Starwood Hotels and Resorts Worldwide Inc. in China

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Current project represents analysis of the macroeconomics environment in China (including SWOT and PESTLE analysis). We have also analyzed already existed hotel chain within the country, from the investors point of view due to invest into the future projects of the hotel chain to support the economy of China. After cooperative search of the hotel chain, we decided to choose Starwood Hotels and Resorts. We believe that the already existed number of the hotels can increase rapidly, also bring advantages and positive impacts on the country's economy. The demand for hotels is great in especially in the Asia-Pacific region, where the pace of economic recovery is faster. Starwood Moreover, Starwood continues to see a good level of progress activity in of its 39 new deals have been made so far can take advantage of on this trend as its international coverage is wider than most of the other hoteliers. Around 60% of the company is to be built in Asian markets. in 2010. Revenue per available Room Since, the company Rate growth was 46% in China in 2010. 
Currently, China is driving the improvement in global tourism and, by 2020, it is likely to be the world's main tourism market. is targeting a lot of Chinese cities where the company is not located. We expect Starwood to considerably Asia, where 18 out benefit from this planned growth. 

 

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rate policy has The West has been a big concern in the global economy, mainly between the China and the West. long criticized China for keeping enjoys an advantage the Yuan at an low cost. value, They Chinas exchange claim China position due its manipulated lower Yuan as it makes China exports cheaper the Yuan to. The Western world believes that China had purposely caused the low current value of ¥6.83 to value of the When China note dollar. The Yuan's value has not changed from its the dollar since July, 2008. China denied Obama's claim and resisted pressure from him to raise the Yuan's value. down an 11.9 percent growth rate in the first quarter of 2010, many countries believe it would be reasonable to share the growth of the economy due to the Yuan. However, China did not find any reasons to do so then.

It is well known that China collects enormous quantities of foreign exchange reserves as part of its strategy for routing the yuan exchange rate, and that it prevents the US, Japan or the European Central Bank from get even by ruling out foreigners from investing in any significant yuan assets. Chinese has adopted a free-market having lesser state-owned enterprises and positive foreign investment has helped to lift up living standards in China. However, the political structure of China might not work in European countries, North America and other highly developed countries. This is because the political structure still lacks freedom of the people, which countries that are more advanced would not like. The party control over the state is rather tight when comparing itself to the democratic countries.

Trade policies can hurt or help an economy. Though allowing cheap Chinese exports allows consumers to purchase services or goods at low prices, some argue this trade relationship is because of the U.S. debt issues with China.

Background Information:

For a long time China was considered to be top civilization in the world. However in the 19th and early 20th centuries China underwent civil unrest, famines, and military defeats. Following World War II, China under Mao Zedong created an autocratic socialist communist system. In order to make sure of China's power and control he enforced strict rules and set of laws over everyday life of the people that killed millions of people. In 1978, Deng Xiaoping came rule and created a market oriented economic development. This caused the market to quadruple during 2000. The Chinese living standards and the choice of freedom had been improved. But political control still remained very tight. Since 1990 China has increased its partaking in international organizations due to globalization and economic factors. (Factbook, 2010)

Travel in China - Hotels and Accommodation

More than 5,200 hotels in China provide accommodation foreign visitors, with a total of 700,000 guest rooms and 1.41 million beds. These hotels are rated according to established international star-rating standards. By the end of 1997, there were 2,724 star-rated hotels in the country, including 57 five-star hotels, 157 four-star hotels, 895 three-star hotels, 1,339 two-star hotels and 276 one-star hotels.

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The tourism industry in China is one of the rapidly growing industries in the country and also has a very competitive edge. The total revenue of China's tourism industry reached $ 67 billion in 2002, which equals 5.44% of the GDP.

The total number of tourists was Mio. 91 in 2006, and that of tourists staying overnight was 32.7 million, about 10 times of the number in 1980. International tourism revenue were USD 17.4 billion in 2003. China's positions for both the overnight tourist arrivals and tourism proceeds were among the worlds top five in 2003. However, there is unlikely to be a big increase in the inbound tourism market.

China's domestic tourism market makes up more than 90% of the country's tourism traffic, and adds more than 70% of total tourism revenue. In 2002, domestic tourists reached 878 million and tourism revenue was USD 46.9 billion. The five day week and longer vacations have increased leisure time for the Chinese people.

