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China tech

Oyo and H Hotel battle it out in China for franchisees

Country's largest chain aims to expand to 20,000 properties by late 2022

India's OYO Hotels has grown its franchise in China at an explosive rate. 

BEIJING -- Hotel chains are scrambling to expand their franchises in China by bringing smaller properties into the fold, as they jostle for position in the growing market.

The latest franchisers are H Hotel, a unit of China's largest hotel chain Huazhu Hotels Group, and India-based budget hotel network Oyo Hotels. Huazhu itself is a franchisee operating under global chain AccorHotels. H Hotel and Oyo both held media presentations separately in Chengdu, the capital of Sichuan province, late last month.

The industry is shifting toward consolidation. Data from 2017 showed that hotel chains account for only 3.2 million rooms, or 19% of total rooms available in China. This is considerably lower than the 70% in the U.S. and 40% in Europe.

The key advantage of franchising is cost-savings. Franchises are able to standardize operations, which gives them stronger bargaining power in negotiating prices with supply chains. All members share management and booking systems and know-how, thereby enabling them to cut costs.

Both Oyo and H Hotel have already expanded rapidly in China. Since its establishment in February, H Hotel has moved quickly to franchise small hotels in first- to third-tier Chinese cities. In the first 100 days of the company's establishment, it has concluded franchise contracts with 500 hotels in 80 cities. The company's aim is to rope in 3,500 hotels by the end of the year and 20,000 by late 2022.

Oyo has moved at an even more explosive speed. In only a year and a half after entering the Chinese market, Oyo has signed up more than 10,000 hotels with a total of 500,000 rooms in over 300 cities.The company targets younger travelers looking for budget accommodation in towns.

Oyo's strategy of quickly growing its chain contrasts with H Hotel's method of carefully selecting hotels, by, for example, setting certain levels of sales as a condition for consideration as franchisee.

On an operational basis, Oyo and H Hotel are also different in the way they do things. Oyo officials said that the company puts one area manager in charge of three to 10 hotels, and up to 500 units in the future. For H Hotel, however, one manager currently oversees 1.35 units, with the chain planning to increase that rate to 1.5 hotels in the future.

H Hotel has also put several systems in place for group hotels, among them systems for room management and reservations. These systems took the parent company Huazhu 15 years to develop.

On the other hand, Oyo's systems have drawn complaints from workers who found them difficult to use. There have also been complaints that input data were frequently found to be false and inadequate. Oyo has now begun to test a smart-lock system that the company hopes will solve the data problems.

As the competition heats up, these chains' ability to win over small hotels will determine their fortunes in the red-hot Chinese market.

36Kr, a Chinese tech news portal founded in Beijing in 2010, has more than 150 million readers worldwide. Nikkei announced a partnership with 36Kr on May 22, 2019.

For the Japanese version of this story, click here.

For the Chinese version, click here.

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