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The internationalization of the hotel industry - some new findings from a field study.

Key Results

In each of the three categories of ownership, location and internalization advantages, certain factors were perceived by the senior executives of the parent hotel firm to be critical for deciding to set up an operation abroad.

Introduction

The service sector has grown rapidly in importance in both developed and developing countries. In the past twenty-five years (1965-1990), the share of services in the gross domestic product (GDP) of 55 out of 78 countries has increased (World Bank 1992). In 1990 it averaged 61 percent and 45 percent for developed and developing countries respectively (World Bank 1992).

The growing importance of services in most national economies has been examined by various scholars in recent years (Bressand and Nicolaides 1989, Daniels 1982, Dunning 1989, Gershuny and Miles 1983, Heskett 1986, Kravis 1983, Nusbaumer 1987a, 1987b, Ochel and Wegner 1987, Riddle 1986, Shelp 1981, 1984, 1985, Sauvant and Mallampally 1993, Sauvant and Zimny 1987, UNCTC 1989 and UNCTAD 1989).

In the past three decades, the international service sector has been studied from three different perspectives. Firstly, some scholars have attempted to put forward a conceptual framework in explaining the interaction between international growth of services and service multinational enterprises (Boddewyn, Halbrich and Perry 1986, Dunning 1989, Hirsch 1993, Gibbs 1986, Li and Guisinger 1992, and Sauvant and Mallampally 1993). Secondly, researchers have focused on industry specific studies to investigate the reasons for globalization of service firms. A bulk of the research has been done in the area of international banking (Giddy 1983, Goldberg and Johnson 1990, Grubel 1977, Jones 1990, Nigh, Cho and Krishnan 1986, Sagari 1992, and Yannopoulos 1983). Other industries where academicians have done some study includes shipping (Kindleberger 1985), contracting (Enderwick 1989), advertising (Terpstra and Yu 1988, Weinstein 1977), and hotels (Dunning and McQueen 1981). Finally, some scholarly work has been done in the area of impact of transnational service corporations on both developed and developing countries (Blomstrom and Lipsey 1989, Lipsey and Zimny 1991, Maciejewicz and Monkiewicz 1988, Schott and Mazza 1986, UNCTAD 1990, 1989, and UNCTC 1989).

The growth of services reflects a combination of both demand and supply driven factors such as the following:

1. The growth of per capita output and high income elasticity of demand for some consumer services in industrialized countries;

2. The increasing role of producer services in the value-added process;

3. The increasing tendency of firms in non-service sectors to externalize less productive service activities;

4. The growing importance of marketing, distribution and aftersales maintenance and servicing activities to the value of a physical product;

5. The growth of finance, banking, legal, insurance, transport, and other support services;

6. The emergence of new intermediate markets for services;

7. The liberalization of markets for several services, notably insurance and financial services.

This, in turn, has led to the growing internationalization of service firms. The share of the multinational enterprises (MNEs) of the total service activities undertaken in both developed and developing countries has increased rapidly partly because of the general demand and supply-led characteristics identified above, and partly because these characteristics have favored foreign direct investment as a modality for organizing the cross-border production and transaction of services (Dunning 1989).

Economists have classified nations as post-industrial, where fifty percent or more of GNP is accounted for by the service sector (Riddle 1986, Shelp 1984, 1985). In the late sixties, the service sector came into prominence as its contribution towards the national income, productivity, employment generation, and balance of payments, and employment increased significantly. Below is a table which depicts the changing share of services in gross domestic product for five developed countries between 1960 and 1990.

Table 1. Share of services for Gross Domestic Product and Employment in Selected Developed Countries (in Percentages)

Country 1960 1970 1980 1990 1992

Canada 52.8 58.5 58.2 57.4 -
West Germany 38.7 44.1 52.5 59.0 60.0
Japan - 48.4 55.3 56.0 56.0
U.K. 47.7 53.6 56.5 62.0 -
U.S.A. 58.3 63.2 64.6 69.0 -

Country Employment

 1980 1990 1992

Canada 62.54 79.23 73.0
West Germany 53.00 64.00 58.5
Japan 56.0 68.39 59.0
U.K. 63.00 75.48 71.3
U.S.A. 72.00 78.99 72.5




Source: National Account Statistics: Main Aggregate and Detailed Tables 1984 and 1990/91 (New York: United Nations), World Development Report 1992, 1994 and Quarterly Labor Force Statistics, Number 1, 1994 (OECD, Paris 1994).

From the above table, we find that the share of services has increased in all the five industrialized nations.

As far as employment is concerned, the proportions are, in general, similar to the above shares. However, in several cases, the share of total employment accounted for by the service sector is higher than its share of gross national product. In 1980, the United States shows the highest share of working population accounted for by the services (72%). This was followed by Netherlands (68%), Denmark (67%), Sweden (65%), United Kingdom (63%), Norway (61%), Italy (58%), Japan (56%) and West Germany (53%) (IRM Multinational Report on the Multinationals and Services, 1985). By the end of 1990, the proportion of employment for service sector increased in all the developed countries. Canada, United States, and United Kingdom accounted for more than 70% of total employment. Japan and West Germany had 60% of their employment accounted for by the service sector. The share of employment in 1992 for Sweden (70%), Norway (70.9%), Italy (59.6%) had all increased over 1990 (Quarterly Labor Force Statistics, Number 1, 1994, OECD., Paris).

The situation in the developing countries was variable. For example, in 1980 services employed 20.9% of the working population in Thailand; by 1990, this proportion had risen to 25.0%. Corresponding figures for Pakistan are 31.4% and 40.1%, for Chile 64.2% and 62.2%, for Venezuela 66.9% and 70.6%, for Turkey 48.0% and 50.0%, for India 64.0% and 66.0%, for Singapore 69.0% and 71.0%, for Hong Kong 61.0% and 73.0%, and for South Korea 46.0% and 56.0% (Yearbook of Labour Statistics 1992).

This present study examines some of the reasons for the increase in multinational activity of one service sector viz., the hotel sector over the past decade. The empirical research is based upon the answer to a questionnaire completed in 1992 by thirty-four of the leading MNE hotel chains.

The eclectic paradigm of Dunning (1977, 1988, 1993) is used as a basic framework to this study which seeks to shed light on the three important questions pertaining to the foreign value added activities of MNE hotels, i.e., the what, where and how. The eclectic paradigm seeks to provide a systemic framework for explaining why MNE hotels, with headquarters in one country will have some form of involvement in other countries, whenever they possess certain competitive advantages over firms of those countries, and find it economic to internalize the markets of these assets with complementary factor endowments in a foreign location. The choice of whether an ownership advantage is exploited by firm possessing it or shared with or leased to other firms determines the form of involvement. The eclectic paradigm hypothesizes the conditions in which the competitive advantages of a firm can be fully achieved through the ownership of an equity stake sufficient to allow the investing firm control over the use and upgrading of resources, capabilities and markets. Applying the eclectic paradigm, our study identified several ownership (O) factors, which seek to capture the main competitive advantages of hotels of one country (relative to those of another country) in seeking to service customers in a foreign country. The location specific (L) advantages hypothesized by the eclectic paradigm are those which reflect the attractions offered by particular countries as possible sites for MNE activity. The final set of advantages -- the internalization (I) advantages address the issue of the form or modality of overseas involvement. The paradigm also suggests that internalization and ownership advantages of firms are closely interactive with each other.

Methodology

In the first stage of our field research, we identified 110 MNE hotels based in eighteen countries which owned or were associated with, at least one foreign hotel. An eight page questionnaire was then mailed to Vice President (International) at the parent company's head office. Responses were received from thirty-four MNE hotels based in thirteen countries.(1) The number of foreign hotel rooms accounted for these 34 firms were over 57% of the total foreign hotel rooms (i.e. of the 110 MNE hotels).

In completing the questionnaire, hotel executives were asked to rank, on a scale of 1 to 5, their perceptions of the significance of a group of ownership, location, and internalization (OLI) variables identified (5 representing the most significant and 1 the least significant). In addition to those listed in the questionnaire, executives were asked to identify other factors influencing their competitive advantages, the reasons for their choice of a hotel location and their preferred form of involvement. The perceived rankings for each of the variables was then averaged and the rankings set out in a series of tables.

This paper depicts in tabulated form, the perceptions of hotel executives about the significance of a variety of OLI advantages identified by the literature, and hypothesized to influence the extent and modality of the foreign involvement of firms. In addition, it classifies the ranking of the OLI advantages according to a number of country and firm specific contextual variables, notably the region of origin of the hotel chains, the size of the investing firms and the length of their experience in operating foreign hotels, their degree of multinationality and ownership structure.

As the following section will describe, the tables reveal some interesting findings. However, because the relationships set out are essentially bivariate, they cannot identify which of the explanatory variables are likely to be the most significant or least significant in determining the rankings. Thus, for example, if both European and small size hotel chains assign high rankings to their knowledge of customers requirements as an ownership (O) specific advantage, it cannot be inferred from these rankings whether nationality or size of firm is the more important determinant of this advantage.(2) To do this it is necessary to conduct more formal econometric analysis. This task was undertaken in another paper jointly prepared by Farok Contractor and Sumit Kundu (1993) entitled "Explaining variations in the degree of internationalization across firms: The case of hotel industry".(3) Further (p. 127 et seq.) there is a brief summary of the results of this research.

Results and Discussion

Ownership Specific Advantages

Which are the most significant variables?

Tables 2 to 6, identify the opinions of executives about the significance of the O specific advantages of hotel chains with foreign operations, according to a number of firm specific variables.
Table 2. Ownership Advantages Perceived by Parent Hotels,
by Region of Origin

 North American European
 Firms Firms
 Dd. Dg. Dd. Dg.

Asset Specific Ownership
Advantages ([O.sub.A])

Size of firm 3.75 3.64 3.20 4.50
International Experience 3.50 3.90 4.11 4.43
Trade Mark 4.08 4.10 4.11 4.71
 and Brand Image
Extent and Scope 3.58 4.00 3.33 4.29
 of Training Programs
Access to Referral 4.25 4.20 3.89 4.00
 and Reservation System
Knowledge of Tastes 4.50 4.50 4.67 4.43
 and Requirements

Transaction Specific
Ownership ([O.sub.T]) Advantages

Size and Structure 3.75 3.78 3.78 3.71
of Home industry
Economies of Scope 4.00 4.10 3.78 3.86
and Joint Supply
Economies of Scale 3.83 3.70 3.78 4.00
 N=12 N=10 N=12 N=34

 Asian Firms All Firms

 Dd. Dg. Dd. Dg.

