Every hotel organization seeks continuous and sustained growth; that is why they strive to add value for two main reasons: to maintain a competitive position in the market and to be able to develop and move forward.
Tourism companies that are managed based on advanced knowledge of the market, the characteristics of supply and demand, and industry trends…are the ones that tend to expand internationally in response to these factors.
In the hotel industry, the battle for market share—whether in international, national, or regional markets—blurs the distinction between different types of companies. In recent years, the expansion strategy of the various hotel chains has been based on various types of management contracts and franchises for international hotels. This is why we speak of so-called horizontal integration, which occurs when several companies at the same level of production join forces to achieve a higher level of concentration. Companies integrate in order to increase their purchasing power over their suppliers, as well as their control over distribution and sales in their market.
Therefore, the horizontal integration of hotels—in addition to being a path toward internationalization—brings a number of benefits:
- Competitors are eliminated.
- Costs are reduced by sharing common resources.
- Market share improves.
- Negotiating power with suppliers and customers increases due to a stronger market position.
- Faster growth with less risk, since large investments—such as real estate—are not required.
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Reasons for Internationalization
Internationalization is the most complex growth strategy; it is an expansion strategy that involves developing new geographic markets. As a result, a company moves from operating in a domestic market to an international one, where it can develop new markets by offering new products and services or those it was already offering.
There are several reasons why a company might decide to grow through internationalization; some of them are:
- Take advantage of any interesting resources available within the organization.
- Diversify the risk of operating in a single market.
- Gain access to new markets and new customers worldwide.
- Take advantage of economies of scale and the reach that comes from operating in more than one market.
- Gain competitiveness and prestige in the domestic market.
However, the main reason hotels decide to expand internationally is to increase the potential market for their services, thereby growing both their customer base and revenue.
Like any strategy, internationalization has its pros and cons and should be carried out gradually, based on an understanding of the target market. The main advantages and disadvantages of internationalization:
Advantages of International Hotels
- Economies of scale can be leveraged.
- A competitive advantage is gained over competitors thanks to market presence.
- The hotel’s full production capacity is utilized.
- Risks are spread across different markets.
- Access to international financing is available.
Disadvantages of international hotel chains
- Need for more information and greater involvement on the part of the hotel.
- Barriers to entry into new markets.
- Lack of familiarity with the culture or language of the new market.
- Increased costs for transportation, oversight, and coordination among business units.
The hotel sector is an industry that is highly sensitive to the process of globalization due to the numerous interconnections that exist between different countries, both socially and economically. Whether a country has good relations with another will be a determining factor in whether tourists visit that country or stay at international hotels. In turn, when countries share cultural or linguistic similarities, tourists are more likely to travel to those destinations. Conversely, political instability in some countries is leading to a decline in the number of tourists and hotel guests crossing their borders, as well as reducing the market’s appeal to foreign investors.
