Marriott International Incorporation To Enter Argentina

Executive Summary

Marriott International Incorporation is an American multinational organization that manages a chain of hotels and related lodging facilities. Headquartered in Maryland, the organization was founded in 1927 and has operations in 127 countries. As part of its global strategy, Marriot International seeks to establish an eco-friendly resort in Argentina. The difficulties of doing business in Argentina include the long bureaucracies involved in setting up businesses in the country. The procedures for setting up presence and acquire business permits in the country are above the OECD average. Furthermore, getting secondary resources such as electricity connections take long periods of time that may disrupt the organization’s operational schedule. Secondly, investor protection in Argentina is very low compared to many other countries and this may pose uncertainties to the organization. Thirdly, the government levies high taxes on foreign companies and the procedures for tax payment are complicated with numerous overlapping taxes. Fourthly, establishing partnerships in the Argentinean market is cumbersome because enforcing contracts take as long as 20 months. Therefore, the purpose of this international business plan is to outline strategies that the company can pursue to overcome these challenges and make the venture profitable in Argentina. To enter the foreign market, the organization will adopt the strategic alliance model. The model is ideal because it will enable the organization to mitigate these possible challenges by leveraging the economies of scale already enjoyed by strategic partners. Additionally, Marriott International Inc will be able to bypass tedious government regulations and registration procedures for foreign companies. The uncertainties in the market will be mitigated by spreading the financial risks across the partners who will cushion the company against possible losses. Lastly, the strategic alliance will boost the company’s entry market share by leveraging the brand position of its partners to ward off competition. The capital investment for the product will be provided the strategic partners and will entail the capital budget for licensing fees, distribution costs, cooperation costs and marketing. The company will use these capital investments to increase place utility by promoting accessibility of the services to customers. Moreover, the shared capital will be used to acquire raw materials from the Argentinean supply chain in order to eliminate shipping costs and increase revenues.  In a nutshell, the report analyzes Marriott International Inc. capabilities and the Argentina’s market features that may influence business operations. Also, it examines the customer behavior and tax obligations on businesses.

Introduction

The hospitality industry is growing at a steady rate due to globalization, changing economic climate and technology among other factors. The industry has also become more competitive as a result of entrance of new organizations in the industry. As a result of the increased competition in the hospitality industry, companies are increasingly adopting global strategies to expand into foreign markets. Investing beyond borders requires an appropriate foreign market entry strategy. There are several entry strategies such as entering the market indirectly as an exporter, through direct agent distributors, opening up of subsidiaries in the international market, as joint ventures and through formation of strategic alliances. The choice of each of these strategies is based on the organization’s objectives, capital investment, allowable risk and the nature of the international market.  Entering the foreign market indirectly as an exporter is a low risk entry strategy that companies take advantage of in order to expand their market by taking advantage of opportunities offshore (Ohmae, 2006). The approach involves selling already produced goods that are surplus in the local market or where the domestic demand is not sufficient for the organization’s sustainability. Exporting is preferred by organizations because it offers them a degree of control over costs, risks and resource commitment (Aboy, 2009). Secondly, the business may enter the international market through direct agent and distributors although they are expensive to acquire, train and maintain. Agents do not accept ownership of the goods but are paid on commission for the goods sold (Garstka, 2002).The strategy is a low-cost approach but does not offer the organization control of the business.  

Thirdly, companies may enter the foreign market through having a direct branch or a subsidiary. The strategy gives the organization the benefit of being physically present in the market, and thus control over the business. However, it is a high-risk and high-cost approach as it requires the organization to acquire space and assets to conduct its operations (Yip and Madsen, 1996). The organization may also use joint ventures where organizations come together in equity-based relationship and create an independent entity for mutual benefits (Bartlett & Ghoshal,1987). The merger is low-cost, since the licensees and franchisers invest their resources, and only use a borrowed brand name and technology. However, the profitability is low and requires long-term contracts. The approach can be risky to the brand name if the licensee poorly represents the brand making it have a negative positioning and, therefore, may affect the parent organization. The parent company does not have control over the business and with time, the licensee and franchisers acquire the expertise and become competitors (Prahalad & Lieberthal, 1998). Lastly, is the strategic alliance where the organization comes together with other industry players in the local market where they intend to invest, to share cost, technology, trademarks and other assets to enter a new market. Dissimilar to joint venture, a strategic alliance does not create a new company, but combines technologies and assets to trade and achieve mutual benefits. Strategic alliances reduce the risks of doing business independently in an international market. The alliance also helps the parent company learn the new market by trading with a local participant.

