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Hospitality at The Forefront: Revitalizing Global Engagement With China

By Alexander Mirza Founder & CEO, Mogul | October 2024

The hospitality industry has been built by entrepreneurs such as Conrad Hilton, who believed the business plays a strategic role in promoting cross-cultural understanding and advancing international peace and security.

As Hilton once said, "It has been, and continues to be, our responsibility to fill the earth with the light and warmth of hospitality." This vision underscores the importance of global engagement and cultural exchange, which are currently facing significant challenges in China.

The Role of Western Brands in the Development of the Chinese Economy

For decades, category-leading Western brands grew their businesses within the China market to become a sizable portion of their overall revenues, growth, and innovation. 20 to 30 percent of the valuation of the top five Western-based hotel stocks is currently tied to either profits or future growth value expectations in China. Consumer interests are continuing to converge as tech-savvy Chinese millennials are seeking the latest Western brand innovations. Pfizer, Apple, Nike, Procter & Gamble, Starbucks, KFC, Wyndham, Disney, General Motors, Intel, Microsoft, and the NBA have become more than investors in China; they have spread Western management practices and improved social integration with the West.

While the media bemoans the recent exits from China of Airbnb, LinkedIn, and Western social media, consider the success of the following American-based retail, hospitality, and sports and entertainment companies in building “glocal organizations” in China:

  • Retail: Walmart China has over 400 stores across 169 Chinese markets and employs 100,000 people. They committed $1.2 billion to build distribution and logistics across China in the next five years to open at least four new Sam’s Club stores, 15 additional shopping centers, and more community stores in the capital of China’s Hubei province.
  • Hospitality: Starbucks, with its China headquarters in Shanghai, has over 6,000 stores across 230 cities in China, generates an estimated $3 billion in China revenues, employs over 60,000 people, and has built China-specific store concepts since 2010. Starbucks also remains committed to investing $130 million to launch a global roasting facility in its new China Coffee Innovation Park located in Kunshan, China.
  • Sports: NBA China, the separate company the NBA set up in 2008 to manage its retail deals with Alibaba and a five-year $1.5 billion content deal with Tencent, is now valued by the league at $10 billion to $15 billion. The league has offices in Beijing, Shanghai, Taipei, and Hong Kong with 500 million fans watching NBA programming on Tencent and 21 million fans watching the NBA Finals, according to NBA data. The league also has more than 200 million followers on social media in China. In March, the league opened the second-largest NBA store outside of North America in Beijing. Despite their current challenges, the NBA’s success in building the game in China is remarkable and has inspired their creation of a similar separate entity in Africa.

From Best Friends to Rivals

When I moved to China in 2012 to become the CEO of a Shanghai-based lifestyle hotel start-up, global companies such as LVMH, Mercedes, Disney, Marriott, Starbucks, and MGM Resorts were sending their most talented executives to build their businesses in China. This influx of talent underscored the importance of China as a critical market for growth and innovation. However, 12 years later, it’s a different story – the Chinese economic miracle is in trouble due to geopolitical tensions exacerbated by the pandemic and an artificial intelligence driven technology arms race, thus threatening to reverse decades of cross-cultural collaboration.

Decline in Foreign Business Investment

Foreign direct investment (FDI) in China has historically been a key driver of economic growth and technological advancement. However, recent figures indicate a notable decline in FDI. According to the Ministry of Commerce of the People’s Republic of China, foreign direct investment dropped by 29.1% year-on-year in the first half of 2024 after a decline of about 80% in 2023 versus 2022. Western businesses are increasingly wary of the evolving regulatory landscape, which is perceived as unpredictable and risky.

The heightened scrutiny and regulatory crackdowns on sectors such as technology, education, and finance have dampened investor confidence. This trend not only impacts China’s economic prospects but also diminishes the opportunities for cross-cultural business exchanges that have historically fostered mutual understanding and cooperation.


Drop in Western Students Studying in China

Another alarming trend is the decline in the number of Western students studying in China. According to a report by the Institute of International Education, the number of U.S. students studying in China has decreased by over 20% since the pandemic. At its peak in the 2010-2011 academic year, around 14,000 American students were studying in China. Today, this number has dropped to approximately 7,000. European countries have seen similar trends, with Germany reporting a 15% drop in students studying in China. This decline is attributed to both the lingering effects of the pandemic and the increasing geopolitical tensions.

