Performance of Indias Hotel Industry in the Era - AJ Singh | Chinese Economic Reform | Economic Growth

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

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Dubai Program Leader: A. 2007 India-Thailand.Singh 353-9211 Singharj@msu.edu .International Lodging Development and Management India Summer Program July 17 .J.August 16.

Where are We Going? RAJASTHAN .

How Do We Get There? Dubai New Delhi Bangkok Udaipur Udaipur .

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

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 .

html .edu/voyagebeijing.msu.Simulation Game for Study Abroad Pre-departure ‡ http://gel.

Singh (Ph.Performance of India¶s Hotel Industry in The Era of Economic Reforms A Critical Assessment of The Investment and Business Climate A.J.) The School of Hospitality Business Michigan State University 7th Biennial International Business Institute June 2nd.D. 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 .

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. In short The Country faced a Fiscal and Economic Crisis .4% Economic Situation 1991: Possibility of Default on short term loans and down grading of India¶s credit rating.POLITICAL MAP AND MACRO ECONOMIC CRISIS 1991 Current Account Deficit: 3.

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 SectorPost Economic Reform Era (1991) .

commercial real estate. Tourism Sector. ITes. Construction and Manufacturing. international trade. Growth in Financial Services.5% Manufacturing:16% Services: 51% (expected to be 60% for 2005-06) Foreign Exchange Reserves. retail.4% (2005-06) GDP Per head: $728 (1991:?) CPI: 4. Future Growth Fueled by: Services.1Billion GDP: $691 Billion (10th largest economy) (USA: $11.7% (2004-05) and 8. aviation. insurance.It¶s the Indian Economy ‡ ‡ ‡ ‡ ‡ ‡ ‡ ‡ ‡ ‡ ‡ ‡ ‡ ‡ ‡ Population: 1. financial services.2% GDP Origins: Agri:21. hotels. telcom. $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. .7 trillion) GDP Growth: 7.

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: ³Incredible India´ ‡ CAAG growth in Domestic Tourism of 17% from 19912004 ‡ CAAG growth of International Tourism 10% from 20012004 ± Business Travelers based on Multinationals: Business Confidence Index positive ± Increase in Pan-Asia travel connectivity ± Increase in Flights to India .

MAJOR HOTEL COMPANIES: INDIA .

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WHAT¶S DRIVING PERFORMANCE? THE SUPPLY STORY .

2 Billion 2004: $4. ± Fewer restricted industries ± Easing of investment process ± Removal of Investment Caps and Repatriation .Foreign Direct Investment Trends ‡ Foreign Direct Investment: ± ± ± ± 1990: $162 Million 1992: $315 Million 1999: $2.5 Billion ‡ FDI steadily increased as investment regime progressively liberalized with less restrictions.

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.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 ³infrastructure.´ ± Assist with financing ± Lowers financing rates ± Income tax benefits ‡ Government¶s stated priority for tourism infrastructure: ± Roads ± Airports ± Convention Centers .

‡ Capital subsidy program for budget hotels ‡ Hotels are now. liquor etc. ‡ Provision of electricity a lower than market cost. ³Infrastructure status. Incentives (Provided by Central Government) ‡ Elimination of Customs Duty for Import of raw materials.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.´ which allows them access to term loans at lower rates of interest . equipment.

not so happy! .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.

2 Starting a Business Number of Procedures Hiring and Firing Workers Registering Property Getting credit Difficulty of hiring index Number of procedures Cost to create collateral (% of income per capita) Disclosure index 11 steps 33 6 11.2 4 5.6 19 1.Business Environment India Parameter Sub Parameters used India Score OECD Average 6 steps 26.3 Protecting investors 4 40 10 5.7 Enforcing contracts Number of procedures Closing of business Time in years .

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 .

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