Ascott Group in Tianjin, China - A Study of Business & Cultural Obstacles

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ASCOTT GROUP IN TIANJIN, CHINA:

A STUDY OF BUSINESS AND CULTURAL OBSTACLES

AYUSH AMATYA

LIM SIEW LENG, THERESA

TRULY MASNIARI SETIANA HUTAPEA

CHONG SHENG JIAT, COREY

NANYANG BUSINESS SCHOOLNANYANG TECHNOLOGICAL UNIVERSITY

2009


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ASCOTT GROUP IN TIANJIN, CHINA:A STUDY OF BUSINESS AND CULTURAL OBSTACLES

Submitted by:

Ayush Amatya

Lim Siew Leng, Theresa

Truly Masniari Setiana Hutapea

Chong Sheng Jiat, Corey

Supervisor

ASSOCIATE PROFESSOR OLEXANDER CHERNYSHENKO

MBA DISSERTATION THROUGH BUSINESS STUDY MISSION

Submitted in partial fulfillment of the requirements for

the degree of Master of Business Administrationin the Nanyang Business School

Nanyang Technological University(2009)


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ACKNOWLEDGEMENTS

This dissertation reflects the help and effort from a great many people whom we are

fortunate to have met. We would like to thank the Ascott Group and Somerset Tianjin for

granting us this opportunity to conduct interviews with their staffs and a tour of their

properties in Tianjin. We are also grateful for the insights and reviews of this dissertation

by Associate Professor Olexander Chernyshenko, and the Nanyang MBA faculty

members for successfully organizing the Business Study Mission to Tianjin, China.


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CONTENTS

DESCRIPTION PAGE NO.

1. CHAPTER 1:

INTRODUCTION

1.1 Objective of Study 31.2 Research Setting, Design and Empirical Context 4

2. CHAPTER 2:

BACKGROUND ON CHINA

2.1 Cultural Universals 72.2 Communication 17

2.3 Cultural Values 18

3. CHAPTER 3:

THE ASCOTT GROUP: SECONDARY CASE ANALYSIS

3.1 Background 283.2 Competitors in China 373.3 Anticipated Business & Cultural Challenges for Ascott Group in China 383.4 Strategies 45

4. CHAPTER 4:

THE ASCOTT GROUP: PRIMARY CASE ANALYSIS

4.1 Interview Strategy 504.2 Findings 524.3 Verification of Challenges & Strategies 57

5. CHAPTER 5:

LESSONS LEARNED AND RECOMMENDATIONS

5.1 Lessons Learned & Recommendations 62

6. REFERENCES

7. APPENDICES

Appendix A: BSM ProposalAppendix B: Search AssignmentAppendix C: Interview Protocol & TranscriptsAppendix D: BSM Trip Presentation Slides


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ABSTRACT

The immerse growth in Chinas economy provides the promise of profit for

multinational companies to enter the Chinese market. No global enterprise would

want to miss the chance to jump into this bandwagon to remain viable in their

business. But will all foreign investors who enter China truly succeed in the highly

complex cultural, regulatory and political environment? What are the operational

issues or challenges that foreign investors will face on the ground in the culturally

diverse Chinese provinces? All these questions perplex us and drive us to study into

core Chinese cultural characteristics, as well as Chinese communicative traits and

habits, and other business challenges in operating in China.

We have chosen to research into the Ascott Group operations in Tianjin, China,

particularly the Somerset Serviced Residence brand. As a result, we integrate our

findings to propose a framework that conceptualizes the business and cultural

challenges of service-based (hospitality) firms in entering and sustaining their

business in Tianjin, China. This framework also centralizes service excellence and is

achievable through corporate understanding of geographical-cultural differences, and

how to align business goals with local talents by training and effectively utilizing

them.


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CHAPTER 1

INTRODUCTION

Just 120 kilometers southeast of Beijing, Tianjin is the third largest city in China after

Shanghai and Beijing with an area of 11.9 thousand square kilometers and a population

of 11.5 million. Because of its size and importance, Tianjin is granted provincial-level

status and is one of the four special municipalities (apart from Beijing, Shanghai, and

Chongqing) of China. Located within the Circum-Bohai economic circle, it is the largest

port city in northern China (ranked as the worlds sixth largest port in 2006), making it an

important distribution center for northern China. Tianjin is also famous for its

manufacturing industries, which set an example for other cities in China. For example,

one of Chinas earliest domestic car manufacturers, Xiali, is located in Tianjin. More

recently in March 2005, Chinas first private airline, Okay Airways launched its first

flight in Tianjin. Looking forward, Tianjin will serve as the base of European aircraft

maker, Airbus, which has plans to manufacture three hundred A320 aircraft on its

assembly line in Tianjin by 2016.

The Circum-Bohai economic circle has been undergoing rapid development, and in

the 14 years from 1993 to 2007, accumulated foreign capital of up to USD 23.17 billion,

and the worlds top 500 transnational corporations have made more than 70 investments

in the district. More importantly, the Tianjin-Binhai New Area (located along the east

coast of Tianjin) has been designated by the Chinese government to be a comprehensive

systematic reform experimental area, with the aim of attracting and growing capital

intensive industries into one growth area (China Daily, 6 August 2006). When the


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government plan to develop the area is fully implemented, it would rival Shenzhen

Special Economic Zone developed in 1980s and Shanghai Pudong New Area developed

in the 1990s.

In terms of high skilled labour, the presence of 30 universities and about 140 research

institutes in Tianjin, both local and foreign, serves as a valuable source of manpower for

various industries (Dezan Shira & Associates). There are also many expatriates working

in Tianjin on a long-term basis. The potential growth of the Information Technology (IT)

and Electronics industries in this region also promises future influx of more expatriates.

In particular, about 35,000 Koreans live and work in Tianjin in 2006, according to Mr.

Yo-Han Park, Regional Manager of Korea Airlines1, and IT companies like Samsung, LG

and Motorola have already set up large facilities there - the Motorola factory in Tianjin

itself is the world's largest mobile phone manufacturing plant, involving a total

investment of U.S. Dollars 3.6 billion and the factory hired more than 10,000 employees.

With the on-going development of automobile, electronics and high-tech industries

and the construction of energy bases and transportation channels, business opportunities

are aplenty as tourism, cruise operations, marine parks, high technology firms, factories

and energy firms converge into Tianjin and the Bohai industrial region. In light of such

trends, many hospitality industry investors have been eyeing the business opportunities

inherent in this area. As expatriates from multi-national corporations settle in Tianjin, its

hospitality industry have grown to include well known names like Sheraton, Holiday Inn,

1 Mr. Yo-Han Park, Regional Manager of Korea Airlines. Available: http://www.expatriate-jin.com/02-2006/spotlight.htm


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Renaissance and Somerset, in addition to smaller local players, to cater for this customer

segment.

The Tianjin Binhai New Area is also designated as a test-bed for advanced

international eco-city concepts and aims to transform into a prosperous, socially

harmonious, new eco-Livable City. According to Mr. Li Ming Lin, Minister Counselor

(Economic & Commercial) of the Embassy of the People's Republic of China in the

Republic of Singapore, the Tianjin Municipal Government plans to make use of

ecological habitat and cultural concepts, harmonious community planning, scientific

management skills, advanced polymer for ecological living, environmental protection and

energy-saving technologies, to create a natural and harmonious living environment. The

Binhai New Areas enhanced image will help promote it as a tourist destination, and a

preferred living environment for expatriates.

1.1 Objective of Study

The objective of this study seeks to identify the business and cultural challenges faced by

a foreign hospitality company operating in Tianjin, China, and to conduct a general

assessment of the companys business strategies in overcoming these challenges whilst

achieving its business goals in the Chinese serviced residence industry. Our focus on

culture serves to provide deeper insights into foreign organizations operating, or

intending to operate, in Tianjin. We aim to study and analyze the cultural challenges

faced by foreign companies sending managers to work in China, and hope to garner and

detail the learning experiences from these leaders in mapping to Cultural Intelligence

(CQ) concept and theories.