International business planning also entails designing a market strategy to be adopted in the foreign market. These strategies are dependent on the capital investment and the target market. For instance, they may adopt direct marketing, digital, inbound, personalized, online and indirect marketing strategies among others. Most organizations adopt integrated marketing strategies to accommodate diversities in the market. Businesses should also consider the financial value of the global strategy. The decision will include capital budgeting, investment analysis, taxable events, financial reporting. Lastly, an international business plan outlines methods of implementing various strategies such as distribution strategies to achieve its goals in the foreign market.

Marriot International Inc. is deliberating on starting an eco-friendly resort in Argentina. The eco-friendly resort will focus on offering world-class hospitality services to their clients. The entity will concentrate on preserving and making improvements on the environment by following the practices of green living. Eco-friendly resorts put emphasis on conserving energy by using low-energy lighting and taking advantage of natural light and solar energy. The furniture in the resorts will be made from environmentally friendly materials by either reclaiming unused ancient woods or repairing and recycling the damaged furniture. The resort would also focus on conserving water by using low flow toilets and shower heads and recycling its waste water. The resort would provide eco-friendly food services by using reusable utensil and using locally grown foods to promote Argentina’s farmers and companies as well. The investment would also help reduce the cost of business by avoiding shipping foods from outside the country. The resort would use the natural fiber linen, bedding and towels. The company will also use tissue papers made from recycled materials and will print promotion materials on recycled papers. It will also position recycling bins in all rooms, offices, lobbies, and common areas for the guests and workers to dispose reusable material for reutilizing. Therefore, this paper develops an international business plan for the organization as it invests in the Argentine market.

Company Background

Marriott International, Inc. is a leading global hospitality company present in one hundred and twenty-seven countries, and it has more than sixty-five thousand properties. The firmhas reported more than $22 billion revenues in 2017 (“About Marriott Hotels | Marriott Corporate Business Information”, 2018). The venture is a family business founded by J. Willard and A. Marriott in the year 1928, and has its headquarters in Washington, DC and in Bethesda, Maryland (”About Marriott Hotels | Marriott Corporate Business Information”, 2018). Marriott International has more than 700,000 associate-managed and franchised hotels globally (”About Marriott Hotels | Marriott Corporate Business Information”, 2018). The hotel is among the best employers in the world and is governed by ethics and professionalism. The business has thirty brands tailored to suit every market segment with their unique travel preferences (”About Marriott Hotels | Marriott Corporate Business Information”, 2018). Marriott International has the benefit of a strong balance sheet, record of industry leadership, and strong management. The company has differentiated itself in the market through its business model, top management, the strong brands and the customer service culture (”About Marriott Hotels | Marriott Corporate Business Information”, 2018).

International Market Entry Strategy

Marriott International Inc will use the strategic alliance model to enter the Argentine market. The approach will entail partnering with Hilton Hotels and Resorts, who are already in the Argentine market. Since they know the market, they will bring the knowledge in the business, thus increasing the opportunities for success (Russo and Cesarani, 2017). In addition, Hilton is a renowned brand in Argentina and therefore, Marriott International would benefit from the strong brand name. Hilton’s customers who want to be hosted in an eco-friendly resort will give the business to Marriott. Moreover, the company will be able to overcome the hostile government regulations and political obstacles for entering into the market. In addition, the two firms would share the financial risk by investing together and incase a loss occurs, Marriott will not lose as much as it would if they invested alone. Lastly, the strategic alliance would give Marriott a competitive advantage by bringing together the strengths of two strong brands together (Russo and Cesarani, 2017).  They would therefore be able to fight the competition better than a single company would.

The Distribution strategy and activities

The distribution strategy will encompass a wide range of channels, both online and offline in order to optimize the market potential. The strategy will also be based on the customer segments who will be targeted. Essentially, the strategy will encompass direct and indirect distribution and Marriot International will benefit from distribution channel partnerships. Direct distribution will entail contacting customers directly using a variety of channels to promote and offer them services. The strategy will promote brand loyalty and significantly increase the consumer base. The approach will also enable the organization to make more profits by bypassing the effects of middlemen. Because of the strategic alliance, Marriot International Inc will use the supply chain of its partner to expand its market presence. For instance, raw materials will be acquired in Argentina so as to eliminate shipping costs and taxes that would be paid for importation of goods.  Additionally, the organization will use Online Travel Agencies (OTAs) in order to target customers who prefer indirect channels. Although it is expense to use indirect channels, the strategy will enable the organization to earn the loyalty of consumers who prefer such channels not only in the Argentine marker but also behind. Furthermore, OTAs will cover customer segments that are beyond the scope of the strategic alliance.

