UNLV Theses, Dissertations, Professional Papers, and Capstones
Summer 2011
The Management of an Indigenous Hotel Chain Company in The Management of an Indigenous Hotel Chain Company in
China: A Case Study of Sichuan Minshan Hotel Corporation China: A Case Study of Sichuan Minshan Hotel Corporation
Yinglin Wang
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1
The Management of an Indigenous Hotel Chain Company in China:
A Case Study of Sichuan Minshan Hotel Corporation
by
Yinglin Wang
University Of Nevada, Las Vegas
Summer 2011
A professional paper submitted in partial fulfillment of for the
Master of Science in Hotel Administration
William F. Harrah College of Hotel Administration
2
Table Of Contents
List Of Tables .......................................................................................................................... 4
Part One ................................................................................................................................... 5
Introduction ................................................................................................................ 5
The Statement of Problem .......................................................................................... 6
Justification ................................................................................................................ 6
Constraints .................................................................................................................. 7
Glossary ...................................................................................................................... 7
Part Two ................................................................................................................................... 9
Introduction ................................................................................................................ 9
Literature Review ..................................................................................................... 10
Application of strategic management in hotel industry. ....................................... 10
The history of chain-hotel and major models. ...................................................... 12
Successful western chain hotel companies. .......................................................... 13
History and development of Chinese hotel industry. ........................................... 14
Major Chinese Indigenous Hotel Ownership Types............................................. 15
Problems Found in Major Chinese Indigenous Hotel .......................................... 16
Opportunities of developing Chinese indigenous hotel chains. ........................... 17
Challenges of developing Chinese indigenous hotel chains. ................................ 19
Conclusion ................................................................................................................ 20
Part Three ................................................................................................................................21
Introduction .............................................................................................................. 21
Case Study ................................................................................................................ 22
Background of Sichuan Minshan Hotel Company. .............................................. 22
Development of Sichuan Minshan Hotel Company. ............................................ 23
Minshan Hotel Company’s external opportunities and threat analysis. ............... 24
Political environment analysis. .......................................................................... 24
Social environment analysis. ............................................................................. 25
Technology environment analysis. .................................................................... 26
Threat from both domestic and foreign competitors. ........................................ 26
Threat from potential and substitutive competitors. .......................................... 27
3
Minshan Hotel Company’s competitive advantages analysis. ............................. 28
Well recognized brand image. ........................................................................... 28
Profound company culture. ............................................................................... 29
Benefited industrial chain system. ..................................................................... 29
Developing sales and marketing ability. ............................................................ 30
Developing human resources management ability. ........................................... 30
The current situation of Minshan Hotel Company. .............................................. 31
Management problems of Minshan Hotel Company. ........................................... 31
Management problems of Minshan Hotel Company. ........................................... 33
Possible solutions to efficiently manage Minshan Hotel Company. .................... 35
Develop a branding strategy. ............................................................................. 35
Provide chain properties with brand knowledge training .................................. 36
Integrate organizational structure of Minshan Hotel Company. ....................... 36
Integrate human resource departments. ............................................................. 37
Improve central control and implement group purchasing. .............................. 37
Enhance Minshan Hotel Company’ sales management system. ....................... 37
Establish Minshan hotel school and develop its knowledgeable hotel
professionals. ..................................................................................................... 38
Conclusion ................................................................................................................ 38
References...............................................................................................................................40
4
List Of Tables
Table 1 2002 & 2009 hotel ownerships and star-rating breaksdown in China…….15
Table 2 The increased number of economy hotels in China in recent 10 years……27
Table 3 Minshan Brand Chain Hotels Information and Profit Comparison……......32
5
Part One
Introduction
During the last half century, the hotel industry in the United States and Europe
has developed by leaps and bounds. A noticeably major change in the hotel industry is
the expansion of several hotels from individual accommodation properties to large
international organizations famous across the globe. The hotel groups such as Hilton
Worldwide, Starwood, Intercontinental, Marriott, Accor etc. are globally renowned for
having successfully owned, franchised and managed great numbers of properties
targeting diverse markets across the world (Bell, 1993). Hilton Worldwide, for
example, owned more than 3,600 properties with 13 different brands in 82 countries
by the end of year 2010 (Watkins, 2010). Its diverse branding strategy covers full
range of markets from luxury to full-service and from family to resort; and has met
the needs of different customers (Watkins, 2010). Intercontinental, another
well-known international hotel group has over 4,500 properties that span 100
countries (Market Overview, 2011). In Asian countries, particularly China, the hotel
industry has been booming in the recent decade and continues to show a prosperous
trend in the next 10 to 20 years (Pine, 2002). The indigenous hotels in China are
facing increasing competition from foreign hotel giants’ that are aggressively
expanding throughout China. These indigenous hotels have undergone unprecedented
transitions and successful local brands such as JinJiang International Hotel Group
have opened many branches across the country (Yu and Huimin, 2005).
6
The Statement of Problem
Although many indigenous hotel organizations in China have been successfully
expanding their brands by building, franchising and contract managing more
properties; they have been facing many problems managing chain properties. These
problems are attributed to lack of a strategic business plan, poor management skills,
disassociated resources and outdated information technology.
Justification
The hotel industry has a comparatively lower threshold for market entry. This has
enabled many international foreign competitors to successfully take up a fairly large
share of this market. The competition in this emerging industry in China is becoming
increasingly fierce as time progresses. Due to the pressure of growing number of
foreign competitors, some indigenous hotels in China have started to follow in their
footsteps and expand their sister properties across the country. However managing
hotel chain properties is still new to most of these indigenous hotel chain
organizations and the hotel chain effects of maximizing profits have not been fully
realized. The studies related to these problems are on-going and the solutions
proposed are limited.
A vast majority of indigenous hotel organizations hunger for solutions and
strategies to manage their chain properties efficiently and effectively. The Sichuan
Minshan hotel is certainly no exception and is the focus of the case study in this paper.
