Majestica was founded in Western Europe and focused exclusively on Europe and the United States initially, the expansion into China had been on management’s agenda since 1999, the opportunity emerged in late 2003, Majestica’s proposal to operate the luxury hotel satisfied CPS’s ambition to build a pre-eminent hotel in Shanghai, but there are 5 issues between Majestica and CPS. First, the length of contract term, Majestica asked for a contract term of 55 years, it was based in its typical management contract term in the world, CPS just had been prepared to offer 12 years, it based on the level of licensing in China.
After consideration, CPS made a concession, CPS countered with an offer of 30 years, but Majestica insisted that the hotel management contract term should be at least 50 years. Second, pre-opening assistance, CPS couldn’t accept Majestica’s request for retaining the approval right over all design aspects relating to the hotel, Majestica argued that it was make sure that the hotel would be developed as an excellent hotel.
Third, name of the hotel, CPS suggested that the hotel be named “Shanghai Oceania – Majestica Hotel”, but Majestica insisted “Majestica Hotel, Shanghai”. Fourth, the form of the hotel should be defined well. The purpose for CPS, they require the owner should have the privileges that have the special access to the hotel and the office use as a hotel room, but Majestica thinks it would make confusion for the hotel management. Majestica really sticks to its philosophy of the hotel management.
Fifth, the sovereignty of Corporate Governance, CPS proposed Chinese general manager would be used in the near future, the number of the expatriate managers should be reduce and local managers trained to replace them, and the equipment purchase in domestic also, but Majestica believes that the competence of the general manager was more important issue than their Chinese background, did not believe the local people would have the ability to achieve the service culture.
Besides, Majestica insisted that it must have the exclusive responsibility and authority on hiring general staffing and buying facilities, the owner have not any privileges, also a minority equity position. The management contract is complicated between the owner and the technical supplier, so, inevitably, Majestica and CPS must have to communicate a great deal of times. In these negotiations, if we were Majestica. We would make concessions in appropriate range.
As a later entrant and in the new emerging market-China, it must have to be inferior and sacrifice a lot to enter the market and impress customers, especially the communist policy in China and the trade partner-CPS. We will afraid that the extra demand and requirement to CPS will provoke the government negative feelings no matter municipal or the China government. If did that, it must be the most difficult to gain the access to this potential market, even though the contract is so disadvantageous to us. Technically, the attributes of Majestica can’t be doubted. We will insist the professional to maintain and develop our quality.
Like the 30 length of contract to prevent the leasing of our tips and exclusive technique of the management; the equipments in hotel could let them make decisions on several items, but the special items should keep to stay the style and the luxury level; the staffing would be trained, capable and selected as a fixed rate between foreigner and local people; we could make the concession on the general manager and the owner’s access to hotel rooms, but it depends on the general manager ability not the nationality and try the best not to influence the management; we will also try our best to be nice and friendly in negotiation and arbitration place. Last but not the least, the name to get into the new market is vital, so we will stick our opinion and not to change . On the other hand, if Majestica refuses to make concessions, what the action will we take as CPS?
We won’t walk away emotionally because the Chinese market is opening to the whole world now; it is a good opportunity for CPS to get some more experiences with big company such as Majestica. To make up this business connection, it is not only benefiting for these years, but also help them to find out what kind of position they can be fitted in. In another way to talk about it, the hardest part of this situation is both of them have different operating philosophy. We can say there is not only one way to lead success, however doing the right thing, giving the customers what they expect will always be the same rules for no doubt. Actually, CPS should pay more efforts to understand why Majestica can get on the top place in this industry. And then, they would know why Majestica asks for so many requests.
Only if CPS and Majestica get the complete information which both of them should know, they can start to discuss about making concessions. Otherwise, it could be a chemistry situation without any reaction as no one takes in other’s shoes. The brand-new market, the brand-maintaining firm with principles and strong philosophy of managing, the huge investor as the owner of the hotel with nationalist and hoping to do best in china market with low cost, each of them weave a complex and profound issue which deserves us to debate deeply. It is crucial to think about that how to gain into the new market as a later entrant; how to maintain the quality and philosophy against the investor with demands.