Over the past three decades China's hotel industry has been expanding at an incredible rate. By the end of last year this growth led to more than 14,000 star-rated hotels, which is about 100 times more than in 1978. With the prospect of a booming economy, in the 1980s, international hotel groups jumped at the chance to start up companies in what would be a very profitable hospitality market.

Shortly after 1978 when China began its opening up and reform, the Chinese tourism industry administration decided to build eight joint venture hotels. These were to be constructed on the mainland to meet the needs of the growing amount of overseas business people. Inspired by the joint ventures, a batch of international hotel groups in the 1980s, started to expand their business in China. These hotels included the Sheraton, the Shangri-La, the Hilton and Accor. After 30 years of development, over 40 international groups have entered the country and are managing more than 500 hotels. How have international hotel groups found such success in China? What impact has opening up and reform brought to the hospitality industry?

To discuss these issues, we caught up with Gerhard Zimmer, Vice President of Operations Greater China for Accor Hospitality. The France-based international hotel group signed its first management agreement with China in 1985.

Gerhard Zimmer is a highly experienced senior executive in the hospitality industry. Starting his career in the hotel industry in 1959, he moved to Asia 10 years later with Hilton International and Sheraton hotels Group. In 1992, he joined Accor Hospitality. He was the Opening General Manager of the first ever Sofitel in China, the Sofitel Hyland Shanghai, from 1992 to 1994. In 2003, he headed the opening of the Luxurious Sofitel Boao on Hainan Island. In November 2007, Mr. Zimmer was promoted to Vice President of Operations Greater China. He has been a Senior Executive of Accor for more than 16 years.

Initial difficulties Q: Mr. Zimmer, welcome to the Main Talk.

Z: Nice to meet you, Rochelle.

Q: In 1985, when Accor first entered the China market, was that a well-prepared decision, or was it more like a bold decision with calculated risks?

Z: Well, I think it has to do with France having a friendship treaty and recognizing China, and of course, with the declaration of Deng Xiaoping at the time in 1978 that China will now be open, Accor wanted to be one of the first ones to establish hotels in China. The first strategy was to set up mid scale brand in China, and the mid-scale brand is actually the Novotel brand. There was a strategy which was not as well received because originally Novotels’ location was not really in the center of the cities more in the suburbs.

Q: And that was pretty much the model you followed in Europe?

Z: Correct.

Q: That worked in Europe but did not work in China?

Z: Did not work in China. Of course we were trying to attract the domestic market, but the foreign market was not interested to really stay in the suburban area. That is why, in the first instance, we didn’t no have such a great success.  Eventually we became actually more successful with the 5 star brand Sofitel.

Q: Why do they all want 5 star hotels?

Z: I mean I have been talking to so many owners in the process of developing their hotels in China and originally they all wanted to have 5 star hotel brands and where we set the market there’s already 3 five star hotels in your particular city or in your market, we would like to offer you a four star brand so we have a good alternative.

Q: And they didn’t want that?

Z: They were not really buying into that at that time.

Q: There was this conflict really between your owner or your partner in China and your potential customers.

Z: We have with a little bit of what I call a roller coaster ride. We had 6 contracts we ended up 3 hotels open then we started the Sofitel.

Q: You mentioned six contracts and 3 of them actually worked out.  What happened to the other three?

Z: We just had to stop. You know when any management company starts working with a partner, eventually we should get fees because we are not an investor we are as a management company.

Q: Right. You profit from getting management fees.

Z: From our management fees. So when we don’t get paid eventually we have to quit.

Q: It was a brand new model because in the past owners of hotels in China they actually managed the hotels themselves. So, when you introduce a foreign manager of your hotel or management team of your hotel the concepts could be totally different.

Z: The logic obviously is different. 30 years ago the hotel industry like we…what we know is no longer the same today. I give you an example. There is a fire in the kitchen at 2 in the morning in one of our hotels. If something like that happens, it’s an accident of course there is responsibility to the chef who did not turn it off or the supervisor who is supposed to be checking that everything is switched off before they go home. In china it’s the responsibility of the general manager and the general manager eventually is fined which is contrary to western because yes accidents do happen and then we investigate and make sure that they don’t happen again but in China the general manager is the responsible party and will be fined for that. That’s a conflict.

