i

Should International Hotel Companies

stay/ enter into the Indian Hospitality

Market by Management Contracts or

Greenfield Investment Strategy?

By

Abhijith Jayarajan

Student Id: 1330527

Module Code: 7MG001

Submitted to University of Wolverhampton

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DECLARATION

I, Abhijith Jayarajan, a MBA candidate, student of ERC Institute, Singapore and in alliance

with University of Wolverhampton, hereby declare that this research paper is purely my own

work and effort. It has not been submitted anywhere before for any award or recognition. The

other sources of information that have been used in the research is acknowledged.

Signed: Abhijith Jayarajan.

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ACKNOWLEDGEMENTS

I thank God for the wisdom and the power of knowledge he has blessed me with. I would like

to thank all the faculty members of ERC Institute, family and friends for supporting me all

the time for my research.

I would like to express my deepest gratitude to my advisor, mentor and supervisor, Mr. Mark

Fairhurst who has been very kind, patient and gentle in giving me advice and suggestions for

my research. He has guided me on this journey of the research and without his guidance and

help, it would have been impossible for me to unfold the knowledge and wisdom that I have

gathered through this exciting venture. I would also like to thank all the participants who

have contributed to my research work. Being in such a high and reputable position, they have

been able to take their time out and supported me with the data which has shown a much

placid and benevolence gesture.

Special thanks goes to my dearest friend Mr. Kris Jason Dsouza and his parents who

encouraged me to pursue this course and without their contribution and support and I

wouldn’t have been able to do this course and write this research paper. I would also like to

thank my parents who have always supported me in the whole course of this research and

MBA journey. I would also like to thank Mr. Mahesh Dixit and Mrs. Reenu Dixit for always

supporting and cheering me up for the studies and also taking care of stay and well-being in

Singapore till date. I would like to thank all my lecturers and friends from ERC Institute with

whom I travelled this unforgettable journey which has bestowed me with so much valuable

memories and experiences to cherish. I would also like to thank Miss. Kavita Menon for

guiding and correcting my analytical skills as and when required. Lastly, thank you

everybody for their contribution to aggrandise my knowledge and motivated me to reach for a

higher goal.

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ABSTRACT

This dissertation is concerned with the exploration of the business aspects that is followed in

the hospitality industry in India with specific to the investment methods that are applied in

the hotel business sector. The investment method is basically concerned with either buying,

managing or franchising the hotels. For this purpose, the researcher has conducted a primary

research on the hotel market of India. Few general managers and business development

managers from various group of hotels have been interviewed in order to know their views

with regards to way of running or managing a hotel. On the other hand, the reason for

conducting the research is the perpetuate boom taking place in the tourism sector of India as

well as the globalisation in prime cities of India which are contributing largely to raise the

economic value of the hotel business. Along with the economic value, a large influx of the

international hotel companies are also entering the Indian soil to build a foundation.

Therefore, this research has revealed few insights on the hotel real estate sector and foreign

direct investment that are currently supporting the nation`s gross domestic product as well the

service industries. With a view to investment, this paper has also revealed some

understandings on Greenfield investment strategy. The pros and cons of the strategy have

been detailed which is good enough for the reader to understand the way of choosing the

strategic expansion methods to increase hotel portfolio. The government`s role in relation to

the hotel business sector is also discussed in few chapters which shows the perspective of the

hotel managers and professionals. In order to understand the relation between the theory and

the practical business world, some current investments in the hotel sector are also showcased.

This current investments shows the reader the way how international companies are making

their stand in the Indian hospitality business`s books. As a result, based on the primary and

secondary data collected, the objective of the research is achieved.

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Table of Contents

Chapters Page Numbers

1. Introduction 1

1.1.Background 1

A. Globalisation 1

B. Market Entry Mode: Strategies 2

1.2.Research Question 2

1.3.Scope of Research 3

1.4.Limitation of the Study 4

1.5.Structure of the Study 4

1.6.Conclusion 5

2. Literature review 6

2.1.Introduction 6

2.2.Business Aspects of international hospitality industry 6

2.3.International Hotel Companies: Emergence and its Expansion 7

2.4.Indian Hotel Industry: Indian Hotel Companies and its trends 9

A. Foreign direct investment in the Indian hotel and

Tourism sector 9

B. Current Investments 10

C. Indian hotel sector: Financial challenges and

Strategic growth 11

2.5.Hotel Management Contracts 12

2.5.1. Hotel Business Agreement: Management Contracts and

Franchising 14

A. Management Contracts 14

B. Franchising 15

C. Upcoming Investments and Contract agreements in India 16

2.6.Greenfield Investment strategy 17

2.7.Conclusion 19

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3. Methodology 21

3.1.Introduction 21

3.2.Research methods and its Justifications 21

3.2.1. Qualitative research method 21

3.2.2. Quantitative research method 22

3.2.3. Mixed research method 23

3.3.Case selection 23

3.3.1. Aims and Objectives of the Research 23

3.4.Data Collection 24

a. Secondary Research 24

b. Primary Research 24

3.4.1. Questionnaire design 25

3.4.2. Data Sampling 25

3.5.Data Analysis 25

3.6.Reliability and Validity 26

3.7.Research Limitation 26

3.8.Conclusion 26

4. Critical Analysis and Findings 27

4.1.Introduction 27

4.2. Findings 27

4.3. Conclusion 38

5. Conclusion 39

5.1.Introduction 39

5.2.Addressing the Research Question 39

5.3.Key Findings 40

5.4.Limitations of the research 41

5.5.Future Research 41

5.6.Conclusion 42

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6. References 43

7. Appendices 51

Appendix A: Consent Form 51

Appendix B: Questionnaire 52

Appendix C: Dissertation Supervision Meeting Record 53

1

1. Introduction

This paper aims to focus on the Indian hospitality market and the market entry mode of

International Hotel companies in the Indian hospitality market. The scope of the research is to

find the feasibility in the Hotel investment sector of the Indian market. To understand from

the base, the topic has covered a vast knowledge from the globalisation in the hotel industry

to foreign direct investment theories. Further, it has been narrowed down to strategic

management theories that are applied in the Hospitality sector by the international hotel

companies. In order to find the relativity between the theories that is adapted from the

secondary sources and the practical world, meta-analysis research is done where mixed-

method method approach is used to give a formation to the topic. Following are topics which

will give a basic understanding for the whole topic. The gaps in the topics are filled with in

the following chapter of literature review.

1.1.Background

A. Globalisation

Globalisation can be comprehended as the blend of the economic, civilisation and societal

growth, (Hjalager, 2007). Whitla, et.al. (2007) justifies globalisation by expounding that it

provides freedom of choice to the consumers through intense competition in one of the

globalised service sector industries such as international hotel industry where the companies

are stretching their arm’s length and going extra mile to be at the edge. Internet revolution

has become a part of globalisation which accelerates the flow of information to the customers

and people around the globe to access the first hand information about any topic or industry.

Yu and Gu (2005) notions globalisation can bring international hotel companies with many

positive factors such as increasing in sales, worldwide brand recognition, distributing

operations across the globe through management contracts or franchise agreement which

reduces the investment risk, etc.

According to Yu, et.al. (2014) international companies set different strategies for

internationalisation that are related with culture, social, economic or political facets of the

host country. Hence, depending upon the situation of the host country, the companies make a

feasible market entry mode with pertaining to low risk. But Zhou and Belk (2004) assume

that globalisation in the hotel industry is perceived as the commonality and ubiquities in

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services of hotel companies to the customers because customers desires the same product and

lifestyle wherever they live.

B. Market Entry Mode: Strategies

According to Canabal and White III (2008) international market entry mode are the third

most researched topics in the international management after foreign direct investment and

internationalisation. To support this, Leon-Darder, et.al. (2011) explains choice of the

international market entry mode creates one of the most significant factor for the international

companies to achieve strategic success. The market entry can be in various forms such as

foreign direct investment through Greenfield investment strategy, acquisition, joint ventures,

management contracts or franchising.

Anitha (2012) believes that Foreign direct Investment (FDI) plays a very constructive role in

relation to the economic growth of the country and specifically it is very crucial for the under

developed or developing countries to raise the economic bar. Foreign direct investment

bridges the gap between the available resources and required resources to enhance the

domestic as well as international competitiveness among the industries. It also helps the host

country to strengthen its infrastructure by raising productivity and generating employment

opportunities. In order to analyse it, Kochar (2014) reveals that Hotel and tourism sector in

India received an FDI in flow of approximately $3.25 billion in the financial year 2012-13.

Chathoth and Olsen (2003) points out that hospitality industry has witnessed a lot of

strategic alliances for over decades which majorly by franchising following management

contracts. Many International hotel companies have initiated the strategic expansion move

after the Second World War, (Liu et.al. 2014). Leon-Darder, et.al. (2011) further explains

the different modes of market entry that hotel companies generally choose for; a) Greenfield

investment strategy: firms that invest direct capital and controls the operation, manages the

asset, and look after the daily routines of the hotel, b) Joint venture: where firms invest

directly but shares the control and ownership, c) management contract or franchise: firms do

not get involved in the capital transaction which means they control and manages the

operations and help the owner to run the property.

