Total $0.00


14 July 2015 - Chinese state-owned hotels need to enhance their performance and market competitiveness, according to the Dr Kam Hung and Professor Hanqin Qiu of the School of Hotel and Tourism Management (SHTM) at The Hong Kong Polytechnic University, along with co-researchers, in a recently published research article. Having conducted in-depth interviews with managers and other employees of state-owned hotels in Hangzhou, they identify little distinction between the ownership and management of the hotels, the lack of a profit motive, the absence of staff incentives and the inability to match private sector competitors as causes of concern. Yet stable workforces and entrenched locational advantages suggest that these hotels "have the potential to become profitable businesses", the researchers argue.

As the first market opened to foreigners after the introduction of the open door policy in 1978, China's hotel and tourism industry was once "considered a pioneer of economic reform", the researchers observe. They note how the industry expanded rapidly with the help of strong government support and a favourable business environment, to the extent that by 2009 there were 14,237 star-rated hotels in China. As the industry expanded, the proportion of state-owned hotels reduced from 59% in 2001 to 38% in 2009.

Yet a major problem in the industry, the researchers note, is that many of these state-owned hotels continue to experience low profit margins or losses and suffer from inefficiency in their operations. Although state ownership is recognised as a "major cause of such inefficiency", it seems that the Chinese government has no intention of privatising large-scale, state-owned enterprises. Given that the ownership of these hotels is unlikely to change, the researchers highlight that it is "important to identify and remedy the problems plaguing" them.

To identify the challenges facing Chinese state-owned hotels and provide suggestions on how to resolve them, the researchers conducted interviews with hotel employees in Hangzhou, one of the "fastest growing second-tier cities in mainland China in terms of tourism development". By the end of 2007, there were 250 star-rated hotels in the city, with annual revenue of RMB793.2 million. Additionally, many well-known international hotel brands have a presence in Hangzhou, creating "fierce competition in the local market" and raising concerns about the "survival and effective management" of their state-owned counterparts. 

Of the fifteen interviewees, three were general managers, two assistant general managers, four department managers and six non-managerial employees. They had worked in the industry for around 16 years on average, although the managers had considerably more experience than the non-managers, at 24 years versus 3 years.

During the interviews, the employees were asked to describe the "current conditions" of their hotels and identify the challenges they faced. In particular, they were prompted to discuss issues such as the hotel's operations, human resources and market positioning.

The interviewees identified a number of problems arising from the lack of a clear distinction between the ownership and management of state-owned hotels. For instance, "constant intervention" by government officials results in "low efficiency, unprofitability and less of an ability to compete" with other hotels, the researchers report. Managers are not free to make their own decisions, and any decisions they do make are often subject to lengthy delays while awaiting approval.

Moreover, profit making is not regarded as an "important objective" for these hotels. Rather, the interviewees indicted that priority is given to providing hospitality services to government officials, which is in conflict with aims such as enhancing asset value and making a profit. The researchers argue that this priority has "become an operational burden" for the hotels, and "explains their underperformance" compared with privately owned hotels.

Not surprisingly, then, the interviewees all regarded international hotels as having "superior management systems" and "more experience" than state-owned hotels. Although the researchers note that some state-owned hotels have attempted to implement changes in their management systems, most such attempts have been thwarted by various obstacles, the most important of which is their inability to "separate management from ownership".

To overcome these difficulties, the researchers suggest that managers should be given "more power in the decision-making and implementation process". If they are to remain state owned, the operation and management of these hotels should resemble those of privately owned hotels. It is also important to remove the social objectives of state-owned hotels, argue the researchers, because the need to provide hospitality to government officials makes it difficult to determine whether such losses are caused by "bad management" or because the hotels must "fulfil these social objectives".

Yet the interviewees noted several positive aspects of working in state-owned rather than privately owned hotels. The managers of state-owned hotels seem to be more loyal to their employers than those in the private sector, and the style of management is more "humanised". Furthermore, while the tourism industry is renowned for its high staff turnover rates, this does not seem to be a problem among employees of state-owned hotels, who enjoy regular staff meetings, social activities and "abundant training and internal promotion opportunities".

