Question

What are the advantages of (a) management contracts and ( b) franchising ? Discuss their impacts on rhe development of the hotel industry?

Answer 1

1. Management contracts are an arrangement under which operational control of an enterprise is vested by contract in a separate enterprise that performs the necessary managerial functions in return for a fee. The capital of managing a property than owning one is less, which is the reason hotel companies enter into these contracts in the first place. Since the 1970s, they have been responsible for the hotel industry’s rapid boom; implementing sales and marketing plans to maximize the hotel’s short and long-term profitability. Also, these contracts allow for the hotel company to manage the property for a period of five, ten, or twenty years. For this, the company receives a management fee which is roughly around 2-4.5% of gross revenue. Management contracts generate reliable financial statements and establish suitable staffing to maximize customer and employee satisfaction in the hotel industry. They also report regularly to owners about the hotel’s condition. Today, management contracts/companies are adapting to the changing hotel industry to better work with it accordingly.

B- Franchising in the hospitality industry is a concept that allows a company to expand more rapidly by using other people's money rather than acquiring its own financing. Franchising hotels began in the early 1900s and has many advantages to this day regarding its impact to the hotel industry. To start off, franchising helps assist hotels with on-site training, advice on purchasing furnishing and fixtures, reduced operating costs, and free interior design assistance. Another benefit of franchising is its increased market share and recognition. This is prevalent in increasing hotel’s sales which then in return increases profitability. Also franchising has the ability to connect hotels to a Global Distribution System (GDS) which is a network operated by a company that enables automated transactions between travel service providers (mainly airlines, hotels and car rental companies) and travel agencies