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Interactive Q&A: Mitchell Presnick, Chairman & Chief Executive Officer, Super 8 Hotels (China)

by: SA Editors July 02, 2007 | about stocks: CTRP / HMIN / LONG / WYN    
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This is the latest in the Seeking Alpha series of interviews with leading companies of interest to our readers. These, however, are interviews with a twist: the executive has agreed to answer questions and respond to comments not from a single interviewer, but rather from our community of readers and contributors.

Super8HotelThis interactive Q&A is with Mitchell Presnick, Chairman & Chief Executive Officer, Super 8 Hotels (China), which through its parent company Tian Rui Hotel Investment Corporation, is licensed by Wyndham Worldwide Corporation (WYN) to develop the Super 8 brand in China. This interview works like this:

  • Mitchell briefly introduces himself and the issues he's focused on below.
  • Readers and contributors can immediately start to post questions and remarks using the comment box below (Note: you need to sign up for free registration and be logged in to do so).
  • Seeking Alpha editors will not filter or edit the questions and comments from readers, except to delete profane or hostile language.
  • Mitchell will respond to the questions and remarks beginning Monday, July 2nd. Readers can track his answers and respond to them during that period, with the resulting dialogue remaining on the site.

Yahoo Finance readers may join the Q&A by following this link.

Over to Mitchell:

mitchell presnickHi - I'm Mitchell Presnick, Chairman & CEO of Super 8 Hotels (China), which through our parent company Tian Rui Hotel Investment Corporation, is licensed by Wyndham Worldwide Corporation (WYN) to develop the Super 8 brand for the territory of China, including Hong Kong and Macau.

According to Smith Travel Research, Super 8 is the largest economy hotel chain based upon number of properties. The Super 8 franchise operates hotels in China, the United States and Canada.

We entered the China market in 2004 and opened our first hotel in Beijing on June 8, 2004. As of June 2007, we currently have 49 properties open and operating, and more than 70 properties under construction in over 60 cities across China.

Prior to Super 8 China, I served as China country manager for Edelman Public Relations, where I provided brand development counsel to multinationals such as Procter & Gamble, M&M Mars, Johnson & Johnson, and Anheuser-Busch. I have been a resident of Beijing and Hong Kong for over 18 years. I am originally from Brooklyn, New York.

I also serve as a director of the China Hotels Association, commissioner of the Franchise Committee of the China Chain Store & Franchise Association or CCFA, and executive member of the Hotel Industry Experts Committee of China’s Ministry of Commerce.

I'm happy to discuss a range of topics with Seeking Alpha readers, including:

  • Super 8's China growth strategy
  • China's hotel and travel market
  • The Chinese economy and real estate market
  • Western companies establishing themselves in China

Please leave your questions by using the comment box below.

Thank you!

-- Mitch

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This article has 37 comments.

  •  
    Jul 02 11:23 AM
    Mitchell,
    Thanks for doing this interview.
    Can you talk about your approach to launching Super 8 in China back in '04? My impression is that there were tons of economy hotels in China before you got there.
    Thanks,
    David
    Reply
  •  
    Jul 02 04:37 PM
    Hi David,

    Thanks for the question.

    In 2004 we did see a handful of brands who had established the beginnings of regional presence and some other chains gearing up. Most of all, we noticed that neither the consumer nor the potential licensee, seemed clear about the value proposition an economy hotel product actually offered. The context at the time was that almost no one was licensing or franchising their brand at the time, and there were approximately 5-6000 2 and 3 star properties in China, many of them undermanaged and unprofitable at the time.

    Thanks,

    Mitch
    Reply
  •  
    Jul 02 11:53 AM
    What's your expansion strategy -- are you placing properties in first-tier or second-tier cities? Are you taking over existing properties or opening new?

