Marriott International’s Expansion in China, Research Paper Example

Abstract

In the contemporary business world, for a company to succeed, it is no longer enough to create a compatible product or to achieve a great value for money. In order to achieve success, a business has to analyse its performance systematically and take a chance in the new markets if certain opportunities arise. The aim of this paper is to analyse Marriott International’s successful performance in Chinese market with the introduction of its initiative to strengthen and further develop company’s presence in this market.

Key words: market expansion, globalisation, hospitality, Chinese market.

Marriott International’s Expansion in China

In the contemporary business world, for a company to succeed, it is no longer enough to create a compatible product or to achieve a great value for money. Nowadays, in order to achieve success, a business has to analyze its performance systematically and take a chance in the new markets if certain opportunities arise. The aim of this paper is to analyze Marriott International successful performance in Chinese market with the introduction of its initiative to strengthen and further develop company’s presence in this market.

The background and the description of the initial situation

Marriott International is US-based in Maryland. It is famous for the diversity of brands within its network spread across the globe. It owns around 4,000 properties, 690,000 rooms across 78 countries. Its revenue in 2013 estimated $13 billion. Among some of the most popular brands are Marriott Hotels, Bulgari, The Ritz-Carlton, Renaissance, EDITION and Gaylord Hotels (Yu, 2012). The company is also globally recognized as one of the top employers for its human-centered and high working ethics values within the organization.

In terms of the correlation between new markets and seizing opportunities, Marriott International places globalization and internationalization at the heart of its corporate strategy, outlining the human-centered and culture-friendly approach to business conduct (Yu, 2012). Thus, for a global player like Marriott International, simple presence on the foreign market is not an option, but the establishment of long-termed and functional connections with the local communities to make its economic presence more systematic and long-termed. In terms of the presence of the firm in Chinese lodging market, it started before the discussed situation in 2011, which was in 1998, when the country was still recovering from the Asian financial crisis of 1997. In the next few years, the company introduced the New World brand together with Courtyard brand to the Chinese market. The second brand targeted primarily regional and domestic business customers together with leisure travellers requiring luxurious and high-quality accommodation for the best price (Boone and Kurtz, 2013). From the early stage, since the company was a new entrant to the local market, the company aimed to make its brand recognizable through culture-oriented and creative approach to branding:

“It has developed a cobranding strategy with the New Word brand since its name is more familiar to the Chinese consumers. Therefore, Marriott Courtyard Hotels will be named New World Country by Marriott for the initial years of operation. Once Marriott is more established, the hotel will be renamed Courtyard by Marriott” (Chon et al., 2002, p. 137)

This entrance strategy demonstrates a few features about Marriott International’s approach to opportunities and challenges that are crucial to take into account in the further discussed situation.  First of all, irrespective of being a late comer the company took advantage of the seemingly negative situation in the Chinese market due to the financial crisis. For the company, it meant cheaper prices on property and an opportunity to expand its presence. Secondly, the company used culture-oriented branding in order to strengthen its long-term position on the market, which became a precondition for its success in the studied situation.

The studied situation is the decision of Marriott International to expand its presence in China in 2011, from 56 hotels of Marriott top brands operating in 2011to 100 in the following three years: “Marriott International is further cementing its position as a leader in the hospitality sector in China with the signing of its 100^th hotel – the 345-room JM Marriott Shenyang” (Marriott, 2011). This further expansion does not only show the success of the previously taken opportunity and the entrance of the Chinese market in 1998, it is also another example of taking an opportunity in a foreign market. Since, after the global economic crisis of 2008, many economies were negatively influenced and had negative GDP growth rate, China was one of the very few who went through the crisis with increasing GDP rate. For the business and luxuries-oriented hospitality company like Marriott International vibrant business environment and economic growth are crucial for their development. Consequently, strengthening its positions in the Chinese market which was boosted business interactions due to its stable economic performance (Yu, 2012). Thus, the decision to open a new hotel every month in China characterized by advanced design, style and quality of services confirmed company’s belief that it was the right time and the right place to strengthen its presence.

The outcome of the initiative was successful. The company managed to boost its presence when others were still preoccupied with the recovery from the economic crisis. Nowadays, the Chinese hospitality sector is growing at an immense speed being a $44 billion business with more than 2.5 million operating hotel rooms. Companies like Marriott International that managed to expand after the global economic crisis, nowadays, became the core of the Chinese hospitality business and continued to grow. In 2013, Marriott International had 67 operating hotels in China, with 80 in various stages of development, planning to reach the target of 150 hotels by 2016 (Hamilton and Webster, 2015). In this regard, company follows the trend of diversifying its target customers according to the on-going trend in the Chinese market, where  in the timeframe 2015-2020, high end hotels segment growths is expected to rise from $16.7 billion to $24.8 billion and middle-scale segment from $36.3 billion to $56.8 billion (Hamilton and Webster, 2015).

