Proceedings of the 5th WSEAS International Conference on Economy and Management Transformation (Volume II)

International chain strategies used into the world compared with Romania

SMARANDA COSMA, FLEERIU CRISTINA, CLAUDIU MORGOVAN, MARIUS BOTA Business Department, Faculty of Business BabesBolyai University 7 Horea str., 400174 ClujNapoca ROMANIA [email protected], http://www.tbs.ubbcluj.ro

Abstract: - The study investigates the strategies used by international hotel chains to enter into Romanian market compared with their main strategy for penetrate a foreign market. At this moment, there are 46 in Romania that belong to 16 international hotel chains which have penetrated our tourist market. The methods that the international hotel chains are using to penetrate the Romanian tourist market are based on the top four forms that are used to penetrate a foreign market: franchise, management contract, the leased contract and the private property. These methods have been chosen and used in Romania by international hotel chains depending on the overall hotel chain strategy and the benefits they offer. It’s easy to see that a big part from the international hotel chains that are on the Romanian market are using the principal strategy also on this market, but there are also hotel chains that are using another strategy.

Key-Words: - international hotel chain, franchise, management contract, leased contract, private property.

Bucureti 1 Introduction 4. Hotel According to the statistical data [1], there were a Topaz ClujNapoca total of 1316 hotels and , of which 1170 5. Best Western Savoy Hotel ConstanŃa hotels and 146 motels, in the year 2009. Among 6. Best Western Bucovina these, there are currently 46 hotels belonging to – Club de Munte Gura Humorului international hotel chains. At the moment, there are 7. Best Westen Hotel 16 international hotel chains on the Romanian Ruca Hunedoara market, namely: Golden Tulip Hotel, Best Western, 8. Best Western Rogge Hotel ReiŃa Danubius Hotels, Hunguest Hotels, Ramada, , 9. Best Western Hotel , , Howard Johnson, Radisson SAS, FântâniŃa Haiducului K+K Hotels, Hilton, Marriott, , Sibiu 10. Best Western Intercontinental and NH Hoteles (Table 1). In turn, Ambassador Hotel these hotel chains belong to other larger Timioara 11. Best Western Mese international chains of hotels. Hotel Zalău 12. Best Western Hotel Table 1: International hotel chains present in Rapsodia Botosani 13. Best Western Hotel Romania Astoria Iasi Hotel chain Hotel The hotel chain 1. Danubius Health Spa Danubius Danubius Hotels belongs to a Resort Sovata group Hotels 2. Hotel Brădet Group 1. Hotel Golden Tulip 3. Hotel Făget Bucharest Victoria Hunguest 2. Hotel Golden Tulip Times 1. Hunguest Hotel Fenyı Hunguest Hotels 3. Hotel Golden Tulip Hotels Miercurea Ciuc Hungary Mamaia Golden Tulip Golden Tulip 1. Ramada Sibiu 4. Hotel Golden Tulip Ana Hotels, Inns, 2. Ramada Bucharest Tower Sibiu Resorts Majestic Hotel 5. Hotel Tulip Inn Sunny 3. Ramada Hotel & Suites Hill ClujNapoca Bucharest North 6. Hotel Golden Tulip Ana Ramada 4. Ramada Bucharest Parc Wyndham Dome ClujNapoca 5. Ramada Plaza Bucharest 1. Best Western Central Convention Center Worldwide Hotel Arad Best Western 6. Ramada Iai City Centre Best Western 2. Best Western Hotel International 7. Ramada Braov Eurohotel Baia Mare Howard 1. Howard Johnson Grand 3. Best Western Stil Hotel Plaza Hotel Bucureti

ISSN: 1792-5983 726 ISBN: 978-960-474-241-7 Proceedings of the 5th WSEAS International Conference on Economy and Management Transformation (Volume II)