    Where does your order flow come from, and what are the trends? (Aggregators such as Ctrip or Elong? Direct? Other?)
    Reply
  •  
    Jul 02 04:37 PM
    Dear Liudy,

    Our expansion strategy has been to establish our brand using franchising in first and second tier cities, then to move into smaller cities and satellite towns where the economics are actually favorable long term compared to the big four and the provincial centers. We like taking over existing properties either operating or not, and then heavily renovating the buildout, over a six to nine month period, to accommodate our life safety and other standards. One of the more common structures one is likely to see as they tour around the country is a 4-5 story concrete reinforced structure with a footprint of about 8000-10,000 square feet (approx. 800-1000 sq m) and total area of 3-40,000 square feet (3000-4000 sq m).

    It will be a while before we or our industry colleagues can penetrate the 3000+ 'town and country' markets which we think will eventually be available to economy hotel properties. Primarily its a factor of time against the primacy of maintaining quality and standards for all of us.

    Mitch
    Reply
  •  
    Jul 02 04:39 PM
    One additional comment as part of my answer to Liudy; we plan on directly operating properties in this market, alongside our franchised properties. We have several properties underway. This is something Super 8 does not currently do as a brand in the United States.

    Mitch
    Reply
  •  
    Jul 02 12:48 PM
    Thanks for doing this. It's not often we get to hear from people who really know what's going on in China. Can you talk a bit about leisure and business travel in China generally? How fast is demand growing? How is pricing, and are companies (including your own) making reasonable margins?

    Thanks,
    Ralph
    Reply
  •  
    Jul 02 04:40 PM
    Dear Ralph,

    Nice to hear from you. Thanks for the question.

    Regarding leisure and travel business in China in general, I see the industry as one of the most direct beneficiaries of economic growth over the last 20 years. The real story here is not foreign inbound travel, but internal and outbound travel by Chinese nationals. Its been shown in developing countries around the world that, as soon as consumers begin to enjoy disposable time and income, one of the first things people do is travel. That has certainly been the case in China, and the infrastructure is barely keeping up despite phenomenon growth and investment in the national road, air and rail networks.

    According to a study by the World Travel and Tourism council, travel GDP growth in China has exceeded overall country GDP growth in each of the last five years, and in some of those years the annual growth rate approached or exceeded 20%. Quite an impressive performance. So we are bullish on the travel sector as a whole, and especially in the runup to the Olympics in 08 and the Shanghai World Expo in '10.

    To the second part of your question, pricing and margins, I think the smart players are investing in the key drivers of long term profitability; distribution and brand power, cost control, quality assurance and information systems. We are especially focused on maintaining an adequate margin pool for all commercial participants in our brand to access. That means we will be maintaining our 'upper economy' positioning and a slightly higher ADR than the industry average. It also means that we will be trying to capture our customers as early as possible on our brand.com site and through our VIP card program, so the number of participants in our margin pool will be as few as possible.

    Thanks,

    Mitch
    Reply
  •  
    Jul 02 12:53 PM
    Thank you for taking the time out of your schedule to chat with us Mr. Presnick. My first question piggy backs Liudy with regards to expansion strategy. Do you believe you can garner more growth buy expanding into secord tier markets? 1st tier? or a combinations of both?
    Reply
  •  
    Jul 02 04:36 PM
    Dear Larry,

    My pleasure. Thanks for the question. I think in time we will see chains like Super 8 expanding all the way down into markets with populations of 1-200,000 people, which is something like a small town here in China. The saying in golf is the 'drive for show and putt for dough'. In this market, the majority of budget hotel revenue generated by the chains 10 years out in time will be in little places that most foreigners, and for that matter many Chinese, have probably never heard of. That said, I don't see the expansion of roadside motels happening on any true scale for a while.

    Thanks,

    Mitch
    Reply
  •  
    Jul 02 12:54 PM
    Do you see Home Inns (HMIN) as your biggest competitive threat --- especially now that it's flush with cash after its recent IPO?
    Reply
  •  
    Jul 02 04:50 PM
    Dear Joe Mama,

    We have watched Home Inns closely from the beginning, and they and other brands have earned our respect. They have worked very hard to establish themselves in this competitive environment.

