ascott group in tianjin, china - a study of business & cultural obstacles
TRANSCRIPT
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ASCOTT GROUP IN TIANJIN, CHINA:
A STUDY OF BUSINESS AND CULTURAL OBSTACLES
AYUSH AMATYA
LIM SIEW LENG, THERESA
TRULY MASNIARI SETIANA HUTAPEA
CHONG SHENG JIAT, COREY
NANYANG BUSINESS SCHOOLNANYANG TECHNOLOGICAL UNIVERSITY
2009
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ASCOTT GROUP IN TIANJIN, CHINA:A STUDY OF BUSINESS AND CULTURAL OBSTACLES
Submitted by:
Ayush Amatya
Lim Siew Leng, Theresa
Truly Masniari Setiana Hutapea
Chong Sheng Jiat, Corey
Supervisor
ASSOCIATE PROFESSOR OLEXANDER CHERNYSHENKO
MBA DISSERTATION THROUGH BUSINESS STUDY MISSION
Submitted in partial fulfillment of the requirements for
the degree of Master of Business Administrationin the Nanyang Business School
Nanyang Technological University(2009)
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ACKNOWLEDGEMENTS
This dissertation reflects the help and effort from a great many people whom we are
fortunate to have met. We would like to thank the Ascott Group and Somerset Tianjin for
granting us this opportunity to conduct interviews with their staffs and a tour of their
properties in Tianjin. We are also grateful for the insights and reviews of this dissertation
by Associate Professor Olexander Chernyshenko, and the Nanyang MBA faculty
members for successfully organizing the Business Study Mission to Tianjin, China.
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CONTENTS
DESCRIPTION PAGE NO.
1. CHAPTER 1:
INTRODUCTION
1.1 Objective of Study 31.2 Research Setting, Design and Empirical Context 4
2. CHAPTER 2:
BACKGROUND ON CHINA
2.1 Cultural Universals 72.2 Communication 17
2.3 Cultural Values 18
3. CHAPTER 3:
THE ASCOTT GROUP: SECONDARY CASE ANALYSIS
3.1 Background 283.2 Competitors in China 373.3 Anticipated Business & Cultural Challenges for Ascott Group in China 383.4 Strategies 45
4. CHAPTER 4:
THE ASCOTT GROUP: PRIMARY CASE ANALYSIS
4.1 Interview Strategy 504.2 Findings 524.3 Verification of Challenges & Strategies 57
5. CHAPTER 5:
LESSONS LEARNED AND RECOMMENDATIONS
5.1 Lessons Learned & Recommendations 62
6. REFERENCES
7. APPENDICES
Appendix A: BSM ProposalAppendix B: Search AssignmentAppendix C: Interview Protocol & TranscriptsAppendix D: BSM Trip Presentation Slides
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ABSTRACT
The immerse growth in Chinas economy provides the promise of profit for
multinational companies to enter the Chinese market. No global enterprise would
want to miss the chance to jump into this bandwagon to remain viable in their
business. But will all foreign investors who enter China truly succeed in the highly
complex cultural, regulatory and political environment? What are the operational
issues or challenges that foreign investors will face on the ground in the culturally
diverse Chinese provinces? All these questions perplex us and drive us to study into
core Chinese cultural characteristics, as well as Chinese communicative traits and
habits, and other business challenges in operating in China.
We have chosen to research into the Ascott Group operations in Tianjin, China,
particularly the Somerset Serviced Residence brand. As a result, we integrate our
findings to propose a framework that conceptualizes the business and cultural
challenges of service-based (hospitality) firms in entering and sustaining their
business in Tianjin, China. This framework also centralizes service excellence and is
achievable through corporate understanding of geographical-cultural differences, and
how to align business goals with local talents by training and effectively utilizing
them.
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CHAPTER 1
INTRODUCTION
Just 120 kilometers southeast of Beijing, Tianjin is the third largest city in China after
Shanghai and Beijing with an area of 11.9 thousand square kilometers and a population
of 11.5 million. Because of its size and importance, Tianjin is granted provincial-level
status and is one of the four special municipalities (apart from Beijing, Shanghai, and
Chongqing) of China. Located within the Circum-Bohai economic circle, it is the largest
port city in northern China (ranked as the worlds sixth largest port in 2006), making it an
important distribution center for northern China. Tianjin is also famous for its
manufacturing industries, which set an example for other cities in China. For example,
one of Chinas earliest domestic car manufacturers, Xiali, is located in Tianjin. More
recently in March 2005, Chinas first private airline, Okay Airways launched its first
flight in Tianjin. Looking forward, Tianjin will serve as the base of European aircraft
maker, Airbus, which has plans to manufacture three hundred A320 aircraft on its
assembly line in Tianjin by 2016.
The Circum-Bohai economic circle has been undergoing rapid development, and in
the 14 years from 1993 to 2007, accumulated foreign capital of up to USD 23.17 billion,
and the worlds top 500 transnational corporations have made more than 70 investments
in the district. More importantly, the Tianjin-Binhai New Area (located along the east
coast of Tianjin) has been designated by the Chinese government to be a comprehensive
systematic reform experimental area, with the aim of attracting and growing capital
intensive industries into one growth area (China Daily, 6 August 2006). When the
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government plan to develop the area is fully implemented, it would rival Shenzhen
Special Economic Zone developed in 1980s and Shanghai Pudong New Area developed
in the 1990s.
In terms of high skilled labour, the presence of 30 universities and about 140 research
institutes in Tianjin, both local and foreign, serves as a valuable source of manpower for
various industries (Dezan Shira & Associates). There are also many expatriates working
in Tianjin on a long-term basis. The potential growth of the Information Technology (IT)
and Electronics industries in this region also promises future influx of more expatriates.
In particular, about 35,000 Koreans live and work in Tianjin in 2006, according to Mr.
Yo-Han Park, Regional Manager of Korea Airlines1, and IT companies like Samsung, LG
and Motorola have already set up large facilities there - the Motorola factory in Tianjin
itself is the world's largest mobile phone manufacturing plant, involving a total
investment of U.S. Dollars 3.6 billion and the factory hired more than 10,000 employees.
With the on-going development of automobile, electronics and high-tech industries
and the construction of energy bases and transportation channels, business opportunities
are aplenty as tourism, cruise operations, marine parks, high technology firms, factories
and energy firms converge into Tianjin and the Bohai industrial region. In light of such
trends, many hospitality industry investors have been eyeing the business opportunities
inherent in this area. As expatriates from multi-national corporations settle in Tianjin, its
hospitality industry have grown to include well known names like Sheraton, Holiday Inn,
1 Mr. Yo-Han Park, Regional Manager of Korea Airlines. Available: http://www.expatriate-jin.com/02-2006/spotlight.htm
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Renaissance and Somerset, in addition to smaller local players, to cater for this customer
segment.
The Tianjin Binhai New Area is also designated as a test-bed for advanced
international eco-city concepts and aims to transform into a prosperous, socially
harmonious, new eco-Livable City. According to Mr. Li Ming Lin, Minister Counselor
(Economic & Commercial) of the Embassy of the People's Republic of China in the
Republic of Singapore, the Tianjin Municipal Government plans to make use of
ecological habitat and cultural concepts, harmonious community planning, scientific
management skills, advanced polymer for ecological living, environmental protection and
energy-saving technologies, to create a natural and harmonious living environment. The
Binhai New Areas enhanced image will help promote it as a tourist destination, and a
preferred living environment for expatriates.
1.1 Objective of Study
The objective of this study seeks to identify the business and cultural challenges faced by
a foreign hospitality company operating in Tianjin, China, and to conduct a general
assessment of the companys business strategies in overcoming these challenges whilst
achieving its business goals in the Chinese serviced residence industry. Our focus on
culture serves to provide deeper insights into foreign organizations operating, or
intending to operate, in Tianjin. We aim to study and analyze the cultural challenges
faced by foreign companies sending managers to work in China, and hope to garner and
detail the learning experiences from these leaders in mapping to Cultural Intelligence
(CQ) concept and theories.