Asset Specific Ownership
Advantages ([O.sub.A])

Size of firm 3.18 3.42 3.50 3.76
International Experience 3.91 4.08 3.81 4.10
Trade Mark 4.00 4.17 4.06 4.28
and Brand Image
Extent and Scope 3.64 4.08 3.53 4.10
of Training Programs
Access to Referral 3.91 3.92 4.03 4.03
and Reservation System
Knowledge of Tastes 4.36 4.00 4.50 4.76
and Requirements

Transaction Specific
Ownership ([O.sub.T]) Advantages

Size and Structure 3.00 3.17 3.47 3.45
 of Home industry
Economies of Scope 3.18 3.25 3.66 3.69
 and Joint Supply
Economies of Scale 3.45 3.75 3.69 3.79




Dd. [right arrow] Developed Countries;

Dg.[right arrow] Developing Countries.

Source: Our Questionnaire
Table 3. Ownership Advantages Perceived by Parent Hotels,
by Size(*)

 1 - 100 101 - 200 201-300
 Million Million Million
 Dollars Dollars Dollars

 Dd. Dg. Dd. Dg. Dd. Dg.

Asset Specific Ownership
Advantages ([O.sub.A])

Size of Firm 2.50 2.50 3.17 3.83 2.83 3.00
International 3.33 3.50 3.50 3.83 3.67 4.17
Experience
Trade Mark 3.17 4.00 3.83 4.00 4.17 4.50
and Brand Image
Extent and Scope 3.33 4.25 3.33 3.83 3.33 3.83
of Training Programs
Access to Referral and 4.00 4.50 3.83 3.33 3.67 4.00
Reservation System
Knowledge of Tastes 4.67 4.75 4.33 4.00 4.67 4.83
and Requirements

Transaction Specific
Ownership ([O.sub.T])
Advantages

Size and Structure 2.83 3.50 3.50 3.50 3.67 3.50
of Home Industry
Economies of Scope 3.50 3.75 4.00 3.83 2.67 3.00
and Joint Supply
Economies of Scale 3.33 3.50 4.00 3.83 3.17 3.50
 N = 6 N = 8 N = 6

 301 - 1000 Above All Firms
 Million One Billion
 Dollars Dollars

 Dd. Dg. Dd. Dg. Dd. Dg.

Asset Specific Ownership
Advantages ([O.sub.A])

Size of Firm 4.14 3.71 4.57 4.41 3.50 3.76
International 4.14 4.50 4.29 4.29 3.81 4.10
Experience
Trade Mark 4.29 4.33 4.71 4.43 4.06 4.28
and Brand Image
Extent and Scope 3.71 4.33 3.86 4.43 3.53 4.10
of Training Programs
Access to Referral and 4.00 4.00 4.57 4.43 4.03 4.03
Reservation System
Knowledge of Tastes 4.57 4.33 4.29 4.29 4.50 4.76
and Requirements

Transaction Specific
Ownership ([O.sub.T])
Advantages

Size and Structure 4.00 3.67 3.29 3.14 3.47 3.45
of Home Industry
Economies of Scope 4.00 3.67 4.00 4.14 3.66 3.69
and Joint Supply
Economies of Scale 3.71 4.17 4.14 3.86 3.69 3.79
 N = 7 N = 7 N = 14




Dd. [right arrow] Developed Countries; Dg. [right arrow] Developing Countries.

(*) Size is defined as the total sales earned from worldwide hotel operations.

Source: Our Questionnaire
Table 4. Ownership Advantages Perceived by Parent Hotels, by Age(*)

 1-5 Years 6-10 11-20
 Years Years

 Dd. Dg. Dd. Dg. Dd. Dg.

Asset Specific Ownership
Advantages ([O.sub.A])

Size of Firm 2.40 2.75 3.00 3.67 3.40 3.63
International 3.20 3.50 3.33 3.83 3.90 4.38
 Experience
Trade Mark 2.80 4.00 3.50 3.83 4.40 4.63
 and Brand Image
Extent and Scope 3.20 4.00 3.17 4.00 3.70 4.13
 of Training Programs
Access to Referral and 3.80 3.50 3.83 4.17 3.70 3.75
 Reservation System
Knowledge of Tastes 4.60 4.00 4.00 4.17 4.70 4.63
 and Requirements

Transaction Specific
Ownership ([O.sub.T])
Advantages

Size and Structure 2.80 3.25 4.00 3.67 3.50 3.63
 of Home Industry
Economies of Scope 3.40 3.25 3.67 4.00 3.40 3.13
 and Joint Supply
Economies of Scale 3.20 3.25 3.67 3.67 3.50 4.00
 N = 6 N = 7 N = 10

 21-25 Above All Firms
 Years 25 Years

 Dd. Dg. Dd. Dg. Dd. Dg.

Asset Specific Ownership
Advantages ([O.sub.A])

Size of Firm 4.43 4.29 4.25 4.00 3.50 3.76
International 4.14 4.14 4.50 4.50 3.81 4.10
 Experience
Trade Mark 4.43 4.14 5.00 4.75 4.06 4.28
 and Brand Image
Extent and Scope 3.43 3.86 4.25 4.75 3.53 4.10
 of Training Programs
Access to Referral and 4.43 4.00 4.75 5.00 4.03 4.03
 Reservation System
Knowledge of Tastes 4.57 4.43 4.50 4.75 4.50 4.76
 and Requirements

Transaction Specific
Ownership ([O.sub.T])
Advantages

Size and Structure 3.71 3.14 3.25 3.50 3.47 3.45
 of Home Industry
Economies of Scope 3.86 4.00 4.25 4.25 3.66 3.69
 and Joint Supply
Economies of Scale 4.00 4.00 4.25 3.75 3.69 3.79
 N = 7 N = 4 N = 34




Dd. [right arrow] Developed Countries; Dg. [right arrow] Developing Countries.

(*) Age is defined as the number of years of international experience since the hotel chain set up its first foreign operations by foreign direct investment, franchising of management contract.

Source: Our Questionnaire
Table 5. Ownership Advantages Perceived by Parent Hotels, by Degree
of Multinationality(*)

 0.01 - 0.20 0.21 - 0.40 0.41 - 0.60

 Dd. Dg. Dd. Dg. Dd. Dg.

Asset Specific Ownership
Advantages ([O.sub.A])

Size of Firm 3.00 3.50 4.29 4.22 3.50 3.75
International 2.83 3.50 4.00 4.00 4.00 3.75
 Experience
Trade Mark 3.33 3.75 4.43 4.22 3.67 3.75
 and Brand Image
Extent and Scope 3.00 4.00 3.71 3.89 3.17 3.25
 of Training Programs
Access to Referral and 4.00 4.50 4.00 3.56 4.00 3.50
 Reservation System
Knowledge of Tastes 4.33 4.25 4.43 4.22 5.00 4.00
 and Requirements

Transaction Specific
Ownership ([O.sub.T])
Advantages

Size and Structure 3.33 3.25 4.29 3.56 3.83 4.25
 of Home Industry
Economies of Scope 3.33 4.00 4.14 3.78 4.33 4.25
 and Joint Supply
Economies of Scale 3.33 3.50 4,14 3.33 3.67 4.00
 N = 6 N = 9 N = 6

 0.61 - 0.80 Above 0.80 All Firms

 Dd. Dg. Dd. Dg. Dd. Dg.

Asset Specific Ownership
Advantages ([O.sub.A])

Size of Firm 2.88 2.86 4.00 4.20 3.50 3.76
International 3.75 4.43 4.60 4.60 3.81 4.10
 Experience
Trade Mark 4.38 4.71 4.40 4.60 4.06 4.28
 and Brand Image
Extent and Scope 4.00 4.86 3.60 4.20 3.53 4.10
 of Training Programs
Access to Referral and 4.38 4.86 3.60 3.80 4.03 4.03
 Reservation System
Knowledge of Tastes 4.38 4.29 4.40 4.60 4.50 4.76
 and Requirements

Transaction Specific
Ownership ([O.sub.T])
Advantages

Size and Structure 3.38 3.57 2.40 2.60 3.47 3.45
 of Home Industry
Economies of Scope 3.38 3.43 3.00 3.20 3.66 3.69
 and Joint Supply
Economies of Scale 3.63 4.29 3.60 3.20 3.69 3.79
 N = 8 N = 5 N = 34




Dd. [right arrow] Developed Countries; Dg. [right arrow] Developing Countries.

(*) Multinationality is defined as the number of rooms outside the home country as a % of rooms in all countries.

Source: Our Questionnaire
Table 6. Ownership Advantages Perceived by Parent Hotels, by
Ownership Structure(*)

 All Non 0.01 - 0.30 0.31 - 0.75
 Equity

 Dd. Dg. Dd. Dg. Dd. Dg.

Asset Specific Ownership
Advantages ([O.sub.A])

Size of Firm 4.00 3.67 4.43 4.25 3.71 4.00
International
 Experience 3.33 3.33 4.14 4.13 4.00 4.00
Trade Mark
 and Brand Image 4.33 3.67 4.57 4.50 4.43 4.43
Extent and Scope 3.67 4.00 4.00 4.13 3.86 3.86
 of Training Programs
Access to Referral and 4.67 4.33 4.14 3.63 4.29 4.29
 Reservation System
Knowledge of Tastes 4.67 4.00 4.57 4.38 4.71 4.71
 and Requirements

Transaction Specific
Ownership ([O.sub.T])
Advantages

Size and Structure 3.67 3.33 4.57 3.88 3.57 3.57
 of Home Industry
Economies of Scope 4.33 4.33 4.43 4.13 3.71 3.71
 and Joint Supply
Economies of Scale 4.00 4.00 4.43 4.25 4.00 4.00
 N = 3 N = 8 N = 7

 0.76 - 2.00 2.01 - 15.00 All Equity

 Dd. Dg. Dd. Dg. Dd. Dg.