Porter’s Value Chain analysis

Marriot International will engage in a series of activities in order to increase the value of the eco-friendly resort. The enhanced value will be passed on to customers hence increase the company’s competitive advantage in Argentina. The activities include primary activities which consist of inbound logistics, operations, outbound logistics, marketing and sales and services. They will also include support activities such as infrastructure, human resource development and technology development.

Inbound logistics:

The company will purchase eco-friendly raw materials such as used wood, damaged furniture and fresh food produce from Hilton’s suppliers in Argentina. The measure will eliminate shipping cots that would have been incurred from importing raw materials. The raw materials will then be transported to the company’s premises and processed into finished products. Marriot International will use its own procurement mechanisms in order to ensure the high quality of raw materials is maintained right from the suppliers.

Outbound logistics:

The company will use direct marketing channels such as digital marketing to directly to increase customer interaction with the brand. The use of intermediaries in distribution of services will be minimized in order to reduce costs.

Operations:

Marriot operates in more than one hundred countries but the eco-friendly resort will pioneer the international market, specifically Argentina. Initially, the company will only operate one resort in partnership with Hilton.

Marketing and sales:

The company will invest more in aggressive marketing upon launching the resort in order to increase its market share. Once the company attains the targeted market share, it will focus more on improving the quality of products and customer service through research and development. Occasionally, the company will conduct need based marketing activities to increase demand in areas where it is low or market segments dominated by competitors. Direct selling methods will be used.

Service:

Marriot seeks to provide unique customer experience through fast and efficient service delivery, responsiveness to consumer feedback. The goal will be attained by selling the finest quality of products and high sense of professionalism in customer service.

Infrastructure:

The company will have several departments including legal, finance, customer relations, marketing and human resource departments which will perform different functions to achieve the organization’s goals. These departments will be designed in a manner to enhance their functions, appeal to customers and complemented with a competent team of employees who will ensure high customer satisfaction.

Human resource management:

Marriot International will carry out competitive employee recruitment processes in order to select only the best talents in the hospitality industry. The company will also use incentives to motivate employees to improve their performance and retain them.

Technology development:

The company will leverage technology to improve the quality of products, interact with customers, improve efficiency and save costs. A public Wi-Fi will be installed at the resort to facilitate real time communications with customers. Using the iBeacon system, the customers will be able to order food before going to the resort so that they get when it is ready once they get there.

Market Analysis

Argentina Market

Argentina is located in the South of America. The country has a mainland of 2,780,400 sq. Km, making it the eighth largest nation in the world (World Bank, 2018). There is a total population of 43,847,430 people, 49% of the population being men and 51% being women(World Bank, 2018). The median age of the population is 29years, signifying that the majority of the people are youthful (World Bank, 2018). About 97% of the population is of European origin, mostly Italians and Spanish, and the other 3% are natives or have mixed ethnicity (World Bank, 2018).

The land has large plains, forests, deserts, rivers, tall mountains, and a vast ocean shoreline making it a beautiful tour location. Argentina has valuable minerals and resources including silver. The country practices agriculture by cereals and livestock production. However, Argentina is largely an urban nation with 92% of the population living in towns and only 8% live in rural areas (World Bank, 2018). Among America’s most cosmopolitan states, Argentina has the most crowded cities with active nightlife. Argentina is open to foreign investments, and it is the main reason of there being a huge presence of multinational firms in the country (US Embassy, 2017). In addition, the government encourages foreign investors in order to provide employment for the skilled young population.

Argentina’s Economy

Argentina has an upper-middle economy which is the second largest in South America, this position is as a result of the rich natural resources and the high literacy levels of the population. Argentina also focuses on exporting agricultural produce and has a diversified manufacturing base. The country’s GDP is $639.22 billion with a growth rate of 3.5% per annum (OECD, 2018). The country maintains a relatively high GDP per capita income, and the population has quality lifestyle with only 27% of the population living below the poverty line (OECD, 2018). The country is considered an emerging market by the World Bank index and is among the G-20 major economies in the world (World Bank, 2018).

Market potential

The market potential is very high with an estimated number of 5000,000 customers served per year. Analysis of the Argentinean market potential is based on the following factors: customer base, competitor analysis and environmental conditions.

Customer base:

Majority of the population of Argentineans are youth ranging between the ages of 29 and 30. Many of them are economically empowered and have high preference for eco-friendly products. The youth have been instrumental in champion for environmental protection initiatives in order to protect the world from the adverse effects of climate change (OECD, 2018). As a result, the resort services demand is increasing, and international brands such as Marriott would wish to capture the opportunity and grow their business. Therefore, the consumer base is large with high demand for eco-friendly products.

