Localization and Internationalization: A Case Study of The
Localization of Marriott Hotels in China
Supervisor: Dr. Gábor Péli Student: Li Xia (s1407171) Contact Email: my7609@hotmail.com
ABSTRACT
This article attempts to fill a lacuna in the research about tradeoff between internationalization and localization by developing a framework. Meanwhile, it focuses on examining the contents and determinants of localization by using the Marriott hotels in China as a case study. It divides the localization into three sub-parts (i.e. business behaviors, human resource and management mechanism) and examines them individually, which embeds in the different determinants (i.e. local demand difference, cultural distance and local industry environment). At the end this article represents some findings regarding the advantages and difficulties of the international hotels in the Chinese market.
Introduction
Background 3
Research Objective 5
Motivation &Answering Plan of Research Questions 6
Literature Review Definition and Content of Localization 7
Internationalization and Localization 7
Conceptual Framework Determinants of Localization 11
Localization Activities 12
Propositions Base on Framework 13
Methodology Research Strategy 14
Type of Study& The Topical Scope 14
Validity of the Case Study 15
Sample Selection 15
Description of The Case Hotels and Locations 16
Method of Data Collection 17
Case Analysis and Results International Hotels In China 21
Development of Marriott Hotel in China 22
Cross-case Analysis and The Related Propositions 22
Discussion and Summary Modified Conceptual Framework 33
Competitive Advantage of International Hotels in Chinese Market 35
The Unsolved Problems and Difficulties 36
Conclusion 37
References 37
Web resources 39
Appendixes 40
Background
Internationalization is an overwhelming global trend during the past fifty years, and it intrigued curiosity for many researchers. The development of global financial market and the new techniques of communication, trigger big enterprises to find a way to enlarge the global market through internationalization process which in the process may encounter many new chances and challenges in the new market. As a growing developing country, there is an increasing integration of China in the world economy that started with opening up the Chinese economy. Following the policy changes since 1978 –which the Chinese government announced as a means of accomplishing the Four Modernizations– the second session of the Fifth National People’s Congress approved as part of its Open Door policy on July, 1, 1979, the “Law of the People’s Republic of China on Joint Ventures Using Chinese and Foreign Investment.”
Numerous international enterprises entered Chinese market with good reputation, corporate culture, efficient management mechanism, global network of marketing and sales network, etc., which brought them economies of scope and scale, and various competitive advantages compared with the other local firms. However, it seems an integration dilemma that the same standard strategy and management might be conflict with various local environments in the new market. As the location change, what is a boon to one may be a bane to another. Therefore, under different constraints of the specific location, the management and business activities of the multinationals would be better to root in the local domestic conditions and demands, local dominant ideologies and culture, etc. A proper localization plays an important role in a successful internationalization process.
are carrying close related various activities with the local society for their localization strategy. For example, Motorola and Ericsson built their own colleges in China; Microsoft supply professional management courses and training for their Chinese agencies; IBM is sponsoring several Chinese Universities and KFC promotes various special new foods cater to the local Chinese taste, etc. One shall see, that localization becomes a new trend and crucial element for these international companies in the Chinese market.
For the localization strategy of the human resource, the main incentives are saving the relatively high cost of the expatriate managers, and the improper expatriate management which may led to many failures in the regional business (Suutari, Brewster, 2001). In addition, the increasing quality level of the local labors can create the local talents more attractive for the international enterprises in China. However, the localization of the human resource is not the whole content of the localization strategy, some other queries may arise, such as: what are the other crucial activities in the localization strategy? What are the main determinants of the localization strategy? This paper will use the Marriott chain hotels in China as a case to analyze the main determinants and contents of the localization strategy in the Chinese market. This research tries to give a useful benchmark for the existent hotels and the potential entrants in implement their localization strategy successfully in the Chinese hotel industry.
While there has been some recent theoretical work investigating the issue regarding the localization and internationalization, most of the issues are focusing on keeping the balance of double-edged sword of localization and internationalization and its importance, globalization and integration, or the consistency and differentiation of management. An empirical work of the specific contents and determinants of the localization and deep analysis of its internal relationships never been performed. Therefore, this paper attempts to fill this gap in the literatures.
the end of 2005. The good business environment, the growing domestic economy and the flourishing tourism allure more and more famous international hotels to enter this host country. On one hand, the international hotels have their own corporate cultures, management experiences, strategies etc. On the other hand, the Chinese market also has its own environment. Now we shall see that a good combination and adaptation becomes a key point for the success of the international hotels in obtaining their advantages in the new market and therefore such hotels may have a further development. Hence, it is meaningful to have such research in the localization strategy of the international hotels in China, and give a combination of the practices and theories regarding this matter. This article will provide detailed analysis of various aspects of the localization in the Chinese market, which can be useful to improve the management and adaptation of international hotels and the potential entrants.
Research Objective
As a comprehensive study on localization and internationalization in the Chinese hotel industry, the purpose of this study is to examine how does the localization embed in the internationalization in the Chinese hotel industry? Specifically, I seek to provide empirical answers to the following questions related to localization in China:
1. Does local demand difference determine the localization of international companies and has impact on the business behavior, the management mechanism and the human resource of the localization activities simultaneously?
