Impact of Chinese Investors in UK Budget Hotel Market

UNDERSTANDING THE GLOBAL HOSPITALITY AND TOURISM INDUSTRIES

ASSIGNMENT 2

CONTENTS

1.Introduction

This report will analyse the factors that may impact the feasibility of a group of Chinese investors investing in the Budget Hotel market in the UK. It will also examine globalisation, its advantages and its disadvantages. The report will carry out an internal and external analysis of the business environment looking at the suitability of the business project. It will also look at the competitors in the existing market and conclude with the issues they can meet like the language and the culture.

2.Background

2.1 “Globalisation (n) is the “process enabling financial and investment markets to operate internationally, largely as a result of deregulation and improved communications” (Collins) or – from the US – to “make worldwide in scope or application” (Webster)”.(Simon Jeffery,2002).

The positive effects of globalisation are increased competition, reduced prices, spread of education, more employment opportunities,and faster flow of information. On the other hand, the globalisation can have disadvantages like loss of traditions and cultures, environmental degradation,job insecurity.

2.2 The Chinese come in a very developed country economically speaking. “UK economic activity covering production, distribution, consumption and trade of goods and services. Individuals, businesses, organisations and governments all affect the development of the economy”.

Figure 1 shows the growth of Gross Domestic Product in UK (Source ONS)

Figure 2 shows the UK’s place in WORLD’S ECONOMY Source International Monetary

2.3 The Chinese economy experienced an amazing growth in the last few decades that allowed the country to become the world’s second largest economy. In 1978—when China started the program of economic reforms—the country ranked ninth in nominal gross domestic product (GDP) with USD 214 billion; 35 years later it raised to second place with a nominal GDP of USD 9.2 trillion. The Chinese economy advanced 6.5 percent year-on-year in the September quarter of 2018, after a 6.7 percent growth in the previous period and missing market consensus of 6.6 percent. It was the lowest growth rate since the first quarter of 2009 during global financial crisis, amid intense tariff dispute with the US and alarming off-balance-sheet borrowings by local governments. GDP Annual Growth Rate in China averaged 9.58 percent from 1989 until 2018, reaching an all time high of 15.40 percent in the first quarter of 1993 and a record low of 3.80 percent in the fourth quarter of 1990.

Figure 3 shows the growth of China’s Gross Domestic Product

2.4“As the name suggests these are the hotels that provide very basic facilities and amenities. A budget hotel caters to business travellers usually who only require a place to sleep and breakfast and are travelling on a tight budget. … A budget hotelis one which is locket friendly which is also called a economy hotel.”(Quora,2018) or  “no-frills, purpose-designed, and branded” (Fiorentino, 1995: 458), “low tariff structure, minimum range of facilities, limited range of services, strategically located, and newly/modular construction” (Senior and Morphew, 1990: 6), and “a clean, dependable, inexpensive place to stay for business people and tourists” (Deloitte, 2010:1).

The most important features for budget hotels are :

1. Value for money accommodation

2. Consistent accommodation standards

3. Hygiene and cleanliness

4. Convenient locations

5. Quality standards

6. Warmth of guest welcome

7. Staff training

8. Central sales/reservation system

9. Consistent service standards

10. Guest security

11. Efficiency of guest service (Brotherton, 2004: 955)

Figure 4 shows the factors for budget hotels (Source : International Journal of Hospitality Management)

2.5 HomeInns was established in 2002.Prior to the establishment of HomeInns, there were few budget hotels or hotel chains in China. XinyaStar and Jingjiang Inn were two of the more well-known ones, butthey did not operate a large number of hotels. These hotels helped the rapid development of the economy.For both businesspeople and tourists, luxury hotels were not an idealchoice. Three star hotels were too expensive, while cheaper hotelswere not decent, in terms of quality and service.During the past ten years, the number of budget hotels increase ,from a few of budget hotels a decade ago to 6000 budgethotels, with about 1.4 million rooms, around the country. In 2010,

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budget hotels accounted for39%of total hotel rooms inChina (ChinaTourism Academy, 2011).From 2004 to 2005, when rents decreased, thecompany chose to develop Home Inns, which proved to be a wisebusiness decision. The number of Home Inns reached 500 in 2008.Offering a clean room, with clean and comfortable beds, hotshowers, internet access, a working desk, all at a lower price,directly addresses the needs of the vast majority of the targetmarket: business people and domestic tourists. Most Home Innhotels have convenient locations, with easy access to either trainor major bus stations, or locations in business areas. Most of HomeInns’ targeted customers use public transportation as a first mode transportation; therefore, strategically locating Home Innsin this way has proved to be a successful strategy. The location of Home Inns in older parts of the city is also practice which permit the companyto keep costs down because rents are cheaper. The brand image of Home Inns has been firmly rootedin Chinese culture and values. The eye-catching hotel colors andhome-shaped logo reflect Chinese people’s desire for home. Thehotel design reflects a modern, yet simple.