In stark contrast, the number of Chinese students studying in Western countries remains significantly higher, despite some declines. For example, the number of Chinese students in the U.S. has decreased slightly but still stands at over 290,000, while the UK hosts around 120,000 Chinese students, and Canada has seen an influx of more than 140,000. These figures highlight the disparity in cross-cultural educational exchanges, with Chinese students showing a sustained interest in Western education, whereas the reverse is not as robust.

Decrease in Inbound Travel to China

Inbound travel to China has also seen a significant decline. Data from the China National Tourism Administration shows that international tourist arrivals dropped by 60% in 2023 compared to pre-pandemic levels. The stringent travel restrictions and quarantine measures implemented during the pandemic have been a major deterrent. Moreover, the perception of China as a high-risk destination due to its regulatory environment and geopolitical tensions further discourages potential visitors. This decline in tourism not only affects the economy but also reduces the cultural exchange that comes from people-to-people interactions.

Economic and Cultural Implications

These trends collectively paint a troubling picture for China’s global engagement. The decline in foreign business investment, the reduced number of Western students, and the drop in inbound travel suggest a growing disinterest in China among Westerners. Economically, it could slow not just China’s growth and innovation, but also the ability of Western companies to learn from best practices in China. For example, Tesla’s CEO Elon Musk has stated that his Shanghai factory and operations, as well as its R&D capabilities, are the most advanced in the world. He has praised Chinese workers, saying, "China rocks in my opinion. The energy in China is great. People there — there’s like a lot of smart, hardworking people." This highlights the significant potential for cross-learning that is being jeopardized by the current trends.

Rise of Chinese Brands

Across industries, Chinese brands are on the rise, presenting formidable competition to their Western counterparts. In the sports apparel business, Chinese brands such as Li-Ning and Anta have gained significant market share. Li-Ning’s revenue has nearly doubled since 2020 while Anta’s revenue has grown by 76%. In contrast, Western brands like Adidas and Nike have experienced a decline in market share within China. Nike reported a 20% decrease in sales in China for the same period while Adidas faced a 25% drop. This shift underscores the growing influence and competitiveness of Chinese brands on the global stage, further complicating the business dynamics for Western companies in China.

However, Chinese brands are not gaining share in the domestic hotel industry. The pipeline that is surviving the country’s real estate market crash is filled with full and limited-service brands from Western hotel chains. This indicates that while Chinese brands are excelling in other industries, the hospitality sector remains dominated by Western players, showcasing a nuanced landscape of market competition.

Outlier: Pharmaceutical and Biotech Industries

An exception to the general trend is the pharmaceutical and biotech industries. Western companies continue to invest heavily in China to accelerate R&D and gain market access, despite facing difficult competition and low margins. For instance, AstraZeneca has established an extensive presence in China, with significant investment in local R&D facilities and partnerships with Chinese biotech firms. In 2020, AstraZeneca announced a $1 billion investment in a new R&D center in Shanghai, highlighting their commitment to the Chinese market.

Similarly, Pfizer has been expanding its footprint in China, focusing on innovative treatments and leveraging the local talent pool for research and development. In 2021, Pfizer invested $350 million in a biotechnology center in Hangzhou. These investments underscore the strategic importance of China in the global pharmaceutical and biotech sectors, where access to the Chinese market and collaboration with local entities are seen as crucial for long-term growth and innovation.

Rising Geopolitical Tensions

If the digital cold war wasn’t enough, the artificial intelligence arms race has set the stage for Western countries such as the U.S. to impose new restrictions and bans on computer chips and other software that are considered national security concerns. These measures further strain the relationship between China and the West, creating an environment where mutual distrust inhibits the free exchange of ideas and technology. The consequences of these restrictions are far-reaching, affecting not only technological collaboration but also economic stability and innovation.

Seeking Extraordinary Talent: The Case for Engagement with China

Historically, the key advantages for China have been its relative ease of doing business and its innovative infrastructure. But now the long-term reason for being in the market is access to China’s talent, which, despite rising labor costs, remains unrivaled in most measures of productivity. As large markets go, other than India, there are few geographic alternatives to attracting a talent pool on a scale anywhere near China, with over 100 million service employees trained in managing Western brands, eager to learn English, and adopting new mobile applications and artificial intelligence at a breathtaking pace.