2. Does cultural distance determine the localization of international companies and has impact on the business behavior, the management mechanism and the human resource of the localization activities simultaneously?
3. Does local market environment determine the localization of international companies and has impact on the business behavior, the management mechanism and the human resource of the localization activities simultaneously?
international hotels in China? What lesson can be gathered from the past experiences of Marriott’s localization, thus will provide the future entrants with suggestions vis-a-vis the successful combination of internationalization &localization?
Motivation &Answering Plan of Research Questions
There does not appear to be any prior empirical work of the specific contents and determinants of the localization and deep analysis of its process and internal relationships and interactions. Therefore, these research questions attempt to fill this gap in the literature. Besides, through finding the answers of these research questions, this paper tries to give some contributions to the success of the potential entrant and existent hotels for their localization in China. Then, the answering steps of these research questions are as followings: Firstly, developed three main determinants in the following framework based on literatures and personal understandings. Divided localization activities into three main parts in the following framework. Secondly, use the later case study that combines both interviews and secondary data to test the validity and application of the framework. Find out the relationships between the specific localization activities and the previous determinants of localization activities through the exploratory &descriptive case study of the international hotels in China.
LITERATURE REVIEW Definition and Content of Localization
management transfer is not the only core work for the multinationals, it is crucial that let the local managers and employees understand and involved in the corporate culture, and the corporate culture also needs to absorb the different culture locally (i.e. encourage the expatriate managers to have a deeper understanding of the local culture and thinking modes; empower the local employees.)
Internationalization and Localization
Keep A Balance between Internationalization and Localization
The Relative Theoretical Framework
The integration-responsiveness (IR) framework of Prahalad and Doz (1987) has been used extensively in the international business literature to identify the diverse and often-conflicting pressures confronted by firms as they expand their activities worldwide. The framework has been used to discuss how these pressures impact on key decisions and affect firm performance—e.g., whether firms should standardize marketing activities globally or adapt them to local conditions, or whether firms should centralize or decentralize control of subsidiary operations. Prahalad and Doz classified the environmental pressures on the managers of multinationals along three dimensions: (1) the need for global integration of activities, (2) the need for global strategic coordination, and (3) the need for local responsiveness. Because they argued that the needs for global integration of activities and global strategic coordination were highly correlated, they combined the three into two essential dimensions—global integration (GI, or I) and local responsiveness (LR, or R)—resulting in the IR grid that became so popular. Indeed, the grid became epitomized in the famous phrase “think global, act local”—that is, effective managers are those who respond to the twin pressures for global integration and local responsiveness.
The IR framework has proved useful for mapping the different types of multinationals and their international strategy and organizational structure. In short this framework shown that the nature of international strategy varies widely not only across industries (as a consequence of their differing environments), but also among firms competing within the same industry (as a consequence of their differing histories and sources of competitive advantage) (Sunil Venaik, 2001).
The Importance of Localization
firms when they face to the new local opportunities, without against the overall strategic objectives of multinationals. This local responsive ability means that firms have their independence and autonomy to some degree and extent, and firms can respond the different local demand by themselves rapidly. It would motivate the local managers to develop a better and continual relationship with the local consumers, local suppliers, local competitors and local government. Through the form of this relationships, these firms would get much more competitive opportunities and benefits locally, then benefits the whole international enterprise as well.
When the product-differentiation or client-responsiveness is required in order to obtain the local competitive advantages, then, the localization becomes an integrated part in the organizational system for multinational’s success (Porter, 1990). By way of the possession of local advantages, favorable local factor endowments, or demand opportunities, localization is necessary for improving the economic efficiency of multinationals (Dunning, 1981). Using the human resource as an example, when international companies are seeking for the consistency and uniformity in the employee management, they have to adapt to the different business activities of the countries they located in (Martinez and Jarillo, 1991; Schneider, 1998), because the willful disregard of the cultural differences for maintaining the human resource management consistency will weaken the competitive advantages of multinationals (Adler, 1986).
forms and contents of localization and its determinants are meaningful to be a further research question in this paper.
The Determinants of Localization
Johnson (1995) argues that the industry agglomeration effect has a great influence to both firms’ localization and global integration. A number of potential advantages of industry agglomeration—or spatial clustering—have since long been identified in the research literature, notably related to shared costs for infrastructure, the build up of a skilled labor force, transaction efficiency, and knowledge spill-over leading to firm learning, innovation and localization.
Local industry structure is considered as a crucial factor that influences the localization (Lu, 2001). Lu maintains that the local industry structure can be divided into three parts: the dynamic competition level of local industry, local demand and local government-made industry policies.
Then, the local environment barriers would increase the costs of adaptation capability of the multinational organizations (Dunning, 1981), and in order to keep their durative competitive power and advantages, a high level of localization is necessary (Ghoshal, 1989; Golden, 1992). It is also supported by the perspective of the Industrial Organization Theory. It argues that the different industry structures would influence the activities and strategies of firms (Scherer and Ross, 1990). Therefore, the degree of localization is affected by the industry structures (Singh and Chang, 2000).