In the 1980s, China's hotel industry and its operators were in its infancy. At that time the majority of the hotels were operated by the Chinese, but they only had a limited amount of management experience. To standardize and improve the services, in 1988, the China National Tourism Administration issued the "star hotel rating" system. The government and hotel industry made efforts to improve their management styles.

Q: You also mentioned the role of the foreign hotel group one is management but the other is providing training and you’ve had a lot of experience in providing training what kind of training was mostly needed at that time for Chinese hotels or staff?

Z: Very good point. You have to start with an orientation program and basics of training including grooming, including hygiene, including all of the basic things, which I learned even when I stared in the hotel industry in Europe. Farther than that, it is also the service attitude. To give an example, our people behind the reception desk happen to have a guest Chinese, overseas Chinese. They were talking in Shanghainese they were basically saying, “Who the hell she think she is?” right because obviously she was an overseas Chinese representing an international company staying in our hotel as a guest and that lady was really getting so embarrassed because she happened to understand Shanghainese right and she was of course call the general manger I need to have a talk with you your staff is really very rude. So, it took time to tell the people our employees look, they are the ones who pay the money which pays your salary. It’s not somebody owner sitting in the back who keeps on dishing out money. You make them happy they come back they pay more.

Q: And the key is really you have to recognize this as a career vocation instead of just a job then your confidence level would boost and you would be proud of being a hotel staff and you would be happier serving our guests.

Z: I started as an apprentice in a kitchen cutting potatoes and onions and whatever and it took me how many months before I was actually able to stand on the stove to start cooking.

Q: To hold the pan.

Z: To hold the pan right? Today I am a general manager because I have said to myself this is the kind of job I want and I look at it service to other people makes me happy.

In 1992 Deng Xiaoping paid a visit to Southern China, reconfirming the country's commitment to its economic reform and open door policy. This to a degree restarted the stalled reform process, and helped rebuild confidence from overseas investors. That year Accor Hospitality opened its first top brand, Sofitel, in the country.

Q: As the opening general manger you ran the Shanghai Sofitel before you left for Philippines how was business running at that time, was it smooth?

Z: Yes I can say surprisingly it was right time right location with the right partners and we were able to do a very successful opening and we had very good business for the first too years because it was also the market condition- there were not yet that many international hotels. So, there was a need for a new international hotel.  It was amazing this hotel was able to make a profit in the first year and in the following years up to 90 well actually even in the financial crisis we were still able to hold above… I mean the profit was higher up to 96. In 97 it dipped and in 98 99 it was a bit lower but it was still good.

Q: You know in 1996 one of the senior executives at Accor China said returns were not as good as we had expected did you have any insights in to that statement?

Z: The statement was correct that in some places we did not do as well. So, therefore we as well had the problem with some hotels where we had invested that did not move forward. So, there was not the return that we expected because if a project is delayed, then there is not income.

Q: What were the difficulties? What caused the project delays?

Z: Sometimes in a city like Xi’an we had a Novotel project which we co-invested there seemed to have been a licensing problem.  We would have had to invest more money. We were not willing to do that without getting certain guarantees in return. So, the project got stalled. There was a buffer between 97 and 99 where Paris was less interested in china than

before so we had about 2 years where we said let’s wait and see.

The hotel industry in China was rocked by the Asian financial crisis in 1997, which led to an occupancy low in 1998. Case in point was Jian Guo Hotel, which recorded a decrease in its occupancy rate and average room rate by 6% and 16% respectively.

Q: The hotel industry was depressed to a certain degree. So, what steps did you take to respond to the market condition at that time?

Z: We worked with the Tourism Authority of Shanghai, the Tourism Bureau to do road shows. We did a successful road show in Europe together with the Tourism Bureau we did a successful road show in the United States where a group of hoteliers spend their money and their promotional know-how to get people let’s say in New York or in Chicago in major cities where we in the US or of course in Europe the same where the cities are where the sources of the business can come from for Shanghai specifically and we went along and we did promotion to bring business back and let everybody know that Shanghai has all these facilities not only to come and visit we also were pushing very hard to look at Shanghai as a destination and not just to come and do a day of business and leave but there are things to do right there is a lot more interesting things in Shanghai.

Q: So it was really a joint effort by the industry as a whole to win back customers.

