Internationalization in the Hotel Industry and Modes of Entry

Internationalization in the Hotel Industry and Modes of Entry

Anna Sergiyvna Moskalenko (DEGEIT, University of Aveiro, Portugal), Inês Cruz Reis da Silva (DEGEIT, University of Aveiro, Portugal), Juliana Gonçalves (DEGEIT, University of Aveiro, Portugal), Mafalda Brito (DEGEIT, University of Aveiro, Portugal) and António Carrizo Moreira (University of Aveiro, Portugal)
DOI: 10.4018/978-1-7998-3473-1.ch110
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The globalization of business and investment has led to the growth of the internationalization of tourism related activities. Moreover, the modes of entry in international markets have been traditionally studied taking into account the industrial and service firms. Considering the importance of the hotel industry as a result of the growing internationalization process, this chapter analyzes the ways in which hotel chains internationalize and relate them to the main underlying theories of international business.
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The globalization of markets and production has been sparked by pervasive technological change and led to the internationalization of many companies whether large, medium or small. As such, internationalization is ever present in basically all contemporary business activities as it is a dynamic process that is the result of the exploitation of competitive advantages (Stanisauskaite & Kock, 2016).

Business internationalization has evolved over time involving different theories and understandings (Ribau, Moreira, & Raposo, 2015). However, not only there is no single definition of internationalization but also there is a myriad of topics involved in the analysis of internationalization (Ribau, Moreira, & Raposo, 2018).

Internationalization refers to the process of increasing involvement in international activities and is related to how firms explore international markets (Moreira, 2009). Many studies analyze the internationalization process based on four main strands: the Uppsala model, that advocates an evolutionary, sequential and linear model of international involvement (Ribau, Moreira, & Raposo, 2015); the network-based view of the firm (Hakansson & Snehota, 2006), based on a relational-based perspective among market players; the eclectic paradigm that explains the main drivers of internationalization among firms based on three main specific advantages – Ownership, Location and Internalization (OLI) advantages (Dunning, 2000); and the theory of international entrepreneurship that advocates that firms seek to exploit their specific advantages in international markets based on the exploitation of their internal capabilities (McDougall & Oviatt, 2000).

The globalization of business and investment has led to the growth of the internationalization of tourism related activities, namely of hotel chains, as a means of diversifying their services, which began to invest in new locations across the world. This is also the result of the exponential growth that tourism has been experiencing.

The theories of internationalization have dealt with an evolutionary perspective covering the macro/nation perspective and the industrial perspective, but have not fully disclosed the internationalization of service firms, especially from the hotel industry perspective (Ribau, Moreira, & Raposo, 2018).

There are different internationalization strategies between the business and tourism industries, since not only they have different activities but also different objectives, the tourism industry being more focused on service activities, which may influence the internationalization process (Berbel-Pineda & Ramírez-Hurtado, 2012; Marco-Lajara, Zaragoza-Sáez, Claver-Cortés, Úbeda-García, & García-Lillo, 2017). The internationalization of the hotel industry necessarily implies the presence and provision of services in foreign markets, which is quite unique in globalized industries (Berbel-Pineda & Ramírez-Hurtado, 2012; Marco-Lajara et al., 2017).

The mode of entry into foreign markets is considered to be one of the most critical strategic decisions that firms have to make, given the repercussions on business success (Young, Hamill, Wheeler, & Davis, 1989; Berbel-Pineda, Palacios-Florencio, & Ramírez-Hurtado, 2017).

In general, there are three main ways of serving foreign markets (Rothaermel, Kotha, & Steensma, 2006): exports, licenses and / or direct investment. Each option has different implications for the firm in terms of the level of control the parent company has over the foreign operations, the resources it must commit, and the potential benefits it can obtain (Buckley, 1995; Root, 1987). Considering the importance of the hotel industry as a result of the growing internationalization process, the objective of this chapter is to analyze the ways in which hotel chains internationalize and relate them to the main underlying theories of international business.

Key Terms in this Chapter

Internationalization: It is the process of increasing involvement of enterprises in international markets. It involves a strategy carried out by firms that decide to compete in foreign markets. It involves cross border transactions of goods, services, or resources between two or more firms or organizations that belong to two different countries.

Globalization: IT is a worldwide movement toward economic, financial, trade, and communications integration. It is normally envisaged as a lack of trade barriers between nations, which are removed through free trade agreements throughout the world and between nation states. It implies the opening of local and nationalistic perspectives to a broader outlook of an interconnected and interdependent world with free transfer of capital, goods, and services across national frontiers, in which investment opportunities soar.

Network-Based Approach: It based on the industrial networks theory, which states that firms evolve on the basis of established relationships. It considers the companies’ internationalization process through their integration into networks and relationships. Following this perspective, the internationalization process occurs in interactive environments where companies of a well-established network of companies have an opportunity to develop new relationships that give them access to broader markets in other countries.

Uppsala Model: It has been one of the most discussed dynamic theories in Nordic School and International Business Studies. It explains the process of internationalization of companies. It explains how organizations learn and the impact of learning on the companies’ international expansion. This theory defends that the companies’ internationalization process is carried out in stages, from non-regular exports to the establishment of companies abroad.

Management Contract: Is a long-term agreement in which the owner of the property contacts an international hotel company in order to manage the hotel. Through management contracts, hotel chains are responsible for all hotel operations, namely by implementing systems and procedures, selecting the hotel manager, and enforcing their human resources and quality policies.

Internationalization Process: It involves the emphasis of a trajectory of a company in its transition from a national market to a particular foreign market. It normally involves several entry modes (exports, FDI, franchising, etc.) that exert a critical influence on the subsequent trajectory, as well as on cost related to the internationalization process. The two most important theories that explain the internationalization process are the Uppsala model and the network-based approach.

Franchising: Is another organizational form used by companies to compete in highly decentralized industries. In the hotel industry, franchising was launched in the 1960s as an expansion strategy for the Holiday Inn group and since the 1980s it has become a form of international business, especially in the service industry.

Consortium: Consists of the association of several companies: which give rise to the creation of a new entity. Consortium allows companies to share resources, divide risks and dissolve cooperation after project completion.

Joint Venture: Is another growth vehicle available to hotel/business companies. These types of agreements are considered as legal contracts whose ownership and management of the organization are shared by more than one organization and are normally used when the benefits outweigh the additional costs.

Strategic Alliances: Are designated as intermediate modes of entry in international markets. They are normally carried out by companies that have experience and knowledge in certain specific areas, but need to complement forces in other areas. Strategic alliances aim to share and/or exchange products, services, knowledge, and profits.

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