CONCEPTUAL FRAMEWORK
--- Insert Figure 1 About Here --- Determinants of Localization
1. Local Demand Difference. With different market demands among different countries, it occurs usually that there is a comparative low level integration and high level of local responsiveness (Birkinshaw, 1996; Prahalad and Doz, 1987). In this framework, the local demand difference means that the different local preferences & requirements for hotels’ service and facilities. For instance, the different locations have different business development levels, which may lead to different local demand levels and requirements. Also, the different local companies may have different customers sources with different preferences.
2. Cultural Distance. Cultural distance depends on various dimensions of a nation in different researches. Hofstede (1980) concludes that there are four dimensions: power distance; uncertainty avoidance; individualism and collectivism; and masculinity and femininity. These four dimensions are based on four fundamental issues in human societies and represent the basic elements of common structure in the cultural systems of the countries. Adler (1986) found in his research that the misunderstandings will happen when people comes form different cultures work together, and the frequency of misunderstanding will increase with the larger cultural distance. Thus, with a huge cultural distance, multinationals would like to adopt more local talents in the middle and high positions instead of using expatriate managers, in order to lower the opportunities of cultural conflict.
conceptions and special requirements for the products and services, which is different from the case that the international company has experienced in the other markets before. In short, in different locations, there will be a coexistence and combination of different cultures. Therefore, a proper adjustment of international company is required since the large cultural distance.
3. Local Industry Environment
In this framework, the local industry environment is divided into two parts: government governance and local labor market. On the one hand, no matter where the enterprises have their business, the local government has influence on the enterprises and local economy more or less through various ways; the difference is just the degree or the adopted forms. Especially for China, the socialistic characteristic makes the government governance is an important examined item in this research. Therefore, the relationship between international enterprises and local government, or the government-made policies or rules may supervise the business activities of the international enterprises. Then, the international enterprises need to obey the local polices and rules, and adjust themselves for the local market. On the other hand, human resource is the root of a company. Taking a good advantage of the local labour is a crucial part for the success of international enterprises in a new market. Therefore, the proper and capable local labours encourage the international hotels to implement their localization strategy. That is, in the framework the plenty of proper local labour (managers and common employees) benefits the localization of international companies.
Localization Activities
followings: business behaviors (i.e. business activities and plans, new product or services), management mechanism (i.e. managerial styles, rules and institutions) and human resource (the managers and common employees). In terms of the different determinants of localization mentioned above, they might have different impacts or specific relationships on theses three parts of localization activities.
Propositions Base on Framework
P1: Local demand difference (local preference & requirements for hotels’ service and facilities) will be positively related to one’s localization activities.
According to the conceptual framework, I propose that the large local demand differences will motivate the international hotels to adjust to the local market and implement localization strategy.
Since the cultural distance is analyzed in two parts: business &management culture and customers’ consumption culture, the proposition 2 is described in two parts as followings:
P2.1: Business & management cultural distance facilitates one’s localization activities.
P2.2: Customers’ consumption cultural distance facilitates one’s localization activities.
According to the conceptual framework, I propose that the large cultural distance (Business & management cultural distance and customers’ consumption cultural distance) of different locations induce the international hotels to adapt to the local market and implement their localization strategy.
P3.1: The influence of local government governance is related to the localization activities positively.
According to the framework, I propose that local industry environment will be related to one’s localization activities. The local industry environment is divided into two parts. That is, firstly, government governance enforces the international hotels to adjust them to the local markets. The government governance includes various forms, such as the related policies and rules, and the other direct or indirect guidance and cooperation. Secondly, the capable local managers and other proper local staffs will encourage and benefit the international hotels to implement their localization strategies in a new market.
METHODOLOGY Research Strategy
Through the qualitative method, I expect that the localization process can be identified and described. In the theoretical part I formed the analytical framework for the localization. So I want to confirm this framework in the following real practice. Also, I actually expected to get some improvements for this framework and other unexpected information from this case study.
Type of Study and The Topical Scope
I plan to use both the descriptive and exploratory study. Because I think the descriptive study can give a descriptions of phenomena or characteristics associated with a subject industry. Meanwhile, exploratory study is particularly useful when researchers lack a complete idea of the problems they will meet during the study. Through exploration researchers develop concepts more clearly, establish priorities, develop operational definitions.
by the secondary data collection through websites, related papers etc. and the interviews carried out to the employees and managers in Marriott.
Validity of the Case Study
The essence of validity could be seen as good a fit as possible with the theoretical concepts and the phenomenon under study. Yin (1989: 40-45) discusses the validity in different parts. Construct validity is achieved through establishing correct operational measures for the concepts being studied. For this I used multiple sources of evidence, like interview and secondary data. Internal validity deals with establishment of causal relationships whereby certain conditions lead to other conditions, for instance, that the relationships between the theoretical definitions are logical. External validity is achieved through establishing the domain to which the findings can be generalized. It indicates the fit between theoretical conclusions and empirical data. This validity was seriously considered in the process of data collection and analysis.
Sample Selection
The object selected for case study has to be selected carefully. The Marriott hotels in China are chosen as the studied cases because of its considerable international history and localization strategy. The Marriott hotels’ outstanding international performance and reputation makes it more significant to be studied. Otherwise, the cases are considered to have insufficient international business experiences and activities. The possibility to access the core resource of hotels is a reason for this choice. I had some studies and research experiences about international tourism and related industries in the Northwest University in China and have taken some related courses; and also my personal networks within this industry and the access to Marriott hotels’ internal network would be very useful for this case study.
