Best Practices from the China Hotel Investment Conference
Three days of frenzied discussion took place in Shanghai late last month. For those who were present the immediate task was making sense of what was said, what was written and most importantly, what they saw happening with their own eyes in Shanghai.
What "key learning points" could those present and those absent take from the discussion:
- Six "macro" factors will continue to shape investment opportunities in China. Explosive population growth (the middle class will equal in size the combined US and European middle class by 2020), globalisation, urbanisation, infrastructure spending, the resulting connectivity and accessibility of cities and a 40% rise in air capacity.
- Chinese customers' preferences are in the highest "state of flux", according to McKinsey. The next 3-5 years represent the greatest opportunity for a brand to shape those preferences.
- Demand will continue to outstrip supply. A projected 8,100 hotels or 1.4 million rooms are required by 2020 based on current 8% demand growth vs. supply growth of 6.2%.
- Outbound Chinese tourism is expected to be at 100 million people in 2015. Branding needs to properly align with current Chinese travel demographics. According to CTrip: 58% of travellers are female; 70% are aged between 22-45 years of age. The fastest growth segment is those taking "Do It Yourself" trips not organised groups. 43% of travel is typically 1 to 2 days in duration.
- Exponential growth opportunity. Inbound tourism is characterised by a gulf in the mid-market hotel segment that represents a "massive opportunity", according to Chris Nassetta, Hilton Worldwide CEO, and a leisure market where local tourism is still in its' infancy.
- Growing at the right pace, one that makes sense for your brand, co-investors and people is a key determinant of success. "Too fast in luxury and that is a recipe for disaster", according to Ricco DeBlank, CEO-Hotel Division Sun Hung Kai Properties. "Too slow in the midscale and watch the China Growth Story pass you by", according to Jill Hellman, Managing Director, China, Thayer Lodging Group
- Franchising as a driver for growth is a subject that polarises opinions amongst global brands. For example, IHG are noticeably cautious while Wyndham are extremely positive. Three factors underlie their beliefs, the ability of a franchisor to identify local capability and customer demand, to find the right local relationship and the speed with which infrastructure spending translates into increased demand for roadside hotels.
- "Localising" your product will be a critical strategic choice for brand success in China. Brands need to give thought to their positioning in different cities. Their willingness to "stretch" brand standards, the desired vs. actual consumer mix, the need for the brand to be perceived as aspirational and locally relevant. For example, IHG report that consumers in the Tier 2 and Tier 3 cities represent 90%+ local business. 70% of repeat business across China is coming from Chinese customers.
- Talent attraction top business risk for international executives. Attracting, nurturing and retaining talent is "the most significant battle in the most challenging market with the greatest impact on our global growth. It will undoubtedly separate the winners and losers in our sector" according to Simon Cooper, President and Managing Director, Asia Pacific, Marriott International.
- Managing the perception and addressing the realities of working in the Chinese hotel sector are keys to success. According to Wang Jiang, a talented twenty-something advocate for the hospitality sector, "the reality is that for many of the brightest young Chinese people, the hotel industry is viewed as a dinosaur career path. The hours are exhausting and hotel brands are prone to short-term tactics that destroy trust, such as cuts to training when times are tough." Cai Shuo, VP Development at Pan Pacific Hotel Group, one of the first Chinese expatriate hoteliers, stated that "it is only since the early 1980's that the concept of service was deemed culturally respected in China".
- Brands who excel in China = Brand leaders who take personal ownership of the talent management implementation issues in China and do not delegate responsibility to HR.
- Brands that appeal to young Chinese hoteliers' self-interest (e.g. an insatiable desire for learning and development) out-perform those applying more prescriptive approaches. A recent case study from Interstate Hotels with a group of "high performers" found that immersing them in "leading edge" sales forecasting tools and techniques resulted in an av. 30% improvement in hotel operating margins and remarkable employee engagement scores.
- People leave managers, not companies. Brands inside and outside the sector in China who prioritise investment towards enhancing the relationship between an hotelier and his/her direct report, have on average a 10% or better employee retention scores. Key to their appeal is an employee perception of "harmony" and "care" (empathy) in that organisation. That manifests itself in an individual's ability to spend time with their family, pursue external learning interests, receive personal recognition from a business leader for a great customer experience, and perceive fairness and equity in the company's compensation system (eliminating variances between expatriates and Chinese employees close to zero).
- Nationwide training programmes don't work in China. According to Robert Murray, SVP Accor Greater China, they have witnessed an "exponential improvement on the return on investment" from individual customised training programmes.
- Brands must accept that customer needs create a demand for flexibility and pragmatism at a local property level. It is a reality, according to Cai Shuo that "owners in certain cases want a "white face" to confer credibility in the local community and with local dignitaries". If that means taking a pragmatic approach to diversity then brands should work with those demands rather than fight them.
- Marketing and distribution strategies need to adjust to the realities in China today. Online bookings will continue to be tangential to loyalty and other traditional "high touch" booking approaches in China. Currently only 6% of bookings are made online. Yet social media platforms and other "peer to peer" communication are increasingly influential on customer preferences.
- Adopting global standards of corporate governance is moving from an aspiration to a business reality for Chinese operators today, according to Feng Jing, Chairman Guangzhou Lingnan International Enterprise Group. Corporate Governance is central to Chinese brands leveraging their resources to greatest effect in a highly competitive local market and attracting the requisite capital.
- No one wants to be caste as boring but many leaders, as avatars for their international brands, are rapidly in danger of being given that sobriquet. They need to better understand the comfort zone and expectations of their audience and the speaking techniques used by their mainland counterparts. A minimum requirement is that a speaker or panellist should set out to motivate the local audience to take action not merely listen to their words of wisdom, display originality, be conversant with and use examples from different industry sectors, be comfortable taking and defending contrarian positions, use humorous personal disclosures and subordinate their ego. Flying 2,000 miles and delivering an "infomercial" speech or littering your panel comments with highly industry-specific examples, written by your Corporate Communications team, is wasting a golden opportunity to engage with your audience.
- Leveraging intellectual and financial capital represents a profound opportunity for International and Chinese hotel operators, investors and developers. Exposed to international practices many mainland Chinese brands and investors, some present at the Conference and others we have spoken to in the past 5 months, are actively interested in collaborative agreements with international operators both within and outside China.