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IJCHM 22,5

The impact of hotel management contracting on IHRM practices

Understanding the bricks and brains split
Judie Gannon
Oxford Brookes University, Oxford, UK

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Received 1 July 2009 Revised 27 September 2009, 21 November 2009 Accepted 22 November 2009

Angela Roper
School of Management, University of Surrey, Guildford, UK, and

Liz Doherty
Faculty of Organisation and Management, Shefeld Hallam University, Shefeld, UK
Abstract
Purpose The international hotel industrys growth has been achieved via the simultaneous divestment of real estate portfolios and adoption of low risk or asset light market entry modes such as management contracting. The management implications of these market entry mode decisions have however been poorly explored in the literature and the purpose of this paper is to address these omissions. Design/methodology/approach Research was undertaken with senior human resource executives and their teams across eight international hotel companies (IHCs). Data were collected by means of semi-structured interviews, observations and the collection of company documentation. Findings The ndings demonstrate that management contracts as asset light options for international market entry not only provide valuable equity and strategic opportunities but also limit IHCs chances of developing and sustaining human resource competitive advantage. Only where companies leverage their specic market entry expertise and develop mutually supportive relationships with their property-owning partners can the challenges of managing human resources in these complex and diversely owned arrangements be surmounted. Research limitations/implications A limitation of this paper is the focus on the human resource specialists perspectives of the impact of internationalization through asset light market entry modes. Originality/value This paper presents important insights into the tensions, practices and implications of management contracts as market entry modes which create complex inter-organisational relationships subsequently shaping international human resource management strategies, practices and competitive advantage. Keywords Market entry, Managers, Contracts of employment, Human resource management, International business Paper type Research paper

International Journal of Contemporary Hospitality Management Vol. 22 No. 5, 2010 pp. 638-658 q Emerald Group Publishing Limited 0959-6119 DOI 10.1108/09596111011053783

Introduction Key debates in the internationalisation of rms and industries have revolved around the risks and returns of different market entry modes (Altinay, 2001; Brookes and Roper, 2008; Brown et al., 2003; Dunning and McQueen, 1982; Dunning and Kundu, 1995; Erramilli et al., 2002; Zhao and Decker, 2004). Cultural and institutional external factors, as well as internal factors, have been recognised as critical to the success of

international market entry decisions (Altinay, 2001; Chung and Enderwick, 2001). While the strategic and operational aspects of market entry mode choices have been addressed, there has been limited exploration of how international human resource management (IHRM) may be affected by decisions to enter international markets through various ownership arrangements. This paper identies how management contracts, as one of the main international expansion options available to international hotel companies (IHCs) (Bender et al., 2008; Whittaker, 2006), have shaped an industrys capacity to realise competitive advantage through their human resources. Known also the bricks and brains split the management contract mode allows hotel companies to separate their hotel operations from their real estate assets, and invite other investors to undertake the property burden (Todd and Mather, 2001; Bender et al., 2008). In this paper, such strategic market entry mode decisions are explored in relation to the likelihood of further industry concentration and the challenges and opportunities for developing HRM talent and effective people management practices. Previous authors have argued that the hotel industry provides an interesting and valuable setting for any exploration of HRM (Boxall, 2003; Hoque, 1999; Nickson, 2007). It is a sector which has experienced sustained growth, is a major employer and generates nearly US$500 billion revenue across the world (WTO, 2007). Across the hotel industry, the majority of properties are small (in terms of number of bedrooms) and independently owned; however, the international corporate sector is dominated by several major IHCs. These organisations, through their growth strategies, have developed brand names and portfolios of several thousand hotel properties (Litteljohn et al., 2007). The success of these IHCs is dependent upon developing multiple and broadly replicated properties across the world to ensure investor support and market share growth (Litteljohn, 2003; Litteljohn et al., 2007; Roper et al., 2001; Segal-Horn, 2000; Whitla et al., 2007). These companies are also able to fuel their expansion by deriving economies of scale and scope over small, independent and typically domestic hotel operators (Litteljohn, 2003; Roper et al., 2001). Todd and Mather (1995, 2001) identify the impact of wider environmental changes, such as the recession and collapse of the property market in the USA as also forging new approaches to international hotel management. The proportion of high xed investment costs and the prospect of separating the operation from the ownership of assets, means hotel companies have a range of alternative expansion options available to them (Altinay, 2001; Bender et al., 2008; Johnson, 1996; Litteljohn, 2003; Zhao and Olsen, 1997). The most common market entry modes include: exporting, strategic alliances, licensing, management contracting, franchising and foreign direct investment (Graham, 2006). The nature of hotel services and importance of presence in key locations across the world also suggests that global brand recognition necessitates the involvement of investors with local knowledge and expertise (Altinay, 2001; Brown et al., 2003; Erramilli et al., 2002; Whitla et al., 2007). The IHCs have to balance the need for asset investment, local knowledge and expertise with the issues of exibility and control in selecting specic market entry modes for their expanding hotel portfolios (Johnson et al., 2005). Litteljohn et al.s (2007) analysis of hotel industry internationalization highlights that less attention has been paid to the management implications of market entry mode choices. Within the hotel industry, it is an adage that a hotel is only as good as its manager (Forte, 1986, p. 119) with companies successes depending upon the abilities