    Its early days for everyone, however, and one shouldn't forget that the sum total of all branded properties in China is still less than 1000...a small fraction of what we are going to see in the near future. Its a race to scale and a race to capital for everyone. Whatever capital has been raised by any of the leading brands to date will not be sufficient to satisfy the market's appetite for this product.

    The constraining factors for us and our competitors will continue to be management time, human resources and the physical process of converting, receiving govt approvals and opening a large number of properties all across the country.

    With regards,

    Mitch
    Reply
  •  
    Jul 02 12:55 PM
    Following Liudy's question above, what's your view of the Chinese Internet stocks? Specifically interested in the travel sites.

    On your own business, how much competition is there in the hotel sector? Are you seeing any US hotel chains expand successfully in China?
    Reply
  •  
    Jul 02 05:01 PM
    Dear Lisa,

    Ctrip's share price seems to have performed well over time, which makes sense given that they and eLong were established before the economy hotel brands arrived (compared to the US, which saw the chains established before the likes of Orbitz and Travelocity) and they have an impressive management team, some of which were involved in the establishment of economy hotels chains as well.

    That said, I am no expert on the Chinese internet companies, and we don't want to comment on subjects about which we don't know much.

    As is the case with most industries in China, the hotel sector is seeing strong competition but also strong growth numbers. Domestic travel is the real story here, and those budget chains who can capture and maintain an ever growing, loyal domestic Chinese customer base will probably be fine.

    As for other US chains expanding in China, certainly most of the leading American chains in the mid-scale, upscale and upper-upscale markets are either here or coming soon. Just speaking about brands in the Wyndham family, Ramada has a well established presence and an excellent product here. They have been in the market since the early 90s. Howard Johnson and Days Inn have terrific product as well. Wyndham recently announced it will open and operate a flagship property in Xiamen, Fujian province.

    Mitch
    Reply
  •  
    Jul 02 01:05 PM
    Mitchell,

    Many thanks for making yourself available for our questions.

    How much does WYN stand to gain from your business if successful? Could it be meaningful for WYN's stock?

    On the Chinese market, what do you think US investors understand least well about what's going on in China?

    Many thanks.
    Reply
  •  
    Jul 02 05:11 PM
    Dear Frank,

    You'd probably have to ask Wyndham about your first question.

    As for US investors understanding what's going on in China, I have always been impressed with how much China incorporated understands about the US market, and vice versa. That said, I'd have to say that the average Chinese investor probably understands the US market a bit better than the average US investor understands China.

    In a previous life I served as vice chair of the American Chamber of Commerce in China, where we published an annual White Paper on issues affecting the bilateral commercial relationship. The findings showed a fair amount of understanding by US business and institutional investors about the China market. I think for individual US investors, the understanding level is probably less and will undoubtably improve over time as the China market becomes a more established destination for US individual investors.

    Best,

    Mitch
    Reply
  •  
    Jul 02 01:58 PM
    Hi Mitchell,

    Barron's did an interview yesterday (July 1 07) of a fund manager who revealed that while the average Shanghai stock trades at 40x earnings, Chinese stocks traded OTC in the U.S. are still trading at a much more modest 7-8x, representing a hidden opportunity for shrewd investors (I summarized the interview here).

    Is your parent company thinking of selling shares on U.S. markets? Why do you think Chinese companies trading in the U.S. are garnering smaller multiples than their overseas counterparts?

    Unrelatedly, as a visitor to China, in what ways would my visit in a Super 8 hotel resemble my experience in the States, and how would it differ. Dollar for dollar, how do room prices compare? What is the current breakdown of your guests (domestic vs. U.S. vs. Europe)?
    Reply
  •  
    Jul 02 06:09 PM
    Hi Eli,

    Thanks for the question and comments about opportunities for investors in Chinese stocks both in the US and China.