The case study explores the management strategies employed by the Sichuan Minshan
hotel, a typical indigenous hotel chain organization in China.
7
Constraints
This study will mainly focus on indigenous hotel organizations in China that have
originated from mainland China, and will not be applied to hotel companies that
originated from Hong Kong and Macau. Since Hong Kong and Macau were colonized
by Great Britain and Portugal in the past, the hotel business environment and hotel
resources of these two special districts are well connected to the western world and
should be distinguished from indigenous hotels from mainland China.
The third part of this paper discusses Sichuan Minshan hotel (a real indigenous
hotel chain organization in China) and provides solutions and recommendations to
manage their chain properties efficiently and effectively. These strategies can be
generalized and applied to other Chinese indigenous hotel companies, after studying
the company’s business model.
Glossary
Chinese Indigenous Hotel: Hotels that originated from Mainland China.
Chain Hotels: Hotel organizations that operate at least three hotels or motels
(Ingram, 1996).
Franchising: “Franchising is a business model that franchisers use as a
distribution method to expand its business. In a franchising agreement, franchisee
sells franchiser’s branded products or services by using franchiser’s operating system”
(Fulop & Forward, 1997).
Management Contract: “Agreement between investors or owners of a project, and
a management company hired for coordinating and overseeing a contract. It spells out
9
Part Two
Introduction
The modern day hotel management has originated from the western world and
has been well studied and practiced for nearly a century in major cities in North
America and Europe. The western hoteliers are pioneers in the field of strategic hotel
management and have been continuously developing and improving their
management strategies in order to meet varying customer needs and consequently
maximize their profits (Chathoth & Olsen, 2003). One of the most successful hotel
distribution strategies used by western hoteliers is the expansion through development
of chain hotels (Burgess, Hampton, Price, & Roper, 1995).
The concept of strategic management has been successfully applied in western
hotel industry for many years. The literature review presented in the next section will
first present the importance of strategic management and its application in the hotel
industry. Second, this review will introduce the definition of hotel chain, and then
discuss the chain hotel’s history and development. While reviewing the western hotel
chain development, several hotel chain models will be introduced. Also, successful
management strategies used by large hotel chain organizations will be discussed.
Finally, this literature review will present past interesting studies on Chinese
indigenous hotel structures and their traditional management models. Literature
regarding Chinese indigenous hotels’ management problems, opportunities as well as
challenges to develop and manage their own hotel chains will then be reviewed.
Definition of Strategic Management
10
Literature Review
In his article “The Strategy Concept I: Five Ps For Strategy”, Mintzberg (1987)
explained that the word “strategy”, originated from “strategos” which in Greek
means the art of the army general” (p.12). As the competition in general business
world becomes more severe every day, the concept of strategy is popularly accepted
and applied in the field of management. Minzberg also indicated that the word
“strategy” cannot be solely determined, as it can be defined as a “plan”, a “ploy”, a
“pattern”, a “position” and a “perspective” (p.12). Minzberg further defined in his
study that as a plan, strategy is a course of action that is formed in advance with a
purpose or an intention to handle a situation. As a ploy, strategy implies a threat used
to defeat a competitor or an opponent. As a pattern, strategy is more than just a plan or
ploy, and it embraces a resulting behavior that emphasizes the importance of the
action. Based on this definition, strategy, as a pattern, is “a consistency in behavior,
whether or not it is intended” (p.13). Minzberg also defined strategy as a position
where an organization can locate itself in a business environment in which
concentrated resources can be acquired. Finally, as a perspective, strategy refers to a
way of perceiving the world. Although the dimensions of strategy mentioned above
seem to be independent, they are interrelated (Mintzberg, 1987).
Application of strategic management in hotel industry.
In the business world, strategic management has always been favored by business
professionals. The modern day business’ are becoming more and more dynamic and
complex. Also customer’s needs are changing faster than ever. Therefore managing
business strategically has become extremely crucial to organizations. Managerial
11
professionals in hospitality industry, like ones in other industries, have also realized
the importance of applying strategic management in their own field. In the academic
field, researchers have also done quite a few studies on strategic planning,
competition and competitive advantages, internationalization, strategic alliance and
strategic implementation in hospitality industry (Chathoth & Olsen, 2003; Olsen &
Roper, 1998). Li, Tse and Gu (2006) indicated that companies in western countries are
mostly entrepreneurial firms, and these entrepreneurial companies are innovative,
proactive and risk-taking. In this study of strategic planning in hospitality industry, Li
et al. (2006) also found that strategic planning and entrepreneurial orientation were
significantly positively correlated. It was concluded that due to the presence of a
unique valued culture system and socialism in China, strategic management has not
been applied in Chinese indigenous hotels, particularly in those state-owned hotels (Li,
Tse & Gu, 2006).
With the increasingly competitive hotel market, hotel giants in western countries
have developed strategic alliances that help boost their properties’ productivity and
profitability. Chathoth and Olsen’s (2003) have found that by using strategic alliances,
hotel firms are able to increase their competitive advantage. This is due to the fact that
the strategic alliances bring down the opportunity cost and help firms gain values
from sharing resources. Researchers on hospitality alliances have also shown that the
strategic alliance has developed from a simple management contract or a franchise to
a more complicated agreement in partnership (Chathoth & Olsen, 2003). Furthermore,
Chathoth and Olsen (2003) noted that technology plays an important role in strategic
12
management in hospitality industry.
The history of chain-hotel and major models.
The chain hotel concept first appeared between 1930 and 1960s, when the United
States experienced the great depression and World War II. As a result of the
depression and the worldwide war, many individual hotels had bad debt on mortgages.
The large hotel companies such as Hilton and Holiday Inn instead of building new
properties to expand their business at that time, started to acquire and remodel the old
individual hotels (Bell, 1993).
