Case Study: Business Strategies for Intercontinental Group of Hotels

This case study examines the Intercontinental Hotels Group (IHG) and its operations within the rapidly growing Chinese hotel industry. The analysis identifies key factors driving the industry's expansion, including tourism and increasing domestic income, and contrasts the Chinese preference for direct hotel management with the international trend toward franchisee models. The case highlights the challenges of oversupply in the Chinese market, leading to reduced room rates, and the associated impact on revenue. It evaluates alternative courses of action, such as strengthening the franchisee model, reducing room numbers while expanding property portfolios, and strategic acquisitions of Chinese hotels. The study logically evaluates each option, recommending the adoption of the franchisee model, alongside enhanced marketing and promotional activities, as the most effective strategies for improving profitability and market penetration. References to relevant academic sources support the analysis.

Running head: INTERCONTINENTAL GROUP OF HOTELS CASE STUDY
Intercontinental Group of Hotels Case Study
Name of the Student:
Name of the University:
Author Note:

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INTERCONTINENTAL GROUP OF HOTELS CASE STUDY
Table of Contents
Identification of important facts:.............................................................................................................2
Growth in the Chinese hotel industry:.................................................................................................2
Drivers of the Hotel industries:............................................................................................................2
Chinese pattern of running hotels:......................................................................................................3
Oversupply of rooms and its impact on the industry:..........................................................................3
Clear identifications of the key issues:.....................................................................................................3
Lack of flexibility in the hotel management patterns:..........................................................................3
Oversupply of accommodation:...........................................................................................................4
Outlining of alternative courses of actions:.............................................................................................4
Strengthening of franchisee model:.....................................................................................................4
Acquisitions of more properties and reducing the number of rooms in the accommodations:..........5
Acquire Chinese hotels:....................................................................................................................... 5
Courses of action are logically evaluated:................................................................................................5
Strengthening of franchisee model:.....................................................................................................5
Acquisitions of more properties and reducing the number of rooms in the accommodations:..........6
Acquire Chinese hotels:....................................................................................................................... 7
Recommended course of action:.............................................................................................................7
Adoption of franchisee model in managing hotels:.............................................................................7
Strengthen marketing and promotion:................................................................................................7

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References:.............................................................................................................................................. 8

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INTERCONTINENTAL GROUP OF HOTELS CASE STUDY
Identification of important facts:
Growth in the Chinese hotel industry:
The hotel industry in China experienced phenomenal growth in the recent years and has
emerged one of the fastest growing hotel industries in the world. The value of the hotel industry in
China is estimated to more than $ 71 billion. China has emerged as one of the most sought after
tourist destinations in the world and this has attracted the international hotel chains to the
country(O'Hare, 2017). The Intercontinental Hotel Group is a British multinational hotel group which
has very strong presence in China. The country is experiencing increase in the emerging of hotel
groups in its domestic chains of hotels as well(Our global presence, 2017).
Drivers of the Hotel industries:
There are a number of factors which have led to this development of a strong and dynamic
hotel industry in China. The first factor is the influx of foreign tourists as China is among the most
visited countries in the world. The increase in the income of the Chinese people have also promoted
to the growth of the industries because this allows them to spend money on vacations and hotels. The
growing investment of international hotel chains have also led to the growth of hotel industries(Leung
et al., 2014). Thus the Chinese hotel industry have emerged to be very competitive and profitable
owing to strong presence of both Chinese and international hotels.
Chinese pattern of running hotels:
The Chinese as opposed to the Americans and the Europe hotel chains do not emphasis on
franchisee models of running hotels. They stress on direct management which necessitate the

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international hotel chains to run their Chinese branches following the directly managed
format(Altinay et al., 2014)
Oversupply of rooms and its impact on the industry:
The Chinese hotel industry is characterised by supply of excess rooms in the accommodations.
This oversupply of rooms in the hotels causes the hotel owners to reduce the rates of rooms due to
excess of supply.
Clear identifications of the key issues:
A study of the case study reveals the following key issues:
Lack of flexibility in the hotel management patterns:
The hotel industry in China is characterised by limitations in hotel management formats.
Global trends in the hotel industries show that the dominant feature of international hotel
management pattern is franchisee model. The dominant management pattern of hotels in China is
direct management. An analysis of the discussion shows that franchisee model is preferred by the
international hotel chains and is the most common business format followed internationally.
However, direct management is the most established format in China which requires heavy initial
investments from the international hotel chains in fixed assets acquisitions (land, building), human
resource acquisition and supply chain establishment. This is one of the main issues which the
international hotel chains face while entering and operating the Chinese hotel industry(Yang, Luo &
Law, 2014).

