International Hotel Industry and Business Environment

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Table of Contents

Introduction
Key influences driving the global market perspective adopted by many hotels
Possible barriers experienced when operating across borders
Lack of infrastructure
Organizational design
Ways in which international hotels can deal with the barriers
Conclusion
Reference List

Introduction

In an effort to attain a more independent and integrated world economy, various countries are entering in trade agreements. This is being attained through formation of trade blocs. As a result, the 21^st century is characterized by a rise in the rate of international linkages. The high rate at which countries are entering into trade relationships has improved international trade. As a result, different industries have been affected. International trade has further been enhanced by the high rate of globalization.

Stern (2007, p.21) defines globalization as the growth in international transactions and markets for various goods and services and expansion in institutions scope of operation across national borders.

The high rate of globalization has significantly affected the international hotel industry in a number of ways. For example, the industry is currently witnessing a high degree of complexity. According to Brotherton (2006, p.142), the international hotel industry is characterized by a few large multinational firms and large number of local small and medium enterprises.

In order to survive in the industry, it is vital for firms in the international hotel industry to institute effective ways of dealing with the changes in the business environment.

This means that successful firms will be those that are effective in anticipating, determining and solving challenges arising from increased rate of globalization. As a result, it is only firms which have management teams willing to adjust to environmental changes with decisiveness and speed that will survive in the long term. This arises from the fact that changes in the business environment can be a threat to the firms’ existence.

Key influences driving the global market perspective adopted by many hotels

In an effort to deal with the effects of globalization, firms in the hotel industry have incorporated the concept of internationalization. One of their core influences is the need to achieve their profit maximization and growth objectives. Most firms in this industry belief that 50% of their profit will result from foreign markets (Sharma & Morrisey, 2005,p. 5). This arises from realization of the fact that their local market is saturated.

To achieve their objectives, hoteliers are considering venturing into the international market. One of the ways through which these firms are achieving this is by diversifying their operation by expanding into the international market through various methods such as adoption of Foreign Direct Investment.

International firms are also incorporating global market perspective in their operation due to the increased need to achieve economies of scale in their operation. As a result, they are increasingly seeking ways through which they can achieve efficiency and cost effectiveness in their operation.

In venturing their target markets, most Multinational Corporations (MNCs) are motivated by the need to reduction their cost of operation. Management teams of international hotels have appreciated the fact that they can attain economies of scale by enlarging their scope of operation. Expanding their scope of operation will contribute towards the firm lowering the cost of production.

According to Sharma and Morrissey (2005, p.4), most emerging economies have a relatively high level of factors of production which have not been tapped. By venturing into these markets, there is a high probability of the firm benefiting by exploiting the existing factors of production at a low cost. The resultant effect is that the firms will be able to attain a high profit margin which would have been difficult to achieve in their domestic market.

According to Ivanovic and Wassung (2009, p.48), the rise in global brands have also motivated firms to adopt global market perspective. Ivanovic and Wassung (2009, p.48) are of the opinion that globalization has led to the need to standardize tourism products. This means that tourists expect to receive the same products such as hotel services wherever they travel.

In most cases, international hotel consumers include individuals who desire exploring different cultures. As a result, they tend to be more multi-cultural. To satisfy these customers, international hotels are required to brand their products internationally. However, these firms are required to preserve the culture of their foreign market (Ivanovic & Wassung 2009, p.49).

The high rate at which international hotels are adopting global market perspective also lies in the high rate of competition within the industry. The lucrative nature of the industry has attracted a large number of entrants. In addition, firms in the industry have become very innovative which has led to emergence of new products and services.

According to Wood and Brotherton (2008, p.167), changes in the industry have forced industry players to increase their focus on how to compete effectively in the dynamic business environment. In an effort to deal with the competition, international hotels have adopted various strategies in their domestic markets such as formation mergers amongst others. However, these firms have reached their maturity stage in their domestic markets which have stimulated them to venture into the international markets.

Possible barriers experienced when operating across borders

Lack of sufficient investment capital

Access to capital within the international hotel industry is limited. This arises from the fact that the various sources of finance such as the financial markets have not fully embraced the international hotel industry. One of the reasons which explain this is that financial markets consider the international hotel industry to be very volatile. As a result, they consider the industry as being unable to generate sufficient returns. As a result, it is a challenge for a firm to access investment capital across borders.

Work ethics and cultural differences

Work ethics entails various concepts related to a particular job such as an individual’s attitude, behavior, responsibilities and communication amongst others. In the course of executing their duties, individuals are required to adhere to the set work ethics (Birkinshaw et al, 2003, p.44).

Companies venturing into the international market may be faced with a challenge with regard to managing its work force. This arises from the fact that some of the work ethics which the firm may institute may not be recognized in the foreign country. For example, punctuality may not be an issue in some countries which means that the employees may not undertake their duties seriously. This means that the firm’s management team will be faced by a challenge in an effort to adjust to the desired tastes and preferences.

Additionally, international hotels may also be faced with a challenge due to existence of cultural differences. One of the cultural difference which the firm may face relate to communication. The firm’s effectiveness of penetrating the market may be limited by inability to communicate. Yu (1999, p.68) asserts that due to existence of cultural difference, different communication method either written or verbal may have different meaning in the foreign market.

