Some Warm-Up Questions?

• How many teach business classes?

– International Business.
• Why is learning about India relevant to you?
• What do you know about India?
– Perceptions?
– Traveled? Asia?
• What do you know today that you did not know
on Tuesday?
• What Do you really want to know about India?
 Curious About India?
• What is the Population of India?
• What Does the Dot on the forehead mean?
• What do they think about Americans?
• Why Don’t Indian’s eat beef?...or do they?
• What is curry?
• Are most marriages arranged? How do you marry
someone before you even know them?
• What is the national language? Does everyone speak
English?
– Legacy of Britain
• What’s Cricket?
• What is the Caste System?
• About Indian Names
 Resources for India Business and
Tourism Information
http://globaledge.msu.edu/countryInsights/
country.asp?countryID=181&regionID=3

www.incredibleindia.org
WE LIVE AND CONDUCT
BUSINESS IN A DIVERSE
WORLD
 International Lodging
Development and Management
India Summer Program
July 17 - August 16, 2007
India-Thailand- Dubai

Program Leader: A.J.Singh

353-9211
Singharj@msu.edu
Where are We Going?

RAJASTHAN
How Do We Get There?

Dubai

New Delhi Bangkok

Udaipur
Udaipur
 Learning Objectives
To gain an appreciation of the global nature of
international business.

Operational differences associated with managing

hotels internationally and challenges associated
with developing business ventures overseas

Learning the complexities associated with

managing in a culture and society different from
their own
 Program Structure
• 30 Day Program
• Option of choosing from 9 credits (international
specialization)
– HB 460 International Lodging and Management
– HB 382: International Hotel Real Estate
Development
– HB 490: Independent Study(Research an
international Hospitality topic)
• Field Trips
• Cultural Enrichment Sessions
• Exposure To Management of Hotels in India
Simulation Game for Study Abroad
Pre-departure
• http://gel.msu.edu/voyagebeijing.html
 Performance of India’s Hotel Industry in The
Era of Economic Reforms
A Critical Assessment of The Investment and Business
Climate
A.J. Singh (Ph.D.)
The School of Hospitality Business
Michigan State University

7th Biennial International Business Institute

June 2nd, 2007
Center for International Business Education
and Research
Michigan State University
 Research: Purpose of Study
The Purpose of the Present Research Study is to
Analyze the Economic Reforms in India since
1991 in their role as a Catalyst of the
Transformation and Performance of the Hotel
Industry in India.
Specifically the study will:
– Identify and discuss the key features of the Economic
Reforms
– Analyze Drivers of Demand
– Analyze Drivers of Supply
– Analyze the Performance of the Hotel Industry in India
– Project Future Challenges and Obstacles to Growth
and Development
 POLITICAL MAP AND
MACRO ECONOMIC CRISIS
1991
Current Account Deficit: 3.2%
Debt Service Payment % of Current
Receipts: 35%
Foreign Exchange Reserves: Down
to 21/2 months Imports ($1 billion)
Short term debt: 147% of ForEx
reserves
Inflation: 17%
GDP Growth:0.4%
Economic Situation 1991:
Possibility of Default on short term
loans and down grading of India’s
credit rating.
In short
The Country faced a Fiscal and
Economic Crisis
 Economic Reforms: Structural Changes Driving
Growth

• Progressively more sectors opened to

private investment.
• Encouraged Foreign Direct Investment
with equity stake
• Reduction in Red Tape and Regulations
• Industry license requirements( barriers to
entry) reduced to encourage competition.
• Trade Policy liberalized.
• Capital Market Reforms
 WHAT’S DRIVING
PERFORMANCE?
THE DEMAND STORY
Growth in India’s Service Sector-
Post Economic Reform Era (1991)
 It’s the Indian Economy
• Population: 1.1Billion
• GDP: $691 Billion (10th largest economy) (USA: $11.7 trillion)
• GDP Growth: 7.7% (2004-05) and 8.4% (2005-06)
• GDP Per head: $728 (1991:?)
• CPI: 4.2%
• GDP Origins:
• Agri:21.5%
• Manufacturing:16%
• Services: 51% (expected to be 60% for 2005-06)
• Foreign Exchange Reserves; $158billion
• FDI Flows 2004: $5 Billion
(1991:$98 Million)
• Stock Market Capitalization: $553 Billion (17th) 274% increase 2000-05
• Exports: $89 Billion
• Economy Fueled by: India Global IT services, Growth in Financial
Services, Tourism Sector, Construction and Manufacturing.
• Future Growth Fueled by: Services, international trade, aviation, retail,
commercial real estate, ITes, telcom, insurance, financial services, hotels.
 Impact of Economy on Demand
• Growth in Middle Class
– Discretionary Income:
– Propensity to Travel
– More sophisticated traveler
– Impacting Leisure travel
• Growth of Domestic Businesses
– Increase in Individual Business Travel
– Increase in Meeting and Convention travel
– Increase in Incentive Travel
• Growth of International Business Presence
– Increase in international business traveler
 Market Potential Index
• Most Market Potential Index High (Based on ranking 24 emerging nations)
– Size: Rank-2
• Urban population (million)
– Growth: Rank-8
• Real GDP growth rate (%)
– Intensity:Rank:18
• Private consumption as a percentage of GDP (%)
– Consumption: Rank: 7
• Percentage share of middle-class in consumption/income