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Oversupply of accommodation:
The next issue in the Chinese hotel industry is oversupply of rooms in the hotels and
accommodations. This availability of rooms increases the bargaining power of the customers because
of the multiple numbers of rooms available to them. The availability of excess number of rooms
intensified the competition among hotels which forced the leading market players to lower rates of
their rooms. The discussion clearly points out that the fall in the rates of rooms reduced the revenue
the international hotel chains like Intercontinental Group of Hotels earned on offering of rooms to
their guests. The expenses of maintaining properties direct management system prevailing in China
further increased the cost of operations(Dzhandzhugazova et al., 2015).
Outlining of alternative courses of actions:
The above discussion outlines two issues namely, oversupply of rooms which reduced revenue
earned per rooms and prevalence of direct management of hotel properties. The alternative courses
of actions those can be outlined as follows:
Strengthening of franchisee model:
An analysis of the prevailing business models in the Chinese hotel industry shows that the
direct management model is the most prevailing model. The application of franchisee model in the
Chinese hotel industry is very limited which increases the operational costs of the international hotel
chains. It can be outlined the franchisee model should be accepted more strongly as an alternative
model in the Chinese hotel industry which will make it more profitable(Santos, Pache & Birkholz,
2015).

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INTERCONTINENTAL GROUP OF HOTELS CASE STUDY
Acquisitions of more properties and reducing the number of rooms in the accommodations:
It can be outlined that the alternative course of action to large numbers of low rate rooms
would less rooms and more properties in multinational locations. The international hotel chains like
the InterContinental Groups of Hotels should reduce the numbers of rooms available pre property
which will allow them to charge more and increase the revenue per room. They should expand their
hotel chain into new locations to increase their market penetration and revenue generation(Calderon-
Monge, Pastor-Sanz & Huerta-Zavala, 2017).
Acquire Chinese hotels:
It can be outlined that the InterContinental Hotels Group should acquire Chinese hotels to
strengthen its position in the Chinese markets. The Chinese market is composed of Chinese hotels and
government owned hotels which compete with the international hotel chains like InterContinental
Hotel Group PLC (ICG). Thus acquiring Chinese hotels would strengthen the position of ICG and allow
it to acquire control over the domestic hotel business in China to certain extent(Brand, Croonen &
Leenders, 2017).
Courses of action are logically evaluated:
Strengthening of franchisee model:
The dominant business model used internationally in the hotel industry is franchisee but the
preferred model used in the Chinese market is direct management. An evaluation of the international
hotel market shows that the franchisee model is dominantly preferred in the developed western
markets because it leads to mutual benefit for both the franchisor and the franchisee. As far as the
franchisor international hotel chains are concerned, franchisee model helps them to enter new
markets and find established franchisees which use their brand names to conduct hotel business. The

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INTERCONTINENTAL GROUP OF HOTELS CASE STUDY
franchisors can easily expand their business in the new market taking advantage of the knowledge
of the franchisees about the local market conditions(Bharadwaj, Varadarajan & Fahy, 2015). The
franchising international hotel chain does not have to invest in acquiring and developing properties to
make hotels, they can allow franchisees use their brand names to conduct business which saves their
costs. The franchisee on the other hand advantages from the franchisee model established strongly in
the international hotel industry. The franchisee can exploit the brand equity of the international
franchisor hotel chains like Intercontinental Group of Hotels to conduct business and earn huge
profits. The second advantage is that the franchisees can use the brand power of the franchisor to
attract high profile customers and earn huge revenue. The franchisor provides training to the staff
of the franchisee after their own international standards which make them efficient. This ensures that
the hotel staff serves the customers most professionally and ensures customer loyalty. An
evaluation of the direct management shows that it requires the international hotel chains to invest
huge amount of money in acquisition of property, human resources and supply chain. This
comparison clearly points out that compared to direct management franchisee would be a profitable
model of business for the Chinese hotel industry. Thus, strengthening of franchisee model will make
the Chinese hotel industry more profitable(Gaul, 2015).
Acquisitions of more properties and reducing the number of rooms in the accommodations:
An evaluation of the practice of maintaining large number of rooms in the hotels in China
show that large numbers of rooms lead to reduction in the rates of the rooms. This reduces the price
per rooms and the resultant revenue earned by offering them to the customers. An evaluation of the
accommodation style followed in the western markets show that hotels have less number of rooms.
This gives an opportunities to the hotel chains in the west charge high prices for offering the rooms
which consequently increases the profit margin per room. Thus, the hotels in China should also follow

