International business has always been an interesting topic among economics. Expansion to new countries with questionable stability is an interesting debate material. The increasingly dominant new markets like China and India have given western business managers a bit of a wake-up call. They are increasingly aware now that new opportunities might be waiting thousands of miles away in some foreign markets. Studies of market potentials have been enhanced in detail and accuracy, giving managers more data to consider entering foreign markets.
A lot of bolder and larger investments are made into countries which are previously unknown to business. Within this study, we will discuss the potential expansion of Hilton hotels Corporation to Chile, the developing market in South America. As each country has their own unique characteristics for business opportunities, we should find interesting facts about the country and then we are able to answer the question whether or not the Hilton Hotels Corporation should expand their business into the country. II. The Hotel Industry
As a central facility where the hospitality business developed, the hotel industry has experienced significant growth in the global market. A study indicated that the development in hotel industry is mainly driven or characterized by two things, M&A activities and Market Segmentation. These activities have significantly determined the shape of the industry for 25 years. Market segmentation is popular because it would allow hotel groups to expand without have to competing against themselves in a certain markets.
Hotels like Holiday Inn, Marriott, Hilton and Sheraton were all designed to meet the needs of a single class of travelers. Therefore, it is common to see a single hospitality company operating under various brands of hotels because it is easier to attract guests to a certain brand image compare to having a hotel with multi target-markets (‘The Transformation of’, n. d)) . The second type of activities is mergers and acquisitions. Since the 20th century, the hotel industry is increasingly dominated by publicly held multinationals. They found that mergers and acquisitions are crucial in achieving earnings and growth.
The Hilton Hotels Corporation for example, merged with the Promus Hotel Corporation in 1999, allowing the company to have control over the Hampton Inn, Doubletree, Homewood Suites Embassy Suites and the Red Lion Brands (‘The Transformation of’, n. d). Economically, the international growth might be in tune with the passing of economic crisis from some of the Asian countries. In western markets, like the US and UK, the hotel business is in upturn since the September 11th tragedy. The global hotel markets recognized names such as Starwood, Hilton, Marriot, Hyatt and Intercontinental Hotels as the dominators of the global industry.
III. Corporate Background III. 1 Current Conditions Today, Hilton Hotel Corporation is a well known hospitality company which owns a group of companies operating under various brand names like Hampton Inn, Double tree, Embassy Suite Hotels, Conrad Hotels and of course Hilton. The group owns the world’s famous hotels like the New York Waldorf (Astoria), Waikiki Hilton Hawaiian Village and the Chicago Palmer House. The company started their business since 1919 and has acquire a number of its competitor along the way. Hilton Hotel Corporation is also running franchising vacation businesses.
Corporate Income from the franchising business is approximately 30% of Hilton’s total cash flow, accounting for more than 400 hotels all around the globe. Company’s vacation business, the Hilton grand Vacations Club operates properties across the country including Las Vegas, Orlando, Miami and Honolulu (‘Corporate History’, 2006). The company has a global strategic alliance with Hilton International and Conrad International. Through the Hilton International, the company made an undeniable presence in the global market by owning 2,700 hotels in more than 70 countries throughout the world.
Furthermore, the Conrad International offers five star luxury hotels in England, Ireland, Belgium, Hong Kong, Singapore, Turkey and Egypt (‘Corporate History’, 2006). III. 2 Hilton and Businesses Travelers Hilton Hotels Corporation designed many programs to serve customers in the hospitality business. The company provided business travel programs equipped with fully-staffed business centers and the Towers Concierge Class, which is available in 33 of Hilton’s premiere US properties. The services include in room fax, assistance in making office tasks like presentation, faxing, word processing, etc.
The company was the first to join with American Express and offer customers with no-fee co-branded credit card, which offer move benefits to frequent business travelers (‘Corporate History’, 2006). III. 3 Hilton Business Strategy III. 3. 1 Maintaining Service Quality The company takes pride in its programs to maintain quality services. For instance, The Hilton Quality Service Institute (HQSI) was established in 1992 to provide series of workshops that educate mangers and employees regarding corporate programs and service philosophy.
