Issues Involved in Establishing a Range of Chinese Budget Hotels in the UK

Introduction

In this following report, there will be analysed the context, the advantages and disadvantages of globalisation process and also the issues that should be taken into consideration by the Chinese company in establishing a range of budget hotels in the UK.

Budgets Backgrounds

The budget hotel is the littlest division of hotels bringing rooms and meals at a low cost. Budget Hotels offer the fundamental aptitude to meet the elemental requirements such as daily room service, telephone, TV, air conditioning, mineral water, broadband connection.

The budget hotel category  now score   for 25% of the UK’s total supply and will continue to ride  the increment of new hotel supply, with a further 11,600 rooms expected  to open in 2017 (The Caterer, May 2017)).

Looking at hotel development opportunities, Great Britain, is in line with the report by Knight Frank (The Caterer, May 2017).

The analysis, which shows us that the hotel industry in the UK, opened 16,000 new rooms in 2016, which meant a 20% increase in the size of new hotel rooms opened at one year and an increase in the total hotel offer of 2 7%.

By the end of 2017, the budget hotels sector is set to stay at over 165,000 rooms, accounting for 64% of all newly built properties and 57% of new projection rooms. “We expect to see growth and diversification of the budget hotel sector and make sure that brands will refine their offer and that they will be the success story,” said Julian Evans ( May 2017).) as head of the Knight Frank hotel and health department.

Budget hotels are a relatively new concept in China. In terms of the mode of progress, leasing has been fashionable among the company-run budget hotels.

This report is based on studying factors that influence low-budget hotels by Chinese companies to choose the leasing (in the company’s operations) to expand their business to a hotel budget instead of the franchise or acquisition. Specialty literature describes leasing as a short-term strategy. Following a study (Journal Tourism Planning & Development ,volume 8, 2011), a questionnaire was given to take interviews from 4 budget hotel firms with domestic and foreign affiliation in China. In the included costs (including energy costs), the high speed of expansion, the uncertain future, government policies, standardization and rising property rents accounted for the interviewees as important factors. It has also been found that the strategies made for the development of budget hotels firms are not sustainable and that they should be modified in the future, if these hotels want to have sustained growth. In order to be successful it is vital the organisation assess their internal and external factors.

SWOT

PEST

                                        Competitor Analysis

Potential issues that the Chinese company may have to overcome

Gartner, vice-president of international corporate affairs, who thinks that credibility is still an issue for Chinese brands going global said that ‘“The domestic market is so large and has grown so quickly, so we are looking at where else we can find growth” (Marketing Week, 2016).Also as a Chinese company, to prove that your intentions are genuine, because there is skeptism,  you have to be aware of risks, due to operating in a highly competitive market. Which in turn opens up many potential challenges and highlighting the importance of building a trustworthy business. Concerns about credibility and gradual brand awareness could be a challenge for Chinese brands that want to enter the British market, according to Gartner (October 2018).A survey for Marketing Week ( October 2018) conducted by market research firms  Qualtrics showing that 38% of people have questioned the credibility and authenticity of a Chinese brand in the past due to a lack of trust as well as concerns over quality, counterfeiting and unethical production .In terms of consensus and sales growth after Euro 2016, the company has seen a “massive peak”, according to senior British marketing manager.

The major contemporary issues related to the Hospitality and Tourism industries

When establishing the budget hotels brand in the UK, the Chinese company needs to take into consideration a number of contemporary issues related to the hospitality and tourism industries such as the different politics of the two countries, finance and even terrorism.

Politics

Political conditions   will continue to be a challenge for the tourism industry .Tourism will continue to face an increasingly complex and confusing reality at international level .For example, despite governments claiming that they support tourism, visa restrictions have become more complicated .No nation seems to be immune to street demonstrations, acts of terrorism, wars, or bio-competition.

All these circumstances give negative publicity to the host village make travel difficult and not as appealing.

The United Kingdom has a much more democratic political system and public opinion that is heard more effectively “(On Weight, 2013),” compared to the Chinese system.

The Chinese brand should adapt to British mentality policy when it comes to the UK. As well as ensuring they understand and follow UK legislation and regulation as this will differ from Chinese policy. In China, ‘the country’s most senior decision-making body is the standing committee of the politburo, heading a pyramid of power which tops every village and workplace.

Loyalties, president Xi Jinping he builds with super humanists   and protesters are the influence of a leader, often for decades. Adapting standards and lifestyles is vital to the profitability of Chinese companies in the UK.

Finance

The Chinese company has to take account of Finance at the establishment of the budget chain)  A major impact on the hospitality and tourism industry is the cost of fuel, because when traveling to help the destination, the only solution is the transportation facilities. Also, ‘all forms of the travel and tourism industry have placed greater restrictions on what they offer and many have raised prices. Along with these restrictions, many parts of the industry suffer from either limited personnel or poor customer service.’ (Tourism & More, July 2006). So far these stresses have not caused a decrease in travel, but the potential for such a turndown is very present.