1.2.Research Question

By discussing the above topic in the short concise manner, the research is to carry out the

vitality of the Indian hospitality market, the international hotel companies that are based in

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India or the companies that are willing to come in the near future. With the help of some

business aspects and economic elements, it will be conventional and feasible to do the

research upon the strategic decisions that are being implemented by the hotel companies to

perform their operations in the Indian soil. Apart from this, some research will also be carried

out on the foreign direct investment (FDI) which act as a tool and an opportunity for the

international companies to grow their wings in the Indian market.

These areas of interest also creates another topic of investment which is the main topic of the

research but without knowing the details about the business aspects and economic elements,

it is impossible to decipher research questions. Also, the external environment in India

enables us to understand the hurdles international companies might face. Hence, by looking

at two sides of the hotel investment coin, the main research questions are as follows:

What is the conventional method for the International hotel companies to invest in the

Indian Hospitality market?

Advantages and Disadvantage of Foreign Direct Investment

How hospitable are the Government laws for the foreign companies to invest in India?

1.3.Scope of the Research

As the research is based on the practical world in the hotel business, hence meta-analysis

approach is used where primary data will be collected through qualitative method of

interviewing with some of the general managers of few international as well as Indian hotel

companies. Based upon their suggestions and views about the investment area in hotel

business, the data collected will be matched with the theoretical data gathered through some

secondary sources. Apart from this, some primary and statistical data will be collected

through some of the hospitality consultancies from India.

The data from the consultancies will be gathered with the help of some questionnaire survey

that will have impact on the overall side of the real-time market with respect to the current

hotel and tourism business. While doing this, quantitative survey, some extra information is

also expected that will be constructive for the whole research topic. To make the research

more robust, some data will also be gathered from the business newspaper agencies which

will have a generic thoughts about the hotel investment or business side of the overall

hospitality industry. Hence, it will have an impact to build the fortitude structure for the

research paper. In the end, all the data will be analysed with the secondary sources gathered

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in the literature review. Therefore, findings and conclusion will be totally dependent upon the

research design used for this topic.

1.4. Limitations of the Study

The objective of this research is to set out the main international hotel companies and to

analyse and understand their strategic move for the expansion. It will also give a deeper

understanding of their market entry mode approach and the reasons behind their interest in

the Indian Hospitality market. The main answers for the research can only be gathered from

the people who are either in the board of the companies or in the management level.

Therefore, to get in touch with the former people for the interviews is not easy and nearly

impossible because of the tight and busy schedule but we could also speculate the people in

the management could contribute some of their views but the main reason for the company`s

move and insight would not be revealed due to the restrictions such as policies, terms and

conditions that is bestowed upon them. Hence, generalisation of the ideas and views from the

respondents are the only way to narrow down the research to the specific requirement that

will lead us further to the conclusion.

Besides, it will correspondingly give some insight of these international companies`

competence in one of the culturally intricate Hospitality market and how these companies

maintain the same operational standards in these fierce competitive market because few of

the Indian hotel companies have always been on the top of the ladder since the inception of

the hotel business in India.

1.5.Structure of the Study

The research paper is dissected into five different chapters with each chapter containing some

significant insights and theories that will enable to unfold each and every process. This

interlace between the theories and the practical hotel business world gives us a profound

understanding of all the elements that are essential for having steady hotel to run on its

decided strategy. The Introduction chapter gives an overview of the causes of the strategies

applied in the hotel industry and the research is carried out with certain limitations. The

literature review briefly covers all the areas of the hotel and the causes of the hotel business

expansion. Moreover, it also describes each strategy in a context which makes the reader easy

to understand the overall matter and the importance of the research.

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Methodology chapter follows the literature review that contains the methods and ways this

research is carried out. It also shows the reader the ways in which this foray of doing the

research was anticipated. The research methods that were planned are clearly evident in this

chapter of analysis and findings with help of perfect execution of the methods. This chapter

of the dissertation is the most interesting chapter as it contains some candid reviews of the

professionals from the Hotel Industry. These professionals are the executives in the real

world. Hence, the response from this respondents has helped this research to articulate and

make the study robust so that it can move for the conclusion.

Conclusion showcases the success of the research which also contains some key findings that

has been described in a short manner. Overall, this research success leaves certain clues for

the successor who wants to continue with the current research and take this on to another

level. The only way this research could be drawn to another level would be by going into

depth of the financial data of the industry and by having a round table conference with the top

notches from the industry with having no limitations set.

1.6.Conclusion

Thus, from the above data covered and by giving the background, it can be seen that the

Indian hotel industry is greatly impacted by the globalisation. Moreover, innovations and

intense competition among industries have also made the hotel companies to walk on its toes

and to be very meticulous in terms of the investing in any market for the business portfolio

expansion. Some strategic theories will enable to align the research topic.

The next few chapters will discuss about the broad aspects of Hospitality Industry which will

be narrowed down to the focus on the business environment of the Indian hospitality

industry. The literature review will be able to help the readers to understand the strategic

concepts and the application of the concepts that are used in the Indian hotel industry.

Moreover, it will also give some insights to the real-time and upcoming projects that are

happening in India. The methodology section will describe about the research process and

design used to collect the evidences followed by the findings which will help to articulate the

entire topic. The later chapters are discussing about the key findings that will relate to the

theory and hence, the degree of relation between the management studies and business in the

practical world would determine the significance of the research topic.

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2. Literature Review

2.1. Introduction

Durmaz and Tasdemir (2014) reviews that globalisation has created an immense

competition in almost every market and industry across the world. Therefore, adopting an

activity which is only based and focused from the local market point of view is not a right

strategy for any company to survive in the long run. As a result, it is incumbent for the firm

to go abroad and look for opportunities through which they can adapt, improvise and can also

overcome their flaws which will help them to do consistently better in the local market as

well as abroad. This may also give them a chance to compete against their multinational

rivals. So, firms adopt different strategies as a market entry mode in the foreign land.

Whitla, et.al. (2007) explains hotel industry is perceived as one of the most global in the

service industry. Therefore, this paper aims to provide a detailed literature review on the

transition of hotel industry along with the business aspects applied in the hospitality sector.

Further, internationalisation as a key factor and strategy for multinational hotel companies to

expand is also elaborated by relating it to some of the current updates from the Indian hotel

industry.

2.2. Business Aspects of International Hospitality Industry

According to Ottenbacher, et.al. (2009) the word “Hospitality” is often referred as an

amalgamation of broad services to customers through lodging, food and beverage service,

travel and attraction. To add to this, Wood and Brotherton (2008) define international

hospitality business is an integral part of international business which encompasses three

major principles activities: merchandise import and export, service import and export, and

investment. The authors further explains;

1. Merchandise import and export involves buyers and sellers from different countries

and goods from the country of origin is exported to the country of demand / market of

consumption. For example. Food and beverage products used in hotel construction

and services, wines, etc.

2. Service import and export refers to international business between clients and

managerial consultative professionals in the international perspective such as hotel

management contract, legal services and financial service. In this service, only

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professional involvements and travel is involved to the host countries to perform the

activities and provide service to the international clients such as operation services in

hotel, restaurants and nightclubs.

3. The third element of international business includes investment which is dissected

into two activities such as direct investment and indirect investment. Direct

investment includes equity investments by international companies to acquire assets

in the host country. For example. Hyatt, Sheraton and Marriott are one of the

American companies investing into other countries to expand its business portfolio

and assets through various strategies.

Indirect investment involves investment in global equity and debt markets such as purchasing

government bond securities.

Overall, Wood and Brotherton (2008) identifies international hospitality business includes

all the major components of international business which is discussed above. Out of these,

service import and export is the main juice in the business which includes management

contracts and franchise agreement between two hotel companies in different countries. It also

involves international investment when acquisition is the strategy applied to expand the chain

and business of the company. Hence, international hospitality industry contributes

significantly to the global economic development and growth.

2.3. International Hotel Companies: Emergence and its expansion.

Jayarwardena, et.al. (2013) traces that in the mid twentieth century i.e. after the post-world

war, the world experienced a growth in the tourism industry which created an expansion and

emergence of the international hotel companies. During this time, Conrad Hilton and Holiday

Inn`s Kemmons Wilson were paving their path to success with the introduction of categories

of hotels such as two star and three star for their customers with luxuries that were not

pervasive. Along with that, Europeans observed the evolution of branded hotels and which

led to more commitment towards the hospitality and tourism industry. Hence, educational

institutions were also embarking on the new trends of hospitality by opening up colleges

which were dedicated to produce hospitality professionals and experts. From this pool of

graduates and experts came out the first general managers and business professionals for the

hospitality industry who were well versed and had the skills to expand the business

throughout the world.

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Wu and Zhao (2007) explains internationalisation as a process where firms gradually

increases their involvement in the international business. Jayawardena, et.al. (2013)

indicates that due to the rise in tourism and professionalism in the hospitality industry,

American chain portfolios expanded with brand names such as Intercontinental, Marriott,

Hyatt and Sheraton into Asia, Africa and South America with many German, Austrian and

British general managers, Swiss food and beverage managers and French chefs. Apart from

the expansion, improving profits and standards in the five star hotel seemed to be an arduous

task because the success of the hotel only depends upon its profits. Kim and Okamoto

(2006) also evaluates that successful investment in the hospitality industry greatly relies upon

the location factors because location is associated with the external factors and internal

necessities of the hotels and services such as accommodation demand, higher revenue per

available room (RevPAR) and customer satisfaction. These factors have been closely

scrutinised by some of the major players in the hotel industry and companies such as

Marriott, Wyndham Worldwide, Intercontinental and Hyatt have successfully established

their roots across the globe by operating hotels either through ownership, management

contract or franchising.

