A Model of Optimal International Market Expansion: The Case of US Hotel Chains Expansion into China

Part of the Contributions to Management Science book series (MANAGEMENT SC.)


A comprehensive model of international expansion is outlined and applied to determine the optimal country to be targeted for entry by a US hotel firm and the optimal entry mode to be used. Using a strategic, sequential process, the model performs three levels of assessment: a macro assessment that identifies the major external environmental variables in order to determine the risks and opportunities of international expansion; a micro assessment where environmental variables capturing the countries’ local market conditions and the firm’s specific characteristics are utilized to estimate potential profitability and net present value; and an assessment of the market entry strategy that would be optimal for the target market under consideration.

To illustrate how this international expansion assessment model can be used, the three levels of assessment are sequentially applied to a hypothetical US-based hotel company that is representative of major US hotel firms. Though only 12th in the ranking of the top desirable expansion destinations from a macro opportunity/risk perspective, China moves to the top after the micro (country/industry/firm) assessment. For a US-based hotel company, it is determined that expansion into the China mid-market segment through management contracts would provide the optimal value for this firm.

By helping managers to quickly identify the optimal country in which to expand from a universe of close to 200 potential targets, the model illustrated here can significantly reduce the time and cost to develop and implement a firm’s international expansion strategy and reduce potential risks of failure and loss.

This study highlights the need for a strategic approach to international expansion decisions and the central role that risk assessment and risk management can play in these decisions. It also underscores the importance of country-specific macro-environmental and micro-environmental factors.