For example, an American firm investing in Asian countries such as China may have a challenge when dealing with customers. This is due to existence of difference with regard to their attitude. Americans tend to focus on personal goals while Chinese have a collective attitude. Therefore, it is important for the firm to understand the hidden meaning of the various cultural codes.

Lack of infrastructure

A firm venturing into the international market may be faced with a challenge in establishing itself (Dicken, 2003, p.21). This may arise from lack of the necessary infrastructure. For example, the host country may not have a well implemented Information Communication Technology (ICT) infrastructure. If the firm has adopted e-commerce as the core method of undertaking transactions, it will take a considerable duration before the firm is fully established.

Organizational design

International hotels are also faced with a challenge with regard to making a decision on the most appropriate organizational structure to employ. According to Brookes and Roper (2010, p.1499), an organizational structure may limit international hotels efficiency in attaining its organizational objective.

For example, adoption of a hierarchical organizational structure may limit the firm’s progress due to the high level of bureaucracies which may further limit communication with the top authorities who may not be in the host country. This is a challenge to international hotel industry since its success is dependent on the effectiveness with which the top management addresses the issues raised.

On the other hand, linear organizational structure may give the employees to act independently to make their own decisions. However, this may culminate to an increment in ethical issues which the firm may have to deal with as a result of the independent decisions made by the employees. For example, the employees may make a decision which may damage the firm’s publicity. As a result, it is important for the management team to adopt an organizational structure which breaks these barriers.

Ways in which international hotels can deal with the barriers

To establish themselves in the foreign country, it is important for management teams of international hotels to consider the most effective ways of dealing with these barriers. To ensure that the firm is well organized, management teams should establish a balance in the firms’ organizational structure. One of the ways through which firms can achieve this is by adopting a decentralized organizational structure in its operation.

This will enhance communication within the firm hence increasing the firm’s ability to respond to changes in the environment. However, international hotels should adopt a centralized organizational structure in some of their departments such as the marketing department. The reason for a centralized organizational structure in the marketing department arises from the fact that international hotels should develop a global brand.

To deal with cultural differences and work ethics, international hotels should conduct a comprehensive market research prior to venturing the market. The research should focus on culture and work ethics as the main market variables. This will enable the firms to understand the existing work ethics and culture in the host country.

As a result, it will be possible for the management team to train its human resource on some of the issues such as the importance of punctuality. The firm can also enhance this by undertaking disciplinary actions to those who violate work ethics.

In dealing with cultural differences, international firms should ensure that they understand the cultural norms of the host country. For example, the firm should understand the most appropriate language to use when publicizing its operations in the market. T his will increase the firms’ effectiveness in dealing with cultural issues arising in the course of its operation.

One of the ways through which the firm can achieve this is by employing multicultural employees. In addition, the firm should source its human capital from the labor market of the host country. This will increase the probability of the firm hiring employees who are conversant with the local culture such as language.

With regard to investment capital, the international hotels should seek capital from investors. However, this will require the firms to develop a business concept which the investor can understand. Considering the fact that most investors invest with the objective of gaining a return, they are more concerned with the security of their investment. As a result, most of them are reluctant t to invest in business ideas which are not clear due to the associated risk.

By simplifying their business concept, a large number of investors will understand the concept behind the investment. The resultant effect is that the firms will be able to access long term capital through various ways such as issuing securities. One of the ways through which the management team can simplify its business concept is by developing a marketing plan which the investors can easily understand.

Conclusion

Despite the numerous benefits associated with globalization such as attainment profit maximization and growth objective through the associated economies of scale, there are also a number of challenges/barriers which international hotels have to deal with. Some of these challenges include difficulty in deciding the most appropriate organizational design to use, work ethics and cultural differences and limitation of investment capital.

However, international hotels management teams have a capacity of eliminating these barrier through various strategies such as ensuring integration of horizontal and vertical organizational structure, simplifying it business concept and ensuring intercultural understanding.

Reference List

Brookes, M., & Roper, A., 2010. The impact of entry modes on the organizational design of international hotel chains. The Services Industry Journal. Vol. 30, issue 9, pp. 1499-1512.

Birkinshaw, J. et al., 2003, The future of the multi national company. New Jersey: Wiley.

Brotherton, B., 2006. The international hospitality industry; structure, characteristics and issues. Oxford: Butterworth-Heinemann.

Brotherton, B., & Wood, R., 2008, The sage handbook of hospitality management. Los Angeles: Sage.

Dicken, P., 2003,Global shift, reshaping the economic map in the 21st century. Los Angeles: Sage.

Ivanovic, M., & Wassung, N., 2009, Tourism development 1: fresh perspectives. Cape Town: Pearson/Prentice Hall.

Muhlbacher, H., Dahringer, L. & Leihs, H., 2006. International marketing: a global perspective. London: Thompson Learning.

Sharma, K., & Morrissey, O., 2005, Trade, inequality and growth in the era of globalization. New York: Routledge.

Stern, R., 2007, Globalization and international trade policies. Singapore: World Scientific.

Yu, L.,1999, The international hospitality business: management and operation. New York: Routledge.

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