Johnson 2006, page 324) Pullman 1. Hotel Pullman Bucharest Word Trade Center Each international hotel chain that has come to Novotel 1. Hotel Novotel Bucharest City Centre Romania relies on a strategy for internationalization. 1. Hotel Ibis ConstanŃa Hotels But the most common forms to penetrate a foreign 2. Hotel Ibis Bucureti market, which have been used in Romania, are the Ibis Gara de Nord 3. Hotel Ibis Bucureti management contract and franchising. Palatul Parlamentului 4. Hotel Ibis Sibiu What does the franchise entail? Radisson SAS 1. Hotel Radisson SAS Bucureti Hotels & Resorts • Benefits: Maintains the independence of the 1. Athenee Palace Hilton The Hilton hotel, including the centralized reservation Hilton Bucharest Hotel Family 2. Hilton Sibiu system, joint participation in international fairs, JW Marriott 1. JW Marriott Bucharest Marriott catalogs joint presentation, joint marketing Grand Hotel strategies, communication providers. This means, 1. Crowne Plaza Hotel Crowne Plaza IHG Bucharest automatically, lower costs for the hotels. In (InterContinental 1. Hotel Intercontinental Intercontinental Hotels Group) addition, membership fees are low compared to Bucharest charges of a management contract. In a franchise NH Hoteles 1. NH Bucharest NH Hoteles 2. NH Timioara contract, the owner chooses the hotel K+K Hotels 1. K+K Hotel Elisabeta K+K Hotels management. Charges relate only to income Bucharest Group derived from the rooms. Source: the hotel sites [4 14] • Disadvantages: marketing and advertising

strategies can be sometimes inappropriate for the 2 Results and discussions Romanian market. Access to the global booking INTERNALIZATION STRATEGIES OF of the chain may be substituted by inclusion in HOTEL CHAINS independent reservation system. Although, at this moment, there are four main possible methods (export, license, strategic alliances What does the management contract entail? and foreign direct investment) [2], that can be used • Advantages: inclusion in the central reservation, by a company to enter a foreign market, the hotel shared catalogs, many foreign staff receiving industry does not apply them all, because a part of training in large hotel chains which may lead to these methods are not compatible with this area. preference of certain foreign companies for Thus, there are several methods that hotel chains use certain hotels. In a management contract, to enter a new market (a new country). These bringing the hotel operator and other staff (the methods are: direct foreign investment penetrating a hotel manager, marketing manager, sales void (greenfield investment) or the assumption of a director, director of the restaurant), the owner hotel or a hotel company on the foreign market, joint cannot interfere with anything in the policy of the venture, franchise, management contract, strategic operator. alliances (cooperative agreements), consortia • Disadvantages: high costs, both related to (voluntary chains = voluntary groups) [3]. contract fees, and especially those related to Because there are several ways of wages of foreign personnel, salaries are usually internationalization, the hotels have more options four to five times higher than those of the available that can be used depending on how they Romanian employees and represent very plan to have operational control over the new hotel, significant expenditures. Charges are reported in how much they want to be financially involved and the first case to the whole turnover. how big the potential risk is [3] (Table 2). THE PRESENCE OF INTERNATIONAL Table 2: Internationalization methods HOTEL CHAINS ON THE ROMANIAN Operational Financial Potential risk control involvement HOSPITALITY MARKET Individual ownership High High High In 2009 were 1170 hotels in over country. This year Franchise Average Average Average (2010) there are more, form them 46 belong to Joint venture High Low Low Management contract High Low Low international hotel chains, and that means that just Strategic Alliance Low Low Low 3,93% form all hotels that are present on the Consortia Low Low Low Romanian market are hotels that belong to (Source: Cristureanu, C., Strategies and transactions international brands. The rest, 96,07% are Romanian into the international tourism, C.H.Beck, Bucharest,

ISSN: 1792-5983 727 ISBN: 978-960-474-241-7 Proceedings of the 5th WSEAS International Conference on Economy and Management Transformation (Volume II)

hotels (Figure 1). on this market also with other brands that are into the group. This brands will aim other consumers and the hotels will have a lower number of stars (hotels with 2 or 3 stars).

INTERNALIZATION STRATEGIES USED BY INTERNATIONAL HOTEL CHAINS IN ROMANIA Each one, form these 16 international hotel chains, that are present in Romania, has a predominant strategy, which the chain in using for almost all Figure 1: The presence of international hotel chains hotels. But, even the hotel chains have a on the Romanian hospitality market predominant strategy, are using also other strategies,

regarding the countries and the markets were they Even, at this moment, the presence of international want to get. hotel chains on the Romanian market is very low, If we are watching in detail and more carefully, is almost all international hotel chains realized the easy to see that, 37,5% from the international hotel potential that has this market and that is way they chains that are present in Romania, that means 6 have the following strategy: they will increase the from 16, are using as a basic strategy the franchise; number of hotels that are in this country by opening followed by the leased contract with 25%, used by hotels also in the province, or to penetrate the four chains, as the dominant strategy; the Romanian market with other brands, that belong to management contract means 20% and is used by the same hotel group and aren’t already present on three chains from 16 and on the last place is the this county. private property with 12,50% (2 chains) (Figure 3).