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Additionally, this report shall include an analysis of the impact of doing business in

Tianjin by applying CQ concepts to management style, staff training, human capital

management, sales strategy and service culture of case company. Finally, every company

has its own "personality" or culture and is one of the key factors contributing to

organizational success in the long run. The nationality of the management team will in

effect extend their cultural style throughout the organization, affecting the way it is run.

With the higher mobility of better educated Chinese managers, who are less bound to

local job markets (Ahn et al., 1999), the management culture can be learnt by the locals,

and as managers job-hop, the learnt culture be reapplied to another organization in China.

Chang & Xu (2008) also noted that local Chinese firms, who do not compete directly

with foreign firms in their own regional markets, can learn from foreign or other local

firms by hiring managers and engineers from them. Specifically, we desire to identify

whether a successful synergistic merging of foreign culture to local Chinese culture can

contribute to a companys operational effectiveness and profitability in China.

1.2 Research Setting, Design and Empirical Context

1.2.1 Research Setting

China provides an ideal setting for our research. Firstly, China has opened up her

economy and the 2008 Olympic Games debut in Beijing formally sets China on the

global stage. Secondly, Chinas tourism sector has been booming, especially with the

surge in Foreign Direct Investments (FDI), many expatriates were sent to manage these

investments in China. Thirdly, high value-add and R&D-intensive industries are major

sector thrusts set by the Chinese government in certain provinces like Tianjin. Finally,


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China has many large heterogeneous regional markets, with keen competition among the

provinces, which makes it worthwhile to observe the competition and cultural effects on

its people along a geographic-market dimension.

Our target company of the case study is the Ascott Group, particularly the Somerset

Serviced Residence brand in China. The Groups 268-unit Somerset Youyi in Tianjin is

located close to the Tianjin International Exhibition Centre, and this location is key to

serving two zones: Tianjin Economic Technological Development zone and Xiqing

Economic Development zone. The Group also has a remarkable serviced residence

portfolio that spans 53 cities in 23 countries and being the market leader of the serviced

residence business in China will be able to provide valuable business insights of the

hospitality industry. Therefore, insights and results from this case study will be able to

apply to other companies in the hospitality sector.

1.2.2 Research Design

Our research design is largely based on open-source information search in the Internet,

followed by on-site interviews with key personnel from the Ascott Group. Our first

approach was to interview Ascott Corporate Office in Singapore so to gain insights into

the challenges faced by Ascott in entering and surviving in China. Thereafter, we

researched into secondary information about Ascott and Tianjin on the Internet. Finally,

through our study trip to Tianjin, we will be able to observe, confirm or disconfirm our

findings, and gather new insights.


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1.2.3 Empirical Context

The empirical context of this study involves in-depth interviews with Ascott Group

personnel. Prior to the trip, we had interviewed two personnel from Ascott and will

conduct face-to-face interviews with personnel from various departments from Somerset

Serviced Residences in Tianjin.

The pre-trip interviews include Mr. Darren Cher, GM, Somerset Serviced Residences,

Tianjin and Ms. Chung Li Ren, Manager & Trainer, Ascott Singapore. Questions for Mr.

Darren Cher focused on business development and preparation of staff for

commencement of hospitality operations. In Tianjin, we interviewed the Residence

Manager, HR Manager, Guest Relations Manager and the Sales & Marketing Manager.

Questions were asked to affirm the findings from the pre-trip interviews, and to obtain

first-hand accounts of cultural challenges. Following the interviews, we conducted further

observations at both Somerset Serviced Residences and at their competitors to affirm the

quantitative findings.


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CHAPTER 2

BACKGROUND ON CHINA

2.1 Cultural Universals

Cultural universals are aspects that are present or are exhibited across different cultures

worldwide despite the contextual and situational differences that each culture represents

or experiences. This chapter elaborates the systems, practices and values that are wholly

or mostly relevant throughout China, with a focus on Tianjin and our observations during

the trip, and its relevance to the hospitality industry.

2.1.1 The Economic System

The economic reforms initiated by Deng Xiaoping in 1992 had lead to todays China

becoming the worlds premier manufacturing base. Dengs definition of the Chinese

economic system is widely known as socialism with Chinese characteristics,

commonly defined to be socialism looking after the welfare of ordinary people (Gittings,

2005). The success of the Chinese economic reforms leads to its GDP (Purchasing

Power Parity) amounting to US$ 7.8 trillion in 2008, ranked 2nd

after the United States,

and with a huge foreign reserves of US$ 1.95 trillion , making it one of the worlds fastest

emerging economic power. China's per capita income has grown at an average annual

rate of more than 8% over the last three decades, drastically reducing poverty but leads to

a widening income disparity. From 1993 to 2001, China was the world's second-largest

recipient of foreign direct investment (FDI) after the United States. Currently, China is

one of the leading FDI recipients in the world, receiving almost US$ 80 billion in 2005,

according to World Bank statistics.


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The Chinese government has several incentive schemes to encourage foreign direct

investment in areas of Research & Development, Energy, Communication, Finance,

Education and Vocational-Training. While there is no direct incentive scheme for the

hospitality industry, the influx of foreign investment would bring growth opportunities

that cater to the needs of employees of hospitality players. In fact, this is precisely

Ascotts strategy, which according to Mr. Darren Cher Ascott has formed corporate

partnerships with multi-national corporations to host their employees in cities around the

world, including Tianjin under its Somerset Serviced Residence brand.

The Central Committee of the Party (CCP) and the State Council identified the

Tianjin Binhai New Area (), for further development succeeding the

Shenzhen Special Economic Zone and Shanghai Pudong New Area. The Binhai New

Area is designated for pilot reforms implementation and opens up measures in ten aspects

including enterprise reform, science and technology, foreign-related economy, financial

innovation, land management, management of urban and rural planning, resources

conservation and environmental protection (TBH, 2008).

After more than ten years of development and construction of Tianjin Binhai New

Area has achieved remarkable results. GDP in 1993 increased from 112 billion Yuan to

236.4 billion Yuan in 2007, with an average annual increase of more than 20%; financial

revenue increased from 23.6 billion Yuan to 47.5 billion Yuan; and export growth grew

from 500 million U.S. dollars to 24.527 billion U.S. dollars. According to the

Administrative Committee of Tianjin Binhai New Area (TBNA -

), the world's top 500 transnational corporations had made more than 70

investments in this area. With these rapid developments, many multi-national


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corporations have set up bases in the Tianjin city. Expatriates including Japanese,

Koreans and Europeans have set up residences, bringing growth to the hospitality

industry and business opportunities to the Ascott Group.

However, in spite of the immense progress China has made in its economic sphere,

during our tour of the Binhai New Area we observed that the economic growth has yet to

uplift all Chinese citizens equally as well as other interesting disparities. One observation

that struck us is the income disparity between Chinese locals or migrant workers and the

advanced high-speed trains and clean, well-furnished train station located at Tianjin itself.

Other disparities include the landscaping of Government-designated economic

development zones, while the rest of the land remains barren and under-developed, and

lastly there is a visible lack of vibrancy in the Binhai New Area compared to other

cosmopolitan-status cities like Shanghai or Beijing. One can relate the landscaping to the

Chinese culture of beautifying ones home area with gardens and ponds; whilst the lack

of vibrancy is perhaps due to the building up phase of the economic zones and industrial

value-chains have yet to set up bases here. Should China experience continued success of

high GDP growth and global economy to recover for the next five to ten years, we can

expect the Tianjin Binhai New Area to be a bustling site for targeted industries.

2.1.2 The Marriage and Family System

China primarily practices the monogamist and patrilineal marriage system, which is

generally accepted and in line with most Asian countries. However, there are some parts

of China that continue polygamy (i.e. some parts of Tibet) and/or matrilineal system.