Asset Specific Ownership
Advantages ([O.sub.A])

Size of Firm 3.17 3.20 2.80 3.40 2.50 2.00
International
 Experience 3.33 4.40 3.20 4.40 3.50 4.00
Trade Mark
 and Brand Image 4.17 4.20 3.40 4.20 3.25 4.00
Extent and Scope 3.33 3.80 3.60 4.60 2.75 5.00
 of Training Programs
Access to Referral and 3.50 4.00 3.80 4.00 3.75 5.00
 Reservation System
Knowledge of Tastes 4.50 4.20 3.80 4.40 4.75 5.00
 and Requirements

Transaction Specific
Ownership ([O.sub.T])
Advantages

Size and Structure 3.67 3.40 1.80 2.80 2.75 3.00
 of Home Industry
Economies of Scope 3.50 3.20 2.80 3.00 3.50 4.00
 and Joint Supply
Economies of Scale 3.50 3.60 2.80 2.80 3.00 4.00
 N = 6 N = 6 N = 4

 All Firms

 Dd. Dg.

Asset Specific Ownership
Advantages ([O.sub.A])

Size of Firm 3.50 3.76
International
 Experience 3.81 4.10
Trade Mark
 and Brand Image 4.06 4.28
Extent and Scope 3.53 4.10
 of Training Programs
Access to Referral and 4.03 4.03
 Reservation System
Knowledge of Tastes 4.50 4.76
 and Requirements

Transaction Specific
Ownership ([O.sub.T])
Advantages

Size and Structure 3.47 3.45
 of Home Industry
Economies of Scope 3.66 3.69
 and Joint Supply
Economies of Scale 3.69 3.79
 N = 34




Dd. [right arrow] Developed Countries; Dg. [right arrow] Developing Countries.

(*) Ownership structure is defined as the number of rooms under equity to non-equity mode. On one extreme, we have firms having all of their rooms either under non-equity modes (franchising and management contract) or under equity ownership (fully and partly owned). The majority of multinational hotels have rooms under both non-equity and equity modes. The low ratios (0.01-0.30; 0.31-0.75) indicates a smaller presence of rooms under non-equity modes and a large ratio (2.01-15.00) indicates a bigger presence of rooms under equity modes.

Source: Our Questionnaire

The final column of each table sets out the average ranking for all kinds of firms. Following the literature (e.g. Dunning 1993) the ownership advantages are classified into two broad groups -- although we recognize that, in some cases, the advantages embrace both kinds. The first -- [O.sub.a] advantages(4) -- identify the specific income generating assets that hotel firms perceive they possess or have privileged access to, relative to their competitors (and including those of indigenous firms in the countries in which their hotels are located). The second -- [O.sub.t] advantages -- embrace the competitive advantages which stem from the common governance of separate but interrelated assets; and essentially reflect the perceived success of a firm in coordinating its domestic and foreign hotel operations. These include the gains which may arise from the firm's multinationality per se. Some of these latter advantages are those which stem from an increase in a firm's foreign value added activities, rather than its initial foray into foreign markets. They are, in Bruce Kogut's terminology, (Kogut 1983) sequential advantages.

Table 2 (and subsequent tables (3-6) show that hotel firms rank two [O.sub.a] advantages above all others -- although each of the O advantages identified is considered relevant. These are (i) knowledge of (prospective) customers' tastes and requirements and (ii) their hotel's trademark and/or brand image. With regards to (i), the foreign establishments of most hotel chains were set up, or acquired, to serve business or pleasure tourists from their country of origin (or similar countries) rather than the residents of the host country. Because of this, we might expect that their knowledge and experience of the tastes and requirements of hotel guests in the home country would afford them a distinct advantage over indigenous hotels in seeking to satisfy a similar market. As regards (ii), as Caves (1974) and others have shown 5, one of the key competitive advantages of firms producing consumer goods is their ability to successfully differentiate their products from those of their competitors, and to create a brand image in the eyes of purchasers. What applies to products such as toothpaste, breakfast cereals, and soft drinks equally applies to services such as airlines, retailing and hotels. In the opinion of executives answering our questionnaire, the image they have created among their guests is an important competitive advantage.

Table 2 also shows that, overall, executives consider that, relative to their indigenous competitors, their hotels have more pronounced O advantages in developing than in developed countries. This is especially noticeable in the case of their training programs; but executives also gave the other [O.sub.a] assets a higher ranking for hotels located in developing countries. This is not surprising as the international hotel industry is essentially dominated by firms from developed countries, and the markets catered for by the international chains are for upper income consumers.

Apart from the experience of operating foreign based hotels and the benefits derived from being part of a global referral and reservation system, the [O.sub.t] advantages of the hotel chains in our sample were generally thought to be less significant than their [O.sub.a] advantages. The average ranking of [O.sub.a] advantages were 3.95 for developed countries and 4.32 for developing countries, while the corresponding rankings for [O.sub.t] advantages were 3.73 and 3.82.

How do O variables vary in significance according to country and firm specific characteristics?

(1) Region of origin of the hotel chain

The variation in the rankings assigned to O advantages by the respondents to our questionnaire according to their hotel's home country or region was comparatively small. However, European and Asian firms ranked trademarks and brand image a more important [O.sub.a] advantage in developing countries than their knowledge of the tastes of prospective customers. Executives of US based hotel chains perceived they had a stronger competitive advantage than either European or Asian firms in developed countries; while European firms thought they did better than their US or Asian counterparts in developing countries. With the exception of the size and structure of their home industries, Asian firms generally recorded relatively higher [O.sub.a] than [O.sub.t] rankings than did their North American counterparts; while -- no doubt due to their greater experience and multinationality (see Tables 4 and 5) -- US and European firms recorded relatively better performances in O, advantages. Executives of Asian firms perceived that their O assets in developing countries were unusually pronounced in their training programs, while their European counterparts considered their trade marks or brand image, size, and product scope gave them a powerful edge over their competitors in developing countries.

(2) Size of firm

In one of the earliest studies of the determinants of FDI, Horst (1972) argued that size of firm was an excellent proxy for most kinds of competitive advantages enjoyed by multinational firms. Table 3 lends some support to this proposition. In each of the more important [O.sub.a] advantages identified, except the size and structure of the domestic industry and knowledge of consumer tastes and needs, the largest firms ranked each of the advantages higher than did the smallest firms. However, somewhat surprisingly, in the case of the key [O.sub.t] advantages, namely access to referral and reservation systems, economies of scope and scale, firms with sales of $101 - $200 million perceived these advantages to be as important as did those with over $1 billion sales; and considerably more so than those with $201 - $300 million sales. Indeed, it was this latter group of hotels, together those with sales in the $1 - $100 million range, which recorded the lowest average ranking of the nine O advantages(6) identified.

(3) Age of first foreign hotel

Most of the rankings set out in Table 4 accord with our expectations, viz., that as a firm becomes more experienced overseas it adds to its O specific advantages. This is most clearly demonstrated in the case of each of the [O.sub.t] (i.e. post-entry or sequentially related) variables; and also in those [O.sub.a] variables associated with learning experiences, a deepening of the value chain, customer loyalty, investment in training and trademarks. Clearly, however, knowledge of consumer tastes and needs is an asset which firms regard as a pre-entry competitive advantage.

(4) Degree of multinationality

It might be expected that this variable would be fairly closely correlated with the two previous contextual variables, but in fact, the data set out in Table 5 are much more difficult to decipher. Contrary to expectations, for example, the most international of hotels did not perceive that access to a global referral and reservation system offered them more advantages than did the less internationalized firms; while, after reaching a 21% - 40% degree of internationalization, further increases in multinationality would appear to have no significant effect on the intensity of either [O.sub.a] or [O.sub.t] advantages. Strangely, there seems to be a dip in the significance of these advantages as perceived by firms in the 41% - 80% degree of internationalization.

(5) Ownership structure

Table 6 is one of the most interesting of the tables presented in this paper as it shows quite sharp differences between the perceptions of the hotel executives according to the proportion of their foreign hotels (weighted by number of rooms) in which they have an equity stake. In terms of interpreting this table, the classification of the different columns indicate the ratio between the number of rooms of equity owned hotels to those of non-equity associated hotels. For example if a firm's equity to non-equity ratio for rooms is 3.25, it means that the number of rooms for hotels in which there is some foreign direct investment, is three and a quarter times those of foreign associated hotels in which there is no equity stake; in which case we put in the category of 2.01 - 15.00. Hotels which have an equity stake, in all their foreign properties perceive knowledge of taste and requirements of the clients in the host market as the critical variable influencing the full ownership of foreign properties in both developed and developing countries. The same thing is true for firms with no equity stake, except for developing countries where access to referral and reservation system is claimed to affect their modality. Firms with an equal amount of rooms under the equity and non-equity mode appear to view a knowledge of the tastes of customers, and the hotel's trade mark as the important factors influencing their investment decision in both developed and developing countries. It is interesting to note that a rising trend for the first factor is found across the various ownership structures in both the developed and developing countries.

Location Specific Advantages

Which are the most significant explanatory variables?

(1) Region of origin

The final two columns of Table 7 set out the rankings of the variables perceived to influence the choice of location of foreign hotels. According to the executives who participated in our survey, the size and growth of the (host) economy, the size and characteristics of the city or town within the host economy, and opportunities for tourism were the most important variables influencing the choice of hotel location in developed countries. For those located in developing countries, the general infrastructure of the host economy was ranked jointly first with its size and growth. The degree of political and economic stability, and the policy of the host government towards inward direct investment were also perceived to be relatively more important than other location (L) specific variables in the case of developed countries. Geographical proximity of the host to the home country was not thought to be a particularly significant factor influencing the siting of MNE related hotels.
Table 7. Location Advantages Perceived by Parent Hotels,
by Region of Origin

 North American European
 Firms Firms

 Dd. Dg. Dd. Dg.

Size and Growth Rate 4.42 4.78 3.20 3.86
of Host Economy
Size and Nature of the City 3.75 3.44 4.00 3.43
in Host Country
Opportunities for Tourism 3.92 4.22 4.00 4.00
General Infrastructure 4.00 4.30 3.88 4.29
of Host Country
Psychic and Physical 3.09 2.67 2.78 2.71
Proximity of Host Country
Host Government Policy 3.75 4.67 3.33 4.14
towards Foreign Investment
Political, Social and Economic 3.55 4.67 3.67 4.29
Stability of Host Country
Availability of Good Quality 3.58 4.33 3.44 4.14
and Low Cost Inputs

 N=12 N=10

 Asian Firms All Firms

 Dd. Dg. Dd. Dg.