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and expertise of their unit managers. Such arguments identify the importance of relevant management development strategies and practices (DAnnunzio-Green, 2002, 1997; Jones et al., 1998; Kriegl, 2000). The IHCs use of management contracts and pursuit of the bricks and brains split, implies an asset shift from real estate into human capital with clear implications for the effective management and development of managerial resources. As such, unit managers are seen as strategic human resources or rainmakers vital to companies pursuit of competitive advantage (Boxall and Steeneveld, 1999; Marchington et al., 2003). Yet, the human capital and human resource practice implications of not owning the hotel properties which the IHCs hotel managers operate have not been clearly accounted for under these corporate nance arrangements. There is a limited body of research on companies experiences and approaches to managing people, practices and policies across these permeable international organisational boundaries (Truss, 2004). Coupled with the call from Litteljohn et al. (2007) for research on the management implications of choice of market entry mode, the value of this study is clearly apparent. This paper provides new empirical data on IHRM practices and offers fresh theoretical insights into the impact of market entry modes as inter-organisational relationships on IHRM. It reports directly on the ways corporate HRM executives understand and manage the development and deployment of strategic human resources in light of their organisations wider strategic market entry mode decisions. The next section presents a review of the literature on management contracts. The paper then proceeds to explore the limited research on IHRM and market entry mode decisions. An evaluation of the present insights on IHRM in international joint ventures (IJVs) is undertaken to indicate where gaps in understanding exist. The research design deployed in the study is then outlined. Subsequently, the results are discussed and analysed prior to the practical and theoretical implications for IHRM and specialist and operational managers being highlighted. Management contracts As international hotel brand expansion demands developing multiple units across the world, equity investments can be seen to be a real constraint on companies international aspirations (Whittaker, 2006). There are then clear benets and opportunities for IHCs expansion to be asset light based upon three factors. First, stock markets reassessment of the risks and returns of hotel ownership by companies. Second, there is the renewed interest in hotel assets by private equity and real estate funds. Finally, the difculty of securing adequate market penetration with only internal equity, given the sheer size and scale of international markets, is also evident (Slattery et al., 2008). Whilst IHCs may use a range of market entry options one of the most prominent is the management contract as commented by Guilding (2006, p. 402), The ubiquity of the hotel management contract in Western economies can be viewed as a highly signicant and differentiating aspect of the hotel industry. Companies continued divestment of their bricks from their brains (real estate and management operations) has freed up capital to acquire close (and not so close) competitors and increase shareholder value as well as strengthen their brands market share (Bender et al., 2008; Johnson, 2002; Litteljohn, 2003; Whittaker, 2006). In their generic form, management contracts are seen to be temporary with the long-term aim of encouraging host country nationals (HCNs) to take over upon contract expiry (Hollensen, 2004;

Stonehouse et al., 2000). In the hotel industry, management contracts are signed over the longer term often with local investors who are unlikely to assume control of contracts when they expire (Eyster, 1997). As Contractor and Kundu (1998, p. 329) identify:
A management service contract is a long-term agreement, of up to ten years or even longer, whereby the legal owners of the property and real estate enter into a contract with the hotel rm to run and operate the hotel on a day to day basis, usually under the latters internationally recognized brand name.

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The local investor benets from the brand name, technical expertise and management support of the IHC. The IHC meanwhile receives a fee for these managerial services (usually a percentage of gross revenue), brand name presence in a foreign location and some additional performance-based inducements (Bader and Lababedi, 2007; Beals, 2006; Beals and Denton, 2004; Schlup, 2003). As such, key features of management contracts include (Brookes, 2007, p. 36):
[. . .] pre-opening and technical assistance, rights and duties concerning daily operations, budgets, owners/operators costs, central services, banking, accounting and reporting, fees and the term of the contract and termination.

