OYO is a Mythical Devil in the eyes of the Chinese Hotel Industry

Oyo Townhouse, Delhi

China has been always very overprotective of their economy and local businesses. This has positively affected their local populace by letting the local players grow exponentially. If we take the internet industry, the US players are the global giants and they control most parts of the world in terms of users and data. However, they were not allowed to prosper in the land of the dragons. They were either banned against accusations or bullied heavily so that they would leave the country making way for the local majors to become giants. Foreign players such as Google, Facebook were shown the exit door in China. The Chinese giants namely Alibaba, Baidu and Tencent have all become global household names because of the protective nature of the Chinese government.

Mobile internet sector has seeped into most walks of life and the travel and tourism industry is no different. The hospitality industry is one of the largest industries to be affected by the advent of internet-based business models. Earlier people used to either make a call to book a hotel or just walk into any hotel to find rooms. However, this changed after these hotels started listing themselves on the internet through Online Travel Agents (OTA). The websites that allow the hotels to reach out to a huge number of travellers as compared to earlier times.

India has emerged to be one of the fastest growing countries to adopt the internet as a part and parcel of life. More than a billion people use the internet and internet-based startups are a hit in the country. One of such startups is OYO. This is a hotel chain that has two ways of business – self runs properties or leasing or selling franchises. According to OYO China’s Senior Vice President, Yufei Hu, 1,000-plus Oyo hotels through multiple platforms including third-party distribution such as WeChat and they also host a large number of guests through the walk-in channel as well.

OYO has seen a stellar growth in the Chinese market. The travel market in China is estimated to be over $134 billion and OYO is fully utilizing the new opportunities. Recently they received funding from Singapore based Grab of $100 million taking the total valuation of the company north of $5 billion. This is a huge feat for the company that only started 5 years ago. In China, it just entered last year and in a year’s time, it easily surpassed two of the major local players – 7 days Inn and Ru Jia Home Inn.

The local players in China have a perception of the Indian hotel company OYO to be some kind of a mythical devil as it is eating up their businesses in their own country. It is similar to what China’s technology companies have been doing in the rest of the world. The Chinese news portals have claimed that the Indian business has adopted the German style of doing business, which seems to be too aggressive. The reason behind such perception has something do with OYO’s business model in China.

Source: OYO Rooms

Oyo started with just 10 people in China but now it puts almost 3 new properties every hour into its profile. OYO’s franchise fee is extremely low as compared the 7Days Inn and Ru Jia Home Inn. This allures the local hotels to tie up with OYO and help them spread in the country. OYO has achieved the amount of success in just 1 year, which took 7Days Inn and RuJia over 10 years. This is the power of the internet and OYO has used it perfectly to their benefit.

OYO allows their occupants to check out late and also redeem points while booking online. These might seem small perquisites but it boosted their business from 30% to over 70% in recent times. It is important to understand that the occupants will almost always opt for someone giving a little more benefits over a better/local brand name.

OYO couldn’t have done it on their own if it were not for the support it got from the investors such as SoftBank’s Vision Fund. The Japanese Bank’s investment arm is one of the largest investors in the company with over 71 billion in OYO’s accounts. In one year OYO got from a mere $850 million to a whopping $5 billion worth.

However, there have been numerous cases of unsatisfactory reviews from the occupants and even employees of this massive company. There have been complaints of dirty rooms or bad services. Some of the employees claim that the company’s top-level management is rigid and deny changes, which make it difficult for the new age employees. Many employees do not get credit for their contribution and their seniors take most of the good name along with the high payments. Discrimination on the basis of employees’ college degrees is rampant and people from IITs and IIMs receive better opportunities than others. However, these complaints are not exclusive to OYO as most of the major companies at some point in their commercial life has to go through these accusations.

The unrest that OYO has caused in China is worth the attention. It is time for the Chinese hotel industry players to shed their ego and jealousy to concentrate on their business and figure out a way to compete with the brand across the border. Offering cheaper stays, redeemable coupons on the websites or OTAs and cheaper franchise fees are some ways that the Chinese players should adapt to gain back their market share.

Soumya De

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