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Marriage is of utmost important in the Chinese culture; it is traditionally considered the

most basic social unit.

Generally, the family system is still largely patrimonial, with the bride taking on the

husbands surname upon marriage. This is, however, being challenged due to the coming-

of-age of Chinas one-child-policy. The one-child policy was created to restrict the

number of children married urban couples can have to one, although it allows exemptions

for several cases, including rural couples, ethnic minorities, and parents without any

siblings themselves. Approximately 35.9% of China's population is still currently subject

to the one-child restriction but enforcement varies by provincial governments. The

Chinese government introduced the policy in 1979 to alleviate social, economic, and

environmental problems.

The one-child policy has perhaps created social consequences for the country. The

traditional preference for male children resulted in gender disparity. According to a report

by the State Population and Family Planning Commission, there will be 30 million more

men than women in 2020, potentially leading to social instability (Gupta, 2005).

2.1.3 The Educational System

Chinas education system can be divided into three main categories, which comprises

basic, higher, and adult education. The Compulsory Education Law of stipulates that each

child have nine years of formal education. In China, the average year of schooling by

adults over age 15 is 6.4 as at 2008 (United Nations Educational Scientific and Cultural

Organization, 2008).


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After 1949, when the People's Republic of China was founded, Tianjin's education

grew vigorously and formed an integrated educational system from elementary education

to higher education progressively, including preschool education, special education, adult

education and cadre education (become cadres to work in public capacity at the local

level (Pepper, 2000). Now, Tianjin has more than 30 institutions of higher education and

national research centers (Mr. Li Ming Lin, 2009; Denza Investment Guide). The

increasingly educated workforce bodes well for multi-nationals operating or intending to

operate in the Chinese hospitality industry. A well-trained workforce will provide

excellent service to expatriates and tourists, becoming the firms competitive advantage.

Particularly relevant to hospitality industry is the existence of specialized hospitality

schools that train students for the service industry. There are several such schools in

Tianjin including (loosely translated to English): Civil Aviation College (),

Tianjin University (), the Model School (), Institute for Tourism

Studies (), College for Tourism Specialization (), and Tourism

Vocational Studies ( ). However, such specialized schools may lead to

constricted exposure of hospitality staff, leading to lower service standards custom-built

for China-only hospitality sector. As we will discuss in Chapter 4, the Chinese service

staff displays high collectivism behavior unfortunately at the expense of guests or

customers who often had to make an effort to gain their attention for service needs.


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2.1.4 The Social Control System (Political & Legal)

2.1.4.1 Political Factor

Despite considerable liberalization of the economy, the China Communist Party (CCP)

remains to be firmly in control. The Central Committee of the CCP is the final decision-

maker in major governing policies of China (Figure 2-1). China is distinctively different

from Western societies because of the important and direct role that it plays in steering

the nations economy. Firms doing business in China need to understand the political

structure of China as they face government regulation and the Chinese Government

controls a wide range of resources and capital. Therefore, political influences of officers

remain strong, and companies have to build relationships or guanxi with these officers

who have monopoly over supportive or restrictive regulatory powers.

FIGURE 2-1

Organization Structure of Central Communist Party (CCP)


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Existing myths about doing business in China is dispelled by Mr. Wee Hui Kan2, who

says that it is not really true that one must pay your way in China. Depending on

corporate policies, a firm can choose the corporate strategy in China, either by choosing

the deals that do not need to pay or finding innovative methods to bypass paying through

careful aligning the interests of the company to that of the local powers. In doing

business with government officials, alignment of interests had thus expanded beyond

monetary incentives. With the Chinese Government flushed with capital, it has becoming

increasingly important to align companys business strategies with the reform or direction

passed down by the CCP.

2.1.4.2 Legal Factor

The vigorous growth of private businesses in China during the past two decades is partly

the result of the country's consistent work to build a favorable legal environment for the

non-public sector of the economy. Many of China's most important laws, such as the

Constitution, Civil Code, Criminal Law, Corporation Law, Partnership Law as well the

law on the promotion of small and medium-size businesses, have included clauses

defining the development of private businesses. Further legal improvements for the

country's private businesses have come in 2004. In March 2009, clauses called "the state

encourages, supports and guides the private economy" and "legal private property is not

to be encroached upon" were added into the Constitution.

2 Mr Wee Hui Kan, CEO, CapitaRetail (Beijing) Investment Consulting Co., Ltd


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Amended Bankruptcy and Administrative licensing laws gave China's State Owned

Enterprises, private enterprises and foreign companies equal footing in the market

economy. Government intervention to the market was reduced, giving private businesses

a more equal and efficient market environment in which to operate.

Although the legal environment for private businesses has been improved a lot,

problems still exist. For example, some local regulations and policies for non-public

sector of the economy are always changeable, posing difficulties to safeguard interests

and rights of private businesses (People's Daily Online, 2 August 2004). Success in

getting rapid legal justice is still considered to be remote for individuals and companies

without extensive ties in the province.

Chinas labor have traditional been seen as cheap, but new labor laws introduced in

2008 that granted new rights to workers, including open-ended work contracts and

severance pay (New York Times, 1 January 2008). These new laws would result in

higher costs to companies, potentially driving companies with low margins out of China

in search of cheaper labor.

Ascott would similarly be affected by the labor laws in Tianjin, and it would have to

factor in the potential costs in its feasibilities and costs of operations. Ascott might have

to consider termination of staff carefully and be forced to keep non-performing staff on

the payroll.


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2.1.5 The Supernatural Belief System

Broadly, there are two cultural fundamentals that bring about the other aspects of Chinese

cultural beliefs shaped by generations; namely the importance of face, Confucianism

andfengshui.

Concept of 'face' is roughly translated as 'honor', 'respect', or good reputation in the

Chinese context. For the Chinese, it is critical that one avoids losing face or causing

loss of face at all times. In order to maintain a sense of harmony, they will act with

decorum at all times and will not do anything to cause someone else public

embarrassment, even suppressing their own feelings for the betterment of the group. If

one disagrees with another, rather than disagree publicly, the person will remain quiet.

This gives face to the other person, while speaking up would make both parties lose face.

Face saving and giving are critical aspects to take note of, as perceived lack of respect

would make or break a deal (according to Mr. Wee Hui Kan).

Confucianism is a system of principles, behaviors, and ethics that emphasize

peoples obligations towards one another based upon their relationship. The basic tenets

are based upon five different relationships, namely between: Ruler and subject, Husband

and wife, Parents and children, Brothers and sisters, and lastly, Friend and friend. The

Confucian mindset emphasizes duty, sincerity, loyalty, honor, filial piety, respect for age

and seniority. Through maintaining harmonious relations as individuals, society

itself becomes stable.

Fengshui, or geomancy, may play a role in the structure and physical environment of

buildings. For example,fengshui experts were consulted in the architectural design of the

planned 117 building in Tianjin (Figure 2-2). Ascott, on the other hand, does not take


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fengshui into account in its construction and development of properties, nor in its

operations in terms of room artifacts placement.

FIGURE 2-2

Tianjin 117 Building Development Site Map

Reflects Geomancy Concepts in Mountain Building I-III, with Back Facing a

Protective Barrier


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2.2 Communication

Understanding the concepts and subtleties of communication is important in order to be

effective in any cross-cultural, or even intra-cultural, interaction. As its nature of being

such a big country, China faces communication challenges on both the verbal as well as

non-verbal front. The following section discusses the verbal language and non-verbal

language use in China.

2.2.1 Verbal Language

From a verbal standpoint, the Chinese language comprises a family of closely-related but

mutually incomprehensible languages. These languages are known variously as regional

languages, dialects of Chinese or varieties of Chinese. Out of the total population, over

1.2 billion people speak one or more varieties of Chinese. China is a high context society,

where choice of words are implicit, suggesting an indirect form of communication (Hall,

1977). Knowledge of language in the Chinese culture, where both verbal and non-verbal

communications may convey multiple messages to people with similar cultural

background, goes beyond knowing the language to understanding the meaning and

implications behind the words, and such knowledge is essential in doing business in

China.