Description of the Case Hotels and Locations
China Hotel in Guangzhou: China hotel is the first joint venture hotel in China has opened since 1984, which provincial government cooperates with the Marriott international lodging. The China Hotel is one of the first 5-star hotels in the country, and still ranked among the best. Guangzhou is a coastal city that has been a prosperous special development zone since 1980. Before Hong Kong’s transfer back to China in 1997, Guangzhou served as a popular location for new hotels, and major chains rarely considered setting up operations in western China1. Nevertheless, now, some managers view Guangzhou as a city with weakened potential to support growth in the hotel.
Marriott Shanghai Hongqiao Hotel: Marriott Shanghai Hongqiao is a five-star hotel located in the Hongqiao business district. It nears the Hongqiao International Airport, and adjacent to the Agricultural Exhibition Center which is a famous exhibition halls in Shanghai. As China’s most dynamic city, Shanghai attracts numerous foreign & domestic travelers with its blooming economy and beautiful city environment. Besides, the local government has aggressively recruited trade exhibitions and conferences to Shanghai, and has brought more business and demand to the hotel market.
Renaissance Beijing Hotel: Ideally located in the heart of Beijing, Renaissance Beijing Hotel is a five star business &tourist hotel. Easy access to major freeways, the hotel is also located in Chaoyang Business District which is considered to be the future home of commerce of Beijing. With the brand “Renaissance” of Marriott international lodging, Renaissance Beijing Hotel has good performance in the past years. Capital Beijing is a natural destination for business travelers and tourists. Pointing to China’s entry into the World Trade Organization (WTO) and Beijing’s successful bid for the 2008 Olympics, people are optimistic about industry growth for the next few years.
Grand New World Hotel: The Grand new world hotel has opened since 1989 and
managed by the New World, which is a brand of Marriott International. It locates in the central Xi'an, which is one of the most important cities in Northwest of China. Near to the West Gate, ten minutes walk to Xi'an ancient city wall or Islamic Mosque, Grand new world hotel is a favorite choice for many foreign and domestic tourists and business travelers. Xi’an is an important business center in northwest China, The cultural and historical significance of the area, as well as the abundant relics and sites, help Xi’an enjoy the laudatory title of "Natural History Museum". The Museum of Terra Cotta Warriors and Horses is praised as "the eighth major miracle of the world"2.
Method of Data Collection
Data collection is the most important step in the case study. It decides the quality of the study and it is a reflection of a researcher’s ability (Czarniawska, 1998). Researchers have to explore and find meaningful materials and data through observation of firms. In this process, the sensibility of the researcher is important. It is also related to the problem of validity and reliability of case study (Silverman, 1993). As I mentioned, qualitative data for analysis can vary by researchers, due to the autonomy and variety can be an obstacle to observe and describe phenomena and activities of firms. Thus, I have to be careful in the data gathering process.
In my data collection process, the first problem I faced was to decide the range of research. To this study, I decided to concentrate on the localization and its interaction with internationalization. The second problem is the interview. As we known, the interview is sensitive and the main source of the information of my case studies is interviews with the managers and other employees with longevity in the examined hotels. The interviewees will be asked to tell narratives of the questions. Furthermore, this result will be crosschecked by secondary data such as archival analysis and other hotel documents or descriptions as well as published articles dealing with the cases from the books, magazines and Internet. It means that multiple
sources of data will be used, and it is a typical way of increasing validity and reliability of the study (Yin, 1989, 73-74).
Finally, data collection of this study is limited since examined hotels are located in different cities in China, i.e. Beijing, Shanghai, Guangzhou, Xi’an. This geographical distance will overcome by communication technology, such as telephone and e-mail. 1. Secondary Data Collection
The secondary data are collected through multiple sources: Firstly, library resources, the related books and papers about international enterprises’ internationalization process and hotel industry’s performance. They provide a complete overview of the internationalization steps, and then also give an analysis to the specific characteristics of international service industry and hotel industry. Secondly, the related electronic magazines and journals about the hotel management and tourism are very useful ways to have a deeper understanding of the international hotel and their business activities. Thirdly, from the websites of the four Marriott chain hotels and the other related reports and interview records on the Internet, I got access to the general conditions and history of these Marriott hotels in China, and an overview of the Chinese hotel industry’s environment. In addition, the published reports of the interviews have been carried out for the top managers of Marriott would be also a good reference.
2.Data Collection from Interviews 2.1 Aimed Interviewees
2.2 General plans of the interviews
The interviews took place in four different Marriott hotels for the empirical analysis of the localization of the international hotels in China.
First, for two kinds of aimed interviewees, the questions focused on different aspects. As for the top managers, the questions emphasized the forming and designing process of the adaptation to the local market, the adjustments and changes on the institutional level, and the general questions and comparisons, such as the question about the influence of cultural distance and relationship with local government, since the top managers are more capable and experienced to give a convincible answer to these deep questions. Differently, for the aimed common employees, the questions more focused on the implement and effects of the adaptation and adjustment within the international hotels. In addition, according to the different positions of interviewed managers, the interviews used more time on the questions that are matching with the managers’ role. For example, I paid more attention to the questions related to the localization and human resource management when the director of human resource was interviewed.