Primary Driver: Growing Middle Class Market

– Increasing urbanization
– Explosive growth electronic media: changes lifestyle and consumption attitudes
– More emphasis on higher education
– Transition from joint to nuclear families
– Impact of western lifestyle, customs and leisure and recreation preferences
– Easing Foreign Exchange resulting more international trips: higher expectations
– Consumerism fueled by cheaper consumer finance
Key Tourism Statistics
 Additional Factors Fueling Tourism
Demand
• Deregulation of Civil Aviation Industry
– Growth Domestic Airlines
– Privatization of Airports
– Open Sky Policies
• Aggressive Marketing Campaign: “Incredible India”
• CAAG growth in Domestic Tourism of 17% from 1991-
2004
• CAAG growth of International Tourism 10% from 2001-
2004
– Business Travelers based on Multinationals: Business
Confidence Index positive
– Increase in Pan-Asia travel connectivity
– Increase in Flights to India
MAJOR HOTEL COMPANIES: INDIA
 WHAT’S DRIVING
PERFORMANCE?
THE SUPPLY STORY
 Foreign Direct Investment Trends
• Foreign Direct Investment:
– 1990: $162 Million
– 1992: $315 Million
– 1999: $2.2 Billion
– 2004: $4.5 Billion
• FDI steadily increased as investment regime
progressively liberalized with less restrictions.
– Fewer restricted industries
– Easing of investment process
– Removal of Investment Caps and Repatriation
 Construction Sector Reforms
• February 2005 Central Government Allows
100% Foreign Direct Investment in construction
sector:
– Hotels
– Resort
– Hospitals
– Recreation
– Educational Institutions
– Hospitals
– Regional Infrastructure
• Approval process streamlined with minimum
hassles.
Relationship Between FDI and
Sector Growth
•Impetus for Exports: IT and ITes sectors
•New Multi-product/product specific an specialized SEZ’s:
•Clusters such as: Infor-tech- gems-jewelry-bio technology
 Financial Services Reforms
Banking Reforms:
• Privatization of banking with growth in consumer credit
• Growth of International banking institutions in India

Capital Market Reforms:

• Capital Markets maturing
• Regulatory agencies similar to SEC for investor protection
• Growth in private sector mutual fund industry
• Growth in Foreign Institutional investors driven by liquid and deep
stock market with promise of high returns (FII investment $45 billion
2005)
Non-banking financial intermediary Reforms:
• Insurance sector privatized with major global insurance companies
entering India
• Insurance Premiums for 2005 approximately $70 billion
• Growth in Venture Capital and Private Equity Funds
Investment Flows India:
Private Equity
Government Incentives for Tourism Industry
• Reduction of expenditure tax for upscale hotels
• Government classifies hotels as “infrastructure.”
– Assist with financing
– Lowers financing rates
– Income tax benefits
• Government’s stated priority for tourism
infrastructure:
– Roads
– Airports
– Convention Centers
 Hotel Development :Incentives
Incentives (Provided by State Governments)
• Exemption of Luxury Tax and Sales Tax for 5-7 Years for new
Projects
• Government Programs for Interest free loans
• Small capital subsidy for the development of budget hotels
• Below market rate allotment of land controlled by State for
development projects.
• Provision of electricity a lower than market cost.
Incentives (Provided by Central Government)
• Elimination of Customs Duty for Import of raw materials, equipment,
liquor etc.
• Capital subsidy program for budget hotels
• Hotels are now, “Infrastructure status.” which allows them access to
term loans at lower rates of interest
 Hotel Development: Barriers
• Corruption and multi-level bureaucracy
• Government Regulations, licenses and
approval process onerous.
– Over 65 Approvals and licenses required for
hotel project development.
– This makes consultants and lawyers
profession happy but developer/investor, not
so happy!
 Business Environment India
Parameter Sub Parameters used India Score OECD
Average

Starting a Business Number of Procedures 11 steps 6 steps

Hiring and Firing Difficulty of hiring index 33 26.2
Workers

Registering Number of procedures 6 4

Property
Getting credit Cost to create collateral 11.3 5.2
(% of income per
capita)

Protecting Disclosure index 4 5.6

investors
Enforcing Number of procedures 40 19
contracts
Closing of business Time in years 10 1.7
SUMMARY AND HIGH LIGHTS: HOTEL
INDUSTRY STRUCTURE: INDIA
 Introduction of New Lodging
Concepts
• Boutique Hotels (New Consumer)
• Serviced Apartments (driver:
outsourcing/consultant short stays)
• Timeshare (Increase in leisure travel)
• Adventure based Eco-Resorts
• Spas (Wellness)
• Medical Tourism
MEDI TOURISM: NEW GROWTH PRODUCT
EXISTING AND PROPOSED DISTRIBUTION TO
HOTEL SUPPLY IN INDIA
PRIMARY DRIVERS OF GROWTH IN THE INDIAN HOTEL INDUSTRY
 LODGING INDUSTRY
PERFORMANCE STORY
PERFORMANCE OF HOTELS IN INDIA
1998-2005
CRITICAL FACTORS TO DRIVE FUTURE GROWTH AND
PERFORMANCE
What Will Drive Performance and Growth in
the Future?
• Government’s continuation of liberalization Policies to attract FDI
• Making Tourism a Priority Sector
• Improve Intersectoral communication and integration between
Central, State, and related departments
• Major Investments in General Infrastructure and Tourism
Infrastructure:
– Air transportation
– Roads
– Telecommunication
• Availability of land for development and associated regulations
• Further reduction in barriers to start and operate businesses
• Consistent Marketing Campaign
• Improve Sanitation and Hygiene standards
• Increase investment incentives and tax holidays
• Availability of Trained Personnel