Furthermore, Alon, et.al. (2012) shows out that internationalisation of hotel chains was

started in the year 1950`s and 1960`s by companies like Marriott, Holiday Inn, Sheraton and

Ramada Inn. Also, the prima donna as a franchisor by adopting franchising as an

internationalisation strategy was applied by Holiday Inn in the 1950`s. Nevertheless, this

method of business is still in the feat of hospitality market. In addition to these, the authors

also reveal that American hotel companies largely relied upon management contracts and

leasing agreement until 1980`s. But by seeing the success of few chains, major companies

adopted franchising as one of the mainstream strategy for internationalisation which reduced

investment risks associated with highly-capital intensive hotels. This method also allowed the

companies to have a direct management control in various countries with lower levels of

management and staff expertise. As a result, these famous companies started blooming its

feather across the globe through the strategic steps and they have now embarked as a brand

through their years of success.

Altinay (2003) described the study made by Contractor and Kundu (1998) about

multinational activity in hotel sector by applying extensive theory in some international hotel

companies. The study revealed that franchising and management contracts are preferred in

high income countries and equity based arrangements are preferred in the countries where

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income level of the people are generally on a lower scale. The author specifically mentioned

that countries where economic and political factors are perceived to be high, then non-equity

based investment methods such as franchising and management contracts are preferred.

2.4. Indian Hospitality Industry: Indian Hotel Companies and its trends

Devendra (2001) reviews that hotels in India before Indian Independence were built only in

areas that were frequently visited by British and Indian nobles. Hence, during this era only

few Indian companies existed such as Taj Mahal and The Oberois. Post- Independence, till

the late 1950`s there was no development in the Indian hotel industry. Then the government

of India realised that tourism could be an engine for the economic growth in the country and

hence, Indian tourism and development centre (ITDC) was created in the year 1966 which

provides complete range of hospitality and tourism services till date such as catering,

accommodation, hotel consultancy, in-house travel agency, etc.

Later, Tourism was officially recognised as an industry in the year 1986 which opened the

doors for several hoteliers and entrepreneurs to build hotels for which government also

provided some tax benefits and by seeing the good return on investment, people who had no

knowledge also entered the pool of hotel business. The rise in the hotel investment trends

began in the year 1996 by the country experiencing tremendous growth in tourism and by that

time the top notch companies in the Indian hospitality market were Indian Hotel Companies

Limited (IHCL – The Taj Group), The Oberois, ITDC Hotels, etc. and the international

companies who made a standpoint along with Indian companies were Hyatt and Le Meridian

with having two and four properties under Management Contract. Moreover, Singh (2012)

interprets that Ministry of Tourism, Government of India has broadly classified hotels into 7

categories based on its features and facilities provided. The categories are five star deluxe,

five star, four star, three star, two star, one star and heritage hotels.

A. Foreign Direct Investment in Indian hotel and tourism sector

As the Investment trends began, foreign direct investment also played a key role for

exponential growth in the tourism sector. Graham and Spaulding (2005) defines foreign

direct investment (FDI) as “foreign investors stirring their assets into another country where

they have control over the management of assets and profits”. Munsunori and Bharwani

(2014) broadly explains that global market size of tourism and hospitality sector is US $ 117

billion which is expected to exceed US $ 422 billion by 2022. To support this, DIPP (2014)

also revealed that foreign direct investment inflows in the Indian hotel and tourism sector

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amounts up to US $ 7, 422.08 million. Munsunori and Bharwani (2014) evaluated that

there was a growth of 36% in the room capacity in India from 2010-11 to 2011-12 with

having 1593 classified hotels which increased up to 2895 hotels on December 31st 2011. But

the demand supply gap in hotel rooms in India is estimated at 150,000 out of which 100,000

falls under budget category because of the spending nature of the overall consumers under

hotel and tourism sector.

Source: Indian Brand Equity Foundation (2014)

Jauhari (2012) synthesises the report by business monitor international which predicts that

there will be 205,000 rooms available in India by 2015 out of which 165,000 should be

constructed by 2013. Due to the allowance of 100% FDI in Hospitality Industry of India,

foreign companies are aggressively penetrating into the Indian market, (Sharma, et.al. 2012).

Therefore, to understand more about FDI, Jauhari (2012) also focused on the growth sector

of the hotel industry in India by justifying that Starwood group of hotel currently operated 23

hotels in 2012 and plans to open 15 more, whereas Accor plans to build 90 hotels by 2015.

Along with this, Carlson group also plans to open 100 hotels by the year 2017.

B. Current Investments.

According to IBEF (2014), current investments in the Indian tourism and hospitality sector

are with Hyatt Corporation opening their sixth Hyatt branded property in Raipur, India

naming as Hyatt Raipur. Along with Hyatt, Lemon tree also plans to increase its room

capacity from 2800 to 8000 by investing US $ 166.35 million. Moreover, Oberoi realty has

teamed up with Ritz-Carlton to enter into Mumbai by 2016 at the cost of US $ 124.75

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million. In addition, Movenpick has signed a management agreement with ITMA Hotels

India Private Limited to operate a new hotel and its third property in India at Kochi, Kerala.

C. Indian Hotel Sector/ Hospitality Industry: Financial Challenges and Strategic

Growth.

Sanjeev, et.al. (2012) explains that hotels in India are perceived as real state rather than

infrastructure due to regulatory norms in India. Due to high-capital intensive nature of hotels,

banks in India do not lend loans on an easy basis and rate of interest is also higher than the

nominal benchmark. Also, the tenure of loan repayment is short and this issue has created a

high tension in financing a hotel in India. To support this, Elgonemy (2002) indicated that

hotel business is considered as a high risk by lenders due to its uncertain nature of business.

Sanjeev, et.al. (2012) also explained that most investments in the real estate sector in India

comes from in-house real estate investment companies, thus creating a barrier for

International finance to penetrate into the Indian market. As a result, it impedes Indian

tourism status for having only few international brands in the Indian hospitality market.

Jouhari (2012) notions that by the end of 2014, the Indian hotel and motel industry is

projected to generate a revenue of US $ 7.2 billion. The last decade in India showed an

unprecedented economic growth in the travel and tourism industry and it is expected to grow

by 7.7 percent per annum from 2010 to 2019. The splendid growth, investments and impact

of tourism rated India among the top five FDI destinations in the world. the author also

explained that the growth in the Indian hotel sector started after 2000`s with many

international brands coming into Indian market.

Source: Jauhari (2012).

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Sanjeev and Jouhari (2012) enunciated that despite the recession and problems in setting up

a hotel, India is still dominating and considered as one of the favourite spots for investment.

Moreover, the average time to build a premium hotel in India is more than 1 year compared

to other Asia Pacific regions. In spite of this issues and fact, the top ten global hotel brands is

still having its presence in India using multiple brands and different pricing approaches,

(ICRA, 2012). They are: Intercontinental Hotels Group, Wyndham Hotels, Marriott

International, Hilton Worldwide, Accor Group, Choice hotels international, Best Western

International, Starwood Hotels, Hyatt Corporation and Carlson Group of Hotels. Hence, this

clearly shows an investment interest of internationally biggest hotel companies in India.

2.5. Hotel Management Contracts.

Rodriguez (2002) expounds internationalisation in the tourism activities and globalisation

are the main reasons for the hotel companies to diversify and expand its business globally.

Hence, they search for new destinations where they can even have a flexibility in service. As

a result, beyond FDI there are many different activities in which company can undertake

many different activities in many countries such as management contracts, licensing, strategic

alliances and joint ventures. According to Guilding (2003), Hotel management contracts

represents a written agreement between the owner and an operator in which the operator

operates and manages the hotel on account and on behalf of the owner. The hotel operator

party tends to initiate the idea of capital expenditure required to run the hotel but the

investment will be done by the owner. Hence, the power of ownership retains with the owner

of the property. The property includes hotel site, plant, building machinery’s and inventories.

While these things are legally bound to owner’s procurement, the proper utilisation of these

resources is the responsibility of the company that manages the hotel. Hence, Schulp (2004)

explains that the relationship between owner and operator implies that owner assumes the

overall economic risk associated with the hotel`s ownership while the operator is only the

backbone who manages the operations.

Deroos (2010) evaluates that hotel management contracts is a strategic step in the business

entity that was started in the year 1950`s when large hotel operators like Hilton, Sheraton,

Intercontinental and Hyatt expanded internationally. The property owner invests a significant

fee for employing professional operator service in which operator charges its fee for running

the business and also charges some percentage from the generated profits from the business.

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Therefore, both the parties; i.e. owner and operator enjoys the cream of the business and in

turn operator increases its brand value without having any economic risk. Nevertheless, the

owner correspondingly enjoys the benefit from the business as the asset value gradually

increases with the fame of the property. The author further described the transition in the

hotel management contracts that drastically changed the contemporary view of the hotel

business. It portrays that by the year 1980`s the management contracts were widely used

worldwide and with the real estate bubble burst in the year 1990, it greatly affected the

lodging industry resulted into hotel bankruptcies. This also changed some laws that were

associated with the ownership and operator agreement. So the contracts and norms became

much complicated and complex in which most of the clauses were favourable to the owner.