There are advantages for IHCs in terms of control over corporate know-how through day-to-day managerial control but the integral nature of the property in all hotel transactions creates specic dilemmas (Eyster, 1997; Guilding, 2006; Whittaker, 2006). The division between hotel ownership and hotel operations in management contracts indicates that the participating parties have potentially conicting interests not only in investment choices but also in ongoing management decisions (Bader and Lababedi, 2007; Brookes and Roper, 2008; Beals, 2006; Eyster, 1997; Guilding, 2006; Panvisavas and Taylor, 2006). In addition, the owners and operators in international management contracts typically originate from different cultural and institutional backgrounds by virtue of the need for IHCs to gain access to host country markets and local owners to acquire international hotel brand names and expertise (Altinay, 2001; Antel, 2005; Panvisavas and Taylor, 2006). As such, the domestic partner (owner) and foreign partner (IHC) possess very different areas of expertise and use the partnership to leverage their knowledge and create competitive advantage. For example, the IHC provides access to a global brand name, managerial know-how and reservations technology while the owner provides equity plus local knowledge of institutions, customer groups and the labour market (Magnini, 2008). Recently, researchers (Beals, 2006; Brookes and Roper, 2008; Eyster, 1997; Schlup, 2003; Whittaker, 2006) have argued that owners have become more inuential, getting involved in personnel and budgeting decision making. In addition many now also demand some limited equity investment from operators (Beals, 2006; Schlup, 2003; Whittaker, 2006). This increased involvement is apparent in Guildings (2006) study of investment appraisal issues in management contract hotels where his respondents (hotel general managers (GMs) and other senior unit executives) identied the concept of ego-trip ownership, or the ostentatious desire to own a lavish hotel decorated with expensive furniture and ttings. (Guilding, 2006, p. 420). The management contract in the international hotel industry therefore presents specic challenges due, not only to the cultural and institutional differences between the owners and hotel operators, but also the divergent interests arising from the real estate and operations split; so that, issues of control and exibility remain signicant.

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Internationalisation: IHRM and modes of market entry Truss (2004, p. 57) identies there is little research on the impact of external, or inter-organisational, relationships on HRM this is despite the growing trends towards more diverse ownership arrangements, which result in more indistinguishable organisational boundaries. Issues arising from these blurred boundaries include; who is covered by certain HRM practices, how implementation and enforcement are managed and where inuences for HRM practices come from (Gardner, 2005; Truss, 2004). Subsumed by the globalisation and localisation debates, the IHRM literature emphasises the way macro institutional and cultural factors in the parent and host countries inuence HRM practices (Harzing and Van Ruysseveldt, 2004, 1995; Rosenzweig, 2006) rather than diversity of ownership issues. Welch and Welch (1994) addressed how market entry modes impacted upon IHRM in an early study, specically in relation to the need for different skills and corporate resources. They argued for a blend of long- and short-term assignments to subsidiaries dependent upon modal choice and identied the importance of management socialisation. The expatriation literature (Bonache and Zarraga-Oberty, 2008; Caligiuri and Colakoglu, 2007; Harzing and Van Ruysseveldt, 2004; Scullion and Collings, 2006) has also highlighted the pressures applied to international rms to localise management roles. In the generic literature, management contracts are seen as market entry modes with non-equity implications for companies; however, in the hotel industry, owners often demand some outlay from the hotel operator (Beals, 2006; Guilding, 2006). There is some research on the IHRM implications of IJVs but very little on management contracts as a form of IJVs, and IHRM. For example, Schuler et al. (2004) identify the impact of IJVs on IHRM in relation to the inter-organisational relationships in rms expanding across national borders. Schuler and Tariques (2006) model explores IHRM and organizational issues in IJVs as partnerships form, exchange knowledge and develop learning processes, then implement and advance their business relationship, and nally reconcile issues of trust, conict and control. However, the complexity of managing diverse arrangements across multiple partners is crucial in the international hotel industry, and not addressed in this model (Harvey, 2007; Magnini, 2008). Furthermore, there is little discussion in the IJV literature of how companies inuence and develop their managerial expertise across considerable distances, and in partnership with their local investors (the hotel owners). There is also limited understanding of how operating international subsidiaries via diverse market entry modes, alongside management contracts, impinges on the strategic development and management of human resources. The idiosyncratic nature of IJVs, and particularly management contracts in the hotel industry, suggests that caution is appropriate regarding the applicability of the IJV and IHRM literature (Magnini, 2008; Panvisavas and Taylor, 2006; Whitla et al., 2007). In management contracts, IHCs are mainly focused upon leveraging their operational know-how and technologies to, from and between host countries (Brown et al., 2003; Erramilli et al., 2002). As a labour intensive industry the main route to transferring these capabilities and expertise is through human resources, specically the hotel managerial resources (Aung, 2000; Beals, 2006, 1995; Kriegl, 2000; Segal-Horn, 2000). Where employees provide disproportionate value to their organisations they are often recognized as strategic human resources or rainmakers (Boxall and Steeneveld, 1999; Marchington et al., 2003). Boxalls (1996, p. 67) original arguments on strategic