A large middle class population with strong spending is beginning to grow from China, especially in bigger cities. China's outbound tourists reached 20.22 million in 2003, becoming bigger than Japan for the first time. Currently there are 65 areas open to Chinese tour groups. Not considering the threat of Sars and other unexpected events, based on the current economic growth situation and the social development of China, China's outbound tourism is ready to achieve a new growth.

China's tourist hotel sector is expanding rapidly. At the end of 2003, China had a total of 10,093 tourist hotels and more than 820,000 rooms, 773 of these tourist hotels were created by foreign companies as four- and five-star tourist hotels made up 26% and 30.02% of the national total.

In 2003, there were a total of 11,522 travel agencies in China, and 1,349 were international ones and 10,203 were domestic ones. While overall tourism market increased, there was a decrease in the market position. As competition increased China's tourism industry began to get low profits, although it was expanding its scale of operations.

Currently, there are about 15,000 natural, cultural attractions. Hong Kong investors are creating the buzz and tourist attractions in China. In 2001, Sichuan became the first province to suggest renting out scenic areas to foreign investors.

According to the plan by China National Tourism Administration, the number of tourists within the country, foreign exchange earnings from tourism and the domestic market are believed to have annual growth of 8%, in the next five to ten years. It is also forecasted by the World Tourism Organization (WTO) that China's tourism industry will take up to 8.6% of world market share to become the world's top tourism industry by 2020.

PESTLE Analysis

Political

The Peoples Republic of China was founded in 1949 after defeat of the Kuomintang nationalist party during the civil war. Afterwards the leadership of Mao Tse-Tung accomplished his communist vision of society. During the Great Leap forward millions died due to the state controlled program. Mao's death in 1976 caused new leadership and financial changes. In the early 1980's the government stopped collective farming and allowed the privatization of private enterprises. The rate of economic change has not been matched by changes within politics. The Communist party still retains its power and control over the people. Authorities still make sure that any opponents are immediately dealt with. (BBC.com, 2010)

Due to Chinas big population, and the large country made it very difficult to rule the country from Beijing. The economic changes in the 1980's and the transference of the government's decisions, as well as local communist party officials enriching themselves made it extremely difficult for the government to establish its authority within the population. The political power within China has become a lot less personal, but a lot more institutionally based than it was during the first forty years of the Peoples Republic of China. Deng Xiaoping was Chinas leader for a decade. however he never was the general secretary, premier of China, or the president. Because today's leaders of China are much more limited to their institution. Today's central government leaders have to progressively more and more approve and permit new policies among party members, local leaders, regional leaders, and the population. The Chinese government controls China through the control of information. China is considered by the Chinese communist Party to be at its groundwork stages of socialism. As China is in a major transition from public ownership in which a privatized ownership is important. The privatization of housing and the freedom of choice about studies and work weakened the Communist parties control over the Chinese society. Since the social, political, cultural, and economic changes creating a new way of life. The Chinese fear the Cultural Revolution and if the Communist party looses control there will be chaos, and due to that a vital system of control made to with stand the growing stress for political change.

Economic

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Today China is one of the world's top exporters and is attracting great amounts of foreign investment. The collapse in international export markets that accompanied the global financial crisis of 2009 hit China extremely hard, but this did not matter as its economy was among the first in the world to return to growth.

As a member of the World Trade Organization, China profits from access to foreign markets. But associations with trading partners have been stressed due to China's huge trade plus and the piracy of goods. Everyone is demanding the Chinese government to raise the value of its currency. This would make Chinese goods more expensive for foreign buyers and would therefore hold back exports, and that's why they have been very unwilling to make any changes. Some Chinese fear that the rise of private enterprise and the downfall of industries ran by the state that bring social costs such as unemployment and insecurity.

Moreover, the growing economy has increased the demand for energy. China is the largest consumer of oil after the US, and the world's biggest producer and consumer of coal. It spends billions of dollars in receiving energy supplies. There also has been a great investment in hydropower.

As China's economy during the past 30 years has changed from a centrally planned system that was for the most part closed to international trade to a more market-oriented economy. This caused the Chinese economy's private sector to grow rapidly and is a major part in the economy of the globe. As mentioned earlier reorganization started in the late 1970's with the end of collectivized agriculture, and extended to include fiscal transference, the development of stock markets, increased self-sufficiency for state enterprises, the foundation of a banking system that is diversified, the rapid growth of the non-state sector, liberalization of prices, and the opening to foreign trade and investment. Annual inflows of foreign direct investment grew to nearly $108 billion in 2008.