This institute’s objective is to maintain the consistency and service quality of all Hilton facility in attending to customer’s needs. Furthermore, the company spent up to $ 1 billion to maintain properties like the Waldorf Astoria, the Hilton Hawaiian Village in their excellent appearance and condition. There is an annual review to evaluate whether or not franchisers meet corporate standards (‘Corporate History’, 2006)). III. 3. 2 Evaluating Performance In relation to effort maintaining quality of services, Hilton’s Balanced Score Card is famous within the hospitality industry.
The system allows Hilton to tracks financial and competitive performance in accordance with customer’s satisfaction. Since it was applied within the company in 1997, the Balanced Scorecard evaluation system has provided managers with valuable information and insights to determine the course of management’s actions. It helped manager to obtain focus for the final goal of delivering the highest value to stakeholders (‘Corporate History’, 2006). III. 3. 3 Creative Marketing and Innovative Services The company is known for being a pioneer in the hospitality industry. In ’46, Hilton was the first company who was listed on the New York Exchange.
In ’97 the company formalized a marketing alliance to unite and coordinate the Hilton brands worldwide. The company pioneered the concept of airport hotels, hotel gift shops, franchising hotels, centralized reservation and others. It is recognized as the first brand to offer amenities like air conditioning, direct dial telephones, etc (‘Corporate History’, 2006). The company offers hotel membership that will provide benefits for frequent customers. This guest reward program is performed within every hotels and brands, creating a certain appeal for frequent business travelers.
For the large demand of family vacation packages, Hilton provides special prices to visit the most popular vacation destination across North and South America. The company also runs the Mature Traveler programs, which provide special membership for customers over the age of 60 around the world (‘Corporate History’, 2006). III. 3. 4 Looking to the Future According to Hospitality. net, Hilton Hotels Corporation is leading the industry in the number of rooms to be added in recent years. In the end of the third quarter of 2005, the company has 17. 4% of all rooms in US.
In 2006, the company expects to add 175 to 200 hotels and 23,000 to 27,000 rooms to its system. In total, the company reported 560 hotels and 75,000 rooms in its development pipeline as of September 30, 2005, which is recorded as the largest project in the history of the hospitality industry (‘Hilton Hotels Corporations’, 2005). Industry consultants stated that the potential for development is still strong and will remain strong for at least several of the next years. Since August, 2004, corporate stock has risen almost 25% within the recovering markets after the September 11th.
The third quarter of 2005 still displays an increase in net income and share prices (‘Hilton Hotels Q3’, 2005). In its financial report, the company stated that there would be an increase in the travel business for the coming years, especially the business travel segment (‘Annual Report 2004’, 2005). The hospitality business is expected to be increasing in the US, Canada and Central & South America (‘Hilton Hotels Corporation’, 2005). III. Country Background III. 1 Economic Highlights According to the CIA Fact book (2006), Chile has a market-oriented economy and a high level of foreign trade.
In the administration of Patricio Aylwin, the country is known as a role model for economic reform. The country has a history of constant positive growth for decades. However, due to the economic crisis, the country experiences its first negative growth rates in 1999. Afterwards, the economy is advancing at a relatively slower rate however, with a lower rate of inflation also. The country signed a trade agreement with the US in 2004 and China in 2005. The average annual growth of the economy since 1997 is 2. 4% (‘CIA Factbook-Chile’, 2006).
The development of economy is heavily concentrated in the central region. This is related to the fact that 40% of the population lives in the Santiago metropolitan area. Nevertheless, recent development indicated that mining, large-scale methanol production and tourism expands the economy to the north of the country. Mining is the strongest resource of the country. Transport and catering accounts for only 7. 5 of the country’s GDP in 2002. . Tourism is the strongest in the central-north of the country (‘CIA Factbook-Chile’, 2006). III. 2 Politic and Social Highlights
The presidential structure of the government gives the country more sensitivity toward global development. Chile’s Macroeconomic policy framework sought to minimize potential effects of external shocks on output and employment. There is a considerable consensus toward the desire to enhance foreign connections and deepen integration with the global economy. This is apparent from government’s methods of regulating the liberal market economy through their fiscal and monetary policies. Despite its amazing ability to reduce poverty (from 40% in 1987 to 5.