Second, the questions varied slightly according to the different conditions, history, and background of the four different hotels, since there are specificities of the four case hotels, and meanwhile, they are all included in the whole Marriott system as well. For instance, the complete state-owned status is a very unique feature for the Guangzhou China hotel compared with the other three hotels. Therefore, as for the interview questions about the relationship between government governance and localization, the specific question about the influence of ownership would be asked in the interviews of China hotel. As for the other case hotels, there is no influence of the state owned status on the localization activities, but might be some other types of influences from local government.
first sample hotel and the obtained interview experiences, the revised interview questions became more proper for the following interviews.
CASES ANALYSIS AND RESULTS
Main sources of this article’s qualitative data are interview results and secondary data. In this process it is significant to describe real phenomenon of the hotels and finding answers for the research questions mentioned above. In order to describe the localization and internationalization phenomena in the business activities of the cases with a scientific method, consistency between materials, such as my interview results and secondary data are very important. Consequently, most interviews were transcribed with the exact words of the interviewees and secondary data will be arranged according to subject.
In this part, I shall start with a concise analysis about the development of international hotel industry and Marriott in China based on the secondary data materials. Subsequently it will be checked and developed by following interviews and the specific secondary data concerning the four case hotels. Besides, According to the relative propositions, the information was discussed on the individual hotel’s level and the whole Marriott chain hotels system level regarding the common strategies and the diversified activities adapting to different environments. Based on different aspects, I tested the propositions and had a deep understanding of the International Marriott hotels’ localization in China.
International Hotels in China
maturing hotel industry is among the key beneficiaries. Thanks to strong competition and healthy demand, travelers have more choices and access to better-quality services in China than ever before. The number of international travelers to China has risen steadily and rapidly over the last two decades (except for the dips in 1989 and 1998 since Tiananmen Square and the Asian economic crisis, respectively). According to the China National Tourism Administration (CNTA)3, the number of inbound visitors to China rose 20% to 109 million in 2004. Foreign business travel, in particular, is fueling the boom as the country heavily attracts foreign investment. Today, China boasts more than 7,358 hotels for overseas tourists, of which 129 are rated five-star and 441 are rated four-star.
The general opinion of the hospitality industry in China states that a growing supply of hotels will be needed to support ever-rising demand, and moreover it also states that the operating environment for the lodging industry has bright prospect and the competition will increase as well. The hotels that were the first to offer shopping centers or a five-star rating must now work on their services and offerings to stay competitive, and adjust themselves properly to the specific customer and demand4. As a result, business travelers should obtain more choices and better quality of services in China’s four and five-star hotels in the future.
Development of International Marriott Hotel in China
Marriott is a famous premier hospitality real estate company, which operates primarily in the luxury and upper-upscale hotel sectors and owns 113 full-service hotel properties worldwide as of Feb.20045. Marriott has entered the Chinese market
since 1997, which is comparatively late than the other international hotels. However, during the past years, Marriott has the fastest growth than any other competitors. By the end of 2004, Marriott manages 27 hotels in China mainland6. Marriott hotels are
3 http://www.usatoday.com/travel 4 http://travel.tom.com
5 http://marriott.com.cn/
operated under brand names that are among the most respected and widely recognized in the lodging industry-including Marriott, Ritz-Carlton, Hyatt, Four Seasons, Hilton and Westin. In China, Marriott has diversified brands such as Renaissance, Courtyard, New World and Ramada etc. In addition, Marriott has been one of “the 100 Best Employers” for seven years listed in the “Fortune”, and it is the only American Hotel on the list. The main feature of Marriott’s culture is that “smiling service and employee is the first”.
Cross-case Analysis and the Related Propositions
The relative research questions are investigated by means of a number of in-depth interviews and secondary data collection. In this way, various opinions, viewpoints and detailed cases were investigated. This article will present the general results and analysis here. Table 2 is a summary of the propositions and relative empirical cases. It includes the main results for previous propositions and the newly confirmed specific linkages between different determinants and localization activities.
1. Local Demand Difference and Localization Activities.
Proposition 1: Local demand will be positively related to one’s localization activities.
During this research, I found out that the four examined case hotels’ different local environments and corresponding demand have great influence to international hotels’ localization activities, and it takes the form of adjustments of business behaviors rather than management mechanism and human resource.
price and develops more various services for their customers requiring the best service. The director of sales &marketing in Renaissance Beijing (interviewee 1) said:
“As a brand of Marriott International, Renaissance Beijing is trying to adjust itself to establish brand loyalty locally among their customers by focusing on quality service. Besides, because there is a high demand from the various international exhibitions and domestic meetings in Beijing, we provide flexible arrangement for the reservation of assembly rooms and provide various menus that are especially made for various special requirements. Besides, we have various corporate packages, alliance deals with China airlines and some local travel agencies in order to encourage new and repeat business travelers and develop our competitive advantages in this new market.”
