Management Contract

19. Discuss the advantages and disadvantages of management contract to both the hotel owner and the management company? The advantage of the management contract is: The management contract incurs minimum risk to the company as compared to sole ownership and joint-venture development since the management company has little or minimal equity invested in the hotel. The hotel management company only assigns a group of professional managers to operate the property for the owner. If political crisis occurs, the management company can withdraw quickly without suffering heavy financial losses. The host governments in developing countries also encourage management contract operations, since they are considered an important management technology transfer. Management contract companies in the developed countries send technically competent managers to manage the local properties and train the local managers and staff. If the management company is from a brand-new hotel chain, such as Forte or Marriott, it can introduce its long established management system to the operations of the local hotel. The use of a management contract company can greatly enhance the local hotel’s image and competitive edge in the international hotel market. On the other hand, management contract operations can enable the company to expand its international operations by managing many foreign properties with relatively limited investment. But a major concern facing management contract operations in foreign countries is that the management company has to deal with an owner whose cultural, political, and economic values may differ from those of the operators. An owner and operator relationship needs to be cultivated, and a good working relationship can reward both the owner and the operator

20. What is the primary purpose of strategic alliance? Can you describe the strategic alliance between Scandic and Holiday Inn Worldwide, and the advantages to both hotel corporations? The primary