During our primary interviews, stark communication differences were also observed

between Tianjin people who had international exposure and those who did not. Those

with international exposure were less high context in their communication, and conducted

business with a more strategic, international outlook. They were also able to understand

and communicate with foreigners better. In comparison, Tianjin people who did not have


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international exposure conducted business with a silo, internally focused mentality, were

more high context and cautious about revealing too much, and had frequent

miscommunication when interacting with foreigners.

2.2.2 Non-Verbal Language

Generally, Chinese have a very indirect approach in their communication. Their non-

verbal communication speaks volumes. Since the Chinese strive for harmony and are

group dependent, they rely on facial expression, tone of voice and posture to tell them

what someone feels. Frowning while someone is speaking is interpreted as a sign of

disagreement. Therefore, most Chinese maintain an impassive expression when speaking.

It is considered disrespectful to stare into another person's eyes. In crowded situations the

Chinese avoid eye contact to give themselves privacy.

2.3 Cultural Values

2.3.1 The Individual-Collective Dimension

According to the Geert Hofstede analysis, the Chinese rank lower than most Asian

countries in the Individualism ranking, at 20 compared to an average of 24 (Figure 2-3).

The low Individualism ranking is manifest in a close and committed member 'group', be

that a family, extended family, or extended relationships. As such, the Chinese are a

collective society with a need for group affiliation and fosters strong relationships where

everyone takes responsibility for fellow members of their group.

In doing business, it is also important to learn the Chinese way of thinking relating

back to low Individualism, which shows their close loyalty to stay with groups such as


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their family, work, and team. Loyalty in a collectivist culture is paramount. Chinese

business habits tend to stay with the same partners or suppliers to keep loyalty and not

deteriorate relationships. So when doing business with others, it is important to establish

a good strong partnership that has potential to last a long time, and is looked down upon

if one frequently changes business partners (Geert Hofstedes Cultural Dimensions).

FIGURE 2-3

Geert Hofstede Cultural Dimensions: Individualism (IDV)

The Chineses collectivism and focus on building relationships are main components

in the well known term guanxi. Guanxi is literally translated as connections. In the

Chinese business world, it refers to the network of relationships among various parties

who cooperate together in business. Guanxi is an important concept to understand if one


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is to function effectively in Chinese society, as the right guanxi makes all the difference

in the success of conducting business in China.

According to Mr. Wee Hui Kan, alignment of interests is more important than simply

wining or dining with business partners and authorities. The Chinese feel obligated to do

business with their friends first, hence, exchange of favors and a you scratch my back

and I will scratch yours mentality would help in establishing the right guanxi.

2.3.2 The Equality-Hierarchy Dimension

The Chinese are highly hierarchical in nature and they identify themselves with a certain

level in the society or organization (Figure 2-4). As such, they openly show and express

an appropriate level of respect for those that ranked higher or perceived to be above

them. An observation of the Chinese business formalities with respect to the equality-

hierarchy dimension was made during a presentation given at the Tianjin Port Trade Zone.

Referring to Figure 2-3-1, the speaker on the right of the photo (higher rank) had

presented in Chinese, while the speaker on the left (lower rank) translated his speech into

English. Later on, it became evident that both speakers were actually fluent English

speakers as once in a while he would correct the translator if his statement was

misinterpreted. However, due to the high power distance and perhaps also the increased

confidence of speaking in mother tongue, the higher ranking officer preferred to present

in Chinese, and leave the task of translation his subordinate although he was likely

capable of doing so himself.


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FIGURE 2-3-1

Chinese Official (right) and Chinese Staff English Translator (left)

This value is probably derived from a strong Confucian mindset which emphasizes

relationships across vertical positions (lowest to highest in scale and importance). To note,

China's Power Distance (80) is significantly higher compared to the Asian Average (60)

and the World Average (55). This is indicative of a high level of inequality of power and

wealth within the Chinese society, which is accepted as their cultural heritage.


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FIGURE 2-4

Geert Hofstede Cultural Dimensions: Power Distance (PDI)

This power distance remains high whether it is within the company or in society.

When doing business in China one must be aware of this large hierarchy gap which often

makes it hard to move up on their corporate ladder as compared to other cultures. Chinese

managers are expected to operate within clearly defined lines establishing their authority.

Primary interviews also showed that power distance between government officials and

companies is high. Officials do not tolerate feedback about bureaucracy nor perceived

unfair treatment. Companies that are unwilling to accept certain norms would have to

make the strategic decision of withdrawing from the market.


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2.3.3 The Tough-Tender Dimension

According to Figure 2-5, the tough-tender aspect of Chinese culture is geared more

towards a masculine culture (66) as compared to the world in general (49). Dominant

values of masculinity are that of assertiveness, money, and material possessions; while

caring for others and quality of life is less stressed (Matthew Earnhardt).

FIGURE 2-5

Geert Hofstede Cultural Dimensions: Masculinity (MAS)

In masculine cultures such as China, the "heroic" manager is decisive, assertive, and

aggressive; he makes decisions with confidence and directness and does not allow his

subordinates to question authority. However, it is important to note that honor and saving

face are extremely important concepts to Chinese business people, and a direct style may

be viewed as insulting and can harm employee/manager relationships.


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2.3.4 The Uncertainty-Avoidance Dimension

In general Chinese can be categorized as b`eing moderate to low in terms of uncertainty-

avoidance. Based on Figure 2-6, the Chinese scored evidently lower than those in the

U.S., Asian and World Averages in uncertainty-avoidance. This relatively low index may

have been linked with the harmonious interpersonal relationship of the Confucian

teaching. Interestingly, there is an observable discrepancy between the UA scores of

China and Hong Kong (30 and 28, respectively), Singapore (8), and Taiwan (69), despite

all four countries representing the Chinese ethnicity. This gap is likely driven by

differences in economic, political and legal factors implemented across the countries.

FIGURE 2-6

Geert Hofstede Cultural Dimensions: Uncertainty Avoidance (UAI)


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In doing business, this is portrayed in their seemingly informal and indirect approach

to negotiations, wherein the Chinese seem to follow set rituals but not western rules and

formalities. Thus, they appear to be more flexible in dealing with changes occurring

inside and outside of business. This may in fact be more of a reflection of their

pragmatism in approaching change and obstacles, For example, given that Chinese policy

officially follows 5, 10, and 20 year plans, it is interesting that individual officials are

often evaluated on yearly performance targets. Thus, one may find that official statistical

figures on performance are often disregarded by foreign economists or even that the

targets and the definition of success has changed over time. For example, a reflection of

their uncertainty avoidance was observed during presentations with Chinese officers on

Tianjin Binhai New Areas development plan and 20-year target. When asked how the

government would ensure that the target was met, the officer replied that the target was

not cast in stone, but would be revised along the way.

Alternatively, the Chineses indirectness could also be due to attempts to highlight

only the positive and hide the negative/weaknesses in their positions, or as a way to

establish and maintain long-term business relationships that benefit both sides by means

of greater tolerance for different thoughts and opinions. For example, when doing

business, Chinese people say often say Maybe, or Ill think about it, or Well see to

indicate negative replies instead of saying No directly. This creates uncertainty and

ambiguity so as to avoid business conflicts (Dong & Lee, 2007).


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2.3.5 The Time Dimension

Figure 2-7 shows that China is a country with long-term orientation at the highest-

ranking factor (118), which is higher than the Asian Average (88), and significantly more

so than the World Average (45). This indicates that China as a society has a future-

focused perspective of time and an attitude of perseverance; that is, overcoming obstacles

with time, if not with will and strength.

