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An Analysis of Marriot Franchise in France

An Analysis of Marriot Franchise in France

Abstract

Marriot International is a company based in the United States. As a part of it International strategy, the company conducts hotel franchising in France. Considering the differences in culture as well as location between the two countries, it is necessary to investigate whether the company can replicate its usual strategies and still be successful in France. This requirement necessitates the needs to perform an analysis of its external environment in France and a comparison of differences between these two countries. If the differences between France and the United States are too high, the company’s business model may not succeed in this country. A proper approach of analyzing the external environment in France is through the use of the PEST analysis. The tool examines four sectors such as political, economic, social, and technological factors, present in the environment and their effects on a company’s operations. To compare the two companies, one should use the CAGE Distance Framework that measures the differences between the two countries in terms of culture, administration, geographical location, and economic performance.

Keywords: Marriot International, PEST, CAGE, comparison

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Marriot franchising in France is done through Marriot International, Inc. Marriot International is a hospitality company that is headquartered in Bethesda, Maryland, the United States of America,. The company operates globally in more than 100 countries, where it has over 6,000 properties, with over one million rooms under their franchise or license. The company has approximately 30 brands of hotels, working under its name (Marriot International, 2016). In France, Marriot International has an impressive presence under such brands as Marriot Hotel, Courtyard by Marriot, Renaissance Hotel, AC Hotels, and Autograph Collection. At the same time, in France, and Europe in general, the company competes with other large hotel chains such as Hilton, Accor Hotels, and the Intercontinental Hotel Group. In analyzing the performance of this American-based company in a foreign region, such as France, one can use the PEST and the CAGE analyses to determine how different factors, present in the country, can affect the company’s success.

PEST Analysis of Marriot Franchising in France

The PEST analysis is a tool that can be utilized in a company while analyzing the environment it operates, or plans to start operations, to determine the suitability of the environment to its activities. This framework considers macro-environmental factors when performing strategic management (Warner, 2011). By helping analyze the external environment of a business, the framework aids in determining the market’s dynamic as well as the proper directions that a company’s operations should take. Specifically, PEST studies such factors as for political, economic, social, and technological.

Political factors explain the government’s role in a given economy. Such a role includes the level of political stability in a country, its tax policy, business regulations and laws as well as any trade restrictions that might be present in the country of potential operations (Warner, 2011). The effect of a country’s security on business is also one of political factors to be analyzed. France is one European nations that have suffered from terrorist attacks lately. The state also has one of the largest immigrant populations, the majority of whom are Muslims. Most people in France, as well as Europe in general, are of the opinion that the vast Muslim community is responsible for terrorist attacks. Therefore, terrorist attacks and the attacks against Muslims by the French left-wing citizens create a state of insecurity that significantly reduces the willingness of tourists to visit this country. France receives close to 85 million visitors each year, and these individuals are the primary customers for local Marriot franchises and hotels (The Local, 2016). In 2016, the nation faced a drop of 15% in the number of people visiting Paris and a 9% drop in tourists in France in general (The Local, 2016). In Paris, where Marriot has several hotels, room reservations dropped by 14.6% in comparison to 2015 (The Local, 2016). Hotel occupancy in the country also fell to 32% in 2016 (The Local, 2016). Such a drop of the number of tourists due to terrorist attacks is the most significant political factor, affecting the operations of Marriot in France.

Economic factors consider the ways, through which the performance of an economy affects the operations of a company. Various elements, present in an economy, affect the purchasing power of customers, which has a direct effect on a company’s revenue. These factors also create a shift in the demand/supply dynamics, present in a country (Warner, 2011). The most common economic factors considered in PEST analysis are interest rates, economic growth trends, inflation rates, and foreign exchange rates (Warner, 2011). France faces a flaky financial condition that is characterized by one of the highest unemployment rates in Europe and regular strikes in the labor sector. Weak economic conditions undermine the citizens’ purchasing power; hence, most of them are unwilling or in no position to utilize the services, offered by Marriot. At the same time, China currently faces a debt surge, which economic analysts believe is a precedent to the country and other regions, facing a financial crisis soon. More than 1.5 million Chinese tourists visited France in 2016 (AFP Relaxnews, 2017). Thus, if an economic crisis affects their country, this number is bound to reduce, which would have a direct impact on Marriot franchise and the overall hospitality industry (AFP Relaxnews, 2017). The global economy, on the other hand, has observed favorable times lately and the current condition is better than has been seen in a few decades. This implies that people have more money to spend; consequently, they can easily manage to travel. France, being one of the best tourist destinations in the world, will benefit from this surge in travels, and Marriot would also directly benefit from an increased number of visitors in France.

