Shangri-La in China

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A huge market with 13 millions of population – China – often seem very lucrative for foreign investors to eager to share this huge economy pie to increase their profit margins, since China’s open door policy. Some companies have made their fortune from this big pie, and some have reported loss. What are the factors that determine the successfulness of a particular investment in China? This article discusses this question through using the example of a successful story of an international hotel chain – The Shangri-la Hotels & Resorts Group.

Inspired by James Hilton’s legendary novel Lost Horizon, “A tranquil haven in the mountains of Tibet, Shangri-La casts a spell on all who resided there,” the hotel group has since adopted Shangri-La as their corporate brand to promote Asian hospitality, which mainly targets leisure and business travellers. Founded by the richest man from South East Asia, Mr Robert Kuok, it opens its first award-winning hotel in Singapore at year 1971. Currently operates 55 deluxe hotels and resorts in all key Asian markets, Shangri-la has since been expanding their network outside Asian market, counted 21 properties under development, such as the Living Shangri-La in Vancouver. Incorporated in Bermuda, based in Hong Kong, about half of its hotels (27 hotels) are located in China Mainland and yet eight hotels are still under development and scheduled to be opened as early as 2009.

It is quite strange to see Shangri-la as a foreign investment, which most of its properties are in China, and these hotels contribute more than 50% of the group’s profit. Hence, it is good to understand tourism market in China firstly in order to understand the reasons and factors why Shangri-la preferred to focus its business in China.

Tourism Market in China
From Chart 1, the overseas tourists’ arrivals are increasing from year to year where Hong Kong & Macau Chinese compatriots form the largest portion. There is a slightly drop in year 2003 because of SARS epidemics hit the region (Alan Clarke, 2007). There are two types of hotels in China; high-end luxury hotels with four and five stars and budget homegrown accommodations (Vella, 2008). Chart 2 shows the number of star rated hotels shows a steady grow. All of these encouraging data indicate that China has a great potential in hotel industry.

Chart 1: Number of Visitors from Year 2001 – 2006 (National Bureau of Statistics, 2007)

Chart 2: Number of Star-rated Hotels from Year 2001 – 2005 (National Bureau of Statistics, 2007)

First Enter into China
Since China’s open door policy, the number of international business travellers to China increases, but there is virtually no luxury hotel that able to satisfy these businessmen needs. Kuok forseen that there is a need in the hotel market. Besides, China’s huge population, cultural heritages, lots of tourism hot spots and also the Asian culture that create warm welcome for international tourists are also the factors that influence Kuok to venture his newly established hotel into China. Political stability is also one of the factors because Kuok believes that a stable political condition is a must to encourage tourists activities. Hence, Shangri-la ventured into Chinese market at year 1984 by opening its first hotel in Hangzhou. This made Shangri-la the first international hotel management chain enters China, and the first five stars hotel opened in China. It replaces the renowned Hangzhou Fan Dian (杭州饭店) and the Shangri-la manages the hotel and has 45% of ownership in this hotel. The other part of shares is currently held by the Zhejiang Tourism Group (浙江旅游集团公司), which formally is Zhejiang Provincial Tourist Bureau (浙江省旅游局). It is the first international hotel chain to use the concept of “integration of hotel management and ownership” as its first enter mode into Chinese market (Funding Universe, 2008). Year 1985, with coorperation of the State Economic and Trade Commission (国家经贸委), Kuok...
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