Success Practices for Hotel Operators, Owners, Investors and Advisers in China Today

  1. The era of high profits are over for real estate developers in China. While hotel values in the majority of markets are at record highs, real estate owners need to improve and develop new business models. Identifying and exploiting growth opportunities remains vital, however, the next stage of planned growth is about quality not quantity. "One hundred flowers are blooming right now although we don't want a thousand flowers", stated one shrewd mainland observer recently at the China Hotel Investment Conference.
  2. Keep an eye on what really matters. Forecasts broadly suggest a continued slowing for the next 12 months for the Chinese economy. While cognisant of the de-leveraging trend, focus on the impact of government policies in China on "effective demand" for real estate, the desire to buy and the ability to pay, in each city, not just headline demand and supply metrics.
  3. Expect an abundance of mixed-development project opportunities. The residential market downturn will be offset by a continued boom in the commercial real estate market, and an increase in mixed-development project opportunities nationwide.
  4. Mid-tier and upper-tier hotels will be the key drivers for RevPAR growth in major cities across. Beijing has overtaken Shanghai as the major city with the strongest growth rate and that is likely to continue into the next three years.
  5. Eating Choices and Spending Dynamics. The correlation of high levels of personal disposable income with high levels of high hotel food and beverage expenditure in a city is likely to be accentuated in major and secondary cities. Watch out for increased competition from independent restaurants capturing a disproportionate market share of government officials and local enterprises' spending in secondary and tertiary cities.
  6. Corporate social responsibility and charitable giving on the rise. CSR and demonstrable charitable giving to social causes are becoming a key point of differentiation for developers and real estate owners wanting to build trusting relationships with local government officials.
  7. Is it time for REITs, Not Just Yet. Prevailing market dynamics are unlikely to support the take-off of the China REIT market until key market players are required to split and sell their businesses.
  8. Going Global. Depressed asset prices in Europe and elsewhere make this theoretically a highly attractive time for Chinese investment capital and Chinese hotel operators to go global, however, they are not the only game in town and will find fierce competition from India, the Middle East, SE Asia, Brazil and other cash rich investors. Executives at Greenland, Jin Jiang, and Wanda are readying for international growth. David Sun, CEO at Home Inns is amongst many others not looking beyond the mainland China borders.
  9. People think with logic and act on emotion. Understand the importance of "status" and "image" in Chinese investors and operators' decisions to go global. Chinese operators expanding internationally don't want to become "Chinese" brands for the 80 million outbound Chinese travellers, they aspire to be "global" brands for a global customer base.
  10. Priorities of Chinese brands readying for international expansion. Time, money and resource are predominantly being directed towards (1) building world-class standards and (2) quality (building the right hotel culture).
  11. Speed of consolidation, the coming trend. After a period of orderly competition, the next 12 months will be typified by the speed of consolidation, particularly, in the budget/economy sector and the increasing dominance of the Top 3 players in the Chinese hotel market. Their market share will likely to increase from 50% to 65-70% in a very brief time period. The highest potential acquisition targets will be 50 to 150 sized hotel portfolios.
  12. Value-destruction and M&A. Avoid the two most commonly observed mistakes with the merger and acquisition process in China: (1) failure to ring-fence valuable relationships with Owners, and (2) failure to properly align business, organisation and people strategies with upper management incentives.
  13. Determinants of success and failure in China. The key battle ground between international and mainland Chinese brands in China is the ability to (1) understand local culture and integrate your people, (2) differentiate brands in each location, and (3) successfully balance both issues.
  14. "Consistency" should not be overplayed by hotel operators growing their presence in China. While critical for the quality of the hospitality product, style, design, service and brand voice, no one wants to fly twelve hours and still be in New York. Think and act where it makes sense to be consistently inconsistent.
  15. Hold leaders directly accountable for attracting, nurturing and retaining talent. By and large the Human Resources function is too far removed in most operating companies and lacks the capability and credibility to address this issue. The most successful employers in China today have managers with explicit accountability plans for financial, operational and talent attraction objectives, reviewed on a quarterly basis.
  16. Profit before legacy or legacy before profit. Increasing importance of mainland and international hospitality leaders leaving a legacy of Chinese hospitality "icons", and the right set of beliefs that governs hoteliers' behaviour (culture), not just profit maximisation in a period of exponential growth.

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