For example. Incentive fee structure, capital expenditure negotiation, owner`s rights to

terminate will, etc.

But in the another real estate boom from the year 2000 to 2009, Deroos (2010) explains that

hotel management contracts and services outstripped the supply in many markets and hence,

the operating companies gained an advantage for selection of the projects that were on the

board. Moreover, the branded operators selected the best real estate market for upliftment of

their brand and services. As a result, more lending markets were available who provided good

loans which created a window of opportunity to the operators to obtain contracts favourable

to them. The base and incentive management fee structure are the two broad aspects that

play a key role in any hotel management contract.

14

Source: Deroos (2010)

2.5.1. Hotel Business agreement: Management Contracts and Franchising

Chen and Dimou (2005) shows that the factors that influence international company`s

choice for entering the new market are non-equity modes of development i.e. either by

management contracts or franchising. Both has its pros and cons and there are important

differences between them with regard to the degree of control. Management Contracts are

considered to be `hierarchical` mode of organisation where owner has the full control on

transaction cost where as in franchising market entry mode, the franchisee can benefit the

intangibles such transaction cost and preopening costs required for the hotel`s operations.

A) Management Contracts

Turner and Guilding (2013) stresses that inequitable hotel management contracts that fail to

provide an equal distribution of power between owner and operator may create a lengthy or

expensive ownership dispute or early termination of the contract. Hence, there should be a

15

negotiating factor which should help both the parties to achieve their business goals over

time, (Armitstead, 2004). Moreover, Goddard and Standish-Wilkinson (2002) points out

that the outcomes of the management contract negotiation creates a lasting impact on the

positive cash flow to the owner and the improved performance with better management for

the operator which helps to increase the brand value of the operating company. Hasst, et.al.

(2005) discusses that research into the hotel management contracts is a significant step to

reduce the potential obstruction that companies might face and it can also elevate the image

of the hotel industry as a viable investment option. Having broad understanding of the hotel

management contract can also lower the risk of investment which will enhance the liquidity

size and it will increase the interested investors who may want reap the benefits of the

market.

B) Franchising

Combs, et.al. (2004) describes that in franchising one firm (franchisor) sells the right to

market goods and services under its brand to another business frim (franchisee) by using the

franchisor`s business practices. Michael (2003) points out that franchising is a fundamental

and main element as a business expansion for mode for most of the US and European firms.

Combs, et.al. (2004) further explains two characteristics of franchising in which the primary

and most important is the service of the business or operations of the franchisor must be

replicated everywhere in a cohesive manner which should be experienced by the customers.

The second characteristics is the franchise contracts typically reflect a unique kind of

responsibilities, decision rights and profits between both the parties. Hence, franchisor sets a

standard that should be ubiquitous and charges a royalty fee as a good will for its brand name

from the franchise. Moreover, it also co-ordinates with the franchise partners on most of the

business activities which is meticulously scrutinised by the franchisor. These were the basic

rules and norms for franchising.

On the other hand, Brookes and Altinay (2011) explained that hospitality industry have been

following a simple franchising method but due to the internationalisation, the use of master

franchisee has played a greater role. Grewal, et.al. (2011) explain that master franchise is an

agreement between franchisor and master franchisee which abides the contracts signed by the

franchise company. In this, franchisor grant rights to third parties. So master franchisee can

also be known as sub franchisor. But the master franchisee neither have the benefits nor have

the power like the franchise agent such as utilisation of the overall profits or revenues. On the

16

contrary, master franchisee are the local firms who spread the franchisor`s business and their

brand name geographically. Hence, Brookes (2014) concludes by making a point that

franchising can only be a success through thorough knowledge transfer about business,

brands and operations of the franchisor to the franchisee. As a result, the ability of the

franchisee to apply the knowledge will only imply the genunity of the franchisor`s business.

C) Upcoming Investments and Contract Agreements in India.

Business line (2014) articulates that most of the Indian hotel companies are planning to

operate through management contracts to reduce debts. Indian Hotels plans to operate most of

the 14 new hotels through management contracts whereas Leela Palace and Resort has sold

its Kollam property and now manages it under management contract. Moreover, Oberoi

group has decided to operate its future properties under management contracts. Anon (2014)

showed that Intercontinental Hotels currently runs 18 hotels in India and plans to run at least

100 in the next 10 years. Out of 100, 46 are still under negotiation. Nineteen of the planned

ones will be run by applying joint venture strategy with the Indian firm while others will be

under management contracts. Holiday Inn and Holiday Inn express are chosen brands for

most of these properties. Financial express (2014) also revealed that Hilton Worldwide will

operate its new hotel by the name Hilton Garden Inn in Rajasthan which will start its

operations by the end of 2015 under management contract with Govardhan real estate

company.

Satyanarayan (2013) showcased that Hard Rock hotels are excited to open five new

properties in India by 2018 through management contracts and franchising agreement. Anon

(2011) describes that Fairmont company plans to open 40 new hotels in India in the next 5-6

years out which 6 will be operated under Raffles brand and rest 12 properties will be operated

under Fairmont brand. The remaining will be operated under Swissotel brand through

management contracts. Also, Anon (2011, a) shows that Best western will add another 66

new hotels under its wings in India in the next five years out of which Cabana hotel

management company will invest US $ 100 million to build 10 new hotels which will be run

under Best Western brand. Apart from these, Verma (2012) evaluated that Starwood hotels

currently operates 33 hotels in the country under management contracts and also plans to

open 20 new hotels across all its brands by 2015. Lastly, Anon (2012) indicates that Premier

Inn (UK budget hotel brand) plans to operate hotels in India under management contracts and

it also owns the Costa Coffee brands which is pervasive in most of the urban cities in India.

17

2.6. Greenfield Investment Strategy

Muller (2007) implicates two key strategic decisions regarding organisational forms that

multinational companies faces by entering foreign market through foreign direct investment.

First is the level of control over the local management through ownership or joint venture.

Secondly, the mode of foreign entry i.e. setting up a new venture via Greenfield investment

or acquisition of an existing company. Estrin, et.al. (1997) defines Greenfield investment as

“entailing developing organisational structures, building factories and distribution systems,

and hiring workers de novo”. Alternatively, it means that an investor adds other resources to

country`s stock of production facilities. Becker and Fuest (2011) notions the advantage of

Greenfield investment is that all production facilities are built from ground zero which

perfectly satisfies the investor needs. Gorg (2000) draws out that market structure of the host

country is affected if multinational companies enter via Greenfield or acquisition method

because Greenfield method is always considered to be a huge investment. Becker and Fuest

(2011) further enunciates that Greenfield investment is only superior mode of entry into the

countries where competitive advantage is very strong and industry growth rate is too average.

Khan and Banerji (2014) identifies foreign investment comes in the host country through

two routes. 1. Foreign direct Investment (FDI); 2. Foreign Institutional Investment (FII)

which is also known as foreign portfolio investments (FPI). Further the authors explain there

are three principal forms of FDI in India. They are Joint ventures, acquisition of a property or

via Greenfield ventures. To make it more subtle, Sultana and Pardhasaradhi (2012)

interpreted that foreign exchange rate and foreign exchange reserve does not have a

significant impact on FDI inflow while the inflow only depends upon the Gross domestic

product (GDP) and Industrial production (IIP) of the host country. Duanmo (2014) examined

that BRIC countries (Brazil, Russia, India and China) which comes under developing

category together constitutes 46.3% of the global GDP and they are poised to dominate the

global economy later this century. Nandi (2012) explains that government of India have

made it easier for the foreign companies to invest in India by making it 100% approval

without seeking government permission for building it, because construction of hotels comes

under real estate which can be also coined as infrastructure, (Sanjeev, et.al. 2012).

18

FDI allowance in various Indian Sectors. Source: Nandi (2012).

Vij (2012) explains the resilient nature of hospitality industry in India after facing the global

financial crisis. Hence, this is the feasible and good time for international companies to

invest into the Indian hospitality markets which can also replace the out dated technology

with rising splurge of the globalisation and economic growth. To Support this, Ernst and

Young (EY) (2014) evaluated new Greenfield and expansion FDI projects in India. It also

explains that despite government are making new norms to attract more FDI`s in India but

few investors are still being very cautious and reluctant about country`s prospects. Hence,

investors have to be made more confident about their success. On the other hand, Indonesia,

Vietnam and Turkey are robustly increasing their investment appeal by giving a tough

competition to India. Further Ernst and Young (2014) also shows that companies are still

willing to initiate their projects in metro cities in India and over past few years companies

like Amway, Louis Vuitton and Starbucks have already entered the Indian market through

Joint ventures and Greenfield Investment strategy.

19

Ernst and Young (2014) further surveyed the Indian market to know the current investment

and reasons for the foreign market entry mode into India and the result were favoured by only

expansion of operations or rise in the labour force as a strategy for internationalisation.

Source: Ernst and Young (2014)

2.7. Conclusion

From the above information, it can be seen that the hotel industry in India is quite volatile in

terms of its asset value and it can be figured out by the theories and data that the market in

India is quite attractive and lucrative for the real estate value. Contrary, there are also too

many hurdles and hindrances when it comes to buy or own a hotel in India. Along with that,

certainty on any business agreement to embark upon is still a speculation and it can be only

be little clear or conventional once the qualitative research is carried out.

