THE INTERNATIONALIZATION OF HOTEL CHAINS: THE CASE OF THE BALEARICS

Carles Manera

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A micro-economic view

• The analysis of the evolution of Balearic hotel companies, on the most recent timeline, deals exclusively with recent studies from the fields of economic geography, economic history, applied economics and business economics. There are also more hagiographical profiles, which provide some interesting data, but should consequently be viewed more critically, although they cannot be entirely ignored.

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Hotel capital• The most powerful island hotel capital is comprised of seventeen

hotel chains which are registered on the archipelago: this is where their headquarters are located, the base from which their expansion to other regions of Spain took shape, followed by their incursion into other emerging geographical spaces in terms of mass tourism. The origins of these companies are diverse and in some cases the relevance of their solid position extends back no further than two generations. The capital formation and accumulation process was able to take place on the basis of solvent industrial experience (Iberostar), purely agrarian and despotic origins (Fiesta), modest transport services (Barceló), the actual economy of diverse services (Riu) and the pioneering attitude that sprang from modest administrative activities (Sol-Meliá).

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Non-improvised activity• Capitals of manufacturing, of agriculture, and of other

tertiary areas feed off of two crucial phenomena: a Europe in a decisive transformation process, and the effective connection with the effervescent market comprised of clients with a capacity for consumption in need of leisure, rest and entertainment. The sectorial change propitiated by the opening-up of the economy during Franco’s era has a history in the Balearics. Tourism activity was not an unusual occurrence on Mallorca, given the creation of Fomento de Turismo (Tourism Promotion of Mallorca) and the interest of economic institutions such as the Chambers of Commerce for anything that represented the connection of the islands with the outside world.

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The beginnings• Tourism capital underwent vigorous development in

Mallorca and Ibiza from 1960 on, to the extent that the investments made in the islands paid off quickly. This, along with the increase in competence in the Mediterranean region, was one of the main causes for transferring the economic activity of Balearic hoteliers to other parts of the world. In the mid-eighties, only Sol Meliá and Barceló had hotels outside of Spain. Sol attained an international dimension with the inauguration of the hotel Bali-Sol, in Indonesia; at the same time, it acquired the Meliá group which already had establishments abroad. Meanwhile Barceló invested in the Dominican Republic, where it was given all kids of facilities to construct its tourism infrastructure in Bávaro.

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Investments in poor countries• These Balearic investments in impoverished countries, which did

however have evident potential in terms of tourism development, were shaped on the basis of promises to acquire foreign debt and direct and indirect pressure to influence public policies which simultaneously eased the path for achieving capital flows. Facts like currency devaluations, the privatisation of state-owned companies, the enactment of relaxed laws in labour and environmental areas and the expropriation of ecosystems are examples of the connection between the worlds of politics and the economy in nations in need of investment flows and Mallorcan entrepreneurs who transfer production in search of greater profitability; all of which is confirmed by recent research, endorsed by diverse, solvent documentation.

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Characteristics…

• 1. The concentration of capital and its diversification. This calls for the elimination of small productive centres and the coordination of the hotel chains, seen as companies that jointly manage different establishments.

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…that shape the family business… • 2. The family origins and continuance of their

headquarters in the Balearics, in spite of the internationalization process. Balearic hotel chains have gone from humble bases to have an enormous capacity on external markets, to the point of becoming transnational consortia. There are no local companies that can be compared to those of the Balearics on other Mediterranean islands such as Malta, Cyprus or Crete, economies where the tourism sector carries great weight. Corsica, Sicily and Sardinia continue to be more geared towards agriculture, although a certain advancement of tourism can be discerned in their economic structures.

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…extending…

• 3. Balearic control in hotel chains and their relevance on the international markets. Three specific indicators endorse these assertions. Firstly, the table below shows determining, concise data on the top ten Spanish hotel chains. The position of the islands is solvent: six companies appear on this important list (Meliá, Riu, Barceló, Iberostar, Fiesta and Piñero), and in places near the top.

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…and coming to lead the markets.

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Balearic capacity…• By number of rooms managed, Meliá, Iberostar,

Barceló, Riu and Fiesta are situated amongst the top one hundred chains in the world, in the following respective positions: 15, 20, 26, 30 and 85.

• Finally, the data available on turnover corresponding to 2011 confirm this reign, as Balearic companies are amongst the top ten in Spain: Meliá, 1,335.3 million € (6.8 percent more than in 2010), Riu, 1,140 million € (2.8 percent more than in 2010), Barceló, 711 € (–0.42 percent compared to 2010) and Iberostar 950 million € (–2.76 percent over 2010).