Competitor analysis:  

The industry is fairly competitive because Argentina has many hotels and resorts located in various parts of the country. The biggest brands that Marriott International Inc. will face in Argentina are Hilton Buenos Aires, Duque Hotel Boutique and Spa, Alvear Palace Hotel, Palacio Duhau-Park Hyatt Buenos Aires, Mine Hotel Boutique, among other hospitality industry giants in Argentina. Marriott is entering into a market where there is great rivalry, and thus must get the appropriate entry strategy to create a positive position in the market and win a big market share to ensure sustainability of the business. The market is largely a perfect competition market with no single hotel or resort controlling a large proportion of the market share. There are no dominant resorts in the market. Therefore, Marriot International will seek to differentiate is products and services by emphasizing on eco-friendliness and quality to establish significant presence in the market. Marriott International being a strong brand intends to venture into the new market to offer top-notch hospitality services and at the same time conserve the environment. It will also respond to its loyalty reward associates’ desire for more hotel options in both adventure travel and wine country destinations (”About Marriott Hotels | Marriott Corporate Business Information”, 2018).

Environmental conditions:

The need for environmental conservation has contributed to the expansion of the market potential for eco-friendly products and services in Argentina. Argentina is a tourist attraction state due to the vast landscape of lakes and mountains. In addition, it is an industrious country, and people from all over the world travel to do business with Argentineans. Moreover, Argentina is a wine producing country, and guests travelling for leisure would wish to be in such a destination (Tango Tours, 2016). An eco-friendly resort would, therefore, serve the guests who are concerned about health and wellness factors in the society, and who are committed to green practice and living (Finney, 2017). The market niche is rapidly growing since many people are concerned about conserving the environment to save the ozone layer and prevent the adverse effects of global warming.

Pricing

Marriott International Inc. will reduce the cost of operation by buying quality products at best prices in the market and reducing waste and inefficiencies so that they are able to price their services reasonably cheaply. 70 % of elderly Argentines believe that high prices translate to high quality (World Bank, 2018). Marriott International will have different packages for different customers. For the elderly, Marriott will add more prestige features and price the services reasonably high, but competitive to the industry peers. The high price will make the resort compete with other luxury hotels and win a big market share.

Marketing Strategy

Marriot International will adopt a comprehensive marketing strategy that will integrate a variety of channels to enable it establish presence in the market and further penetrate new markets.

Online marketing strategy:

Online marketing will be used to create awareness of the brand in the foreign market. Argentina has the third highest social network usage in the world (World Bank, 2018). The growth in social media traffic is contributed to the increase in the use of smart phones and tablets to browse the Internet. According to Data World Bank (2018), 66.4% of Argentina’s population uses the Internet with the majority being the young population. As a result, the organization will take advantage and use digital marketing strategies to capture the market and win a competitive advantage. Marriott should invest in powerful power engines to bring traffic to its website for customers are looking for bookings and information in the hospitality industry. In addition, Marriott needs to use social media marketing, mainly Facebook and Twitter, which are the leading social networks used by the Argentine population. Essentially, Marriott International Inc. will take advantage of its core competencies to market the new product in Argentina. The organization will use its brand name, which is internationally recognized and has a history of ninety years. It will also leverage on its innovative technology that meets customer expectations. The Argentines are keen to take up new technology that adds convenience to their lives. As a result, Marriot will continuously innovate to provide unbeatable technologies that improve the experiences of their guest. The company will also take advantage of its global presence and diverse brands that are tailored to appeal to different market segments. The core competences positively position Marriott International Inc. in the new market.

Strategic advertising:

Currently television and radio advertising have the most effect on the consumer behavior of the Argentines. The radio reaches more that 21 million people every week, making it a strong avenue for marketing and promotion (OECD, 2018). Marriot International will therefore use strategic advertising to point out the key features of its products and services that set them apart with the rest in the market. Advertising is a key brand positioning strategy that will be used to modify consumer attitudes may entail differentiating the product from that offered by the competitors. Marriott should position itself as an innovative brand that strives to offer solutions to the market to ensure their customers are satisfied and get the value of their money. The brand has a tradition of being customer centric, offering preeminent loyalty programs, exceptional amenities, and has in-depth local knowledge/ and will use the same strengths and culture to win a market share in Argentina. In addition, Marriott International will brand as a service provider who is careful about conserving the environment and ensuring the guest and suppliers practice green living. The eco-friendly resort will also brand to be in line with the Argentine culture of value for the family by offering booking packages that are favorable for families in terms of amenities and pricing.

