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International Journal of
Hospitality and Tourism
An International, Biannual,
Double Blind Peer Reviewed
Journal
ISSN: 2240-5371
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Issue: V6N2

Paper Type: DOUBLE BLIND REFFERED PAPER

Paper Title: Non-equity entry modes in the hotel industry: a transaction cost economics and resource-based view approach

Authors: Michael A. Kruesi, Nigel Hemmington, Peter BeomCheol Kim

Abstract:
As the hotel industry continues to evolve, research in the field must keep pace with the dynamic nature of the industry. Recent trends in the industry, specifically amongst the largest players, indicate a continued intensification of non-equity entry mode use, specifically franchising and management contracts (or ‘asset light’ modes). A conceptual model based on transaction cost economics and the resource based view is proposed to inform future research in this field. Continued mergers and acquisitions are increasingly making the largest organisations in the industry the most dominant. In this article the ten largest hotel organisations in the world are examined over the period 2001 – 2013. It is shown that these organisations are continually divesting in their equity portfolio of hotel properties, favouring non-equity modes. Therefore a theoretical lens is presented through which management contracts and franchising are examined in the hotel industry. Important factors in the decision between management contracts and franchising are highlighted and research propositions are presented as to the effect of these factors on the choice between franchising and management contracts.