    As you know both the Chinese real estate and stock markets have seen impressive price growth over the past 24 months. There is an enormous volume of capital in individual savings and under mattresses here in China, and up until recently, not many reliable destinations for people to invest. So I suppose that might have something to do with the 40 times earnings multiple in Shanghai you mentioned.

    To the extent that we invest in Chinese real estate, we are long term, strategic investors and operators, so our investment criteria is probably not be applicable here. We invest to support our growth strategy, so I'm not that familiar with the market arbitrage opportunities you describe in your first paragraph. I don't doubt that arbitrage opportunities may exist, given that the currency is not yet fully convertible and the stock and real estate markets are broken out into investments available for Chinese and investments available for foreigners. Its just that I probably don't have anything thoughtful to say about that topic.

    As to your question about our parent company, TRHC, selling shares on US markets, we don't have any announcements to make at this time.

    As to your question about the potential difference between a Super 8 in the US and in China, I would start by inviting you to come over and try our product here if you haven't already. We are very proud of the value Super 8 offers the Chinese market. Super 8 USA's ADR in the US is something around 60USD, which is over twice the ADR we capture here in China, but our buildout costs are less than half that of the US Super 8 system (a full renovation of a Super 8 property here in China costs less than $1m or $10k per room unit) Our product is up to US Super 8 standards in all material respects. Go to super8.com.cn and click "English", or visit super8.com to view our product online.

    Best,

    Mitch
    Reply
  •  
    Jul 02 03:56 PM
    Hi David,

    Thanks for the question.

    In 2004 we did see a handful of brands who had established the beginnings of regional presence and some other chains gearing up. Most of all, we noticed that neither the consumer nor the potential licensee, seemed clear about the value proposition an economy hotel product actually offered. The context at the time was that almost no one was licensing or franchising their brand at the time, and there were approximately 5-6000 2 and 3 star properties in China, many of them undermanaged and unprofitable at the time.

    thanks,

    Mitch
    Reply
  •  
    Jul 02 04:06 PM
    Dear Liudy,

    Our expansion strategy has been to establish our brand using franchising in first and second tier cities, then to move into smaller cities and satellite towns where the economics are actually favorable long term compared to the big four and the provincial centers. We like taking over existing properties either operating or not, and then heavily renovating the buildout, over a six to nine month period, to accommodate our life safety and other standards. One of the more common structures one is likely to see as they tour around the country is a 4-5 story concrete reinforced structure with a footprint of about 8000-10,000 square feet (approx. 800-1000 sq m) and total area of 3-40,000 square feet (3000-4000 sq m).

    It will be a while before we or our industry colleagues can penetrate the 3000+ 'town and country' markets which we think will eventually be available to economy hotel properties. Primarily its a factor of time against the primacy of maintaining quality and standards for all of us.

    Mitch
    Reply
  •  
    Jul 02 04:10 PM
    One additional comment as part of my answer to Liudy; we plan on directly operating properties in this market, alongside our franchised properties. We have several properties underway. This is something Super 8 does not currently do as a brand in the United States.

    Mitch
    Reply
  •  
    Jul 02 04:25 PM
    Dear Ralph,

    Nice to hear from you. Thanks for the question.

    Regarding leisure and travel business in China in general, I see the industry as one of the most direct beneficiaries of economic growth over the last 20 years. The real story here is not foreign inbound travel, but internal and outbound travel by Chinese nationals. Its been shown in developing countries around the world that, as soon as consumers begin to enjoy disposable time and income, one of the first things people do is travel. That has certainly been the case in China, and the infrastructure is barely keeping up despite phenomenon growth and investment in the national road, air and rail networks.

    According to a study by the World Travel and Tourism council, travel GDP growth in China has exceeded overall country GDP growth in each of the last five years, and in some of those years the annual growth rate approached or exceeded 20%. Quite an impressive performance. So we are bullish on the travel sector as a whole, and especially in the runup to the Olympics in 08 and the Shanghai World Expo in '10.

