Piotr Niewiadomski
University of Aberdeen, UK
INTERNATIONAL HOTEL GROUPS
AND ECONOMIC DEVELOPMENT
IN CENTRAL AND EASTERN EUROPE (CEE)
University of Wisconsin in Eau Claire
April 2015
OUTLINE
1. Central and Eastern Europe (CEE) and post-communist
transformations after 1989
2. Path-dependency, lock-in and mechanisms of de-locking
3. The hotel industry and international hotel groups
4. The influence of the hotel industry on economic development
in CEE
CENTRAL AND EASTERN EUROPE (CEE)
AS THE FORMER ‘SECOND WORLD’ (1)
- The so-called ‘Second World’ was born out of the post-World
War II division of Europe into the Allied Forces-controlled part
and the Soviet Union-controlled part
- The European part of the communist bloc consisted of nine
countries: the Soviet Union, Poland, Czechoslovakia, Hungary,
East Germany, Romania, Bulgaria, Yugoslavia and Albania
- The bloc was based on the Soviet political, economic and
military control over the area and was built around two
organisations – the Warsaw Pact (1955) and the Council for
Mutual Economic Assistance (i.e. Comecon) (1949)
CENTRAL AND EASTERN EUROPE (CEE)
AS THE FORMER ‘SECOND WORLD’ (2)
- The communist system was maintained and controlled by the
national communist parties
- The state owned the means of production, controlled economic
activities, determined the direction of economic development
and planned the volume of production
- Capitalist market relations were hugely limited (or illegal)
- The economic system was underpinned by a political totalitarian
system and political oppression
- Societies of CEE opposed communism and tried to fight for
freedom of speech, human rights and liberal democracy
(Bradshaw and Stenning 2004)
POST-COMMUNIST TRANSFORMATIONS (1)
- In 1989 communism in CEE collapsed and the “communist bloc”
ceased to exist
- The map of CEE was completely re-drawn...
POST-COMMUNIST TRANSFORMATIONS (2)
- The CEE countries embarked on an ambitious path of transition
from socialism to capitalism
- Economic development based on capitalist principles was one
of the key objectives
- A central role in the transition was accorded to FDI and foreign
firms which were expected to create jobs, bring modern
technology and generate industrial upgrading
(Bradshaw and Swain 2004, Pavlinek 2004, Sokol 2001)
PATH-DEPENDENCY, LOCK-IN AND DE-LOCKING
- However, the legacies of communism keep surfacing and
determining the pace and direction of changes...
- The CEE countries are developing in a ‘path-dependent way’,
i.e. the economic landscape in CEE is shaped by its history
- Countries, sectors “are ‘locked-in’ to existing trajectories of
development as the weight of inherited investments,
practices and skills inhibits their capacity to adapt to wider
processes of economic change” (MacKinnon 2012: 233)
- Links to external networks and sources of innovation and
investment can serve as effective mechanisms of ‘de-locking’
(Martin and Sunley 2006, Boschma and Martin 2010, MacKinnon 2012)
 What about the international hotel industry and its role?
THE HOTEL INDUSTRY (1)
- The hotel industry is a very fragmented sector:
- Independently-owned and managed hotels (85%)
- Hotels comprised by large chains and groups (15%)
- But... hotel groups account for 52% of the global sales in the
hotel industry! (Euromonitor 2010)
• Hotel chain – a group of hotels which operate under the
same brand, maintain the same standards and have a
uniform marketing policy (Włodarczyk 2003)
• Hotel group – a group of hotel chains which are controlled
by central management and have the same strategy and
marketing policy (Littlejohn 2003, Włodarczyk 2003)
THE HOTEL INDUSTRY (2)
- High sensitivity to fluctuations in demand and external political
and economic forces
- A ‘localised focus’ – a highly context-specific and contextdependent nature despite the global scope
- High level of globalness – a high number of hotels comprised by
each group outside its home market
- The existence of multiple, well-recognised brands such as
Hilton, Marriott or Holiday Inn
- Long history of international expansion (since the 19thC)
- High costs of investment, high dependence of external capital
 the existence of non-equity business models
(Niewiadomski 2014)
BUSINESS MODELS OF HOTEL GROUPS
 DIFFERENT TYPES OF NETWORKS
- Owning – when the hotel is both owned and operated by a
given hotel group
- Managing – when the hotel owner employs a hotel group to
operate the business on the owner’s behalf
- Leasing – when a hotel group rents the hotel from its owner in
order to operate the business on its own behalf
- Franchising – when the hotel owner/operator employs a hotel
group to flag and market the hotel
- Hotel consortia – when the hotel joins an affiliation of
independent hotels to jointly carry out marketing activities
(Athiyaman and Go 2003, Cunill 2006, Go and Pine 1995, León-Darder et al
2011, Littlejohn 2003, Niewiadomski 2014)
THE HOTEL INDUSTRY IN CEE BEFORE 1989
- After WWII all hotels in CEE were nationalised
- The communist governments did not want to invest in “nonproductive” services such as tourism
- The number of hotels was very low, their condition was very
poor and the range of facilities was very limited
- The region was separated from the international tourist flows
and the money and knowledge they would bring
- There was no service culture under communism and no quality
education in hospitality and tourism was available
(Błądek and Tulibacki 2003, Johnson and Vanetti 2004, Witkowski 2003)
DIRECT INVESTMENT
- Hotel projects imply large
injections of capital in real
estate of high quality, but:
-
Is capital foreign or local?