human resources identied them as human capital advantage, accrued by employing people with specic skills, knowledge and abilities, who are latent with productive possibilities. Likewise, international subsidiary managers, specically expatriates, are identied as vital assets in the internationalisation and IHRM research (Barham and Oates, 1991; Bonache and Zarraga-Oberty, 2008; Scullion, 1992; Scullion and Collings, 2006). Research design In order to capture the managerial deployment and development practices of IHCs with expanding portfolios, a largely qualitative research design was employed (Bryman and Bell, 2007; Robson, 2002, 1993). A purposive sampling technique (Bryman and Bell, 2007; Saunders et al., 2000) was utilised based upon identifying companies who had extensive global hotel portfolios across ve continents. An initial sample of 13 companies was derived, but this reduced to nine due to concentration across the industry. Eight of the nine companies granted the main researcher access to their senior human resource executives (typically vice-presidents of human resources), their support teams, administrative systems and archives to provide corporate insights into managerial development and deployment across the IHCs. This is in line with Scullion and Starkeys (2000, p. 1065) argument that a key role for corporate HR is the management of those identied as strategic human resources and seen as vital to the companys future and survival. The authors personal experiences of the international hotel industry also veried these individuals as responsible for the deployment and development of hotel managers. Access was negotiated and achieved via the researchers own networks of industry contacts and personal recommendations from other members of faculty. A pro forma checklist was developed to aid with the collection of documentary evidence and deployed alongside in-depth interviews conducted with the IHCs executives and their teams (Bryman, 1992; Bryman and Bell, 2007; Robson, 2002, 1993; Silverman, 1999). Each company was given a pseudonym, which masked their true origin and all material collected had company names and trademarks removed to provide condentiality to respondents. Table I provides an overview of the IHCs concerned, their size, the service levels of the brands they operated and the market entry modes deployed. Fieldwork took place mainly in Europe by visiting headquarters, regional ofces and hotel units. The main interviews with the executives lasted on average four hours and focused upon how they were developing the managerial talent to meet their expanding international portfolios. The executives interview responses and the content analysis of the IHCs documentation form the main focus of this paper. Documentation included: HRM policies, performance appraisal forms, organizational charts, training manuals, company newspapers, job descriptions and succession planning charts, as well as demonstrations of technical systems such as talent bank databases. This helped to develop the context and depth of the research data (Bryman, 1992; Bryman and Bell, 2007; Saunders et al., 2000). The interview transcripts, observations and company documentation were analysed using manual and computer aided techniques (Miles and Huberman, 1994; Silverman, 1997, 1999). Initial coding identied specic HRM practices, management criteria and company strategies and market entry modes, and then followed by descriptive coding focused upon processes and associations within the organisations. Further, interpretive coding and analytic coding directed at topics emerging from the

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IHCs 73 countries

Euromultigrow

FranchiseKing

Britbuyer

USmixedeconomy 460 (USME)

Table I. Proles of the eight IHCs Service levels of brands Internationalisation Methods of growth 17 hotel brands split into three groups: Upscale and mid-scale Economy and Budget Leisure hotels Five brands: Original mid market brand Prestige brand Budget brand Mid-market but more localised brand Holiday resort accommodation 63 countries 50 countries Nine brands at the following levels: Upscale Mid market Budget All operating internationally and domestically Prestige brand Mid-market brand North America 63 countries Mixed type of operation is used across portfolio; approximately, 46 percent owned, 21 percent leased, 22.5 percent management contracts and 10.5 percent franchised To be the preferred hotel system, hotel management company, and lodging franchise in the world. To build on the strength of the FranchiseKing name utilising quality and consistency as the vehicle to enhance its perceived value for money position in the middle market. To maximise distribution throughout the world by aggressive expansion of existing and new products through owned, managed and franchised developments. Employment literature One-third of properties are owned and two-thirds are management contract arrangements. Growth through management contracting, franchising or marketing agreements and some ownership Purchased a premium international French hotel chain in 1995 and was subsequently purchased itself by a British leisure group in 1997 Growth through management contracting some ownership and franchising. Acquired a prestigious European brand in the early 1990s (continued)

No. of hotels

2,350

2,100

960

IHCs Prestige international brand National UK mid-market brand 48 countries

No. of hotels

Service levels of brands

Internationalisation

Methods of growth

Anglo-American Premium

180 includes domestic units

Contractman International

202 total with 68 international units

Four luxury or upscale brands, dependent upon size, length of stay, and facilities

35 countries

Euroalliance

51

One upscale brand

16 countries strong European regional roots 70 countries

Globalalliance

190 hotels

Prestige brand Mid-market brand North America

Anglo-American Premiums strategy for international growth is to continue its expansion in prime city centre and resort locations and develop clusters of hotels serving individual countries or regions. The strategy is being achieved through a combination of negotiating management contracts to run hotels and establishing joint ventures or partnerships with regional or national owning companies. Identies itself as an entrepreneurial, market-driven company with a multicultural approach to hotel management. It grows solely by securing management contract agreements with select investors Growth through management contracting, rather than ownership, and a global partnership with one of the Americas largest international hotel corporations Growth through management contracting, franchising or marketing agreements and some ownership

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Table I.