Threat of New Entrants

(tutor2u.net 2018)

 In Porters five forces, threat of new entrants refers to the threat new competitors pose to existing competitors in an industry (Wilkinson, 2013). The entry of the new ones into the market, affects the competitive environment and influences the existing companies’ ability to profit, according to Porter .We can say that new entrants are a danger because they are attracted to industry profits and can also easily enter the industry .The entry of the new ones into the market may present a danger or decrease the market share of the existing ones and may also lead to a change in the quality of the products and the existing prices.

Threat of Substitute

The Chinese will have a great potential to get higher profits when competition will be reduced amongst existing firms .There are several ways to address a special need, namely generic products .The customer analyses  the price and value offered by an item .From the point of view of what offers, varying more or less, the threat of substitutes can be difficult because the elements being compared are not exactly the same .For them to explore, there must be few switching costs for a consumer and switch to a more attractive replacement .We may have a higher risk of consumer change by consumers, as substitutes are more reasonable .Each company has the right to raise the price of its own product .A factor that leads to low profits and consumer migration is the shift to higher prices than substitutes .It is likely that consumers will want to make use of this difference and pass, provided the quality of the products is higher than any product .To realize the potential threats, the company must be creative in thinking and look beyond traditional competitors.( Martin august2014) .

Benefits and issues related to the globalization process

‘The Hospitality and Tourism sectors has benefited from the process of globalization and from the constantly falling relative costs of travel.’ (Developments and challenges in the hospitality and tourism sector, 2010:5) ‘Tourism is extremely labour intensive and a significant source of employment. It is among the world‘s top creators of jobs requiring varying degrees of skills and allows for quick entry into the workforce for youth, women and migrant workers.’ (Developments and challenges in the hospitality and tourism sector, 2010:11) Thus, it is easier nowadays for the Chinese company to establish its hotels brand in the UK as the cultural diversity is being promoted on the strength of globalization in tourism and hospitality industries.

Advantages

• It benefits from economies of scale, reducing the average cost of production.
• Due to cost reductions and increased revenue, globalization can generate higher profits for shareholders.
• Companies can compete on their own markets, also overseas, due to access to sources of cheap raw materials.
• Increasing trade leads you to creating more jobs in all countries.

Disadvantages

One of disadvantages will be:

Commodification

Conversion of a destination’s culture into a commodity in response to the perceived or actual demands of the tourist market which causes a loss of authenticity

Standardization

 Bringing recognizable features such as food, hotels, and movies to foreign destinations to make the tourist feel more comfortable in their surroundings

Displacement

Potential Loss of skills for future generations as a result of changing value to those practices

The demonstration effect

“…the demonstration effect is about copying behaviours and transferring values from one culture to another often in terms of economic aspirations.” (Cooper, 2012:102).

The role of Branding

“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, 2011)

In order to become a successful budget hotels chain, the Chinese company must obviously invest in branding. Branding is the most important feature of a company, as it helps it to be recognised worldwide, to maintain sustainability and attract many customers . Certainly, a brand is built from the real facts of a hotel services. This means that the Chinese company needs to meet the minimum expectations from a budget hotel in order to be able to become a brand. Based on the advertising, branding would really help the company to improve its success in the UK.

WAYS OF BRANDING

To differentiate this budget hotels chain from the competitors, the Chinese should create a memorable and easy to pronounce name of the hotels, a distinctive design of their symbol and a simple and identifiable logo as well. Branding is also about positive associations, no negative ones– as you expand into other countries, and language that suits the target market.

If the Chinese company set the target on both Chinese and worldwide tourists, they need to invest in multicultural human resource. The main target could be the Chinese citizens meaning that it would be obviously attractive if the staff spoke Chinese or they really were Chinese people. On the other hand, being a brand in the UK should mean that all kind of tourist’s culture are targeted. Thus, the staff should speak a very good English as well. The expected costumers could be business travellers or young people looking for short and budget trips. Taking these into consideration, the advertising of the Chinese budget hotels brand should include and promote all of the things mentioned above.

Conclusion

The report shows that after a thorough internal and external analysis the results how that the Chinese should be able to make a good financial investment.  As has been noted, there are series of issues that the Chinese company needs to count when establishing a range of budget hotels in the UK. As Chinese products are already on the UK’s market, the company should take a risk and work to become a brand in Britain, it might be successful.

References

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• Kotler ,P. and Keller , K. Marketing Management 
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         Price, K. (2018). Budget hotels driving UK hotel sector growth [online] Available at : https://www.thecaterer.com/articles/502661/budget-hotels-driving-uk-hotel-sector-growth [Accessed 19 Oct. 2018].

         Tourismandmore.com. (2018). Some of the Major Current Issues Confronting Tourism | Tourism & More Tourism& More. [online] Available at: http://www.tourismandmore.com/tidbits/some-of-the-major-current-issues-confronting-tourism/ [Accessed 19 Oct. 2018].

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