Majestica Hotel in Shanghai? - Managing Global Alliances

1. Majestica Hotel in Shanghai
Presented by - Liaozhen PENG, Jin QIAN, Phuong PHAM
MANAGING GLOBAL ALLIANCES

2. -Introduction
-Majestica Hotel Inc.
-Commercial Properties of
Shanghai (CPS)
-Alliance Specific Conditions
-Issues in the negotiation between
Majestica & CPS
-Seminar Activities
-Negotiation Theories
-Learning from this case study
Content

3. Introduction
The trend of the modern hotel industry:
 Modern hospitality industry’s growth has moved almost
parallel to the natural outgrowth of globalization.
 International hotel chains and luxury hotel have been
expanding in the following decades.
Challenge:
 It offers comparison and increases competition among the
service providers.
 Attending the desired experiences of very individualized
customer, has become a tough challenge of this industry.

4. Introduction
 However, accompanied with the Asian Pacific economy is
developing rapidly, increasing number of luxury hotels into the
Asia-pacific region.
 Majestica hotel was no exception, they trying to look for
opportunities to enter the Chinese market, and trying to alliance
with the CPS in Shanghai.

5. Majestica Hotel Inc.
 Majestica Hotel is one of the world’s largest operator of
Luxury hotels and resort properties, it expanded to the UK,
U.S. and North America.
 Majestica’s superior hotel management results attracted the
owners and developers of luxury hotels worldwide.
 Majestica’s operating philosophy to have full control of the
hotels under its management.

6. Commercial Properties of Shanghai (CPS)
 A subsidiary of Commercial Properties Shanghai
Investment (Holdings) (CPSIH), one of several
overseas investment arms of the Shanghai municipal
government.
 CPS’s parent company was the largest overseas
conglomerate wholly owned by the Shanghai
municipal government with interests in Shanghai,
Hong Kong, other parts of China and in cities
spanning the Americas.
 CPS was listed on the Stock Exchange of Hong Kong,
and conducted several successful acquisitions. As well,
the parent company also injected assets into CPS.

7. Alliance Specific Conditions
 Political Aspect:
 Stable and high government support for FDI
 Economic Aspect:
 China as one of the World’s largest economy
 Shanghai as one of top Asia’s finance centers
 Business and Leisure Activities
 Social Aspect:
 Chinese mainland Population 1,37 billion
 Tourist spending increase 14.7% compared with 2013
 Large opportunity for luxury hotels
 Technology Aspect:
 Comprehensive manufacturing base
 One-third of China’s industrial output

8. Issues in the negotiation between Majestica & CPS
Length of Contract Term
-Majestica: 55 years contract
-CPS: 12 years contract
Pre-opening Assistance
-Majestica: assume a substantial pre-opening
role by sending senior people and want to
retain the approval right over all design
aspects relating to the hotel
-CPS: welcome the help but don’t accept
Majestica’s request of the retaining
Name of the Hotel
-CPS: “Shanghai Oceania – Majestica Hotel”
-Majestica: “Majestica Hotel, Shanghai”

9. General Manager
-Majestica: general manager upon the opening
of the hotel would be an expatriate
-CPS: in the near future a Chinese general
manager will be used
Expatriates
-CPS: expatriate managers should be gradually
reduced, replaced by local managers
-Majestica: did not believe that local people
have the prerequisite experience to perform well
Purchasing
-Majestica: insist to use their centralized
purchasing system and CPS should pay a
modest fee
-CPS: was concerned about the prices and insist
to the domestic purchasing
Issues in the negotiation between Majestica & CPS

10. Issues in the negotiation between Majestica & CPS
Owners’ Access to Hotel Rooms
-CPS: request access to hotel rooms as offices
-Majestica: insist no privileges
Arbitration
-Majestica: insist arbitration take place in a third
country
-CPS: insist and arbitration should take place in
China
-CPS: asked Majestica take a minority equity
position in the hotel

11. Seminar Activity 1
As Majestica, where, if anywhere, would you make concessions?

12. Concession
 Length of contract term: 30 years contract (Government
Regulation)
 Name of hotel: Majestica Hotel, Shanghai (possibly add
Chinese characters)
 General Manager & Expatriates: Must be Majestica for hotel
operation.(Willing to reduce gradually after 12-15 years for
transfer knowledge)
 Purchasing: CPS responsibility BUT need requirement
approval from Majestica.
 Owners’ Access to Hotel Rooms: Limit usage of rooms to 2-3%.
 Arbitration: Agree JV stake up to 25%.

13. Seminar Activity 2
As CPS, if Majestica refuses to make concessions, will you walk
away? Why?

14. Alternatives for Majestica
Stay in Shanghai
CNY/Rate/night:
622.78*
Abandon Shanghai
Relocate to
another city
Find another alliance
Concessions and
strong negotiation
Beijing: 491.40*
Guangzhou: 422.75*

15. Seminar Activity 3
As Majestica, which way are you going to choose? Why?

16. Advantages Disadvantages
Stay in
Shanghai
- CPS has both appetite and resources for further
expansion in China.
- Economy of time (no need for another place and
business partner)
- Access to China market
- Higher future opportunities to expand in Asia
- Political stability: CPS belongs to municipal
government
- Business transparency and independence from
government influence
- The hotel is under construction
- Shanghai is 2nd attractive to Paris location choice
- Hotel sector growth
- Length of contract term (only 30
years)
- Loss of full control of the hotel
under management
- Another name of the hotel as a part
of strategic expansion program
- Competence of high level of
management.
Abandon
Shanghai
- Keeping brand identify
- Keeping standards (Outstanding service culture,
Design consistency, Staff control)
- Loss of big market potential
- Loss of time
- Loss of Investment in internal
resources
- Challenges in finding new partners
for JV
- New market analysis
- Loss of future opportunities
Relocate
to
another
city
- Keeping brand identify
- Keeping standard
- Same law in China (10 years of
operations for foreigners)
- Double loss of time and internal
resources
- Uncertainty of new opportunities
- Negotiating history in China

17. Possible Negotiation Outcomes
Source: Child et al. (1998)

18. The managerial grid of negotiation possibilities
Source: Child et al. (1998)

19. Learning from this case study
 Alliance negotiations should endeavor to accomplish
three things:
 Establish the potential partners’ mutual interest and test
their strategic fit.
 Provide an opportunity to create a foundation of trust
and to develop a problem-solving attitude.
 Establish a business and operational plan for the
proposed enterprise.
 Compatibility should be realized.
 Balancing interests and considering concession.
 Understand the culture of your partner.

21. References
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