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respondents and the theoretical relationships arising from the data and initial coding (Silverman, 1997, 1999). Of particular importance were the themes of similar and distinctive HRM practices deployed by the companies, how the companies characteristics (brands, market levels, size and market entry modes) inuenced HRM, and the overall signicance of developing management expertise. The subsequent sections examine how managerial resources are developed and managed in light of the IHCs widespread use of management contracts, before the conclusions and practitioner and research agendas are outlined. Management contracts inuence on deploying and developing hotel managers The ways in which the asset light option of management contracts affects the management of hotel managers are captured in ve emerging themes as follows: hotel management talent, owner interference, global versus local management talent, developing future hotel GMs and the impact of multiple market entry modes. Hotel management talent Table I conrms the wide scale use of management contracting, and reinforces the evidence from the literature of the popularity of this market entry mode (Bender et al., 2008; Todd and Mather, 2001). Specic issues regarding the ownership of management talent and its development, also emerge from the data. Each of the human resource executives highlighted this particular market entry method as presenting challenges to talent development, deployment and transfer across hotel portfolios. The IHCs were unable to control the movement and development of their managers thereby limiting the advantages of this market entry mode. While hotel management contracts suggest companies compete on the basis of brand names and managerial expertise in operating hotel services, these points are negated where property investors decree that their managers (and their expertise and knowledge) are not to be moved. Not all investors participated in HRM decisions, with some owners acting as sleeping partners (purely concerned with the investment) refraining from involvement in their hotels day-to-day operations. Owner interference was more evident though in unit level senior management appointments. While all the IHCs respondents complained to some extent about interfering owners, this issue was more prevalent when companies portfolios were focused upon the luxury end of the market and was less evident where heavily branded budget and mid-market hotels were concerned. In terms of employer status, the IHCs, as part of their management contract, took responsibility for at least the GM and up to ten other executive members of staff, depending upon hotel size. However, exceptions occurred, for instance, where only the GM would be the employee of the IHC and all other staff were employed by the local owner. The issue of continuity of service became problematic where local legislation did not permit managers to be employed by a foreign entity (the IHC). So although the managers were employed by local investors, the IHCs sought to provide employment continuity reassurances (evidenced by talent database notes and contracting memos). Without providing employment contract continuity, the HRM executives, and their teams argued it was difcult to get the best and most experienced staff to relocate to particular countries and hotel units. In other cases, management contracts

were complicated by IHC investments as well. The HR executive from Franchiseking identied:
There are several complex cases where because the unit is a management contract, but through a joint venture with Franchiseking as one arm of the partnership, the company (Franchiseking) does employ most of the staff but under another company name.

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All the respondents agreed that manager transfers were vital to company success, as well as to managers own careers, and establishing clear agreement with owners was critical. Most companies aimed to move managers after two/three years, though this was dependent upon a number of factors. Globalalliance felt it was much easier to transfer younger managers while established GMs were only likely to move where the manager themselves saw a more prestigious unit was on offer. The executive from Britbuyer commented on some owners approach to management transfers:
Once you put their ideal people in there you can forget about them as it will be difcult to get them out. It is a problem. The best way to handle it is to agree everything up front. They know then it is a two-year assignment and that is as far as it will go. It can be managed well but there are occasional problems.

The length of management assignments was complicated by the challenges of certain global locations. Known in the expatriate literature as hardship locations (Scullion and Collings, 2006), each company had computer listings of their hotel properties where managers were only offered limited length transfers as operating conditions, as well as the owner relations, were particularly demanding. In this study, such locations included; Yemen, Saudi Arabia, Uganda, Nigeria, Russia and Bulgaria. Postings to such localities were seen by the HR executives, and their teams, as benecial for managers future careers, but difcult culturally. Therefore, strict conditions were applied, evidenced in the assignment contracts made with owners and expatriates. A very different type of problem was faced by HR executives when their managers went native (Black and Gregersen, 1992; Van Oudenhoven et al., 2001). In the traditional sense, this occurs where a manager assumes the lifestyle and managerial style of the country in which they are posted. In the international hotel industry, it involved managers, GMs in particular, going native with the property owner and losing their allegiance to their IHC. This was only an occasional problem for IHCs, and occurred due to the typical longevity of hotel management contracts or managers personal circumstances (e.g. such as a commitment to childrens schooling or spouses jobs). Owner interference Part of the underlying problem with transferring managers was the interference by property partners in selection decisions. Beauty parades of eligible managers were often demanded by management contract partners, and the comments from the Britbuyer executive were characteristic of the situations HR executives and their teams found themselves in:
We have owners, for example, [. . .] but we have owners who are very, very clear about the people who we are likely, or more often than not, we cant employ. Usually, its in terms of nationalities and colours, race and sexual preferences they dont like. It is their hotel and if they say I dont want somebody with red hair then you dont put somebody with red hair in, its as simple as that.

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An executive from Anglo-American Premium identied that the policy in his company was:
Usually, owners interview the three candidates we put forward for each GM position and invariably, well [. . .] they select the candidate preferred by the company, though Vice Presidents often have to use some powers of persuasion.

