Internationalization Strategies of Midland Hotel

Question: Discuss about the Internationalization Strategies of Midland Hotel. Answer: Introduction: The Midland Hotel is part of the hotel industry with the head office in Manchester, England. The hotel was established in 1903 and it was designed by Architect Charles Trubshaw in Edwardian Baroque style and design. In 2004 the hotel was bought by the Paramount Hotel group and underwent a renovation costing 12 million (Olson, Green, and Hill, 2005). The property has 312 en-suite rooms and 14 suites supported by health club and two restaurants namely the French and Mr. Coopers House Garden to take care of food and beverages needs of the guest. The French was considered to be the first Michelin-starred restaurant in England and provided the finest dining room in Manchester. The other restaurant Mr. Coopers House was renovated in 2013 and provides the best food and beverages to the food lovers in the city. The hotels capitalization is stated as 101 million. The owner define the property as grand that combines decadent glamour with four star facility and providing the customer and guest twenty-first century sophistication. This report explore the internationalization strategy of the hotel and its plan to enter the ASEAN country in particular Singapore that is considered the global business, finance and transport hub with best investment opportunities (Olson, Green, and Hill, 2005). Best Fit Strategy Singapore In the process of planning internationalization it is essential to evaluate the best market entry method establish the business in the foreign market. The various market entry methods available for companies to promote their internationalization plan are exporting, licensing/franchising, joint venture, Greenfield investment and merger acquisition (Green, 2012). Each of the market entry method is evaluated in context to the internationalization plan of Midland Hotel in the ASEAN country Singapore. Exporting This is a market entry method where the company makes the product and services in the home market and then market the product in the international market selected. There are two types of exporting and they are direct exporting and indirect exporting (Das, Roberts,and Tybout, 2007). Direct exporting is the process where the company sells the product in the international market by appointing own representative. Indirect exporting is the process where the company appoints a third party to conduct the sales in the international market. This market entry method involves less risk and investment in the international market so it is the best fit to enter any of the ten Asian countries and suitable for manufacturing business like garments, leather goods and other products that enjoys production competency in the home market (Das, Roberts,and Tybout, 2007). In context to the hotel industry it is not suitable for any of the ASEAN counties as it is not a tangible product. Licensing /Franchising This is a market entry method where the licensor provide the licensee the right to produce and market the product and sue the brand in the foreign market and get a royalty on the sales. This is another method that provides low risk and investment. Franchising is a market entry method similar to licensing and the franchisor package the success formula in the home market in terms of technical knowhow and other ingredients and offer the franchise to the foreign partner for a fee (Perks, 2009). The franchisor also provides training and marketing support. It again is less risky and low investment. The service business and retails successful in the home country expand the business using this method and it provides best fit to enter any ASEAN country. In context to Midland Hotel if they intend to avoid risk and investment they can opt for this method. It proves beneficial if the regulatory environment and other legal system in the country is a complex process. Joint venture This is a market entry method where the two companies company for new company in partnership in the foreign country to operate by sharing the risk in the new market. It also leads to sharing of knowledge and expertise to establish the business and the profit and controlling power is shared between partners as mutually agreed. This method is more risky and involves investment for the company but gives more profit and better controlling power in the foreign market (Perks, 2009). It also takes benefit of the local partner knowledge about the business environment in the foreign market to handle risk and improve the profit. In considering Joint venture as the entry method, the regulatory procedure in the country needs to be evaluated. In context to Midland Hotel it is better option to enter foreign market provided the regulatory environment is favourable. Greenfield Investment This is a market entry method where the company goes for foreign direct investment (FDI) in the foreign country and establishes the business from the ground up and includes production, distribution, marketing and sales. This method involves high investment and risk and provided high profit and controlling power as well (Blomstermo, Deo, and Sallis, 2006). In this method of entry the company needs to evaluate the political, regulatory, economic, socio-cultural and legal environment of the country to understand the risk and investment feasibility in Singapore. In context to Midland Hotel it is