Strategy Development in the Hospitality Industry

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Table of Contents

Introduction
Adaptation
Aggregation
Arbitrage
Conclusion
References

Introduction

Adaptation, Aggregation, and Arbitrage are the major directions of global development. Effectively combining these ways of international operation is essential for the company’s success. This analysis will focus on InterContinental Hotel Group and IBIS Hotels to discuss the use of these strategies in the hospitality industry.

Adaptation

Adaptation is a key aspect of the hospitality industry. The cultural specifics of each country and region need to be taken into consideration when designing hotels. The IBIS adapts by changing the format of their hotels to fit the demand. While the company is owned and centrally operated by the Accor Hotels Group, each hotel is unique and answers the demands of the local market. Accor marketing is also market-specific. Each region has a separate team ready to operate in a specific environment. InterContinental Hotel Group (IHG) approaches the adaptation differently. The company itself owns less than 1% of the hotels they manage (IHG, 2012). Most of the locations are franchised and operate by the set corporate standards. At the same time, each owner can adapt by utilizing their knowledge of the local market and audience.

Franchising is an incredibly effective form of adaptation if it is correctly maintained. The franchisees can both fine-tune the overall corporate strategy and provide valuable feedback for the central governing company. These mutually beneficial relationships allow the company to respond to the varied demands of the global market incredibly efficiently (Brown and Dev, 1997). Since the IHG is one of the most efficient franchising companies in the hospitality industry, it is safe to assume that they have mastered this strategy. Compared to it, the customization of the individual hotels is a much weaker approach that does not offer the same level of flexibility. Accor Hotels will likely benefit from utilizing the franchising model for some of its facilities. At the same time, the IHG can further its advantage by strengthening the bonds between the franchisees and the central company even more.

Aggregation

Both companies are using aggregation to create a competitive advantage for themselves. Currently, one of the most effective forms of aggregation in the hospitality industry is a centralized online service that both firms utilize. The IBIS is a part of Accor’s online booking system which allows the holding to effectively manage and analyze the orders (Accor, 2014). The IHG is using a set of mobile applications combined with the roomkey.com search engine which allows the company to direct the users towards the hotels they are most likely to enjoy. As the research shows, aggregation is an effective strategy for countries with similar cultures (Szymanski, Bharadwaj & Varadarajan, 1993). Since the hotel companies operate worldwide and deal with guests from a diverse set of cultural backgrounds, implementing a relatively low degree of standardization is a viable approach. However, other researchers note that the power of the brand name can be a major advantage in struggling for the customers in the global market if it is backed up by consistent quality standards (Whitla, Walters & Davies, 2007). The online markets are universal and can be effective at centralizing the booking process and directing customers no matter what their country of origin is. That makes them an ideal solution for both IBIS and the IHG. At the same time, both companies set consistent requirements for all their hotels which allow for customization while ensuring that the brand name remains strong. All these factors combined contribute to the efficient aggregation strategies utilized by the companies.

Arbitrage

Using the arbitrage strategy in the hospitality industry is somewhat problematic. Each hotel needs to be mostly self-contained, and the ability to distribute the production chain is limited. The IHG uses arbitrage by maintaining several qualified professionals in the First World countries who provide management advice for the franchisees. That allows the company to take the fullest advantage of the high-quality education those specialists have without hiring them for each separate hotel. The IBIS is a more centralized company without significant franchising projects. Each hotel is using only certified suppliers. That assures quality but prevents the company from effectively utilizing the arbitrage strategy for their supply chain. The IBIS can make better use of this approach to acquire a competitive advantage. That can be achieved by developing a more flexible company structure and allowing the hotel directors to seek out local suppliers who might offer more lucrative deals while still satisfying the company standards.

Conclusion

The hospitality industry calls for an adaptive and flexible approach to global operations since the hotels invariably deal with people of all social standings and cultural backgrounds. At the same time, standardization allows the companies to offer a consistent quality of service all around the globe. From the two companies analyzed, the IHG is more efficient at utilizing the AAA strategies. They use the method of aggregation similar to IBIS while implementing much more effective adaptation and arbitrage methods. On the other hand, the strategy focused mostly on aggregation which is employed by the IBIS is much easier to manage and carries fewer risks and expenses as a result (Ghemawat, 2007).

References

Accor 2014, Registration Document and Annual Financial Report, Web.

Brown, J & Dev, C 1997, ‘The Franchisor-Franchisee Relationship: A Key to Franchise Performance’, The Cornell Hotel and Restaurant Administration Quarterly, vol. 38, no. 6, pp.4-38.

Ghemawat, P 2007, ‘How to Choose Your Global Strategy’, Notes on Globalization and Strategy, vol. 3, no. 9, pp. 4-5.

IHG 2012, Annual Report and Financial Statements, Web.

Szymanski, D, Bharadwaj, S, & Varadarajan, P 1993, ‘Standardization versus Adaptation of International Marketing Strategy: An Empirical Investigation’, Journal of Marketing, vol. 57 no. 4, p.1.

Whitla, P, Walters, P & Davies, H 2007, ‘Global strategies in the international hotel industry’, International Journal of Hospitality Management, vol. 26, no. 4, pp.777-792.

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Strategy Development in the Hospitality Industry

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