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Additionally, this report shall include an analysis of the impact of doing business in
Tianjin by applying CQ concepts to management style, staff training, human capital
management, sales strategy and service culture of case company. Finally, every company
has its own "personality" or culture and is one of the key factors contributing to
organizational success in the long run. The nationality of the management team will in
effect extend their cultural style throughout the organization, affecting the way it is run.
With the higher mobility of better educated Chinese managers, who are less bound to
local job markets (Ahn et al., 1999), the management culture can be learnt by the locals,
and as managers job-hop, the learnt culture be reapplied to another organization in China.
Chang & Xu (2008) also noted that local Chinese firms, who do not compete directly
with foreign firms in their own regional markets, can learn from foreign or other local
firms by hiring managers and engineers from them. Specifically, we desire to identify
whether a successful synergistic merging of foreign culture to local Chinese culture can
contribute to a companys operational effectiveness and profitability in China.
1.2 Research Setting, Design and Empirical Context
1.2.1 Research Setting
China provides an ideal setting for our research. Firstly, China has opened up her
economy and the 2008 Olympic Games debut in Beijing formally sets China on the
global stage. Secondly, Chinas tourism sector has been booming, especially with the
surge in Foreign Direct Investments (FDI), many expatriates were sent to manage these
investments in China. Thirdly, high value-add and R&D-intensive industries are major
sector thrusts set by the Chinese government in certain provinces like Tianjin. Finally,
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China has many large heterogeneous regional markets, with keen competition among the
provinces, which makes it worthwhile to observe the competition and cultural effects on
its people along a geographic-market dimension.
Our target company of the case study is the Ascott Group, particularly the Somerset
Serviced Residence brand in China. The Groups 268-unit Somerset Youyi in Tianjin is
located close to the Tianjin International Exhibition Centre, and this location is key to
serving two zones: Tianjin Economic Technological Development zone and Xiqing
Economic Development zone. The Group also has a remarkable serviced residence
portfolio that spans 53 cities in 23 countries and being the market leader of the serviced
residence business in China will be able to provide valuable business insights of the
hospitality industry. Therefore, insights and results from this case study will be able to
apply to other companies in the hospitality sector.
1.2.2 Research Design
Our research design is largely based on open-source information search in the Internet,
followed by on-site interviews with key personnel from the Ascott Group. Our first
approach was to interview Ascott Corporate Office in Singapore so to gain insights into
the challenges faced by Ascott in entering and surviving in China. Thereafter, we
researched into secondary information about Ascott and Tianjin on the Internet. Finally,
through our study trip to Tianjin, we will be able to observe, confirm or disconfirm our
findings, and gather new insights.
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1.2.3 Empirical Context
The empirical context of this study involves in-depth interviews with Ascott Group
personnel. Prior to the trip, we had interviewed two personnel from Ascott and will
conduct face-to-face interviews with personnel from various departments from Somerset
Serviced Residences in Tianjin.
The pre-trip interviews include Mr. Darren Cher, GM, Somerset Serviced Residences,
Tianjin and Ms. Chung Li Ren, Manager & Trainer, Ascott Singapore. Questions for Mr.
Darren Cher focused on business development and preparation of staff for
commencement of hospitality operations. In Tianjin, we interviewed the Residence
Manager, HR Manager, Guest Relations Manager and the Sales & Marketing Manager.
Questions were asked to affirm the findings from the pre-trip interviews, and to obtain
first-hand accounts of cultural challenges. Following the interviews, we conducted further
observations at both Somerset Serviced Residences and at their competitors to affirm the
quantitative findings.
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CHAPTER 2
BACKGROUND ON CHINA
2.1 Cultural Universals
Cultural universals are aspects that are present or are exhibited across different cultures
worldwide despite the contextual and situational differences that each culture represents
or experiences. This chapter elaborates the systems, practices and values that are wholly
or mostly relevant throughout China, with a focus on Tianjin and our observations during
the trip, and its relevance to the hospitality industry.
2.1.1 The Economic System
The economic reforms initiated by Deng Xiaoping in 1992 had lead to todays China
becoming the worlds premier manufacturing base. Dengs definition of the Chinese
economic system is widely known as socialism with Chinese characteristics,
commonly defined to be socialism looking after the welfare of ordinary people (Gittings,
2005). The success of the Chinese economic reforms leads to its GDP (Purchasing
Power Parity) amounting to US$ 7.8 trillion in 2008, ranked 2nd
after the United States,
and with a huge foreign reserves of US$ 1.95 trillion , making it one of the worlds fastest
emerging economic power. China's per capita income has grown at an average annual
rate of more than 8% over the last three decades, drastically reducing poverty but leads to
a widening income disparity. From 1993 to 2001, China was the world's second-largest
recipient of foreign direct investment (FDI) after the United States. Currently, China is
one of the leading FDI recipients in the world, receiving almost US$ 80 billion in 2005,
according to World Bank statistics.
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The Chinese government has several incentive schemes to encourage foreign direct
investment in areas of Research & Development, Energy, Communication, Finance,
Education and Vocational-Training. While there is no direct incentive scheme for the
hospitality industry, the influx of foreign investment would bring growth opportunities
that cater to the needs of employees of hospitality players. In fact, this is precisely
Ascotts strategy, which according to Mr. Darren Cher Ascott has formed corporate
partnerships with multi-national corporations to host their employees in cities around the
world, including Tianjin under its Somerset Serviced Residence brand.
The Central Committee of the Party (CCP) and the State Council identified the
Tianjin Binhai New Area (), for further development succeeding the
Shenzhen Special Economic Zone and Shanghai Pudong New Area. The Binhai New
Area is designated for pilot reforms implementation and opens up measures in ten aspects
including enterprise reform, science and technology, foreign-related economy, financial
innovation, land management, management of urban and rural planning, resources
conservation and environmental protection (TBH, 2008).
After more than ten years of development and construction of Tianjin Binhai New
Area has achieved remarkable results. GDP in 1993 increased from 112 billion Yuan to
236.4 billion Yuan in 2007, with an average annual increase of more than 20%; financial
revenue increased from 23.6 billion Yuan to 47.5 billion Yuan; and export growth grew
from 500 million U.S. dollars to 24.527 billion U.S. dollars. According to the
Administrative Committee of Tianjin Binhai New Area (TBNA -
), the world's top 500 transnational corporations had made more than 70
investments in this area. With these rapid developments, many multi-national
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corporations have set up bases in the Tianjin city. Expatriates including Japanese,
Koreans and Europeans have set up residences, bringing growth to the hospitality
industry and business opportunities to the Ascott Group.
However, in spite of the immense progress China has made in its economic sphere,
during our tour of the Binhai New Area we observed that the economic growth has yet to
uplift all Chinese citizens equally as well as other interesting disparities. One observation
that struck us is the income disparity between Chinese locals or migrant workers and the
advanced high-speed trains and clean, well-furnished train station located at Tianjin itself.
Other disparities include the landscaping of Government-designated economic
development zones, while the rest of the land remains barren and under-developed, and
lastly there is a visible lack of vibrancy in the Binhai New Area compared to other
cosmopolitan-status cities like Shanghai or Beijing. One can relate the landscaping to the
Chinese culture of beautifying ones home area with gardens and ponds; whilst the lack
of vibrancy is perhaps due to the building up phase of the economic zones and industrial
value-chains have yet to set up bases here. Should China experience continued success of
high GDP growth and global economy to recover for the next five to ten years, we can
expect the Tianjin Binhai New Area to be a bustling site for targeted industries.
2.1.2 The Marriage and Family System
China primarily practices the monogamist and patrilineal marriage system, which is
generally accepted and in line with most Asian countries. However, there are some parts
of China that continue polygamy (i.e. some parts of Tibet) and/or matrilineal system.