again viable option as sit provides complete control of operation, training, sales and control. Merger Acquisition This is a market entry method that promotes the concept of consolidation of the assets of the company. Merger is related with the process where two companies combine to form a single consolidated new entity. On the other hand acquisition is related with the process where one company buy another company and new company is formed in this process (Blomstermo, Deo, and Sallis, 2006). It is a technical process and involves legal and financial expert to complete the process. It provides power and economy of scale and help to reduce competition. This is complex process to enter any ASEAN countries. In context to Midland Hotel this is not a suitable method to enter as it involves time, effort and investment. Singapore According to the survey report of World Bank Singapore is the best country to do business in the world and it has achieved the top position for the 9th consecutive years. This report is based on the 11 criteria set to evaluate the ease of doing business namely dealing with starting business, construction permits, registering property, getting credit for business, getting electricity, protection of minority investors, trading across borders regulation, tax structure, resolving insolvency process, enforcing contracts and labour market related regulation (Chia, 2005). The ranking on each criteria is depicted in the below chart. Singapore scores well in most of the criteria and ranks as the top country with hassle free regulatory norms and business process for any company planning to enter the country. [Figure 1: 1Ranking on doing business Singapore] [Source: Doing business Singapore] Midland Hotel In context to Midland Hotel is the best fit to enter the country and it can further evaluate the business environment to as mentioned below for successfully establishing the business (Chia, 2005). Factors affecting market entry to Singapore Internationalization of Midland Hotel Political environment Low risk Regulatory environment Low risk Economic environment Economy growing at 3.9% and provides stability. Legal environment Singapore provides favourable regulation for international companies. Business culture and social culture Singapore is a multicultural country and enjoys good relation with UK Eight scales of cultural value Communicating, persuading, leading, evaluating, deciding, scheduling, disagreeing and trusting is cordial between UK and Singapore (Karimi, Yusop, and Law, 2010). Transportation Singapore has worlds best infrastructure. Learning opportunity ASEAN, OIC, NAM and UN Protection of intellectual property Governed by the Intellectual property Office of Singapore (IPOS). Singapore ranks 4th in the world and top in Asia in IP protection. Overall value of the investment UNTAD 2015 World Investment Report ranks Singapore as the largest recipient of FDI Labour market Labour force participation rate (LFPR) stands at 68.30% Availability of suitable business partners UK is the third largest trading partner of Singapore (Karimi, Yusop, and Law, 2010). Profit potential Franchise provides lower risk and Joint Venture as entry provide better profit potential compared to exporting or franchising. OK Fit strategy Malaysia ASEAN is promising as far as the tourism industry is concerned and hotel industry is biggest benefiter of this promising trend. According to UNWTO it is estimated that the tourism industry is projected to register a growth rate of 3.8% between 2010 and 2020.Thailand, Malaysia and Singapore received the maximum number of visitors and the research statistics of UNWTO states that international arrivals of tourist to Singapore and Malaysia were 25 million and 11 million respectively for the last two consecutive years. On analyzing the income contribution from the tourism sector it was found that Malaysia received an estimated toUS$21 billion while Singapore generated US$18.9 billion (Lupo et al., 2011). The tourism and culture minister of Malaysia Mohammed Nari Abdel Aziz was positive about the tourism sector and expressed his determination to develop the capacity of the industry to promote the growth and sustainability. Therefore it makes sense for Midland Hotel, a leading player in the hotel industry to consider Malaysia as the OK fit country for internationalization of their business after the best fit country Singapore. The next step in internationalization strategy after selecting the destination is deciding on the market entry strategy to enter the international market. In this regard Midland Hotel has various market entry methods as discussed above namely exporting, licensing/franchising, joint venture, Greenfield investment and merger acquisition (Lupo et al., 2011). The different entry method has its own advantages and limitation in terms of risk, profit, investment and control power associated with the market entry strategy as discussed in the above section. In context to Midland Hotel it is felt that Joint venture with local partner in Malaysia is suitable option as it provides better controlling power but requires investment. This again is related with foreign direct investment (FDI) policy of the government of Malaysia. In this it is essential that Midland Hotel needs to conduct the environmental analysis of Malaysia in context to the political system, regulatory environment related with hotel industry, economic