Figure 5 shows the number of Home Inss in China; Geographic coverage of Home Inns in 30 provinces and municipalities in China (Home Inns, 2011) Source : International Journal of Hospitality Management

3.INTERNAL AND EXTERNAL FACTORS

3.1

Chinese will benefit of an qualified staff in UK because in the British hotels exist and educated ,trained , skilled stuff .

With the opening of the Chinese budget hotel , will apear a new brand in UK . It will not be known , so the Chinese have to do more marketing .

3.2

The budget hotel sector in China has a relatively short history. Jinjiang Innwas established in Shanghai in 1997, and it is widely considered as the firstbudget hotel in China. This sector has been developing at an unprecedentedrate in recent years. Twenty years ago, China had no budget hotels; however,by 2010, the country had approximately 6,000 budget hotels with about1.4 million rooms. These rooms comprise 39% of all hotel rooms in China(China Tourism Academy, 2011).

China Tourism Academy (2011)

Since initiating market reforms in 1978, China has chanced from a centrally-planned to a more market-based economy and has met rapid economic and social development. China touched all the Millennium Development Goals (MDGs) by 2015 and contribute a major contribution to the achievement of the MDGs globally. China’s GDP start growth since 2012.

China is the second largest economy in the world. Has a population of 1.3 billion.China remains a developing country (its per capita income is still a fraction of that in advanced countries) and its market reforms are incomplete.

Important policy improvements are required in order for China’s growth to be sustainable.  The experience shows that transitioning from middle-income to high-income status can be more difficult than moving up from low to middle income.

4.Budget hotel in UK

The budget hotel sector now accounts for 25% of the UK’s total supply and will continue to drive the growth of new hotel supply, with a further 11,600 rooms due to open in 2017.

That is according to Knight Frank’s UK Hotel Development Opportunities 2017 report. The research says the UK hotel industry saw the opening of 16,000 new rooms in 2016, a 2.7% growth in total hotel supply and a 20% increase in the volume of new hotel rooms opening year-on-year.

The analysis suggests this has been bolstered by the dramatic growth in the budget hotel sector, which now equates to over half of all new hotel supply, with 8,000 new rooms opening in 2016.Representing 57% of the forecast new bedroom supply and 64% of all new build properties, the budget hotel sector is set to stand at over 165,000 rooms by the end of 2017. (Price,2017)

Figure 6 shows the competition of budget hotels in UK , Source BUDGET HOTELS

The table from Budget Hotels 2010 UK shows that the biggest brand, Premier Inn, had 41,511 rooms at the end of 2009 which gave it a market share of almost 38%.

The nearest rival to Premier Inn is Travelodge with 27,010 at the year end, giving it a market share of just under 25%.

Premier Inn has over 750 hotels in the UK and Ireland, plus over 68,000 rooms in more locations than any other UK hotel brand. Is the largest hotel chain in UK .

4.1Coventry City Centre (Earlsdon Park) hotel

Figure 7 shows the Coventry City Centre (EarlsdonPrk ) hotel Source : Premier Inn

Figure 8 shows the location of the hotel , Source Premier Inn

THE GOVERNMENT SUPORT THE BUSSINESS

CBI helps businesses create a society prosperous. They say all are different, but all need same fundamental condition to grow up,achieve and create prosperity. CBI are pro-business because if the business succeed, it help the UK’s economy. Will be more places for work, more people will have jobs and after they will pay more taxes.

Inflation

“The UK inflation rate unexpectedly rose in August to 2.7%, the highest level in six months.

Economists had expected a Consumer Prices Index rate of 2.4%. The pound rose after the data was released by the Office for National Statistics.

Wages are still rising more than inflation, with data last week showing wages, excluding bonuses, grew by 2.9% in the three months to July.

Rising prices for recreational goods, transport and clothing drove the rise.

In July, CPI was 2.5%, , which had been the first jump in the index since November.”

Mike Hardie, head of inflation at the ONS, said: “Consumers paid more for theatre shows, sea fares and new season autumn clothing last month.”However, mobile phone charges, and furniture and household goods had a downward effect on inflation.”(BBC,2018)

Figure 9 shows the inflation rate rises in UK Source BBC

Language

The official national language of China is Pŭtōnghuà, a type of Mandarin spoken in the capital Beijing, according to the Order of the President of the People’s Republic of China. Many Chinese are also fluent in English. 

Food

The chinesecuisine is heavily influenced by geography and ethnic diversity. Among the main styles of Chinese cooking are Cantonese, which features stir-fried dishes, and Szechuan, which relies heavily on use of peanuts, sesame paste and ginger and is known for its spiciness. The issue is the Chinese food is not used in the British hotels.

Science & technology

The Chinese are also developed in another aspect, the transport. They have the bullet trains, Dubbed “Fuxing” which means “rejuvenation” which run between Beijing and Shanghai with 350 km/h.On the other hand, they are not so good in social media.For example, that one is a very good quality for UK, because they are using the internet which are really helpful making booking online.