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Marriage is of utmost important in the Chinese culture; it is traditionally considered the
most basic social unit.
Generally, the family system is still largely patrimonial, with the bride taking on the
husbands surname upon marriage. This is, however, being challenged due to the coming-
of-age of Chinas one-child-policy. The one-child policy was created to restrict the
number of children married urban couples can have to one, although it allows exemptions
for several cases, including rural couples, ethnic minorities, and parents without any
siblings themselves. Approximately 35.9% of China's population is still currently subject
to the one-child restriction but enforcement varies by provincial governments. The
Chinese government introduced the policy in 1979 to alleviate social, economic, and
environmental problems.
The one-child policy has perhaps created social consequences for the country. The
traditional preference for male children resulted in gender disparity. According to a report
by the State Population and Family Planning Commission, there will be 30 million more
men than women in 2020, potentially leading to social instability (Gupta, 2005).
2.1.3 The Educational System
Chinas education system can be divided into three main categories, which comprises
basic, higher, and adult education. The Compulsory Education Law of stipulates that each
child have nine years of formal education. In China, the average year of schooling by
adults over age 15 is 6.4 as at 2008 (United Nations Educational Scientific and Cultural
Organization, 2008).
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After 1949, when the People's Republic of China was founded, Tianjin's education
grew vigorously and formed an integrated educational system from elementary education
to higher education progressively, including preschool education, special education, adult
education and cadre education (become cadres to work in public capacity at the local
level (Pepper, 2000). Now, Tianjin has more than 30 institutions of higher education and
national research centers (Mr. Li Ming Lin, 2009; Denza Investment Guide). The
increasingly educated workforce bodes well for multi-nationals operating or intending to
operate in the Chinese hospitality industry. A well-trained workforce will provide
excellent service to expatriates and tourists, becoming the firms competitive advantage.
Particularly relevant to hospitality industry is the existence of specialized hospitality
schools that train students for the service industry. There are several such schools in
Tianjin including (loosely translated to English): Civil Aviation College (),
Tianjin University (), the Model School (), Institute for Tourism
Studies (), College for Tourism Specialization (), and Tourism
Vocational Studies ( ). However, such specialized schools may lead to
constricted exposure of hospitality staff, leading to lower service standards custom-built
for China-only hospitality sector. As we will discuss in Chapter 4, the Chinese service
staff displays high collectivism behavior unfortunately at the expense of guests or
customers who often had to make an effort to gain their attention for service needs.
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2.1.4 The Social Control System (Political & Legal)
2.1.4.1 Political Factor
Despite considerable liberalization of the economy, the China Communist Party (CCP)
remains to be firmly in control. The Central Committee of the CCP is the final decision-
maker in major governing policies of China (Figure 2-1). China is distinctively different
from Western societies because of the important and direct role that it plays in steering
the nations economy. Firms doing business in China need to understand the political
structure of China as they face government regulation and the Chinese Government
controls a wide range of resources and capital. Therefore, political influences of officers
remain strong, and companies have to build relationships or guanxi with these officers
who have monopoly over supportive or restrictive regulatory powers.
FIGURE 2-1
Organization Structure of Central Communist Party (CCP)
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Existing myths about doing business in China is dispelled by Mr. Wee Hui Kan2, who
says that it is not really true that one must pay your way in China. Depending on
corporate policies, a firm can choose the corporate strategy in China, either by choosing
the deals that do not need to pay or finding innovative methods to bypass paying through
careful aligning the interests of the company to that of the local powers. In doing
business with government officials, alignment of interests had thus expanded beyond
monetary incentives. With the Chinese Government flushed with capital, it has becoming
increasingly important to align companys business strategies with the reform or direction
passed down by the CCP.
2.1.4.2 Legal Factor
The vigorous growth of private businesses in China during the past two decades is partly
the result of the country's consistent work to build a favorable legal environment for the
non-public sector of the economy. Many of China's most important laws, such as the
Constitution, Civil Code, Criminal Law, Corporation Law, Partnership Law as well the
law on the promotion of small and medium-size businesses, have included clauses
defining the development of private businesses. Further legal improvements for the
country's private businesses have come in 2004. In March 2009, clauses called "the state
encourages, supports and guides the private economy" and "legal private property is not
to be encroached upon" were added into the Constitution.
2 Mr Wee Hui Kan, CEO, CapitaRetail (Beijing) Investment Consulting Co., Ltd
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Amended Bankruptcy and Administrative licensing laws gave China's State Owned
Enterprises, private enterprises and foreign companies equal footing in the market
economy. Government intervention to the market was reduced, giving private businesses
a more equal and efficient market environment in which to operate.
Although the legal environment for private businesses has been improved a lot,
problems still exist. For example, some local regulations and policies for non-public
sector of the economy are always changeable, posing difficulties to safeguard interests
and rights of private businesses (People's Daily Online, 2 August 2004). Success in
getting rapid legal justice is still considered to be remote for individuals and companies
without extensive ties in the province.
Chinas labor have traditional been seen as cheap, but new labor laws introduced in
2008 that granted new rights to workers, including open-ended work contracts and
severance pay (New York Times, 1 January 2008). These new laws would result in
higher costs to companies, potentially driving companies with low margins out of China
in search of cheaper labor.
Ascott would similarly be affected by the labor laws in Tianjin, and it would have to
factor in the potential costs in its feasibilities and costs of operations. Ascott might have
to consider termination of staff carefully and be forced to keep non-performing staff on
the payroll.
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2.1.5 The Supernatural Belief System
Broadly, there are two cultural fundamentals that bring about the other aspects of Chinese
cultural beliefs shaped by generations; namely the importance of face, Confucianism
andfengshui.
Concept of 'face' is roughly translated as 'honor', 'respect', or good reputation in the
Chinese context. For the Chinese, it is critical that one avoids losing face or causing
loss of face at all times. In order to maintain a sense of harmony, they will act with
decorum at all times and will not do anything to cause someone else public
embarrassment, even suppressing their own feelings for the betterment of the group. If
one disagrees with another, rather than disagree publicly, the person will remain quiet.
This gives face to the other person, while speaking up would make both parties lose face.
Face saving and giving are critical aspects to take note of, as perceived lack of respect
would make or break a deal (according to Mr. Wee Hui Kan).
Confucianism is a system of principles, behaviors, and ethics that emphasize
peoples obligations towards one another based upon their relationship. The basic tenets
are based upon five different relationships, namely between: Ruler and subject, Husband
and wife, Parents and children, Brothers and sisters, and lastly, Friend and friend. The
Confucian mindset emphasizes duty, sincerity, loyalty, honor, filial piety, respect for age
and seniority. Through maintaining harmonious relations as individuals, society
itself becomes stable.
Fengshui, or geomancy, may play a role in the structure and physical environment of
buildings. For example,fengshui experts were consulted in the architectural design of the
planned 117 building in Tianjin (Figure 2-2). Ascott, on the other hand, does not take
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fengshui into account in its construction and development of properties, nor in its
operations in terms of room artifacts placement.
FIGURE 2-2
Tianjin 117 Building Development Site Map
Reflects Geomancy Concepts in Mountain Building I-III, with Back Facing a
Protective Barrier
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2.2 Communication
Understanding the concepts and subtleties of communication is important in order to be
effective in any cross-cultural, or even intra-cultural, interaction. As its nature of being
such a big country, China faces communication challenges on both the verbal as well as
non-verbal front. The following section discusses the verbal language and non-verbal
language use in China.
2.2.1 Verbal Language
From a verbal standpoint, the Chinese language comprises a family of closely-related but
mutually incomprehensible languages. These languages are known variously as regional
languages, dialects of Chinese or varieties of Chinese. Out of the total population, over
1.2 billion people speak one or more varieties of Chinese. China is a high context society,
where choice of words are implicit, suggesting an indirect form of communication (Hall,
1977). Knowledge of language in the Chinese culture, where both verbal and non-verbal
communications may convey multiple messages to people with similar cultural
background, goes beyond knowing the language to understanding the meaning and
implications behind the words, and such knowledge is essential in doing business in
China.
