Mandarin Oriental International Limited Case

Mandarin Oriental International Limited is a global hotel investment and management group with some of the world's most renowned hotels and resorts. It has made its presence known in 24 countries with 16 hotels in Asia, 10 Europe and North Africa, 15 in The Americas. Mandarin Hotel has also been awarded by various international publications, like Luxury Travel, Travel & Leisure, Institutional Investor etc., as one of the best luxury hotel group, providing exemplary service and customer satisfaction.

The Group have several strengths that gives it the edge over its competitors, they include:

 Exceptional customer service and top notch holistic operations

 Strong luxury brand recognition

 Loyal employees (e.g. Winner of Hotelier of the Year 2008 - Kurt WachtveitL)

 Far sighted and focused management

 Strong financial position (31% increase in adjusted net asset value per share)

1. Definition Assets and Intangible Assets

An asset is a resource controlled by an entity as a result of past events and from which future economic benefits are expected to flow to the entity.

An intangible asset is an identifiable non-monetary asset without physical substance. It must be identifiable (separable and arises from contractual or other legal right), controllable and possess future economic benefits.

B. CHOICE OF INTANGIBLE ASSET IDENTIFIED

1. Service and Quality Management (SQM)

Having studied the strengths of the company, we have identified the hotel's SQM as the intangible asset that we feel should be reflected on the Balance Sheet. It encompasses several factors that play an important role on the holistic experience its customers gain when staying in the Group's hotels, it includes the service quality, ambience and the F&B provided by the Hotel.

2. Possible Reason(s) why it was excluded from the Financial Statements

The FRS has significant limitations in terms of reporting an entity's true value. Internally developed intangible assets, even those for which a fair value may be determinable, are not recognized in the financial statements. A hotel's SQM is not really separable from the hotel and it does not arise from contractual or other legal rights.

It is also difficult to determine the value and cost of SQM. Recognizing (or even disclosing) the fair value of this unrecognized intangible asset has at least two major drawbacks. First, determining fair value saddles the reporting company with new, unrecoverable costs. Second, the lack of objective evidence of value (such as acquisition cost in the case of a business combination) potentially exposes executives and auditors to increased liabilities should those valuations turn out to be incorrect.

3. Reasons why our group feels it should be included

SQM is a long term measure that maximizes profitability and shareholder value. Due to the growing affluence, customers are more willing to spend on quality stays . This allows for the hotel to charge a higher premium for its services and generate more economic benefits. The importance of service and quality of a hotel can be seen in the various travel rating journals such as the Forbes Traveler 400 List , Travelocity Ratings and Northstar Travel Media (as shown in the table below).

Star Rating Description

Travelocity &

Yahoo Travel

These luxury properties are members of an elite group of hotels that exhibit an exceptionally high degree of service and hospitality. These properties display an original design, elegant room decor, exceptional dining, and meticulous grounds. The flawless execution of guest services is the staff's prevailing concern.

Northstar Travel Media

An expensive luxury hotel offering guests the highest standards of accommodations and facilities and providing almost any level of personal service. Hotels in this category are among the worlds finest.

As a result, it is not surprising that SQM has become a crucial factor that many Hotel and Resort companies greatly emphasize on. Mandarin Oriental Hotel Group is consistently featured by influential global publications as an outstanding hotel company and has received numerous awards and 5-star ratings for its excellent SQM , hotel ambience and innovative state-of-the-art facilities that enhance a customer's experience.

One innovative method that MOIL adopted to accelerate service delivery in its New York hotel is to equip every service staff with a Blackberry with the Hotel Service Optimization System (HotSOS). It helps the hotel keep everyone "in the loop" in real time so service levels consistently can exceed even the heightened expectations of valued upper-upscale guests. Such a system will improve the reaction time of the hotel staff to better provide a higher standard of service quality to its guests.

The good ratings of MOIL will help to retain customer loyalty as well as increase public awareness of the hotel's presence in the industry. A good service and quality provided by the hotel will lead to better ratings, which will in turn translate to higher future economical benefits flowing into MOIL. We firmly believe that the Group's SQM plays a pivotal role in the ratings of its hotels, and as such should be included in the financials as an intangible asset

The firm differentiates itself from its competitors through several distinctive features (another word please):

1. Oriental charm

Mandarin Oriental aims to be widely recognized as the best international luxury hotel group offering a distinct oriental feel. The Group's 21st century luxurious oriental charm is highly sought-after in destinations around the world.

II. Constant Upgrading and Improvement

To achieve exceptional hotel design and architecture, innovative dining experiences, expertise in holistic spa operations, guest-orientated technology and, of course, the legendary service which remains the foundation of everything we do.

The Group is actively pursuing advanced technologies, and to providing its guests with an optimum IT environment. Whether these guests are travelling for business or for leisure, they are always looking for the

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