Bell’s (1993) study shows that early emerging chain-hotels appeared in several
management models. First, the early age of the chain-hotel model occurred in a
profit-sharing lease model between Hilton Hotel Corporation and Puerto Rico
government. Due to the government’s unwillingness to take any loss, Hilton ended the
lease model and created a new chain model management contract. This contract
required the owner of the hotel to take the full risk of loss and full burden of
providing the working capital. The hotel company on the other hand would take up
the complete operation responsibility. According to Bell’s study, the management
contract became very popular in the United States, and major U.S. hotel companies
such as Inter-Continental, Sheraton and Hyatt were in that business (Bell, 1993).
During the same period, another chain business model franchise agreement was
introduced. In this model, the franchisor hotel companies entitled franchisee hotels to
operate the hotel properties and only get up-front franchisee fee by using their brand
names (Connell, 1997).
13
Successful western chain hotel companies.
In the literature “Corporate structures and expansion strategies”, Litteljohn and
Beattie (1992) discussed the success of major US and European hotel companies’
expansion. They pointed out that US marketing, branding, management contracting
and franchising system that separate operational and ownership responsibilities; play
important roles in the early successful expansion of chain hotel innovators such as
Inter-Continental and Hilton (Litteljohn & Beattie, 1992). Litteljohn and Beattie
further explained in detail that the strategies of market provision employed by these
hotels have been changed from single brand to a wide portfolio of brands. Also, these
western hotel companies extend the market penetration strategies not only on the
domestic and international basis, but also entering different types of sites.
Burgess, Hampton, Price and Roper, (1995) found out in their study of
international hotel group that most successful companies have common features like
simple hierarchical organizational structures, autonomy and entrepreneurships, market
orientation, innovation, integrity perception and empowerment of people.
Furthermore, Burgess, et al. (1995) pointed out that organizations would succeed if
they apply strategic management to formulate and set up a long-term business plan;
then implement the plan and supervise against it. In addition, achieving internal
harmony and adapting to external environment are also important factors that make
organization successful (Burgess, Hampton, Price & Roper, 1995). Finally, Burgess,
et al. (1995) emphasized the combined optimum importance of strategic planning,
organizational structures, the environment, and various other factors.
14
History and development of Chinese hotel industry.
Compared to the long history of Western hotel industry, Chinese hotel industry
has a relatively short history of development. However, the industry has been growing
at a tremendous rate in China. At the early diplomatic age, foreign national officials
were hosted in the exclusive government-owned “Guesthouses” that were considered
the very early form of hotels in China. In 1978, China launched the open-door policy
which consequently increased the volume of international visitors. Under the situation
of insufficient hotel capacity, many government-owned “Guesthouses” were forced to
become general travelers’ hotels (Mak, 2007). In 2000, China’s entering into the
World Trade Organization officially tied China’s economy to the world economy and
further boosted both domestic and international tourism.
The China Tourism Statistic year book (2002, 2010) shows that by the year 2009,
the total number of hotels in China has grown to 14,237; in which 506 are rated as
five-star hotel and 1,984 are rated as four- star hotels. It can be concluded that the
number of the nation’s star-rated hotel property has increased from 8,880 in 2000 to
14,237 by the end of 2009, growing by 37.6%. Moreover, the number of China’s
state-owned hotel rose from 5,061 in 2002 to 5,318 in 2009, only increased by 4.83%
during the 7 years. While the number of private-owned hotel soared by 80.97% from
556 in 2002 to 2,922 by 2009. In addition, the number of luxury hotels (4 and 5 star)
has reached 2,490 by 2009, increased by 67.5% from 2002 (China National Tourism
Administration [CNTA], 2002; 2010).
15
Table 1
2002 & 2009 Hotel Ownerships and Star-Ranking Breaksdown in China
2002 2009
Ownership Type Hotels Rooms Beds Hotels Rooms Beds
Total 8,880 897,200 1,729,300
14,237 1,673,475 3,064,684
State owned 5,061 487,100 975,400
5,318 635,729 1,209,420
Collective 893 71,000 139,900
850 80,943 157,167
Shareholding cooperative 172 15,600 28,100
357 39,461 72,717
Alliance 90 9,500 18,100
66 10,571 18,265
Limited liability 734 75,000 141,300
3,135 403,600 695,984
Limited liability shares 327 41,100 76,900
725 98,063 191,284
Private owned 556 36,000 68,900
2,922 245,096 452,703
Others 361 26,400 51,600
290 30,338 59,726
Hongkong, Macau, and Taiwan 279 60,700 103,100
345 78,718 126,840
Foreign funded 407 74,800 126,000
229 50,956 80,578
Star Ranking
5 Star 175 64,900 102,400
506 181,072 301,205
4 Star 635 143,500 248,400
1,984 397,049 686,743
3 Star 2,846 346,500 680,000
5,917 689,262 1,275,714
2 Star 4,414 306,000 622,100
5,375 384,038 755,144
1 Star 810 36,400 76,500 455 22,054 45,878
Note. from The Year Book of China Tourism Statistics (2002).China Travel and Tourism Press, Beijing.
The Year Book of China Tourism Statistics (2009).China Travel and Tourism Press, Beijing.
With China’s rapidly growing massive tourism market and the extraordinary
statistics from hotel industry, China is forecasted to become the number one tourist
destination by the year of 2020 (Pine, 2002).
Major Chinese indigenous hotel ownership types.
According to CNTA’s “Year Book of China Tourism Statistic” (2010), hotels in
China have quite a few ownership types such as state-owned, collective,
private-owned, and foreign founded, etc. The two major ownership types existing in
Chinese indigenous hotels are state-owned and private-owned. The number of
state-owned hotels in China increased less than 5% in a quite number of years.
16
However, the number of private-owned indigenous hotels had soared more than 80%
during the same number of years (CNTA, 2010). Yu and Humin (2005) implied in
their studies that this remarkable change is due to China’s transition from central
planning economy into market economy.
Problems found in major Chinese indigenous hotel.
