Building long-term success in high-growth markets – Tom Singer, IHG18 June 2012
Tom Singer, CFO of InterContinental Hotels Group, was the keynote speaker at FDE’s London-based breakfast briefing in May, where he shared the secret behind IHG's extraordinary rate of growth in emerging markets.
More than 40 delegates from a range of multinationals came together in London for the May Finance Director Europe executive breakfast briefing. The event, which was sponsored by Genpact, REL and American Express Global Corporate Payments, was held at Stationers' Hall - a historic venue for a discussion focused on growth in the world's newest economies.
Vice-president of American Express Alan Gillies opened the briefing with an interesting evaluation of the dilemma facing businesses and governments in a time of economic crisis.
"The public is pressuring governments that don't have solid majorities to rethink their austerity measures and replace them with spending," he said. "Essentially, the same conundrum faces all of us in business and indeed in finance. Do you save to protect growth for the long term or do you spend to stimulate growth?"
Reflecting on evidence from the fifth annual American Express/CFO Research Global Business and Spending Monitor, Gillies showed how only one in four UK CFOs is anticipating a return to economic expansion in the forthcoming year.
"In the UK, finance chiefs have adopted a far more conservative approach, with plans to preserve cash reserves, implement tight cost-control measures and make cuts," he said. "A risk-averse strategy could leave UK companies better placed to reap growth opportunities that will come from recovery. But the question also needs to be asked: what does this mean for your business and your position in the global market?"
Emerging vs growth markets
Although conservative values may dominate a continent facing recession, Gillis was clear that, for most finance executives, growth prospects are still deeply tied to emerging market exports. And that claim gave Tom Singer, CFO of InterContinental Hotels Group (IHG), the perfect moment to deliver his keynote speech on driving growth in emerging markets.
Singer is responsible for corporate and regional finance at IHG, the world's largest hotel company by room number. As with most multinational corporations, emerging markets are a key growth area for his business, which currently has more than 1,000 hotels in its development pipeline.
"We are all interested in emerging markets because they hold out the promise of long-term growth for our products and services," he said. "Some of the statistics about future travel flows give us cause to reflect. Outbound trips by Chinese travellers will grow from 70 million to more than 100 million by 2015, overtaking Germany and the US.
"India also could have eight times more hotel demand by 2030, with an annual demand equal to France, Spain and Italy combined."
Emerging markets can be a broad, unhelpful term, particularly for countries such as China, which sees itself as anything but 'emerging'. Singer reflected on this complexity by outlining IHG's "three definitions of the market": major markets, priority markets and its key city strategy.
"Major markets, such as China and the US, must already be very large and have good potential for further growth," he said. "The benefits of scale are most compelling here; we can add units at low additional cost and justify tailoring our brands locally to the needs of the market. Priority markets also make an important contribution to our earnings, but their growth might be limited in the future. The demand trends in this case are usually concentrated to a few key cities, restricting our activity to centres where we typically enter with our upscale full-service brands.
"Finally, the key city strategy covers about 20 of our country's markets. We want to make sure we're well positioned in those markets that have the potential for future growth, sow e can develop our position in countries such as Brazil and Indonesia."
China and India: top priorities
Singer spoke clearly about the need to secure a leadership position in foreign markets, getting the best development sites, becoming the first choice for owners and attracting the finest human capital. With more than 80% of all money spent on accommodation arriving in the top 20 hotel markets, building that kind of scale is crucial to success.
Unsurprisingly, China and India also featured frequently in Singer's address. IHG has the largest presence in China of any international hotel group, with 170 properties currently in operation and 155 in development. Underlying the company's approach is a rigorously crafted "strategic distribution plan", which is used to determine exactly which cities to penetrate and which brands to use.
"Why are we winning in China?" Singer posed. "We have nearly 30 years of experience in the market, which gives us the best known and most preferred brands, as well as the longest established loyalty programme. We also have a leading reputation with the developmental community and government, and a clear city-by-city development plan. We've recently developed and launched a new brand - Hualuxe - which is specifically tailored to the Chinese guest; we're the first western hotel company to do so. And, finally, our people infrastructure is second to none, with over 300 people in our offices and a successful Academy Programme providing a stream of trained staff and favourable CSR credentials."
India is another of IHG's priority markets, with 37 hotels currently in operation and up to 150 planned by 2020. While the country's economic value is clearly significant, Singer emphasised the importance of grappling with its social and political differences.
"India is a democracy - the government has less influence and it takes longer to do things," he explained. "It's certainly not an easy place to do business; you need the right expertise and partners on the ground. We've learnt from our past mistakes and have taken several years to eliminate some poor hotels. Now we have a leading position, supported by 50 years of experience. We understand the market and have dedicated resources on the ground."
Before taking a brief question and answer session, Genpact SVP Europe Ahmed Mazhari delivered a supporting address that aligned with many of the points raised in the keynote speech.
"There are interesting parallels to be drawn between Tom's speech and our company in terms of business process management," he said. "Tom spoke about designing brands specifically for the sentiment of the Chinese consumer. We have a similar example at our organisation, building an area focused specifically on the needs of the Indian company. Customisation really is important."
A series of interesting points were raised in the following question and answer session, which was hosted by Oliver Wilson, senior associate at global working capital management specialist consultancy REL. He asked what barriers to entry exist in emerging markets and how differences between political systems can manifest in attitudes towards business.
Singer's answer acknowledged that institutional differences are important, but argued that most governments are receptive to travel and tourism because of its potential wealth and job creation. Rosslyn Haith, vice-president of business development at Genpact, suggested that with services in China possibly better than they are domestically, an opportunity for cross-fertilisation exists for multinational companies. Singer agreed that lessons learnt oversees can and should be implemented in home markets.
Click here to read the interview with Tom Singer from the spring 2012 issue of FDE magazine.