    To the second part of your question, pricing and margins, I think the smart players are investing in the key drivers of long term profitability; distribution and brand power, cost control, quality assurance and information systems. We are especially focused on maintaining an adequate margin pool for all commercial participants in our brand to access. That means we will be maintaining our 'upper economy' positioning and a slightly higher ADR than the industry average. It also means that we will be trying to capture our customers as early as possible on our brand.com site and through our VIP card program, so the number of participants in our margin pool will be as few as possible.

    Thanks,

    Mitch
    Reply
  •  
    Jul 02 04:29 PM
    A correction on the above comment; that should read 'phenomenal' not 'phenomenon' in the last line of the first paragraph.
    Reply
  •  
    Jul 02 04:50 PM
    Hi Mitchell,

    How easy or difficult is it to find qualified local personnel with serious hotel experience. I would imagine that with the rapid growth the industry in general and of your business in particular it could become an increasingly difficult issue.

    Herb from NC
    Reply
  •  
    Jul 02 05:22 PM
    Dear Herb from NC,

    Human resources is a key constraint for all service industries in China. In order to keep up with Super 8's speed of growth in this market, we hire and train a large volume of people. Each employee requires a 2-4 week full time training to ensure our "Clean and Friendly" product is maintained. We've found it easier to train (at our training facility in Dalian, Liaoning Province) people with slightly less experience than to try to find highly experienced individuals with relevant skills in the market. Economy hotels are sleep retail as much as they are hospitality. So the skill sets are not always 100% transferable. One thing is true, human resources will be a key constraint on the branded Chinese economy hotel participants for some time.
    Reply
  •  
    Jul 02 05:02 PM
    It's great having this opportunity to ask questions. Thanks!

    I'm still wondering about where your reservations come from, and what you see as the trends.

    Obviously, long-term you'd like customers to do the equivalent of reserve your entire trip at 1-800-super8.
    But travel agencies such as ctrip or elong and who-knows-who will have some role for the indefinite future. Any comments on the relative maturity of your originators or aggregators of reservations, how good or bad a job they do, what the customer experience is like in booking hotels and flights and train tickets, and what it will become like?
    Reply
  •  
    Jul 02 06:31 PM
    Dear Liudy,

    Thanks for joining this Q&A and making me feel welcome.

    Our reservations come from multiple sources, including our brand website, our China national reservations "Superline" 400 810 7822, and our Super 8 China VIP card, which alone generated over 3000 room nights last week.

    You bring up an interesting subject about the relationship between the third party intermediaries, travel agents and aggregators such as CTrip and CITS, and the hotel brands, airlines etc. The fact that the TPIs came before the economy hotel brands in the China market cannot be emphasized enough. It has created a very different dynamic than that which exists in the North America and Europe.

    We see three trends with regards to travel agents and economy hotel brands (1) economy hotel brands will continue to work with online agents when it makes sense, especially in the first year of a property's operation, (2) economy hotel brands creating direct relationships with their customers through targeted marketing and strong loyalty programs, and (3) travelers continuing to rely on TPIs and aggregators for package travel and bookings with non-branded hotels.

    Thanks again for the question.

    Mitch
    Reply
  •  
    Jul 03 05:39 AM
    Mr Presnick,

    Greetings from a fellow China dweller. I've been out here for almost 3 years and can see no forseeable time when I will leave. However, finding employment as an ex-patriate in China (without specific skills such as I.T. or software, for example) is extremely difficult (bordering on impossible) if one is not in the TEFL (Teaching English as a Foreign Language) field.

    Could you provide any ideas/insight on breaking into a company (preferably from a western country) that is doing business in China in this regard?

    Thank you for your time and consideration.