Unlike most business-based western hotel companies, Chinese state-owned hotel
organizations’ primary interests are more political and self-indulgence related instead
of making profits (Tang, Xi, Chen & Wang, 2006). This has resulted in many
problems. First, as both an operator and an owner of the state-owned hotel
organization, the Chinese government fails to monitor its hotel assets effectively (Mak,
2007). Second, the complicated ownership structure existing in the state-owned hotel
organization results in a complex internal management system and also causes unclear
obligations and responsibilities. Third, the Chinese state-owned hotel often ignores
the general market due to its non-business oriented nature (Tang, et al., 2006).
Mak (2007) pointed out that due to the huge loss caused by the problematic
management system, the Chinese government has started to realize the importance of
marketization. Therefore, some state-owned hotels are forced to sell their shares to
their employees or external investors. Also those pending state-owned hotel projects
are requested for private investors. Mak also found that compared to state-owned
hotel companies, Chinese private indigenous hotel companies are commercial based.
However, most of the indigenous private hotels in China are still independently
owned and managed; and their management techniques are still incompetent as a
17
result of a lack of managerial professionals. Moreover insufficient capital and high
management and maintenance expenses, as well as unnecessary cost prevent most of
indigenous private hotel companies from maximizing their profits (Mak, 2007).
Opportunities of developing Chinese indigenous hotel chains.
After successfully bringing the concept of hotel chains to China, foreign hotel
giants have gained their primary market shares in meeting the needs of international
visitors in China. They have been trying to take up more market share in the market of
Chinese domestic travelers. Facing the internal ineffective management problems and
external threats from foreign competitors, many Chinese indigenous private hotels
organizations have started to learn from their neighboring foreign counterparts (Pine,
Zhang, & Qi, 2000).
As the competition in the hotel industry becomes extremely competitive every
day, some Chinese indigenous private hotels companies have begun entering chain
hotel business. According to the 2010 China Hotel Group Development Report from
China Tourist Hotel Association (CTHA), there are many opportunities and
tremendous potential in the industry for Chinese indigenous private hotels to grow
their brands. Based upon the association’s research on 30 large Chinese indigenous
hotel groups, it has shown that these indigenous hotel groups own a total of 1680
hotels with 356074 rooms. This number of properties owned by indigenous hotel
group accounted for 8.29% of China’s total number of hotels in 2009, and it has
dramatically increased from the year of 2008. Jinjiang International Hotel Group, for
instance, has grown its hotel rooms from 29,638 in 2008 to 87,287 in 2009 at an
18
increasing rate of 194.5%, and it has become the largest and most well-known
Chinese local chain hotel company (Xiao, O’Neill & Wang, 2007). In addition, other
well-known indigenous hotel group such as Zhejiang Jinling Holdings, Hainan Airline
Hotel & Resorts, Zhenjiang Kaiyuan Hotel Group and BTG-Jianguo Hotel & Resorts
also increased their hotel rooms at rate of 18%, 7.9%, 62.4 and 6.5% respectively
during the year between 2008 and 2009. All these statistics have shown that China’s
indigenous hotel group has been developing by leaps and bounds even during the
global economic recession (China Hotel Group Development Report, 2010).
According to the 2009 top hotel group rating from Hotels Magazine, China’s Jinjiang
International Hotel Group, Rujia Hotel Group, Jinling Holdings Hotel Group and
Hainan Airline Hotels and Resorts Group were ranked the 13th, 21st, 28th and 61th
respectively among the top 300 hotel groups in the world. Compared to the foreign
chain hotel groups in China, Chinese indigenous hotel groups have their own
advantages to grow. Firstly they are familiar with the local culture, and connection
with the local governments helps local hotel companies quickly enter into a new
market in different cities. Secondly, the local hotel management team knows better
about the needs of domestic customers. The report from China Tourist Hotel
Association has also indicated that the 30 large indigenous hotel groups being
researched showed their expansion plans of adding their chain properties at an
average rate of 20.15% between 2010 and 2012 (CTHA, 2010 China Hotel Group
Development Report).
19
Challenges of developing Chinese indigenous hotel chains.
However, today’s Chinese indigenous chain hotel organizations face major
challenges. On one hand, China is in the mixed economic transition stage, where
some conservative indigenous chain hotel firms are still trying to adapt to the new
market-based economy system (Pine & Qi, 2004). Pine and Qi’s (2004) studies
showed that as emerging players in the market, many of the Chinese local chain hotels
lack the ability of offering their chain properties adequate managerial support. A few
common major problems that exist in these indigenous hotel chain companies and
their chain properties are service standardization, different branding strategies,
disassociated guest loyalty programs and a lack of information technology. In addition,
a lack of managerial hotel professionals is another weak point of indigenous chain
companies. On the other hand, foreign hotel groups that have been developed for
more than half a century show their significant advantages after entering into the
China market. One of the most competitive advantages of the foreign hotel groups are
large scale distribution channels and central reservation systems which can direct
international travelers to chain properties generate more than 60% of their revenues
(Pine & Qi, 2004).
There are few strategic solutions to the development of Chinese indigenous chain
hotels that are presented in this paper. Cao (2008) in his studies states that in order to
compete with foreign hotel groups, Chinese indigenous hotel groups may need to
develop diverse brands with Chinese cultural connotation. Also, Ran (2007) suggested
that it is necessary for the Chinese indigenous hotel group to learn advanced
market-based management knowledge from foreign hotel groups. In particular,
20
acquiring knowledge on standardization and advanced hotel management technology
were proposed.
Conclusion
A great amount of studies have been devoted to the field of chain hotels in the
Western world and the problems and opportunities of Chinese indigenous chain hotels
have been diagnosed by different researchers. However the solutions and strategies of
improving the management efficiency for Chinese indigenous chain hotel companies
are insufficient. The following section will present a case study and discuss solutions
to improve the management efficiency of a specific emerging Chinese indigenous
chain hotel group.
21
Part Three
Introduction
Based on the literature review, this section presents a real life case study of a
Chinese indigenous chain hotel organization i.e. Sichuan Minshan Hotel Company.
