Each company that wants to go internationally, targets on growth and expansion, therefore the main business value is to know how to keep own loyalty, foresee consumers’ needs, incur a liability to customers concern, and fit with top quality part of consumer service. The vision one of the World reputed hotels group - InterContinental Hotels Group is to become one of the greatest companies in the World. Their business model has a clear focus on franchising and managing hotels, rather than owning them outright, enabling them to grow at an accelerated pace with limited capital investment. Furthermore, IHG benefits from the reduced volatility of fee-based income streams, as compared with the ownership of assets.
Thus, InterContinental Hotels Group are closely related with tourism and business trips, it tries to accompany and present itself on high quality to consumers. By economic side IHG tries to expand internationally, reinvest to new branches. The total number of hotels under the IHG brand is 4,437 with 647,161 rooms and 68% of total room’s revenue booked through IHG’s channels or by Priority Club Rewards members direct to hotel. Primary function of IHG is to serve consumers in every single direction of the World. Moreover, IHG tries to attract experts from each aspects of hotel business to get more privileges among competitors. Getting the HR Director of the year award in December 2010 at the Personnel Today Awards in London, Tracy Robbins, Executive Vice President, Human Resources & Group Operations Support, proved the IHG’s stuff professionalism. As a new internationally moved company it’s better to improve stuff skills than to waste time to find the best qualified worker. By confessing American Society for Training and Development (ASTD) in October 2010 IHG was named the World’s ‘BEST’ Learning and Development Organization. IHG was compared with 103 global companies, including IBM and Deloitte and has achieved that acknowledgment price.
One of the main factors that maintain global companies and their growth is conclusions received from other experiences. Companies go international to expand their work force and get new ideas. A work force comprised of different locations and cultural disparity can bring spanking new ideas and concepts to help develop a company. Under the IHG brand there are 4,437 hotels that are located almost in all countries in the World. Since 1940s IHG has been investing own experiences to all hotels starting from Belém, Brazil. As we know, the Central Asian culture, history and climate are almost the same, so that there is a factor that could be used generally to establish several hotels by learning factors that impact on several countries at once that IHG had already used to grow internationally in Central Asia.
One of the main issues, why companies go internationally is diversification. By diversifying, companies try to get a profit by selling new products or services. The InterContinental Hotels Group always tries to create comfort and something new to own consumers as “No smoking” rooms, rooms “To people with disabilities” and “Royal suite” rooms. That kind of privileges assesses to keep and attract more and more consumers. With own opportunities, IHG makes benefits by opening hotels in other countries and justify from consumer’s feedbacks.
The transition at the international level does not mean getting more money all the time. Intervention in the domestic market of foreign companies that always leads to risk both from a political standpoint, as well as financial. There are so many political impacts on to new moved foreign company. The first is citizen’s attitude; natives and close related countries try to use what they have already applied to their life. For example, movement IHG in the country that was previously in the Soviet Union is more difficult than to open another hotel in France. Conservative regime in most of countries that were under the Soviet Union is still in force, that’s why guests from ex - Soviet Union countries try to stay in hotels that have already known in this region. Thus, to attract more consumers, IHG needs to do marketing Research and select a target market or present unusual offerings from which consumers can change their opinion.
In some countries, foreign companies are suffering from high rates of fees or the government blocking the direction of consumers from a foreign company and send them to the domestic market. These kinds of situations could be met also with IHG. For example, in bureaucratic countries, we can find something that government structures can block the flow of tourists to the InterContinental Hotel and transmit them to domestic hotels. This kind of inequality rights may be reflected by corruption too. In addition, we can see the bureaucracy, from the strict and lengthy registration. In that case, it's tiring visitors and tourists who have already tired of moving.
The war is the worst direction of capital investing. As an example, unforeseen civil wars in the Middle East deprived IHG large flow of tourists, at least for one season.
As known, politics and finance of the country is undividable, each aspects could maintain or pull down the state. Maltreatment of government politics in international arena could block the state’s financial market. Undemocratic relationship with foreign investors and prohibition of converting currencies destroys economic growth of country. The main part of GDP of governments is exporting own products, by restrictions as a convertibility, blockage of transfers and getting credits are toughing national economics and foreign investment.
In order to calculate capital structure we need to know the debt to equity ratio. The formula for this ratio is D/E = Total Liabilities/Total Equity
To calculate capital structure of InterContinental Hotels Group there is group statement of financial position from 31 December 2010 in the next page.
We will calculate a trend in D/E for the last two years:
D/E(2010) = 2485/291 = 8.5
D/E(2009) = 2737/156 = 17.54
Such high debt/equity ratio means that InterContinental has been aggressive in financing its growth with debt. If InterContinental takes a lot of debt in order to finance its increased operations, the company can probably have more earnings in its fiscal year than it would have without these borrowings. However, the cost of this debt financing may be less than the return that the company can generate through investment and operating activities and become too much for the company to handle. This can result in bankruptcy and would leave shareholders with nothing. The reason for debt financing is that it is considerably expensive to open a new hotel: one should build and equip the whole facility. This can be considered to be a risky business by any investor and they will be reluctant to invest into hotel business. That is why InterContinental relies mainly on debt when expanding abroad.