system, legal system, business culture and social culture and relationship between UK and Malaysia, eight scales of cultural value namely (communicating, persuading, leading, evaluating, deciding, scheduling, disagreeing and trusting), transportation costs/value to weight ratio, learning opportunity of Malaysian market, protection of intellectual property in the country, overall value of the investment based on foreign exchange rates, labour market status of Malaysia, availability of suitable business partners like (suppliers, partners, customers) to form the joint venture in the country and profit potential for each entry method (Lupo et al., 2011). Factors affecting market entry to Malaysia Internationalization of Midland Hotel Political environment Medium risk Regulatory environment Medium risk Economic environment Economy growing at 6% , second highest in ASEAN Legal environment High priority to security and stability Business culture and social culture Based on the principle of neutrality and enjoys good relation with UK Eight scales of cultural value Healthy business relation with UK Transportation It is ranked 19th in the world in the quality of road, air and sea. Learning opportunity ASEAN, OIC, NAM and UN Protection of intellectual property Governed by the Intellectual property corporation of Malaysia (MyIPO) Overall value of the investment UNTAD 2015 World Investment Report ranks Malaysia as the 5th largest recipient of FDI Labour market Labour force participation rate (LFPR) stands at 67.2% Availability of suitable business partners Government support tax resident companies in Malaysia. Profit potential Joint Venture as entry provide better profit potential compared to exporting or franchising. Bad fit Strategy Myanmar Of the ten countries comprising ASEAN it is Myanmar that is stated as the worst countries for companies planning to expand business to foreign countries based on the report of World Bank ranking. The report ranked Myanmar 182nd from the 189th nations that forms part of the report. According to the report it is one of the difficulty countries for doing business and it is based on 11 areas of business regulation set as criteria for deciding the investment friendly environment (Holliday, 2005). The 11 areas include dealing with starting business, construction permits, registering property, getting credit for business, getting electricity, protection of minority investors, trading across borders regulation, tax structure, resolving insolvency process, enforcing contracts and labour market related regulation. In this regard the distance to frontier score set standard by comparing the economies of the country with regard to the regulatory best practice and how it facilitate the internation al business planning to establish their business in the country and Myanmar stands last in that comparison done for the 10 ASEAN countries. In context to Midland Hotel it is essential that the marketing team needs to evaluate the ease of doing business in Myanmar with regard to the distance to frontier score and also evaluate the business environment in the country. In this regard both ranking on doing business in Myanmar and distance to frontier score on doing business establish the fact that is bad fit for Midland Hotel to internationalization in the ASEAN country of Myanmar based on 11 areas of evaluation (Holliday, 2005). The country scores are poor for international players making it difficult to establish the business in the country. The individual score of the country in the various criteria are depicted in the chart and it is comparison to the 189 countries that for part of this world bank data. [Figure 2Ranking on doing business Myanmar] [Source: Doing business Myanmar] International business strategy Companies that plan internationalization confronts two kinds of competitive pressures in the foreign market and they are pressures for cost reductions and pressure for locally responsive and both these lead to contradictory demands on the company. The pressures for cost reductions are more pertinent in the commodity kind products that cater to universal needs and in such condition pricing factor is the tool for competition (Peng, and Khoury, 2009). The pressure for local responsiveness is the result of difference in consumer tastes and preferences, traditional practices and infrastructure, distribution channels and demand from host government. [Source: International business strategy] Based on the above factors company can choose one of the four strategy and they are Global standardization strategy This is international business strategy where the company promote enhancing profit growth and profitability by applying the cost reductions strategy and it dome improving the economies of scale, economy of location and learning effects (Peng, and Khoury, 2009). The objective is using low-cost strategy in the international market. This is applicable when demand for local responsiveness is low while cost reduction pressures are high. Localization strategy This strategy promotes enhancing profitability by making the products and services of the company to match the tastes and preferences in various national markets. This is applicable where the tastes and preference of customers are different substantially while cost reduction pressure is low (Peng, Wang, and Jiang, 2008). Transactional strategy This strategy promote low costs with the help of location