In hospitality, market leaders in China have built leadership teams over decades, starting with expatriates, and have evolved to promote local hires based in the PRC into the most senior positions. For example, Hilton grew its share of China-born hotel general managers from just 10 percent in 2005 to over 50 percent by 2022, a remarkable achievement that provides human capital assets that can eventually be deployed around the globe. Hilton aims to have 1,000 hotels in operation in the market with 100,000 team members, including 85 percent local general managers and 30 percent female general managers.

Reflecting the country’s low salaries for the hotel industry, the average estimated worth of the top 10 percent of hotel general managers is 742,000 Chinese Yuan or US$107,000, compared to an average of US$164,000 for those based in the United States. Outside of the tier-three cities, the vast majority of China’s elite hospitality talent is multilingual and at least semi-fluent in English and seeks work experiences outside the PRC. Therefore, in the coming years, China will provide the industry with an undervalued, high-performing, and diverse global talent pool of hospitality executives.

Conclusion

The decline in Western engagement with China has far-reaching implications. Economically, it could hinder the growth and innovation of both Chinese and Western companies. Culturally, it risks creating a generation of Westerners who are less informed about and engaged with Chinese history, culture, and language.

To reverse these trends, it is crucial for Beijing to address the underlying causes. Enhancing regulatory transparency, fostering a more stable business environment, and actively promoting cultural and educational exchanges could help rebuild confidence and interest among Western nations. Only through such measures can China hope to regain its position as a focal point for global business, education, and tourism.

Furthermore, it is also important that global businesses with operations in China, such as hospitality brands, continue to cross-fertilize their talent pools. This includes maintaining cross-border training and development programs and sending high-performing talent to China to gain perspective. Such initiatives will not only enhance the capabilities of the workforce but also foster a deeper understanding and appreciation of Chinese culture and business practices, thereby strengthening the foundations for future collaboration and growth.

Mr. Mirza

Alexander Mirza is Founder and CEO of Mogul Hotels, a technology and branding company based in Los Angeles. He has 25 years of experience in Fortune 500 corporations and start-ups. After Deloitte Consulting, he led strategy at Starwood and held senior management roles at Hilton, Ticketmaster, and Caesars. He subsequently served as CEO of Asia-based Cachet Hotels. Mr. Mirza holds degrees from Harvard Business School and Queen's University at Kingston, where he was an Aga Khan Scholar and he serves on the advisory board of Cornell Center for Innovative Hospitality Labor and Employment Relations (CIHLER) as well as KiwiTech, a technology solutions firm. Mr. Mirza has been named one of Canada's Top 10 International Executives by Canadian Business and among the 100 most powerful executives by the Global Hospitality Institute. He has twice received the Mayor of Toronto's Volunteer Creed for his work with new immigrants and inner-city youth. Extended Biography & Contact Information

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Any and all disputes or controversies of any kind, including but not limited to any performance, duty, obligation or liability arising under or related to this Agreement which are not first resolved informally, shall be determined by binding arbitration in San Francisco, California, in accordance with the rules of the American Arbitration Association. The final award in any such arbitration proceeding shall be subject to entry as a judgment by any court or competent jurisdiction, provided that such judgment does not conflict with the terms and provisions hereof. The jurisdiction of the arbiter (or arbiters) with respect to legal matters shall be limited only by the statutory and common law of the State of California and the United States.

Notwithstanding the foregoing, any and all disputes, which the parties cannot informally resolve, regarding the scope of issues or matter with the jurisdiction of the arbitrator, shall be resolved by a separate dispute resolution process whereby HotelExecutive, in its sole discretion shall elect the dispute to be resolved by either (1) a court of competent jurisdiction in the State of California or (2) a panel of three new arbitrators.

This Agreement shall be governed by and construed in accordance with the laws of the State of California notwithstanding any conflict of laws provisions. You and HotelExecutive agree that the venue for all legal disputes, controversies, actions of any kind arising under or related to this Agreement shall be San Francisco, California. You and HotelExecutive further agree that in case of any litigation regarding this Agreement, you irrevocably and unconditionally (i) consent to submit to the exclusive jurisdiction of the state and federal courts in the County of San Francisco, California for any litigation or dispute arising out of or relating to this Agreement, (ii) agree not to commence any litigation arising out of or relating to this Agreement except in the California Courts, (iii) agree not to plead or claim that such litigation brought therein has been brought in an inconvenient forum, and (iv) agree the California Courts represent the exclusive jurisdiction for all litigation relating to this Agreement.