FIGURE 2-7

Geert Hofstede Cultural Dimensions: Long-Term Orientation (LTO)

This is in line with Chinas uncertainty avoidance score of 30, a medium score, which

indicates flexibility in changing short term action plans while moving towards a long

term goal. The concept of needing time to resolve issues is demonstrated in the many

levels it takes for a business approval submission to reach the Central Committee of the


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Communist Party of China. A submission would have to go through the Central

Committee Secretariat, the General Secretary, the Standing Committee of the Political

Bureau and the Political Bureau before reaching the Central Committee.


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CHAPTER 3

THE ASCOTT GROUP: SECONDARY CASE ANALYSIS

3.1 Background

3.1.1 Overview of The Ascott Group

The Ascott Group (known henceforth as Ascott or The Group) headquartered in

Singapore is a key player in the business of international serviced residences. With over

25,000 operating serviced residence units in 66 cities of Asia Pacific, Europe and the

Gulf region, as well as about 7,000 units currently under development, it is the largest

serviced apartment owner-operator outside of the United States (Shankari, 2009). The

Group operates under the wings of its parent company CapitaLand one of the largest

listed real estate companies in Asia with core businesses in real estate, hospitality and

real estate financial services in major cities of Asia Pacific, Europe and the Middle East

(Ascott Annual Report, 2007).

The Group established presence in China in 1998 when it completed Somerset Grand

Shanghai, a multi-storey residential complex, and in 2001 with the Somerset Fortune

Garden in Beijing making them the largest serviced residence chain in the Chinese capital.

They also secured management contracts in 2004 to operate Somerset Chongrui serviced

residence in Suzhou Industrial Park, and Citadines Jinqiao in Shanghai. Their cumulative

investment in China for the last 10 years amounts to about US$ 409 million (RMB 3,272

million). In Tianjin specifically, The Group owns a 268-unit Somerset Youyi is located

close to the Tianjin International Exhibition Centre, and the 169-unit Somerset Olympic

Tower Service Residences located at the scenic Five Major Avenues () of Tianjin.


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Each of these residences is designed with the discerning executive and his family in mind,

and furnished with the Ascott signature contemporary decor.

The Group operates a portfolio of three brandsAscott, Somerset and Citadines. The

Ascott is the luxury brand targeted at top executives; the Somerset is a contemporary

brand for senior and upper management executives; while the Citadines brand is

targeted at mid-level managers and executives without their families. Since the customer

base of the Ascott brand are at the higher end, these service apartments aim to lavish

business travelers with excellent service in an exclusive environment. For example, such

properties often come with lobby bars and classy restaurants. The Somerset brand, on

the other hand, more 'warm' and 'caring', and are designed to ideal for executives and

their families who are looking for good work-life balances. Thus, some Somerset

properties have playrooms for children and help organize special activities for their

guests. The Citadines brand, being less up-market, is designed for 'individuals on the

go' and therefore stays at Citadines tend to be no-frills. Instead, guests have to choose the

services they want to suit their lifestyle and budget (Shankari, 2009).

3.1.2 Recent Performance of The Ascott Group

Ascott has not only been growing rapidly for the past four years, as reflected in its growth

in revenue, but also grown increasingly profitable. However, there are economic signs

that there may be trouble for the Group ahead. The last publicly available Ascott Groups

financial statements were from 2007, in which the Groups revenues grew from S$ 200.2

million in 2003 to S$ 435.277 million in 2007 (Compound Annual Growth Rate of 17%).

While Earnings before Interest Taxes Depreciation & Amortization (EBITDA) remained


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fairly constant at approximately 30% of revenues, Net Income also grew from 9% in

2003 to 41% in 2007. Similarly, Return on Equity (ROE) grew during this period from

1.5% to 15.8% (Ascott Annual Reports). Given that publicly available information does

not reveal what has happened since then, we assumed that current financial health of the

company may be somewhat reflected by its sister company, Ascott Residence Trust

(ART). ART holds the first right of refusal to all Ascott Group property divestments.

ART mirrors, to some extent, properties from Ascotts geographic and market segment

portfolio. Therefore, we believe that ART financials and figures could be taken to be

indicative of its sister company Ascotts performance (Figure 3-1).


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FIGURE 3-1

Various Properties in ARTs Portfolio, Including Somerset Tianjin

OCBC Investment Research

ART has attained impressive growth recently, with revenues rising from S$ 155

million in 2007 to S$ 192 million in 2008, it is not expected to perform nearly as well in

the near future, with revenues expected to drop by more than 10% in 2009 (Figure 3-2).

In fact, in 2009 revenue is expected to decline in all of the countries it is currently

operating in, China being no exception. In China alone, analysts predict that Revenue per

Average Unit will decrease by almost 29% in 2009, before the decline slows down to 5%


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in 2010 (Figure 3-3). This is a significant challenge for ART, as bulk of its revenues

originate outside of Singapore, with China alone forming 25% (Figure 3-4). Despite the

drop in revenue, ART is expected to remain profitable, with net profits at levels achieved

in 2007 as direct expenses involved in operating properties is held at a relatively stable

fraction of revenue at 54%, despite drops in revenue generation (Figure 3-1). If we are

correct in our judgment that ARTs performance is indicative of that of its sister company

the Ascott Group, and then we can expect Ascott to have patchy performance until the

global economy recovers and in turn allows Ascotts customers to retain its services.

FIGURE 3-2

(a)Historical and Forecasted Revenue of ART, DBS Analysts

DBS Vickers Research


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(b) Historical and Forecasted Revenue of ART


FIGURE 3-3

Revenue Per Average Unit Expected



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FIGURE 3-4

Portfolio Breakdown of Ascott Properties by Asset and Revenue


The drop in Chinese revenues as indicated by ART figures stems from two key

factors: Firstly, the 2008 Olympics had artificially raised short-term demand beyond that

justified by the long-term market. In its aftermath, increased competition as well as a fall

in occupancy among Ascotts Beijing and Shanghai units has led to a significant drop in

the room rates, thereby affecting revenues (Figure 3-5). Secondly, this situation had been

made worse by the current economic crisis, which we anticipate, leads to a decrease in

the size of Ascotts customer base (Figure 3-6).


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FIGURE 3-5

(a) Overall RevPAU Trend OCBC Investment Research

(b) Overall RevPAU Trend OCBC Investment Research


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FIGURE 3-6

Various Industries that Ascott Derives Revenue from


Interestingly, Tianjin has been an exception with revenues remaining fairly stable

despite drops in other Chinese cities elsewhere. We speculated that the most probable

cause of this anomaly is due to Tianjin having only the mid-tier Somerset properties. The

Somerset properties had the luxury of having a stable customer base of industrial

managers and expatriates including their families, while Shanghai and Beijing hosts more

short stay travelers. Moreover, the average length of stay at the Tianjin property is

typically more than six months (OCBC Investment Reports, April 2009). The actual

occupancy levels at the Ascott properties, however, were unclear from online sources.

But quoting the Thai Press Reports dated March 2009, it stated that during normal

business periods Ascott has been able to maintain approximately 90% occupancy


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throughout its properties. In addition, Ascott hopes to maintain at least 80% occupancy

rate during the current downturn.

3.2 Competitors in China

Some of Ascotts competitors in the area include major hotel chains like Ritz Carlton,

Sheraton, and Shangri-La. However, as these companies primarily function as hotels and

their service apartments are often an augmentation to their core business, they do not hold

a large block of the market share. More serious competitors include Oakwood, Marriot,

and Frasers Hospitality, with 4000, 2500, and 2483 estimated units in the entire Asian

region, respectively. Thus, Ascott with its 25,000 units in the Asian region, including

China, is by far the largest among its peers (The Business Times, 3 April 2009).

According to Mr. Darren Cher, Residence Manager of Ascott Tianjin, Ascotts

Somerset property faces direct competition from a Sheraton offering 60 apartments on

top of 300 hotel rooms, a residency TJ International, and a local brand called Kyuga,

which was developed by Mitsubishi specifically to target Japanese clientele. Advantages

of being so large and diversified across the region include a diversified client base.