Size and Growth Rate 4.18 4.75 4.25 4.54
of Host Economy
Size and Nature of the City 4.27 4.25 4.00 3.79
in Host Country
Opportunities for Tourism 4.27 4.42 4.06 4.25
General Infrastructure 3.55 4.50 3.81 4.54
of Host Country
Psychic and Physical 2.82 3.08 2.90 2.86
Proximity of Host Country
Host Government Policy 3.55 4.17 3.56 4.32
towards Foreign Investment
Political, Social and Economic 4.09 3.58 3.77 4.46
Stability of Host Country
Availability of Good Quality 3.82 3.92 3.63 4.11
and Low Cost Inputs
 N=12 N=34




Dd. [right arrow] Developed Countries; Dg. [right arrow] Developing Countries.

Source: Our Questionnaire

Table 7 also reveals there were some marginal differences in the perceptions of L specific variables according to the home country of the respondent hotels. US hotel chains appeared to be more influenced in their locational choice by the host government's policy to FDI, and by the political and economic stability of the host economy, than were their European or Asian counterparts. By contrast, these latter firms assigned relatively higher rankings to opportunities for tourism, and the size and infrastructure of the host economy (for developing countries).

(2) Size of firm

Table 8 suggests that the smaller hotel chains are more likely to locate their hotels close to their home countries than were their larger counterparts. This is entirely consistent with the theory of FDI and the internationalization process of the firm. The smaller hotel chains also seem to be relatively more sensitive to the policies of host governments and the availability and quality of inputs. By contrast, the larger hotel chains ranked the size and growth of the host economy somewhat higher. As far as the other variables are concerned, there appears to be no consistent size related influences. In general, the perception of L specific differences by hotels of a certain size would seem to be greater between developed and developing countries, than those between hotels in different size groups within developed and developing countries.
Table 8. Location Advantages Perceived by Parent Hotels, by Size(*)

 1-100 101-200 201-300
 Million Million Million
 Dollars Dollar Dollars

 Dd. Dg. Dd. Dg. Dg. Dg.

Size and Growth Rate 4.17 4.33 4.00 4.83 3.83 4.5
of Host Economy
Size and Nature 3.67 4.67 4.00 3.17 3.83 4.00
of the City in
Host Country
Opportunities for 4.33 4.33 4.00 4.50 3.67 4.67
Tourism
General Infrastructure 4.00 5.00 4.33 4.83 3.17 4.17
of Host Country
Psychic of Physical 3.67 3.33 3.67 3.83 3.00 3.17
Proximity of
Host Country
Host Government 3.67 5.00 4.17 4.67 3.33 4.17
Policy towards
Foreign Investment
Political, Social and 3.50 5.00 4.00 4.83 3.80 3.83
Economic Stability
of Host Country
Availability of Good 3.50 4.67 4.33 4.33 3.50 4.17
Quality and Low
Cost Inputs
 N=6 N=8 N=6

 301-1000 Above All Firms
 Million One Billion
 Dollars Dollars

 Dd. Dg. Dd. Dg. Dd. Dg.

Size and Growth Rate 4.71 4.50 4.43 4.43 4.25 4.54
of Host Economy
Size and Nature 4.43 4.00 4.00 3.57 4.00 3.79
of the City in
Host Country
Opportunities for 4.57 4.33 3.71 3.57 4.06 4.25
Tourism
General Infrastructure 3.83 4.67 3.71 4.29 3.81 4.54
of Host Country
Psychic of Physical 2.86 2.83 1.57 1.57 2.90 2.86
Proximity of
Host Country
Host Government 3.71 4.33 3.00 3.86 3.56 4.32
Policy towards
Foreign Investment
Political, Social and 4.00 4.50 3.57 4.43 3.77 4.46
Economic Stability
of Host Country
Availability of Good 3.86 4.00 3.00 3.71 3.63 4.11
Quality and Low
Cost Inputs
 N=7 N=7 N=34




Dd. [right arrow] Developed Countries; Dg. [right arrow] Developing Countries.

(*) Size is defined as the total sales earned from worldwide hotel operations.

Source: Our Questionnaire

(3) Age of firm

Table 9 reveals that the hotel chains with the largest foreign experience ranked the size and nature of the city or town in which they were considering a location a much more important L variable than the smaller hotel chains. This possibly reflects the fact that the larger hotel chains tend to be more oriented towards servicing business customers than holiday tourists. By contrast, opportunities for tourism and the geographical proximity of the host to the home country was ranked very much higher among the hotels which had more recently established or acquired foreign hotel facilities.
Table 9. Location Advantages Perceived by Parent Hotels, by Age(*)

 1-5 Years 6-10 Years 11-20
 Years
 Dd. Dg. Dd. Dg. Dd. Dg.

Size and Growth Rate 4.20 4.00 3.67 4.83 4.30 4.38
of Host Economy
Size and Nature 3.40 3.33 4.17 3.83 4.40 4.25
of the City in
Host Country
Opportunities for 4.40 4.33 3.83 4.50 4.10 4.50
Tourism
General Infrastructure 3.80 4.67 4.00 4.67 3.56 5.00
of Host Country
Psychic of Physical 4.00 4.00 4.00 4.00 2.70 2.63
Proximity of
Host Country
Host Government 3.60 4.33 3.50 4.50 3.70 4.38
Policy towards
Foreign Investment 3.20 5.00 3.80 4.17 4.00 4.38
Political, Social and
Economic Stability
of Host Country
Availability of Good 3.20 4.67 3.83 4.00 3.90 4.25
Quality and Low
Cost Inputs
 N=6 N=7 N=10

 21-25 Above All Firms
 Years 25 Years

 Dd. Dg. Dd. Dg. Dd. Dg.

Size and Growth Rate 4.71 4.71 4.25 4.50 4.25 4.54
of Host Economy
Size and Nature 3.43 3.00 4.50 4.50 4.00 3.79
of the City in
Host Country
Opportunities for 4.14 4.00 3.75 3.75 4.06 4.25
Tourism
General Infrastructure 3.71 4.57 4.25 3.75 3.81 4.54
of Host Country
Psychic of Physical 2.29 2.29 1.75 1.75 2.90 2.86
Proximity of
Host Country
Host Government 3.43 4.00 3.50 4.50 3.56 4.32
Policy towards
Foreign Investment
Political, Social and 3.57 4.57 4.25 4.50 3.77 4.46
Economic Stability
of Host Country
Availability of Good 3.43 4.14 3.50 3.50 3.63 4.11
Quality and Low
Cost Inputs
 N=7 N=4 N=34




Dd. [right arrow] Developed Countries; Dg. [right arrow] Developing Countries.

(*) Age is defined as the number of years of international experience since the hotel chain set up its first foreign operations by foreign direct investment, franchising or management contract.

Source: Our Questionnaire

There appears to be little clear relationship between the remaining L specific variables and the age of foreign involvement by the hotel chain.

(4) Degree of multinationality

Apart from the fact that the most multinational of the hotel chains rank size and nature of the city of location relatively higher than those which are the least multinational, the degree of multinationality does not seem to be a firm specific characteristic which affects the choice of location. However, it would seem, from the data set out in Table 10, that most of the L specific factors identified are valued more highly for firms with degrees of multinationality of between 21% and 80% than those at the extreme ends of the spectrum. We are not sure why an inverted U shaped relationship suggested by Table 10 should occur, but larger firms, which are the most multinational and most experienced in foreign operations, in general, gave lower rankings to each of the L specific variables identified in our questionnaire than did their smaller and less multinational counterparts.
Table 10. Location Advantages Perceived by Parent Hotels, by Degree
of Multinationality(*)

 0.01-0.20 0.21-0.40 0.41-0.60

 Dd. Dg. Dd. Dg. Dd. Dg.

Size and Growth Rate 4.00 4.67 4.71 4.78 4.67 4.75
of Host Economy
Size and Nature 3.83 3.33 3.71 4.14 3.50 3.50
of the City in
Host Country
Opportunities for 3.50 4.00 4.43 4.44 4.83 5.00
Tourism
General Infrastructure 4.00 4.33 4.14 4.89 4.40 5.00
of Host Country
Psychic of Physical 3.00 2.33 2.86 3.22 3.50 3.00
Proximity of
Host Country
Host Government 3.00 4.33 4.00 4.11 4.00 5.00
Policy towards
Foreign Investment
Political, Social and 3.40 4.00 3.71 4.78 3.50 4.75
economic Stability
of Host Country
Availability of Good 3.33 4.33 3.57 4.00 4.00 4.50
Quality and Low
Cost Inputs
 N=6 N=9 N=6

 0.61-0.80 0.81-1.00 All Firms

 Dd. Dg. Dd. Dg. Dd. Dg.

Size and Growth Rate 3.75 4.43 4.20 4.00 4.25 4.54
of Host Economy
Size and Nature 4.50 4.86 4.40 3.80 4.00 3.79
of the City in
Host Country
Opportunities for 3.75 4.29 3.80 3.40 4.06 4.25
Tourism
General Infrastructure 3.50 4.57 3.00 3.60 3.81 4.54
of Host Country
Psychic of Physical 3.25 3.29 1.60 1.80 2.90 2.86
Proximity of
Host Country
Host Government 3.63 4.29 3.00 3.60 3.56 4.32
Policy towards
Foreign Investment
Political, Social and 4.13 4.29 4.00 4.20 3.77 4.46
economic Stability
of Host Country
Availability of Good 3.75 4.29 3.40 3.60 3.63 4.11
Quality and Low
Cost Inputs
 N=8 N=5 N=34




Dd. [right arrow] Developed Countries; Dg. [right arrow] Developing Countries.

(*) Multinationality is defined as the number of rooms outside the home country as a % of rooms in all countries.

Source: Our Questionnaire

(5) Ownership structures

The majority of the firms in our sample identified size and infrastructure of the host countries in which they operated as the critical factors influencing their choice of ownership structures. Another important factor influencing the choice was the political, social and economic stability of the host nation. As may be seen from Table 11, firms having an equal number of rooms under equity versus non-equity mode considered tourism opportunities as an important location specific factor. The ranking of factors for the developing countries are higher in comparison to developed countries across the board.
Table 11. Location Advantages Perceived by Parent Hotels, by
Ownership Structure(*)

 All Non 0.01-0.30 0.31-0.75
 Equity

 Dd. Dg. Dd. Dg. Dd. Dg.