The converging best quality and varied corporate packages makes the Renaissance Beijing has a successful local market positioning. Similarly, Shanghai is a modern city that is the commercial center of China nowadays. Like Beijing, Shanghai’s hotel industry projects rising demand for the next decade, in part because Shanghai is at the forefront of WTO liberalization. The manager of Shanghai Hongqiao mentioned that they had a high occupation rate (85%) in 2004, and 70% of it are international customers. Therefore, Shanghai Hongqiao also adds more activities and considerate services for its international customer structure and requirements. For example: the multi-language morning call services, the various small restaurants, often with Chinese or Asian, European, and American selections to appeal to the multinational clientele in this market.
Beijing and Shanghai, some established restaurants in Grand New world also attract diners who are not hotel guests, such as weddings feasts, in order to offset the relative low local demand. In Guangzhou, there is an overall low price level of the Guangzhou hotel industry since the relatively worse market condition. First, the great influence of the periodic countrywide meetings, which leads to two extremes of the unstable room price (i.e. the price reaches its highest point during the Trade & Cooperation meeting in Guangzhou and drops to the lowest point during the off-season). Secondly, the average price of the China Hotel in Guangzhou is much lower than the hotels with the same luxury class in Shanghai since the over-competition in Guangzhou’s hotel market. Therefore, the China Hotel had to adjust its business behavior that adopted a relative lower price in Guangzhou, although the other Marriott hotels with the same luxury level in Shanghai and Beijing can maintain a high price.
resource. That is, when the international hotel encounter different special requirements and demand in this local market, it will have a positive driving power to encourage the localization of business behaviors to maintain good performance and advantages in different markets.
2. Business & Management Cultural Distance and Localization Activities
Proposition 2.1: Business & management culture facilitates one’s localization activities.
As an American company, Marriott international hotel has its own unique culture and management style. During this research, I found that according to the different Chinese business cultures and environments, the Marriott adjusted its internal management mechanism to some extent in order to better fit the local market. In the examined hotels, I observed that the functions and emphasis of the different hotel sectors, and the arrangement of employees’ training programs were changed for some local reasons. The managers of the Renaissance Beijing (interviewees 1&2) told us that:
“ Different with the Marriott in the other countries, our sales and communication sectors paid more attention to develop a good relationship with the local agents and government. In Asia especially China, many business are done by travel agency and travel management, rather than face to the end-users directly. Besides, have a understanding of hierarchy with organization is essential in doing business in China.”
Marriott was 50% sponsored by the Marriott hotels, after the completion, the associate returns to work in the sponsoring hotels. However, the other 50% costs that should be afforded by the trainees seem to be a problem in China. People think this big amount of money is not a reasonable payment for the employee who is just a worker that hired by a company, and the employers should afford the costs. Therefore, the hotels started to provide more flexible and relative costs-saving trainings to employees, such as online trainings and annual trainings within their sectors by their managers or guest lecturers. Then, this career-training plan had to be changed for this traditional mentality of people.
impolite behavior, especially for you senior managers. Also, they are afraid of the possible future revenge after the complaints. Therefore, the 800 Complain Systems is not applicable in China though this mentality difference is decreasing gradually. Third, since traditionally, the knowledge and knowledge right have not attracted enough emphasis and protection in the past years. And workers believe that the training costs should be paid by the employers who are directly benefited from that, but not themselves. Nowadays, for the hotel industry, there is a higher turnover rate compared with the other industries, so it is also a reason for both the hotels and staffs to not spend large amount of their financial budget to employee training course. Through these empirical cases, the proposition 2.1 (i.e. business & management cultural distance facilitates one’s localization activities.) is not confirmed in general but is supported in the specific linkage between business & management cultural distance and management mechanism. I found that because of the different business& management cultures, the international hotels would implement some adjustments in their management mechanism compared with the other two forms of localization activities (i.e. human resource, business behavior). That is, the existing of the cultural distance will lead to the implement of localization of management mechanism for the international hotels.
3. Different Customers’ Consumption and Localization Activities.
Proposition 2.2: Customers’ consumption cultural facilitates one’s localization activities.
adjustments for the Marriott hotels in Chinese market. The interviewed manager (interviewee 4) stressed that:
“Firstly, because the traditional spring festival is regarded as the western Christmas, so normally, there are few business exhibitions and meetings in China during this period. Therefore, it is a huge loss for the business hotels compared with the other periods in a year. So even with a big discount, the occupation rate is still just 30%-40% during the spring festival. Secondly, the other international hotels and the local vacation hotels also have such promotions. So under the competition pressure, we Marriott hotels do it in order to compete with the other rivals.”
Therefore, in order to offset the reduced incomes from the business exhibitions and meetings, as a new strategy, the local customers and the domestic travelers became an attractive aimed client, which accompanied with a discounting competition during this period in the Chinese market. Besides, the Chinese customers prefer the luxurious decorations within the hotels rather than the simple modern design. Thus, the Marriott in China also took this point into their consideration, it can be seen when the hotels decorated their lobby and restaurants in order to adapt to this local culture and customers’ preference.
the domestic travelers during the festivals and public holidays, the Chinese consumption culture also has changed gradually. More families would like to arrange their feasts in hotels which provide acceptable price and good environment during the festivals, rather than staying in home in the past years; more people choose to have a domestic travel during these holidays. Therefore, through these empirical cases, the proposition 2.2 (customers’ consumption cultural distance facilitates one’s localization activities) is not confirmed in general but is supported in the specific tie between the customers’ consumption cultural distance and company’s business behavior. I found that the tendency of the consumption difference lead to a localized business behavior, but no obvious direct impact on the management mechanism and human resource. In addition, the interesting finding is that the influence is not just one-way but two-ways. The consumption culture influences the adjusted business behavior, and international hotels’ business activities also influence the local consumption culture gradually to some extent, these two parts are interacted simultaneously.