With reference to the Ascott Annual Report 2007, economies of scale allows Ascott

to be present in cities with different industrial or commercial focuses, therefore,

fluctuations in one sector may have lesser impact on company as a whole. Another

advantage includes Ascotts ability to service the same corporate customer across

international borders, giving its customers an ease in choice and familiarity in settings.

Economies of scale provide Ascott an advantage in terms of cost as it allows Ascott to

gain competitive advantages in terms of development and operating. For example, many


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of Ascotts residences are relatively standardized therefore costs involved in designing

and furnishing the residences are reduced. Similarly, Ascotts large market share allows it

to leverage its marketing spending and brand equity across many properties, spreading

out overhead, as well as, diversify nation-specific risks. Despite competition from such

heavy international players, Ascott has consistently garnered several awards, including

Forbes China 2008 Chinas Best Serviced Apartments (CIMB-GK Research, January

2009).

Disadvantages associated with economies of scale may include the added cost and

difficulty the management incurs in ensuring that each Ascott property is consistent in the

delivery and quality of its services. Factors that would make this increasingly difficult

include the wide variety of nationality, employment, and other backgrounds their

customers come from, as well as, unique characteristics of the host nations. For example,

in some Islamic countries there may raise complications regarding the service provided

by single female guests by conservative male employees.

3.3 Anticipated Business & Cultural Challenges for Ascott Group in China

In this paper, we propose three intersecting main elements to conceptualize the business

and cultural challenges of service-based (hospitality) firms in entering and sustaining

their business in Tianjin, China (see Figure 3-7), specifically: (a) Business Strategy,

which refers to the firms positioning or value proposition to customers relative to their

competitors; (b) Human Resource Management, which refers to the issues and challenges

faced by the firm in recruiting, training and retaining local talents in China; and (c)


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Cultural Aspects, which refer to cultural issues faced by firm in host country (China) and

the existence of synergistic or conflicting values due to cross-cultural differences.

FIGURE 3-7

Framework for Conceptualizing Business & Cultural Challenges in China

The intersecting sub-elements at the 2nd

level of the framework are defined as: (a-b)

Business Strategy and Human Resource Management refers to the challenges for Ascotts

management to fully utilize local talent pool and develop them into leaders (Residence

Managers) for their properties in the long term; (b-c) Human Resource Management and


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Cultural Aspects refers to challenges in providing tailor-made service training,

specifically by country, provincial and city, due to salient cultural differences between

these geographical levels, and focus on communication between staff and foreign guests;

(c-a) Cultural Aspects and Business Strategy refers to alignment issues for corporate and

management culture with Ascott properties and staffs in diverse locations, in achieving

business goals set by management.

At the core of our framework is achieving service excellence. Robert Johnston (2004)

states that service excellence is more than simply exceeding expectations but requires

organizations to do no more than they promise. In effectively addressing and managing

these business, human resource and cultural elements, the firm essentially works towards

achieving Service Excellence for the benefit of stakeholders and customers.

3.3.1 Revenue Growth Challenge

In terms of business challenges, we anticipate that Ascott faces rapidly declining

revenues in Tianjin due to the ending of the Chinese Olympics and the current economic

fallout, which have already hampered their other properties in the region. Post-2008

Olympics causes Ascott China serviced residences room rates to fall significantly as

compared to the highs of 2008 as described in Chapter 3.1.3, and could continue to fall

further should the current economic crisis hurt global consumers spending power.

Specifically, since Ascotts Tianjin property is a Somerset mainly catering to Japanese

and Korean managers and their families, Ascott faces a challenge of ensuring retention of

as much of their client base as possible, as well as maintaining revenue levels. Journalists

have noted that Japanese and Korean expatriates are being shipped back home from


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Shanghai due to the current economic crisis (Financial Times, February 2009). Therefore,

as multinational companies are badly affected in the current crisis, it is foreseeable for

them to cut costs by either cutting expatriate staff in Tianjin, or at least negotiating harder

for discounts to current room rates.

Another challenge stems from the difficulty in sustaining the performance of Ascotts

China properties due to customer variability. Given that guests at Ascott s Chinese

properties tend to remain for less than nine months while the industry norm is closer to a

year, worsening or prolonged conditions elsewhere may result in knock-on efforts to

Ascott due to financially-challenged customers or its own inability to provide enough

resources to support its operations. As rental charges for high end apartments decline

throughout China, low and mid-tier products of Ascott may be forced to discount to

compete effectively; Ascotts higher tier Ascott brand properties may largely be

insulated from this pressure due to their client base (Figure 3-8).


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FIGURE 3-8

Average Length of Stay of Ascott Guests:

Except for Japan, Bulk of Ascotts Customer Base Likely Stay for Less than 1 Year


On the other hand, current economic environment may also present Ascott with an

opportunity to differentiate itself and maintain its occupancy levels by adding value to the

customer experience. In essence, Ascott must seek ways to help its guests maintain a

work-life balance, especially as Japanese companies trying to cut costs may choose to

pull back families and similar non-essential personnel back to Japan and those who may

increasingly find living in upper-tier service apartments untenable (Thai Press Reports,

2009).


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3.3.2 Human Resource Management Challenges

In terms of Human Resource Management, Ascott has a pre-established reputation for its

staff exhibiting patience, professionalism, efficiency, and customer service excellence.

Somerset Tianjin in particular is able to control staff attrition at the Olympic Towers

despite the growth of competitor presence. We will discuss on Somerset Tianjins talent

retention strategies in Chapter 4. From the perspective of China in totality, we anticipate

that the Ascott Group is facing constant challenge in fighting for good human resources

with the influx of competitors to meet serviced residence demand and other similar

industrial or commercial cities of China. As discussed in the Worldwide Hospitality and

Tourism Trend article (Zhang, 2004), a lack of qualified staff at both operational and

managerial levels, a high staff turnover rate and a wide reality gap between academic

experience and the real world experience have resulted in shortages for the hospitality

industry.

3.3.3 Cultural Challenges

On Cultural challenges, the Ascott Group has an intrinsic advantage as an Asian Chinese

institution in entering China. Language and cultural barriers are easiest to overcome with

the presence of their bilingual management team in both the English and Mandarin

language. However, there are still salient differences between Singapores management

style and work culture compared to the Chinese. We anticipate engrained cross-cultural

differences between expectations of the Singapore service and the level of service able to

be provided by Tianjin locals, especially in the hospitality industry. These differences


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may be due to different upbringing, personal comfort zones, family culture, and pre-

determined mindset related to service.

But, through our interviews with Ms. Chung Li Ren, Manager of Ascott Centre for

Excellence, Ascott International Management, we learnt that the biggest challenge for

human resource staff and managers in China is the language barrier. As Ascotts target

customers are expatriates and foreigners, service staffs are required to address questions

or queries posed by these customers using English. But local Chinese staffs find

difficulties in communicating in English and this caused disparity in service standards or

expectations. It also took much effort from the Singaporean managers to impart

differentiated customer service skills targeted at diverse cultures to the local staff. Li Ren

stated an example that the front desk reception should not assign queen size bed to old

Japanese couples staying with Ascott, emphasizing the need for staff to have knowledge

on diverse cultures lest they unintentionally angered the guests.

Xu XF (2007) also noted that inadequate training provided by a China-based

company forms the basis for cross-cultural obstacles to effective communication with

other staff with diverse cultures for expatriates sent overseas. Xus perspective can be

interpreted vis--vis with other diverse cultures working in China. Pre-trip teleconference

interviews with the Ascott Group staff had shown that, although hospitality-specific

training were in place, cross-cultural training were not thoroughly emphasized within the

organization and sometimes it was left to individual expatriate Residence Managers to

adjust to their assigned citys local culture. This form of experiential training seems to

work well for the Group thus far, given that there are intrinsic advantages of these

Residence Managers with Chinese language as their mother tongue. However, we


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anticipate salient differences to surface during our ground observation of Ascott staffs in

Tianjin.