5.Brands

“Branding is name, term, sign, symbol, or design, or a combination of these, that identifies the maker or seller of a product or service and seeks to differentiate them from those of competitors”(Kotler,2016)

Characteristics

The importance of brand

1. The Brand protect the consumer
2. Brands add more choice and assure a competitive economy
3. Brands suport the economy adapt quick and grow rapid

Figure 11 shows the UK brands Source : Trinity Mirrors

Figure 12 shows the China’s Brands Source :PINTEREST

6. Conclusion

In the above, it shows China will meet many issues in its coming, like the different language, the different food,culture,and customs. However, will be a very good decision for Chinese to come to open a new budget hotel in UK, because they come in a very development country, with a stablishedeconomy. UK also benefits of qualified staff and support the new business.

In the other hand, the Chinese budgets hotels will create more jobs and like this UK will receive more taxes, thing which will help the UK’s economy.

7. References :

 ●BRITISH BRANDS GROUPS “THE ECONOMIC IMPORTANCE OF BRANDS “ [ONLINE ] https://www.britishbrandsgroup.org.uk/2017/08/15/the-economic-importance-of-brands-seven-reasons-why-brands-still-really-matter/  [ACCESED 25.10.2018]

●CBI  “HELPING BUSINESS CREATE A MORE PROSPECTUOS SOCIETY “ [ONLINE ] http://www.cbi.org.uk/business-issues/prosperity/ [ACCESED 25.10.2018]

●HOSPITALITY NET “UK BUDGET HOTELS 2010” [ONLINE ]https://www.hospitalitynet.org/news/4048448.html[ A CCESED 25.10.2018]

●International Journal of Hospitality Management “What contributes to the success of Home Inns in china?”

●Journal of Quality Assurance in Hospitality & Tourism “Understanding Customer Satisfaction With Budget

Hotels Through Online Comments: Evidence From

Home Inns in China”

●LINKEDIN “PREMIER INN “ [ONLINE] https://www.linkedin.com/company/premier-inn [ACCESED 25.10.2018]

●LIVE SCIENCE “CHINESE CULTURE :CUSTOMS& TRADITIONS OF CHINA “ [ONLINE ]https://www.livescience.com/28823-chinese-culture.html [ACCESED 25.10.2018]

●ONS “ECONOMY” [ONLINE] [https://www.ons.gov.uk/economy] [ACCESED 25.10.2018]

●ONS “GROSS DOMESTIC PRODUCT: YEAR AND YEAR GROWTH” [ONLINE] [https://www.ons.gov.uk/economy/grossdomesticproductgdp/timeseries/ihyp/pn2] [ACCESED 25.10.2018]

●PINTEREST “CHINESE’S 50 BRANDS“ [ONLINE ] [https://www.pinterest.co.uk/pin/72690981461333530/ ] [ACCESED 25.10.2018]

●PREMIER INN “ COVENTRY CITY CENTRE EARLSDON PARK HOTEL “ [ONLINE ] https://www.premierinn.com/gb/en/hotels/england/west-midlands/coventry/coventry-city-centre-earlsdon-park.html?ARRdd=25&ARRmm=10&ARRyyyy=2018&NIGHTS=1&ROOMS=1&ADULT1=1&CHILD1=0&COT1=0&INTTYP1=DB&BRAND=PI[ACCESED 25.10.2018]

●THE CATERER “THE BUDGET HOTELS DRIVING UK HOTEL SECTOR GROWTH “ [ONLINE] [https://www.thecaterer.com/articles/502661/budget-hotels-driving-uk-hotel-sector-growth] [ACCESED 25.10.2018]

●THE GUARDIAN “WHAT IS GLOBALISATION ?” [ONLINE] [https://www.theguardian.com/world/2002/oct/31/globalisation.simonjeffery][ ACCESED 25.10.2018]

●THE WORLD BANK “THE WORLD BANK IN CHINA “ [ONLINE] https://www.worldbank.org/en/country/china/overview [ACCESED 25.10.2018]

●TRADING ECONOMY “CHINA GDP ANNUAL GROTH RATE” [ ONLINE] https://tradingeconomics.com/china/gdp-growth-annual [ACCESED 25.10.2018]

●TRINITY MIRRORS “RELEVANCE IS A VIRTUE” [ONLINE] https://www.trinitymirrorsolutions.co.uk/brandindex/ [ACCESED 25.10.2018]

 ●QUORA “ WHAT ARE THE ADVANTAGES AND DISADVANTAGES OF GLOBALIZATION “ ONLINE]  https://www.quora.com/What-are-the-advantages-and-disadvantages-of-globalization  [ACCESED 25.10.2018]

●QUORA “ WHAT DO YOU MEAN BY BUDGET HOTEL “ [ONLINE] [https://www.quora.com/What-do-you-mean-by-budget-hotel] [ACCESED 25.10.2018]