Size and Growth Rate 4.67 5.00 4.86 4.50 4.14 4.43
of Host Economy
Size and Nature of the 3.67 3.50 4.14 3.25 3.57 3.57
City in Host Country
Opportunities for 3.67 3.50 4.57 4.25 4.14 4.57
Tourism
General Infrastructure 4.00 4.50 4.43 4.88 3.57 4.43
of Host Country
Psychic and Physical 2.67 1.50 2.14 2.38 3.17 3.14
Proximity of
Host Country
Host Government 3.33 4.00 4.00 4.50 4.00 4.29
Policy towards
Foreign Investment
Political, Social and 3.33 4.50 4.00 4.88 4.00 4.29
Economic Stability
of Host Country
Availability of Good 3.67 4.50 3.71 4.13 4.00 4.14
Quality and Low
Cost Inputs
 N=3 N=8 N=7

 0.76-2.00 2.01-15.00 All Equity

 Dd. Dg. Dd. Dg. Dd. Dg.

Size and Growth Rate 4.17 4.80 3.60 4.40 4.00 5.00
of Host Economy
Size and Nature of the 4.17 4.00 4.60 4.60 3.75 5.00
City in Host Country
Opportunities for 4.00 4.20 3.40 4.20 4.25 4.00
Tourism
General Infrastructure 3.50 4.60 3.20 4.00 4.33 5.00
of Host Country
Psychic and Physical 3.67 3.60 3.00 3.20 3.00 2.00
Proximity of
Host Country
Host Government 3.17 3.80 3.60 4.60 2.75 5.00
Policy towards
Foreign Investment
Political, Social and 3.67 4.20 4.00 4.20 3.25 5.00
Economic Stability
of Host Country
Availability of Good 3.50 4.00 3.60 4.00 3.00 4.00
Quality and Low
Cost Inputs
 N=6 N=6 N=4

 All Firms

 Dd. Dg.

Size and Growth Rate 4.25 4.54
of Host Economy
Size and Nature of the 4.00 3.79
City in Host Country
Opportunities for 4.06 4.25
Tourism
General Infrastructure 3.81 4.54
of Host Country
Psychic and Physical 2.90 2.86
Proximity of
Host Country
Host Government 3.56 4.32
Policy towards
Foreign Investment
Political, Social and 3.77 4.46
Economic Stability
of Host Country
Availability of Good 3.63 4.11
Quality and Low
Cost Inputs
 N=34




Dd. [right arrow] Developed Countries; Dg. [right arrow] Developing Countries.

(*) Ownership structure is defined as the number of rooms under equity to non-equity mode. On one extreme, we have firms having all of their rooms either under non-equity modes (franchising and management contract) or under equity ownership (fully and partly owned). The majority of multinational hotels have rooms under both non-equity and equity modes. The low ratios (0.01-0.30; 0.31-0.75) indicates a smaller presence of rooms under non-equity modes and a large ratio (2.01-15.00) indicates a bigger presence of rooms under equity modes.

Source: Our Questionnaire

Internalization Specific Advantages

What are the key I specific variables affecting the form of foreign investment by hotel chains?

According to the internalization paradigm of MNE activity (Buckley and Casson 1976, 1985, Casson 1987), firms will engage in FDI rather than some non-equity form of foreign involvement, wherever the transaction costs of using the market to exchange intermediate products across national boundaries exceeds that of the costs of coordinating the production and exchange of these products within the same hierarchy. The international business literature distinguishes between two kinds of intermediate products. The first is that for the output of specific privileged assets, which firms of one nationality may possess over those of another nationality ([O.sub.a] advantages). The greater the imperfections in the market for these costs and the lower the (relative) hierarchical costs the more likely FDI is to be chosen as a route for utilizing their advantages across national boundaries.

The second kind of intermediate product, the market for which is likely to be very (if not infinitely) imperfect, is for that whose value is increased if they are used or traded with other intermediate products. Here the raison d'etre of internalization arise from the desire to reap the economies of scale, or of joint supply, or putting it differently, internalizing some of the external benefits associated with market transactions.

The data in Tables 12 and 13 largely upholds the internalization paradigm of MNE activity. Firms which engage in fdi in foreign hotel activity do so for two main reasons. The first is to ensure quality control over their [O.sub.a] advantages (although some hoteliers believe this can be achieved by way of management contract). The second is to exploit the benefits of [O.sub.t], advantages and particularly those which arise from coordinating the capabilities of the parent company and exploiting the economies of scope.

Table 12. Internalisation Advantages Perceived by Parent Hotels, in Developed Countries
 Fully Owned Partly Owned

Ensure Adequate Quality 4.73 3.96
Control [[O.sub.A]]

Experience in International 3.62 3.70
Business [[O.sub.A]]

Coordinate the Capabilities 4.38 4.22
of Parent Company [[O.sub.T]]

Activities of Parent 4.19 3.58
Company [[O.sub.T]]

Minimize Negotiation 3.81 3.65
and Transaction Costs [[O.sub.T]

Exploit Economies 4.00 3.29
of Scope [[O.sub.T]]

Economic and Financial 4.00 3.96
Condition of Host Country [L]

Host Country Policy 4.15 4.04
towards FDI [L]

Strength of Home Currency 3.62 3.61
and Interest Rates [L]

 N=26 N=24

 Franchised Management
 Contract

Ensure Adequate Quality 3.80 4.35
Control [[O.sub.A]]

Experience in International 3.60 3.54
Business [[O.sub.A]]

Coordinate the Capabilities 3.20 3.58
of Parent Company [[O.sub.T]]

Activities of Parent 3.20 3.58
Company [[O.sub.T]]

Minimize Negotiation 3.90 3.31
and Transaction Costs [[O.sub.T]

Exploit Economies 3.20 3.15
of Scope [[O.sub.T]]

Economic and Financial 3.20 3.50
Condition of Host Country [L]

Host Country Policy 2.80 3.50
towards FDI [L]

Strength of Home Currency 3.40 3.08
and Interest Rates [L]

 N=10 N=26




[O.sub.A] and [O.sub.T] relate to Firm Specific Advantages; L relate to Country Specific Factor.

Source: Our Questionnaire.

Table 13. Internalisation Advantages Perceived by Parent Hotels, in Developing Countries
 Fully Owned Partly Owned

Ensure Adequate Quality 4.48 4.48
COntrol [[O.sub.A]]

Experience in International 3.43 3.65
Business [[O.sub.A]]

Coordinate the Capabilities 4.60 4.19
of Parent Company [[O.sub.T]]

Activities of Parent 4.14 4.00
Company [[O.sub.T]]

Minimize Negotiation 4.10 3.55
and Transaction Costs [[O.sub.T]]

Exploit Economies 4.00 3.23
of Scope [[O.sub.T]]

Economic and Financial 4.19 4.10
Condition of Host Country [L]

Host Country Policy 4.43 4.00
towards FDI [L]

Strength of Home Currency 3.76 3.64
and Interest Rates [L]

 N = 21 N = 22

 Franchised Management
 Contract

Ensure Adequate Quality 3.33 4.12
COntrol [[O.sub.A]]

Experience in International 3.33 3.50
Business [[O.sub.A]]

Coordinate the Capabilities 3.00 3.72
of Parent Company [[O.sub.T]]

Activities of Parent 3.00 3.44
Company [[O.sub.T]]

Minimize Negotiation 3.44 3.36
and Transaction Costs [[O.sub.T]]

Exploit Economies 3.11 2.88
of Scope [[O.sub.T]]

Economic and Financial 3.11 3.32
Condition of Host Country [L]

Host Country Policy 2.67 3.39
towards FDI [L]

Strength of Home Currency 3.44 3.12
and Interest Rates [L]

 N = 9 N = 22




[O.sub.A] and [O.sub.T] relate to Firm Specific Advantages; L relate to Country Specific Factor.

Source: Our Questionnaire.

Table 12 also suggests that the host government's policy towards FDI is ranked as an important factor influencing the choice of organizational route of foreign MNE hotel activity.

In general, there appear to be few differences in the ranking of internalization related variables according to whether the foreign hotels are located in developed or developing countries.

How do I variables vary in significance according to country and firm specific characteristics?

(1) Region of origin of the hotel chain

The variation in the rankings assigned to I advantages by the respondents to our questionnaire according to their hotel's home country or region of origin was relatively small. However, for European firms, the dispersion was larger for developed than for developing countries, and for Asian firms it was the reverse scenario. For North American firms, the variation was more or less the same between the developed and developing countries. However both North American and European firms ranked the internalisation factors identified in Table 14 higher in the case of their hotels in developed countries than those in developing countries. For Asian firms, host country policies towards FDI, and the economic and financial condition of the host country were perceived to be more important in developed than in developing countries by the top management of the parent hotel corporation.

Table 14. Internalisation Advantages Perceived by Parent Hotels, by Region of Origin
 North European
 American Firms
 Firms

 Dd. Dg. Dd. Dg.

Ensure Adequate Quality 4.37 4.50 4.44 4.07
Control [[O.sub.A]]

Experience in International 3.67 3.97 3.73 3.38
Business [[O.sub.A]]

Coordinate the Capabilities 3.72 3.95 4.04 3.87
of Parent Company [[O.sub.T]]

Activities of Parent 3.41 3.60 4.20 3.91
Company [[O.sub.T]]

Minimize Negotiation 3.70 3.67 3.53 3.48
and Transaction Costs [[O.sub.T]]

Exploit Economies 3.56 3.53 3.28 3.13
of Scope [[O.sub.T]]

Economic and Financial 3.57 3.81 3.68 3.37
Condition of Host Country [L]

Host Country Policy 3.41 3.82 3.66 3.57
towards FDI [L]

Strength of Home Currency 3.03 3.38 3.72 3.65
and Interest Rates [L]

 N = 8 N = 10

 Asian Firms All Firms

 Dd. Dg. Dd. Dg.

Ensure Adequate Quality 3.74 3.42 4.29 4.05
Control [[O.sub.A]]

Experience in International 3.47 2.73 3.58 3.36
Business [[O.sub.A]]

Coordinate the Capabilities 3.49 3.19 3.80 3.78
of Parent Company [[O.sub.T]]

Activities of Parent 3.40 3.00 3.71 3.60
Company [[O.sub.T]]

Minimize Negotiation 3.90 3.75 3.63 3.61
and Transaction Costs [[O.sub.T]]

Exploit Economies 3.33 3.02 3.41 3.31
of Scope [[O.sub.T]]

Economic and Financial 3.60 3.86 3.62 3.63
Condition of Host Country [L]

Host Country Policy 3.92 3.67 3.56 3.63
towards FDI [L]

Strength of Home Currency 3.59 3.60 3.39 3.49
and Interest Rates [L]

 N = 11 N = 29




Dd. [right arrow] Developed Countries; Dg. [right arrow] Developing Countries. [O.sub.A] and [O.sub.T] relate to Firm Specific Advantages; L relate to Country Specific Factor.

