Marriot International Inc.

Marriot International Inc. was founded in 1926, and entered the hotel industry in 1957. Today, Marriott has a dominant presence in the U.S. hotel and lodging industry and operates over 2,800 hotels and related lodging facilities. Marriott’s major rivals are the Hilton Group, Hyatt Corp, and InterContinental.

A 5-Forces analysis of the hotel industry suggests that it is unfavorable. The key factors affecting the industry are: high buyer power, relatively high power of suppliers, and high rivalry. The power of buyers is high as customers are typically very price sensitive, and they have many different choices owing to the size of the industry. There is high rivalry in the industry since there are many established hotel chains, most of which are located in close proximity, and attract customers via competitive prices. Finally, power of suppliers is fairly high since prime locations are in limited supply, and typically very costly.

Further financial analysis also supports that the hotel industry is unfavorable. The industry currently underperforms the overall economy by 3.4% - the economic average is 5.9%, while the industry profitability is a poor 2.5%. However, Marriott is currently outperforming both, the industry and the economy, with an overall profitability of 8.6% and the highest ROE in the industry. The firm’s competitive positioning is broad-market, differentiated. The company’s brand attracts several segments of customers ranging from holiday travelers to businessmen, with Marriott currently operating 16 specialized brands catering to the differing needs of customer segments. The company offers a suite of resorts, moderate priced lodgings for business travelers, top-quality conference centers, mid-priced extended-stay facilities, as well as, exclusive, luxury hotels for wealthy travelers.

With regards the firm scope, horizontal diversification allows Marriott’s various brands to leverage the company’s resources and take advantage of Marriott’s brand name and management expertise. This helps the firm in achieving economies of scale in management, bringing overall costs down. Further, all brands enjoy Marriott’s recognition and appeal, increasing market power for the firm. Marriott undertook vertical de-integration to specialize in hotel management. The firm split into two separate companies: Marriot International Inc. (managing hotels), and Host Marriott (real estate owner).

The main expansion opportunity for Marriott is in Asia, particularly China. With its ever-expanding economy and highest worldwide population, China now has a growing, wealthier middle-class. This will continue to create rapid demand growth for hotels in the coming years, and thus, there is huge market potential in China, and other developing countries in Asia. We recommend Marriott to continue its move into this sphere, and expand its global presence. Currently, Marriott claims less than 1% market share in the hotel industry outside the U.S.; however, with an established brand name, Marriott will be able to leverage its expertise in managing hotels and providing top quality services, in appealing to Asian property owners. A strong presence in the upcoming Olympic Games in Beijing in 2008 would undoubtedly help to propel Marriott’s initial penetration in the untapped Asian market.

The primary financing for expansion into China should come from the spin off of the Synthetic Fuels division of Marriott. This part of the business does not share any resource synergies with the rest of the business dynamic and does not fulfill the scheme of the BCG matrix. This business could be attributed to diversifying for the sake of diversification and does not promote any realistic growth for the Marriott property management and lodging business. In fact, shareholders could invest in synthetic fuels on their own, depending on their investment criteria, and theoretically disperse their investment risk more efficiently