Performance comparisons of hotels in China

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Abstract

China's hotel industry has only really existed since 1978. In that time, it has grown in size and complexity of ownership. Quality has been improved by the introduction of foreign management techniques and quality standards, for example the star-rating system of hotel classification. This paper compares performance of hotels using various hotel groupings according to ownership, size and star rating.

The comparisons indicate that better performance occurs in hotels that have foreign ownership connections (especially those linked to Hong Kong, Macau and Taiwan partners), those that are bigger and those which have a higher star rating.

According to the World Tourism Organization, China is forecast to become the world's number one tourist destination by 2020. This paper also identifies the major issues facing the Chinese hotel industry and the government as they face this astounding prediction.

Introduction

China's international tourism industry only got underway as a result of the Open Door Policy in 1978. By the year 2001, China had 33 million tourist arrivals spending US$17.8 billion China National Tourism Administration (CNTA, 2002). By 2020 China is forecast to become the world's number one tourist destination, with annual arrivals of 130 million (WTO, 1999). In addition China's own increasingly affluent population is creating a significant domestic tourism sector. There were 784 million domestic travellers in 2001 with revenues of around US$40 million (CNTA, 2001).

This tourism activity has stimulated China's hotel industry to grow from a base of only 137 hotels with 15,539 rooms in 1978 to a 2000 level of 10,481 hotels and 948,185 rooms (see Table 1). In that time, the number of hotels has grown at an annual average of 22.5%, with rooms and beds increasing annually by an average of 21.5% and 22.2%, respectively.

Despite such spectacular growth, China will need considerably more hotels to satisfy the future demand from increases in both international and domestic tourists. The various elements to be considered in hotel development decisions include current and future market demand, location factors, tourism trends and so on. Another factor to be considered is the performance levels of existing properties in China.

This paper uses available secondary data in an attempt to identify some overall performance comparisons between hotels in China. The secondary data used includes numbers of hotels and rooms and occupancy levels, along with revenue and fixed asset values. It should be noted that actual profit levels are not available for different hotel categories, thus comparisons are mainly based only on revenue and fixed asset values.

Section snippets

Comparisons by hotel ownership

In order to ease China's hotel shortage after the Open Door Policy, a diversification and decentralization policy of hotel investment was implemented in 1978. Diversification of investment did accelerate hotel development (Liu and Liu, 1993). However, decentralization resulted in a variety of different types of hotel ownership which until 1999 were listed as State-owned, collective, private, alliance, stock, foreign-invested and Hong Kong-, Macau-, and Taiwan-invested (CNTA, 2000, p. 92). The

Comparisons by hotel size

With reference to Table 1, it can be seen that the average size of hotels in China has varied over the years, but with no discernible chronological pattern. The average number of rooms per hotel is typically in a range between 110 and 160. However, in 2000 the average size dropped down to just 90 rooms. Closer examination of the statistics shows that from 1999 to 2000 the total number of hotels increased by 3446 whilst the number of rooms went up by 58,755. This averages only 17 rooms per hotel

Comparisons by hotel star rating

Whilst the quantity of hotels in China increased relatively quickly, quality standards of most hotels remained poor. Service problems were often attributed to the wide variation of hotel facilities and services, the lack of uniform hotel operation standards, inexperienced work-force (Tisdell and Wen, 1991), inadequate and unreliable information for marketing and planning (Liu and Liu, 1993) and lack of coordination in hotel administration owing to the complicated bureaucratic and financial

Conclusions and managerial implications

When considering hotels grouped by ownership, it would seem that the Hong Kong-, Macau-, Taiwan-funded properties produce the best performance levels. This is probably largely due to them applying international standard business and management techniques. However, they are probably also better connected within China and have a better understanding of the local environment. Anyone planning to do business in China must be attuned to the unique business practices that exist there.

In terms of hotel

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