THE PRESENCE OF INTERNATIONAL HOTEL CHAINS IN ROMANIA DEPENDING ON THE NUMBER OF STARS THAT EACH HOTEL HAS Even, the international hotel chains that are present on the Romanian market are not many, just 16, the hotels that the chains have are very different, from hotels that have 2 stars until 5 stars. From 46 hotels that belong to an international hotel chain, the most Figure 3: Predominant strategies used by this 16 of them have 4 stars (22 hotels), on the second place international hotel chains, which are present in are the 3 stars hotels (15 hotels); followed by the 5 Romania, into the world stars hotels (just one hotel is in the province, in Sibiu, Hilton Sibiu, all the others are in the capital; 7 The strategies, which were used by the international hotels are 5 stars hotels) and on the last place there hotel chains in Romania, are quite different; are the 2 stars hotels (2 hotels) (Figure 2). depending on the specifics of each hotel chain, but also from the advantages that each chain followed in Romania. The penetration strategy used mostly in Romania is the franchise, trough 29 hotels; followed by the management contract used by 11 hotels. There are also 5 hotels, that are private property (the hotels that belong to the Danubius Hotels Group, the hotel that belongs to the chain K+K Hotels and the hotel Figure 2: The presence of international hotel chains that belongs to the chain Novotel) and also a hotel in Romania depending on the number of stars that that is using the leased contract (the NH Hotel each hotel has Timisoara, belongs to the Spanish group NH Hoteles) (Figure 4). A groving number of international hotel chains, that are present on the romanian market trough important and strong brands and have just hotels that have 4 stars, are starting to be atract by the ideea of entering

ISSN: 1792-5983 728 ISBN: 978-960-474-241-7 Proceedings of the 5th WSEAS International Conference on Economy and Management Transformation (Volume II)

Using the predominant strategy, that the chain has, also in Romania For the most part, the international hotel chains are using the predominant strategies also in Romania. So, from 16 international hotel chains, that are present on the Romanian market, nine are using in this country the predominant strategy, used all over the world; six chains are using a different strategy and about the international hotel chain Hunguest Figure 4: The internationalization strategies used by Hotels I don’t have enough information to say which international hotel chains in Romania is the predominant strategy (Table 4).

It’s easy to see the fact that, in Romania the Table 4: The use of predominant strategy also in strategies: private property and leased contract are Romania less used, compared with the global strategies that the chains have. Instead, the management contract Predominant Strategy used and the franchise have a bigger procentaje in strategy into the world in Romania Romania. Golden Tulip Franchise Franchise Best Western Franchise Franchise The internalization strategies distribution used Ramada Franchise Franchise by international hotel chians in Romania depending on the number of stars that each hotel Howard Johnson Franchise Franchise has Radisson SAS Management contract Management contract According the related datas about the number of Pullman Leased contract Management contract stars, that each hotel that belongs to an international Novotel Leased contract Private property hotel chain has, but also depending on the Ibis Leased contract Management contract internalization strategy used by each hotel chain in Management contract/ Romania, it’s easy to analite the wey this two Hilton Franchise Franchise parameters combine (Table 3). JW Marriott Management contract Management contract

Table 3: The internalization strategies distribution Crownw Plaza Franchise Management contract depending on the number of stars Intercontinental Management contract Management contract 2 stars 3 stars 4stars 5 stars Danubius Hotels Private property Private property Leased contract/ Franchise 11 16 2 NH Hoteles Leased contract Management contract Management contract 4 2 5 K+K Hotels Private property Private property Private property 2 3 Hunguest Hotels Franchise Leased contract 1 If we are talking about the chain Pullman, the It’s easy to observe, that for the three and four stars predominant strategy is the leased contract, but the hotels the most used strategy is the franchise, but in hotel Pullman Bucharest Word Trade Center is using the case of five stars hotels the predominant strategy the management contract. The management contract is the management contract. If we are talking about is the penultimate strategy used by Pullman; just two stars hotel, there we can talk about the private 20% from the hotels that belong to this brand are property (Figure 5). using this method. The hotel chain Novotel has the predominant strategy the leased contract, but Novotel Bucharest City Centre is a private property. In this case, the private property is the third strategy used by this chain; ~18% from the hotels are using this type of contract. Figure 5: Different ways of using the penetration The chain Ibis has as predominant hotel chain strategies, depending on the number of stars strategy, but in Romania the four hotels that belong to this brand use the management contract. If we are talking about the brand Ibis, the management