economies, scale of economy and learning effects and product differentiation to match local taste and preferences across different market simultaneously. This is done by nurturing multidirectional skills flow between the various subsidiaries in the operational network of the company globally (Peng, Wang, and Jiang, 2008). This strategy is useful when both pressure for cost reduction and local responsiveness is high. International strategy This international business strategy promote the same product used in the domestic market in the international market with some customization done to suit local appeal This strategy generally used by the company where the pressures for cost reduction and pressure for local responsiveness both are low in the foreign market (Kalinic, Sarasvathy, and Forza, 2014). On evaluating the international business strategy of Midland Hotel with respect to the two pressures in the international market namely pressures of cost reduction and pressures of local responsiveness, the most suitable strategy for the hotel is the global standardization strategy. The justification for selecting this strategy is that the service provided by hotel industry is universal and the taste and preference of guest are same globally so it the pricing strategy that provides the tool to establish Midland Hotel in Singapore market (Kalinic, Sarasvathy, and Forza, 2014). Again Singapore is the global business, finance and transportation hub in ASEAN attracting investment globally and most of the hotels in the country offer the best of service to the clientele so it is obvious Midland Hotel needs to match the quality standard to launch and establish the business in this international market. It is can sue the localization strategy in the next phase once the hotel brand is establi shed and understands the nature of clientele visiting the country. Happening in the news - Business environment of Singapore To identify the attractiveness of Singapore as the best fit country for Midland Hotel it is essential to analyze the business environment like the political environment, economic environment and social environment of the country Political environment Singapores governance is based on the populist model of politics and it promotes the long term interest of country. In addition Singapore government is considered clean, realistic and effective and works in accordance with the global best practice. The country is impacted by external trade commerce and susceptible to geo-politics (Frynas, Mellahi, and Pigman, 2006). On examining the current news related with political environment of the country it was found that there no political trouble and highly attractive for international players like Midland Hotel as World Bank recognize Singapore to be bve easiest country to conduct business and top international meeting city attracting business visitor and guest globally. Economic environment The recent news related with the review of Monetary Authority of Singapore (MAS) state that the slow growth for the country will continue owing to the cyclical factors.MAS take a neutral stance with respect to the monetary policy keeping nominal effective exchange rate (NEER) to zero for the country (Cavusgil et al., 2014). The China slowdown impacts the economy of the country as they are the largest importing and exporting partner. MAS expect the economy of the country will exhibit 1% to 3% growth. Midland Hotel needs to consider this economic environment while launching the business in the country. Social environment In context to the social changes in Singapore there is no current news but the countrys social environment is multi-cultural, cosmopolitan with materialistic inclination for good life and with the advent of technology people use internet and mobile phones and explore online shopping (Johnson, Lenartowicz, and Apud,2006). This provides favourable social environment for Midland Hotel to enter the market and establish the business. Conclusion The report focussed on the internationalization plan of Midland Hotel and its plan to enter the ASEAN market particularly Singapore that is considered the best place in the world to don business. In this regard the market entry method namely exporting, licensing/franchising, joint venture, Greenfield investment and merger acquisition and the suitable market entry method Midland Hotel to enter Singapore market. It is decided by evaluating the best ft, OK fit and bad fit strategy for the country and examining the international business strategy namely global standardization, transactional, international and localization strategies (Cavusgil et al., 2014). Based on the evaluation it is observed that Singapore provides the best fit for Midland Hotel to execute its internationalization plan and global standardization is most suitable strategy for the hotel in the foreign market. On the other hand it is suggested that localization strategy can be used by the company in the second phase. O n the same note Malaysia proves to be OK fit country while Myanmar is bad fit and worst country internationalization so Midland Hotel should avoid it. References Blomstermo, A., Deo Sharma, D. and Sallis, J., 2006. Choice of foreign market entry mode in service firms. International Marketing Review, 23(2), pp.211-229. Bosma, N.S. and Levie, J., 2010. Global Entrepreneurship Monitor 2009 Executive Report. 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