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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?
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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
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Resources for India Business and Tourism Information
http://globaledge.msu.edu/countryInsights/
country.asp?countryID=181®ionID=3
www.incredibleindia.org
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WE LIVE AND CONDUCT BUSINESS IN A DIVERSE
WORLD
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International Lodging Development and Management
India Summer Program
July 17 - August 16, 2007
India-Thailand- Dubai
Program Leader: A.J.Singh
353-9211
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Where are We Going?
RAJASTHAN
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How Do We Get There?
Dubai
New Delhi
UdaipurUdaipur
Bangkok
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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
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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
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Simulation Game for Study Abroad Pre-departure
• http://gel.msu.edu/voyagebeijing.html
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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 InstituteJune 2nd, 2007
Center for International Business Education and Research
Michigan State University
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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
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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
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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
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WHAT’S DRIVING PERFORMANCE?
THE DEMAND STORY
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Growth in India’s Service Sector-Post Economic Reform Era (1991)
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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.
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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
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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
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Key Tourism Statistics
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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
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MAJOR HOTEL COMPANIES: INDIA
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WHAT’S DRIVING PERFORMANCE?
THE SUPPLY STORY
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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
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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.
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Relationship Between FDI and Sector Growth
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•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
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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
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Investment Flows India: Private Equity
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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
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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
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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!
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Business Environment IndiaParameter Sub Parameters used India Score OECD
Average
Starting a Business Number of Procedures 11 steps 6 steps
Hiring and Firing Workers
Difficulty of hiring index 33 26.2
Registering Property
Number of procedures 6 4
Getting credit Cost to create collateral (% of income per capita)
11.3 5.2
Protecting investors
Disclosure index 4 5.6
Enforcing contracts
Number of procedures 40 19
Closing of business Time in years 10 1.7
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SUMMARY AND HIGH LIGHTS: HOTEL INDUSTRY STRUCTURE: INDIA
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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
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MEDI TOURISM: NEW GROWTH PRODUCT
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EXISTING AND PROPOSED DISTRIBUTION TO HOTEL SUPPLY IN INDIA
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PRIMARY DRIVERS OF GROWTH IN THE INDIAN HOTEL INDUSTRY
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LODGING INDUSTRY PERFORMANCE STORY
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PERFORMANCE OF HOTELS IN INDIA
1998-2005
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CRITICAL FACTORS TO DRIVE FUTURE GROWTH AND PERFORMANCE
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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