Chosen factors for analysis

The three primary factors chosen for the analysis of this case include inter-firm rivalry, the rarity of capabilities and informal institutional constraints including cultural values and norms of social pressures.   In order to realize why these three factors were chosen from within each category influencing the success or failure of a firm, each factor has to be defined. By inter-firm rivalry is meant a competition between companies within the same economic sector or market segment in order to gain competitive advantage and business success through various means (Yu, 2012). This factor was chosen because it is an inevitable factor of any global environment and in the case of expanding one’s presence in a foreign market the level of competition in the target segment would be a primary barrier to entering that market. In a long run of an expansion on the existing market, the monitoring of competitors’ performance is crucial in realizing where their flaw and which gap the further expansion can fill in (Boone and Kurtz, 2013).

The rarity of capabilities means that the combination of resources is rare by their very nature. In this regard, the expected revenue from using this type of capabilities would be significantly increased since the uniqueness of combined capabilities is likely to result in the uniqueness of the service or product development (Boone and Kurtz, 2013). This factor was chosen in order to evaluate until which extent Marriott International had distinctive capacities for expansion and its success on the Chinese market.

By informal constraints are meant the cultural specifics of conducting business and providing certain services in the environment of a foreign country which is much different from the initial country of business’s functioning (Yu, 2012). In this regard, among potential constraints are the differences in value systems, religious specifics, a socio-political system of the future working environment, and cultural distinctiveness of demand in the target market. This factor was chosen for the analysis because it is an essential factor for company’s successful performance on the foreign market. Without understanding of the informal dimension of doing business in a certain country, the company cannot succeed and definitely cannot expand further.

Impact of the chosen factors on firm’s behavior and performance

In terms of inter-firm rivalry, it was the crucial factor in Marriott International further expansion in 2011. In this regard, while global hospitality companies like Accor, Hilton Worldwide Holding and InterContinental Hotels Group due to their single-segmented orientation had to recover from the global economic crisis, Marriott International decided to overrule the time of their relative slowing in expansion by expanding further in China as the most perspective market for the next couple of decades (Boone and Kurtz, 2013). In this regard, the multi-faceted strategy of further expansion in China was conditioned by company’s desire to cover existing gaps where its primary competitors were failing.

For instance, while Hilton was oriented on luxurious hospitality market exclusively, InterContinental on middle-scale hospitality and Accor was trying to work on the entire spectrum from budget options to luxurious experiences (which resulted in overstretching of the budgetary dimension influenced by the crisis), Marriott International decided to combine orientations of Hilton and InterContinental, since luxurious and middle-scale hospitality  would prevail in the Chinese market for the next few decades (Yu, 2012). Thus, in order to increase its compatibility on the Chinese market where these three rivals were also present, Marriott International decided to expand its presence through the diversification of brands represented on the Chinese market (Boone and Kurtz, 2013).

The rationale was that although luxurious trend would prevail irrespective of economic instabilities, it would remain oriented towards a very limited number of customers belonging to the category of tycoons and millionaires. On the other hand, orientation on middle-scale brands resulted in targeting a wider and more vibrant customer segment of business and leisure travellers who would increase in the Chinese market due to its stable economy in 2011 and further predictions of its growths (Yu, 2012). Consequently, by taking an early opportunity to expand diversely in contrast to its direct rivals, Marriott International had increased its multi-segment presence on the Chinese market, which became its primary and widest market in the Asia-Pacific region. In this regard, the performance of the company on the Chinese can be traced through the revenue per available room (RevPAR). In company’s worldwide RevPAR has increased by 4.6% in terms of constant dollar basis, with daily rates increasing by 3%. For the Asia-Pacific region, occupancy of properties was estimated to be 73%, while fro Europe, 73,5%, which suggests  a very slight difference and also the relative parity of revenues from Asian region and Europe (Hamilton and Webster, 2015). Thus, the company has succeeded in equaling its representation in Asia, mainly China with the traditional European market (Boone and Kurtz, 2013).

In terms of rarity of capabilities, Marriott International had a greater advantage over its competitors in the Chinese market because of its unique technology-oriented philosophy and innovative vision strengthened by availability of resources for Research and Development team (Boone and Kurtz, 2013). In this regard, unlike traditional hospitality business approach, Marriott International does not concentrate just on quality, standards and value for money; it uses its resources for the creation if an unforgettable, unique and advanced experience for its customers. In this regard, in order to make new expanding brands more distinctive and compatible in the target market, the company applies diverse innovation initiatives (Yu, 2012). For these purposes, various brands are characterized by advanced information technologies from inquiry apps and advanced mobile checking-in apps to healthy vending and digital synchronization of smartphones with room’s characteristics (Boone and Kurtz, 2013).