In recent years, China has changed and readjusted its support for enterprises in sectors it considers to be very important to "economic security,". After keeping its currency linked to the US dollar, China in July 2005 revalued its currency by 2.1% against the US dollar and moved to an exchange rate system. The swelling appreciation against the US dollar since the end of the dollar measure was more than 20% in 2008, but the exchange rate has remained since the beginning of the global financial social safety crisis. The restructuring of the economy and resulting efficiency gains has contributed an increase in GDP since 1978 by 10 times. Measured on power parity basis that adjusts the price differences, China in 2009 stood as the second-largest economy in the world after the US, although in per capita terms the country is still considered to be lower middle-income.

of millions of migrants and new the work force being entered. Thirdly China is trying reducing fraud within government faces numerous The secondary economic development challenges. Firstly the reducing its high domestic a purchasing savings rate and low domestic demand through increased corporate transfers and a strengthened net. Secondly the adequate job growth for tens the economic and other crimes, and limit environmental harm and social conflicts because of the to the economy's The Chinese fats changes. (gov.library, 2010)

Social

According to the National Bureau of Statistics, China's employment stood at 774.80 million persons at the end of 2008. Around employed, which is 27.306.54 million were employed in, which means 39.6% are the workforce. In the secondary industry were 2% of the total employed population 211.09 million individuals. The employment figure was 257.17 million the primary industry, which is 33.2% of China's workforce. The primary industry is involved in alter natural resources into main products, where most of them are used as raw materials for other industries. industry creates finished, usable products while another industry is involved in providing a service. Although the official estimates for China's unemployment situation seems to be very promising Ministry of Labor. The registered unemployed, this is not the case. While estimating the unemployment figures, the government only includes individuals who were belonged only to the urban regions. So, people living in rural areas were not in the registered with the Chinese evaluation of total unemployment.

Since the beginning government has changed of the Crisis of 2008, the Chinese went across the country its estimation methods. Several officials and tried to estimate the total migrants who were out of work. A survey conducted million migrants, 20 by the Ministry of Agriculture estimated that out of the 130 million were jobless. It also argued that around 23 million were looking for employment. The Chinese Social Sciences Academy did a survey of 7,000 people in where they believed the official by the data above, China's unemployment is bigger than what the government figures. It also worsened due to the global economic educated guess unrest, similar to the ones they experienced was 9.4 mid-2008. The % of the sample size needs to implement better measures was unemployed. So crisis in 2008. The Chinese government otherwise China might be experience in 1989.

In 2010 China's unemployment rate came in at an incredibly low 4.1% for Q3, according to the Chinese government. But this means that only 9.05 million urban Chinese are unemployed in Q3. As 9.05 million is 4.1% of the urban workforce that means the total workforce is 231.7 million. But the total population of China has hundreds of China is considered to be major problem for about 1.325 billion in 2008, which not in a position mean that millions who aim to join the party that's currently happening in the big economy is buzzing, the country cities. This causes a Beijing. Although the is to slow its growth by revaluing its currency. (White, 2010)

Technological

With the economy competitiveness of China growing, advances are also moving in the same direction. Some would be familiar with its technological China's fast better-known developments in technology; the examples are space travel, China's price is also difficult for anyone.

However, most would agree that China's technology industry still lags behind somewhat. Possibly putting century, which changing its dev econd thought by consumers. During the last elopments are patenting and rights issues. Piracy is rampant and generally not given a s two decades of the 20th are China's opening towards the West, China's scientific and technological development, not to speak of its economic development, accelerated as China made a series of significant improvements in the following areas:

Legal

The Chinese employment Northern European models. The Chinese system is a contract employment system system is based on Asian socialist and. This means all be engaged contract and during the term of that contract, it is very difficult to terminate an employee. An employee can only be terminated employer must maintain for cause and cause must be clearly proved. This to a written meanhe Chinese workweek is 40 hours and overtime must be paid fos the a set of rules and regulations and must employees must maintain careful discipline not really have the concept records specific salary for an employee. to be able to establish grounds for firing. China does of a Tr work exceeding the 40-hour limit.