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Social factors analyze the market to reveal any cultural trends and divide the population into different demographics, based on the existing social environment. Worldwide, people are culturally inclined to viewing travel and tourism as a luxurious way of passing one’s free time or spending their holidays. France is already set as one of the target destination for most travelers, and hence, Marriot can utilize this cultural trend in expanding its operations and revenue. China and Asia have also experienced a cultural shift that can work to the advantage of Marriot and the tourism sector in France in general (AFP Relaxnews, 2017). Unlike previous years, more Chinese and Asians choose to travel to the destinations out of their regions. Thus, France is one of the destinations, preferred by this group, and Marriot can slightly adjust its operations to meet the needs of this group of tourists. Despite this fact, the company does not receive as much income from the sector when compared to the countries such as the USA. Such a poor performance is tied to the culture of French people since they are considered not warm and welcoming to tourists (The Local, 2017). Marriot can benefit from this poor culture by adjusting its products to meet high standards of hospitality that would attract more customers. The French also have a culture, geared towards the love of restaurants and culinary activities. Therefore, Marriot must shift from its traditional role of only offering accommodation facilities by making sure that all of its establishments have a restaurant. This strategy would help utilize the social factor for the company’s benefit.

Technological factors consider the different innovations in technology and the ways they are set to either improve or disrupt the operations of a company. Thus, the advancements in technology have played a significant role in increasing the demand for services in Marriot establishments as well as the hospitality industry at large. Traveling and the booking for services, such as accommodations, has been made easier by the introduction of the Internet and online booking (Mahmoud, 2017). The capabilities that a company stands to enjoy from its online presence are limitless. Marriot franchising can use technology, which is available in France and the whole world, to market its services, receive customers’ feedback, and facilitate the process of booking and checking in to its facilities (Mahmoud, 2017). Regarding technological factors, France is an excellent location for Marriot franchising since the country follows any changes, happening to technology. However, the advancement in technology has some negative impacts on the operations of Marriot franchising. The emergence of Airbnb is a good example of the adverse effects of technology on Marriot and other hospitality companies that offer accommodation facilities. Airbnb allows travelers to book plans with homeowners who can accommodate them at lower prices (Mahmoud, 2017). Since the company enjoys low operating costs, they can easily charge lower rates than Marriot does, and this affects the number of customers, seeking services from hotel establishments.

CAGE Distance Framework Analysis

This framework is an essential tool for businesses planning or already implementing an international strategy that involves two or more countries. The CAGE analysis helps one to estimate the differences or distance between two countries to determine whether moving the business or operations into a new country will be a successful venture (Ghemawat, 2008). This analysis focuses on four unique differences such as cultural, administrative, geographic, and economic ones (Ghemawat, 2008). In this case, the analysis will focus on the difference between the United States of America, where Marriot International is headquartered, and France, where Marriot owns some franchises.

Under cultural differences, one considers the following factors. The first element is the difference in language. This factor is strong since the two countries use entirely different languages. However, since the company operates in the tourist and hospitality industry, the use of French is not paramount since visitors come from all over the world. English is the more widely used language in the tourism industry (The Local, 2017). Another factor to consider is the difference in norms and values. For example, Americans can be considered more hospitable than the French (The Local, 2017). Thus, Marriot should consider this difference when sourcing for employees from the country or when getting into franchise agreements with hotels in the country. Cultural differences do not pose any significant threat to Marriot franchise in France.