11. MEMBERSHIP FEES

Hotel Business Review Subscriptions

If you choose to purchase a subscription, member subscription payments can be made in U.S. Dollars, as well as a variety of international currencies. Membership terms are Annual Recurring, and Monthly Recurring. The Annual Recurring subscription is an annual commitment and subscribers will be charged each consecutive billing cycle. Annual Recurring subscriptions can be cancelled after the first billing cycle and within 30-days of the billing date for a full refund. Monthly Recurring subscriptions are ongoing and subscribers will be charged each consecutive monthly billing cycle. Monthly Recurring subscriptions can be cancelled after the first month and within 7 days of the monthly billing cycle for a full refund.

12. PAYMENT AUTHORIZATION

Payment for the services provided to you in, at, through or in association with HotelExecutive may be made by automatic credit card, debit card, direct debit, bankwire or Paypal and other approved payment means offered in, at, through or in association with HotelExecutive, and you hereby authorize HotelExecutive and its agents to transact such payments on your behalf.

You hereby authorize HotelExecutive's Internet Payment Service Provider to charge your credit card to pay for your membership to HotelExecutive. You further authorize HotelExecutive's Internet Payment Service Provider to charge your credit card for any and all purchases of products, services in association with HotelExecutive. You agree to be personally liable for all charges incurred by you in association with your access or other use of any content provided by HotelExecutive or any third party in association with HotelExecutive. You acknowledge and agree that your liability for all such charges shall continue after termination of your access or any type of membership arrangement with HotelExecutive.

In the event that you have chosen to have your membership automatically rebilled, unless and until you notify HotelExecutive that you wish to cancel or terminate your membership to HotelExecutive, you hereby agree and authorize HotelExecutive's Internet Payment Service Provider to automatically renew your membership to HotelExecutive on a continuing basis and to charge your credit card (or other payment means you have selected) to pay for the ongoing cost of your membership. You hereby further authorize HotelExecutive's Internet Payment Service Provider to charge your credit card (or other approved payment means you have selected) for any and all purchases of products, services and entertainment provided to in, at, through or in association with HotelExecutive.

13. PRIVACY POLICY

The following is the Privacy Policy for HotelExecutive

We can be reached via telephone, email, or online at our contact page. When you visit our site we do not log any information regarding your domain or email address. Information Sharing: We do not share user information with any third parties other than via press release distribution as described below.

Hotel Newswire is a newswire service that distributes press releases on behalf of our users. If you decide to submit a press release for distribution through our system we will transmit your entire press release including any personal information therein contained to our media contacts and online distribution points including search engines. This is the only redistribution of your information that we engage in. Your submission of press releases through our system indicates consent with this policy. The information we collect during your registration process is used to notify users about updates to our service and inform users of any special events hosted by Hotel Newswire. This information is not shared with other organizations for commercial or non-commercial purposes.

Cookies: Our system requires the use of cookies to enable the user to log back into our website to access information from the newswire, without having to log in each time using the required username and password.

If you do not want to receive email from us in the future, please let us know by following instructions included in our communication with you. Users who supply us with telephone numbers online may receive telephone contact from us regarding their account, or informing them of new products and services available on the HotelExecutive website. If you do not wish to receive such telephone calls, please edit your account and remove your phone number from your account profile. This can be done from your user account menu.

Ad Servers: We do not partner with or have any relationship with any ad server companies. From time to time, we may use customer information for new uses not previously disclosed in our privacy notice. If our information practices change at any time, we will post the policy changes to our website to notify you of these changes and provide you with the ability to opt out of these new uses. If you are concerned about how your information is used, you should check back at our website periodically.

Upon request we provide site visitors with access to all information (including proprietary information) that we maintain about them. Users can access this information by logging in to their account.

Security: We always use industry-standard encryption technologies while transferring and receiving user data exchanged with our site. We have appropriate security measures in place in our physical facilities to protect against the loss, misuse, or alteration of information that we have collected from you on our site. We do not store credit card information in our systems.

If you feel that this site is not following its stated information policy, you may contact us.

Paige Harris
Chintan Dadhich
Benjamin Farber
Jackie Roby
Arnaud Andreolli
Mary Tabacchi
Steve Curtin
Danielle Dudai
Don DeMarinis
Gerald Fernandez, Sr.
Louise Bang
Robert O'Halloran
Merrick Dresnin
Coming up in March 1970...