There are many approaches that companies in the hospitality industry can use in improving performance in business. Of all the approaches available, expansion into new markets is one of the most common ways through which business is expanded. With the potential expansion into the Chinese market, it is necessary to access the expansion plan to avert any risks that come with entry into a new market.
The hotel has some alternatives in entering the Chinese market. The first one is licensing, where the company will allow a Chinese company to use the Swiss hotel’s expertise and trademark in its business. This option calls for minimal involvement in the enterprise, and this is not the right option for the hotel. The next option is full ownership, where the hotel will enter the Chinese market without any form of partnership. This option has been identified to require high capital and managerial investment (Cunill, 2006). Despite the benefits that come with full ownership, this option may not be the best choice given that China is a new environment. This understates the need for local know-how of the market.
The other option that the hotel has in entering the new market involves the setting up of a strategic alliance. This form of alliance is based on having a common approach to business and marketing systems. Closely tied to this is a kind of entry referred to as having Management contracts. Here, the hotel may enter into contracts with property owners in China, where the Swiss hotel runs the property on behalf of the owner, at an agreed fee (Clarke & Chen, W., 2008). This is, however, not the right option for the company since the hotel has enough capital to own property. The preferred option to enter the Chinese market involves a joint venture. Here, the hotel will share the ownership with another partner, preferably a local one. The implication is that the two investors will have shared control of the operations and other property rights of the hotel in Hong Kong.
Advantages and disadvantages of a joint venture
Shared ownership of an enterprise has been identified as one of the most efficient entry options into new markets. The first advantage comes in the sharing of knowledge. Given that the Swiss hotel will partner with a local investor, an advantage of getting in-depth knowledge of the local environment will be obtained (Cunill, 2006). Besides, there will be the combination of strengths when it comes to expertise and knowledge in various operations. Besides, the fact that two investors focus on one enterprise means that more financial strength will be realized. The implication is that more investment will be made into the Hong Kong hotel, thus improving the business outcomes. A typical joint venture means that the two parties share both costs and risks. This is an advantage since it minimizes the risk that the Swiss hotel may incur after entering the Chinese market. In most cases, governments often prefer local investments into the country. Foreign investors are often charged high tariffs, which will be avoided through a partnership with a local investor (Clarke & Chen, W., 2008).
Despite the benefits that come with this alternative, there are some disadvantages associated with joint ventures. The first one is the fact that no partner is in full control of management. This may give room for inefficiencies in operations, which may negatively impact on business operations. Also, there is the risk of disagreements that come in the form of realization of expected benefits and relationships with third party markets. This kind of conflicts of interest may prove to be detrimental to the operations of the business. In the case where the Swiss hotel plans to recover its capital investment, it may be difficult to realize it (Clarke & Chen, W., 2008)
Dealing with potential risks in the venture
Many risks come with joint ventures, especially in a new environment. The first comes in the form of a wrong venture or business partner. This is a very costly mistake to make since it points to the failure of the enterprise. I will, therefore, invest in learning and vetting of the prospective partners. This will target, realizing a partner who brings to the table, assets, know-how and other resources that complement mine. It will also involve gauging the overall suitability of the prospective partner. In this kind of partnership, having the right partner is intimately tied to the level of success that the joint enterprise achieves.
A common risk that comes with joint ventures of this nature is a poor understanding of the resulting relationship. To this end, I will invest time in getting to understand where we both need to gain from the relationship. As partners in business, it will be important to establish the strong points that each side brings (Cunill, 2006). This will give room for a complementary relationship, improving the chances of success in the business venture. This will require the application of concepts of trust and teamwork.
Another risk that comes with joint ventures is the adoption of a weak venture agreement. It is important for both parties to come up with an effective agreement that touches on different aspects of the business. The pre-set terms and conditions will govern the relationship between the two partners, thus averting any possible disagreements (Clarke & Chen, W., 2008). To ensure that the drawn agreement is effective, the services of an outsider will be required to evaluate the quality of the agreement. Having an effective venture agreement will not be the only measure; both parties will need to make the relationship work. Establishment of performance indicators, clear communication lines and designing a flexible relationship will contribute to the realization a successful joint venture.
Protection of the inherent intellectual property rights
The issue of Intellectual property rights is a controversial one, and the prospect of entering a joint venture further complicates the issue. The first precautionary measure I will take will involve the registration of my ideas (Intellectual Property Watch.org, 2014). According to the requirements stipulated in the Chinese market, I will take the step to contact a patent attorney who will note down the details of my products and how the products can be distinguished from others in the same market. Apart from going through the official means of obtaining the intellectual property rights, it will be essential to come up with records that prove ownership of the ideas (Barth & Hayes, 2006). To this end, I will invest in coming up with detailed records and descriptions of the services I am offering, to ensure that any challenges to my ownership will be squashed. The records will be made to include the dates when the ideas were developed and the various instances the products were used.
During the process of establishing the joint venture, there is often the risk of rushing into agreements. This also involves the disclosure of many aspects of the partners, and as a measure to protect my intellectual property; I will desist from revealing details of the product. These details will be shared when the intellectual property has been protected through the available legitimate means (Barth & Hayes, 2006). In this case of a partnership, it will be necessary to come up with non-disclosure agreements to secure my ideas. The joint venture with the local Chinese investor will require the formation of a logo or business trademark. Apart from this, it will be necessary to develop a trademark to represent my ideas and products (Intellectual Property Watch.org, 2014). This will be done to ensure that my products are set apart from those of other players in the industry. The developed trademark will be used in any documentation that will be utilized in the business.
Barth, S. C., & Hayes, D. K. (2006). HOSPITALITY LAW:managing issues in the hospitality indusrty. John Wiley and Sons.
Clarke, A., & Chen, W. (2008). International hospitality management. Routledge.
Cunill, O. (2006). the growth strategies of hotel chains: best business practices by leading companies. chicago: Routledge.
(Intellectual Property Watch, 2014). Retrieved January 22, 2016, from Intellectual Property Watch.org: http://www.ip-watch.org/2014/10/09/protect-your-ideas-top-ways-to-guard-your-intellectual-property/