This document discusses hotel franchising. Some key points: 1) Hotel franchising is an attractive means for international expansion as it has lower risk than equity-based strategies. 2) Hotel franchises frequently involve a management contract arrangement where a third party operates the franchised property. 3) Franchise agreements allow hotel owners to access a brand name and support services in exchange for fees paid to the franchisor.

1. HOTEL FRANCHISE

3.  Hotel franchising is particularly attractive as
a means of supporting international
expansion where equity based strategies
are frequently perceived as a high-risk
foreign market entry mode.
 One distinctive feature of hotel franchises is
the frequency with which these might be
allied to a management contact
arrangement

4.  Entry costs to franchising can be high,
particularly for an older, less well
maintained property, but franchisees must
also consider the continuing fees they will
be required to pay under a given franchise
arrangement
 Research findings suggest that the modal
form of involvement selected by hotel
groups is directly related to the type of
financial capital available in a given
country or region.

5.  Modern, business format hotel franchising
has its origins in America, where in 1954,
Holiday Inn launched its franchising system.

6.  However, the earliest example of any form
of franchising in the hotel industry probably
occurred in 1907, when Cesar Ritz granted
permission for his name to attached to
hotels in New York, Boston , Montreal,
Lisbon and Barcelona.

7.  Hotel organization with established brand
names and market reputations use
franchising as a relatively low risk method to
expand their chain system.
 It is particularly attractive as a means of
supporting international expansion where
based strategies are frequently perceived
as a high risk foreign market entry mode.

8.  One distinctive feature of hotel franchises is
the frequency with which these might be
allied to a management contract
arrangement.
 The owner contracts with a franchisor or a
third party management firm to undertake
the day-to-day operation of the franchised
property.

9.  A hotel franchise involves an agreement
between a hotel company ( franchisor) and a
hotel owner (franchisee) that enable the latter
party gain access to the use of the former’s
brand name and associated support services
in return for payment of the prescribed fees.
 Agreements will normally be for a period of
ten to twenty years, with the franchise
duration often directly linked to the life of any
mortgage applying to the hotel property.

10.  Typically, a franchise agreement will involve
a one-off, up-front payment plus ongoing
fees.
 Fundamentally, the existing of business
format franchising is a recognition that
capital intensive assets and knowledge-
based assets can be separate.

11.  The franchisee undertakes the necessary
investment in capital assets.
› Hotel building
› Plant
› Furnishing
› Fitting

12.  And then enters into a franchise agreement to
access the value-adding services of the
franchisor.
› Brand name
› Reputation
 Which facilitate the market positioning of the
property, plus addition services such as
› Operating procedures
› Controls
› Marketing
› Reservation system

13.  The franchise enable the hotel owner to
enhance the return from the investment made
in the capital assets after payroll costs,
franchise fees are typically the largest
operating expense for many hotels.

14. THANK YOU
Credit: Pryn