ISSN: 1792-5983 729 ISBN: 978-960-474-241-7 Proceedings of the 5th WSEAS International Conference on Economy and Management Transformation (Volume II)

contract is the least used strategy; just ~ 10% form saying that the development from a hotel into a all Ibis hotel are using this strategy. secondary city can be made by adjusting the size and About the Hilton chain, the predominant strategy is quality requirements of that market. the franchise, but in Romania, the hotel Hilton If we are talking about the international financial Bucharest is using a management contract. The crisis impact over the development strategies used management contract is on the second place, if we by hotel chains, the hotel industry reflects the same are talking about the strategies used by this group; trend as the world economy. The projects that are round 31% from the hotels that belong to the brand studied today will be used in about three years. Hilton are using this strategy. The internal request brings around 80% from total The hotel chain Crowne Plaza is using as a global income, which is the reason why the secondary cities predominant strategy the franchise. In Romania, the are so important. Bucharest will remain the most Crowne Plaza Hotel has a management contract. important destination for business tourism. Compared with the other chains, that were analyzed, The most important challenges, that the hoteliers Crowne Plaza is using just two strategies: franchise must consider, are the high costs to construct the and the management contract, so ~31% from the property, the growing costs with workforce and hotels that belong to this brand are using the utilities and the unpredictable costs for land management contract. acquisition. Also, a big opportunity, that the new The last exception belongs to the chain NH Hoteles, international hotel chains have to enter on the which has predominant strategy the leased contract, market, is the lack of quality services into the but in Romania NH Bucharest is operating under a secondary cities from this country. management contract. In this case, just ~13% from The important groups, as InterContinental, the hotels that belong to this group are using the , Marriott or Rezidor announced, to the management contract as internalization strategy. Romanian Hospitality Forum, the entrance, with new brands, on the Romanian market. 3 Conclusions Romania becomes an interesting county for the big Even at this moment, in Romania, the number of international hotel chains, given by the fact, that international hotel chains is not so big; this will many companies have relocated there production grow in the future. So, on the Romanian market, are here. This thing is very good and important for the expected also other hotel companies Kempinsky, Romania tourism, because the international hotel , Four Seasons, Sheraton or Leading Hotels of chains that are already on this market and those that the World, trough private properties but also are not yet in Romania, will want to invest in this affiliations, franchise or management contract. country, in the capital but also in the province. These international companies want to entre on the The strategies that are and will be used by Romanian market because they think that the luxury international hotel chains to enter into the Romanian segment will have an evolution into the next years, market will be those used by the groups as the similar with other markets form Central and East dominant strategy, or a strategy used in our country, Europe, as it was in Prague, Warsaw and Bratislava. so the group will have a lot of advantages. So, the international hotel chains are interested to obtain important positions on the Romanian market. References: Bucharest is an attractive „target” and shows a big development potential compared with other cities [1] Romanian Tourism. Statistical Abstract. National form Central and East Europe. Institute of Statistics, Bucharest, Edition 2010, page The Romanian market is dominated by 3 and 4 23. stares hotels, this represents around 66% from all [2] Johansson, J.K., Global Marketing: Foreign existing hotels on this market and there are not so Entry, Local Marketing, and Global Management, many 5 stars hotels. McGrawHill/Irwin Series in Marketing, 2006. Also, on a market that looks stabile, the big players [3] Cristureanu, C., Strategies and transactions into from international hotel industry are counting on the the international tourism, C.H.Beck, Bucharest, expansion into the secondary cities from Romania. 2006. They want to develop also the local level, because, [4] www.goldentulip.com at this moment, the city Bucharest is attracting the [5] http://www.bestwestern.com most part of the investments. In the cities Sibiu, [6] http://www.wyndhamworldwide.com Constanta and Timisoara we can talk about an [7] www.accor.com extension with midupscale brands. Others are [8] http://www.radissonblu.com/ [9] http://www.marriott.com/

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[10] http://www1.hilton.com/ [11] http://www.ichotelsgroup.com/ [12] http://www.nhhotels.com/ [13] http://www.danubiushotels.com/ [14] http://www.kkhotels.com/index.php?id=2&L=6 [15] http://www.hunguesthotels.hu

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