InterContinental Hotels Group: A plan of distinction

17 May 2012

With the launch of a new upscale hotel brand, InterContinental Hotels Group’s presence in China doesn’t look set to subside any time soon. Ross Davies caught up with CFO Tom Singer to learn more about the group’s local, made-to-measure strategy that has seen it permeate the country’s booming hospitality sector, as well as other emerging markets.

When InterContinental Hotels Group (IHG), the world's largest hotel company, launched its luxury HUALUXE Hotels and Resorts brand in March this year,
it became the first international operator to offer a brand tailored specifically to Chinese clientele.

On the back of several years of market research into the proclivities and customs of Chinese guests, gone are the non-specific, tenebrous bars and western-oriented restaurants of yesteryear, replaced by traditional teahouses and late-night noodle eateries.

Given that recent figures published by the China National Tourism Administration predict the number of domestic travellers to reach 3.3bn by 2015 and its national hotel market to rise by 5-8% annually up until 2030, the move would appear to be a wise one.

But China isn't exactly new ground for IHG. When the country first began to open its doors to foreign trade - albeit circumspectly - in the wake of Chairman Mao's death in 1976, the group seized the opportunity and opened its first hotel, Holiday Inn Lido, in 1984.

Today, it is the biggest international chain in the country with 167 hotels currently in operation.

The promised land

As the world seemingly continues to focus on China's swelling economy, this initial gambit has proven to be divinatory. And while economists may debate whether China's 'emerging' status still stands - particularly in light of it having overtaken Japan as the world's second-largest economy last year - the country still represents a land of opportunity for multinational companies across vertical industries.

"Over the last two decades, China has played a large part in our growth agenda," says IHG chief financial officer Tom Singer. "IHG was way ahead of its time when it developed here in the early 1980s, well before many other companies. As part of our strategy, we determine which hotel brands go into which city, along with where exactly we want to be in the city to achieve maximum growth."

In addition to IHG's existing brands in China, such as Holiday Inn Express and InterContinental, the launch of HUALUXE is part of a pipeline that will see 150 new properties built in the coming years.

"What's fascinating about emerging markets such as China is the number of trends we are seeing that will really support demand for hotels over the next 20 years," says Singer. "You only need to look at the rate of urbanisation in some of those markets, as well as investments going into national infrastructure and the growing affluence of populations, to see that it is tremendously conducive to long-term hotel growth."

IHG's future in the Far East certainly looks promising - it has already signed more than 20 letters of intent with local hotel owners attracted by the HUALUXE brand. These are presently being converted into contracts with the hope of opening the first hotel in late 2013 or early 2014.

Flexible, tailored joint ventures

When infiltrating emerging markets such as China, the group's approach is to find the right hotel owner as a means of benefitting from local knowledge. IHG then manages the hotel on the owner's behalf, ensuring brand standards are consistently delivered. The owners, in turn, are keen to operate under the group's well-established international cachet.

"The first thing to understand about IHG is that we own very few of our hotels - most are operated under third-party ownership," says Singer. "So when we look at an opportunity such as hotel investments in China, one of the key things that we have to do is develop relationships with owners that want to build properties and have our branding over them."

IHG has incorporated a similar penetration strategy, albeit with a joint venture partner rather than hotel owners, when it comes to another fast-developing market: India. Last year, the group signed a joint venture partnership with Duet India Hotels Group (DIHL) - the hotel investment subsidiary of Duet Group, a UK-based global asset management firm - under which it is set to add a further 19 hotels to its Holiday Inn Express portfolio over the next five years, bolstering its overall total of Indian properties to 46.

"In a similar vein to our actions in China, we are working with partners that understand the local market," says Singer. "This also entails cooperating closely with government bodies so as to be granted the necessary permissions to open hotels and identify the right development opportunities. This is critical."

Given its emerging middle class and healthy GDP, it is sometimes easy to bracket India together with China. However, as Singer acknowledges, whether it be economics, politics or even gastronomy, there is no such thing as an identikit market. Hence IHG attempts to strike a balance through the adoption of a bespoke strategy simultaneously sustained by a central brand standard.

"Having overtaken Japan as the world's second-largest economy last year, China represents a land of opportunity for multinational companies across vertical industries."

"You have to be flexible and tailor your value proposition to the market," he says. "At IHG, we think that there are some aspects about our brands that are consistent across the whole world and don't need to be adapted. We appreciate, however, that we need to adjust to the preferences of these respective markets. Take food and beverage - clearly, people's tastes in North America are not the same as those in India and China.

"I think this gives us a great deal of flexibility with our brands. If you walk into one of our Holiday Inns anywhere in the world, there are certain aspects that guests can expect, but it also allows our hotels to operate within the context of a local market and meet the needs of domestic consumers."

This type of localism also extends to human capital. In recent years, IHG has invested considerable resources in its IHG Academy programme, which provides hospitality training to local communities across the world. It now has 29 programmes in operation in China alone, with approximately 5,000 participants taking part in 2011.

"We were the first hotel group to introduce this type of training programme," says Singer. "Our guiding philosophy is to have local teams on the ground. It's not a local business if you rotate expats through the office every three to four years. This is one way we source talent. It also means that we are making community investment a global priority."

Future target markets

Last year, not long after becoming IHG CEO, Richard Solomons - Singer's predecessor in the CFO chair - was asked in a newspaper interview with the UK's Daily Telegraph whether the group had placed an overarching emphasis on China at the expense of other markets.

While Solomons countered that it was not an "obsession", he did admit to it being "where the customers are" and conceded the possibility of a stock listing in the country in the future.

And, while the latest HUALUXE developments do nothing to dispel this postulation, it would be foolish to write off IHG as being so myopic as to focus its attention on one sole market; despite the overwhelming interest it continues to generate, the US still accounts for two thirds of its business. So what else is on the horizon?

"China is important - it represents 16% of our global pipeline," says Singer, "but aside from there and India, Russia will be important too. Populous places such as Turkey and Indonesia, which are developing with a good GDP, are also showing potential.

"Our strategy, as always, will be to get in early and take advantage of those opportunities. "Bearing this in mind, it would be surprising if multinationals weren't already beginning to make premeditative steps towards sourcing and tapping into this latest breed of emerging markets highlighted by Singer - just as IHG did in China almost 30 years ago.

IHG’s Academy training programme is currently teaching 5,000 Chinese recruits about the ins and outs of working in the hospitality sector.
Tom Singer.