Scaling Up To China

U.S. hotel firms scramble for giant opportunity

That broadens the vista in cities of 200,000 to 500,000, which in China are considered Tier Five or Tier Six markets, says Presnick. “In a city like that, a budget hotel may be the best lodging option.” Doable, too: “The build-out here is probably one-sixth the cost of the U.S.,” he says. “Occupancy rates are very high on average in our sector — 85 percent, and that includes new buildings coming online. But the ADR is much lower, around $25.”

Franchising in China isn't so different, however. “When developers contact us or we find them, the first thing we send is a Uniform Franchise Offering Circular,” Presnick says. Super 8 and the developer craft a deal and typically, after review and approval, Super 8 signs a lease of 10 to 15 years. “It's a cash-on-cash return model,” Presnick says. The permitting process resembles that of the U.S., but financing is less common; “then again, total investment is between $1 million and $1.5 million for a 100-room property,” where one in the U.S. would cost $6 million.

Like other hotel executives I interviewed, Presnick says service is a key issue. U.S. brands are investing in hospitality schools to bring it up to Western standards; Super 8 has a training center in one of its franchises in Dalian, a city of about five million seven hours north of Beijing known for its education culture.

Hong Kong native David Kong is president and CEO of Best Western International, with 30 hotels in China and another 10 in the pipeline. “There's no labor shortage,” he says. “The challenge is people who can speak English. Most are very educated and eager to learn, and China's is a service culture; people smile and they're friendly and very accommodating. The challenge is the language and not knowing the proper etiquette.

“Most have never stayed in a hotel; all of a sudden, to work the front desk or as a housekeeper, they don't know how. But they are fast learners. Relationship is everything; people do business with people they know and trust.”

In China, the concept of “guanxi,” or “networking,” is key. So is “face,” evident in the highly ritualized, hierarchically arranged business luncheons that dotted our trip.

“If you want to do business in China, you almost have to speak the language,” says Wilburt Chang, chairman and chief executive officer of Howard Johnson Hotels & Resorts, China. “I've sat in meetings where a foreign general manager relies on his assistant to translate for him. There were several instances where very important issues were raised and the answer for the GM was one thing but the translator gave the exact opposite information to his counterpart.”

While service is one issue, quality control can be a problem, too. Hotels I visited spanned the Days Inn Forbidden City in Beijing (where the sink fell apart my last morning, mortifying the general manager), a Super 8 in Beijing where there was a dead fish in a restaurant aquarium, the gorgeous Regent Beijing (where the elegantly multi-cultural style is a collaboration between Marilyn Carlson Nelson and the owner, a Madame Chan), the sumptuous Howard Johnson Plaza Shanghai, the ultramodern Sheraton Xiamen, and the JW Marriott Hong Kong, a fine, 602-room business hotel atop Pacific Place, a high-end shopping mall.

CULTURE SHOCK AND AWE

At the tony Regent Beijing, which competes with a nearby Peninsula, St. Regis and Raffles, 70 percent of the business is corporate and meetings-based and the number-one feeder market is China, says Nigel Grocock, managing director. The U.S. and Europe follow. Room rates run $125 to $280.

Grocock, too, says quality labor is the biggest problem. Between the Regent and the adjacent Park Plaza, 770 staffers service 550 rooms. The lack of skilled labor is driving up salaries faster than inflation, he says; nevertheless, the typical “solution” is, if “you have a problem, throw another 20 staff at it.”

Revising service culture is a matter of education. So is reining in the expectations of Chinese hotel owners, says Howard Johnson China chief Chang. In an interview at the 360-room, five-star Howard Johnson Plaza Hotel Shanghai, he says about 80 percent of owners he deals with are real estate developers who have never built a hotel. The rapid return they expect can be unrealistic.

“I think 15 percent of the hotels in China make 85 percent of the money,” says Chang. “These happen to be internationally branded hotels, so they learn quickly that if they're associated with an international brand they stand a better chance of becoming profitable.” In China, where its typical management fee is 2.5 percent, four- and five-star Howard Johnsons compete with Marriott, Hilton, Sheraton and Crowne Plaza. They include urban business properties like the one in Shanghai, all-suite hotels and “service apartments” targeting those who need lodging for three months to a year. Also a market: expatriates, a growing presence in cities like Shanghai and Beijing.

Challenges? Hiring qualified upper management. As for regulations, Chang doesn't feel the Chinese government is heavy-handed, just strict. And the government, in an attempt to discourage speculation, has released new rules restricting foreign investment in hotels in an effort to keep the industry domestic, he says. “Because we're already here, we're not getting kicked out.”

Opportunity abounds. Building the first Chinese Wyndham in Xiamen may be a gamble, but both the executive overseeing the project and the general manager guiding it to opening this fall are confident it will pay off.

“When we try to develop the Wyndham brand in China, we look at Shanghai, Beijing, key cities,” Stephen Young, Wyndham's senior vice president of development for Eastern Asia and Indochina, tells me. Sharing that opinion: Lance J. Ourednik, general manager of the Sheraton Xiamen. “In this industry, we compete against each other,” says Ourednik, who came to Xiamen when the Sheraton was just “a slab.” Recruitment, training and retention of quality employees are the rub. “I don't think any hotel has 100 percent of its budgeted work force,” he says.

At this sharp Starwood property, which is owned by a major steel company, occupancy was 97 percent Nov. 15. My room was modern, comfortable and stylish, and Internet access was good and free (though, as usual, censored). Ourednik says competition will quicken when the Wyndham opens, along with a Crowne Plaza. “We're doing what we're doing,” he says. “We're going to do more of it and work with our competitors, not against them. You need to be sensible and try to avoid rate wars.”

Young says Xiamen is critical to Wyndham because it's one of only three Chinese cities served by Hong Kong airline Cathay Pacific, and “when Taiwan and China become more friendly, Xiamen is going to draw a lot of traffic across the border.” Another tourist attraction: Gulang Yu Island, a former foreigners' outpost a brief ferry ride from Xiamen.

The trick is to grow “not just as a global brand but as a strong local brand,” he says. “It's not only marketing; at breakfast, in an international hotel, normally you see only the Western set: bacon and eggs, cereal. In China, you see different things including rice, noodles, sushi, Chinese buns, soya bean milk, and congee (Chinese porridge).

“Our future in China is not only to become the number one international brand but a strong local player as well. The majority of travelers are local people.”

Who should be served well. That isn't easy, if you're hiring to Wyndham standards. That's Dominique Galperti's task as GM of the imminent Wyndham Xiamen. As of November, the multi-lingual French native had hired only directors of human resources and engineering — both locals.

“The challenge would be to have a very well-versed European or American come here with a service-minded attitude and pre-opening experience and Chinese culture understanding — or at least knowledge,” says Galperti. “That would be perfect.”

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