Z: In those times, I took some opportunities with sports events. We had an Asian soccer tournament organized by the Asian soccer federation, and we gave some preferential rates to the teams to stay in the hotel which at the same time brought a lot of people to the hotel because they wanted to visit the soccer stars ect ect that helped to bring some activity back into the hotel. We signed up with the Shanghai Heineken Open the tennis tournament. So, the press conference is held at the hotel. The government, the Shanghainese government is supporting these events so we got closer relations with the government to bring back business

In 2003, the hotel industry in China was afflicted by the SARS crisis, which again led to a drop in occupancy. That same year, Sofitel Boao opened on Hainan Island, in which Zimmer acted as the Opening General Manager.

Q: Another big issue or big thing that hit China was the SARS epidemic in 2003 and that same year you opened up the hotel in Boao in Hainan province. Was business affected by the outbreak of the SARS?

Z: I want to do this hotel because it’s going to be pushed by the government. On 29th of April we opened the hotel. We brought people from all around China, and on the 3rd of May there was travel banned.  At that stage we had approximately 1,200 employees so we had to keep them busy.

Q: How?

Z: We continued formation training. We arranged in Hainan itself you know we could do sports we had to do all kinds of activities so that the people don’t get bored. It worked and finally in July we were able to get guests back.

Going green and small

Looking forward, the hotel industry sees clear trends towards green development and economy hotels. The idea of a "green hotel" is that it must be energy-efficient and environmental-friendly. In 2006, the China National Tourism Administration issued the green hotel standard. China hopes to have 10, 000 "green hotels" by the year 2010.

Q: Lets talk about some trend in the hotel industry one is definitely going green, environmentally friendly. Your goal for 2010 is to cut water and energy consumption by 10%. How are you going to achieve that?

Z: We are changing oil heating into gas heating which is an investment to change the equipment but in the long run it saves us a lot of money. A lot of things like this including solar panels which are helping to create you know…help to make hot water. It’s not yet so far that the solar panel is providing all the energy for the hotel. Other equipment is we have heat recovery from the chillers which are actually…they have a lot of hot air then we use the hot air to make energy.

Q: So if you are asked to prioritize the efforts by the hotel industry as a whole what would you say?

Z: I think one of the biggest is either the heating or the cooling for the hotel because that is the big ticket item I call. If we have the right energy and technology advanced equipment that saves a lot of money.

With inbound tourism increasing at such a rapid pace, both domestic and foreign players, like the Super 8, Jinjiang Inn budget hotels, and the Holid ay Inn Express, have built up many economy class hotels. Accor also joined the budget hotel business in 2004, launching Ibis in Tianjin.

Q: Another trend in the industry is really going small so the economy hotels. You actually have a very good economy hotel brand Ibis which is very famous, well known in Europe but you did not open your first Ibis hotel in China until 2004.  You had the idea actually a couple of years ago but it took you a long time to open the first economy hotel. What took you so long?

Z: We have to look for land and lease the land like everybody else and the land has to be then and the costs the construction costs and we have a certain technology to build the Ibis hotel. You have a partner…when you have a partner that says oh I would like to build an Ibis hotel or I want you to manage my hotel as an Ibis.

Q: The standards are different.

Z: The construction is already there. So, if for example, 22 m, it doesn’t fit the Ibis brand. In order for us to be really standardized, we had to make that decision.

Q: Is it a wise decision for you for a group like Accor to really enter into this market competition against these economy chains?

Z: We want to definitely develop within our chain of hotels clients, which are loyal to Novotel clients, which are loyal to Sofitel.

Q: For each of these brands.

Z: Each of these brands.  Full service hotel

Q: How has china’s 30 years opening and reform affected your life personal life or career life?

Z: I have to say I mean I express it like this I love China. Even I don’t speak the language, I am familiar with the culture. I love Chinese food. I love the lifestyle to communicate with my Chinese counterparts and friends. So, it has obviously changed my life quite a bit.

This is an example of Accor's commitment to the environment. It represents the company’s drive and ambition for a cleaner and more sustainable society. The hotel industry as a whole is making great efforts to showcase its “green” initiatives. These slogans have been given lip service for years, but with the popularity of environmental protection, hotel groups are now seeing a little green, in going green.

                                                                                Dec.2008           ICS