Environmental

Economic development has been more approximately 200 million rural laborers rapid in coastal provinces than in the interior work. "one child" policy is that China is now one of the most rapidly aging countries in the world., and and their dependents One demographic consequence of the have relocated to urban areas to find worsening in the environment - notably air pollution, soil erosion, and 2005 levels government China continues to lose arable land because of erosion and economic development. In 2006, China the steady fall of the water table, especially in the north - is another long vowed to continue reforming the economy need to increase domestic seeks sources other, and is focusing to add energy consumption in order to make China less dependent on foreign GDP growth in the future.

reduce carbon intensity and emphasized, China a. The Chinese

capacity development

-term problem levels. In 2009. announced that by 2010 it would decrease energy intensrnative eneity 20% from 2005 nnounced that by 2020 it would 40% from than coal and oil production. the from on nuclear exports for and other altergy In demand for Chinese exports 2009, the global economic downturn reduced foreign for the first time in many years. The government

SWOT Analysis

STRENGTHS

Investment opportunity

High growth numbers in all sectors

Growth - will be fully industrialized by 2020

Growth of 9.6% in2010 and 8.5% in 2009

Government is committed to economic growth

National Resources

Rich reserves of natural resources

Large Population Base and Potential Customers

Large consumer base

Low cost of labor

Growing as a tourism destination

WEAKNESSES

Infrastructure

Railways, roads, communications and power supply are below European standards, however in regions like Shanghai or Beijing the infrastructure is at very high standards already

Traffic jams

Employees need customer service training

Energy consumption

Most energy is still being won through coal (Currently 60%)

This leads into environmental pollution

Pollution

Standards and rules have to be set to control the pollution

Education

200 million illiterates over the age of 15

Only 4.9% student enrollments to colleges and universities, which is below the 8% average of other developing countries

Average school time is only 6 years

Politics

Nobody knows how the political strategy of China will change in the future

OPPORTUNITIES

Direct Investments or Joint Ventures

China can profit from new technologies being produced directly in their country

Working together with global companies can increase the perception of China all over the world and open opportunities to new markets

New money coming into the country

Jobs being created

Demographic change

Larger middle class that would like to adapt the western way of life e.g. cars, houses, branded items, electronics and communication devices

THREATS

Politics

Lack of protection of intelligent property

Differences in human and work rights

Reporting and Accounting standards - corporate governance

Lack of reporting standards

No transparency

Cultural differences and traditions

May cause misunderstandings

Government controlled media, censorship

Rising jobless rate

Currency

Starwood Hotels and Resorts

Starwood Hotels and Resorts - known as one of the largest hotel and leisure companies worldwide, with 1000 properties in nearly 100 countries; include following, luxury and upscale full-service hotels, resorts and residences:

St. Regis - individual design and individual approach of service delivery for business and leisure travelers.

The Luxury Collection - high standards and very unique experience.

W- luxury and very modern with stylish design, include best restaurants, bars, lounges with special and interesting entertainment programs.

Westin - offers the best ,famous with "Heavenly bed " and "Heavenly bath" , offers Spa in the room services.

Le Méridien - European (with a note of France) style and delicious cuisine.

Sheraton- largest brand, offer: full service, comfort and special treatments for luxury, business and leisure travelers.

And following "select-service hotels" : Four Points, Aloft, as well as extended stay hotels such as Element. By the end of 2009 Starwood leased (franchised) 979 hotels with 292, 000 rooms in 100 different countries , employed over 145, 000 people. 1st of April 2010 Starwood opened its 1000th property in China (Sheraton Qiandao Lake Resort) .

China and Starwood

Nowadays there are 155 properties (which in total gives a number of 51,200 rooms ) of Starwood all over Asia Pacific. (Starwood Hotels & Resorts Worldwide, Inc., 2011).The World tourism organization, announced China - world's largest market for inbound and domestic tourism by 2015.According to the data and analysis of Starwood, China is being the most popular destination for the Starwood Hotels and Resorts. In 2010 with a help of Starwood special program "Special Guest" (SPG) it was proved that China attracts a lot of visitors, and the SPG increased for 58 % compare to 2009.Due to this fact , China is being second (behind US) worldwide largest destination for Starwood hotels. Statistics showed as well that compare to the past years there is a big demand of Chinese travelers (50 % more) rather than Western. (Gigi Ganatra, 2011)

Since all the Starwood hotels are situated all over the China, Starwood believes that Chinese travelers will choose the brands they already know from home, what means that Starwood will bit the competitors.