During our primary interviews, stark communication differences were also observed
between Tianjin people who had international exposure and those who did not. Those
with international exposure were less high context in their communication, and conducted
business with a more strategic, international outlook. They were also able to understand
and communicate with foreigners better. In comparison, Tianjin people who did not have
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international exposure conducted business with a silo, internally focused mentality, were
more high context and cautious about revealing too much, and had frequent
miscommunication when interacting with foreigners.
2.2.2 Non-Verbal Language
Generally, Chinese have a very indirect approach in their communication. Their non-
verbal communication speaks volumes. Since the Chinese strive for harmony and are
group dependent, they rely on facial expression, tone of voice and posture to tell them
what someone feels. Frowning while someone is speaking is interpreted as a sign of
disagreement. Therefore, most Chinese maintain an impassive expression when speaking.
It is considered disrespectful to stare into another person's eyes. In crowded situations the
Chinese avoid eye contact to give themselves privacy.
2.3 Cultural Values
2.3.1 The Individual-Collective Dimension
According to the Geert Hofstede analysis, the Chinese rank lower than most Asian
countries in the Individualism ranking, at 20 compared to an average of 24 (Figure 2-3).
The low Individualism ranking is manifest in a close and committed member 'group', be
that a family, extended family, or extended relationships. As such, the Chinese are a
collective society with a need for group affiliation and fosters strong relationships where
everyone takes responsibility for fellow members of their group.
In doing business, it is also important to learn the Chinese way of thinking relating
back to low Individualism, which shows their close loyalty to stay with groups such as
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their family, work, and team. Loyalty in a collectivist culture is paramount. Chinese
business habits tend to stay with the same partners or suppliers to keep loyalty and not
deteriorate relationships. So when doing business with others, it is important to establish
a good strong partnership that has potential to last a long time, and is looked down upon
if one frequently changes business partners (Geert Hofstedes Cultural Dimensions).
FIGURE 2-3
Geert Hofstede Cultural Dimensions: Individualism (IDV)
The Chineses collectivism and focus on building relationships are main components
in the well known term guanxi. Guanxi is literally translated as connections. In the
Chinese business world, it refers to the network of relationships among various parties
who cooperate together in business. Guanxi is an important concept to understand if one
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is to function effectively in Chinese society, as the right guanxi makes all the difference
in the success of conducting business in China.
According to Mr. Wee Hui Kan, alignment of interests is more important than simply
wining or dining with business partners and authorities. The Chinese feel obligated to do
business with their friends first, hence, exchange of favors and a you scratch my back
and I will scratch yours mentality would help in establishing the right guanxi.
2.3.2 The Equality-Hierarchy Dimension
The Chinese are highly hierarchical in nature and they identify themselves with a certain
level in the society or organization (Figure 2-4). As such, they openly show and express
an appropriate level of respect for those that ranked higher or perceived to be above
them. An observation of the Chinese business formalities with respect to the equality-
hierarchy dimension was made during a presentation given at the Tianjin Port Trade Zone.
Referring to Figure 2-3-1, the speaker on the right of the photo (higher rank) had
presented in Chinese, while the speaker on the left (lower rank) translated his speech into
English. Later on, it became evident that both speakers were actually fluent English
speakers as once in a while he would correct the translator if his statement was
misinterpreted. However, due to the high power distance and perhaps also the increased
confidence of speaking in mother tongue, the higher ranking officer preferred to present
in Chinese, and leave the task of translation his subordinate although he was likely
capable of doing so himself.
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FIGURE 2-3-1
Chinese Official (right) and Chinese Staff English Translator (left)
This value is probably derived from a strong Confucian mindset which emphasizes
relationships across vertical positions (lowest to highest in scale and importance). To note,
China's Power Distance (80) is significantly higher compared to the Asian Average (60)
and the World Average (55). This is indicative of a high level of inequality of power and
wealth within the Chinese society, which is accepted as their cultural heritage.
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FIGURE 2-4
Geert Hofstede Cultural Dimensions: Power Distance (PDI)
This power distance remains high whether it is within the company or in society.
When doing business in China one must be aware of this large hierarchy gap which often
makes it hard to move up on their corporate ladder as compared to other cultures. Chinese
managers are expected to operate within clearly defined lines establishing their authority.
Primary interviews also showed that power distance between government officials and
companies is high. Officials do not tolerate feedback about bureaucracy nor perceived
unfair treatment. Companies that are unwilling to accept certain norms would have to
make the strategic decision of withdrawing from the market.
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2.3.3 The Tough-Tender Dimension
According to Figure 2-5, the tough-tender aspect of Chinese culture is geared more
towards a masculine culture (66) as compared to the world in general (49). Dominant
values of masculinity are that of assertiveness, money, and material possessions; while
caring for others and quality of life is less stressed (Matthew Earnhardt).
FIGURE 2-5
Geert Hofstede Cultural Dimensions: Masculinity (MAS)
In masculine cultures such as China, the "heroic" manager is decisive, assertive, and
aggressive; he makes decisions with confidence and directness and does not allow his
subordinates to question authority. However, it is important to note that honor and saving
face are extremely important concepts to Chinese business people, and a direct style may
be viewed as insulting and can harm employee/manager relationships.
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2.3.4 The Uncertainty-Avoidance Dimension
In general Chinese can be categorized as b`eing moderate to low in terms of uncertainty-
avoidance. Based on Figure 2-6, the Chinese scored evidently lower than those in the
U.S., Asian and World Averages in uncertainty-avoidance. This relatively low index may
have been linked with the harmonious interpersonal relationship of the Confucian
teaching. Interestingly, there is an observable discrepancy between the UA scores of
China and Hong Kong (30 and 28, respectively), Singapore (8), and Taiwan (69), despite
all four countries representing the Chinese ethnicity. This gap is likely driven by
differences in economic, political and legal factors implemented across the countries.
FIGURE 2-6
Geert Hofstede Cultural Dimensions: Uncertainty Avoidance (UAI)
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In doing business, this is portrayed in their seemingly informal and indirect approach
to negotiations, wherein the Chinese seem to follow set rituals but not western rules and
formalities. Thus, they appear to be more flexible in dealing with changes occurring
inside and outside of business. This may in fact be more of a reflection of their
pragmatism in approaching change and obstacles, For example, given that Chinese policy
officially follows 5, 10, and 20 year plans, it is interesting that individual officials are
often evaluated on yearly performance targets. Thus, one may find that official statistical
figures on performance are often disregarded by foreign economists or even that the
targets and the definition of success has changed over time. For example, a reflection of
their uncertainty avoidance was observed during presentations with Chinese officers on
Tianjin Binhai New Areas development plan and 20-year target. When asked how the
government would ensure that the target was met, the officer replied that the target was
not cast in stone, but would be revised along the way.
Alternatively, the Chineses indirectness could also be due to attempts to highlight
only the positive and hide the negative/weaknesses in their positions, or as a way to
establish and maintain long-term business relationships that benefit both sides by means
of greater tolerance for different thoughts and opinions. For example, when doing
business, Chinese people say often say Maybe, or Ill think about it, or Well see to
indicate negative replies instead of saying No directly. This creates uncertainty and
ambiguity so as to avoid business conflicts (Dong & Lee, 2007).
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2.3.5 The Time Dimension
Figure 2-7 shows that China is a country with long-term orientation at the highest-
ranking factor (118), which is higher than the Asian Average (88), and significantly more
so than the World Average (45). This indicates that China as a society has a future-
focused perspective of time and an attitude of perseverance; that is, overcoming obstacles
with time, if not with will and strength.
