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Emerging hotel markets turn to outsourcing

Already a norm in most established markets throughout the world, outsourcing is beginning to take hold in developing markets such as India, were hoteliers are realizing big cost savings in areas of little direct customer interaction.

“Outsourcing is the growing trend which is here to stay,” said Vijay Sethi, COO of Berggruen Hotels, which owns and operates the Keys Hotels brand in India.

The main reason, he said, is the reduction of operating and capital investment costs.

“It brings down payroll expenses, which are 20(%) to 30% of the running costs. Also it brings down the capital investment substantially,” Sethi said.

“The cost advantages are, for example, the savings of the investment and maintenance for laundry machinery, which are substantial,” said Stefan Flury, GM at the 333-room Mövenpick Hotel Zurich Airport, Switzerland.

And in developing markets especially where specialized talent can be hard to come by, outsourcing allows hoteliers to circumvent the headache and expense of employee recruiting, training and retention, sources said.

“More than cost advantages, at times it is the convenience and expertise that is essential,” said Ruchika Mehta, director of public relations and corporate communications for The Park Hotels, which has 11 hotels in its portfolio, all in India.

“One of the biggest advantages is to save costs. Outsourcing gives a company the possibility to reduce investments in technology and infrastructure. Furthermore, it gives the human resources management flexibility. With outsourcing a company can save costs and has the possibility to pick a person of outstanding ability,” said Devika Chauhan, human resources manager at the 182-room Mövenpick Hotel & Spa Bangalore.

Only certain areas are ripe for outsourcing, she continued. Housekeeping and gardening are common targets, as are security, maintenance and others that require little direct customer interaction.

“Hotel companies are outsourcing departments of operation without core competence,” Chauhan said. “Outsourcing services also means less manpower on a company’s payroll. Departments which need minimum skills, but need investment, staffing flexibility, reduced overheads and constant monitoring should be outsourced.”

Laundry is perhaps the prime example. The department typically requires capital investment with an added cost of running and maintenance.

“In laundry, hotels generally have a markup of 35(%) to 45%, so when it is outsourced on a revenue sharing basis of 50/50 or 60/40, it adds to the bottom line without any capital investment.” A typical laundry facility requires upfront CapEx of nearly 3 million to 4 million rupees (approximately $50,000 to $65,000) for one unit, he said.

Mehta put the capital savings at 10% to 15% for a new hotel.

“The trend of outsourcing laundry is nearly the same across Europe, whereas other areas depend on hotel size and chain affiliation available partners, etc.,” Flury said.

“Also there is considerable saving of space when laundry is outsourced. In a typically 100-room hotel, the space saving by outsourcing laundry can be 2,000 to 3,000 square feet, which can be used for staff premises or a banquet,” Sethi said.

Outsourcing to scale

Outsourcing is more common in the budget, mid-market and upscale segments.

“The trend is more pronounced in the mid-market segment hotels,” Sethi said. “In the case of luxury hotels, everything is still managed in house. In most new hotels, there is no laundry done in house as it is being outsourced.”

“Luxury properties usually have all capabilities handled internally,” Mehta said. “It’s only in the case of budget hotels you will see outsourcing. But in some of the budget hotels, this can also lead to a substantial savings.”

Most of the decisions for outsourcing are planned investment decisions not taken in haste, Mehta said.

“Usually while the hotels are being built, such decisions are taken. In certain cases it may happen keeping in pace with current times and cost effectiveness,” she said.

“It is all about cost management,” Sethi said. “It is a case where the operation is beneficial to the bottom line. Saving a rupee is as good as earning it.”


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