The first hotel of Starwood in China was opened in 1985 in Beijing (The Great Wall Sheraton Hotel), nowadays there are over 60 (4* and 5*) hotels, moreover, there are 70 hotels under development. As Matthew Avril (president of the hotel group for Starwood Hotels and Resorts) announced - the actual plan is to reach the number of 100 hotels by the end of 2012. (Weihua, 2010)

Why Starwood invests in China

As it was mentioned before, China is being second popular destination after US, and if we look into the stock exchange from 1990, we will see that it increased almost by 19 % a year. Analyzing the economy of China, we came up with advantages and disadvantages of the investments in China's economy. To begin with positive aspects of the investments:

During the economic crises China was found as one of the strongest country (considering economy), moreover during the past 10 years the gross domestic profit (GDP) of China increased by 7 % what is almost doubled the percentage of the US economy for the same period of time.

Over 200 Chinese companies work close with US , that means that Starwood attracts Chinese market within China and in US (for example business meetings) same as Americans on the territory of China.

The main reason to invest in China is, because nowadays there are a lot of business travelers who are coming to China, or traveling within the country and obviously they need accommodation, apart from local target, China is being recognized and had been found interesting for leisure travelers who are searching for the experience with a comfort, and if for example one, planes to visit several cities in China, he/she can choose Sheraton in all the cities.

Not long time ago, there was a high percentage of wealthy travelers coming from China, however nowadays there is a big percentage of middle class who can effort traveling around China or even worldwide, so it is a great opportunity for Starwood be promoted to the market.

Due to improvements in the infrastructure (roads, bridges, railroads, communications), nowadays China has been found very interesting as a country and as a tourism destination for Europeans and Americans. Starwood hotels and resorts is a great opportunity to spend holidays with.

Apart from the advantages why to invest in China's economy, there are couple of disadvantages such as :

Great cities like a Beijing, had been overbuild and polluted so some hotel chains are not interested in the investments into the hotels which will not be situated in the major cities of the country. There are also believes that China's economy and stock will fail.

Conclusion

The rapidly growth economy of China makes us believe, that any hotel chain should invest into tourism industry, that is why Starwood keep investing into the hotels development in China. By investing in China Starwood will maximize the profit as well as increase the tourism economy of China. The demand for hotels is great in especially in the Asia-Pacific region, where the pace of economic recovery is faster. Starwood can capitalize on this trend as its international exposure is wider than most of the other hoteliers. Around 60% of the company's 85,000-room pipeline is to be built in Asian markets. Moreover, Starwood continues to see a healthy level of development activity in Asia, where 18 out of its 39 new deals have been signed so far in 2010. Revenue per available Room Rate growth was 46% in China in 2010.
Presently, China is driving the recovery in global tourism and, by 2020, it is expected to be the world's largest tourism market. Since, the company is targeting various Chinese cities where the company is under-penetrated. We expect Starwood to considerably benefit from this strategic expansion. 

 

Chinas exchange rate policy has been a contentious issue in the global economy, particularly between the China and the West. The West has long criticized China for keeping the Yuan at an exceptionally low value. They claim China enjoys an advantage position due its manipulated lower Yuan value, as it makes China exports cheaper. The US president, Mr. Obama, accused China of being a currency manipulator during his early days in office.

The Western world believes that China had pegged the value of the Yuan to the dollar. The Yuan's value has not fluctuated from its current value of ¥6.83 to the dollar since July, 2008. China denied Obama's claim and resisted pressure from him to raise the Yuan's value.

When China recorded an 11.9 percent growth rate in the first quarter of 2010, many countries believe it would be fair to share the growth of the economy by appreciating the Yuan. However, China did not find any reasons to do so then.

It is well known that China accumulates vast quantities of foreign exchange reserves as part of its strategy for routing the yuan exchange rate, and that it prevents the US, Japan or the European Central Bank from retaliating by prohibiting foreigners from investing in any significant yuan assets. One solution that would not break any international commitments would be for the US and Japan to declare that they will henceforth only allow the sale of their public debt to countries whose public debt US and Japanese residents are also allowed to buy and hold.

Chinese has adopted a free-market strategy unlike the communist form of economic in the Marxism-Leninism Theory. Having lesser state-owned enterprises and encouraged foreign investment has helped to raise living standards in China.

However, the political structure of China might not work in European countries, North America and other highly developed countries. This is because the political structure still lacks freedom of the people, which countries that are more advanced would not like. The party control over the state is rather tight when comparing itself to the democratic countries.

Trade policies can hurt or help an economy. Though allowing cheap Chinese exports flood the market permits consumers to purchase services or goods at low prices, some argue this trade relationship depends on the U.S. debt problems with China.