Root Causes of New Hotel Opening Delays in China

Root Causes of New Hotel Opening Delays in China

Gert Noordzy (Northside Consulting, Macau) and Richard Whitfield (East-West Institute for Advanced Studies, Macau)
DOI: 10.4018/978-1-5225-0196-1.ch102
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Abstract

In China, at least three new 150+ room hotels will be opened every day for the next 25 years according to available development pipeline data (Yang, 2011; Lodging Econometrics, 2013). This phenomenal rate of hotel construction has major implications for how new hotels are opened on such a large scale. China is a vital growth market for the global hotel industry, yet many of these hotel openings are being considerably delayed. This chapter reviews the future growth strategies and plans of the major international hotel companies in China, and examines the causes for these setbacks. The authors used a Causal Chain Analysis on data that were acquired from over 80 interviews with hotel management professionals in 2009. There was an overwhelming general lack of understanding of project management methodologies, concepts, and structures. These were found to be key problem areas (Thomas, Delisle, & Jugdev, 2001).
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Hotel Room Growth Projections

There are currently around 2.3 million hotel rooms in China (The Washington Post, 2011), a figure that has grown considerably since the beginning of China’s Open Door policy. In 1984, the first international hotel, the Holiday Inn Lido Beijing was opened, and in the following year, the Great Wall Sheraton Hotel was launched in the same city. In the subsequent years, almost all the major hotel chains have expanded into the Chinese market, establishing franchise and hotel management agreements with the local developers of new hotels.

Predictions are (Yang, 2011) that by 2025, the number of hotel rooms in China will rise to 6.1 million, equaling the expected US total by the same date. By 2039, the number of hotel rooms should reach 9.1 million, quadrupling the present total.

About 22% of Asia’s hotel inventory is branded, compared to 66% of North America (STR Global, 2012). Another key difference between the US and China is that the US growth rate is much more gradual, and has developed over a longer time period. A number of the major hotel management companies in the US grew through acquisition, as well as organic growth. Acquisition does, of course, occur in China, but examples of these transactions are much less frequent. The huge majority of hotel projects in China are new build.

Researchers reported that in May 2012, in China and India, a combined total of more than 850 branded hotels with more than 225,000 rooms were under construction (Ernst & Young, 2013). Hotel Investment Outlook 2014 reported that China’s hotel market is experiencing a general slow-down “following a crackdown on conspicuous consumption”, but “deal volumes are expected to keep pace in 2014” (Jones Lang LaSalle, 2013). Another global management consulting firm stated that “China’s explosive hotel market growth will continue unabated over the next decade and is far from reaching its saturation point (A.T. Kearney, 2013).

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