Hotel brands that do not have a presence in emerging markets such as China & India, may inevitably find themselves at a disadvantage -

International hotel groups as well as South African hospitality operators, should heed this warning from a leading global hotelier.

As their domestic markets become more competitive, growth slows down and operating margins come under pressure, hotel groups in developed regions are now looking to conquer emerging markets. The BRIC countries are the obvious favourites - Brazil, Russia, India and China.

But hotel groups from these developed countries are warned they need to be fully aware of the risks involved in doing business in these emerging economies. Robert Milburn, PricewaterhouseCoopers (PwC) UK hospitality and leisure leader, warns of the downside. "In the emerging market retail sector - SA excluded - seven out of every ten entrants are leaving. The hotel industry should learn from their experiences."

A PricewaterhouseCoopers publication – Hospitality Directions, Europe Edition – highlights that emerging markets have become more attractive in recent years because of their rapid advances in political stability, education and technology. Combined with hotel supply shortfalls in these regions, foreign owners, developers and hotel operators are keen to seize these opportunities.

Milburn warns that it can be difficult to do business in emerging markets and new entrants should learn from the experiences of those who have tried and succeeded. Hotel leaders interviewed for the PwC publication advise companies to maintain strong relations with local stakeholders, including government. One cannot transfer a product directly into an emerging market and standards need to be modified according to the specific environment. It is also imperative to choose the right local partners.

Nikki Forster, Johannesburg PwC director of hospitality and gaming, says that the South Africa situation is most unique. "We are classified as an emerging market but our infrastructure, which includes hotels, is very well developed. So instead of seeing a massive influx of foreigner operators coming in here, we are seeing the locally-established hotels groups moving into the rest of Africa, particularly Central and Eastern Africa, Mauritius and Middle East."

Forster warns that one cannot underestimate the difficulties associated with doing business in a foreign environment. "South African hotel groups have had their fingers burnt in Africa. Sometimes politics and local governments in these markets can pose problems." She highlights that besides Africa, we also have some local operations moving into India, and China will most certainly be next on their list.

For international leisure companies eyeing the South African market, the World Bank ranks SA as 28 th in the "Ease of Doing Business World Rankings". This puts us way above China at 91, India at 116 and Brazil at 119.

Forster says that previously we have seen the large American chains come in and construct one or two hotels, and foreign interest is now focused in the specialist luxury niche market.

Forster confirms that we will definitely see some activity coming from the 2010 World Cup, with locals and foreigners working as joint partners, but she cautions we should not pin our hopes on massive leisure infrastructure growth coming from a single event. "Overall, our tourism numbers are sound and there is definitely scope for increased capacity, but it may not be overwhelming."

Although one should ideally focus on a successful result when moving into a new market, the PwC survey warns that should a hotel group get its entry wrong – in terms of timing, strategy or selecting the wrong market – it is essential to have a smooth exit strategy as a back-up.