The case study illustrates the company’s transition from a state-owned organization to
a private company, the development of its chain properties and its current chain
management problems. This section also evaluates Sichuan Minshan’s internal and
external business environments. On the basis of the environmental analysis, possible
strategies and solutions to improve the company’s management efficiency will be
discussed.
The primary source of information for this case study is a face-to face interview
with Mr. Gong Yu. He is a Deputy General Manager of Sichuan Minshan Hotel
Company and the General Manager of Sichuan Minshan Lhasa Grand Hotel. Mr.
Gong entered in Sichuan Minshan Hotel Company in 2000 as a deputy manager in the
sales and marketing department. During the past 11 years of employment with the
company, Mr. Gong has seen large transitions and expansions of the company. In fact
he has contributed to a lot of the expansion of Minshan Group (Y. Gong, personal
communication, March 10, 2011). By conducting several interview meetings with Mr.
Gong, both open and close ended questions were asked. During the interviews, Mr.
Gong described Minshan Group’s background and its successful developments. Also
he pointed out the major management problems his company faces today. Finally, in
order to help the company to solve the current management problems, possible
strategies and solutions were discussed.
22
Case Study
The purpose of this case study is to discuss possible solutions to solve current
major chain management problems existing in this Chinese indigenous private chain
hotel company which is previously a state-owned hotel. By studying the case hotel, it
is hoped to set an example for other Chinese indigenous transitional hotels with
similar management problems.
Background of Sichuan Minshan Hotel Company.
Named after a beautiful Minshan mountain across both Gansu and Sichuan
province, Sichuan Minshan hotel property is located in the capital city of Sichuan
Province. It was opened in 1988, and it was the first state-owned four-star luxury
hotel allowed to host foreigners. Mr. Gong (Y. Gong, personal communication, March
10, 2011) stated that the hotel was previously owned and managed by SASAC, the
State-owned Assets Supervision and Administration Commission of the State Council
of China. In September, 2003, the hotel experienced the ownership transition from a
state-owned hotel to a private-owned sharing holding company. As mentioned in
review work of Yu and Gu’s (2005) study of Hotel Reform in China, many Chinese
state-owned hotels encountered poor performance and were forced to be transformed
to nongovernment business companies between 2002 and late 2005. Sichuan Minshan
hotel property was then one of the transitional hotels experiencing the reforms in
China’s hotel industry. Under the previous ownership and management of Sichuan
state-owned department SASAC, Sichuan Minshan hotel property experienced a huge
loss for a long period of time that caused a bad loan from the state-owned bank. In
order to liquidate Sichuan Minshan hotel, its ownership was then sold to the
23
management team, in which general manager, deputy general manager, some
department heads held different proportions of the company stakes. The new Sichuan
Minshan Hotel Company was then established, aiming to become a profitable and
competitive hotel enterprise.
Development of Sichuan Minshan Hotel Company.
In 2007, Sichuan Minshan Hotel Company officially established Sichuan
Minshan Group which owns 9 different subsidiaries operating business in the areas of
hotels, restaurants, travel services, and hotel design and cleaning services. The
Minshan Group now has number of employees over 2,800 and net assets of over US
$ 92.3 million. After the establishment of Minshan Group, the Minshan Hotel chain
properties have then been managed by its subsidiary, Minshan Hotel Company.
According to Mr. Gong, in order to expand and develop its hotel brands, Minshan
Group has been continuously purchasing and upgrading small local hotels, signing
lease agreement and management contracts with both luxury and economy hotels in
major cities of Sichuan Province and Chongqing Municipality through its two major
hotel subsidiaries Minshan Hotel Company and Minshan Hotel Management
Company. In these two companies, Minshan Hotel Company is mainly responsible for
the expansion and management of the luxury Minshan brand. While Minshan Hotel
Management Company manages 36 economy hotels including its own economy brand
Anyi 158 and 12 other luxury hotels that have signed management contracts with the
management company. In addition, Minshan Hotel Management Company provides
other industrial services such as hotel consulting, planning and training (Y. Gong,
24
personal communication, March 10, 2011).
During the past 20 years or more, Sichuan Minshan Group has successfully
established one luxury brand Minshan and one economy brand Anyi 158, and both
brands have been well recognized by locals and even visitors from other parts of the
country. In 2010, Sichuan Minshan hotel property, was renovated and upgraded from
a four-star hotel to a five-star hotel. Mr. Gong (Y. Gong, personal communication,
March 10, 2011) proudly indicated that since the beginning of this year, Minshan
Group has been planning to expand its major brand Minshan to the northern part of
China. The goal is to purchase a local hotel in Tianjin, a neighboring city to Beijing,
which may be a good start for the organizations’ nationwide expansion.
Minshan Hotel Company’s external opportunities and threat analysis.
In current times the Chinese market is considered a major emerging business
market. In hotel industry, many foreign hotel companies have seen the great change
and business opportunity in China and strive to be the first to take up the major
market share. Many Chinese local hotel companies have not taken the external
environment change seriously and started losing their customers base gradually.
Therefore, it is imperative for Chinese indigenous hotels to be aware of new external
opportunities as well as threats.
Political environment analysis.
Pine, Zhang, and Qi (2000) have indicated that China’s open-door policy has
undoubtedly brought China into the global business market and greatly boosted
China’s economy. This has brought China a flow of international travelers, and has
also stimulated domestic travel activities that create huge demand for hotel rooms.
25
The service industry therefore became one of the industries that have been benefited
the most from China’s transition to the market economy. In addition, in order to
regulate the hotel quality under the WTO agreement, China’s National Tourism
Administration established hotel star rating system that facilitated Chinese indigenous
hotels to be recognized in the global market. Moverover a new China policy that was
developed in 2004 called for the development of China’s Western region. This gave
the Sichuan Province (located in Western China) a great opportunity to promote its
rich natural and cultural resources and develop its tourism industry (Liu,2001). Finally,
although Sichuan Province has experienced a great earthquake in 2008, Chinese
central government’s post-disaster construction has brought the Province many new
business opportunities.