20

Apart from that, the Foreign direct investment is also one of the interesting topics where

much focus is given because these FDI`s highly contribute to the nation’s gross domestic

product. So overall, when it comes down to the contribution factor in terms of economy, the

revenue from the overall hotel and hospitality industry can also be a part of the contributory

figures. On the other hand, the different elements of investment sector is also explained in a

much deeper way to make the topic more robust and firm. These investment strategies are a

form of business strategies which are management contracts, franchising and Greenfield

Investment strategy. Hence, the complexity and benefits in applying these strategies are quite

well explained in the above literature. As a result, in order to understand the genunity and the

degree to which the theory connects to practical world, a semi-structured interview will

enable to exfoliate the information or the views and strategy`s behind each hotels` idea of

business expansion.

21

3. Methodology

3.1. Introduction

The majority of the data collection is completed with the help of the secondary sources and

meta-analysis approach is used to ascertain the objectives of the research question.

Furthermore, in order to understand in-depth of the topic, the mixed method approach is also

used to determine the genunity of the topic. This is done by conducting the primary research

that is initially focused on questionnaire survey which is conducted through few business

consultancies and newspaper companies in India. This has given an understanding of the

business aspects of the Indian business sector. Further to narrow down the research on the

particular topic, the use of the qualitative data will be used by conducting a semi-structured

interviews with a few general managers of the Indian hotel companies as well as the

international hotel companies. The semi-structured interviews will be completed by using a

Dictaphone in order to consume time and similar questions will be posed to all the

interviewees.

3.2. Research Methods and its Justifications

The data collected for the research is broadly based on the three different aspects i.e.

qualitative research method, quantitative and mixed research method. The three methods

have been described in a generic manner to provide an insight to the reader as to how the

research was able to proceed in a cohesive manner.

3.2.1. Qualitative Research Method

The rationale for using qualitative research method to examine the authenticity of the topic is

because, according to Seers (2012) decent qualitative research uses arduous and systematic

approach which aims to answer the research questions in a broad manner by using various

text formats and interviews. This method also helps the researcher to relate some of the

respondents` answer to relate it with the data that is collected through the secondary sources

such as journals, magazines, and business analysis data. It also gives a guiding coalition to

articulate the reasons that is collected via earlier researchers. Apart from this, it also benefits

the researcher to analyse the current situation with respect to the topic that might also give a

further chance to elaborate the topic.

22

The qualitative method used for the current research is semi-structured interview which is

conducted by using Dictaphone that is used to record the answers. But more focus is given on

the unstructured questions that is in the open-ended format because Ary, et.al. (2010)

expounds open-ended questions are easier to construct and it is also time consuming because

analysing the respondents` answers to this type of questions are typically tedious to relate it

with the collected secondary data. Moreover, Mikene-et.al. (2013) supports the qualitative

method by explaining that this research method helps the researcher to frame the questions

based on the results of the past events or occurrence that took place.

The data collected via this method will help the researcher to further the research by using

different approaches to another group of respondents. Moreover, the general managers will

give an in-depth answer to the questions. Hence, the answers will be imperative to relate it to

the data collected and also to align it with the current scenario of the Indian hotel sector.

3.2.2. Quantitative Research Method

Waters (2011) explains quantitative research method is a broad subject with variety of

different approaches to find the base of the problem or a research question. It can also be

coined as representation of a reality and it is simplified with only relevant details included.

Further, the author notions that quantitative research is based on the primary data collections

which has more authenticity towards the real time data and benefits of this research that the

organisation or firms may be willing to give information that is not available through the

secondary sources. Bettis, et.al. (2014) also explains that good data often contains few errors

and provide accurate answers. Moreover, data snooping is one of the method that is used in

the current research to find the accuracy of the statistical data collected through the

hospitality consultancy firms. This data is collected with the help of questionnaire survey

filled by hospitality consultants and business analyst in order to find the insights and their

thoughts regarding the foreign direct investment in the hotel sector.

According to Bryman (2006) quantitative research holds the key to the overall research

process and moreover, it dominates the research methods which help to establish a ground

and sound data that can be related to the actual topics. Quantitative research also alleviates

the research in terms of creating new ways to find data that will ease the process.

Notwithstanding the enlightenment of new ways, but it also helps the researcher to focus on

different aspect of the research topic that was never there in the first place. As a result, this

research has the ability to navigate the whole topic from the focal point of the research.

23

Therefore, it is necessary to keep certain limitations in the techniques that are used in this

research method and emphasis must be only given on achieving the reliability and validity of

the data. To avoid going away from the topic, this paper have also taken a leap in the research

method by considering a mixed research approach to bucket down.

3.2.3. Mixed Research Method

Johnson, et.al. (2007) explains that mixed method research has the potential to give new

insights to the research topic which also helps to further the research. This method is a way of

getting rich data and highly informed results. To support mixed research, Krivokapic and

O’Neill (2011) explains that rich data can lead to new lines of thinking by purposefully

engaging people and their perspectives which gives a plethora of information and also helps

researcher to gain the perspective of the information through greater diversity. It gives a more

positive approach to the conclusion of the research. Venkatesh, et.al. (2013) points out that

mixed methods research has been termed as the `third methodological movement` with

qualitative and quantitative representing the first and second movements respectively. This

method bridges the gap and fills the flaws for the confusion that left by doing either of the

previous two methods. Hence, mixed method is a strong research method in a real sense

which builds up a strong data and argument for the previous researchers. As a result, it is a

sequential or concurrent combination of qualitative and quantitative research methods.

3.3. Case Selection

The reason for selecting this topic is to understand the investments sector and the influence of

International hotel companies in the Indian hotel industry. As a result, it will give an

understanding of how the Indian hospitality industry and Indian hotel industry perceives the

entry mode of foreign companies and vice versa. The research is done mainly in Mumbai,

India. The reason behind selecting this place is the ubiquity of international hotels present in

this metropolitan city. So, most of the companies that are existing in this city will give an

edge to the research topic. Hence, the aims and objectives of the research are as follows:

3.3.1. Aims and Objectives of the Research

The main aim of the research is to find out whether it is feasible for international hotels to

invest in the Indian hotel industry. This also gives lead to another aim for finding out the

24

suitable methods for these international hotel companies for how they are going to sustain in

the Indian hotel industry in the long-run. Hence, after getting the above two sets of

information in a precise manner, the main objective is to find out whether it is viable for these

companies to stay or enter in the Indian hotel industry through hospitality management

contracts or by Greenfield investment strategy.

The aims and objectives can only be found by doing multiple researchers from different

sectors of the hospitality which will form a strong base for the conclusion. Hence, with

respect to the findings, this paper will broadly research the Indian hotel market and its way of

doing business. It has also found out how foreign direct investment and globalisation has

impacted the hotel business sector which has also further revealed the transition and growth

of the Indian as well as International hotel companies in India.

3.4. Data Collection

The data for the current research is collected via primary and secondary sources.

a) Secondary Research

The secondary research is done by the accessing various academic scholar journals on the

various topics that are related to the research topic. Moreover, the secondary research has

benefited in understanding the broader aspects of the hospitality industry from the

management and investment point of view. In general, the statistics from the various

hospitality consultancies and newspapers have also been closely scrutinised in order to

comprehend the different topics in general. These resources are easily available and

accessible but there is no accurate evidence in relation to the research topic. Hence, the

research is further narrowed down by doing the primary analysis.

b) Primary Research.

The primary research is completed by conducting the semi-structured interviews with few

general managers of the international as well as Indian hotel companies. Along with that,

some informal interviews will also be conducted with consultancies and newspaper

companies who mainly focuses on the investment and revenue sector of the industry. The

advantage of the Primary research is that it will give the real time data and focused answer

that is required for the topic. Though it gives an accuracy which closer than the secondary

data, still it is hotels representatives` thought and views about the topic that will enable us to

relate to the overall company.

25

3.4.1. Questionnaire Design.

The questionnaire design is basically in the form of semi-structured interview where the topic

is divided into several parts that covers the entire research topic in general. Further, the topic

is more bifurcated into the focused area of the hotel business and market entry mode. The

questions that are included in the research questions are related to the literature review

covered for this paper. These questions give an alibi to the questions that will link the

research to the exact topic. Moreover, the questions are short and accurately prepared in

order to consume the time of the respondent. Hence, through this method, it is little feasible

and easier to get closer to the research topic.

3.4.2. Data Sampling

Hotels like Marriott, Hilton, Hyatt, Four Seasons, Taj Hotels and Ibis hotel have been taken

into consideration for the research purpose as these are few of the top brands in the hotel

industry and these brands are also present in the Mumbai market. Samples of the data will be

collected via interviews that is conducted with general managers or any person in the

management side of the hotels. According to Saunders, et.al. (2012) probability sampling is

associated with the survey-based research strategies where respondents` respond implies or

represents the overall population. Furthermore, the authors explained various sampling

techniques and stratified random sampling technique is applied in the current research.

Stratified random sampling gives an accuracy of the data which can be related to the statistics

and relevant data collected from the secondary sources. Another reason for the adaption of

this technique is that the research contains face to face interview. Hence, this sampling

technique also helps to have a better comparison among different respondents.