    Jason in Hainan
    Reply
  •  
    Jul 03 07:15 AM
    Dear Jason,

    I totally understand what you are talking about. When I entered the job market in Hong Kong in 1990, I experienced many of the same problems you describe. Difficult for a young westerner to secure an entry level position without professional specialization or relevant experience. The system is not really set up for Westerners to come here and easily find professional positions.

    In general, my advice to you would be to either gain a professional specialization in your home country and then come back or get sent back by your company (advice which I received and rejected back in 1990), or establish your temporary base in one of the major commercial centers such as Beijing, Shanghai or Hong Kong, then give yourself three to six months to find an internship or pro-bono entry level position (if you can manage financially) with a reputable company. Once you are employed and 'in the system' you can move to a better paying position.

    I am not sure you will find your China dream job in Hainan. That said, if you are not sure about your next step, Hainan is a great place to be unemployed while you figure it out.

    Good luck.

    Mitch
    Reply
  •  
    Jul 03 12:52 PM
    Hello Mitch,

    Thanks again for taking the time out to chat with us. I just wanted to comment on a couple of thoughts which your shared with us yesterday. I was hoping that you could elucidate a bite more for us.

    You had mentioned to David that in 2004 when Super 8 launched that the properties were undermanaged and unprofitable. What do you think were the key drivers for the undermanaged and unprofitable performance during that stage of Super 8's development?

    Secondly, you mentioned to Liudy that Super 8 is directly operating properties in China, alongside our franchised properties and that this approach was not being utilized in the US. How much strategic tailoring has Super 8 had to conduct within the Chinese market in order to gain traction within China? Moreover, do you believe this approach will be more successful as opposed to a standardize approach employed by other multinationals?

    Futhermore, you mentioned difficulty penetrating the 3000+ town & country markets. What factors do you believe contribute to this? And what strategic approach do you believe will be successful in reducing this barrier to entry.

    Finally, why do you think Chinese investors have a better understanding of the US market as opposed to US investors of the Chinese market? Do you think it's the Chinese - holistic view vs the American - individualistic approach? I say this because it always seems to baffle me when 'in my view'... it appears the US multinational are not conducting a rigorous due diligence process pertaining to investing within the Chinese market. Or is the Chinese market too fragmented to obtain a clear understanding of all the variables that effect the marketplace?

    Thanks in advance for your feedback.
    Reply
  •  
    Jul 03 03:19 PM
    Dear Larry,

    All good questions.

    To answer your first question, let's start by acknowledging that, while not a large %, some 2- and 3- star properties in the market here were actually doing okay in 2003 when we first began to analyse the market. Just like some mom and pop motels along US highways were very well managed before the Super 8's and Holiday Inns arrived in the US in the 60s and 70s.

    The majority however, were not doing well. When describing those undermanaged and unprofitable properties, keep in mind that, for virtually all of the Chinese 2 and 3 star hotels which existed from 1970 through the year 2002, hospitality was not the primary business of the owner/operators. China Post, which just sold a portfolio of properties, the electric bureau, the coal bureau, the China Widget Bureau, etc., all owned and operated their own fleet of properties primarily to serve as dormatories for their many thousands of national employees. A property would try to sell rooms at least 30-40% of their room night inventory to guests from outside their work unit to try to generate actual revenue, since many properties were on a sort of barter system (also known as room night exchange) icult to persuade the offices of the employees from the other districts to pay. Even though they were two and three star properties, they tried to offer a wide range of elevated features, such as restaurants, bowling alleys, entertainment, etc., fancy lobbies to make the more senior cadres feel comfortable about their stay.