3.3 Strategies

3.3.1 Business Strategy

The Ascott Groups key Enter China strategy is to use primary Chinese cities as

springboards into high-potential secondary cities and enhanced its China portfolio to

10,000 serviced residence units. It has built a strong local management team in China,

operating within social sensitivities, and selling high international standard properties to

an urban middle class. The company has currently an employees strength of 250 people

in China. Particularly, the Ascott Group is able to re-create their corporate culture of

human-orientation and leaderships in China, as well as pursuing the diversified strategy

of localization.

The greatest strength of the Group lies in its powerful and internationally experienced

management team, and its unique positioning in the industry. As an Asian Chinese

institution, one of the Ascott Groups core strength in entering China is that language and

cultural barriers become easier to overcome with the presence of their bilingual

management team. As an owner-operator, which essentially means that the firm owns,

leases, and manages serviced residences, Ascotts revenue is derived from management

fees comprising a percentage of gross operating revenue and a percentage of gross

operating profit. As an investor, Ascott also earns yields on investments while

simultaneously enjoying capital gains from the divestment of properties if sold at a profit.


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Ascotts mainly Singapore-sourced management also allows it to deliver consistent

service excellence, as they have been trained or recruited to meet international standards.

The Ascott Groups general strategy is to buy and sell properties to gain highe r-

yielding assets and enter new markets, as well as pursuing robust expansion into large

financial and commercial cities with a critical mass of business activities and expatriates.

In such cities, Ascott clustered its properties so as to enjoy economies of scale in

lowering developing and operating costs, as well as, to be able to employ a product-

tiering approach with its clients, giving an option of its global brandsAscott, Somerset

and Citadines (Ascott Annual Report, 2007).

The Ascott Group also cleverly devised their signature Ascott Residents Programs to

help guests feel at ease and assimilate into the local lifestyle, allowing them to have a

whole new travel experience minus the hassle. These self-enrichment programs and local

activities bring guests up-close with each citys unique culture and practices. Therefore,

Ascott must continue to gauge the different demands of its various tier customers and

respond accordingly. One of the objectives of our Tianjin trip is to unravel the cultural

thinking process in making the Ascott Resident Program successful.

3.4.2 Human Resource Strategies

According to ETN (Global Travel Industry News, 21 June 2008) and pre-trip interviews

with Ascott staffs, the Ascott Group has already implemented two initiatives to maintain

service standards throughout its serviced residences as follows:

The Ascott Centre for Excellence (ACE) provides staff with training to equip them

with knowledge, skills and best practices according to industry service standards.


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The Product and Technical Services provides consultancy for pre-opening phase of

new residences.

ACE trains Ascotts 5,000 employees located in Asia Pacific, Europe and the Gulf

region to support its global expansion. ACE is the only training center in Singapore to

offer the Workforce Development Agencys (WDA) full range of Hotel and

Accommodation Services programs. These initiatives would serve as a value-add on how

Singapores management and operations culture is imbued within a China context in that

they help top level staff continuously upgrade or retrain their skills to meet the latest

standards in hotel operations management and subsequently pass on that knowledge to

local directly. These initiatives also allow all of Ascotts regional human resource trainers

to maintain similar standards and practices throughout all Ascott properties by giving

them central location to pool their experience. .

In addition to the training programs, Ascott also stresses the need for managers to

have hands-on experience. Therefore, all managers, including those from outside the

hospitality industry, are expected to either already know every operational job under their

control or take an intensive crash course to do so. Furthermore, managers are encouraged

to rotate among Ascotts various properties inside and outside of China to gain deeper

insight on international standards.

3.4.3 Ascott Strategies to Address Cultural Challenges

In terms of cultural challenges, the greatest strength of the Group lies in its powerful and

internationally experienced Singaporean Chinese management team (King, 2007).

Therefore, in entering China, Ascott is able to overcome the language and cultural


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barriers with the presence of their bilingual management team with Mandarin as their

mother tongue. What was culturally challenging to Ascott is how to manage local

Chinese staff and how to train them using made-in-Singapore hospitality service training,

all in Mandarin.

Through our interviews with Ms. Chung Li Ren, Manager of Ascott Centre for

Excellence, Ascott International Management, we learnt that Ascott sent Managers bound

for overseas assignment on a special training program lasting three to six months called

the Accelerated Residence Manager Program (ARMP). For example, Singaporeans like

Mr. Darren Cher, Residence Manager of Ascott Tianjin underwent such a training stint

prior to taking the post in China. On the other hand, Chinese Residence Managers,

promoted or appointed in China, had to go through the Ascott Culture training and

induction program at the Singapore HQ Office. They have to undergo cross-function

office briefings and to thoroughly understand the policies and processes within the

corporate office. Not taught in classroom settings, these trainings emphasize on the

placement of the managerial staff and experiential exposure to the city-assigned culture.

Questions were asked if these trainings involved detailed walkthrough on local city

cultures and using certain Cultural Intelligence frameworks. Ascott appears to leave

cultural adaptation of its managers to fate. Human resource staff of local offices will brief

managers on local information, including policies and rules governing the area.

Pre-trip interviews with Ascott staff in Singapore revealed their acknowledgement of

the Chinese locals as being hardworking and relatively fast learners, coupled with an

intrinsic drive to achieve in the workplace. They also suggested that the service levels of

local Chinese staff in China are also well known for subservience to customers and high


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level of personalized service, accompanied by the Chinese saying customers (guests) are

always right. As we will discuss in later chapters, this perception of Chinese service

staffs being subservience and high level of personalized service is not true from our on

ground findings.

On an organization-wide level the Ascott Group has devised a signature Ascott

Residents Programs to help guests feel at ease and assimilate into the local lifestyle,

allowing them to have a whole new travel experience minus the hassle. These self-

enrichment programs and local activities bring guests up-close with each citys unique

culture and practices. In China, Ascott local offices have launched initiatives to cater to

local cultures, such as the HeartwareProgram in China since 2006. Each residence in

China has specially designed programs for residents to adapt to local city culture and

environment. For example, the residence organize tours to public celebrations during

Chinese New Year, dumpling festivals, and movie nights, specifically designed based on

local flavor as well as on the basis of customers profile. In terms of catering to

customers profile, Ascott will organize activities for residents with families to help

children and spouses to adapt to the new living environment.

Our trip to Somerset Tianjin will confirm or disconfirm these Ascott strategies to

address the cultural challenges.


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CHAPTER 4

THE ASCOTT GROUP: PRIMARY CASE ANALYSIS

This chapter discusses ground observations and findings from face-to-face interviews

obtained from our trip to Tianjin, with serviced residences, hotels, restaurants and Ascott

Somerset Tianjin staffs.

4.1 Interview Strategy

Following the conceptualization framework in Chapter 3, namely Business Strategy,

Human Resource Management and Cultural Aspects, we have designed our interview

strategy to address issues pertaining to each element and the intersecting sub-elements.

The following personnel from Somerset Serviced Residences were interviewed in

Tianjin: the Residence Manager, HR Manager, Guest Relations Manager and the Sales &

Marketing Manager.

Mr. Koh Yan Leng, Residence Manager. Mr. Koh signed up with Singapore Ascott

and was sent to China under an expatriate package. He was previously with

Singapore Airlines and had worked in London, Madrid, Auckland, Beijing and

Shanghai, prior to joining Ascott.

Ms. Cindy Zhang, HR Manager, joined Somerset Olympic Towers in April 2008. A

Tianjin native, she was in a pharmaceutical company in Hangzhou before joining

Ascott.

