Vietnam - Hotel management turns overheated

A glimpse at the country’s hospitality industry will reveal not only the fast development of infrastructure facilities, but also the bustling competition among big international brands in hotel management.

As renowned international hotel management firms are vying with one another for a bigger share in the local market, local owners of hotels are standing for much better benefits, from professional services to lower management fee and thus higher profits.

Accor, for instance, is planning to expand its presence on the local market in the next two years by doubling the number of 500 hotel rooms currently under the Novotel brand. As planned, the leading hotel management group in Vietnam in terms of the number of hotel rooms will expand the brand in Danang, Phu Quoc and Hanoi in the coming time, besides some existing Novotel hotels located in Ha Long, Nha Trang and Phan Thiet.

Faster pace

Like Accor, other international hotel brands big and small alike are making great efforts in the race to increase their shares in the domestic market as much as possible.

Despite the current global economic crisis, the local hotel management segment has continued luring investments from foreign hotel service suppliers, helping local investors enjoy a much lower management fee accordingly.

InterContinental Hotel Group (IHG), well-known for its InterContinental and Crowne Plaza brands in Hanoi and HCMC, has built one more Crowne Plaza and developed Holiday Inn in Danang. Similarly, Starwood Hotels and Resort Worldwide, Inc. has approached the local market with its two more brands, namely Le Meridien and Westin, following the establishment of Sheraton hotels in HCMC, Nha Trang and Hanoi.

Not only existing groups but new rivals have also tried to penetrate the domestic market, such as BestWestern or Zinc Vision.

Meanwhile, local hotel management enterprises, though still very few in the number, are busy with their business activities, such as Furuma Hotels and Resorts boosting preparation to open one more resort facility in Baria-Vung Tau Province soon.

Most hotel managers are keener on the three-to-five-star hotel segment, accounting for roughly 20% of the country’s total number of hotel rooms and predicted to achieve robust growth in the near future.

According to the Hotel Department under the Vietnam National Administration of Tourism (VNAT), the number of hotels in the country has risen by four times over the last ten years.

In fact, the nation had 3,200 hotels with 72,000 rooms in 2009 and the figure soared to 12,500 hotels with 230,000 rooms at the end of 2010.

Given a great number of hotel construction projects in the country’s big tourism centers, the local hotel service sector is believed to achieve stronger development in the years to come.

“The market has still been developing well and attracted management hotel service suppliers, helping improve quality of the local hospitality system,” commented Le Mai Khanh, deputy head of the Hotel Department.

Local investors earn benefits

The presence of numerous local and international foreign hotel management companies has boosted the domestic market’s growth and created more favorable conditions for developers, who want to choose appropriate brands and costs or look for capital contributors to develop their schemes.

Hotel management enterprises earlier paid much attention to overall management contracts and franchising trade only but now they are more interested in investment capital contribution as well.

“Apart from administrative capacity, we can contribute investment funds to projects with partners,” Zinc Vision’s chief executive officer Kevin J Beauvais told the Daily, adding his business looks to develop three out of total seven brands in Vietnam.

Thanks to the participation of a huge number of industry players in the market, numerous investors find it easier to pay for cheaper management fees.

One representative of a domestic business, who is recruiting a foreign management firm for a four-star hotel in Laos, said her firm was to finalize an agreement with a partner who had agreed to remove many kinds of fees.

“Fee levels now are somewhat reasonable and partners are really proactive to approach us but what we need is an experienced company,” stresses the representative.

Another source who is seeking a partner for one of her company’s resorts believes the final negotiated fee will be sharply reduced. “One four-star hotel brand offers us basic management fee at 3% of total net sales but I think the fee will be decreased to 2% only,” she adds.

International groups usually require developers to sign contracts based on about ten kinds of fees. Nonetheless, a number of investors affirm they can negotiate with partners involved in the three-star segment to exclude a 0.5% license fee of total net sales and to minimize incentive management fee counted on total profits.

Dao Loan - The Saigon Times Daily

Business & Investment Opportunities

YourVietnamExpert is a division of Saigon Business Corporation Pte Ltd, Incorporated in Singapore since 1994. As Your Business Companion, we propose a range of services in Consulting, Investment and Management, focusing three main economic sectors: International PR; Healthcare & Wellness;and Tourism & Hospitality. We also propose Higher Education, as a bridge between educational structures and industries, by supporting international programs. Sign up with twitter to get news updates with @SaigonBusinessC. Thanks.