3.5. Data Analysis

The data is analysed with the help of the secondary research and the conclusion can only be

made on the respondents respond to the questions that are being asked. The conclusion can

only be made on which area of the investment weighs higher in terms of management

contracts, franchise or Greenfield Investment strategy. Another way to analyse would be the

views on the foreign direct investment in the hotel sector according to the hospitality

consultancies and other newspaper companies.

26

3.6. Reliability and Validity.

Since the data that is aimed to be collected will undergo the analysis that gets related to the

secondary sources and real time data. Hence, the general managers of the hotels will give an

accuracy towards the research questions. Moreover, some extra information is also expected

that might help the researcher to relate it to the topic that might not be included in the data

that is collected through secondary sources. Apart from the hotels, consultancies will also

give a relevant data that will help to support the research topic and also give a broader

understanding of the topic.

3.7. Research limitation.

The research topic is little more into the management and investment side of the hotel

industry. Hence, the information can only be gathered from someone who is on the high level

management of the hotels. The problem is getting the information from the reliable source i.e.

the general manager and it is not easy to get them on board for the semi-structured interview.

Other than these, the general managers might be reluctant in giving their properties insights

or some future projects about their companies. Apart from these, the consultancies`

information can only be related to certain extent because they play as an analyst part of the

industry.

3.8. Conclusion

The above data from various sources through different research methodologies would be

sufficient enough to know much about the investment prospects in the hotel industry.

Moreover, it will also help to analyse with the secondary sources gathered in the literature

review. As a result, the substantial evidence from the experts of the hotel industry and other

hospitality sectors will also give a support to conclude the research that might further be

helpful for the subject.

27

4. Critical Analysis and Findings

4.1. Introduction

Based on the above literature review adopted from secondary sources, this section aims to

articulate the research carried out through qualitative data with general managers and

directors of some Indian and international companies across India. The research was carried

out on a primary basis by conducting a semi-structured interviews, telephonic calls and

exchange of electronic mail. The responses from these companies will now help to relate the

data that is gathered from the academic journals and it will also determine the extent to which

the real time business world and academic data is aligned. The reflection of the findings will

also be able to analyse the research of each companies` strategy which will give a basic

judgement of the business aspects of the hospitality market in specific to the hotel industry.

The research was carried out by interviewing six major hotel companies in India. The

questions were framed on the basis of the literature review covered. Few respondents have

also put up some ambivalent ideas for few questions where no stand can be taken. Therefore,

comparison between the answers of these respondents will synthesise some appropriate data

for the conclusion.

4.2. Findings

According to the literature review covered, here are few questions that were presented to the

respondents.

4.2.1. According to you, what do you feel about the globalisation in the service industries

and how has it impacted the hotel business or hospitality industry in general?

Company A: Globalisation creates an opportunity for the international companies to come

into the host country and hotel sector under service industries has gained a lot of advantage

because of the exponential growth in the last two decades. Globalisation has also given a way

for many international hotel companies to enter into the Indian hospitality market and these

companies bring along the advanced technological devices and ideas which are not seen in

the local market that leaves them untouched. But on the other side, these companies who are

financially sound also comes with deep pocket so they are ready to work on lower profit

margin as they try to establish their roots in the Indian market. Globalisation in the hotel

28

sector has also created a supply and demand effect where demand has outnumbered supply in

terms of room capacity and area with India being one of the largest populated country.

Company B: globalisation has got its pros and cons in terms of the business and

globalisation has always created certain shift in the culture. To be precise, globalisation has

led to change and change is always good. Change in the hotel industry has created

opportunities for many new hotel related business and entrepreneurs by having their expertise

which allows them to free-lance their services to the mid-scale hotel properties and Indian

companies who are in the constant competition with their international adversaries.

Company C: Due to globalisation, our company is trying to expand our portfolios and chain

in the Indian market and globalisation is serving better for our companies to expand our

capabilities.

Company D: On an average basis, half a million travellers come to India either as a tourist

or for business purpose. This indicates the increase in the tourism sector which is due to

globalisation. Along with that, unfulfilled demands also plays a key role in expectation of the

guest who are coming to the hotel where the supply rate is quite low. This is because of the

resources that are needed in order to meet the demands are not sufficient in the market.

Moreover, less hotel rooms are also the problem that has accounted due to the increase in the

influx of the travellers. Overall, globalisation has created an urgency in the hotel industry to

meet the demands which surpassed the current supply rate.

Company E: Globalisation on a broad manner is always a positive sign which drives the

professionals and ambitious people to create more out of something and that is where new

concepts are continuously introduced in the market. This leads to the advancement in the

working code of the individual hotel companies that differentiates their strata and success in

the field.

Company F: Due to globalisation, the service industry is thriving and hotel sector is finding

its root in the tier two and tier three cities across India. Hence, it is an advantage for the hotel

sector with lot of obstacles in terms of manpower, resources and expertise that needed to be

taken care of.

From the above discussion, it can be seen that all the companies are in the support of

globalisation but companies A and D also discuss about the supply and demand rate of the

hotel rooms in India. According to Durmaz and Tasdemir (2014), globalisation creates a

29

competition which also helps to propel the economic sector of the country. Also, the author

explains that globalisation creates an opportunity in the service industries which can be seen

in the answers from the respondents of companies A and D.

4.2.2. How the international hotel companies in India are trying to compete with the

Indian luxury hotels and what are the elements that differentiates these two

categories of companies?

Companies Responses

A

B

C

Culture, Flexibility in hotel policy (international companies)

Diverse Work Environment, Core Values, Business

Strategies

Change in Policy to blend with culture

D Strong Loyalty Programs to satisfy customer expectation

E Core Values and Unique Operating Procedures.

F Indian Hospitality Culture.

From the above responses, it can be analysed that the general manager from Company A

explains about the culture which is the predominant factor that differentiates Indian hotel

from the international companies. But in order to sustain in the Indian market, the

international companies has to do certain flexibility in their hotel policy to adjust themselves

in the foreign land. In the similar way, Companies C, E and F also have the same kind of

responses with related to culture and changes that are required in the hotel policy for the

international companies.

But Companies B and D have something different opinion on this, i.e. according to these

companies; diverse work environment and business strategies are the key elements that help

these international companies to make a mark in the Indian hospitality market followed by

Strong loyalty programs offered by these companies. Hence, it makes easier for tourist and

foreigners to come and stay in their known properties which also doesn’t make them feel

insecure or unknown about the hotel standards and services. To support the responses from

companies B and D, Singh (2012) explains that customer loyalty program is the key to brand

30

awareness and the companies that focus on establishing their root in the foreign soil are likely

to choose the customers who know their brands and who are loyal towards them. Hence,

creating customer loyalty programs also leads to new business strategies that helps the

company to build their stand in the hospitality world.

4.2.3. What are the main factors on which hotels decide to make their strategic expansion

of their portfolio?

Companies Responses

A, C, E Brand Name, Loyalty Programs

B, D Management Contracts to increase the Asset

value and Market capitalisation

F Need to fulfil the demands

The above companies in the pie chart have been categorised according to their sizes in terms

of their number of properties existing in India and their responses represent the overall

company`s view. So companies A, C and E believe strongly in creating and maintaining the

brand names which gives them an alibi to provide a strong loyalty programs. Hence, due to

these loyalty programs they provide to the guest, the guests also have some advantage in

50%

33%

17%

Responses

A, C, E B, D F

31

terms of special standards and privileges for being a part of the hotels exclusivity list.

Moreover, this also gives them the flexibility in hotel room rates and other added benefits.

This strategy overall accounts for the customer relationship management (CRM) to which

Pedro, et.al. (2014) explains that CRM is a long-term strategic approach to understand

customers behaviour and their insights to develop a relationships with customer. Further, the

research done by the authors also conclude that strong loyalty programs used by historically

and culturally developed hotels may have an effect on the increase in the customer

penetration rate which is very beneficial for the hotels overall success measure. The same can

be seen in the above companies.

Apart from these, companies B and D focuses on the strategic steps of choosing management

contracts as a way to increase the hotels portfolio because according to them the hotel

companies mainly focus on increasing their asset value and management contract is the best

method here since no capital is invested by the operating company. Instead, the owner of the

property invests and the operating company gains its name in the foreign market which

increases the brand name and its existence in the foreign soil. This response can also be

related to the research carried out by Chen and Dimou (2005) who explains that the small

business firms usually opt for management contracts to increase the property value and by

investing in recruiting the experts from the hospitality industry, both the owner and the

operator gains value and name in the foreign and domestic market. In turn, the intangible

asset value of the operating firms is indirectly increased by operating a property in the foreign

land.

4.2.4. What do you feel about the foreign direct investment in the hotel sector and how is

it impacting the business?

Companies Responses on FDI

A Not too sure about the FDI since it’s a risk taking method, but still there is

an opportunity

B Even though having 100% allowance, FDI is a tough call to make and due

to land laws being stringent enough makes it more complex.

C Only feasible method to increase the asset value of the company.

D No comments on FDI

32

E Predominantly, it`s not a feasible method but its advantageous depending

upon the GDP of the country.