4. Local government governance & Localization Activities
Proposition 3.1: The influence of local government governance is related to the localization activities positively.
In terms of the relationship between local government governance and the localization activities, there are some interesting findings that the governance influences the business behaviors and human resource of international hotels through various forms. For the Guangzhou China Hotel, the local government took the forms of having ownership and industry guidance to influence hotel’s local business activities. For the other three Marriott hotels, the government influenced international hotels’ business behaviors and human resource through the related industry policies.
Southern Tourist Hotel Management Group. Then, the group became a new listed company in 2005, which has 7.4 billions assets (RMB) and be regarded as a successful reorganization of state owned assets in Guangzhou province. From the interviews with the managers and employees of China hotel (interviewees 5,6,13,14), I found that after this large-scope reorganization of state owned assets in Guangzhou, as the owner of China hotel, the government regarded the unsuccessful hotel league is an important reason for the low price level of Guangzhou hotel industry; and the low price harms the image of the five-star hotels. Therefore, the local government negotiated with the Marriott, which had the management right, and the China Hotel started to raise the price in 2004 in order to build a good local image of luxury hotel and improve its business performance. Meanwhile, the local government also encouraged the other local hotels to raise their room price gradually for building a better macro-environment of the whole hotel industry in Guangzhou. Besides the case of China hotel, usually, the local governments have impact on the international hotels’ business activities and human resource through the related industry policies. Such as: the minimal wage standards for employees; the administration for the recruitment; the annual financial auditing for hotels; the policies that encourage hotels to accept the local handicap people in some proper positions; and the “help-poor foundation7” for helping the local poor people etc. The director of sales of the Grand New World Hotel (interviewee 8) stressed that:
“Being an international hotel, the first step of localization is obeying the rules of the game in the local market. Meanwhile, a successful localization should be involved in the local society, and ‘community and social responsibility’ is also an important rule of our Marriott culture.”
From the obtained information, I had a deeper understanding for the research questions: How does local government governance influence the localization of international hotels? What kind of localization activities would be influenced by the
7 The “help poor foundation” is 1.5% of the sales incomes of international hotels, and will be used to help the
local government governance directly? As a growing developing country, China has started the Opening-up Policy from 1978, and has reformed its traditional plan economy to the socialistic market economy. However, the government still has various indirect administrations to the companies includes international companies, though the administrative systems are much more effective and simplified than it before. As for the raised room price of China hotel, it was not only a suggestion from the owner—government, but also a part of the administration from local government to the whole local hotel industry. Besides, since China’s social security and welfare system is actually far away from ‘being socialized’, there is no national system covering medical care, subsidy for handicap and poor people, retirement pensions etc. Therefore, the obligations became a burden for both local government and employers. On the one hand, though the obligations are much less for the international companies compared with state-owned or collective companies, international companies still need to adjust themselves to cooperate with the local government to solve these local problems. On the other hand, the international companies can be also better involved in the local community, contribute to the society, and build a good corporate image through helping the handicap and poor people. Therefore, through these empirical cases, the proposition 3.1 (the influence of local government governance is related to the localization activities positively) is not confirmed in general but is supported in two specific relationships that the government governance and company’s business behavior; the government governance and human resource. I found that the local government governance lead to the international hotels to localized their business behaviors and human resource, and there is no obvious influence have been found in the management mechanism that caused by the government governance.
5. The Fitness of Local Labor and The Localization Activities
Proposition 3.2: The fitness of local labor (local managers &employees’ professional skills and capability level) is related to the localization activities positively.
the international hotels to have a better-localized human resource. For the case hotels, the localized human resource is a main strategy for the international hotels in China. In the four examined Marriott hotels, there are more than 85% of managers are Chinese or Hong Kong Chinese, and the common staffs are all local people8. The interviewed manager (interviewee 6) said:
“ We do face certain challenges—particularly in finding and keeping local staffs with certain skills. Not only for the waiters and waitress, right now we need local high-skill sales people and capable revenue managers.”
In our findings, the localization of the human resource is an essential precondition for the international hotels in the Chinese market. The higher quality of these local managers and employees means a successful localized internal human resource and helps the international hotels to have a good performance in a new market. Besides, different with the Marriott in the U.S., the Marriott hotels in China employ more workers since the low efficiency of labor and the comparative low local wage level, in order to keep the hotels can function well. Another interviewed manager (interviewee 7) stressed that:
“ The local tourism and business school provide a good labor source of our employee. Marriott provides various training courses for these new workers and develops a career development program for every manager and common employee. We believe that the combination of the local talents and the Marriott culture can lead to a mixed driving power to our hotel, which absorbs the advantages from both parts.”