Source: Our Questionnaire.

(2) Size of firm

According to our correspondents, the most critical determinant of the organizational mode of their foreign activities is the need to control the quality of hotel services. We observe from Table 15 that the next two important factors by each of the different sizes of hotels are the coordinating capabilities and activities of the parent companies. For large size multinational hotels, experience in international business was also perceived to be an important asset specific ownership specific advantage. There appears to be no consistency in the direction of rankings of the various scores across the different size of MNE hotels.

Table 15. Internalisation Advantages Perceived by Parent Hotels, by Size(*)
 1 - 100 101 - 200
 Million Million
 Dollars Dollars

 Dd. Dg. Dd. Dg.

Ensure Adequate 4.06 4.33 4.15 4.35
Quality Control [[O.sub.A]]

Experience in 3.21 3.22 2.85 3.13
International Business
[[O.sub.A]]

Coordinate the 3.70 4.00 3.45 3.61
Capabilities of Parent
Company [[O.sub.T]]

Activities of Parent 3.85 4.00 2.80 2.96
Company [O.sub.T]]

Minimize Negotiation 3.33 3.83 3.50 3.73
and Transaction Costs
[[O.sub.T]]

Exploit Economies 3.37 3.56 3.30 3.33
of Scope [[O.sub.T]]

Economic and 3.45 3.67 3.25 3.70
Financial Condition
of Host Country [L]

Host Country Policy 3.58 3.67 3.30 3.70
towards FDI [L]

Strength of Home 3.28 3.56 2.45 3.03
Currency and Interest
Rates [L]

 N = 5 N = 6

 201 - 300 301 - 1000
 Million Million
 Dollars Dollars

 Dd. Dg. Dd. Dg.

Ensure Adequate 4.14 3.49 4.41 4.61
Quality Control [[O.sub.A]]

Experience in 3.87 3.323 3.76 3.82
International Business
[[O.sub.A]]

Coordinate the 3.96 3.58 4.14 4.17
Capabilities of Parent
Company [[O.sub.T]]

Activities of Parent 4.10 3.66 3.97 3.96
Company [O.sub.T]]

Minimize Negotiation 3.37 2.98 3.89 4.07
and Transaction Costs
[[O.sub.T]]

Exploit Economies 2.71 2.66 3.93 3.93
of Scope [[O.sub.T]]

Economic and 3.36 3.03 4.21 4.08
Financial Condition
of Host Country [L]

Host Country Policy 3.57 3.03 3.69 3.86
towards FDI [L]

Strength of Home 3.37 3.19 3.93 4.23
Currency and Interest
Rates [L]

 N = 6 N = 7

 Above All Firms
 One Billion
 Dollars

 Dd. Dg. Dd. Dg.

Ensure Adequate 4.38 3.83 4.29 4.05
Quality Control [[O.sub.A]]

Experience in 4.23 3.73 3.58 3.36
International Business
[[O.sub.A]]

Coordinate the 3.86 3.70 3.80 3.78
Capabilities of Parent
Company [[O.sub.T]]

Activities of Parent 3.86 3.62 3.71 3.60
Company [O.sub.T]]

Minimize Negotiation 3.57 3.26 3.63 3.61
and Transaction Costs
[[O.sub.T]]

Exploit Economies 3.29 2.89 3.41 3.31
of Scope [[O.sub.T]]

Economic and 3.57 3.58 3.62 3.63
Financial Condition
of Host Country [L]

Host Country Policy 3.75 3.68 3.56 3.63
towards FDI [L]

Strength of Home 3.51 3.51 3.39 3.49
Currency and Interest
Rates [L]

 N = 5 N = 29




Dd. [right arrow] Developed Countries; Dg. [right arrow] Developing Countries. [O.sub.A] and [O.sub.T] relate to Firm Specific Advantages; L relate to Country Specific Factor.

(*) Size is defined as the total sales earned from worldwide hotel operations.

Source: Our Questionnaire.

(3) Age of firm

We observe from the next table (Table 16) that quality control, coordinating capabilities, and activities of the parent firm are again considered to be the critical factors influencing the choice of modality between owning and not owning foreign hotel operations. On the one hand, we observe that for firms with little experience (1-5 years) the scores of the top three factors for the developed countries are lower than those for the developing countries. On the other, we find that, in the case of firms with the largest experience of operating internationally, the scores for the same set of factors for developed countries are greater than, or equal, to those for developing countries. For the sample as a whole, the scores assigned by respondents for the three most important internalisation factors are higher for developed than for developing countries. It is also interesting to note that for firms with little or some foreign experience, the host country's economic and financial condition, and its government policy towards foreign investment were perceived to play an important role in their decision to internalise their foreign operations.

Table 16. Internalisation Advantages Perceived by Parent Hotels, by Age(*)
 1 - 5 6 - 10
 Years Years

 Dd. Dg. Dd. Dg.

Ensure Adequate 3.94 4.22 3.96 3.93
Quality Control [[O.sub.A]]

Experience in 3.25 3.00 3.57 3.41
International Business
[[O.sub.A]]

Coordinate the 3.69 3.89 3.68 3.65
Capabilities of Parent
Company [[O.sub.T]]

Activities of Parent 3.75 3.78 3.58 3.22
Company [[O.sub.T]]

Minimize Negotiation 3.13 3.72 3.53 3.56
and Transaction costs
[[O.sub.T]]

Exploit Economies 3.13 3.11 3.37 3.46
of scope [[O.sub.T]]

Economic and 3.44 3.67 3.33 3.54
Financial Condition
of Host Country [L]

Host Country Policy 3.44 3.11 3.65 3.72
towards FDI [L]

Strength of Home 3.19 2.89 3.31 3.65
Currency and Interest
Rates [L]

 N = 5 N = 5

 11 - 20 21 - 25
 Years Years

 Dd. Dg. Dd. Dg.

Ensure Adequate 4.62 4.58 4.06 4.04
Quality Control [[O.sub.A]]

Experience in 3.93 4.02 3.46 3.01
International Business
[[O.sub.A]]

Coordinate the 4.27 4.33 3.79 3.62
Capabilities of Parent
Company [[O.sub.T]]

Activities of Parent 4.00 4.13 3.78 3.52
Company [[O.sub.T]]

Minimize Negotiation 4.03 4.10 3.69 3.39
and Transaction costs
[[O.sub.T]]

Exploit Economies 3.85 3.80 3.62 3.21
of scope [[O.sub.T]]

Economic and 4.23 4.25 3.48 3.28
Financial Condition
of Host Country [L]

Host Country Policy 3.97 4.19 3.59 3.35
towards FDI [L]

Strength of Home 3.53 3.65 3.64 3.68
Currency and Interest
Rates [L]

 N = 10 N = 5

 Above All Firms
 25 Years

 Dd. Dg. Dd. Dg.

Ensure Adequate 4.58 4.17 4.29 4.05
Quality Control [[O.sub.A]

Experience in 4.46 4.46 3.58 3.36
International Business
[[O.sub.A]]

Coordinate the 3.77 3.77 3.80 3.78
Capabilities of Parent
Company [[O.sub.T]]

Activities of Parent 3.77 3.77 3.71 3.60
Company [[O.sub.T]]

Minimize Negotiation 3.44 3.44 3.63 3.61
and Transaction costs
[[O.sub.T]]

Exploit Economies 3.08 3.08 3.41 3.41
of scope [[O.sub.T]]

Economic and 3.50 3.61 3.62 3.63
Financial Condition
of Host Country [L]

Host Country Policy 3.61 3.81 3.56 3.63
towards FDI [L]

Strength of Home 3.50 3.50 3.39 3.49
Currency and Interest
Rates [L]

 N = 4 N = 294




Dd. [right arrow] Developed Countries; Dg. [right arrow] Developing Countries.

[O.sub.A] and [O.sub.T] relate to Firm Specific Advantages; L relate to Country Specific Factor.

(*) Age is defined as the number of years of international experience since the hotel chain set up its first foreign operations by foreign direct investment, franchising or management contract.

Source: Our Questionnaire.

(4) Degree of multinationality

Here we observe that the same set of factors as in the previous case are critical for MNE hotels in both the developed and developing countries for all the categories of multinationality. For most of the internalisation factors, there appears to be a combination of inverted U shape followed by regular U shape relationship. As can be seen from Table 17, firms ranked [O.sub.A] factors higher in developed countries than in developing countries. In majority of the cases, hotel executives ranked higher the [O.sub.T] factors for developed countries in comparison to developing countries. For the L factors, we find that in the majority of the categories for the degree of multinationality, the economic and financial condition of the host country and its government policy towards fdi were of critical concern to the hotel executives for locating in developing countries.

Table 17. Internalisation Advantages Perceived by Parent Hotels, by Degree of Multinationality(*)
 0.01-0.20 0.21-0.40

 Dd. Dg. Dd. Dg.

Ensure Adequate 3.92 4.17 4.48 4.32
Quality Control [[O.sub.A]]
Experience in

International Business 3.67 4.17 3.82 3.87
[[O.sub.A]]
Coordinate the 3.42 4.17 3.84 3.77
Capabilities of Parent
Company [[O.sub.T]]
Activities of Parent 3.83 3.50 3.68 3.56
Company [[O.sub.T]]
Minimize Negotiation 3.50 3.50 3.68 3.75
and Transaction Costs
[[O.sub.T]]
Exploit Economies 3.67 3.83 3.48 3.42
of Scope [[O.sub.T]]
Economic and 3.09 3.83 3.65 3.79
Financial Condition
of Host Country [L]
Host Country Policy 2.83 4.17 3.61 3.56
towards FDI [L]
Strength of Home 2.92 3.33 3.70 3.61
Currency and Interest
Rates [L]

 N = 3 N = 7

 0.41-0.60 0.61-0.80

 Dd. Dg. Dd. Dg.

