Book of the Month - March 2018

Vertical Disintegration in the Corporate Hotel Industry.cover

Angela Roper FIH

First edition. London: Routledge. 2017

This book evaluates how and why vertical disintegration has occurred in the global corporate hotel industry, as it undergoes a structural transformation. It provides a unique insight into the new competitive landscape. Underpinned by academic literature, it includes first-hand accounts from the most eminent senior executives of firms in and around the industry. It provides an in-depth perspective of a modern industrial phenomenon and makes observations as to the profitable way forward for the industry. This text is an important read for those working, advising and investing in the sector as well as for students, graduates and researchers.

The hotel industry has experienced a ‘golden era’ of growth and development. Major hotel chains areundergoing unprecedented growth due to voracious demand, currently having the largest development pipelines (numbers of hotels in planning and under construction, but not yet open) in their histories. Whereas previously it was only a few luxury hotel brands – such as Hilton and InterContinental – which were seen internationally in capital and gateway cities, the explosion of the economy and mid-market segments has led to some brands, such as Holiday Inn, dominating globally. We have also witnessed the biggest, and arguably the most important, hotel chain takeover in the industry so far. In September 2016, Marriott International’s acquisition of Starwood Hotels & Resorts Worldwide for over $12 billion, created the world’s largest chain comprising 30 hotel brands and over one million hotel rooms.

At the same time, the leading large hotel chains are experiencing challenging times. They are opting to get out of hotel ownership and are being pushed to relinquish the operation of hotels. Added to this, in the booking process, hotel chains are surrendering some of their direct access to consumers to online travel agencies. They are also losing their supply dominance to alternative accommodation sectors, such as hostels, short-term home rentals, timeshares and cruises. For example, there are three million listings on the Airbnb platform and this is on the increase daily. The U.S. hotel market, as the largest and most concentrated in the hands of hotel chains, has enjoyed a period of robust growth and record-breaking performance over the last six years, but the most recent trends point to a shift in the cycle.

As a competitive response, what is being witnessed are hotel chains giving up parts of their value-chain, enabling new intermediate markets to emerge which has divided a previously integrated production/service process and facilitated the entry of sets of specialised firms. In terms of industry structure, the corporate hotel industry (that part of the industry which is organised and comprises hotel chains) is becoming vertically disintegrated (Jacobides, 2005). Disintegration can be observed in a significant number of industries, as producers recognize that they cannot themselves maintain cutting-edge technology and practices in every field required for the success of their products and services (Gilson, Sabel and Scott, 2009).

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