By Avant Shrestha
Tourism is considered to be the largest industry in Nepal and the largest source of foreign exchange and revenue. The growing hospitality industry has played a pivotal role in supporting the tourism sector with domestic hotels opening up and the influx of mega international hotel chains making entry in the nation.
International hotel chains have started to invest and expand their global network in the country because these brands feel confident about investing in Nepal. The internationally acclaimed hotel chains that have commenced operation or are under construction within the country are The Fairfield by Marriott in Thamel, Aloft in Thamel, Marriott in Nagpokhari, Sheraton in Kantipath and Double Tree by Hilton in Naxal to name a few.
Currently, the Nepali hotel industry is enjoying a period of steady growth off the back of local tourism entrepreneurs opening hotels as well as increased interest from international hotel chains to enter the lucrative Nepali market. This potential for strong growth of the Nepali hospitality industry has not gone unnoticed by the international hotel chains that are planning expansion into the region and looking to invest in Nepal to capitalise on the financial opportunity. This being the case, the obvious question arises: Why are these international hotel chains expanding their reach to Nepal now and how will their entry impact the already existing market?
Nepal obviously holds huge appeal as a tourist destination that attracts both mid-range and high-spending visitors. Seeing an opportunity, multiple internationally acclaimed hotels and brands have joined the bandwagon.
Furthermore, there is a high possibility that the arrival of international hotels could help increase the inflow of more high-spending tourists into the country and place Nepal as a premium destination on the global map.
Shashank Menon, Director of Sales and Marketing in Nepal at Fern Hotels and Resorts claims that the future of tourism is very promising. Menon observes, “Nepal’s tourism enjoys lots of repeat clientele partly because of the warmth and the hospitality of the people.”
International Hotel Chain’s Entry
Upaul Majumdar, General Manager at Soaltee Crowne Plaza explains, “After the economic and political stability in the nation, opportunities have opened up for investments and tourism has been experiencing a rise, year on year. It took a setback in 2015 due to the earthquake, but from 2016 onwards we started seeing growth; so I think it’s a great time for investment in this industry.”
The international hotels that have already entered the market and the new ones coming in have done their due diligence and research on the country and are positive about the future. Menon states, “The main reason is that they definitely see the potential in the market. Most international hotel chains are not here for a short haul. These are a chain of hotels which means serious business.”
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“The main reason is that they definitely see the potential in the market. Most international hotel chains are not here for a short haul. These are a chain of hotels which means serious business.”
General Manager at Soaltee Crowne Plaza
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“I think it is a great moment for Nepal because the market is going to become very competitive”
Managing Director of Hotel Ambassador by ACE Hotels
Rahul Shakya, Managing Director of Hotel Ambassador by ACE Hotels expresses, “I think it is good that so many people are expanding into tourism. In fact, it is a great sign that international hotel chains are coming here. It gives a positive message to the world that Nepal’s standard as a destination is improving.”
When international hotels enter a foreign market, it brings along a number of positive changes. It naturally creates a competitive market, improves the standards of the existing hotels, as well and brings in more international guests.
“I think it is a great moment for Nepal because the market is going to become very competitive. And when competition comes in, you are rated purely on the basis of the value you deliver to your guests. So I definitely think the value to the guests will be much, much more,” expresses Majumdar. When an international hotel chain comes in, it brings along its own standard operating procedures. In order to meet the international standards, these hotels generally have to conduct proper training and service delivery for its employees. These rudiments will benefit the hospitality sector and the locals who will be working in these sectors. Majumdar states, “Earlier there were gaps in the market; so personally, if you ask me, I welcome these chains coming in because I feel the level of professionalism in the Nepali hospitality industry will go up by leaps and bounds.”
Shakya illustrates, “Even though these new international hotels will be my competitors, I am positive about them coming in because this is a great opportunity for tourism and for Nepal.”
While the positive implications of international hotel chains being established are manifold, there are some local hoteliers and stakeholders of the hospitality industry who have voiced their concerns. In 2017, Hotel Association Nepal (HAN) issued a ‘white paper’ urging the government to reign in the overheated hotel sector. “If the number of tourists or the demand for rooms does not rise proportionately, there will be a fierce price competition between old players and new entrants,” the white paper stated.