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Additionally, the HR executives identied some common sense or unwritten rules in terms of securing senior management positions in their management contract units. These included no female appointments to senior positions in some Middle East states; Jewish managers would not be placed in Muslim countries; and no Greek managers could be located in Turkey, and vice versa. Indeed, certain regions of the world seemed to be associated with particular problems with owner-company and owner-manager relations, specically, the Middle East, parts of Eastern Europe and China. None of the company executives suggested that they could abandon such locations in the face of difcult owner-relations but wanted to emphasise the challenges involved, as the USmixedeconomy executive stated:
As far as ownership relations are concerned some owners have a lot more say than others. In the Middle East owners have a lot of say and between two and three candidates are always put forward for key management posts.

The risks associated with managing hotels in certain areas of the world were particularly apparent to the HR executives and their teams. However, they also commented on the strategic benets of developing their hotel portfolios in difcult (often developing or turbulent) regions of the world. Typically, these benets were based upon the needs of international customers, and also on relations with existing and future business partners. Assessing the risks of particular hotel ventures was fraught with complications and an adverse experience in one country often meant that other ventures were jeopardised (Butler, 2008). Global versus local management talent A key theme within the expatriate literature has been the deliberations over the localisation of subsidiary management positions (Collings and Scullion, 2006; DeNisi et al., 2006; Scullion, 1994; Scullion and Brewster, 2001). This issue works both ways in the international hotel industry as the HR executives recounted instances where specic nationalities were demanded for specic positions. For example, only French head chefs or Swiss or British GMs were sought due to the status associated with certain national stereotypes in the hotel industry. However, the IHC respondents suggested they would all be increasing the numbers of HCNs in unit management posts but would not altogether abandon the use of expatriates due to issues of control, co-ordination, and prestige (for properties, partners and customers). These difculties caused most concern to those IHCs with a greater concentration on softer, more exclusive, prestige service hotel brands (such as Britbuyer, USMixedeconomy, Anglo-American Premium, Contractman International, Euroalliance and Globalalliance Table I) who were more internationally focused, but also locally adapted. Here, the HR executives and their teams had developed initiatives where junior managers from the country in question were recruited and provided with an intensive corporate development programme. These programmes included experience in the companies luxury properties across several different countries, and some limited time at regional or head-ofce. Such secondments

often lasted for several years so that the HCNs could eventually take up a senior management posts in their home units following extensive exposure and socialisation within the IHC. This can be seen as a hotel sector variation of inpatriation (Harvey et al., 1999, 2000) which highlight the importance of operational experience and render headquarter postings inappropriate. A rather different example of owner intervention (in this case the government) was provided by the Britbuyer executive regarding a new management contract in an Eastern European country. He stated:
I mean we have this situation in a certain Eastern European country. The hotel in that country is actually government owned and the GM is a host country national who is a government employee. We are trying to put a sales director into that hotel, and we have found some very good candidates, but every time we put forward a candidate who speaks Russian, which we think is important, they get turned down, because they can hear as well as speak. The next time we put forward a candidate we are going to tell them not to speak Russian in front of them, the owners and the GM.

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These political ramications were also complicated by the companys previous experience in the region and the difculty of establishing trust between the partners. This case epitomizes the problems of the partners originating from different cultural and institutional backgrounds and attempting to use those differences to their own advantage in the venture. Developing future hotel GMs The executive respondents also identied that their companies encountered problems in securing rst-time GM posts due to management contract ownership issues. Some units, because of their owners and the complexity of facilities, were not suitable for initial or even early unit management experience. The Euroalliance executive commented in a similar vein on rst time GM appointments:
There are the units that managers can cut their teeth on, i.e. theyre not really going to screw up the business if they go awfully wrong, we can keep an eye on them and there are other hotels which are on the no-no list unless youve got some experience. It could be cultural relations, unions or the fact they make the most money for the company.

While all companies faced this problem to some extent it did seem to present fewer dilemmas for companies which had harder brands or operated hotels at lower service levels (budget brands Euromultigrow and Franchiseking in Table I). The executives also identied how prior to appointment to GM and deputy GM positions, hotel managers were primarily recruited, selected, developed, and rewarded due to their managerial, leadership and technical skills and knowledge. However, at GM and deputy GM levels the ability to manage key stakeholders, specically property owners, became a vital skill. Exposure to different owners during the development of a managers career was therefore becoming part and parcel of building talent for the IHCs and the managers themselves. Across the IHCs, the executives identied the important role of area GMs (GMs responsible for several hotels) and regional operations managers who worked to support and maintain effective relationships between unit GMs, owners and the IHCs corporate/regional headquarters. These individuals all had extensive GM experience and travelled regularly to provide the organisational glue between the hotels and the

