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The Intra-urban Location of Hotels in the Chinese Cities of Beijing, Shanghai & Shenzhen CHEN, Wei and EGAN, David Available from Sheffield Hallam University Research Archive (SHURA) at: http://shura.shu.ac.uk/24935/ This document is the author deposited version. You are advised to consult the publisher's version if you wish to cite from it. Published version CHEN, Wei and EGAN, David (2006). The Intra-urban Location of Hotels in the Chinese Cities of Beijing, Shanghai & Shenzhen. China Tourism Research, 2 (4), 516-530. Copyright and re-use policy See http://shura.shu.ac.uk/information.html Sheffield Hallam University Research Archive http://shura.shu.ac.uk The Intra-urban Location of Hotels in the Chinese Cities of Beijing, Shanghai & Shenzhen 515 The Intra-urban Location of Hotels in the Chinese Cities of Beijing, Shanghai & Shenzhen David Egan, Wei Chen * Sheffield Hallam University, UK Yachan Zhang Shenzhen Huaqiao City Group Ltd., China Abstract: This paper reports on empirical research in three Chinese cities to test the Egan and Nield (2000) model of hotel location. The authors conclude that the Egan & Nield model is applicable to Chinese cities and that a hierarchy of hotels related to spatial location is observable. However, the complexity of Chinese cities and the current rapid expansion which is changing the spatial structure of the planned Chinese cities mean that, whilst the model can predict the general spatial pattern of hotel location, refinement is required in order to take account of agglomerative tendencies identified in the location of hotels in Chinese Cities. Key words: hotel location, China, tourism policy, urban 1. Introduction This paper presents some initial analysis of a study of hotel location in three Chinese cities. The work is part of a larger study which aims to develop an optimising model to help identify how important location is in the success of new and existing hotels. In this paper the authors report the successful application of an urban location model initially developed in the United Kingdom. The successful predictions of the model in both the UK and Chinese markets suggest that the model is identifying common principles underlying the location choice of hotels. * Corresponding author David Egan, Senior Lecturer, Centre for International Hospitality Management, Sheffield Hallam University, Email: [email protected]. Wei Chen, Senior Lecturer, Centre for International Hospitality Management, Sheffield Hallam University, Email: [email protected]. Yachan Zhang, Shenzhen Huaqiao City Group Ltd, Email: cantuotuo007hotmail.com. 516 David Egan Wei Chen Yachan Zhang The question of location is fundamental to the success of a hotel. Ellsworth Sattler, founder of the Sattler hotel chain and one of the pioneers of marketing in the hospitality industry, once said there were three factors necessary for the success of a hotel: these were location, location, and location (as cited in Hsu & Powers, 2002). It can be argued that the hotel location is part of the product and service of the hotel itself for it not only involves the convenience issue but also shapes the segmentation of the market. There is very limited literature on hotel location (Ashworth & de Haan, 1985; Bull, 1994; Pearce, 1995; Roubi & Littlejohn, 2004); as regards the booming hotel sector in Chinese cities nothing significant appears to have been written regarding the location of Chinese hotels. The Chinese hotel industry provides an interesting case for the study of hotel location as the current boom in hotel developments in certain Chinese cities creates the opportunity to test the hotel location model developed by the authors. A different approach to understanding hotel location has been developed by Roubi and Littlejohn (2004) who suggest that perhaps the often quoted notion of “location, location and location” for hotel success could be expanded into: location (prosperity of the area); location (general access to tourism business/commerce and travel infrastructure) and location (immediate proximity to facilities and positioning in the local environment). It has also been suggested that accessibility and transportation systems are increasingly important for urban development and hotel location by Wong and Lam (2001), who note that it is generally recognized that the preferred choices for hotel location are close to the airport, train station, bus interchange and highway interchange. This approach can be linked to some earlier work by Chuck (1994) cited in Roubi and Litteljohn (2004) on the impact of zoning, which can create agglomeration economies in specific districts of a city. Zoning can bring clusters of target customers to hotels and create new location choices for the hotel business. Although there are some differences in these approaches, the reality is that the underlying principles are the same, the difference is largely in terms of the