Jinjiang Takes Baby Step Into Global Lodge
I have to admit I was a bit surprised to read a report that Jin Jiang (HKEx: 2006； Shanghai: 600754) has become the first of China’s hotel operators to expand on the global stage, with word that the Shanghai-based chain has signed a deal to enter Indonesia. I really expected one of the US-listed Chinese hotel companies like Home Inns (Nasdaq: HMIN) or China Lodging Group (Nasdaq: HTHT) to make that move first, since those companies are more entrepreneurial than the stodgier state-run Jin Jiang. But that said, this small move by Jin Jiang looks like a prudent way to test out international markets as it looks for global growth opportunities.
Under its newly announced deal, Jin Jiang is licensing local partner PT Marindo Investama to open at least 30 of its Jinjiang-brand hotels in Indonesia. (company announcement; English article) The 15-year deal is a franchising agreement, meaning PT Marindo will bear all the costs to own and operate the hotels, with Jin Jiang providing the brand name and other support. The deal obliges PT Marindo to open at least 100 Jinjiang hotels over the lifetime of the agreement, including at least 5 with a minimum of 500 rooms in the first 3 years.
Analysts are saying the deal is targeted at the growing number of Chinese tourists traveling abroad. Some 83 million Chinese tourists took international trips in 2012, up 18 percent from the previous year, and the number is likely to keep growing at a similar pace for the next few years. Many of those travelers would most certainly feel quite comfortable staying at a hotel bearing the familiar Jinjiang name, which is one of the better known chains in China.
I would hope the chain could eventually diversify beyond the Chinese tourist market for its global properties to attract a wider range of budget-conscious tourists, and that these new overseas hotels could eventually compete with global rivals like Accor’s (Paris: AC) Ibis and Intercontinental Hotels’ (London: IHG) Holiday Inn Express budget brands. To do that, Jinjiang will need to carefully manage the image and standards at its new overseas hotels to ensure uniformity and high quality standards — a skill that isn’t a strong suit of many older Chinese state-run firms.
The tie-up is one of several global alliances for Jin Jiang as it makes its first official step onto the global stage. In 2012 the company announced a partnership with US firm Thayer Lodging to form Interstate China, a joint venture that took over the management of several foreign-brand hotels in China. (previous post) I commented at that time that the move looked like a smart way for Jin Jiang to boost its hotel management skills, and perhaps this latest move into Indonesia is an extension of that drive.
China’s hotel industry is full of potential as more and more Chinese travel both domestically and abroad. But a boom in new domestic hotel construction has led to slowing growth for operators in the last year, and last week China Lodging, owner of the Hanting chain of budget hotels, announced that room and occupancy rates were flat to down slightly in the fourth quarter of last year. (company announcement)
As growth opportunities slow at home, I would hope we’ll see some of the other major hotel operators start to explore the international market. Names like Home Inns, China Lodging and 7 Days would all be well advised to follow Jin Jiang’s example by starting slow with similar franchise agreements that are relatively low-risk financially. Such deals could mark the start of a broader global expansion for Chinese hotel chains, starting in developing markets like Indonesia and perhaps expanding into western markets within the next decade.
Bottom line: Jin Jiang’s new move into Indonesia looks like a smart first step onto the global stage, and could presage a broader international expansion into developing markets by Chinese hotel chains.
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