FIGURE 2-7
Geert Hofstede Cultural Dimensions: Long-Term Orientation (LTO)
This is in line with Chinas uncertainty avoidance score of 30, a medium score, which
indicates flexibility in changing short term action plans while moving towards a long
term goal. The concept of needing time to resolve issues is demonstrated in the many
levels it takes for a business approval submission to reach the Central Committee of the
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Communist Party of China. A submission would have to go through the Central
Committee Secretariat, the General Secretary, the Standing Committee of the Political
Bureau and the Political Bureau before reaching the Central Committee.
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CHAPTER 3
THE ASCOTT GROUP: SECONDARY CASE ANALYSIS
3.1 Background
3.1.1 Overview of The Ascott Group
The Ascott Group (known henceforth as Ascott or The Group) headquartered in
Singapore is a key player in the business of international serviced residences. With over
25,000 operating serviced residence units in 66 cities of Asia Pacific, Europe and the
Gulf region, as well as about 7,000 units currently under development, it is the largest
serviced apartment owner-operator outside of the United States (Shankari, 2009). The
Group operates under the wings of its parent company CapitaLand one of the largest
listed real estate companies in Asia with core businesses in real estate, hospitality and
real estate financial services in major cities of Asia Pacific, Europe and the Middle East
(Ascott Annual Report, 2007).
The Group established presence in China in 1998 when it completed Somerset Grand
Shanghai, a multi-storey residential complex, and in 2001 with the Somerset Fortune
Garden in Beijing making them the largest serviced residence chain in the Chinese capital.
They also secured management contracts in 2004 to operate Somerset Chongrui serviced
residence in Suzhou Industrial Park, and Citadines Jinqiao in Shanghai. Their cumulative
investment in China for the last 10 years amounts to about US$ 409 million (RMB 3,272
million). In Tianjin specifically, The Group owns a 268-unit Somerset Youyi is located
close to the Tianjin International Exhibition Centre, and the 169-unit Somerset Olympic
Tower Service Residences located at the scenic Five Major Avenues () of Tianjin.
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Each of these residences is designed with the discerning executive and his family in mind,
and furnished with the Ascott signature contemporary decor.
The Group operates a portfolio of three brandsAscott, Somerset and Citadines. The
Ascott is the luxury brand targeted at top executives; the Somerset is a contemporary
brand for senior and upper management executives; while the Citadines brand is
targeted at mid-level managers and executives without their families. Since the customer
base of the Ascott brand are at the higher end, these service apartments aim to lavish
business travelers with excellent service in an exclusive environment. For example, such
properties often come with lobby bars and classy restaurants. The Somerset brand, on
the other hand, more 'warm' and 'caring', and are designed to ideal for executives and
their families who are looking for good work-life balances. Thus, some Somerset
properties have playrooms for children and help organize special activities for their
guests. The Citadines brand, being less up-market, is designed for 'individuals on the
go' and therefore stays at Citadines tend to be no-frills. Instead, guests have to choose the
services they want to suit their lifestyle and budget (Shankari, 2009).
3.1.2 Recent Performance of The Ascott Group
Ascott has not only been growing rapidly for the past four years, as reflected in its growth
in revenue, but also grown increasingly profitable. However, there are economic signs
that there may be trouble for the Group ahead. The last publicly available Ascott Groups
financial statements were from 2007, in which the Groups revenues grew from S$ 200.2
million in 2003 to S$ 435.277 million in 2007 (Compound Annual Growth Rate of 17%).
While Earnings before Interest Taxes Depreciation & Amortization (EBITDA) remained
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fairly constant at approximately 30% of revenues, Net Income also grew from 9% in
2003 to 41% in 2007. Similarly, Return on Equity (ROE) grew during this period from
1.5% to 15.8% (Ascott Annual Reports). Given that publicly available information does
not reveal what has happened since then, we assumed that current financial health of the
company may be somewhat reflected by its sister company, Ascott Residence Trust
(ART). ART holds the first right of refusal to all Ascott Group property divestments.
ART mirrors, to some extent, properties from Ascotts geographic and market segment
portfolio. Therefore, we believe that ART financials and figures could be taken to be
indicative of its sister company Ascotts performance (Figure 3-1).
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FIGURE 3-1
Various Properties in ARTs Portfolio, Including Somerset Tianjin
OCBC Investment Research
ART has attained impressive growth recently, with revenues rising from S$ 155
million in 2007 to S$ 192 million in 2008, it is not expected to perform nearly as well in
the near future, with revenues expected to drop by more than 10% in 2009 (Figure 3-2).
In fact, in 2009 revenue is expected to decline in all of the countries it is currently
operating in, China being no exception. In China alone, analysts predict that Revenue per
Average Unit will decrease by almost 29% in 2009, before the decline slows down to 5%
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in 2010 (Figure 3-3). This is a significant challenge for ART, as bulk of its revenues
originate outside of Singapore, with China alone forming 25% (Figure 3-4). Despite the
drop in revenue, ART is expected to remain profitable, with net profits at levels achieved
in 2007 as direct expenses involved in operating properties is held at a relatively stable
fraction of revenue at 54%, despite drops in revenue generation (Figure 3-1). If we are
correct in our judgment that ARTs performance is indicative of that of its sister company
the Ascott Group, and then we can expect Ascott to have patchy performance until the
global economy recovers and in turn allows Ascotts customers to retain its services.
FIGURE 3-2
(a)Historical and Forecasted Revenue of ART, DBS Analysts
DBS Vickers Research
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(b) Historical and Forecasted Revenue of ART
OCBC Investment Research
FIGURE 3-3
Revenue Per Average Unit Expected
OCBC Investment Research
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FIGURE 3-4
Portfolio Breakdown of Ascott Properties by Asset and Revenue
OCBC Investment Research
The drop in Chinese revenues as indicated by ART figures stems from two key
factors: Firstly, the 2008 Olympics had artificially raised short-term demand beyond that
justified by the long-term market. In its aftermath, increased competition as well as a fall
in occupancy among Ascotts Beijing and Shanghai units has led to a significant drop in
the room rates, thereby affecting revenues (Figure 3-5). Secondly, this situation had been
made worse by the current economic crisis, which we anticipate, leads to a decrease in
the size of Ascotts customer base (Figure 3-6).
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FIGURE 3-5
(a) Overall RevPAU Trend OCBC Investment Research
(b) Overall RevPAU Trend OCBC Investment Research
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FIGURE 3-6
Various Industries that Ascott Derives Revenue from
OCBC Investment Research
Interestingly, Tianjin has been an exception with revenues remaining fairly stable
despite drops in other Chinese cities elsewhere. We speculated that the most probable
cause of this anomaly is due to Tianjin having only the mid-tier Somerset properties. The
Somerset properties had the luxury of having a stable customer base of industrial
managers and expatriates including their families, while Shanghai and Beijing hosts more
short stay travelers. Moreover, the average length of stay at the Tianjin property is
typically more than six months (OCBC Investment Reports, April 2009). The actual
occupancy levels at the Ascott properties, however, were unclear from online sources.
But quoting the Thai Press Reports dated March 2009, it stated that during normal
business periods Ascott has been able to maintain approximately 90% occupancy
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throughout its properties. In addition, Ascott hopes to maintain at least 80% occupancy
rate during the current downturn.
3.2 Competitors in China
Some of Ascotts competitors in the area include major hotel chains like Ritz Carlton,
Sheraton, and Shangri-La. However, as these companies primarily function as hotels and
their service apartments are often an augmentation to their core business, they do not hold
a large block of the market share. More serious competitors include Oakwood, Marriot,
and Frasers Hospitality, with 4000, 2500, and 2483 estimated units in the entire Asian
region, respectively. Thus, Ascott with its 25,000 units in the Asian region, including
China, is by far the largest among its peers (The Business Times, 3 April 2009).
