing factors. The t -test analysis results are summarized in Table 4. As indicated there, only significant differences were found between Thai and non-Thai nationality group on ability of alliance partner and the non-Thai nationality group gave higher rating than Thai nationality group (mean non-Thai = 4.35 < mean Thai = 3.91). TABLE 4 RESULTS OF INDEPENDENT t -TEST ANALYSIS Mean SD Thai 1. Level of business success 2. Ability of alliance partner 3. Resource commitment 4. Goal commitment 5. Compatible culture 4.05 3.91 4.12 3.97 4.04 NonThai 4.36 4.35 4.40 4.00 3.99 Thai 0.57 0.60 0.57 0.54 0.44 NonThai 0.47 0.44 0.47 0.66 0.57

Dependent Variables

t
1.93 2.67 1.73 0.12 0.31

p
0.061 0.011* 0.091 0.902 0.761

n = 44 Thai = 25 and non-Thai = 19 *p<0.05

Table 5 presents means, standard deviations, and Pearsons correlation between contributing factor items and level of business success. The Cronbachs alphas () for the scales of level of business success, ability of alliance partners, resources commitment, goals commitment, and compatible cultures are 0.792, 0.825, 0.869, 0.733, and 0.749, respectively. These alphas ( > 0.7) indicate that the items of the individual scales in the above have high internal consistency. TABLE 5 PEARSONS CORRELATIONS BETWEEN ITEMS AND LEVEL OF BUSINESS SUCCESS r Contributing factors & Items Mean SD Ability of alliance partner 1. Ability to learn from other partner. 4.05 0.78 0.60** 2. Ability to meet performance expectations. 3.98 0.74 0.71** 3. Accomplishment of strategic objectives. 4.00 0.65 0.58** 4. Hotel operations know-how (e.g. in an area of customer 4.37 0.69 0.43** services). 5. Willingness to be flexible on strategic issues. 4.16 0.72 0.58** Resources commitment 1. Compatible information systems. 4.05 0.78 0.51** 2. Equivalent human resource commitment. 4.05 0.72 0.50** 3. Equivalent physical resource commitment. 3.93 0.77 0.42** 4. Lack of financial constraints. 3.55 1.01 0.28 5. Sharing of critical information. 4.07 0.77 0.35* 6. Lack of opportunism. 3.80 0.91 0.37* 7. Reciprocity (e.g. give and take their knowledge equally). 3.86 0.80 0.42** 8. Leaderships promoting the business alliance partnership. 4.14 0.71 0.26 9. Senior management support. 4.21 0.71 0.26 Goals commitment 1. Clear goals on what they want from the business alliance 4.23 0.73 0.49** partnership. 2. Compatible goals. 4.30 0.58 0.59** 3. Follow the written agreement and/or contract. 4.19 0.66 0.06 Compatible cultures 1. Trust other partners. 4.62 0.62 0.51** 2. Partner compatibility. 4.05 0.62 0.38* 3. Similar organizational culture. 3.83 0.90 0.35* 4. Combinable culture. 3.90 0.68 0.27 5. Cultural adaptation. 3.95 0.65 0.41**
n = 44 Level of business success & Contributing factors are coded 1 = Strongly disagree, 5 = Strongly agree Two-tailed tests: *p<0.05, **p<0.01.

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Based upon the correlation analysis presented in Table 5, seventeen out of twenty-two items were significantly correlated with the level of business success. Top three contributing factor items correlate significantly with the level of business success are ability of alliance partners to meet performance expectations, ability to learn from other alliance partners, and compatible goals (r = 0.71, r = 0.60, and r = 0.59, respectively). Table 6 summarizes the correlations between four contributing factors and level of business success. It is apparent that all four contributing factors are correlated positively and significantly with the level of business success. TABLE 6 PEARSONS CORRELATIONS BETWEEN LEVEL OF BUSINESS SUCCESS AND CONTRIBUTING FACTORS Variable Mean SD 1 2 3 4 5 1. Level business success 4.19 0.54 1.00 2. Ability of alliance partner 4.11 0.58 0.73** 1.00 3. Resource commitment 4.23 0.54 0.46** 0.61** 1.00 4. Goal commitment 3.98 0.59 0.54** 0.58** 0.54** 1.00 5. Compatible culture 4.02 0.50 0.58** 0.56** 0.55** 0.67** 1.00
n = 44 Two-tailed tests: **p<0.01.