Integrated communication strategy:

Communication is an essential element in marketing because it conveys the product information and brand messaging to the market. Marriot International should have a communication strategy that integrates all elements and tools. For instance, the use of digital communications will mainly appeal to the young market segments. Young people are one of the major users of the internet especially social media. Additionally, they are mostly influenced by what they see on social media. The company may also use these platforms can to monitor trends in consumer preferences as well as address any of the concerns they may have regarding the eco-friendly resort. Marriot International should also adopt offline or direct communication strategies that involve day to day interaction with customers. The communication should not only bring out the organization culture but also be inclined towards meeting the needs of the consumer. For instance, personal selling may be used immediately after the launch of the resort especially to consumers who are within reachable physical locations. The company may also have open days where members of the public are invited to come and experience the unique experience. The public relations team should be able to integrate all communication elements in order to accommodate the needs of all consumers. Celebrity endorsements may also be used to appeal to different audiences who are fans of the celebrities such as media personalities.

Legal Entity Appropriate for Marriott International

Marriot International will use the licenses on its strategic partner to bypass the tedious registration and licensing procedures in Argentina. A cross-licensing agreement will be used to share the rights such as intellectual property between the strategic partners. Marriott will adopt the corporation business structure where Marriott Argentina will be separate from the owners and the parent company. The corporation will have the right to enter into contracts, to hire employees, to sue and be sued, to lend loans and borrow money, to own assets and to pay taxes. This entity will also allow for limited liability and the shareholders will share in profits and dividends but will not be held personally liable for the firm’s debts (Bartlett & Ghoshal, 1992).

The corporation will be created by having Marriott International Inc. and Hilton Hotels and Resorts contribute to the capital and operation costs in order to pursue common goals to make profit and provide a return to the investors. Argentina’s corporate laws in their authority of residence will regulate the corporation. The shareholders will be allowed to vote the board of directors, who will in turn be responsible for the day-to-day activities of the corporation. They will be responsible of executing the business plan of the corporation, thus will solicit for funds, invest in resources and hire a CEO and management whom they will give the mandate to operate and deliver to the shareholders.

The legal entity should also prescribe the mechanisms for both visible and invisible risks apportionment in the strategic alliance. Visible risks are foreseeable while invisible ones are not foreseen. Marriot International, being the lesser partner is more vulnerable to risks that may arise out of uncertainties in the market (Finney, 2017). The company should remain independent but be allowed a certain percentage of risk but which should be less than that of its major strategic partner because Marriot International Inc resort does not have adequate resources to mitigate the challenges on its own. The legal entity should also clearly prescribe risk-adjusted returns for the resort so that the company can predict its profit margins.

The Top Management Organizational Chart

Benefits of the Organizational Structure

Marriott Argentina and Hilton will adopt a centralized organizational structure as a result of the complexity of the operations between the two organizations. The top management will be drawn from both organizations and will be responsible for coming up with a shared vision and making policies that are in line with their vision for the business and follow them up for fast execution. It will also help the management to delegate duties and responsibilities effectively throughout the entire organization. The strategic alliance will be able to reduce the anticipated coordination and managerial costs that will result from the complexity of the arrangement. For example, the central organizational structure adopted by the strategic alliance between Coca-Cola Company and Procter & Gamble led to the reduction of operational and marketing costs (Gonzalez, 2001). Furthermore, Marriot Argentina will be able to leverage the managerial experience of Hilton Argentina in the foreign market to come up with policies and strategies that will support the implementation of the shared vision.

In addition, the centralized business structure will give the management more control and accountability for the organization. When the top leadership is in charge of major decisions, they have control over the operations and development of the culture that governs the employee behavior. They will also be responsible for the decisions they make, thus, will put effort on ensuring the organization achieves its objectives. A centralized structure helps reduce the possible conflicts in the firm. According to Aboy (2009), when only several people are involved in decision-making, there is less conflict in the organization, making decision-making process smooth and efficient. Moreover, when only the top managers are involved in decision-making, the policies made will be implemented without much resistance, since the owners of the business make them (Bartlett & Ghoshal, 1988).

Country’s External Market Analysis

Argentina Tax System

The local and international corporate receive the same tax treatment. Every business must register for value added tax if they provide taxable products in the country. The government taxes all businesses, a corporate tax rate of 35% of all capital gains (World Bank, 2018). In addition, revenue from the sale of shares by an Argentine firm is subject to income tax, but sales of shares from a nonresident company are subjected to 15% tax (World Bank, 2018). The selling organization has an option to calculate the tax on 90% of the gross gains or on the entire income less.