7% in 2000), the country is recorded to have problems with its civil services, which currently is under ‘reconstruction’ to improve transparency and efficiency of the system (‘Chile-Factsheet’. , 2006). The country foreign policies are supportive of foreign trade and investments. 2005 exports reached US $ 39. 5 billion in 2005 and imports were US$ 35. 5 billion. The company is committed to the free-trade agreements with the European Union, the United States, Canada, Mexico, North Korea, China and India. The list of countries will be added by Japan in 2006 (‘Chile-FactSheet’, 2006). III. 3 Forecasts
For 2006, economic policies are expected to remain sound. Peso is expected to remain steady in nominal exchange rate against US dollar. Inflation will be steady within 2-4% range due to the tightening monetary policy. GDP is forecasted to have a slight decrease in 2006, but expected to recover by 2007. Overall, the economy will experience a stable development during the next 3-5 years (‘Chile-Forecast’, 2006). IV. Expansion to Chile IV. 1 Expanding Company and a Developing Market The data revealed that Hilton Hotels Corporation is a constantly expanding company with the world’s boldest development plan.
The company receives significant increases in net income which are derived from the recovering travel market after the September 11th tragedy. The company is recorded to have the most aggressive plan of developing their business in 2006 and there is a considerable reason to believe that they are looking for new and potential market. On the other hand, the study on Chile revealed that the country has an appealing basis for a new market potential. From the available data, Chile is defined as a developing market with considerable growth. The country has stable politic and social condition, and both are supportive to foreign investments.
Politically, the country has just entering a new administration and the people have a considerable faith about how the new administration will impact the country’s economic development. Among many others, these are significant factors that boosted the possibility of having Chile as the new target market for Hilton. IV. 2 Planning for Investment to Chile The low level of inflation and stable exchange rate is a considerable plus to the country’s potential for accepting investment. It will be easier for Hilton to predict the financial course of their business in Chile because of the stable inflation and exchange rates.
Analysts have predicted that the policies of the current administration are sufficient to suppress inflation in its low levels for several years in the future, therefore, maintaining the stability of business conditions. The company has a reputation as a famous international hospitality company. Their brands are well known and attract business wherever they go. On the other hand, Chile also has a reputation of welcoming interaction with the global economy and multinational corporations. During the near future, I believe that Chile should be considered a profitable new market for Hilton.
Establishing a presence in Chile within the next few years will be a smart move for the future development of Hilton’s market within the country. Nevertheless, there are also some challenges to be considered. The country has only 10% of their GDP resulted from trade and catering business, while communication and transportation account for only 7% of the country’s GDP (‘Chile-Fact sheet’, 2006). This means that the hospitality business within the country is not well developed yet. It is possible that the country will have only minimum infrastructure to support Hilton in its expansion to the country.
But the numbers could also mean that the country is waiting for an investor that could enhance their hospitality business. With the current policy of their administration –to enhance integration with the global economy-, it is logical to believe that Hilton would receive considerable assistance to develop their business from the Chile government. Another challenge come from the fact that business in Chile are mostly concentrated in Santiago and its surrounding metropolitan areas, while the tourisms areas are expanding in the northern areas of the country.
Because Hilton managers have previously predicted that the increasing market would be that of the business travel segment, the company would most likely choose to place their facilities near the populated business areas, -which is near Santiago city and the surrounding areas-. With the limited infrastructure support, the company might face a challenge in providing their non-business (leisure) guests with cheap access to recreational or tourism sites which are located in the northern part of the country.
Thus, the company might then have to divide their facilities to account for the business guest – by facilitating them wit hotels in the central areas- and the leisure guests –by providing them with hotels in the northern areas of the country. V. Conclusions The study revealed that Hilton Hotels Corporation is an expanding business constantly looking for new ways to develop their business. There is a considerable opportunity for the company to expand their business to the Chile market because the market has appealing basis for developing new businesses.
The company is a well known player in the hospitality business. They are well known for their balanced scorecard system and their reputation of maintaining quality hospitality services. The Chile market is potential for growth because the market has a stable and conducive economic atmosphere for foreign investment. The only problem is that hospitality business within the country is not well developed, leaving the company with additional challenges of maintaining their quality with existing resources and infrastructure.
However, remembering Hilton’s reputation of being the pioneer in the industry, I believe that the Chile market still possess a larger portion of benefits rather than problems for the company.
‘Annual Report 2004’. 2005. Hilton Hotels Corporation. Retrieved April 3, 2006 from http://hiltonworldwide. hilton. com/en/ww/company_info/search ‘Corporate History’. 2006. Hilton Hotels Corporation. Retrievd April , 2006 from http://hiltonworldwide. hilton. com/en/ww/company_info/search