Table 7 describes the results of the regression analysis. Only one contributing factor, ability of alliance partner ( = 0.60, p < 0.001 ), has a positive influence on the level of business success and the regression model can explained 58% of the variance of the level of business success. Low variance inflation factors (VIF<10) indicates that multicollinearity is not problematic. TABLE 7 RESULTS OF MULTIPLE REGRESSION ANALYSIS FOR PREDICTING LEVEL OF BUSINESS SUCCESS Variable Unstandardized Standard Standardized VIF Coefficients error Coefficients Constant 0.89 0.53 Ability of alliance partner 0.57*** 0.14 0.60*** 1.92 Resources commitment -0.08 0.14 -0.08 1.82 Goals commitment 0.07 0.14 0.07 2.08 Compatible cultures 0.27 0.17 0.24 2.05 n=43 F-value = 12.93 R-squared = 0.58 Adjusted R-squared = 0.53*** p<0.001 4.3 Limitation on Regression Analysis A major limitation of this study is that the sample is small (n = 43). The number of international hotels in Thailand is limited in number, probably less than two hundreds in Thailand (all locations of the same hotels are counted towards this total number). Due to the nature of this research, target respondents only included hotel owners and executives. This limits the number of prospective respondents for this research. Therefore, one must be careful with the generalization of the results. In multiple regression analysis, the small sample size (<100) will increase the standard errors thereby reducing the chance of finding a significant association between, for example, compatible cultures and level of business success, when in fact the association might indeed exist ( 5. DISCUSSIONS Two important points need to be further elaborated. One is the results of the t-test. The other is the result of the regression analysis. Based on the results of the t-test, the participants (Thais vs. nonThais) views were differed only on the ability of alliance partner. This makes sense because ability (e.g. management know-hows) is something that is not typically equal between alliance partners. Lets review other groups (factors) of variables. The views on the level of business success should not be differed (as anticipated), because the groups of executives should be equally aware of their business alliance success. Resources and goals commitments were probably agreed upon prior to

= 0.24 p< 0.118 , ).

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business alliance. Thus, they could become less importance to the success of the business alliance, because these variables (factors), more or less, were known. Most, if not all, Thai executives probably were foreign-educated. Thus, culture could become less noticeable in the context of business alliance in the hotel business. Based on the results of the regression analysis, it appears that ability of alliance partner is the only influencer to the success of business alliance. This could very well be true, because resources and goals commitments were probably agreed upon prior to business alliance, as mentioned. Culture becomes less noticeable in certain international business settings in term of its contribution to success (e.g. business alliance in the hotel business). But, it does not mean that culture is not at all important. 6. CONCLUSION AND FURTHER RESEARCH This research was designed to measure the effects of factors contributing to the success of business alliance in the hotel industry in Thailand. Based upon a regression analysis, ability of alliance partner appears to be the only major contributing factor to the success of the business alliance. However, it has to be reminded that the sample (participants) for this research is small; otherwise, the remaining (contributing) factors could possibly have significant effects on the success of business alliance. Thus, the results of this research should be applied with great care (as demonstrated in Table 5, all contributing factors items are significantly correlated with the level of business success). To continue with a research on the topic of business alliance in the hotel industry in Thailand, further research could focus on hotels operating under foreign franchises in Thailand. Franchise is a form of business alliance. Many hotels in Thailand are operating under foreign franchise (such as Best Western). REFERENCES: Intarakomalyasut, N., Thailand-Backed Hotel Brand is Part of Tourism Service Upgrade Plan, Knight Ridder Tribune Business News, 2004, 1. Panvisavas, V. & Taylor, S. J., The Use of Management Contracts by International Hotel Firms in Thailand, International Journal of Contemporary Hospitality Management, Vol. 18 (3), 2006, p. 231245. Rigsbee, E., Developing Strategic Alliances, Crisp Publications, Inc. Printed in the United States of America, 2000. Whipple, J. M. & Frankel, R., Strategic Alliance Success Factors, Journal of Supply Chain Management, Vol. III (33), 2000, p. 21-28.

AUTHOR PROFILES: Dr. Gamon Savatsomboon earned his DBA at the University of South Australia, Australia, in 2004. Currently, he is a faculty member at Faculty of Accountancy and Management, Mahasarakham University (MSU), Thailand. He is also a manager of MSU Book Center supervising over 80 employees. He teaches both undergraduate and graduate business courses. His research interests are in business (e.g. management). Dr. Karun Pratoom earned his Ph.D. at Srinakarinwirot University, Thailand, in 2004. Currently, he is a faculty member of Faculty of Accountancy and Management, Mahasarakham University (MSU), Thailand. He teaches both undergraduate and graduate courses. His research interests are in international business, management, and higher education.

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