Social environment analysis.
China's National Bureau of Statistics (2009) has shown that both the scale and the
level of urbanization in China have been greatly changed with the urban population
reaching a whopping 46.6% of total population. At the same time, the entertainment
and travel facilities have been greatly developed. This has stimulated people to
participate in various travel activities. In addition, with the increase in living standards
and the increase in spending, people in China have shown increasing consumption
ability on traveling, catering and various social activities.
With the ancient Shu Kingdom history, the beautiful natural mountain and wildlife
resources and the world-class catering options, Sichuan Province has been rated as
one of the great tourist destination by China National Tourism Association. By the
26
year of 2010, the number of inbound tourists had reached 1.05 million with foreign
income of $3.54 billion US dollars. In addition, the number of domestic tourists in
Sichuan had also increased to 2.71 billion with domestic tourism income of $286.5
billion US dollars (Yang, 2011).
Technology environment analysis.
After China entered into the global economy, the advanced technologies such as
customer relationship management system (CRM), central reservation system (CRS),
e-commerce, distant training etc. were introduced by foreign hotel corporations. The
Chinese indigenous hotels which were lacking sufficient capital were lagging behind
in terms of these advanced technologies. Sichuan Minshan Hotel Company is no
exception to this rule. Also due to the out-of-date training system and complicated
chain organization structures, distant training has not been realized. However, like
many other indigenous hotels, Minshan Hotel Company has taken initiatives to
introduce energy-saving hotel equipment aimed to meet the global environmental
standards as well as to reduce the energy cost.
Threat from both domestic and foreign competitors.
According to China National Tourism Association (2010), the number of Chinese
luxury hotels has increased in recent years from 1821 four star hotels and 432 five star
hotels in 2008 to 1984 four star hotels and 506 five star hotels in 2009. The excessive
luxury hotel properties built during the Beijing Olympic Games and the global
economic downturn at the end of 2008 have brought Minshan Hotel Company into
severe competition. Meanwhile, competition from economy hotels has also been
increasingly dramatic as both international and Chinese indigenous economy hotel
27
companies have been expanding all over the country. This has greatly threatened
Minshan Hotel Company due to the high demand of economy hotels during the
current global economy recession.
Table 2
The increased number of economy hotels in China in recent 10 years
Note. from Wu, P. (2011). The 10-year development analysis on China’s economy
hotel field [中国经济型酒店十年发展行业状况分析]. Retrieved from
http://news.cyzone.cn/news/2011/01/29/184271.html
Threat from potential and substitutive competitors.
Besides the direct competition from existing domestic and international hotel
companies, Minshan Hotel Company also faces threat from potential and substitutive
competitors. Due to the relatively low threshold of entry into the hotel industry in
China, companies such as China Oil and Food Corporation (COFCO) have invested
and developed their chain hotel Gloria in China’s major tourist cities such as Beijing,
Suzhou and Chongqing. Also COFCO has entered into the resort market such as
Hainan resort area. On the other hand, due to the development of social catering with
0
500
1000
1500
2000
2500
3000
3500
4000
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
28
a variety of food options, flexible business hours and reasonable prices, more and
more consumers including hotel guests choose social catering products instead of
dinning in hotels (Ye, 2009). The Minshan Hotel Company, like many other hotels, is
being threatened by social catering businesses.
Minshan Hotel Company’s competitive advantages analysis.
Christensen (2010) defined competitive advantages in his study as “values
business provides that motivates its customers to purchase its products or services
rather than those of its competitors” (p.21). Having operated in hotel business industry
for more than 20 years, Minshan has certainly gained the following competitive
advantages in the state-wide hotel market.
Well recognized brand image.
The Minshan Hotel started operations in the year 1988 as a luxury indigenous
state-owned hotel in Sichuan Province. Minshan’ target market was national and local
government officials and international visitors. Through the many years Minshan
Hotel Company has provided high quality and luxury hotel services and exceeded the
demanding needs of government officials and the high standards set by international
hotels in China. Minshan has successfully established its luxury brand image in the
mind of consumers in China. After experiencing the huge company transition to a
private hotel company, Minshan has been continuously offering luxury hotel services
to its guests with diverse needs. Based upon its long history of providing high quality
hotel services, Minshan Hotel Company has not only survived in the competitive
market after the transition, but has also managed to expand its chain properties
province wide. In 1996, the company was rated as the National High-performance
29
Hotel. Also the company has been rated by the state government as one of the most
trustful enterprises. Today, the Minshan brand owns the images of a long history, high
quality of service and safety, premium location, prestigious social reputation and high
social status that are well recognized by locals, national visitors and international
travelers.
Profound company culture.
During the past 20 years, the Minshan group has grown substantially. During the
growth process, the entire Minshan group has successfully applied its people-oriented
and nature-oriented culture throughout all its subsidiary companies. This culture has
helped the company to gain positive recognition from its many employees. By
following the company’s culture and concepts, the employees of Minshan Hotel
Company have shown their incredible positive and collective work attitude. This has
played a vital role in the fast expansion of its chain properties (Y. Gong, personal
communication, April 6, 2011)
Benefited industrial chain system.
A key differentiator of Minshan Hotel Company from other hotel chain
companies is the presence of its own industrial chain system. Mr. Gong said that
besides its major business which is in the hotel space, Minshan also operates
industrial businesses related to travel, food processing, hotel construction and design,
hotel fabric cleaning, hotel management and consultancy services. One of Minshan’s
subsidiaries Zizi bakery chain company is well recognized by the local people as
providing healthy and delicious food. The Sichuan Minshan Zizi Company was once
given the State Trademark in the year of 2002 and 2005. This highly profitable food
30
chain subsidiary has provided Minshan with sufficient cash flow that helped the
expansion of the company. Also, supported by its own hotel construction and design
business, as well as the hotel fabric cleaning business, Minshan Hotel Company has
been able to reduce its operational cost (Y. Gong, personal communication, April 6,
2011).