Foreign Market Foreign Firm Entry Mode Future Cash Flow International Expansion 


  1. Agarwal S, Ramaswani SN (1992) Choice of foreign market entry mode: Impact of ownership, location, and internationalization factors. J Int Bus Stud 23(1):1–27CrossRefGoogle Scholar
  2. Aliouche EH, Schlentrich U (2009a) International franchise assessment model: entry and expansion in the European Union. Entrepren Bus Law J 3(2):517–537Google Scholar
  3. Aliouche EH, Schlentrich U (2009b) An integrated approach to international franchise expansion modeling. Working paper presented at the 23rd Annual Conference of the International Society of Franchising, Feb 2009, San Diego, CAGoogle Scholar
  4. Alon I (2006) Service franchising: a global perspective. Springer, New YorkGoogle Scholar
  5. Alon I, McKee D (2006) How do franchisors evaluate foreign markets? Service franchising: a global perspective. Springer, New YorkGoogle Scholar
  6. Anderson E, Coughlan A (1987) International market entry and expansion via independent or integrated channels of distribution. J Market 51:71–82Google Scholar
  7. Anderson E, Gatignon H (1986) Modes of foreign entry: a transaction cost analysis and proposition. J Int Bus Stud 17(3):1–26CrossRefGoogle Scholar
  8. Aydin N, Kacker M (1990) International outlook of US-based franchisors. Int Market Rev 7(2):43–53CrossRefGoogle Scholar
  9. Boczko A (2005) Country risk. Financ Manag February:25–26Google Scholar
  10. Brouthers KD (2002) Institutional, cultural and transaction cost influences on entry mode choice and performance. J Int Bus Stud 33(2):203–221CrossRefGoogle Scholar
  11. Buckley PJ, Casson MC (1998) Analyzing foreign market entry strategies: extending the internalization approach. J Int Bus Stud 29(3):539–562CrossRefGoogle Scholar
  12. Chekitan SD, Erramilli MK, Agarwal S (2002) Brands across borders. Cornell Hotel Restaur Adm Q 33(2)Google Scholar
  13. Chen JJ, Dimou I (2005) Expansion strategy of international hotel firms. J Bus Res 58:1730–1740CrossRefGoogle Scholar
  14. China National Tourism Administration (2002) Yearbook of China tourism statistics 1990–2001. China Travel and Tourism Press, BeijingGoogle Scholar
  15. ChinaOrbit (2009) Involvement of foreign companies in projects related to the Olympics in 2008 in Beijing. http://www.chinaorbit.com/2008-olympics-china/2008-olympic-games.html. Accessed 10 Jan 2009
  16. Contractor FJ, Kundu SK (1998a) Modal choice in a world of alliances: analyzing organizational forms in the international hotel sector. J Int Bus Stud 29(2):325–358CrossRefGoogle Scholar
  17. Contractor FJ, Kundu SK (1998b) Franchising versus company-run operations: modal choice in the global hotel sector. J Int Mark 6(2):28–53Google Scholar
  18. Davis PS, Desai AB, Francis JD (2000) Mode of international entry: an isomorphism perspective. J Int Bus Stud 31(2):239–258CrossRefGoogle Scholar
  19. Dunning JH (1988) The eclectic paradigm of international production: a restatement and some possible extensions. J Int Bus Stud 19(1):1–31CrossRefGoogle Scholar
  20. Ekeledo I, Sivakumar K (1998) Foreign market entry mode choice of service firms: a contingency perspective. J Acad Market Sci 26(4):274–292CrossRefGoogle Scholar
  21. Ekeledo I, Sivakumar K (2004) International market entry mode strategies of manufacturing and service firms. Int Market Rev 21(1):68–101CrossRefGoogle Scholar
  22. Eroglu S (1992) The internationalization process of franchise systems: a conceptual model. Int Market Rev 9:19–30CrossRefGoogle Scholar
  23. Erramilli KM (1990) Entry mode choice in service industries. Int Market Rev 7(5):50–62CrossRefGoogle Scholar
  24. Erramilli KM, Rao CP (1993) Service firms’ international entry-mode choice: a modified transaction-cost-analysis approach. J Market July(5):19–38Google Scholar
  25. Fladmoe-Lindquist K (1996) International franchising: capabilities and development. J Bus Venturing 11:419–438CrossRefGoogle Scholar
  26. Fladmoe-Lindquist K, Jacque LL (1995) Control modes in international service operations: the propensity to franchise. Manag Sci 41(7):1238–1249CrossRefGoogle Scholar
  27. Gallini N, Lutz N (1992) Dual distribution and royalty fees in franchising. J Law Econ Organ 8:471–501Google Scholar
  28. Gatignon H, Anderson E (1988) The multinational corporation’s degree of control over foreign subsidiaries: an empirical test of a transaction cost explanation. J Law Econ Organ Fall:305–366Google Scholar
  29. Han SH, Diekmann JE (2001) Approaches for making risk-based go/no-go decision for international projects. J Constr Eng Manag July/August:300–308Google Scholar
  30. Herrmann P, Datta DK (2002) CEO successor characteristics and the choice of foreign market entry mode: an empirical study. J Int Bus Stud 33(3):551–569CrossRefGoogle Scholar
  31. Hill CWL, Hwang P, Chan KW (1990) An eclectic theory of the choice of international entry mode. Strateg Manag J 11:117–128CrossRefGoogle Scholar
  32. Huszagh SM, Huszagh FW, McIntyre FS (1992) International franchising in the context of competitive strategy and the theory of the firm. Int Market Rev 4(5):5–18Google Scholar
  33. Johanson J, Vahlne JE (1977) The internationalization process of the firm: a model of knowledge development and increasing foreign markets commitments. J Int Bus 8(1):23–32CrossRefGoogle Scholar
  34. Justis RT, Judd RJ (2003) Franchising, 3rd edn, Thomson Custom, Mason, OHGoogle Scholar
  35. Kogut B, Singh H (1988) The effect of national culture on the choice of entry mode. J Int Bus Stud 19(3):411–432CrossRefGoogle Scholar
  36. Lafontaine F, Leibsohn D (2005) Beyond entry: Examining mcdonald’s expansion in international markets. International society of franchising conference proceedings, LondonGoogle Scholar
  37. National Bureau of Statistics of China (2009) China statistical yearbook. Beijing, ChinaGoogle Scholar
  38. Pine R (2002) China’s hotel industry: Serving a massive market. Cornell Hotel Restaur Adm Q 43(3):61–70Google Scholar
  39. Pine R, Zhang HQ, Qi P (2000) The challenges and opportunities of franchising in China’s hotel industry. Int J Contemp Hospit Manag 12(5):300–307CrossRefGoogle Scholar
  40. Schlentrich U, Aliouche EH (2006) Rosenberg center confirms global franchise growth. Franchising World, August pp 63–65Google Scholar
  41. Shane SA (1996) Why franchise companies expand overseas. J Bus Venturing 11:73–88CrossRefGoogle Scholar
  42. Tse DK, Gang PY, Au KY (1997) How mncs choose entry modes and form alliances: the China experience. J Int Bus Stud 28(3):779–805CrossRefGoogle Scholar
  43. Williamson OE (1975) Markets and hierarchies: analysis and antitrust implications. Free Press, New YorkGoogle Scholar
  44. World Tourism Organization (2009) Tourism 2020 vision, Vol 3. East Asia & Pacific. http://pub.world-tourism.org81/WebRoot/Store/Shops/Infoshop/Products/1189/1189–1.pdf. Accessed 10 Jan 2009
  45. World Trade & Tourism Council (2009) Travel & tourism economic impact – executive summary. World Trade & Tourism Council, LondonGoogle Scholar
  46. Yu L, Huimin G (2005) Hotel reform in China: a SWOT analysis. Cornell Hotel Restaur Adm Q 46(2):153–169CrossRefGoogle Scholar
  47. Zhu M, Wang ZJ, Quan HR (2009) A study of factors influencing international franchisors’ choice of entry modes into China. Presented at the 2009 Annual Conference of the International Society of Franchising. February, San Diego, CAGoogle Scholar

Copyright information

© Springer-Verlag Berlin Heidelberg 2011

Authors and Affiliations

  1. 1.Whittemore School of Business and EconomicsUniversity of New HampshireDurhamUSA

Personalised recommendations