Network Strategies of Hospitality Companies in Emerging and Transitory Economies: Evidence from Russia

Network Strategies of Hospitality Companies in Emerging and Transitory Economies: Evidence from Russia

Olga Balaeva (National Research University Higher School of Economics, Russia), Ella Burnatseva (EGGER, Russia), Marina Predvoditeleva (National Research University Higher School of Economics, Russia), Marina Sheresheva (National Research University Higher School of Economics, Russia) and Olga Tretyak (National Research University Higher School of Economics, Russia)
DOI: 10.4018/978-1-4666-0077-5.ch029
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Abstract

The chapter focuses on the strategies of domestic and international hotel chains operating in the Russian market. Within this theoretical framework and using the current market situation, the strategies of domestic and international hotel chains are differentiated and classified.
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Introduction

The service sector is gaining an increasingly firmer foothold in the global economy. Many countries show a tendency towards increased production of services, greater service revenues, increased employment in this sector, tougher competition, and growth in the import and export of services. So fundamental are the changes occurring in the service sector on a global scale that the modern economy has been described as “the service economy.”

Currently, the service sector accounts for 70% of the world GDP. Among the countries where the service sector accounts for 3/4 of GDP and more are Luxembourg (85%), France (78%), the USA (77%), Greece (77%), Great Britain (76%) and Belgium (76%) (The World Bank). Recent decades saw not only shifts in the industry structure of the world economy, but also substantial growth in employment in the service sector. In many countries this indicator exceeds their industrial production figures. The highest employment rate in the service sector is in the USA (80% of the workforce), the Netherlands (79%), Great Britain (77%), France (77%), Sweden (76%), Luxembourg (76%), Canada (76%), Norway (76%), Iceland (76%), Australia (75%) and some others (OECD).

In today’s economy services act as fully-fledged components of world trade. According to UNWTO data, in 2009 the export of commercial services in the world totaled $ 3312 billion, whereas in 1980 – it was only $ 365 billion (The World Trade Organization). As for the import of commercial services, it totaled $ 3115 billion in 2009 versus $ 402 billion in 1980.

The highly interconnected hospitality, leisure, travel and tourism sectors together make up one of the main parts of the service sector. According to the World Tourism Organization (UNWTO) and International Monetary Fund (IMF), tourism has become one of the major players in ‎international commerce. It has been rising to the top in the world trade’s export of goods and services since 1998 and it continues to hold this leading position to this day1. According to the UNWTO forecasts, the total number of tourists will reach 1.6 billion people by 20202. Tourism accounts for 9.4% of the Global Gross Domestic Product (GDP), 9.4% of global investments, 7.6% of global employment3. Though the tourism share in the global GDP decreased by 0.5 percentage points from 9.9% over the period from the end of 2007 to 2010 and its share in the global employment declined by 0.8 percentage points from 8.4% over the same period under the influence of the world financial crisis, tourism is still one of the leading and most dynamically growing industries of the world economy.

Hospitality sector comprising all businesses that provide food, beverages, and/or accommodation services is now truly international, with a great number of workers in many local markets being from overseas, rising up to 50-60% in capital cities such as London4. There is an acute competition in international hospitality business, lots of different actors and initiatives. Different strategies are pursued by different companies.

As part of the tourist market and hospitality industry, the hotel market retains the industry’s patterns and tendencies. The main subjects of the hotel market are hotels and resorts. The industry is highly fragmented. The interests and diverse preferences of the hotel services’ consumers determine the contemporary structure of the global hotel market and a variety of different types of hotels and resorts worldwide.

The global hotel market grew at the average rate of 2% annually over the period of 2000-2008. The global hotel room number reached 17.5 million rooms in 2008. About 45% of the market (that is 7.7 million hotel rooms) is represented by famous hotel brands.

This sector was also damaged by recession. Over the next two years hotel values had declined due to the world crisis. Since then, values have recovered, along with hotel occupancy and nightly rates. Still, hotel values remain below their 2007-2008 peak, according to Green Street. The result is that the hotel industry's resurgence isn't happening fast enough to help owners of troubled hotels refinance or pay billions in due mortgages, including more than $9 billion alone in securitized mortgages (Spector & Hudson, 2011).

The phenomena of the global network hotel business in the last few decades reflects the overall hospitality business internationalization trend. The world hotel industry is globalizing at an impressive rate, local and international hotel chains being one of the main results of the process.

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