Based on the obtained information, I had a deeper understanding for the research questions: How does the fitness of local labor influence the localization of international hotels? What kind of localization activities would be influenced by the fitness of local labor directly? As a service industry, hotel is a labor-intensive industry
that has an average higher internal turnover rate of human resource. Generally speaking, except the cheap low skilled labour, the localization of the high level human resource also becomes a new trend in the strategies of these international companies recently. For the international hotels, the difficulty is not only attracting the proper local talent but also keeping them. It is obvious that the proper local labor is essential for the hotels’ daily work and service quality. And the increasing number of tourism schools and hotel management major in the universities also provide a good source for the recruitment for international hotels. However, the high turnover rate is still an unsolved problem for the hotel. Firstly, for the old tradition, working in service industry is not a decent and proud job in Chinese society especially for males. Secondly, with the experience in a famous international hotel, it becomes easy to take a job-hopping for the excellent hotel staffs. Therefore, the training and pride-education of Marriott are very important for the international hotels to maintain a good localized human resource. Through these empirical cases, the proposition 3.2 (the fitness of local labor is related to the localization activities positively) is not confirmed in general but is supported in the specific between the proper local labor and company’s human resource. I found that the proper local labors lead to a successful localized human resource of the international hotels. Meanwhile there is no obvious influence to the management mechanism and business behavior since the local labor market.
DISCUSSION AND SUMMARY 1. Modified Conceptual Framework
Firstly, this case study of Marriott hotels in China confirmed that the local demand difference, cultural distance and local industry environment are important determinants for international companies’ localization. Meanwhile, the business behavior, management mechanism and human resource are the common forms of localization activities that influenced by the previous determinants respectively.
Secondly, though the three determinants do have important positive effects on the localization, they do not influence all the forms of localization activities, which is different to my previous expectations, In the findings, in terms of various localization activities, i.e. business behavior, management mechanism and human resource, the international hotels adopted different forms of localization activities when they encountered different types of external influences, that is, local demand difference, cultural distance and local industry environment. Therefore, as shown in Figure 2, the previous framework is modified and has clear links between the determinants and corresponding specific localization activities. In this improved framework: firstly, the local demand difference positively influences the localization of international company’s business behaviors. Secondly, the cultural distance facilitates companies’ business behaviors and management mechanism strongly (i.e. business & management cultures influences the management mechanism, consumption difference leads to the localized business behavior). Thirdly, the local industry environments are positively related to both the business behaviors and human resource (i.e. the influence of local government governance positively relates to the localization of business behaviors, the proper local labour create successful localized human resource).
corresponding localization activities is more applicable and clear-cut for understanding the inter-relationship between the international companies and localization. As shown in the improved framework (Figure 2): in order to adapt to the local market successfully, international hotels implement variable forms of localization activities that match the different external influences they may encounter in the new markets. These findings about the relationships between various determinants and localization activities can be a useful benchmark for the practice of international hotels and the further research.
2. Competitive Advantage of International Hotels in Chinese Market
Besides the analysis of the framework and propositions, there are also some interesting findings about the successful experiences and advantages of the international hotels from the interviews. As a worldwide international hotel chains, Marriott hotels have several competitive advantages compared with the domestic hotels. First is the “MARSHA” global reservation system. It is a global accommodations system, which is shared by every Marriott hotels. In China, it also developed many local agents and partner companies to strengthen the functions of this system. Secondly, the “cross selling” among Marriott hotels is a powerful internal channel and successful experience. Taking advantage of its efficient internal networks and Marriott’s diversified brands, Marriott encourages their hotels in different brands introduce their business to each other, and then the business can be kept within the Marriott system. The last one is the Marriott’s world sales office. The offices take the responsibility of collecting and redistributing the useful business information to all the Marriott hotels in China to promote the overall performance of the Marriott system.
Overall, the advantage of the global and internal network seems the most important asset for the international hotels. Compared with the domestic hotels, international hotels win on the scratch line with better access to the global customers, better-organized information and resources.
Though these international hotels do share many advantages, there are still some unsolved problems that deserve people’s attention. Firstly, the lack of properly qualified employees is still a headache for many international hotels. Nowadays, even though hotel managers can find more experienced local staffs than ever before, perhaps the toughest difficulty they face is finding and keeping proper local employees that possess good English-language skills. For example, for an international five-star hotel, if an employee working in the lobby lounge could not understand a basic request in English, then it seems to be a common problem at the top international hotels. Secondly, doing business in China still isn't easy, wide variations in local policies and tax rules can be frustrating. However, doing business in the country has gotten noticeably easier over the years and it is far less bureaucratic now. Thirdly, the big compensation gap between the foreign expatriate managers and local staffs seems also a problem for the international hotels. For example, for the managers with the similar work experience and similar positions, foreign expatriate managers’ wage is more than ten times the wage of the Chinese managers. It is undeniable that the capable expatriate managers are important and bring the core corporate culture and advanced managerial experiences to the new markets. These people are encouraged by double or triple wages than their wages in home country. However, if the wages of the expatriate managers are too high, it has a negative emotional influence to the motivation of the experienced local managers and staffs. Meanwhile, it adds certain pressure on the cost control of the international hotels as well. Nowadays, this problem could be partially solved through the private payroll system within hotels. Nevertheless, how to keep a good balance between the two parts is still not an easy job.
CONCLUSIONS
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