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…with a strong presence abroad…

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…in different fields of investment

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The investment vision• In this regard, the following can be distinguished:• The volumes invested fluctuate. In relative terms, the period 1993-2002

registers a dominant, regular share of participation, which is disrupted from 2003 on, with highly unstable percentages. The largest investment effort was made during this decade – a little over a billion Euros, whilst in the following decade it reached 840 million.

• Between 1993 and 2012 nearly 31% of Balearic investment abroad was in tourism. With the exception of the period 1993-2002, we should point out that the bulk of the investments made between 2003 and 2012 were channelled towards other sectors, essentially insurance and pension funds.

• Thus the entries that contribute to distorting the possible regularity of the series between 2007 and 2012 are few, but significant: specifically the figures for 2007, 2008 and 2010 make up the lion’s share of the flow of capital away from the islands. And its destination is not mass tourism, but other assets that appear to provide greater security at the beginning of the Great Recession.

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A specific geography

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7 essential factors in hotel investment• As from 1993 seven essential factors can be identified that catalyse Balearic hotel

investment:• The maturity of the island model of tourism (an aspect we have already

commented on, alongside the search for new ways to increase the profitability of companies).

• Outside investment in a sector known for its professionalism: thus, the existence of a fundamental know-how, without which it would have been extremely difficult to successfully support the expansion of the Balearic hotel trade.

• The formation of a second generation of hoteliers – the children of the founders of the sagas -, educated in important business schools, who hire and adopt professionalized human resources and methodologies which go beyond intuitive, pioneering processes.

• The unfurling of horizontal and vertical growth strategies: acquisitions of hotels, travel agencies and even airline companies (the most eloquent example of which is that of Globalia, which established its headquarters in Mallorca).

• A managerial style that adapts to each country and context: flexibility in hotel administration.

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7 essential factors… (cont.)• Most investments abroad do not target the hotel business, as can

be seen from table 6 and its corresponding graph. Indeed, the flow of capital transfers towards financial platforms that transnational companies appear to use, presumably, to benefit from fiscal privileges. In 2007 and 2008, the first years of the Great Recession, movement of Balearic capital intensifies in financial investments – in Italy and Mexico – causing a retraction of those that define the purely tourism-based activity.

• However, we should point out that whilst Spanish investments in the foreign hotel trade were below 2%, in the case of the Balearics they amounted to average percentages of above 30%, as we have seen. In this regard, the islands’ hotel chains have often acted as a vanguard in investment abroad for Spain, adopting a central role in the area of Latin America.

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The hotel chain• Its economic significance is irrefutable; its organisational strength,

obvious; its political influence, indisputable. These new consortia reassert their power, and at the same time:

• They act as a spearhead for Spanish investment abroad in emerging markets. The bulk of their business is abroad (with Latin America and the Caribbean as the most explored regions), although they keep their headquarters in the Balearics.

• In their new investment spaces they generate socio-environmental contradictions (job insecurity, privatisation of lands and access to water, disorderly exploitation of places of high ecological value), to the point that one may speak of the transfer of “Balearicization” (understood as a disorderly growth of tourism infrastructure with irreversible attacks on the natural surroundings) to these less-developed countries.

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Conclusions (1)• They export the ‘sun and beach’ model, which holds clear competitive

advantages for them based on their historical experience. Their commitment is to the “all-inclusive” modality, which has also ended up being applied in the original hotel businesses (both in the Balearic Islands and in other parts of Spain. Moreover, the hotel chains stimulate resorts and the operation of urban hotels.

• They tend to separate ownership and management in the hotel business; and at the same time, the participation of these chains in establishments that are already consolidated increases, rather than in the activation of new investments.

• They influence the tourism policy of the regional institutions in such a way that the main captains of the Balearic – and Spanish - tourism industry, who have the core of their investments outside of the islands, continue to exercise a notorious capacity for influence on the islands’ political class. The most illustrative case: the all-out opposition of the leaders of tourism to the tax on overnight stays by tourists introduced in 2002 by a progressive government, which was revoked in 2003 by another, conservative government.

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Conclusions (2)

• In the case of the Balearic Islands, we are not faced with improvisations in economic growth moved along by more or less random phenomena. Quite the contrary – there are decisive symbioses between investments and the complex picture of decisions of all kinds made in the different historical periods. In this context, the function of the entrepreneur has been decisive, as we have shown.

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