Starwood hotels and resorts worldwide inc 2007 case study

I ndia is becoming the land of opportunity. High and sustainable growth rates, a boom in aviation and real estate, and improving infrastructure—together with easing restrictions on foreign ownership and a wealthier population—have all contributed to the generation of new businesses. Moreover, a huge shortage of rooms and the low quality of existing hotels in most Indian cities have attracted domestic and foreign investors into the hospitality industry. Starwood Hotels & Resorts Worldwide, Inc.—one of the world’s leading hotel and leisure companies—is poised to expand into India. The chain plans to open 50 hotels (approximately 8,000 to 10,000 rooms) by 2010. However, major expansion—at least 25 hotels—will not include its traditional brands, but rather a new select-service brand aloft, launched in the United States in 2006.1 According to aloft’s founder, Ross Klein, this brand is suitable for emerging markets and should connect well with other Starwood properties. How successful will it be? The success of the new brand will depend on the ability of Starwood to cope with future developments in the Indian economy. Aggressive expansion by Indian and other international hotel chains will also shape the hoteliers’ success.What also remains to be seen is the suitability of the new aloft brand for Indian customers. THE INDIAN ECONOMY: TRENDS AND OPPORTUNITIES IN THE OVERALL BUSINESS ENVIRONMENT Thanks to liberalization reforms in the 1990s and recent pro-market-oriented behavior by the Indian government, India has become one of the fastest growing economies in the world and one of the most attractive emerging markets for foreign direct investment (FDI). India’s share in the world gross domestic product (GDP) is expected to rise from 6 percent to 11 percent by 2025, not only due to impressive recent growth rates of 9 percent (in 2005–06) and 9.4 percent (in 2006–07), but more importantly due to optimistic forecasts of high sustainable growth around 7 to 8 percent. In contrast, the U.S. share in the world GDP is expected to fall from 21 percent to 18 percent. As such, India may emerge as “the third pole” in the global economy right after the U.S. and China.2 Written by Renáta Kosová, who is an Assistant Professor of Strategy at Cornell University, School of Hotel Administration.The author would like to acknowledge extraordinary help and guidance from Professor Cathy Enz and helpful feedback from Professor Daphne Jameson.This case study was written for the purposes of classroom discussion. CASE 6 STARWOOD HOTELS AND RESORTS BRINGS ALOFT TO INDIA 553 The drivers of the Indian economic boom reside in both industrial and service sectors.The industrial sector has rapidly improved over the last five years, with a growth rate of 11.1 percent in 2006–07, where manufacturing itself grew by 12.3 percent. Huge improvements in technology and global competitiveness of manufacturing have also boosted merchandise export growth (about 24 percent on average during 2003–07). Services have been expanding: the average growth rate jumped from 9.8 percent to 11.2 percent between 2006 and 2007, with Trade, Hotels, Transport, and Communication growing by an aggressive rate of 13.0 percent (compared to 10.4 percent in 2005–06).3 The Indian real estate sector has grown as well. According to Merrill Lynch Co., commercial and residential construction should rise more than four times—from $12 to $50 billion during 2005–10.4 So, unlike many other emerging markets, especially in Central and Eastern Europe, a single or a few industries do not drive the Indian economy. This promises not only longer growth prospects but also a more stable economy and less sensitivity to short-run structural shocks. With a booming economy,