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Expanding Into Emerging and Frontier Markets? Be Sure to Understand the Risks.
By Joseph Fischer
Thursday, 20th December 2012
 
Exclusive Feature: Does every global hotel chain needs to have an in-house intelligence unit? A few days ago, I read an interesting article on the Foreign Policy web site titled: 'Spooks Incorporated – Does every company need its own CIA'.

The Article by Ms. Amy Zegart, a senior fellow at Stanford University's Hoover Institution describes a quiet revolution in intelligence gathering and risk analysis inside many leading US corporations.

She specifically points out hotel chains, airlines and team park management companies as those who can benefit from better geopolitical risk analysis.

Some of those companies have already set-up units that are responsible for analyzing hot spots around the world.

Here are some examples for potential questions they may need to address:
  • What will be the long-term effects of the revolution in Egypt and the recent change of government there on tourists? Will tourists be allowed to drink alcohol in the hotels? Will women be allowed to wear Bikinis on the beach?
  • Is Libya going to be a safe destination for international travelers?
  • What are the risks of having a new hotel in the autonomous region of Irbil in Iraq?
  • Would a management agreement for a hotel in North Korea have implications on a global brand? 
  • What will be the future implications on a regional brand developing hotels in Iran and at the same time operating in the neighboring gulf counties?
Many global hotel chains are looking to expend their presence in emerging markets in Asia, Africa, South America and the former CIS.

These regions are also the ones where political and geo-political risks are higher than in the western world. Analyzing these risks is a key when considering new hotel development.

Security and political risks aside, other limiting factors need to be carefully assessed. These include utilities (safe and reliable water and electricity supply) and the ease of importing necessary goods that are not locally available.  These may include good quality meat, poultry and fish, fresh dairy products and in some extreme cases even acceptable quality toilet paper…

Then, there are legal risks. In some countries, the only way to get things done is in a reasonable timeframe is to pay the right people.

That is a real problem for US corporations for legal reasons. Protecting brand and trade marks in a country where intellectual property is not consistently protected is another issue.

Clear ownership of the land on which the hotel is developed is a key point, especially in former Communist countries.
Most well known brands ask their potential partner for a full scale Market and feasibility study which will be performed by an international consulting firm. Those studies usually cover most of the business aspects of developing a new hotel but in many cases do not take into account some of these risks.

In today's ever-changing world, understanding the changing nature of political risk and how to mitigate it, should be an integral part of the decision making process for developing new hotels in new destinations.

This is strictly an exclusive feature, reprints of this article in any shape or form without prior written approval from 4Hoteliers.com is not permitted.

Joseph - Yossi - Fischer is the owner's representative and Executive Board Member IDB Tourism Holdings Leisure, Travel & Tourism industry.

IDB Tourism Holdings is the tourism arm of IDB Group, Israel's largest mixed use holding conglomerate - IDB Group. IDB Tourism consists of a Travel Agency chain called Diesenhaus-Unitours, Clal Aviation, NATOUR-UNITAL Wholesale, Diesenhaus Wholesale, Diesenhaus Incoming Travel, Israir Airlines, Yossi Tours, Open Sky - Airline GSA Representation The annual turnover of IDB Tourism is over US$ 800 millions which makes it one of Israel's largest Travel & Tourism groups.
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