detail, reflecting the starting point of the authors, the Roubi and Litteljohn (2004) work coming from a hospitality perspective whereas Egan and Nield’s work (2000) comes from an urban location theory perspective. The Egan & Nield model has been applied to other hospitality settings with some success (Egan, Knowles, & Bey, 2000; Egan & Ball, 2004). By combining the two approaches it is possible that a better understanding of the optimum location requirements of hotels may be identifiable. The long- term aim of this research is to develop an optimising model to predict the ideal location for different types of hotels. This particular study is a case study to test the general applicability of the model that is being developed by applying it to the dynamic market of urban China. 2. The Hotel Location Model In our model of intra-urban hotel location we adopt the traditional neo-classical economic perspective which emphasises the role of accessibility and rent in determining land use via a process of competitive bidding. The model is based on the partial-equilibrium bid-rent approach, developed The Intra-urban Location of Hotels in the Chinese Cities of Beijing, Shanghai & Shenzhen 517 by various economists in the late 1960s. The bid-rent model represents a development of the von Thunen (1826) model of agricultural land use, which was applied in an urban context by Isard (1956). This was further developed by Alonso (1964) into the concept of the bid-rent function, the approach to be employed to explain hotel location. It is important to note that Alonso’s approach is concerned with partial equilibrium. By contrast the New Urban Economics, developed in the 1970s, is based on a general equilibrium approach (Richardson, 1977). It is our contention, however, that a partial approach, with all its limitations, can still be a useful tool for analysing the behaviour of activities such as hotels, which exhibit a spatial hierarchy of land use. Alonso, in his original formulation for the slope of the bid-rent curve, presented the following equation: dp/dt ( (Vt - C v Vt -Ct ) /q. where dp is a change in the bid rent with respect to a change in distance; dt is the change in location; Vt is marginal revenue lost from moving an additional unit of distance t away from the centre; CvVt is marginal operating costs arising from the change in volume of business Vt (indirect effect of movement on operating costs); Ct is marginal increases in operating costs arising directly from a change in t and q is the quantity of land. Thus the change in bid price is equal to the change in volume of business minus the volume of business minus the change in operating costs. Alonso makes the assumptions that the volume of business will decrease with increasing distance from the city centre, so that Vt is negative; secondly, operating costs will rise so that the change will be positive, but preceded by a minus sign, and thirdly the quantity of land must be positive, the slope of the bid rent curve must be negative. Alonso (1964) notes that the slope will be such that the savings in land costs are just equal to the business lost plus the increase in operating costs. Thus the family of bid rent curves is very like an indifference map - the curves, being single-valued, do not cross and slope to the right. In the model the change in bid-rent is equal to the change in revenue minus the change in non- land costs, divided by the size of the site. Equilibrium is achieved by maximising profits, the lowest attainable bid-rent indicating the highest level profits, because land costs are minimised. In effect, hotels are trading off the benefit of a location against the costs, the presumption being that a hotel is looking for an optimal location i.e. a location which maximises profits. The obvious question from the viewpoint of a non-urban economist is why one would expect a spatial hierarchy of hotels within urban areas. To understand the process we feel it is important to go back to the foundations of urban economics and in particular the nature of the urban land market. The history of urban development in China is different from the Western world where the Alonso model was developed, therefore a discussion and review of the underlying principles and their potential applicability, and hence the suitability of the model to analyse the Chinese hotel market. A useful starting point is to consider what is often referred to as the particular nature of urban land. Kivell (1993, p. 13) notes that land is unlike most other commodities involved in the production process because it “possesses a number of unusual and complex characteristics”. He 518 David Egan Wei Chen Yachan Zhang suggests the following as being of particular importance: fixed supply in the sense that physical quantity of land is fixed; no cost of supply (land is often referred to as a free gift of nature); unique/ irreplaceable; immobile; permanence.

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