    Perhaps at this point it would be instructive for us to look back to the 1960s and 1970s in the US and Canada, where there were hundreds and hundreds of mom and pop roadside motels. They competed primarily on price, and to a lesser extent, features and benefits, since none of them had 'brands' or recognizable differentiated quality attributes which would have allowed them to compete on 'value'...because one needs to demonstrate price as compared to quality and benefits in order to do that. The operator was either motivated and skilled at running their property...or they weren't. Even to the extent they had to be skilled, the skill set was limited to ensuring the rooms were clean and the service not too surly. From the point of view of a potential guest, they would drive in their car until they thought it was about time to stop for the evening, then they would look begin to look for a sign with an acceptable price and an exterior curb appearance which they felt acceptable, and they would stop. But in reality it was a grab bag. No brand meant no way to predict what to expect.

    OK, back to China...now take away the profit motive, the individual owner, and distract the operator away from investing in/providing basic services by providing lots of unsustainably fancy features and benefits not suited to a basic lodging facility, and you get a national system populated by many undermanaged and unprofitable properties.

    To your second question, you are correct that we have modified our operating strategy to ensure we are relevant to Chinese guests and owners. That said, Super 8's original founders defined a business model and brand culture ("Clean and Friendly Service", heavy focus on quality and consistency, innovation, hard work and self reliance, mutual benefit with our franchise operators) which we have not modified at all.

    As an aside, did you know that Super 8 was the first economy hotel chain to utilize a VIP card loyalty program?

    The successful multinationals I have worked with in this market all understand the importance of creating a set of tailored products, distribution and marketing which rely on the local situation, and a flexible operating structure. Then they measure their performance as they would anywhere.

    Regarding your third question, the difficulty in penetrating the three thousand plus markets is a factor of the time it will take for the brands to get to all of those places. Everyone is distracted right now with the 150+ cities with populations of Many of those markets are ready for a branded economy hotel property, and it is in those markets, even more than in Beijing or Shanghai (which are more relevant as brand marketing , that the real potential for the sector can be found. And that market level has not even begun to see penetration.
    Reply
  •  
    Jul 03 03:51 PM
    Thank you Mitch for the comprehensive feedback. The VIP card is an interesting tidbit. Besides the implementation of your loyalty program are there any other strategic initiatives that will be put into place to create brand awareness in the minds of Chinese consumer? Moreover, who is your target audience? I have seen companies like Starbucks target a more younger demo with the hopes of indoctrinating them into the "Starbucks Way".

    Futhermore, could you talk a bit about your observations regarding Western companies establishing themselves in China? I'm curious to hear about your thoughts with respect to the strategic challenges facing companies looking to enter and develop within China.
    Reply
  •  
    Jul 03 03:54 PM
    Continuing with an answer to Larry's question...starting from the second sentence of the last paragraph:

    Everyone is distracted right now with the 150+ cities with populations of 1M or more. But many of those 3000 town and country markets are ready for a branded economy hotel product, and it is in those markets, even more than in Beijing or Shanghai (which are more relevant as brand marketing centers) that the real potential for the sector can be found. And that market level has not even begun to see penetration yet.

    To your last question, I do believe Chinese investors generally have a better understanding of the US market as opposed to US investors of the Chinese market. I don't really have any great insights why that is, but it does seem to be the case. I don't necessarily think however that it has to do with a Chinese holistic view vs an American individualistic approach, but certainly the Chinese have shown themselves to be very adept at negotiating and dealing with US business.

    Regarding the US multinationals here, on the operating side, I have been extremely impressed with the market performance of star US players here such as IBM, KFC, Motorola, P&G and Anheuser-Busch. On the investing side, I am not as familiar with the players since we are not in that business.

    Morgan Stanley, Citi, JPMorgan, and some of the other US I-banks have been very active in the real estate and private equity spaces over the last 2-3 years, and I'm told their performance has been pretty good. On the private equity side, its not easy to diligence a Chinese company because there isn't the same openness to let others understand their business. I was involved in a couple of M&A projects for my clients and it was always a challenge.

    As you sound interested in this topic, so I would recommend you pick up a book by James McGregor entitled "One Billion Customers". It's well written, recently published, and addresses this and other related topics from a couple of different angles. Well worth a read if you are interested.