Ensure Adequate 4.40 4.58 4.02 3.44
Quality Control [[O.sub.A]]

Experience in 3.06 3.00 3.57 3.29
International Business
[[O.sub.A]]

Coordinate the 4.02 4.00 3.66 3.45
Capabilities of Parent
Company [[O.sub.T]]
Activities of Parent 3.59 3.42 3.62 3.64
Company [[O.sub.T]]

Minimize Negotiation 2.99 3.17 3.34 3.24
and Transaction Costs
[[O.sub.T]]

Exploit Economies 3.39 3.17 3.01 3.11
of Scope [[O.sub.T]]

Economic and 3.67 3.50 3.37 2.97
Financial Condition
of Host Country [L]

Host Country Policy 3.40 3.33 3.79 3.07
towards FDI [L]

Strength of Home 2.61 2.50 3.19 3.38
Currency and Interest
Rates [L]

 N = 6 N = 8

 0.81-1.00 All Firms

 Dd. Dg. Dd. Dg.

Ensure Adequate 4.33 3.75 4.29 4.05
Quality Control [[O.sub.A]]
Experience in

International Business 4.19 3.44 3.58 3.36
[[O.sub.A]]

Coordinate the 4.03 3.80 3.80 3.78
Capabilities of Parent
Company [[O.sub.T]]
Activities of Parent 4.03 3.70 3.71 3.60
Company [[O.sub.T]]

Minimize Negotiation 3.95 3.78 3.63 3.61
and Transaction Costs
[[O.sub.T]]

Exploit Economies 3.30 2.88 3.41 3.31
of Scope [[O.sub.T]]

Economic and 3.90 3.98 3.62 3.63
Financial Condition
of Host Country [L]

Host Country Policy 4.21 4.18 3.56 3.63
towards FDI [L]

Strength of Home 3.93 3.93 3.39 3.49
Currency and Interest
Rates [L]

 N = 5 N = 29




Dd. [right arrow] Developed Countries; Dg. [right arrow] Developing Countries.

[O.sub.A] and [O.sub.T] relate to Firm Specific Advantages; L relate to Country Specific Factor.

(*) Multinationality is defined as the number of rooms outside the home country as a % of rooms in all countries.

Source: Our Questionnaire.

(5) Ownership structure

As we have already seen the ability to control the quality of the end product, coordinating the capabilities of parent firm, the activities of parent company, the economic and financial condition of the host countries and their policy towards foreign investment, are perceived to be critical variables in affecting the modality of foreign investment. As depicted in Table 18, we note that firms having all their properties under non-equity mode, ranked all the internalisation factors for developed countries higher than for the developing countries. Firms having an all equity arrangement abroad, ranked all the factors higher for developing countries than for developed countries. It is interesting to note that firms having an equal number of rooms under equity and non-equity mode assigned higher scores for [O.sub.A] and L factors in both the developed and developing countries. In the case of [O.sub.T] factors we observe a mixed response from our sample firms.
Table 18. Internalisation Advantages Perceived by Parent Hotels,
by Ownership Structure(*)

 All Non 0.01-0.30 0.31-0.75
 Equity

 Dd. Dg. Dd. Dg. Dd. Dg.

Ensure Adequate 4.00 3.25 4.42 4.09 3.99 3.86
Quality Control
[[O.sub.A]]

Experience in 3.42 3.25 3.87 3.41 2.73 2.73
International
Business
[[O.sub.A]]

Coordinate the 3.42 3.25 4.04 2.39 3.48 3.48
Capabilities of Parent
Company [[O.sub.T]]

Activities of Parent 3.42 2.75 3.83 3.45 3.45 3.21
Company [[O.sub.T]]

Minimize Negotiation 3.84 3.00 4.00 3.28 3.49 3.45
and Transaction Costs
[[O.sub.T]]

Exploit Economies 4.09 4.00 4.09 3.73 3.25 2.91
Of Scope [[O.sub.T]]

Economic and 4.34 3.25 4.38 3.93 3.33 3.14
Financial Condition
of Host Country [L]

Host Country Policy 3.25 3.25 3.84 3.81 3.42 3.34
towards FDI [L]

Strength of Home 2.75 2.50 3.38 3.20 3.78 3.65
Currency and Interest
Rates [L]

 N=3 N=7 N=6

 0.76-2.00 2.01-15.00 All Equity

 Dd. Dg. Dd. Dg. Dd. Dg.

Ensure Adequate 4.28 3.81 4.20 3.88 4.63 5.00
Quality Control
[[O.sub.A]]

Experience in 3.60 3.56 3.42 3.06 3.63 4.00
International
Business
[[O.sub.A]]

Coordinate the 3.75 3.69 3.73 3.80 4.00 4.00
Capabilities of Parent
Company [[O.sub.T]]

Activities of Parent 3.50 3.63 4.00 3.87 4.38 4.00
Company [[O.sub.T]]

Minimize Negotiation 3.60 3.56 3.40 3.67 3.00 4.50
and Transaction Costs
[[O.sub.T]]

Exploit Economies 3.05 3.06 3.00 2.87 4.00 5.00
Of Scope [[O.sub.T]]

Economic and 3.53 3.38 3.33 3.82 3.75 4.00
Financial Condition
of Host Country [L]

Host Country Policy 3.60 3.44 3.40 3.45 3.50 5.00
towards FDI [L]

Strength of Home 2.88 3.31 3.13 3.15 3.13 4.00
Currency and Interest
Rates [L]

 N=5 N=5 N=3

 All Firms

 Dd. Dg.

Ensure Adequate 4.29 4.05
Quality Control
[[O.sub.A]]

Experience in 3.58 3.36
International
Business
[[O.sub.A]]

Coordinate the 3.80 3.78
Capabilities of Parent
Company [[O.sub.T]]

Activities of Parent 3.71 3.60
Company [[O.sub.T]]

Minimize Negotiation 3.63 3.61
and Transaction Costs
[[O.sub.T]]

Exploit Economies 3.41 3.31
Of Scope [[O.sub.T]]

Economic and 3.62 3.63
Financial Condition
of Host Country [L]

Host Country Policy 3.56 3.63
towards FDI [L]

Strength of Home 3.39 3.49
Currency and Interest
Rates [L]

 N=29




Dd. [right arrow] Developed Countries; Dg. [right arrow] Developing Countries.

(*) Ownership structure is defined as the number of rooms under equity to non-equity mode. On one extreme, we have firms having all of their rooms either under non-equity modes (franchising and management contract) or under equity ownership (fully and partly owned). The majority of multinational hotels have rooms under both non-equity and equity modes. The low ratios (0.01-0.30, 0.31-0.75) indicates a smaller presence of rooms under non-equity modes and a large ratio (2.01-15.00) indicates a bigger presence of rooms under equity modes.

Source: Our Questionnaire.

Finally in Table 19 we summarize the critical OLI factors of our field study. We observe that the two most important ownership advantages perceived by the MNE hotel executives for both the developed and developing countries are knowledge of tastes and requirements, and trademark and brand image. International experience is perceived to be a critical ownership factor for the multinational hotels in the developing countries. For the location specific factors size and growth of markets in the host country, and opportunities for tourism are critical factors for setting up operations in the developed countries. In the case of transnational corporations with hotels in developing countries, general infrastructure, political, social, and economic stability, and size of the host market are some of the decisive factors influencing their location preferences.
Table 19. Summary of OLI Advantages Perceived by Parent Hotels

Ownership Dd. Dg. Location Dd.

Size of Firm 3.50 3.76 Size and Growth
 of Markets in
International Host Economy 4.25
Experience 3.81 4.10

 Size and Nature or
Trade Mark the City or Region
and Brand Image 4.06 4.28 in Host Country 4.00

Extent and Scope Opportunities
of Training for Tourism 4.06
Programs 3.53 4.10

 General Infrastructure
Access to Referral of Host Country 3.81
and Reservation
System 4.03 4.03

 Psychic or Physical
Knowledge Proximity of
of Tastes and Host Country 2.90
Requirements 4.50 4.76

 Host Government
Size and Structure Policy towards
of Home Industry 3.47 3.45 Inward Direct
 Investment 3.56

Economies of
Scope and Political, Social
Joint Supply 3.66 3.69 and Economic
 Stability of
 Host, Country 3.77
Economies
of Scale 3.69 3.79
 Availability of
 Good Quality and
 Low Cost Inputs 3.63

Ownership Dg. Internalization Dd. Dg.

Size of Firm Ensure Adequate
 Quality Control 4.29 4.05

International 4.54
Experience Experience in
 International
 Business 3.58 3.36
Trade Mark
and Brand Image 3.79

 Coordinate the
Extent and Scope Capabilities of
of Training 4.25 Parent Company 3.80 3.78
Programs

 Activities of Parent
 Company 3.71 3.60

Access to Referral 4.54
and Reservation Minimize
System Negotiation and
 Transaction Costs 3.63 3.61

Knowledge
of Tastes and 2.86
Requirements Exploit Economies
 of Scope 3.41 3.31

Size and Structure Economic and
of Home Industry Financial Condition
 4.32 of Host Country 3.62 3.63

Economies of Host Country Policy
Scope and towards FDI 3.56 3.63
Joint Supply

Economies
of Scale 4.46 Strength Home
 Currency and
 Interest Rates 3.39 3.49

 4.11




Dd. [right arrow] Developed Countries; Dg. [right arrow] Developing Countries.

Source: Our Questionnaire.

Multinational hotels are primarily concerned with maintaining their quality of services provided to the clients in both the developed and developing countries. In the case of developed countries, coordinating the capabilities and activities of the parent company are crucial determinants of the extent to which they internalize the markets for their ownership advantages in the developed countries. For developing countries, in addition to the above factors, economic and financial condition of host country, and host country policies towards FDI deermine the form of involvement outside their home country.

We conduct a test of means for the three most important ownership, location, and internalization factors in the developed and developing countries as depicted in Table 19. Our null.([H.sub.0]) and alternate ([H.sub.a]) hypothesis is as follows:

[H.sub.0] [M.sub.dd] = [M.sub.dg]

[H.sub.a] [M.sub.dd] [not equal] [M.sub.dg]

[M.sub.dd]: Mean score for a given factor in the developed countries. [M.sub.dg]: Mean score for a given factor in the developing countries.