Ms. Maggie Deng, Sales Director, joined Somerset in Nov 2008. She worked in

Hyatt Regency in Tianjin for 4 years as a secretary, and moved to Singapore and

worked for 5 years in SingTel as a customer service officer and in telemarketing. She


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also took her MBA in Singapore, before returning to Tianjin and joined River Club

Tianjin for 2 years before joining Somerset. She was born in Hubei and moved to

Tianjin at 3 years old.

Ms. Annie Lee, Guest Services Manager, joined Somerset in Sep 2008. She studied

hotel management in Nankai University, and after graduation, had worked in

Shenzhen and Shanghai for a Hong Kong company and MNC respectively. She was

born in Tianjin, and returned to Tianjin and worked in Sheraton and Hilton before

joining Somerset.

An analytical reader would have noticed that the Ascott Somerset staffs we

interviewed at the newly established Somerset Youyi had joined the company for less

than two years and their work experiences were brought from working at other Chinese

provinces. These managers brought in new insights to Somerset, in terms of cross-

cultural perspectives and different work ethics from outside of Tianjin but perhaps

lacking in terms of thinking inline with the Ascott Culture (Letters from the Heart, AIM

China E-Newsletter). Questions were asked to affirm the findings from the pre-trip

interviews for all the interviewees and to obtain first-hand accounts of cultural challenges

on:

Customer profile and preferences, and their expectations

Differentiation strategies, Tianjin staff profiles, human capital management and

operational challenges;

Training for different levels of staff, and how it differs for expatriates and locals.

Dynamics between expatriates and locals.


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We also customized questions for each interviewees specialized area of work. For

example, we focused on sales and marketing strategies when interviewing Ms Maggie

Deng, the Sales director. Following the interviews, we conducted observations at

Somerset Youyi Serviced Residence and at several competitors to observe and contrast

the physical, visual, and service-related differences.

4.2 Findings

The interviews provided new insights into Somersets business and human capital

management strategies will be discussed in the following sections.

4.2.1 Customers Profiles, Preferences & Their Expectations

In Somerset Olympic Towers, 85-90% of customers are Japanese, with 97% of them

classified as long stays (6-12 months). In Somerset Youyi, 50% of customers are

Japanese with only 70% long stays, as a result of having more studio apartments in

Somerset Youyi compared to the Olympic Towers.

The Tianjin serviced residence market is predominantly Japanese as they are more

able and willing to pay Somersets rates compared to the Korean group. Somersets

focus on the Japanese market is intentional, following market research and sales leads.

According to Somerset, the Japanese like to stay put in a familiar community and

currently, expatriate packages have lowered in budget due to the economic downturn.

Somerset lowered prices as a result of the situation and some Japanese guests have opted

to do without certain facilities or amenities. Youyis greater units of studio apartments


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are timely to current market conditions and appealed to expatriates with smaller

accommodation budgets.

Somerset is starting to target the Koreans in Tianjin, who thus far have preferred to

lease non-service apartments and they are more budget conscious, preferring cheaper or

no facilities. Still, they are a bigger market than the Japanese in terms of numbers.

4.2.2 Differentiation Strategies

Somersets differentiation strategy is to provide personalized service that exceeds

customers expectations. The Ascott Heartware program is a customer service program

that gives guests what they want, with the objective of making them feel at home. On top

of the Ascott Standard Operating Procedures (SOPs), each branch can go over and above

SOPs to achieve service excellence and deliver surprises for the guests. This dont give

no for an answer approach is standardized across Ascott. Furthermore, Ascott has

international conferences to share such best practices and experiences across different

Ascott branches.

For longer-term guests who stay more than 6 months, Somerset has a special check-in

process by which check-in is not done upon the guest's arrival. Instead, guests are shown

directly to the room, and the Residence Manager, the housekeeper and security guard will

be there to greet the guest and introduce themselves. The Guest Services Manager will

then bring the guest around the surroundings, including nearby facilities, to orientate

them. After one week of stay, guests are invited to special activities specially organized

as a form of celebration.


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Somerset also conducts activities for wives of expatriates, provides weekly shuttle

buses to send the wives for shopping and to golf on weekends. Somerset Olympic Towers

has a childcare centre, and Somerset sends the children to international schools.

Somerset also celebrates the guests' native festivals.

According to ,Ms. Annie Lee, Guest Services Manager, training is conducted on how

to provide warm customized service e.g. celebrating birthdays, remembering what guests

shared informally. This particular aspect differs from the way traditional hotels provide

customized service and is a differentiation key to the Somerset brand in the serviced

residence market. In order to move ahead or to keep abreast with competition in Tianjin,

Ascott seeks to evolve in the following areas:

New products and services.

Building the right culture.

Getting the right people to train staff.

Refine marketing and sales strategy.

4.2.3 Training for Different Staff Levels in Somerset

According to Mr. Koh Yan Leng, Somerset has put in place a train-the-trainers scheme,

whereby a Singaporean trainer is flown into China to train the Shanghai office's trainers,

who in turn train the staffs in Beijing, Tianjin and Dalian. Basic orientation is conducted

for new staff members. Specialized training is also provided for functional areas, and

Somerset also has monthly training on various areas on top of daily operational briefings.

Training materials are developed locally in Tianjin itself, with periodical training

guidelines communicated down from the headquarters in Singapore. Lastly, Somerset


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has a job rotation program for staff to work in different countries. In terms of difference

in training for expatriates and locals, we have observed no disparity.

4.2.4 Tianjin Staff Profiles, Human Capital & Operational Challenges

With regards to staffing, 99% of Somerset's managers are recruited from within the

industry as Somerset prefers recruiting people with relevant and transferable experience.

While some management level employees come from various recruitment avenues such

as other service-oriented companies, front level staffs are typically recruited from

hospitality schools.

Tianjin staffs in particular are typically contented and turnover is low compared to

other China cities like Shanghai, Beijing and Shenzhen. In Tianjin, dorms are not

provided for the staffs because most of them are locals. In comparison of Tianjin

workers with other Chinese provinces, the locals typically do not wish or like to work

overtime and are generally lazy, according to on ground sources. Tianjin staff also faced

communication problems in terms of language which resulted in few locals venturing for

job opportunities abroad. Most staffs in Somerset Olympic Towers have worked for more

than seven years. As culturally Tianjin people tend to miss home with family pressures to

settle down in Tianjin, the attraction of serviced residence in attracting and retaining

staffs is due to the easy contentment of the local people a stable job environment

prevalent in serviced residences due to longer-stay customer profiles attracted the locals.

Moreover, interaction and guest-staff relationships are generally longer-lasting as

compared to normal hotel guests which attracted certain staffs.


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In terms of Tianjin human capital challenges, we noticed that at both Somerset Youyi

and Sheraton Tianjin, the front desk receptionist did not greet nor take the initiative to

welcome visitors who came in looking for assistance. Observably as well in government

offices and restaurants, female receptionists also tended to huddle behind desks near the

entrance (see Figure 4-2). To some extent, these behaviors appear to reflect the reluctance

to do beyond what they have been assigned, coupled with a sense of power distance as

well as the Chinese high collectivism and need for group affiliation. This culture is an

operational as well as a mindset challenge for Somerset Tianjin and China in general to

be able to adopt a more service-oriented attitude that is not hindered by the ways and

approaches they are accustomed to. This is in direct contradiction to the training

provided by companies in the service industry (for example Ascott training), versus the

actual service standards provided by the local staffs, which is capped by the prevalent

local Tianjin culture, leading to expected service behavior not following suit.

FIGURE 4-2

Chinese Staffs Displaying High Collectivism and Group Affiliation


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4.2.5 Dynamics between Expatriates & Locals

While nationality did not pose major issues in day-to-day operations, in terms of building

business relationships, the Chinese are more aware of the need to build relationships with

the government. Ms Maggie Deng said that the Chinese drink to do business; it is more

tha

Ascott Group in Tianjin, China - A Study of Business & Cultural Obstacles

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