-
What about tax holidays?
-
Do the profits outweigh in
time the invested money?
-
Does it lead to the host
country’s dependence on
foreign firms?
FDI stocks in hotels and restaurants
- Developers invest money,
not hotel groups
(Britton 1991, Chang et al 1996,
Dicken 2007, Niewiadomski 2015)
Watson 1991)
(Source: Eurostat Online 2010)
INFRASTRUCTURE UPGRADING (1)
“For the city it’s a long-term investment. (...) And it is not something with which you
can do whatever you want. If for any reason you have cheaper labour next door you
move the factory. (…) But the hotel won’t move because our business is local. (...) We
are here almost forever, we can’t move. We might build another hotel somewhere
else, that’s true, but this one will stay.”
(General Manager of an international hotel, Sofia, Bulgaria, September 2009)
- Hotels are an important part of urban infrastructure – they
often stand out in the landscape
- They are usually the most modern developments – in Eastern
Europe they set modern standards!
- They include facilities which the region lacks
- They play a part in revitalisation projects – more later!
- Developers build hotels but hotel groups dictate standards!
(Niewiadomski 2015)
INFRASTRUCTURE UPGRADING (2)
Top-left: InterContinental Hotel Warsaw
(Warsaw, Poland)
Top-middle: Radisson Blu Hotel Tallinn
and Swissôtel Tallinn (in the background)
(Tallinn, Estonia)
Top-right: The Westin Warsaw (Warsaw,
Poland)
Bottom-left: Hilton Hotel Sofia (Sofia,
Bulgaria)
Bottom-middle: Barceló Royal Beach Hotel
(Sunny Beach, Bulgaria)
EMPLOYMENT CREATION
- New hotels bring jobs (something that is badly needed in
CEE!) – more than automated industries!
- They also generate many casual and indirect jobs
- In contrast, when existing hotels are taken-over, there often
have to be collective lay-offs
- Hotel jobs are usually low-paid, servile and unskilled
- Foreign hotel groups lead to a loss of jobs at local hotels (it is
difficult to measure the net gain for the host area!)
- Foreign hotel groups sometimes offer attractive benefits
- Developers create jobs but hotel groups that manage these
hotels are responsible for their quality
(Baum 1993, Brown 1998, Dicken 2007, Fortanier and van Wijk 2010
Niewiadomski 2015)
FORGING LOCAL LINKAGES
- New hotels generate demand for products and services
- They source food and beverage products from the local
economy in order to reflect ‘local flavours’ and save on costs
of delivery
- International hotel groups are also instigators of qualitative
changes
- The same applies to services: laundry, cleaning, taxi etc.
- However, sometimes hotel groups prefer chain agreements
at the expense of local supplies
- The demand at the construction stage is generated by
developers while the demand at the operational stage is
down to hotel operators and their strategic decisions
(Dicken 2007, Niewiadomski 2015)
TRAINING AND KNOWLEDGE TRANSFER
- The most important category of long-term impact and the
most important mechanism of de-locking in CEE!
- It is intertwined with the previously discussed categories
- It may encompass:
-
Technical innovations and modern construction standards
-
Management, sales and marketing techniques and strategies
-
Rules underlying the organisation of work (health and safety)
-
Customer service standards
- This knowledge spills out beyond the hotel industry (i.e. to
suppliers, local governments, customers)
- Hotel groups play a key role, not hotel developers
(Jacob and Groizard 2007, Niewiadomski 2015, Orfila et al 2005)
POWER OF THE BRAND
- Famous hotel brands enhance the visibility of the host market
and reflect its size and strength
- They attract more visitors and more investments
- Such role proved to be critical in the early years of
transformations in CEE “the halo factor”
- Resort brands have the power to create destinations from
scratch (e.g. in Albania, Montenegro)
- This category of impact is (almost) impossible to quantify!
- Famous hotel groups, not developers, play this role
CONCLUSIONS
- The impact of the hotel sector on economic development should
not be under-estimated
- It depends on the business model of the hotel group
- It is not always hotel groups who should be credited for fostering
economic upgrading
- In CEE the impact of the hotel sector on economic development
has a few peculiar dimensions and has proved overtime to be
an important mechanism of de-locking CEE from the postcommunist path-dependence
- It is easy to identify different mechanisms and processes but it is
almost impossible to measure and quantify the impact of the
hotel sector on economic development
REFERENCES
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