    With regards,

    Mitch
    Reply
  •  
    Jul 03 04:29 PM
    Mitch,

    Thank you very much for the recommendation. I find this to be a very interesting subject. The more I research the more I realize my initial assumptions are totally wrong. You have really clarified a lot of questions for me. Are there any other resources that you would suggest I look into?

    Thanks...
    Reply
  •  
    Jul 03 06:39 PM
    Dear Larry,

    Glad that our discussion was helpful to you. Here are a couple of additional China reference classics you may find useful.

    The Gate of Heavenly Peace - Jonathan Spence
    Mandate of Heaven - Orville Schell
    Chinese Commercial Negotiating Style - Lucian Pye
    Chinese Political Negotiating Behavior 1967-1984 - Richard Solomon / Rand Corporation

    Mitch
    Reply
  •  
    Jul 03 07:49 PM
    Dear Larry,

    Onto your questions regarding (1) Super 8's strategic initiatives to create brand awareness in the minds of Chinese consumers, (2) target audience, and (3) your request for observations regarding Western companies establishing themselves in China and thoughts with respect to the strategic challenges facing companies looking to enter and develop within China.

    Okay, here we go. We'll keep these somewhat brief if that's okay with you.

    (1) Super 8 China has instituted a number of strategic initiatives in this market, all centered around product quality, value, and brand distribution power. At the center of those objectives is a focus on partners, which here in China is the underlying requirement for the others.

    We like to say that 'win-win' at Super 8 means, 'franchisees win twice'. And we are happy to let our franchisees and partners win first, because as they do, we win as well. When our business partners win, our product reaches a wider distribution and our brand captures additional market visibility.

    I personally believe that > defines the most successful foreign brands in China. The foreign brand can't win unless the local partner wins, and preferably they should win first.

    Here are a couple of our specific initiatives:

    - Super 8 China's "Clean and Friendly" program, which ensures product quality for the guests through a comprehensive, integrated set of training, QA, and franchise service programs.

    - Super 8 China's "Directors of Business Development" program, where each property is assigned a dedicated room revenue consultant who ensures that everything from the online curb appeal to the local market price elasticity is reviewed and analyzed to find ways to maximize revenue. That is not always easy to do since our properties run almost 90% full across our system, but there is a high degree of elasticity in the economy hotel market in general.

    - Super 8's "8 Great Reasons to Love Super 8" and "Super 8 Clean and Friendly Service Promise" which are both consumer facing programs designed to show a guest what he or she can expect from the product.

    Target Audience - our target audience are white and gray collar Chinese domestic guests, between teh ages of 30-55, with an even split between leisure and business travelers.

    Strategic Challenges - the biggest challenge for a foreign businesses entering China --besides those mentioned above, such as locating good partners and ensuring that demonstrable benefits flow to partners -- is to strike the right balance between 'going local' and maintaining the core culture and values of the company. The best foreign companies here have 'gone local' in how they operate and portray themselves to the market, but they haven't forgotten that much of what makes them competitive and interesting to local partners and customers is their 'international' side.

    Conducting business as a foreign company in a way which is 'too local' can create a different but equally adverse outcome to conducting business as a foreign company is a way which is 'not local-enough'.

    With regards,

    Mitch
    Reply
  •  
    Jul 05 01:05 AM
    Dear Participants,

    We'd like to sincerely thank you all for your excellent questions. We'd also like to express our sincere appreciation to SeekingAlpha.com for providing us the opportunity and the venue to have this online Q&A discussion.

    For additional questions or information about Super 8 operations in China, feel free to visit our website at www.super8.com.cn/en/

    With warm regards,

    Mitch
    Reply
  •  
    Jul 05 02:16 PM
    This Seeking Alpha interactive Q & A is now closed for further questions. Thank you very much to Mitchell Presnick of Super 8 Hotels, and to our readers who participated.

    ~ The Seeking Alpha Team
    Reply
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