Organisations tend to expand through takeovers or mergers in order to benefit from economies of scale.This is evident in the corporate efficiency gained by hotel chains. Vertical integration refer to the integration or tie-ups between different type of organisations within the supply chain. For e.g. tie-ups between tour operators, transport providers,hoteliers and so on. This can bring improvemen ts in customer relationships,benefits in costs and improved quality. These larger firms will also be able to enjoy greater efficiencies through economies off scale.
In the international hotel sector, two distinct groups can still be identified. On the one hand is a large number of small independent business units and on the other the increasing enervation of chain units.
Despite the expansion of branded hotel capacity and the plethora of mergers, acquisitions and take - overs during the last decade, Europe's hotel sector remains dominated by individually owned properties or small hotel companies .As a result, it is estimated that no more than 20% of Europe's hotel capacity is branded.
Region Branded rooms as % of total
North America 65
East Asia 25
Middle East 25
South America 20
Europe 25
Chain penetration by region in % of total hotel stock, 2004 (Source:Mintel, 2005)
in a review of integration strategies in the tourism industry covering the half century to 2000, its been concluded much vertical integration has failed, largely due to the differences in capital and integration has failed, largely due to the differences in capital and organisational/operational characteristics in activities (e.g. the differences between providing hotels to running airlines).
Horzontal integration strategies have been more successfull,though they indicate that there are important issues of consumer choice that should be considered if this is diminished. Based on this work, therefor, it is likely that thegrowth of large hotel chains will be a significant feature of the international hospitality industry.
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