When considering administrative differences, the most important aspects to consider are colonial ties, the currency used, and trading blocs that the two countries belong to. In the past, France colonized some parts of the USA, so both nations shared some colonial ties. This occurrence may explain the similarities in the administrative structures in the two countries. Any differences in this structure are minimal and they have little influence on the conduct of business. However, there is a considerable distance between the two countries since they do not share a common currency. Moreover, France is a part of to the European Union (EU) trading bloc, while the USA belongs to North America Free Trade Agreement (NAFTA). However, considering that there are no political hostilities between the two nations and that both belong to the World Trade Organization, these administrative differences will not have any adequate effects on Marriot’s operations in France.

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The geographic differences between the two countries are significant. The physical distance between the two is high, while their time zones are quite different. The two countries also do not have a common border. However, considering that Marriot prefers to franchise existing hotels, there will be no management problems, associated with the high distance between France, and Marriot’s headquarters in Maryland, USA. The biggest hindrance to business success when the geographical difference is high is usually associated with high transportation costs (Ghemawat, 2008). Marriot operates in the service industry, so transportation needs between the two countries are non-existent or minimal. Thus, Marriot franchise in France will face no problems due to geographical differences.

Economic differences can also influence the operations of Marriot in a given country. The USA is the largest economy in the world, while France is considered the 5th largest one in the world. The GDP per capita for the United States stands at more than $57,000, while that of France – close to $37,000 (Nationmaster, n.a). However, analysts suggest that there are no significant differences between the two economies. The difference between the two countries is that more of the population in the United States is employed in comparison to France. Thus, unemployment rate in the United States stands at about 4%, while that in France is about 9% (Nationmaster, n.a). Considering that France is the most visited country in the world, Marriot stands to benefit from operating in this country’s economy.

Comparison of Marriot’s Operations to Hilton and the Market in France

Marriot and Hilton have the almost identical mode of operations. The companies are both huge hotel chains with a presence virtually everywhere in the world. Their establishments are created in a way that targets specific markets and demographics, based on such factors as budget, the purpose of travel, and social class. The similarity in their operations is also seen in the utilization of different brands under their names. For example, such a brand as Conrad Hotels & Resorts falls under Hilton and the Ritz-Carlton works under Marriot. Therefore, both companies are involved in the same operations where their main aim is to offer accommodation and lodging facilities to different kinds of travelers in more than 100 different countries around the world.

Marriot does not post any financial information on its operations in France, but instead, this data is a part of the financial information, related to its international operations. Considering the lack of comprehensive data on the hotel market in France, one can use the financial performance of other large hotel chains, operating in this country, to gauge Marriot’s performance in relation to the market. The data in use is for 2015. The Intercontinental Hotel Group had the revenue of $265 million from its operations in Europe (IHG, 2015). At the same time, the company’s revenue from all regions was $1,803 million (IHG, 2015). Accor Hotels, one of the dominant hotel chains in France, had the revenue of $451 million from its operations in Europe and the revenue of $823 million from operating in all regions (Accor Hotels, n.a). Marriot had an international revenue of $2,200 million from its international operations and the revenue of $14,486 million from its work in all regions (Marriot International, 2016). Hilton Hotels had a total revenue of $11,272 million from its operation in all regions and $1,819 million from its international operations (Hilton, 2016). Based on the comparison of this financial information one can conclude that Marriot is the best performing Hotel Company worldwide.

Conclusion

In conclusion, the PEST and the CAGE analyses show that Marriot’s external environment for it franchise business in France faces no significant threat. The existing environment is favorable for the company’s growth. A comparison of other players on the market also shows that Marriot has the benefit regarding revenue realized from operations. The similarity in administrative structures between the United States of America and France is one major reasons why Marriot International finds it easy to operate in the foreign country. Apart from the threat of technological advancements, aiding Airbnb in creating the reduction of the market share, available to the hospitality industry at large, there are no other significant threats to the operations of Marriot in France. Therefore, one can conclude that Marriot franchising in France, and Marriot International in extension, is a successful business venture and a market leader in the hotel chain business worldwide.

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