IHG's Market Entry Strategy and Operations in China

Organizational Background

InterContinental Hotels Group (IHG) is a British multinational hotel chain with a history stretching back to 1777, when William Bass founded what was originally a beer brewing company in England, known as Bass Beer PLC. After nearly two centuries predominantly in the beer industry, Bass entered the hospitality sector in 1970 by purchasing hotel assets. Three decades later, Bass sold all of its beer assets to focus completely on hospitality, renaming the company Six Continents PLC. To sharpen that focus further, the company demerged its hotel and soft drink assets and rebranded itself as InterContinental Hotels Group PLC in 2003.

Keen on making the IHG brand the first choice for travellers and hotel owners alike, the chain has grown into one of the largest hotel groups worldwide. Through management contracts, franchise agreements, and direct ownership, the group currently operates over 750,000 rooms in more than 5,000 hotels across 100 countries. Major brands associated with the group include Holiday Inn, InterContinental Hotels and Resorts, Hotel Indigo, Candlewood Suites, Kimpton Hotels and Restaurants, Holiday Inn Express, and Crowne Plaza Hotels and Resorts. In China alone, IHG currently operates 277 hotels with more than 89,000 rooms, making it the largest international hotel chain in the country. This case study explores IHG's operations in the Chinese market, with a specific focus on major strategic issues, strategic direction, macro- and micro-environmental factors, diversification, competitive advantage, and market entry strategy.

Major Strategic Issues in the Chinese Market

IHG was among the first international hotel chains to offer services in the Chinese market. Under IHG's management, the Lido Holiday Inn was established in Beijing in 1984, becoming the first hotel in China to be managed by an international hotel chain. Within one year, Lido had demonstrated tremendous success, and within a decade it had become a well-recognized brand in China with an impressive financial performance. Today, IHG operates over 270 hotels in China across its various brands.

IHG's entry into China came against the backdrop of increased economic liberalization in the late 1970s and early 1980s, which opened the country to international tourists and businesses. Rising international tourism created demand for hotels capable of meeting the expectations of travellers from around the world — an ideal opportunity for IHG. Additional factors that made the Chinese market attractive included:

Strong economic growth increased consumer incomes and fuelled the rise of a middle class, which in turn drove demand for domestic travel and created a lucrative opportunity for IHG. The Chinese government's designation of tourism as a key driver of economic growth, alongside the introduction of vacation incentives, further boosted the domestic travel segment. Taking advantage of these developments, IHG successfully established its presence in China. Nonetheless, the entry was not without difficulties — IHG has had to navigate significant institutional and cultural challenges, as well as intensifying competition.

Strategic Direction and Business Model

Today, IHG is one of the major players in the Chinese hospitality market. The success of the hotel chain in China can be attributed to its distinctive strategy, which focuses on the following priorities:

Rather than adhering to conventional industry categories, IHG's broad portfolio of hotels reflects what customers need and want to experience — whether a family vacation, an overnight stay, or a business trip. These needs are supported by an industry-leading loyalty programme and ongoing technological innovation.

IHG's business model has three dimensions: franchising, management contracts, and direct ownership and leasing. With over 3,900 hotels worldwide, franchising accounts for the majority of the group's business. Approximately 650 hotels worldwide fall under the management contract model. Direct ownership accounts for less than 1% of the group's business, with only 16 hotels operating under this model.

PEST and Porter's Five Forces Analysis

The macroeconomic environment — encompassing political, economic, social, and technological factors — has become a dominant influence on business sustainability and growth. Political and economic factors have particularly shaped IHG's operations in China. From a political perspective, the Chinese government has introduced a series of legal reforms over the past three decades aimed at opening up the domestic economy, and these reforms have benefited the hospitality industry considerably. Joint ventures and management contracts are now common in the sector. Despite these generally favourable policies, the legal environment remains a challenge, as some business models such as franchising may not readily thrive in China.

From an economic perspective, China has experienced remarkable economic growth since the early 1980s and is now the world's second largest economy after the United States. Rapid growth has translated into increased per capita income, which is significant for hoteliers because consumption of hospitality services is strongly tied to consumer purchasing power. China's population of approximately 1.3 billion people further provides a vast and lucrative market for a group like IHG, which actively seeks high-growth markets.

At the micro-environmental level, competition is a particularly important force. The threat of rivalry in the Chinese hospitality industry is strong. All major international hotel chains — including Wyndham, Marriott, Accor, Starwood, Best Western International, and Hilton — now operate in China. The threat of rivalry is compounded further by the presence of powerful local chains. As China continues to grow as an attractive destination, the threat of new entrants also remains high. Although IHG is the largest international hotel chain in China by number of rooms and hotels, it must remain aggressive to protect its market share from both incumbent and new rivals.

Reference

Enz, C. (2010). Hospitality strategic management: Concepts and cases (2nd ed.). Hoboken: John Wiley & Sons.