Nevertheless, the researchers note the lack of staff motivation in state-owned hotels, which provide job security but no incentives for employees to excel. If these hotels are to become profitable while in the hands of the state, the "iron rice bowl policy ought to be eliminated", they argue. They also suggest that state-owned hotels should introduce "incentives and competitions" to enhance staff motivation. Indeed, the stability of the workforce provides "greater incentives to train workers", which could result in "higher quality and more consistent levels of service".

Many of the interviewees noted that state-owned hotels have limited competitive power against other types of hotel, as they operate independently and lack the advantages of international hotel chains. The researchers thus suggest that management be shifted to the regional level, which would remove competition among local state-owned hotels and "elevate" their competitive power in the market.

They also suggest that these hotels have some advantages that could be further exploited in their marketing. One such advantage is the "premium geographical location" of many state-owned hotels. The researchers explain that state-owned hotels in Hangzhou were established before other types of hotel, and hence often "possess the best locations in the city". As many such hotels also have a "rich history" in accommodating important political leaders, they could use this "celebrity effect" in their advertising to attract guests and increase profitability.

The researchers conclude that because privatisation "does not fit the political agenda of Chinese leaders", state-owned hotels need to find ways to enhance their performance "without selling the major government assets". Their focus on Hangzhou should be extended to other cities, they note, because state-owned hotels across China certainly have the potential to become profitable.

Hung, Kam, Zhang, Hanqin, Lam, ChiFung, Yang, Guoqiang, Pang, Daixin, Chen, Zhongwen, Li, Jing, Yang, Fuying, Yan, Linquan, Wang, Chenfei and Deng, Yuan (2014). Managing State-Owned Hotels in China: The Challenges and Remedies. Journal of Hospitality and Marketing Management, 22(7), 752-769.

About PolyU’s School of Hotel and Tourism Management

For over 30 years, PolyU's School of Hotel and Tourism Management has refined a distinctive vision of hospitality and tourism education and become a world-leading hotel and tourism school. Ranked no. 2 in the world, the School is a symbol of excellence in the field, exemplifying its motto of Leading Hospitality and Tourism.

With 65 academic staff drawing from 20 countries and regions, the School offers programmes at levels ranging from Higher Diploma to Ph.D. Currently a member of the UNWTO Knowledge Network, the School was bestowed the McCool Breakthrough Award in 2012 by the International Council on Hotel, Restaurant, and Institutional Education (I-CHRIE) recognising its breakthrough in the form of its teaching and research hotel – Hotel ICON – the heart of the School's innovative approach to hospitality and tourism education.

Contact: Ms Pauline Ngan, Senior Marketing Manager School of Hotel and Tourism Management / (852) 3400 2634

Related News

PolyU Hosted Inaugural World Summit for Deans of Independent Schools of Hospitality and Tourism

PolyU Study Urges Hotels to Create a Green Culture

PolyU Study Finds Right Audience Critical for Destination Marketing Mini-Movies

PolyU Study Finds How Hotel Loyalty Programmes Can Boost Brand Relationship Quality

PolyU Study Finds Russian Tourist Satisfaction Hinges on Hotel Features

PolyU Study Finds Focus on Accessibility Key to Exhibition Market Development

PolyU Holds a Naming Ceremony for Mr and Mrs Chan Chak Fu Building

PolyU Study Reveals Surprising Source of Unethical Tourist Behaviour

PolyU Receives Donation from Zhejiang Drore Technology to Advance Hospitality and Tourism Education

PolyU Establishes Kwok Hospitality Awards at School of Hotel and Tourism Management

PolyU Study Finds Room Attribute Preferences Vital to Hotel Profit Maximisation

PolyU Releases Report on 2016 Tourist Satisfaction and Tourism Service Quality Indices

PolyU School of Hotel and Tourism Management Scholar Conferred Endowed Professorship

PolyU Study Finds Understanding Travel Needs Can Help Improve Elderly Quality of Life

PolyU School of Hotel and Tourism Management Ranked World No. 1

PolyU Study Finds Review Features Influence Hotel Booking Intentions

3rd Global Tourism & Hospitality Conference Hosted by School of Hotel and Tourism Management to Celebrate PolyU’s 80th Anniversary

PolyU to Host HONG KONG 2017: 3rd Global Tourism & Hospitality Conference

PolyU Study Finds More Knowledge Needed of Muslim Tourists’ Requirements

PolyU Study Finds Package Tours Limit Tourist Satisfaction

All News »

Please login or register to post a comment.