F No comments on FDI

From the above responses, it can be predicted to such an extent where most of the hotel

companies are not in the favour of the FDI either due to the lack of knowledge or by not

having a deeper thoughts on it. Companies D and F did not want to comment on the subject

but Companies B and E have neither said it`s not worth nor it has responded in a negative

manner. Hence, the ambivalent response leads the reader to think that these companies might

be in favour to FDI if there is a good back up plan or these companies might be willing to

take risk if they have good assets with them with all the excellent resource in hand. On the

other hand, Company A is sceptical on the subject of FDI but agrees on the fact of an existing

opportunity to invest due to the positive and growing economic side of the country.

Besides these companies, only company C agrees for the FDI in the hotel sector. This

company focuses on increasing the asset value of the company by taking the full ownership

or expecting maximum returns. This could be true in some sense because of the real estate

price in India is accelerating at a good rate and may be the value of the money invested would

be double the value in the next 10 years. To relate this, Mina (2014) said that the UAE

government encourage the foreign capital when its resources started to deplete. Hence, even

though there was an oil tension in the country, FDI invitation helped the country`s GDP to

grow from US $ 1.2 billion (1.1 per cent of GDP) in 2001, to a peak of US$ 14.2 billion (5.5

per cent of GDP) in 2007. Hence, while relating to this, it can be said that very few

companies are willing to enter India by FDI method.

4.2.5. Would the new government in power benefit the hotel and tourism sector of India

in terms of its investment and business in the long run?

Company A: I think its speculation. Nothing can be commented on it at this moment of time,

but there is a good feeling about it, still nothing can be said until the term of the government

is over or it can be said only after couple of years when the comparison in the growth can be

done.

33

Company B: The new reforms brought into the tourism and hospitality industry are exciting.

I believe these reforms are a win-win situation for the Indian economy and the International

hotel companies. It will ease the way for the hotel companies to enter a new market and thus

creating employment opportunities.

Company C: The immediate changes and the amendments on certain laws are showing a

positive effect. In the end, it can only be judged after the government comes up with the

statistics. Hence, at this moment of time, it is better to be positive and see how lucrative it

will make the market in the coming years.

Company D: Although I am not too sure about the attention it grabs from the hotel sector

but the recent amendments in the tourist visa laws have become lenient. So drawing a

conclusion at this point of time would not be a good idea.

Company E: The government in power has already started to mend certain system and I am

sure that the government will definitely help the hotel sector for uplifting its charm as India is

already on the verge of becoming super power nation.

Company F: It’s been only few months since the government has come in power, so nothing

can be said at this point of time. Let`s hope for the best.

Indian Hotel Companies International Hotel Companies

A

D

F

B

C

E

Overall, the responses from companies B, C and E are showing the positive sides for the hotel

and tourism sector with respect to the new government whereas respondents from companies

A, D and F are still reluctant to draw any conclusion. From the table above it can be seen that

the international companies are too confident with the new government that is in power.

Hence, it also gives a direction to focus on another side that these hotel companies might also

be trying to expand its roots down in India and also have a strong faith in growing their asset

and their brand status in the overall country in the near future.

On the other side, the irony is that Indian companies are too speculative about the growth and

according to them the conclusion can only be drawn only after few years when the statistics

34

of growth comes out. Hence, the true judgement cannot be done at this moment of time by

looking at the balanced responses.

4.2.6. According to you, what is the feasible strategic method for international hotel

companies to enter into the Indian hospitality market and compete against the

existing adversaries?

The graph clearly indicates the favourability of the responses except from the company D

which chooses to rely upon the strategy that is already adopted by the parent company

before entering into any market. But according to the above graph companies A, C and E

voted for management contracts as a strategic method to enter into the Indian hospitality

market and the reasons in the responses from the respondents of these companies were

quite similar. According to them, the operating companies are ready to work on a low

margin in the initial period until their roots have been firmly established in the foreign

soil and other benefit was that the operating companies do not have invest any capital and

rather they charge their management fee and also provide their expertise due to which the

hotel runs on its brand name. To add to this, strong terms and conditions are also the

factor on which the operator and owner relies upon. Hence, it is a low cost strategy for the

operating company to enter into the Indian with keeping a focus on maximising the

intangible business assets that can also affect the operating company`s stock in the market

on a positive note and it also increases the brand image and customer loyalty.

These responses also align with the research carried out by Dev, et.al. (2010) where the

authors explain that while opting for management agreement to run any property, both the

operator and the operating company reap benefits out of it. The owner benefits by the

0

0.5

1

1.5

2

2.5

3

A, C and E B F

Management Contracts

Joint Venture

Franchising

35

value added to the property i.e. marketing skill, prestige and good management of the

operator which are intangible assets for the management company. The author also

focuses on the negative aspect when the tension rarely arises when the operator wants to

increase brand image which correspondingly increase the operating cost while the owner

of the property does not vote for it. Hence, to avoid these conflicts, terms and conditions

of the contracts are pre-designed by having signed by both the parties.

Company B has responded it to be as a Joint venture and the respondent think that value,

profits and benefits can shared if the property tries to mix their standards which can also

give a birth to a new company and it is also worth as well as a risk taking method to enter

as there are chances of both the companies to have a clash in standard and services. On

the other hand, Company D has strongly focused on Franchising as a strategic way for its

entry because according to the respondent the franchisor can easily recruit experts from

the local market with a knowledge of the local environment which can accentuate the

business with the help of their expertise and knowledge. The respondent has given an

example of JW Marriott, Mumbai which is owned and managed by Raheja group of

builders since 2001. The response from company D could be related to the research

carried out by Aliouche and Schlentrich (2011) who explains that BRIC (Brazil, Russia,

India and China) have been attracting many US firms in the recent years because of their

surging GDP and franchising have been a suitable method for the US companies to enter

into this market with having a calculated risks pre-designed.

4.2.7. What is more beneficial: Management Contracts or Franchise Agreements in terms

of operations and generating revenue?

Management

Contracts

Franchise

Agreements

A

B

C

D

E

F

36

It can be clearly seen from the responses from the above table that most of the hotel

companies including Indian and International are in favour of choosing management

contracts for generating revenue. Company A adds on having an asset light strategy followed

by companies B, C, D and E. While company F also fairly agrees for management contracts

but focuses more on having franchise agreement as a part of the strategy.

4.2.8. What are your views in terms of foreign hotel companies setting up their properties

in via Greenfield Investment Strategy? And what are the Challenges they might

face?

Company A: it all depends on how much capital investment the companies are willing to

make. So there are companies who wants to own the asset or those who want to go with asset

light strategy. Price of land, development cost, etc. are the factors that companies might look

before they go with this method. It is purely company`s strategy because once you put a

capital, then there is a long discretionary period. Hence, it starts breaking after certain amount

of time. To add to this there are interest which you need to pay off and in the end its all the

company`s strategy how they want to come in.

Company B: Greenfield investment is becoming revolutionary nowadays. Unfortunately

expanding business outside one’s own home incurs high risk. The environmental factors

influence the strategies of an organisation. Some of these factors include: foreign trade

regulations, taxation policies, inflation, social mobility, environmental protection laws,

employment laws and cultural differences.

Company C: it is not a bad idea unless the company accurately knows how they are going to

get returns on their investment because along with the advantage it get from the country, it is

also a long shot to stay in the country with a producing profits on a long run.

Company D: Greenfield investment is good in these days because the companies now want

a unique look in terms of their properties and the Indian real estate market is sky rocketing so

the hotel companies might as well get a passive income in the long term by owning a land

and building up their own assets.

Company E: Would not recommend for the Greenfield by looking at its shady prospects for

returns. The challenges they might face will start with cost of land followed by the legal work

that is required and also the taxation policies, finding resources for the hotel, etc. Hence,

37

there is too much hassle in this method unless the company has got all its time to wait for its

returns.

Company F: If the company is having enough capital to hold on, then Greenfield should be

the best way.

From the above responses, only companies D and F strongly recommends for Greenfield

investment strategy because of the continuous uplifting of the real estate price in India.

Whereas companies B and C have a two sided responses for this method of investment. Also

Company A has coined the benefits and some notable points to lookout before choosing this

method. But company E strongly rejects this method because of the complexity in applying

this method.

4.2.9. Are there more pros than cons by using Greenfield investment strategy for setting

up a new hotel? Why?

All the companies have agreed upon the advantages of choosing this method for setting up a

hotel which coincides with the above responses. Hence, according to their personal view, this

method of investment is quite feasible for the long-term growth. Company also believes that

this method gives you an edge as you have direct access to the decision-making policy,

control over growth of the brand, economic policies, direct control over employees – the

pillars of any business and working with the local authorities from the beginning.

4.2.10. What is your company`s preference in running any hotel? Which method of

investment are you comfortable with: Is it Management contracts, franchise

agreement or Greenfield Investment strategy?

Company A: Predominantly for Indian hotels, management contract is preferable. We have

mixed of own and managed properties. Since the cost of land has gone up, so at the moment

our company is looking for asset light strategy.

Companies B, D & E: Under the company`s policy the preference cannot be given.

Company C: Management contracts as there are guaranteed returns with having zero risk.

38

Company F: Mix of Management contracts and Franchise agreement looks good at the

moment.

Companies A and C prefer to go with management contracts as it comes with low risk

whereas company F prefers the combination of both management as well as franchise

agreements.