According to Mr. Darren Cher, Residence Manager of Ascott Tianjin, Ascotts
Somerset property faces direct competition from a Sheraton offering 60 apartments on
top of 300 hotel rooms, a residency TJ International, and a local brand called Kyuga,
which was developed by Mitsubishi specifically to target Japanese clientele. Advantages
of being so large and diversified across the region include a diversified client base.
With reference to the Ascott Annual Report 2007, economies of scale allows Ascott
to be present in cities with different industrial or commercial focuses, therefore,
fluctuations in one sector may have lesser impact on company as a whole. Another
advantage includes Ascotts ability to service the same corporate customer across
international borders, giving its customers an ease in choice and familiarity in settings.
Economies of scale provide Ascott an advantage in terms of cost as it allows Ascott to
gain competitive advantages in terms of development and operating. For example, many
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of Ascotts residences are relatively standardized therefore costs involved in designing
and furnishing the residences are reduced. Similarly, Ascotts large market share allows it
to leverage its marketing spending and brand equity across many properties, spreading
out overhead, as well as, diversify nation-specific risks. Despite competition from such
heavy international players, Ascott has consistently garnered several awards, including
Forbes China 2008 Chinas Best Serviced Apartments (CIMB-GK Research, January
2009).
Disadvantages associated with economies of scale may include the added cost and
difficulty the management incurs in ensuring that each Ascott property is consistent in the
delivery and quality of its services. Factors that would make this increasingly difficult
include the wide variety of nationality, employment, and other backgrounds their
customers come from, as well as, unique characteristics of the host nations. For example,
in some Islamic countries there may raise complications regarding the service provided
by single female guests by conservative male employees.
3.3 Anticipated Business & Cultural Challenges for Ascott Group in China
In this paper, we propose three intersecting main elements to conceptualize the business
and cultural challenges of service-based (hospitality) firms in entering and sustaining
their business in Tianjin, China (see Figure 3-7), specifically: (a) Business Strategy,
which refers to the firms positioning or value proposition to customers relative to their
competitors; (b) Human Resource Management, which refers to the issues and challenges
faced by the firm in recruiting, training and retaining local talents in China; and (c)
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Cultural Aspects, which refer to cultural issues faced by firm in host country (China) and
the existence of synergistic or conflicting values due to cross-cultural differences.
FIGURE 3-7
Framework for Conceptualizing Business & Cultural Challenges in China
The intersecting sub-elements at the 2nd
level of the framework are defined as: (a-b)
Business Strategy and Human Resource Management refers to the challenges for Ascotts
management to fully utilize local talent pool and develop them into leaders (Residence
Managers) for their properties in the long term; (b-c) Human Resource Management and
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Cultural Aspects refers to challenges in providing tailor-made service training,
specifically by country, provincial and city, due to salient cultural differences between
these geographical levels, and focus on communication between staff and foreign guests;
(c-a) Cultural Aspects and Business Strategy refers to alignment issues for corporate and
management culture with Ascott properties and staffs in diverse locations, in achieving
business goals set by management.
At the core of our framework is achieving service excellence. Robert Johnston (2004)
states that service excellence is more than simply exceeding expectations but requires
organizations to do no more than they promise. In effectively addressing and managing
these business, human resource and cultural elements, the firm essentially works towards
achieving Service Excellence for the benefit of stakeholders and customers.
3.3.1 Revenue Growth Challenge
In terms of business challenges, we anticipate that Ascott faces rapidly declining
revenues in Tianjin due to the ending of the Chinese Olympics and the current economic
fallout, which have already hampered their other properties in the region. Post-2008
Olympics causes Ascott China serviced residences room rates to fall significantly as
compared to the highs of 2008 as described in Chapter 3.1.3, and could continue to fall
further should the current economic crisis hurt global consumers spending power.
Specifically, since Ascotts Tianjin property is a Somerset mainly catering to Japanese
and Korean managers and their families, Ascott faces a challenge of ensuring retention of
as much of their client base as possible, as well as maintaining revenue levels. Journalists
have noted that Japanese and Korean expatriates are being shipped back home from
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Shanghai due to the current economic crisis (Financial Times, February 2009). Therefore,
as multinational companies are badly affected in the current crisis, it is foreseeable for
them to cut costs by either cutting expatriate staff in Tianjin, or at least negotiating harder
for discounts to current room rates.
Another challenge stems from the difficulty in sustaining the performance of Ascotts
China properties due to customer variability. Given that guests at Ascott s Chinese
properties tend to remain for less than nine months while the industry norm is closer to a
year, worsening or prolonged conditions elsewhere may result in knock-on efforts to
Ascott due to financially-challenged customers or its own inability to provide enough
resources to support its operations. As rental charges for high end apartments decline
throughout China, low and mid-tier products of Ascott may be forced to discount to
compete effectively; Ascotts higher tier Ascott brand properties may largely be
insulated from this pressure due to their client base (Figure 3-8).
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FIGURE 3-8
Average Length of Stay of Ascott Guests:
Except for Japan, Bulk of Ascotts Customer Base Likely Stay for Less than 1 Year
OCBC Investment Research
On the other hand, current economic environment may also present Ascott with an
opportunity to differentiate itself and maintain its occupancy levels by adding value to the
customer experience. In essence, Ascott must seek ways to help its guests maintain a
work-life balance, especially as Japanese companies trying to cut costs may choose to
pull back families and similar non-essential personnel back to Japan and those who may
increasingly find living in upper-tier service apartments untenable (Thai Press Reports,
2009).
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3.3.2 Human Resource Management Challenges
In terms of Human Resource Management, Ascott has a pre-established reputation for its
staff exhibiting patience, professionalism, efficiency, and customer service excellence.
Somerset Tianjin in particular is able to control staff attrition at the Olympic Towers
despite the growth of competitor presence. We will discuss on Somerset Tianjins talent
retention strategies in Chapter 4. From the perspective of China in totality, we anticipate
that the Ascott Group is facing constant challenge in fighting for good human resources
with the influx of competitors to meet serviced residence demand and other similar
industrial or commercial cities of China. As discussed in the Worldwide Hospitality and
Tourism Trend article (Zhang, 2004), a lack of qualified staff at both operational and
managerial levels, a high staff turnover rate and a wide reality gap between academic
experience and the real world experience have resulted in shortages for the hospitality
industry.
3.3.3 Cultural Challenges
On Cultural challenges, the Ascott Group has an intrinsic advantage as an Asian Chinese
institution in entering China. Language and cultural barriers are easiest to overcome with
the presence of their bilingual management team in both the English and Mandarin
language. However, there are still salient differences between Singapores management
style and work culture compared to the Chinese. We anticipate engrained cross-cultural
differences between expectations of the Singapore service and the level of service able to
be provided by Tianjin locals, especially in the hospitality industry. These differences
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may be due to different upbringing, personal comfort zones, family culture, and pre-
determined mindset related to service.
But, through our interviews with Ms. Chung Li Ren, Manager of Ascott Centre for
Excellence, Ascott International Management, we learnt that the biggest challenge for
human resource staff and managers in China is the language barrier. As Ascotts target
customers are expatriates and foreigners, service staffs are required to address questions
or queries posed by these customers using English. But local Chinese staffs find
difficulties in communicating in English and this caused disparity in service standards or
expectations. It also took much effort from the Singaporean managers to impart
differentiated customer service skills targeted at diverse cultures to the local staff. Li Ren
stated an example that the front desk reception should not assign queen size bed to old
Japanese couples staying with Ascott, emphasizing the need for staff to have knowledge
on diverse cultures lest they unintentionally angered the guests.
Xu XF (2007) also noted that inadequate training provided by a China-based
company forms the basis for cross-cultural obstacles to effective communication with
other staff with diverse cultures for expatriates sent overseas. Xus perspective can be
interpreted vis--vis with other diverse cultures working in China. Pre-trip teleconference
interviews with the Ascott Group staff had shown that, although hospitality-specific
training were in place, cross-cultural training were not thoroughly emphasized within the
organization and sometimes it was left to individual expatriate Residence Managers to
adjust to their assigned citys local culture. This form of experiential training seems to
work well for the Group thus far, given that there are intrinsic advantages of these
Residence Managers with Chinese language as their mother tongue. However, we
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anticipate salient differences to surface during our ground observation of Ascott staffs in
Tianjin.