In this regard, the main rare capability used by Marriott International in driving its innovations and increasing its compatibility on the target markets is the use of its customers as the source of innovative ideas for the improvement and modification of its properties worldwide (Yu, 2012). Although it may seem that involvement of customers is nothing new and feedback is used by most of the companies, Marriott International applied this capability on an entirely new level by using online campaign to stimulate innovative thinking of its customers. The “Travel Brilliantly” campaign made the connection between customers’ ideas, expectations and company’s reflection of them more interactive, creating an entirely new capability for innovations and customer experience (Boone and Kurtz, 2013). This factor created the diversity of customers-requested services in various locations including the Chinese market, which increased company’s performance in that market, since diversification  of technological and personalized experienced in the Chinese market was and still is relatively a rare phenomenon (Yu, 2012).

The final factor is informal institutional constraints. In order to success in the Asian market, and in Chinese in particular, the company had to take into account informal or cultural dimension of its performance. In this regard, Chinese cultural values had to be taken into account in order not to contradict and violate them. In order to conform to the local and national modes of services provision in the framework of culture-friendly approach, the company hired staff primarily from the local population (Boone and Kurtz, 2013). This helped to gain inter-cultural understanding. In terms of institutional perspective of cultural integration, Marriott International outlined its commitment to work with the local communities in building their economic, social, political and cultural aspects of life, demonstrating company’s intention to stay in the market and in the local communities for a long term (Boone and Kurtz, 2013). In other words, the company suggests that it is an equal partner ready to evolve together with cultures it works with. This culture-friendly approach to business resulted in the acceptance of the Marriott International brands in the relatively traditionalist Chinese society over the other competitors that followed more Western-oriented approach (Yu, 2012).

Analysis of outcome

In terms of the existing outcome and company’s further expansion in the Chinese market, it is most unlikely that firm could do any better than it does at the moment, since it captured the opportunity to expand at the right time and used it to its full extent. On the other hand, probably if it had decided to expand earlier in 2008-2009, it would manage to achieve a greater revenue and have 150 hotels already built in China. Then, it would be the dominant company in high end and middle-scale segments of hospitality business in China. In this regard, although the direct revenues would not be seen in the early stages of expansion, they would be garter in a long-term perspective.

However, the investment into expansion in 2008-2009 would have been characterized by a greater risk than in 2011, because the market predictions both in terms of China and global hospitality business were quite vague in 2008 when the global economic crisis was still very sensible in all industries. From another perspective, in 2008-2009, global tourism like many other industries was suffering a decline. Thus, the further expansion in the Chinese market at that time would not an immediate success and increase in PevPAR mainly because people were travelling less both for business and leisure purposes.

In terms of performing less successfully, the company could make a mistake of expanding only in one segment of brands orientation, thus decreasing its overall competitive capacity with three other sectorial rivals. It could also orient on the low-cost or budget hotels segment, which is characterized by a great variety of competitors and substitutions and lower rate of revenues in contrast to the other two segments (Yu, 2012). Although this segment is predicted to expand further in 2015-2020 from $12.2 billion to $19.3 billion, in a long-term perspective, the increase in its revenues cannot compete with two other segments separately or together taken (Hamilton and Webster, 2015).

Strategic Perspective explaining the situation

Marriott International expansion behavior and outcome are explained by market penetration expansion strategy combined with diversification and customization of products according to the target market’s requirements. In this regard, although the company was present on this market before, it diversified the number of brands and customized them according to the requirements for the target local market and particular characteristics of hospitality segment (Yu, 2012). In this regard, company’s success can be explained by the placing of the expansion strategy in the heart of its corporate strategy and orientation on human-centered and culture-friendly dimension of expansion in the foreign market.

Market penetration strategic perspective explains the company’s behavior and consequent success mainly because for the successful further introduction of new products in the target market, the company has to know in which directs to introduce new products (in this case which brands to represent and which segments of the market to target). Marriott International already knew the Chinese market from 1998 till 2011 and based on market estimates it predicted that the most potential segments of the hospitality sector in the next couple of decades would be high end and middle-scale segments. Consequently, it diversified it brands presence in the Chinese market according to these expectations and proved to be right.

References

Boone, L. and Kurtz, D. (2013). Contemporary Marketing. New York, NY: Southwest Educational Publishing.

Chon K., Gunagrui, Z., Lew, A. and Ap, J. (2002). Tourism in China. London: Routledge.

Hamilton, L. and Webster, P. (2015). The International Business Environment. Oxford, OX: Oxford University Press.

Marriott. (15 November 2011). Marriott International Announces its 100^th Hotel in China. Retrieved from http://news.marriott.com/2011/11/marriott-international-announces-its-100th-hotel-in-china.html.

Yu, L. (2012). The International Hospitality Business: Management and Operations. London: Routledge.