4.3. Conclusion

From the above analysis and findings, it can be concluded that these questions that were

mostly related to the research topic that gave a fruitful answers. It also helped to analyse the

Indian as well as International hoteliers` view with regards to globalisation, business aspects

in the hospitality industry and also FDI. The common view from all the respondents were to

keep the cost low and generate revenue with profitability to the maximum along with a strong

foundation of their brand name in a new country for a long-term.

Apart from these, Greenfield Investment strategy is seen as a strategy which every company

is reluctant to accept due to its long-term sceptical returns and also the problems associated

with it. Hence, the key findings and the significant points is covered in the next chapter which

is sufficient to draw a specific conclusion for the research topic.

39

5. Conclusion

5.1. Introduction

The purpose of this research is to develop an understanding of the Indian hospitality market

and how international hotel companies affect the hospitality and tourism business in India.

According to the research conducted, the respondent`s response to different questions can be

taken as a base to form the answer to the aims and objectives of the research. Although, the

answers that can be formed will not be fully robust to make any proper judgement but it will

give a niche to see the preference of the hotel managers` and owners` perception about the

Indian hospitality market.

From the above literature review covered with the findings, it can be estimated that the Indian

hotel market is volatile where growth is unprecedented and perpetuates with number of

international companies coming into the country over the last few years. This has given a

tough competition to the Indian hotels but nevertheless, these hotels have established a firm

root in the Indian soil and are still making it by entering the market mostly by management

contracts. The key issues for these international companies to enter the Indian market via

Greenfield Investment strategy is the rising cost of the land followed by stringent real estate

and bank laws of the country. Hence, through the research conducted, it can be seen that most

of the international companies that have entered or willing to enter in the near future are only

through the form of management contracts followed by less preferred franchise agreement.

5.2. Addressing the Research Question

The research is based on few selected Indian hotel companies and international hotel

companies. Hence, the companies are consecutively named as A, B, C, D, E, and F to hide

their identity for the confidential purpose. Here B, C, E are international hotel companies and

rest are local Indian companies but even these international companies are owned by Indian

run firms. Hence, these international companies are the management companies in the real

sense who are operating it for the Indian owners and charging their fees.

The questions were answered briefly by the respondents because it was conducted in a form

of semi-structured interview format where the respondents even added their own views with

regards to each question. Therefore, only the valuable and important points are noted down to

summarise and make the research precise. The research was conducted mainly through

40

telephonic calls followed by e-mails and one seated face to face interview with one of the

Indian hotel company. Hence, the answers for the each questions were meticulously noted to

avoid any confusion form the conclusion.

5.3. Key Findings

Globalisation

The cliché part can be seen as an acceptance of globalisation as a beneficial element in the

hospitality sector what most of the companies believes but it has also led to the tough side of

demand and supply rate where demand outstrips the supply.

Strategic Expansion

Most companies believed that the main purpose of the companies to expand is to spread their

brand name and customer loyalty throughout the world. While few other companies including

Indian hotels and international companies notions that the purpose to expand is to increase

the asset value and market capitalisation.

FDI in Hotel Sector

The irony out here is most companies are in favour of the FDI but along with that they also

pointed out the downside of the FDI by mentioning it as a risk taking factor because of the

sceptical returns.

New Government in Power: Good or Bad for the Hospitality Sector

The Indian companies are not too sure about the government`s supportive nature of their pre-

anticipated given promises. Hence, these Indian companies responded that it could be seen

only after few years down the line but on the other side, the international companies are

confident about the new government that is in power. Hence, it can be judged that the

international companies are willing to put their full hands down on the Indian market and

according to them Indian hospitality sector is lucrative in the long run.

Feasible Strategic Method to enter Indian Hospitality Market.

According to the responses, management contracts are only feasible method for international

companies to enter the Indian market followed by Joint venture and Franchising agreement.

41

What is more Beneficial: Management Contracts v/s Franchising

Management contracts won the votes by backing five respondents and it could be due to the

low risk that owes to the operating company rather than owning and managing the entire

property in the foreign soil.

Greenfield Investment Strategy

Only two Indian companies; i.e. D and F strongly recommended this strategy for entering the

Indian market because of the rising price of the real estate and future prospects of the tourism

sector in India. On the other hand, rest of the companies believed in using this method only if

the company is having good financial statement in terms of their assets and market capital.

5.4. Limitations of Research

The research could only be conducted under the guidelines of the literature review and

moreover, the hotel managers were really reluctant for providing the information because of

the busy schedule. Hence, arranging the meeting and scheduling the appointments with them

was an arduous task. Moreover, many hotel managers also refused to partake in the research

because of the hotel policies and few respondents in the research even denied some questions

because of the same reasons. Apart from the hotel managers, some hospitality consultants

also couldn’t give their time due to their busy schedules and hence, this research was only

limited to a group of certain managers who are the operational side of the business.

But the research could have been more full proof if consultants and other business

development managers from the hospitality service companies could have contributed their

views. Hence, the objective and conclusion could only be justified by the respondent`s

response for the questions that were presented which were aligned with the scholarly articles

that were covered in the literature review.

5.5. Future Research

The relative novelty of this study qualifies that it may carry a significant forerunner qualities.

Therefore, this research can be further used as a tool to guide the specific group of

researchers who are interested in the hotel management contracts and Indian hotel real estate

market to go in depth and find the future of the perpetual hospitality business. This research

can also give a key to anticipate the future of economic side of the Indian hospitality business

and market.

42

5.6. Conclusion

The data collected with the help of secondary research and semi-structured interview gives an

array of understanding that even though there is 100% FDI in the Indian hotel and tourism

sector, the international hotel companies in India are entering and staying in India with an

agreement of management contract. Though some hotels are being franchised, most of the

companies still prefer to be on the asset light strategy because of the high cost bearing.

Moreover, it is also understood that these companies enter India through their different

brands and the most common and genuine reason behind for these companies to embark their

roots into the Indian roots is to spread their brand name and customer loyalty followed by

expanding their intangible assets. These companies mainly focuses on increasing their

profitability and value of the company through which they increase their stock values in the

market.

Thus, it can be concluded that with the rising price of the land and sudden economic changes,

it is feasible for international hotel companies to stay in the Indian market through

management contracts. This strategy is quite useful for the hotel owners as well as the

operating company because with the rising price of the land, the property value also increases

which benefits the owner. On the other hand, the company that is operating the property also

generates profit which works as a good return on investment for the owner and the operating

company also gets its fee along with certain percentage of gross profit. Moreover, these

contracts lasts for a minimum tenure of 10-15 years which has to be renewed after its life

cycle. As a result, if the company is performing better, the owner has no objection in

renewing the contract. Hence, it is a win-win situation for both the parties.

43

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7. Appendices Appendix A

CONSENT for 7MG001 the Independent Business Analysis Project

I, ___________________________________________________________________

Of (Company name)

___________________________________________________________________

Understand that Abhijith Jayarajan is a student at University of Wolverhampton, UK (UOW) and

attending classes at ERC Institute Pte Ltd in Singapore (ERCI). I further understand that the student

has to complete a research project as part of the student’s studies with UOW and that the student

wishes to base the research project on my organisation named below:

Name of organisation: ERC INSTITUTE

My consent is subject to the following conditions, which I insert in my own handwriting: I hereby my

consent to the student basing their research project on my organisation and confirm that I am

authorised to grant this consent on behalf of the organisation. I understand that the information

obtained by the student about my organisation in any form and from anyone of the company will be

kept strictly confidential and only viewed by the student, the project examiners and essential UOW

and ERCI’s staff, except where I have otherwise granted consent in writing.

I would also like to inform you that the information collected from your esteemed organisation

would be kept strictly confidential. You are also free to withdraw the information that you have

provided about the research question and if you wish to withdraw then the information collected

will not be disclosed or used anywhere either in research or anywhere outside.

Contact Information:

Mr. Abhijith Jayarajan Mr. Mark Fairhurst MBA Candidate: ERC Institute Senior Academic Head Email: abhijith.jayarajan@gmail.com Email: mark.fairhurst@erci.edu.sg Tel No: +65 90378652 (Singapore) Tel No: +65 6347 2727 +91 9819338830 (India)

Respondent’s signature: __________________________________________

Respondent’s job title: __________________________________________

Date of consent: _________________________________________

52

Appendix B:

Questionnaire

1. According to you, what do you feel about the Globalisation in the Service Industries

and how has it impacted the Hotel Business or Hospitality Industry in general?

2. How are the international hotel companies in India trying to compete with the Indian

luxury hotels and what are the elements that differentiate these two categories of

companies?

3. What are main factors on which hotels decide to make a strategic expansion of their

portfolio?

4. What do you feel about the foreign direct investment in the hotel sector and how it is

impacting the business?

5. Would the new Government in power benefit the hotel and tourism sector of India in

terms of investment and business in the long run?

6. According to you, what is a feasible strategic method for international hotel

companies to enter into the Indian hospitality market and compete against the existing

adversaries?

7. What is more beneficial: Management contracts or Franchise Agreement in terms of

the operations and generating revenue?

8. What are your views in terms of the foreign hotel companies setting up their

properties via Greenfield Investment strategy? And what are the challenges they

might face?

9. Are there more pros than cons by using Greenfield Investment strategy for setting up

a new Hotel? Why?

10. What is your company`s preference in running any hotel? Which method of

investment are you comfortable with: is it Management contract, Franchise

Agreement or Greenfield Investment strategy?

53

Appendix C

Project Supervision Meeting Record