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INTERCONTINENTAL GROUP OF HOTELS CASE STUDY
the system of reducing the available number of rooms to earn more profit per room(Golubov,
Petmezas & Travlos, 2015).
Acquire Chinese hotels:
An evaluation of the Chinese hotel industry shows that it is expanding owing to the presence
of international foreign hotel chains, domestic hotel chains and the state owned hotel chains. The
domestic hotel chains and the state owned hotel chains compete with the international hotel chains
like ICG. Thus, acquiring Chinese hotels would allow the international hotels to control China’s
domestic hotel market as well which would increase their competitive advantage in the hotel market
of China(Lougui & Broström, 2016).
Recommended course of action:
The following recommendations can be made based on the above discussion:
Adoption of franchisee model in managing hotels:
It is recommended that the Chinese hotel industry should adopt the franchisee business model
which would allow it to operate more profitably. Adoption of the franchise model would allow the
Chinese domestic hotel owners run their business using the brand power of the international hotel
chains. It would allow them to get easy market penetration and earn huge profits.
Strengthen marketing and promotion:
It is recommended that the Chinese hotel industry should strengthen its promotion and
marketing activities. The hotels must enter into partnership with international chains to promote their
business. This will make the hotel industry more competitive and profitable.

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References:
Altinay, L., Brookes, M., Yeung, R., & Aktas, G. (2014). Franchisees’ perceptions of relationship
development in franchise partnerships. Journal of Services Marketing, 28(6), 509-519.
Bharadwaj, S. G., Varadarajan, P. R., & Fahy, J. (2015). Sustainable competitive advantage in service
industries: a conceptual model and research propositions. In Proceedings of the 1992 Academy
of Marketing Science (AMS) annual conference, Springer International Publishing (pp. 441-
443).
Brand, M. J., Croonen, E. P., & Leenders, R. T. (2017). Entrepreneurial networking: a blessing or a
curse? Differential effects for low, medium and high performing franchisees. Small Business
Economics, 1-23.
Calderon-Monge, E., Pastor-Sanz, I., & Huerta-Zavala, P. (2017). Economic Sustainability in
Franchising: A Model to Predict Franchisor Success or Failure. Sustainability, 9(8), 1419.
Dzhandzhugazova, E. A., Zaitseva, N. A., Larionova, A. A., & Pervunin, S. N. (2015). The Russian hotel
market: Condition and development under the crisis. Mediterranean Journal of Social
Sciences, 6(3 S5), 289.
Gaul, C. (2015). What Makes a Franchisee Successful: Attitudes and Pre-requisites of Profitable
Franchise Partners. The International Business & Economics Research Journal (Online), 14(2),
387.
Golubov, A., Petmezas, D., & Travlos, N. G. (2015). Do stock-financed acquisitions destroy value? New
methods and evidence. Review of Finance, 20(1), 161-200.

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Leung, D., Li, G., Fong, L. H. N., Law, R., & Lo, A. (2014). Current state of China tourism
research. Current Issues in Tourism, 17(8), 679-704.
Lougui, M., & Broström, A. (2016). New firm formation in the wake of mergers and acquisitions: Are
employees pushed or pulled into entrepreneurship?(No. 427). Royal Institute of Technology,
CESIS-Centre of Excellence for Science and Innovation Studies.
O'Hare, M. (2017). CNN Travel. Retrieved 23 August 2017, from
http://edition.cnn.com/travel/article/most-visited-cities-euromonitor-2017/index.html
Our global presence. (2017). InterContinental Hotels Group PLC. Retrieved 23 August 2017, from
https://www.ihgplc.com/en/about-us/our-global-presence?region=china
Santos, F., Pache, A. C., & Birkholz, C. (2015). Making hybrids work: Aligning business models and
organizational design for social enterprises (Paper IV). Christoph Birkholz, 153.
Yang, Y., Luo, H., & Law, R. (2014). Theoretical, empirical, and operational models in hotel location
research. International Journal of Hospitality Management, 36, 209-220.