We confirm the null hypothesis if the test of means are the same for both the developed and developing countries. We compare the `t' observed to the `t' critical. If `t' observed is greater than `t' critical, we reject the alternative hypothesis. The results are reported in Table 20.
Table 20. Test of Means for the Three Most Significant OLI factors

 [sub.t] [sub.t] critical

 observed 0.005 0.025 0.050

Ownership Specific Factors

1. Knowledge of Tastes and
 Requirements -0.001 2.921 2.120 1.746
2. Trade Mark and Brand Image -0.001 2.921 2.120 1.746
3. International Experience -0.001 2.921 2.120 1.746

Location Specific Factors

1. Size and Growth of Markets
in Host Country -0.001 2.921 2.120 1.746
2. Opportunities for Tourism -0.0004 2.921 2.120 1.746
3. Political, Social, and
 Economic Stability -0.002 2.921 2.120 1.746

Internalization Specific Factors

1. Ensure Adequate Quality
 Control 0.001 2.921 2.120 1.746
2. Coordinate the Capabilities
 of the Parent Company 0.00005 2.921 2.120 1.746
3. Economic and Financial
 Condition of the Host
 Country -0.00002 2.921 2.120 1.746




Some Statistical Testing of the Findings of This Study

As indicated at the beginning of this paper, the primary focus is on the bivariate relationships between five contextual and a large number of twenty-six OLI variables which scholars have suggested determine the extent and pattern of foreign direct investment and MNE activity.

In another paper (Contractor and Kundu 1993), the authors constructed multiple regression equations to investigate the variation in the degree of internationalization of the multinational hotels originating from ten developed and three developing countries. In doing so ten versions of the dependent variable GLOBAL (ratio of a firm's rooms outside its home nation divided by the total number of rooms globally) were constructed to provide different perspectives on the internationalization of the MNE hotels. A stepwise regression was performed for each of the ten dependent variables on eight different firm specific and country specific hypotheses such as size, international experience, reservation system, investment in training, geographic proximity, cultural distance, trade to gross domestic product ratio, and foreign direct investment to gross fixed capital formation ratio.

The regression set out in the paper identified three factors viz., the size of the parent hotel company, its experience in international markets, and the geographic proximity of its foreign markets, as the most frequently entered explanatory variables for the ten equations. Overall F values of all equations, as well as for each variables entered in the stepwise regression were found to be significant at a 0.5% and 0.1%. The correlation coefficients of the relationships embodying the eight independent variables identified earlier worked out between 0.22 and 0.68. The coefficients, as well as their signs, exhibited a gratifying stability across all ten equations.

We observe from the empirical study that international experience is the only factor that is statistically significant as well as one of the three most important ownership specific factors across the entire sample of thirty-four MNE hotels. The size of the firm turned out to be critical for the firms originating from Europe, and geographic proximity for the Asian firms. Since we did not statistically test all the twenty-six variables used in this paper, we cannot conclude on the statistical significance of the other factors.

As observed from the previous paragraphs, the main findings of our empirical analysis does lend support to the findings of our field study.

Summary and Conclusions

The findings of our field study generally lend support to the conclusions of the eclectic paradigm. They also confirm those of an earlier study by Dunning and McQueen (1981) except that our study has a smaller sample of companies which makes it difficult to arrive to any definitive conclusions. At the same time we believe that the data presented in these tables are highly suggestive of the factors responsible for the rapid internationalization of the MNE hotels.

This paper has sought to accomplish two things. First it has attempt to identify the main OLI variables affecting the extent and pattern of the foreign involvement of some of the leading hotel chains in developing and developed countries. Second, it has tried to pinpoint the main country and firm specific characteristics influencing these variables. Let us now recapitulate our main findings of this paper as presented in Table 21.
Table 21. Main Findings

Contextual Ownership
Variables
 Dd. Dg.

Region of Knowledge of European (E)
Origin Tastes of Prospective Firms - Trademark
 Customers and Brand Image Asian (a)
 US Firms (US) - firms Firms - Investment
 perceive having investment in Training
 having stronger O
 advantages than
 European/Asian

Size Knowledge of Tastes and
 Requirements Trademark
 and Brand Image

Age Knowledge of Consumer
 Tastes and Requirements
 Investments in Training
 Trademark and Brand Image

Degree of Knowledge of Taste and Requirements
Multinationality Trademark and Brand Image
(DOM) For small MNC hotels [right arrow] Access to
 Referral and Reservation system
 For MNC's with 50% DOM [right arrow] Size and
 Structure of Home Industry and Economies
 of Scope and Joint Supply.
 For MNC's with 80% DOM [right arrow]
 International Industry Experience.

Ownership Knowledge of Taste and Requirements
Structure (all equity).
 The above factor Access to Referral/
 Reservation System (No Equity Stake)

Contextual Location
Variables
 Dd. Dg.

Region of Size and Growth General Infrastructure
Origin of the Host of the Host Country
 Economy (E/A) (E/A)
 Opportunities for Size and Growth of the
 Tourism (E/A) Host Country
 Size and Nature Degree of Political and
 of the City Economic-stability (U.S.)
 Host Government Policy
 towards Inward FDI (U.S.)

Size Geographic Proximity
 Host Policies of Government
 Availability/Quality of Inputs
 Large Firms [right arrow] Size
 and Growth of Host Country

Age Size and Nature General Infrastructure
 of City in Host of Host Countries
 Country (Large Host Government Policy
 Experience) Size towards FDI
 and Growth Rate
 of Host Economy
 - Opportunity
 Opportunity for
 Tourism

Degree of Size and Growth General Infrastructure
Multinationality Rate of Host and Political, Social and
(DOM) Economy Economic Stability

Ownership Size and Growth Rate of Host Economy
Structure Opportunities for Tourism
 General Infrastructure of Host Country
 Political, Social and Economic Stability

Contextual Internalisation
Variables
 Dd. Dg.

Region of Fully Owned (F/O)
Origin Quality Control Quality Control
 (E/A) Coordinating
 Capabilities Capabilities
 Host Government Host Government
 Policy towards FDI Policy towards FDI

 Partly Owned(P/O)
 Coordinating Quality Control
 Capabilities Coordinating
Size Host Government Capabilities
 Policy toward FDI Economic and
 Quality Control Financial
 Condition

 Franchised
Age Minimize Negotiation Strength of
 and Transaction Costs Home Currency
 Adequate Quality Minimize
 Control Negotiation and
 International Transaction Cost
 Experience Quality Control

 Management Contract
 Quality Control Quality Control
Degree of Coordinating Coordinating
Multinationality Capabilities Capabilities
(DOM) Activities of Parent Activities of
 Company Parent Company
 Foreign
 Experience

Ownership
Structure




Dd. [right arrow] Developed Countries; Dg. [right arrow] Developing Countries.

Source: Our Questionnaire.

1) Of the competitive or ownership specific advantages of firms, which the received literature suggests are possessed by firms undertaking FDI, we have identified the three factors of particular significance in the hotel industry. These were (a) knowledge of tastes and requirements of the home country clients, (b) trademark and brand image of the parent company, and (c) investment in training.

2) Of the location specific advantages offered by particular countries for the siting of foreign hotels the four most important factors for choosing one country over another identified by the respondents to our questionnaire, were (a) size and growth rate of host country, (b) the opportunities for tourism, (c) the available and quality of hotel related infrastructure (that is location bound complementary assets to the ownership specific advantages of the foreign hotels) and (d) political, social and economic stability.

3) Of the variables affecting the preference of hotel chains for some kind of equity or contractual relationship with a foreign hotel, as opposed to arms length i.e. purely market transactions, four viz., (a) quality control, (b) coordinating capabilities of the parent firm, and (c) host country's inward investment policy, and (d) political and economic stability were perceived, by hotel executives, to be the most significant factors across the various modes. The scores assigned to these factors varied considerably according to the generally preferred ownership structure of the foreign hotels.

The findings of our field study generally uphold the predictions of the conclusions of the eclectic paradigm. From a managerial perspective this study shows that although there are common explanations of the extent and pattern of the internationalization of the hotel industry, the significance of these vary considerably between countries and individual firms. The study also suggests that many of the benefits of foreign involvement commonly thought to be unique characteristics of foreign direct investment can be obtained by judicious use of non-equity arrangements. In this industry, at least, it is not always necessary to own a foreign entity in order to capture the economic rent on the resources and capabilities transferred to it. At the same time we would be the first to admit that the small sample of companies makes it difficult to arrive at any hard and fast conclusions. At best, the data presented in the tables set out in this paper are suggestive of the kind of OLI variables most likely to affect the international profile of hotel companies.
Appendix. List of our Sample Hotels

Name of Hotels Country of Origin Name of Hotels

ANA Hotels Japan Movenpick
Choice U.S.A. Nendels
Ciga Italy New World Hotel
Delta Canada Nikko
European U.K. Oberois
Four Seasons Canada Peninsula Group
Friendly U.K. Radisson
Hilton International U.K. Ramada International
Holiday Inn U.S.A. Regent International
Hyatt U.S.A. Sheraton
Iberotel Spain Shrangi La
Journeys End Canada Small Luxury
Kempinski Germany Southern Pacific
Le Meridien France Steigenberger
Lee Gardens Hong Kong Taj Group
Mandarin Hong Kong Westin
Ming Court Malaysia Wyndhams

Name of Hotels Country of Origin

ANA Hotels Switzerland
Choice U.S.A.
Ciga Hong Kong
Delta Japan
European India
Four Seasons Hong Kong
Friendly U.S.A.
Hilton International Hong Kong
Holiday Inn Hong Kong
Hyatt U.S.A.
Iberotel Hong Kong
Journeys End U.S.A.
Kempinski Australia
Le Meridien Germany
Lee Gardens India
Mandarin U.S.A.
Ming Court U.S.A.




Footnotes

(1) As listed in the Appendix to this paper.

(2) This it is possible that all European hotel chains are small, and it is the size of the chain rather than its nationality which is the key structural determinant.

(3) Though, because of the limited number of observations, the econometric analysis could not distinguish between the key contextual variables influencing the results.

(4) [O.sub.a]= Asset based advantages [O.sub.t]= Transaction and coordinating cost minimizing advantages.

(5) As described in Dunning (1993).

(6) The average ranking for the two groups of firms were 3.57 for developed and 3.80 for developing countries. The corresponding average ranking for the largest group of firms were 4.19 and 4.16.

(7) As, for example, described in Dunning 1993, Chapters 4 and 7.

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John H. Dunning, State of New Jersey Professor in International Business, School of Management, Rutgers -- The State University of New Jersey, Newark, NJ, U.S.A.

Sumit K. Kundu, Visiting Assistant Professor in International Business, College of Business Administration, Northeastern University, Boston, MA, U.S.A.

Manuscript received March 1994, revised August 1994, revised December 1994.
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Title Annotation:includes appendix
Author:Dunning, John H.; Kundu, Sumit K.
Publication:Management International Review
Date:Apr 1, 1995
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