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corporate brand and service standards. They knew their cluster of hotels inside out and were inuential in the management of hotel managers too. However, the operational focus of their roles made such executives wary of developing managers who they perceived might be unpopular with property owners. In one case, an HR executive commented that he had experienced regional executives reluctant to develop female managers with the argument that the owners just wouldnt buy it. The HR executive and his team countered such claims by demonstrating the higher proportion of female managers the companys franchised units. The impact of asset light market entry modes on IHRM practices In effect, executives sensitivity to the perceived preferences of property owners had shaped organisational practice and effective talent management. In addition, some owners were reluctant to have staff (at all levels) participate in their IHCs training and development initiatives. Schemes such as graduate management or executive development programmes were rejected by some owners on the grounds that their property would not specically benet from such HRM investments. While all the respondents used management contracting as an international expansion method, and experienced the same problems to a degree, the severity of these challenges did differ across the sample. The Franchiseking and Euromultigrow companies (Table I) with their larger portfolios of budget and mid-market brands experienced more investment from sleeping partners or at least those who did not feel the need to interfere:
This is because most of the property owners which Euromultigrow has contracts with are solely interested in nancial returns or real estate investments (HR executive Euromultigrow).

It was the IHCs with portfolios of luxury hotels which suffered more extensively from the problems of ego-trip ownership (Guilding, 2006). There was seen to be a direct relationship between the higher service levels and luxury hotel facilities of some units and the recalcitrance and interference of owners, so managing these delicate relationships was an on-going challenge for corporate and regional industry executives. One company, Contractman International, had developed a particular approach to effectively managing its management contracts with property owners. It was the only company in the sample to use management contracting as its sole market entry mode, and although it did have some limited capital investment in properties it did not own any properties outright. Its relationships with owners were noteworthy due to the ways in which owners were treated as partners, with their own specic aims and desires. The argument from the HR executive was that; We work with owners like they are our partners. So we will always be fair and honest about our reasons for decisions, for things, for people. This can be contrasted with the more adversarial positions expressed about owners by the other IHCs HR executives and their teams. This may be because Contractman International included its regional HR teams in searching host countries for management contract partners and encouraged their participation in contract agreement discussions from their earliest inception. The company also undertook detailed labour market investigations in host countries and specic locations to ascertain the quality of human resources and operating implications for their HRM practices. In addition, it seems that because Contractman International had no alternative market entry modes through which to achieve international expansion,

it prioritised developing effective management contract partnerships. This meant that while the company still experienced some of the HRM challenges associated with this asset light method it had better communication mechanisms in place to tackle them. Contractman International worked hard to sustain relations with its owners and this was important in creating competitive advantage over its industry rivals. Discussion The data clearly demonstrate that management contracts in the international hotel industry shape the management of strategic human resources (Brown et al., 2003; Chung and Enderwick, 2001; Erramilli et al., 2002). Furthermore, the impact of the management contracting bricks and brain split on the effective management of key human resources is apparent. Figure 1 shows the key factors in the bricks and brains split by highlighting the broader contexts in which owners and IHCs exist and their approaches to managing human resources within international hotel management contracts. The inuence of owners is seen to have a bearing on management competences, selection, transfers, and development, ultimately indicating that IHCs have only limited control over their key asset when participating in such arrangements. These results highlight that the HRM implications of modal choice are critical to the continued success of IHCs and the wider industry (Litteljohn et al., 2007). The characteristics of owners themselves suggest that IHCs should be very careful in their initial partner selection (Schuler and Tarique, 2006). Research (Altinay, 2001; Antel, 2005; Panvisavas and Taylor, 2006) identies the management contract option as fraught with political issues in partner selection. The erce competition in the industry for specic locations and the requirement for speedy entry and contract signing are additional dimensions which restrict detailed and lengthy compatible partner discussions (Beals, 2006; Beals and Denton, 2004; Whitla et al., 2007). Yet, the long-term implications of a troubled management contract relationship can be detrimental, and may even undermine other ownership arrangements, and ultimately long-term survival
Mediating tensions and practices Brains managers Long term competent and knowledgeable managers Long-term development of corporate human resources Stereotyped views of hotel managers Less owner influence on budget, hard brands IHCs Broader context: Mainly Anglo-Saxon values Industry and technical expertise Multiple and geographically disparate portfolio Limited equity involvement Brand presence and market share International focus Equal opportunities and diversity Beauty parade Recruitment and selection based on competence Loyalty to owner/hotel Loyalty to company Local and ego values National values and global ambitions More owner influence on luxury, soft brands Owners Broader context: Local values and practices: host country culture and institutional practices Local business expertise Substantial equity involvement Return on investment Ego ownership Local or domestic focus Bricks property

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Figure 1. The human resource dilemmas facing IHCs involved in management contracts

