Beijing 2008: Hotels Building A Big Presence In China

The Beijing 2008 games may be bring a lot offers-time travelers to China, but western hotel companies have been in the market for two decades and feel very much at home there. 

Major companies such as Chicago-based Marriott International, the Intercontinental Group of Britain, Accor of France and Shangri-La of Hong Kong, have built networks and are expanding aggressively through the country. 

The China market – now the sixth largest -- is expected to become the world's second biggest in ten years, according to the World Travel & Tourism Council.

“It’s irresistible,” says Joe McInerney, president of the American Hotel & Lodging Association, who most recent visited China in September, “It is a tremendous market for hotels. And the opportunities are enormous.“

Big Country, Big Plans

“There’s no doubt that it is an absolutely key market, “ says Bruce McKenzie, regional VP for Greater China at Intercontinental Hotel Group, the oldest Western hotel operator in China. “And we have a comprehensive growth strategy.”

That might actually be an understatement. IHG, which has been in China for 23 years, currently has 67 properties there. It plans too open 125 more by the end of 2008. The company’s workforce will almost double to 43,000 over the next three years.

Accor, for instance, already operates 50 hotels there under its Sofitel, Novotel and Ibis brands, announced plans in September to open or start developing more than 180 hotels by 2010.

Shangri-La, Asia's biggest listed hotel chain, plans to raise at least $662 million to add to its 19 hotels in China.

Marriott International, which opened its first hotel in China in 1989, also has big plans for the country. Two years ago, it had three hotels there. It plans to go from 34 today to 50 by the end of 2010 and 100 within the next five to six years.

"The Chinese market is a very, very dynamic market," says Edwin Fuller, president and managing director of Marriott Lodging - International. "You have pent-up demand that is very strong."

Courtesy of JW Marriott Sanya Marriott Resort & Spa, Yalong Bay Natl Resort District, Sanya, Hainan

Changing Market

Dynamic, indeed. The Chinese market has changed dramatically since its early days when companies only built five-star hotels, catering to elite business travelers. Now there is a tremendous need for three- and four-star hotels.

Wyndham Worldwide, for instance, is also on a fast track expansion. By the end of this year, it will have 20 Ramada Inns, 13 Howard Johnsons, 11 Days Inns, 50 Super 8s – all new to the market.

Best Western will double its stable of hotels to 28 by end of this year.

And that plays into the trend of hotel companies moving beyond the top cities of Beijing, Shanghai and Guangzhou (near Hong Kong) to those in the next tier, cities such as Wuxi and Wuhan. (See maps of China). China has 166 cities with a population of one million or more.

And more and more of those customers and workers are Chinese.

Courtesy of Intercontinental Hotel Group Intercontinental Hotel Group's Crowne Plaza property in Changshu

At Intercontinental’s Holiday Inn unit 90 percent of the customers now are Chinese.

Says McKenzie of IHG, "The China market is the same as any hotel market—the customer is local.”

Marriott says that with the exception of Shanghai, its largest business segment is mainland Chinese. The company is now operating in what it calls secondary markets, anchored by local "economic booms." It is opening three hotels in Tianjin.

Marriott's strategy in China goes beyond filling rooms there.

"Travel is becoming part of their culture," says Fuller, who notes that some 30 million Chinese left mainland China to travel outside of the country in 2006. "By putting our hotels there, establishing our brands, when they travel oustide of China they will gravitate to our brands. The Chinese are a very brand conscious people."

Public-Private Partnership?

The lodging industry’s deep inroads into the China market stand in marked contrast to other sectors, which are still trying to get a profitable foothold or expand aggressively.

McInerney, for one, describes something of a symbiotic business relationship between the Chinese government and the companies in explaining the explosive growth.

“It needs western hotel companies because they bring in operating know-how and the operating capital to build them,” he says. “Companies are taking advantage of the new infrastructure, the new technology put in there.”

Intercontinental's analysis of the ChineseChinese market cites the government’s ambitious infrastructure spending plans, including 42 new airports and a significantly expanded rail network.

“The hotel industry is following that infrastructure growth," says McKenzie.

Marriott's Fuller says the government recognizes that hotels are important part of both business and leisure travel.

China sees infrastructure "as a necessary component to attract business and investment," he says. "They are setting the table so all this can happen."

© 2008 CNBC.com