Online Extra: Cendant Hotels Checks into China

CEO Rudnitsky says the chain's woeful global presence will change and thinks the burgeoning Chinese middle class offers huge opportunities

Steven Rudnitsky, 46, is chairman and CEO of the Cendant Hotel Group (CD ), the world's largest hotel franchisor. The Parsippany (N.J.)-based company has some 6,400 hotels with more than a half-million rooms worldwide. And those impressive numbers have been achieved via a focus largely on North America, where 95% of the company's properties reside.

That's set to change as Rudnitsky prepares to aggressively expand his brands overseas. Names that will be going international include Super 8, Days Inn, Ramada, Travelodge, Howard Johnson, Knights Inn, Wingate Inn, and AmeriHost Inn. He recently met with Dexter Roberts, BusinessWeek's Beijing bureau chief, to talk about his China strategy. Edited excerpts of their conversation follow:

Q: How did you decide to focus Cendant's hotel business more on overseas development?


Having spent three and a half years [working] in international at [previous employer] Pepsi (PEP ), I could see that we're woefully underdeveloped [overseas]. So our approach to our overseas business was something that we really needed to reset.

Q: And how do you see China fitting into your overseas expansion?


We break the world outside of the U.S. and Canada into three big buckets. There is all of Latin America, and we have an emerging strategic plan that we're focusing on that we will continue to lead with Mexico and key countries in South America. There is the European market, which is a big opportunity for us. We're well-entrenched in Britain and other countries.

And then there is the vast Asia-Pacific market and all the varying opportunities here. China is clearly a major focus for any company trying to build Asia-Pacific business.

Q: How important do you think China could become for your overall business?


If you look at the business model in the U.S., we have more than 5,000 properties [in a country with a population of ] 270 million. Here we have a total of 31 properties in a country with more than 1.3 billion people, so there are huge opportunities. Overlay the personal income of China's growing middle class with a country with 21,000 miles of highway. And then there are big events coming up like the Beijing Olympics and World Expo in Shanghai in 2010.

We are very bullish on business opportunities in China in both direct franchise and also possibly joint venturing.

China and all our international business will make up a far greater portion of our sites as well as our revenue and operating income over the next few years. We have close to 6,000 properties in the U.S. and Canada. Outside of there, we have roughly 450 properties worldwide. That gives you a context of the opportunity overseas.

Q: Can you talk about the opportunities for Super 8 in China?


There is enormous opportunity here for Super 8 in the two- to three-star product range [of hotels]. I'm hoping for, and our business plan calls for, 60 properties in the next three years. Look at Super 8 in the U.S. We have just under 2,000 properties [with only 10 now in China]. Super 8 is a well-respected economy brand delivering a consistent product to the consumer base in the U.S.

That's exactly what we want to try to provide here in China. What's interesting here that I've seen in my visit is the preponderance of 4- to 5-star product.

Q: What does the competitive landscape look like for Super 8?


There are great opportunities here, but it's going to be a very competitive environment, with international brands continuing to enter the market -- but [there will] also [be competition] from in-country brands.

You have the homegrown brand Home Inn, with more than 70 properties. It's in our mind, respectfully, a cut below in an amenity standpoint from our Super 8 product. But it's nevertheless a product in the economy sector that we need to compete against.

Q: China has a reputation as a place where regulations can suddenly change and affect foreign businesses. Is that an issue for you?


We respect and understand the issues associated with the regulatory environment in China. We're working with all the right authorities. We're actually quite optimistic that we will continue to move forward and grow the business in China, albeit at times [when we must deal] with changing regulatory issues.

Having the contextual experience of being here nine years ago -- that was my last visit -- I think [the government] is incredibly more open to the opportunities that we can provide. The economic opportunities in China [from our business] are significant for the government and are significant for the people.

That's the mantra I [repeated when] talking to all our franchisees over the past week or so. So I think Beijing is quite positive [toward our business].

Q: What are your plans for Cendant Hotel going forward?


We're going to see far more aggressive site growth internationally -- and far more optimization of existing site performance domestically. That's kind of the nuance of our approach to business now. And we're taking advantage of the explosive growth opportunities that we have internationally.

It really is remarkable, having taken a nine-year hiatus from being here, to see all the opportunities now. And it'll probably be less than 90 days before I get back here, just by virtue of the opportunities that we have here. The Cendant Hotel Group is very bullish on the business proposition within China.

Edited by Patricia O'Connell

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