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652

(Butler, 2008; Erramilli et al., 2002; Whitla et al., 2007). Where IHCs hope to expand in locations known for challenging ownership relations then the training and support of corporate executives in their negotiations with partners will be invaluable (Antel, 2005). The mediating tensions and practices in Figure 1 highlight the problems for IHCs developing human resource advantage through their strategic human resources (Boxall, 1996; Boxall and Purcell, 2003, 2007). The IHCs capacity to develop and deploy human resources with the right skills, knowledge and abilities can be continuously compromised by owners. In the light of wider ethical, moral and business concerns about equal opportunities and diversity management, the HR executives faced further frustrations in selecting the best managers for their units (Brewster et al., 2007). The HR executive respondents were also wary of the issue of securing the exit of successful managers from certain owners properties. Overall, these experiences suggest that the corporate HR departments in IHCs have a vital role to play in working with their peers to shape management contract agreements. By highlighting some of the typical tensions in management contracts, both partners can be persuaded of the value of setting clearer mutual HRM parameters within contracts and agreeing longer-term approaches to talent management. The example of Contractman International, who experienced fewer difcult owner relationships, and proactively participated in developing partnerships, serves as an important role model. This rms commitment to the management contract as its sole means of international growth meant that organisational expertise and capability in forging mutually benecial owner-operator partnerships resulted in fewer problems over the development of managerial talent (Brown et al., 2003). This example suggests that where companies aim to expand, in the more challenging luxury hotel sector, single market entry mode expertise may create a more coherent corporate strategy. There may also be a role for corporate HR departments in promoting diversity initiatives with prospective and existing owners (Dietz and Petersen, 2006) given current demographic forecasts. Already within the broader hotel industry, there has been a drive towards pursuing partnerships with atypical business investors (Anon., 2007), from a broad range of ethnic and cultural backgrounds. This will hopefully provide direct evidence for companies to present to owners the efcacy (and ethics) of selecting hotel managers on the basis of their talent and abilities rather than stereotyped national and cultural characteristics. The IHCs had developed their own version of inpatriation schemes, which supported their property partners desires to localise their management teams (Harvey et al., 1999, 2000). The ability to take a long-term development approach with HCNs was seen as supporting and facilitating knowledge transfer to host countries. The evidence from these inpatriate development schemes and managerial development initiatives highlights that managerial development responsibilities lie very much with the IHCs rather than the owners. The ability of IHCs to engage their owners in shouldering this burden, as their portfolios grow and human resource assets increase, will become critical in the future. The already complex nature of hotel management contracts (Beals, 2006; Beals and Denton, 2004; Schlup, 2003), suggests more attention be paid to HRM issues, and specically the development of managerial talent, to realise appropriate returns for IHCs and property owners. The results also highlight that companies need to address the managerial competences of (aspiring) GMs (the intellect and functioning of the brains) to ensure

that owner relations are prioritised in management development initiatives. The companies had been slow to identify owner relations as a distinct development need alongside their changing market entry decisions (Whitla et al., 2007). Analysis of managers with successful owner relations expertise might help companies pinpoint the competences managers need to accrue, and develop this important capability progressively. As management contracting grows, and other asset light market entry modes develop, the importance of GMs with effective investor relationship skills will become more highly prized. Finally, research with owners themselves may also provide insights into the competences required to manage these critical relationships. Owner accounts of management contracting have been more limited (Beals, 2006; Beals and Denton, 2004; Guilding, 2006) with a focus directed primarily at the issues of investment and contractual arrangements. However, the evidence from this study demonstrates that owners play a critical role in both inhibiting and facilitating operational and corporate managerial talent and their perspective on this issue warrants primary investigation. Conclusion This study highlights the IHRM implications of industry developments involving the sale of property assets by hotel operators as part of wider international expansion strategies (Whittaker, 2006). This trend is likely to continue and hotel companies are faced with the need to develop new ways of managing their human resources alongside interventions from (some of) their business partners. The IHCs within this study demonstrate a lack of agency where growth through low risk entry options constrains other functional decisions and practices (Child, 1997; Truss, 2004). The research also highlights the permeable boundaries of organisations where hotel operators can only achieve competitive international hotel portfolios through investment with (local) business partners. These partnerships clearly constrain companies capacity to build and effectively manage their human resources. This creates a paradox where companies have divested their main property assets by adopting management contracts, forcing them to become more reliant on the expertise of their human resources. These same human resources, however, cannot be managed in line with the companies strategies and goals because of the relinquished control passed to property owners. This paper offers original empirical insights into the impact of permeable organisational boundaries where companies expand using limited equity involvement strategies. Most explanations of market entry modes fail to capture the human perspective and this paper directly addresses such omissions. It is apparent from this study that while asset light strategies may offer international brand expansion advantages they can simultaneously undermine the managerial expertise and talent upon which that brand reputation is built. Therefore, managing the organisational and competitive compromises of the management contract market entry mode will be critical to the long-term success of IHCs. While this research offers valuable insights into the implications of entry mode differences on IHRM, it does so in a narrow way as the focus is on managers. Furthermore, only HR executives and their teams were involved directly in evidence gathering. Without the views of other IHC corporate executives, the perceptions of the adverse implications management contracts may be one-sided. In addition, hotel owners, the other side of the management contract relationship, were not asked about

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their perceptions of people management practices and their responsibilities. There are then clear incentives to develop a more coherent understanding of this area in order for more effective management contracts to be produced in the intensely competitive international hotel industry.
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