When a company discusses expansion plans in China, typically it aims to increase its tangible presence on the ground. For Kosmopolito Hotels International (KHI), a subsidiary of Far East Consortium International, expanding in China does not just mean increasing the number of hotels in China, but focusing on what they call the “Chinese wallet”.
The company recently listed in Hong Kong and chief financial officer, Chu Chee Seng, talks to FinanceAsia about KHI’s next steps.
Please describe your role at KHI.
I joined KHI at the beginning of April this year as CFO, from the InterContinental Hotels Group (IHG) where I worked in various finance, business development and capital roles throughout my 13 year tenure. As CFO I have to look after the financial well being of the company including financial management, financial planning, tax planning, internal and risk control and something that is new to me, investor relations. Apart from being the CFO, I see myself as being able to contribute to business development as I am on the business development committee.
What are some of the reasons for your move to KHI and how is it different from IHG?
IHG is a big company and with all such companies it has very established financial and people resources and mature modus operandi. There is also a very mature branding and culture. In the past, big companies were able to offer job security until retirement, but that was before the financial crisis. While I appreciate the grounding I have gained in IHG, the prospect of being part of a fast growing developer, owner and operator of hotels that has strong asset backing and was going for listing was very exciting, and is very different to IHG which is mainly a brand owner and purely a hotel operator. I also wanted the opportunity to stretch my wings due to KHI’s culture of cross functional involvement and multiple work requirements.
I also look forward to leveraging on my experience in M&A and third party hotel management services to supplement KHI’s developer DNA, and work hand in hand with the rest of management team to establish the business infrastructure required and implementing a strong financial platform.
How are your treasury operations coordinated?
We need to look at two aspects for our hotel business when it comes to treasury. Firstly, the operational aspect, which is the day-to-day management of the hotel, is more field-based and therefore domestic. We have managers with authority to make decisions on a day-to-day basis for the hotel operations and to make sure the hotel has enough cash to deal with day-to-day expenses.
The second treasury aspect is the owner aspect. We have finance teams that will deal with all non-operational related tasks. At the moment we are working with our relationship banks to set up an e-banking platform so that we can electronically and remotely control and manage our cash position. We are currently piloting this solution and it will be soon used across all of our hotels.
While the roles of operator and owner need to cooperate, from a treasury and internal control perspective, these two roles also serve as check-and-balance of each other. Accordingly, the treasury operations of these two functions should rightly be segregated. We are currently working with relationship banks to set up cash management facilities for each of these two functions.
How is KHI increasing its competitiveness in the hotel industry?
We have very strong developer DNA in KHI. Our president, Bill Mok, was previously the CFO of Far East Consortium International and has developed a very strong financial system for KHI. The developer DNA allowed us to create value in the past, and we intend to extend this successful track record. We also have a very strong footprint in Hong Kong which we see as a very important strategic location. Everyone acknowledges that China is a very big market, and for the past few years Hong Kong has not only been the most visited location for Chinese tourists but it remains as one of the most aspirational destinations too. This is very unique because in most countries, the most visited city is not always the most preferred place. Our market leadership in Hong Kong gives us a strong foothold to springboard our growth in China.
Furthermore, our people strategy is to believe in quality, not quantity. If you look at our general managers in the field they all have very strong backgrounds coming from reputable hotel chains, including myself. That also shows that we are attracting five-star people although we are only running mainly four-star hotels.
Our recent IPO as a focused hotel was part of a key step in increasing our overall competiveness. To our employees, it allows us to highlight the efforts of our hotel managers and gives us an additional ability to incentivise our colleagues with stock option schemes. To our hotel guests, part of our IPO proceeds will be deployed for the rebranding program and setting up a comprehensive central reservation system, which should help enhance guest affinity and loyalty. To our hotel owners, the listing gives KHI a hotel company identity with specialised expertise and a business focus in the hotel industry. Last but not least, our investors will benefit from all of the above, as well as the ability to assess KHI with the appropriate risk profile as a hotel company instead of being part of a conglomerate.
What is your strategy to tap the China market?
Our China strategy is of course Chinese focused, but this does not mean a geographic focus on China; rather, we focus on what we call the Chinese wallet. In other words we are talking about Chinese travellers, not only the ones who travel domestically but the outbound tourists. According to the United Nations World Tourism Organisation, domestic Chinese travellers made 1.9 billion trips in 2009 and, by 2020, China is expected to be the biggest exporter of travellers.
We have done research on Chinese tourists and found that more than 60% crave a unique hotel experience compared to the Asian average of about 40%. All the KHI brands are design-led and Chinese tourists appreciate this unique experience compared to the cookie cutter white walled and linen hotel rooms. In addition, the most productive publicity channel for us is through social networking sites. When people see the out of the ordinary designs in our hotels they will more often than not take photos and share these with friends and family, allowing a wider audience to see what we have to offer.
Our strategy looks at the outbound China market initially. Once Chinese travellers stay in one of our hotels in Hong Kong and return to China, they bring with them our brand, creating greater awareness. The interesting thing is that when Chinese consumers see a brand that is being recognised in the rest of the world, they are more than happy to pay a premium to stay at those brands when they travel domestically versus less internationally known chains in China. Therefore, by being stronger in the key outbound destinations of the Chinese travellers we will be stronger in China.