3.3 Strategies
3.3.1 Business Strategy
The Ascott Groups key Enter China strategy is to use primary Chinese cities as
springboards into high-potential secondary cities and enhanced its China portfolio to
10,000 serviced residence units. It has built a strong local management team in China,
operating within social sensitivities, and selling high international standard properties to
an urban middle class. The company has currently an employees strength of 250 people
in China. Particularly, the Ascott Group is able to re-create their corporate culture of
human-orientation and leaderships in China, as well as pursuing the diversified strategy
of localization.
The greatest strength of the Group lies in its powerful and internationally experienced
management team, and its unique positioning in the industry. As an Asian Chinese
institution, one of the Ascott Groups core strength in entering China is that language and
cultural barriers become easier to overcome with the presence of their bilingual
management team. As an owner-operator, which essentially means that the firm owns,
leases, and manages serviced residences, Ascotts revenue is derived from management
fees comprising a percentage of gross operating revenue and a percentage of gross
operating profit. As an investor, Ascott also earns yields on investments while
simultaneously enjoying capital gains from the divestment of properties if sold at a profit.
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Ascotts mainly Singapore-sourced management also allows it to deliver consistent
service excellence, as they have been trained or recruited to meet international standards.
The Ascott Groups general strategy is to buy and sell properties to gain highe r-
yielding assets and enter new markets, as well as pursuing robust expansion into large
financial and commercial cities with a critical mass of business activities and expatriates.
In such cities, Ascott clustered its properties so as to enjoy economies of scale in
lowering developing and operating costs, as well as, to be able to employ a product-
tiering approach with its clients, giving an option of its global brandsAscott, Somerset
and Citadines (Ascott Annual Report, 2007).
The Ascott Group also cleverly devised their signature Ascott Residents Programs to
help guests feel at ease and assimilate into the local lifestyle, allowing them to have a
whole new travel experience minus the hassle. These self-enrichment programs and local
activities bring guests up-close with each citys unique culture and practices. Therefore,
Ascott must continue to gauge the different demands of its various tier customers and
respond accordingly. One of the objectives of our Tianjin trip is to unravel the cultural
thinking process in making the Ascott Resident Program successful.
3.4.2 Human Resource Strategies
According to ETN (Global Travel Industry News, 21 June 2008) and pre-trip interviews
with Ascott staffs, the Ascott Group has already implemented two initiatives to maintain
service standards throughout its serviced residences as follows:
The Ascott Centre for Excellence (ACE) provides staff with training to equip them
with knowledge, skills and best practices according to industry service standards.
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The Product and Technical Services provides consultancy for pre-opening phase of
new residences.
ACE trains Ascotts 5,000 employees located in Asia Pacific, Europe and the Gulf
region to support its global expansion. ACE is the only training center in Singapore to
offer the Workforce Development Agencys (WDA) full range of Hotel and
Accommodation Services programs. These initiatives would serve as a value-add on how
Singapores management and operations culture is imbued within a China context in that
they help top level staff continuously upgrade or retrain their skills to meet the latest
standards in hotel operations management and subsequently pass on that knowledge to
local directly. These initiatives also allow all of Ascotts regional human resource trainers
to maintain similar standards and practices throughout all Ascott properties by giving
them central location to pool their experience. .
In addition to the training programs, Ascott also stresses the need for managers to
have hands-on experience. Therefore, all managers, including those from outside the
hospitality industry, are expected to either already know every operational job under their
control or take an intensive crash course to do so. Furthermore, managers are encouraged
to rotate among Ascotts various properties inside and outside of China to gain deeper
insight on international standards.
3.4.3 Ascott Strategies to Address Cultural Challenges
In terms of cultural challenges, the greatest strength of the Group lies in its powerful and
internationally experienced Singaporean Chinese management team (King, 2007).
Therefore, in entering China, Ascott is able to overcome the language and cultural
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barriers with the presence of their bilingual management team with Mandarin as their
mother tongue. What was culturally challenging to Ascott is how to manage local
Chinese staff and how to train them using made-in-Singapore hospitality service training,
all in Mandarin.
Through our interviews with Ms. Chung Li Ren, Manager of Ascott Centre for
Excellence, Ascott International Management, we learnt that Ascott sent Managers bound
for overseas assignment on a special training program lasting three to six months called
the Accelerated Residence Manager Program (ARMP). For example, Singaporeans like
Mr. Darren Cher, Residence Manager of Ascott Tianjin underwent such a training stint
prior to taking the post in China. On the other hand, Chinese Residence Managers,
promoted or appointed in China, had to go through the Ascott Culture training and
induction program at the Singapore HQ Office. They have to undergo cross-function
office briefings and to thoroughly understand the policies and processes within the
corporate office. Not taught in classroom settings, these trainings emphasize on the
placement of the managerial staff and experiential exposure to the city-assigned culture.
Questions were asked if these trainings involved detailed walkthrough on local city
cultures and using certain Cultural Intelligence frameworks. Ascott appears to leave
cultural adaptation of its managers to fate. Human resource staff of local offices will brief
managers on local information, including policies and rules governing the area.
Pre-trip interviews with Ascott staff in Singapore revealed their acknowledgement of
the Chinese locals as being hardworking and relatively fast learners, coupled with an
intrinsic drive to achieve in the workplace. They also suggested that the service levels of
local Chinese staff in China are also well known for subservience to customers and high
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level of personalized service, accompanied by the Chinese saying customers (guests) are
always right. As we will discuss in later chapters, this perception of Chinese service
staffs being subservience and high level of personalized service is not true from our on
ground findings.
On an organization-wide level the Ascott Group has devised a signature Ascott
Residents Programs to help guests feel at ease and assimilate into the local lifestyle,
allowing them to have a whole new travel experience minus the hassle. These self-
enrichment programs and local activities bring guests up-close with each citys unique
culture and practices. In China, Ascott local offices have launched initiatives to cater to
local cultures, such as the HeartwareProgram in China since 2006. Each residence in
China has specially designed programs for residents to adapt to local city culture and
environment. For example, the residence organize tours to public celebrations during
Chinese New Year, dumpling festivals, and movie nights, specifically designed based on
local flavor as well as on the basis of customers profile. In terms of catering to
customers profile, Ascott will organize activities for residents with families to help
children and spouses to adapt to the new living environment.
Our trip to Somerset Tianjin will confirm or disconfirm these Ascott strategies to
address the cultural challenges.
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CHAPTER 4
THE ASCOTT GROUP: PRIMARY CASE ANALYSIS
This chapter discusses ground observations and findings from face-to-face interviews
obtained from our trip to Tianjin, with serviced residences, hotels, restaurants and Ascott
Somerset Tianjin staffs.
4.1 Interview Strategy
Following the conceptualization framework in Chapter 3, namely Business Strategy,
Human Resource Management and Cultural Aspects, we have designed our interview
strategy to address issues pertaining to each element and the intersecting sub-elements.
The following personnel from Somerset Serviced Residences were interviewed in
Tianjin: the Residence Manager, HR Manager, Guest Relations Manager and the Sales &
Marketing Manager.
Mr. Koh Yan Leng, Residence Manager. Mr. Koh signed up with Singapore Ascott
and was sent to China under an expatriate package. He was previously with
Singapore Airlines and had worked in London, Madrid, Auckland, Beijing and
Shanghai, prior to joining Ascott.
Ms. Cindy Zhang, HR Manager, joined Somerset Olympic Towers in April 2008. A
Tianjin native, she was in a pharmaceutical company in Hangzhou before joining
Ascott.