The palpable fear is that with the escalating number of hotels in the country, Nepal is headed for a debacle caused by more supply than demand. Without a proper plan, the international and local hotels that are already in operation might have to cut down on prices even more. This could be disastrous for hoteliers.
Shakya explains, “There are negatives, of course. Tourism is a very seasonal business in Nepal. During the peak seasons, everyone will get a share of the pie but during off seasons, the lack of guests will hamper hotels. Plus, during off seasons, even 5-star hotels cut down on their prices. So there is this price war that will happen for sure once all these chains come in.”
Moreover, the international hotel chains that are entering the sphere are labeled as luxury hotels. This label might have a negative implication on the business as well. “Yes, the new hotels will definitely have their clientele but again it will not be enough to sustain the business over a longer period of time. Luxury is a very difficult proposition because it’s high on investment and it’s very difficult to sustain that model going forward,” explains Menon.
Political stability has encouraged established business families to invest in hotels as well, for example the Chaudary Group. Local investors also see value in converting real estate into hotels. “They are using their foray into hotels as a ‘public relations’ platform for their core business,” observes Menon. So why invest in the hospitality industry and specifically why invest in hotels? “A hotel helps them in order to create a brand for their principal company.” Menon explains, “It actually gives that edge to the investing company (or individuals) to be more popular. What hotels do is give you an immediate take off point as far as your brand is concerned; so you can use that as your PR platform and grow your business from there.”
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“Plumbing, electrical and mechanical requirements that are needed for the hotel have to be processed and approved by the hotel chain as well. Only after that can the principle construction begin,”
Operation Director at CE Construction
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“Nepal’s tourism enjoys lots of repeat clientele partly because of the warmth and the hospitality of the people.”
Director of Sales and Marketing in Nepal at Fern Hotels and Resorts
The model adopted is that a local investor builds a hotel but it will be managed by an international chain. Majumdar elaborates, “Most of the hotels that are coming in are all managed properties which means that the international chains or the brand is going to manage it. So all the new brands that are coming up are all managed properties. And that is a big difference because I think Nepal’s time has come. And there is going to be huge growth in business, there is going to be huge growth in hotel infrastructure. And this definitely is a big boost for the tourism industry.”
The international hotel chains that are venturing into the Nepali market have to abide by certain standards in terms of design, construction, management and service delivery. “All the chains have global policies and they are absolutely applicable to Nepal as well. Each chain has its specialties that give the hotel the global standard,” states Majumdar.
During the construction phase however the company managing the affairs of the international hotel collaborates with the local contractors. Gopal Manandhar, Operation Director at CE Construction, who is overseeing the construction of Marriot at Naxal claims, “The company that the hotel is being represented by forwards its own standards and criteria to uphold in different aspects of the building. But if you want to take the construction point of view; all the technical assessments are conducted by contractors according to Nepal Standard Codes.”
Additionally, the company (hotel) generally has its own architect with patented designs. The latter has come to represent the essence of the hotel. “Plumbing, electrical and mechanical requirements that are needed for the hotel have to be processed and approved by the hotel chain as well. Only after that can the principle construction begin,” explains Manandhar.
“Infrastructure has always been a big problem for all of us in the tourism and hospitality industry. And there have been promises of roads and bridges and infrastructure being improved. All that is happening; but at snail’s pace. The pace has to speed up,” Majumdar expresses. “For those living in Nepal, we are used to the absence of basic infractural facilities like proper roads but when international guests experience these, they find it quite shocking,” he adds.
Additionally, the current state of the sole international airport TIA is very poor and they are attempting to handle traffic beyond its capacity. Majumdar articulates, “Our airport is one of the most expensive airports in this region. Even for an airline operator to get in and out of the country, it is quite an expensive affair. To promote tourism, you have to get focused in these areas which will make tourism more realistic and more affordable for lots of international tourists so that Nepal is not looked at as an expensive destination. Today, our dichotomy is an expensive destination with poor infrastructure and that is what really hinders the growth of tourism.”
Shakya expresses, “I think the next 4 to 5 years is very crucial when all these new properties start to open up. The international hotel chains definitely feel that Nepal has potential, but because our infrastructure is so poor and lacks the convenience for both tourists and investors, visitors might opt to visit a different destination altogether. This will definitely have a negative implication on the industry.”