Author: Xiang, Wei
Title: The collaboration between the owners and the operators through a balanced management contract : an exploratory study of international upscale hotels in China
Degree: DHTM
Year: 2018
Subject: Hong Kong Polytechnic University -- Dissertations
Management contracts -- China
Hotel management -- China
Hotels -- China
Department: School of Hotel and Tourism Management
Pages: viii, 158 pages : color illustrations
Language: English
Abstract: As a consequence of the rapid development of hotel chains worldwide, a legal structure known as the 'management contract' between real estate developers and hotel operators has become increasingly popular. Ideally, both parties benefit under this arrangement. However, management contract arrangements do not always achieve win-win outcomes. Some critics argue that there exists a fundamental misalignment of interests between the two parties in many circumstances. If such a misalignment is not addressed through balanced terms in the management contract, then conflicts between the parties can occur. Although a balanced hotel management agreement is needed for the owners and the operators to achieve their respective long-term objectives, little research has been conducted on the factors affecting such arrangements as well as the impact of such arrangements on hotel performance and the cooperation between the two parties. Furthermore, most of these discussions are based on the Western context, with little mention of the Asian context, specially that in China. Thus, the current study explores the important role of the management contract in the hotel industry by examining what factors lead to a good balance of interests between the operators and the owners in the Chinese market. Specifically, this study addresses the following questions: 'What composes balanced management contracts in the Chinese hotel market?', 'What kinds of triggers exist for conflicts under management contracts in China?' and 'How do management contracts influence the successful collaboration between hotel operators and hotel owners in China?' In order to answer these questions, this study adopts a qualitative approach that utilises data from in-depth interviews and participant observations. The author personally visited and interviewed the participants over a 12-month period, which also included face-to-face meetings and communication by emails or phones The observational data of this study are collected on multiple contract negotiations spanning three to nine months.
This research reveals that the traditional management contract model developed by James Eyster in the 1980s is no longer applicable in the current Chinese market. Instead of a pure principal-agent relationship, the current management contract practice in China more closely resembles a strategic alliance relationship. Whilst it is important to have a balanced contract and appropriate power distribution, 'balance' is not an absolute concept. This concept remains an ambiguous perception of the individual with no exact definition. Moreover, the state of 'balance' may evolve over time as the leverage between parties may change within dynamic environments, based predominately on the shift of power between the two parties. In this current environment, a balanced management contract may be characterised by the operators and the owners having a good match with their goals, and the key terms of the contract should proportionately reflect the benefits of both parties. The successful execution of the contract depends on a high level of contract spirit and trust between both parties. In addition, a remarkable cultural compatibility must exist between the operators and the owners. The findings of this study also indicate that failures and conflicts are often triggered by different interests and agenda between the parties. Inappropriate fee structures often trigger disputes when the hotels do not achieve good financial performance. The fight for control and personnel issues, such as the relationship between the general manager and the owners' representative, are also important triggers that can lead to failures.

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