Developing sales and marketing ability.
Mr. Gong (Y. Gong, personal communication, April 6, 2011) also emphasized that
besides cutting operational cost, Minshan Hotel Company has been focusing on
developing its sales and marketing ability through major sales distribution channels
including its reservation center, front desk, sales department and online third-party
distribution companies which account for more than 20% of the hotel’s sales revenues.
Meanwhile, the hotel has been actively marketing its products through various media.
Furthermore, Minshan Hotel Company translates its views of putting the customer
first, caring for its employee and focusing on the market change into all of its sales
and marketing activities.
Developing human resources management ability.
In recent years, Minshan Hotel Company has realized the importance of
recruiting more educated hotel professionals and the significance of management
training. Its human resources department has been recruiting top managerial talent
from both schools and the marketplace. Moreover, the Minshan Hotel Company
human resources department has established many management training courses,
aiming to equip the management team members with advanced management
knowledge in order to make its chain properties more competitive in the market (Y.
31
Gong, personal communication, April 6, 2011).
The current situation of Minshan Hotel Company.
According to the official Minshan group website, the hotel company has
successfully expanded its luxury hotel brand of Minshan from an individual hotel
company to a total of 6 hotel properties the Sichuan Minshan Hotel, Guangan
Minshan Century Hotel, Minshan Lhasa Grand Hotel, Minshan Anyi Grand Hotel,
Chongqing Minshan Hotel and Xichang Minshan Hotel. The major target market
segments of Minshan chain properties are business and travel. (Y. Gong, personal
communication, April 6, 2011). From the years 2006 to 2009, the Sichuan Minshan
Hotel property and Guangan Minshan Century Hotel property made substantial profits,
whereas the other four Minshan properties suffered losses since their opening.
Management problems of Minshan Hotel Company.
Although Minshan Hotel Company has been quite successful in the hotel industry
after experiencing the ownership transition, it recently has been facing management
challenges and problems due to the increasing external industrial competition, internal
complicated organizational structure and out-of-date management system. With the
fast development of its chain business, Minshan Hotel Company’s problems of
managing its brand chain properties are becoming more and more apparent and may
restrain the company’s future expansion (Y. Gong, personal communication, April 6,
2011).
32
Table 3
Minshan brand chain hotels information and profit comparison
Hotel Name Star Rated Target Market
Number
of
Rooms
Profit
Actual in
million
RMB 2008
Profit
Actual in
million
RMB 2009
Sichuan MS
Hotel
★★★★★
Business, Government, Tour
Group, individual traveler and
meetings and conferences.
359 5.08 4.87
MS Guangan
Century Hotel
★★★★
Business, Government,individual
traveler and meetings and
conferences.
100 2.06 2.53
MS Lhasa
Grand Hotel
★★★★
Business, Government,and
meetings and conferences.
161 (2.09) 3.08
MS AnYi
Grand Hotel
★★★★
Business,individual traveler,
Tour Group and meetings and
conferences.
198 (0.57) (2.80)
Chongqing
MS Hotel
★★★★
Business,,individual traveler and
meetings and conferences.
111 (0.38) (0.28)
Xichang MS
Hotel
★★★★ Business and individual traveler 80 (0.80)
Note. From Minshan Hotel company [Company profile]
Minshan Hotel Company. (2008).Minshan Hotel Company Annual Report.
Minshan Hotel Company. (2009).Minshan Hotel Company Annual Report.
Mr. Gong (Y. Gong, personal communication, April 6, 2011) further explained in
detail that from the hotel group point of view, one of the major problems existing in
Minshan Hotel Company has been a lack of a clear strategic consciousness in the
market since it transitioned into a private company. Without a clear strategic goal and
a group concept, the company is beginning to find it difficult to maintain its
competitive advantage in today’s market.
Moreover, from a management stand point of view, each Minshan chain
33
property happens to manage and operate on their own due to the hotel company’s
inability to manage its chain properties on a group level. As a result, sometimes chain
properties focus on their own interests instead of the hotel group interest; this prevents
the hotel group from maximizing its group profits.
Management problems of Minshan Hotel Company.
Although Minshan Hotel Company has been quite successful in the hotel industry
after experiencing the ownership transition, it recently has been facing management
challenges and problems due to the increasing external industrial competition, internal
complicated organizational structure and out-of-date management system. With the
fast development of its chain business, Minshan Hotel Company’s problems of
managing its brand chain properties are becoming more and more apparent and may
restrain the company’s future expansion (Y. Gong, personal communication, April 6,
2011).
Mr. Gong (Y. Gong, personal communication, April 6, 2011) further explained in
detail that from the hotel group point of view, one of the major problems existing in
Minshan Hotel Company has been a lack of a clear strategic consciousness in the
market since it transitioned into a private company. Without a clear strategic goal and
a group concept, the company is beginning to find it difficult to maintain its
competitive advantage in today’s market.
Moreover, from a management stand point of view, each Minshan chain
property happens to manage and operate on their own due to the hotel company’s
inability to manage its chain properties on a group level. As a result, sometimes chain
34
properties focus on their own interests instead of the hotel group interest; this prevents
the hotel group from maximizing its group profits.
A list of factors contributing to Minshan’s inability to manage its chain properties
on a group level are as follows.
Each chain property has its own reservation system and sales network, and their
guest resources are hardly shared with each other.
Each chain property has its own standard for hotel products and services provided
to their customers.
The brand perception is different and different standards of brand marketing exist
in each chain property.
Each property has its own suppliers and varied supplier purchase policies, which
has increased the operation cost.
There are complicated and non-integrated organizational structures throughout
the Minshan chain properties.
In terms of managing human resources, there is inefficient communication among
human resource department of each chain property so that labor resources cannot
be fully shared.
