UNIT 5

NETWORK-LEVEL
STRATEGIES
 CONTENTS

1.0
Introduction 2.0 3.0 3.1
Objectives Main Content Strategic
Alliances

3.2
Franchising 3.3 3.4 4.0
Management
Contracts
Joint Ventures Conclusion

5.0 Summary
 In the presiding unit,we discuss the extent
to which tourism and hospitality
organizations should seek to develop
corporate arrangement when developing
strategies.

1.0 This unit covers various motivations for

INTRODUCTIO entering into a corporative Venture

(network-level Strategies) and introduces

N the advantages and disadvantages of

strategic alliances. It highlights the
different forms of the most popular
alliances-namely,franchising, management
contracting and joint Ventures in the
hospitality and tourism industry.
 At the end of this unit, we should be able
to:

• Identify and discuss different

motivations for forming Strategic

2.0 Alliances.

Objectives • Discuss the advantages and

disadvantages of Strategic Alliances

•Briefly explain the concepts of

Management Contracting, Franchising and
Joint Ventures as it relates to hospitality
and tourism firms.
 STRATEGIC ALLIANCES
The term strategic alliance is often defined as an agreement
between two or more partners to share resources and
knowledge that could be beneficial to all parties involved
(Chathoth, and Olsen, 2003).
These strategic alliances can be as simple as two companies
sharing their technology or marketing resources in order to
develop products jointly and market and promote
collaboratively. This is a reciprocal relationship in which each
partner brings certain strengths, pooling of resources,
investments, and risks for mutual gain. In contrast, they can
be highly complex, involving many companies located in
different countries.
 The strategic
alliance agreement

EQUITY BASED NON-EQUITY BASED

STRATEGIC ALLIANCES
These agreements range from joint ventures,
collaborations, and network arrangements to
management contracts, franchising, or licensing and
are a result of formal or informal agreements
between two or more companies.
Strategic alliances can allow an exchange of tangible
assets or intangible capabilities of the firms such as
knowledge, skills, financial capital, technical
capabilities, managerial capabilities, and other
intangible assets such as firm reputation.
 STRATEGIC ALLIANCES
Less resource-endowed organizations may desire to
learn new technical and managerial capabilities,
whereas more resource-endowed organizations want
to gain knowledge of markets and build
relationships to provide access to different markets.
Strategic alliances are also intended to maximize
market coverage, while also achieving economies of
scale and scope and minimizing capital investment.
 Those Hospitality and Tourism firms involved in
strategic alliances seek to achieve organizational
objectives better through collaboration than through
competition. This results in various mutual benefits.
These include higher returns on equity, better returns
on investment, and higher success rates.
 Despite having numerous benefits,
strategic alliances also have various
drawbacks. Alliances provide
opportunities to learn new skills and
core competencies, but at the same
time, alliances create the potential
danger of transforming a partner into
a competitor.
 TAKE NOTE!
A well-managed strategic alliances project helps
companies to gain access to those markets that
would otherwise be uneconomical. Furthermore, it
supports new market entry, as the firms can
sidestep governmental restrictions, diffuse new
technology, and use existing market leader skills
in order to become competent.
 Originating in the UNITED STATES,
franchising emerged as a powerful way
of facilitating the growth of hospitality
organizations. Franchising gives
hospitality and tourism industries and

3.0 organizations an opportunity to form an

Franchising
alliance with partners in different
country markets (Lashley and Morrison,
2000). Therefore, from a business
perspective, it involves less risk than
some other means of expansion, notably
direct investment.
 Grant (1985) defined business
format franchising as follows:

The granting of a license for a predetermined financial return by a

franchising company (franchisor) to its franchisees, entitling them to
make use of a complete business package, including training, support,
and the corporate name, thus enabling them to operate their own
businesses to exactly the same standards and format as the other units
in the franchised chain.
 It can take various forms, but typically it
involves satellite enterprises (run by the
franchisee) operating under the trade name and
business format of a larger organization
(franchisor) in exchange for a continuing fee.

Hotel franchising comes in many forms, but the

FRANCHISIN basic premise is that the owner remains in

G
control of the management and property but has
the advantages of a large chain in terms of
brand name and marketing outreach. The
franchisee sets up his or her own business,
operating along the lines specified by the
franchisor and trading in the product or service
previously market tested by the franchisor.
 This has been well appreciated and
employed by the hotel industry as well
as fast-food chains. Hotel chains see
franchising as a form of development
strategy, and this is expected to be

FRANCHISIN one of the fastest-growing vehicles for

G expansion, especially in the

international arena. It is particularly
attractive for international expansion
because it requires substantially less
capital than ownership.
 EXAMPLE:
KFC - a popular food chain in the UK and
USA are now present in many cities in
Nigeria, with the same brand name, being
managed by franchisees.
Management contacts
 Management contract The management
arrangements are favored in contract allows for a
many international settings by separation of
international hotel chains such ownership and
as Hilton and Intercontinental operations. With such
Hotels that have an arrangement, the
internationally recognized owners act as
brands and a successful track investors who allow
record of hotel management someone else to
expertise. manage the property
Hospitality and Tourism
organizations usually choose a
management contract because it
is a good opportunity to
generate more revenue with less
risk out of expensively acquired
knowledge.
HERE ARE SOME OTHER REASONS WHY
AN OPERATOR MIGHT CHOOSE TO ENTER
INTO A MANAGEMENT CONTRACT:

1.The operator’s 3. There is a viable new 5. The contract can bring

expertise is business that offers low-risk additional business in the sale

saleable. market entry. of other goods and services.

2. The operator has spare resources, 4. It allows the operator

such as management, knowhow, and to control the standards
equipment. of operations.
 Can be defined as the participation of two or
more companies in an enterprise in which
each party contributes assets, owns the
entity to some degree, and shares the risks
(Kivela and Leung, 2005; Magnini, 2008). The
alliance may be one of equal partners or one

3.4
where one party is stronger than the other
because of the resources or expertise it

Joint venture possesses.

Government related reasons can be the

major rationale for joint ventures in less
developed countries, particularly if the local
partner is the government itself or if the
local partner is politically influential. The
new venture may be eligible for tax
incentives, grants, and government support.
In selecting partners, companies pay attention to the
cultural compatibility of the partner. For example, in
the case of expanding into Indian and Chinese
markets, if you do not have market knowledge, joint
venture partnership with a local partner can be a
viable option in order to make presence in these
markets. However, one needs to pay attention to the
cultural differences, including the educational
backgrounds and cultural values and how these can
be managed between the partners.
 This unit presented the analysis
of different types of Network-
Level Strategies, including
strategic alliances, franchising,

4.0 management contracts and

joint ventures.
Conclusion
This unit gave us insights to the
merit and demerits of alliances
between organizations,
especially the hospitality and
tourism industry.
Thank You
Very Much!
 GROUP 10
MEMBERS:

Andri Claudette C. Barnachea Monica D. Nerona

Rea Isabelle C. Cardona Shamma Joyce S. Valeroso