Ms. Maggie Deng, Sales Director, joined Somerset in Nov 2008. She worked in
Hyatt Regency in Tianjin for 4 years as a secretary, and moved to Singapore and
worked for 5 years in SingTel as a customer service officer and in telemarketing. She
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also took her MBA in Singapore, before returning to Tianjin and joined River Club
Tianjin for 2 years before joining Somerset. She was born in Hubei and moved to
Tianjin at 3 years old.
Ms. Annie Lee, Guest Services Manager, joined Somerset in Sep 2008. She studied
hotel management in Nankai University, and after graduation, had worked in
Shenzhen and Shanghai for a Hong Kong company and MNC respectively. She was
born in Tianjin, and returned to Tianjin and worked in Sheraton and Hilton before
joining Somerset.
An analytical reader would have noticed that the Ascott Somerset staffs we
interviewed at the newly established Somerset Youyi had joined the company for less
than two years and their work experiences were brought from working at other Chinese
provinces. These managers brought in new insights to Somerset, in terms of cross-
cultural perspectives and different work ethics from outside of Tianjin but perhaps
lacking in terms of thinking inline with the Ascott Culture (Letters from the Heart, AIM
China E-Newsletter). Questions were asked to affirm the findings from the pre-trip
interviews for all the interviewees and to obtain first-hand accounts of cultural challenges
on:
Customer profile and preferences, and their expectations
Differentiation strategies, Tianjin staff profiles, human capital management and
operational challenges;
Training for different levels of staff, and how it differs for expatriates and locals.
Dynamics between expatriates and locals.
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We also customized questions for each interviewees specialized area of work. For
example, we focused on sales and marketing strategies when interviewing Ms Maggie
Deng, the Sales director. Following the interviews, we conducted observations at
Somerset Youyi Serviced Residence and at several competitors to observe and contrast
the physical, visual, and service-related differences.
4.2 Findings
The interviews provided new insights into Somersets business and human capital
management strategies will be discussed in the following sections.
4.2.1 Customers Profiles, Preferences & Their Expectations
In Somerset Olympic Towers, 85-90% of customers are Japanese, with 97% of them
classified as long stays (6-12 months). In Somerset Youyi, 50% of customers are
Japanese with only 70% long stays, as a result of having more studio apartments in
Somerset Youyi compared to the Olympic Towers.
The Tianjin serviced residence market is predominantly Japanese as they are more
able and willing to pay Somersets rates compared to the Korean group. Somersets
focus on the Japanese market is intentional, following market research and sales leads.
According to Somerset, the Japanese like to stay put in a familiar community and
currently, expatriate packages have lowered in budget due to the economic downturn.
Somerset lowered prices as a result of the situation and some Japanese guests have opted
to do without certain facilities or amenities. Youyis greater units of studio apartments
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are timely to current market conditions and appealed to expatriates with smaller
accommodation budgets.
Somerset is starting to target the Koreans in Tianjin, who thus far have preferred to
lease non-service apartments and they are more budget conscious, preferring cheaper or
no facilities. Still, they are a bigger market than the Japanese in terms of numbers.
4.2.2 Differentiation Strategies
Somersets differentiation strategy is to provide personalized service that exceeds
customers expectations. The Ascott Heartware program is a customer service program
that gives guests what they want, with the objective of making them feel at home. On top
of the Ascott Standard Operating Procedures (SOPs), each branch can go over and above
SOPs to achieve service excellence and deliver surprises for the guests. This dont give
no for an answer approach is standardized across Ascott. Furthermore, Ascott has
international conferences to share such best practices and experiences across different
Ascott branches.
For longer-term guests who stay more than 6 months, Somerset has a special check-in
process by which check-in is not done upon the guest's arrival. Instead, guests are shown
directly to the room, and the Residence Manager, the housekeeper and security guard will
be there to greet the guest and introduce themselves. The Guest Services Manager will
then bring the guest around the surroundings, including nearby facilities, to orientate
them. After one week of stay, guests are invited to special activities specially organized
as a form of celebration.
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Somerset also conducts activities for wives of expatriates, provides weekly shuttle
buses to send the wives for shopping and to golf on weekends. Somerset Olympic Towers
has a childcare centre, and Somerset sends the children to international schools.
Somerset also celebrates the guests' native festivals.
According to ,Ms. Annie Lee, Guest Services Manager, training is conducted on how
to provide warm customized service e.g. celebrating birthdays, remembering what guests
shared informally. This particular aspect differs from the way traditional hotels provide
customized service and is a differentiation key to the Somerset brand in the serviced
residence market. In order to move ahead or to keep abreast with competition in Tianjin,
Ascott seeks to evolve in the following areas:
New products and services.
Building the right culture.
Getting the right people to train staff.
Refine marketing and sales strategy.
4.2.3 Training for Different Staff Levels in Somerset
According to Mr. Koh Yan Leng, Somerset has put in place a train-the-trainers scheme,
whereby a Singaporean trainer is flown into China to train the Shanghai office's trainers,
who in turn train the staffs in Beijing, Tianjin and Dalian. Basic orientation is conducted
for new staff members. Specialized training is also provided for functional areas, and
Somerset also has monthly training on various areas on top of daily operational briefings.
Training materials are developed locally in Tianjin itself, with periodical training
guidelines communicated down from the headquarters in Singapore. Lastly, Somerset
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has a job rotation program for staff to work in different countries. In terms of difference
in training for expatriates and locals, we have observed no disparity.
4.2.4 Tianjin Staff Profiles, Human Capital & Operational Challenges
With regards to staffing, 99% of Somerset's managers are recruited from within the
industry as Somerset prefers recruiting people with relevant and transferable experience.
While some management level employees come from various recruitment avenues such
as other service-oriented companies, front level staffs are typically recruited from
hospitality schools.
Tianjin staffs in particular are typically contented and turnover is low compared to
other China cities like Shanghai, Beijing and Shenzhen. In Tianjin, dorms are not
provided for the staffs because most of them are locals. In comparison of Tianjin
workers with other Chinese provinces, the locals typically do not wish or like to work
overtime and are generally lazy, according to on ground sources. Tianjin staff also faced
communication problems in terms of language which resulted in few locals venturing for
job opportunities abroad. Most staffs in Somerset Olympic Towers have worked for more
than seven years. As culturally Tianjin people tend to miss home with family pressures to
settle down in Tianjin, the attraction of serviced residence in attracting and retaining
staffs is due to the easy contentment of the local people a stable job environment
prevalent in serviced residences due to longer-stay customer profiles attracted the locals.
Moreover, interaction and guest-staff relationships are generally longer-lasting as
compared to normal hotel guests which attracted certain staffs.
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In terms of Tianjin human capital challenges, we noticed that at both Somerset Youyi
and Sheraton Tianjin, the front desk receptionist did not greet nor take the initiative to
welcome visitors who came in looking for assistance. Observably as well in government
offices and restaurants, female receptionists also tended to huddle behind desks near the
entrance (see Figure 4-2). To some extent, these behaviors appear to reflect the reluctance
to do beyond what they have been assigned, coupled with a sense of power distance as
well as the Chinese high collectivism and need for group affiliation. This culture is an
operational as well as a mindset challenge for Somerset Tianjin and China in general to
be able to adopt a more service-oriented attitude that is not hindered by the ways and
approaches they are accustomed to. This is in direct contradiction to the training
provided by companies in the service industry (for example Ascott training), versus the
actual service standards provided by the local staffs, which is capped by the prevalent
local Tianjin culture, leading to expected service behavior not following suit.
FIGURE 4-2
Chinese Staffs Displaying High Collectivism and Group Affiliation
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4.2.5 Dynamics between Expatriates & Locals
While nationality did not pose major issues in day-to-day operations, in terms of building
business relationships, the Chinese are more aware of the need to build relationships with
the government. Ms Maggie Deng said that the Chinese drink to do business; it is more
tha