The problems listed above are now becoming critical issues at Minshan hotel, as
the hotel company losses more customers to its foreign competitors. First, as the result
of disassociated reservation systems and sales network, the Sichuan Minshan Hotel,
Minshan Lhasa Grand Hotel and Minshan Anyi Grand Hotel all located in the same
city, found it challenging to cross sales to the sister hotel when one property sold out
35
its rooms. Also, guest information in each property is managed at the property level
that limits other chains from accessing potential customers. Secondly, the problem of
non-standardized service quality in different chains has resulted in unsatisfied
customers who received high-quality service in one property but less pleasant service
at another chain property. Third, as Minshan Hotel Company acquired and transferred
small individual hotels to most of its chain properties, each chain has different
perceptions about its new brand. Due to the lack of a unified marketing system, it has
been noted that customers perceive a different brand image at different Minshan chain
properties. Lastly, due to the complicated and non-integrated human resource
departments of the chain hotels, hotel employees cannot move freely among chain
properties based on their labor needs. Also, employees’ career development within the
hotel group cannot be fully realized.
Possible solutions to efficiently manage Minshan Hotel Company.
During its transition from a state owned poorly performing organization to a
profitable private company, Minshan Hotel Company has been developing its
distribution channels, enhancing its service quality and cutting operational cost.
However, without the concept of strategic management at a group level, this will
hinder the company from further expansion. Therefore, it is very necessary and
critical for Minshan Hotel Company to improve its group management level to be
able to manage its chain properties efficiently. A series of recommendations to
improve Minshan Hotel Company’s chain management efficiency are as follows.
Develop a branding strategy.
Arnold (1992) indicated that a brand, as equity, can be a powerful asset that helps
36
a company to gain a high recognition from consumers and thus to make profits for
subsequent years. Today’s large international hotel companies have all successfully
applied the branding strategy of establishing a portfolio with diverse brands targeting
different market segments to meet the different needs of consumers. Minshan Hotel
Company can certainly develop its own portfolio with its core brand Minshan
targeting business and individual travelers, and with its other brands targeting
high-end, economic, resort and tour group markets. Also, the company can build up a
group brand management team responsible for monitoring brand efficiency and the
continuously changing market in order to discover potential market segments.
Provide chain properties with brand knowledge training
The Minshan Hotel company can use its group brand management team to
provide its chain properties with training on particular brand knowledge. This will
help resolve the current issue of having different perceptions on the same brand
throughout Minshan’s hotel properties. Also, instead of spending a lot of efforts and
expense on marketing the same hotel brand on its own, it is suggested that each chain
property may focus on marketing its own unique hotel products.
Integrate organizational structure of Minshan Hotel Company.
In order to manage its Minshan brand properties efficiently, it is necessary for
Minshan Hotel Company to establish the same organizational structure and set up the
same department responsibility in all chain properties. Furthermore, a central
management office may be established for managing all chains as a whole and receive
reports from department teams of each property. This will help to regulate all its chain
properties and enhance its work efficiency (Y. Gong, personal communication, April 6,
37
2011).
Integrate human resource departments.
If Minshan Hotel company integrates human resource departments and
establishes identical human resource regulations in chain properties, it will enable
chains to share all labor resources. By setting up a central human resource
management office, Minshan Hotel Company will be able to manage all its labor
resources on a group level. This will make it possible to easily move employees
between different chain properties so as to meet the properties labor needs while
considering the career development needs of its employees (Y. Gong, personal
communication, April 6, 2011).
Improve central control and implement group purchasing.
Establishing a central purchasing center may prevent Minshan chain properties
from purchasing material on their own. Implementing group purchasing through
limited suppliers may highly reduce the operational cost and maintain a high quality.
However individual chain properties should be allowed to purchase non capital items
below a certain cost limit e.g. fresh produce. The price and quality of material
purchased should be controlled by the central purchasing center (Y. Gong, personal
communication, April 6, 2011).
Enhance Minshan Hotel Company’ sales management system.
The fact has shown that the Central Reservation System and internal sales
network has helped international hotel group successfully expand their chain
properties all over the world. It is necessary for indigenous Minshan Hotel Company
to consider establishing a Central Reservation System, Central Customer Information
38
Management System, Central Hotel Membership Management System etc. A central
sales center may be formed to manage various sales distribution channels. In addition,
establishing a central revenue management system throughout all chain properties will
help Minshan Hotel Company manage its hotel room occupancy effectively in order
to maximize the profits.
Establish Minshan hotel school and develop its knowledgeable hotel
professionals.
In order to fully implement the strategic management plans, Minshan Hotel
Company may establish a hotel school to develop its own managerial professionals.
By providing its management team members with trainings on advanced hotel
technology and management knowledge, will certainly accelerate Minshan Hotel
Company’s future expansion.
Conclusion
In China’s fast-growing and extremely competitive market, as the hotel industry
continues to develop, more and more state-owned hotels are coming out of the
government’s shield and trying to make it on their own. Meanwhile, many small local
Chinese individual private hotels have realized that it is becoming increasingly hard to
compete solo against foreign chain hotels. As a result, large Chinese indigenous hotel
companies are expanding through purchasing, franchising and contracting small
indigenous hotels. Also, individual small local hotels have decided to join large hotel
companies so as to survive in the current competitive market.
However, while many large indigenous hotel companies like Minshan Hotel
Company are following their foreign competitors’ footprints and expanding their
39
chain properties around the country; managing chain hotels efficiently has been a
major challenge due to their complicated organizational structures, traditional
management procedures, less strategic and skilled management team and outdated
technologies. As one of the pioneers of China’s indigenous hotel company, Sichuan
Minshan Hotel Company has realized its existing problems, the threats from foreign
competitors and the importance of optimizing its chain management system.
Therefore, it is necessary for other indigenous hotel companies with similar
background as Minshan Hotel Company to consider reforming and implementing
strategic management plans based on their own situation to increase work efficiency
and more importantly to remain competitive in today’s extremely competitive Chinese
hotel market.
40
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