www.appletree-asia.com Kurt Walter, Group General Manager of Apple Tree Group - Hospitality, is currently based in Hanoi and manages 10 properties across Southeast Asia. Read more about his sharing here!

1. Published since 1976 Vol 39 February 2014
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KING OF THE
KITCHEN
Combi ovens offer
space-saving versatility
MAKING THE CONNECTION
Next generation in-room technology
The FINE PRINT
Industry leaders discuss
management contracts

2. www.asianhotelandcateringtimes.com
M a n a g eme n t
AHCT February 2014 11
Moving with
the times
By Kurt Walter
T
here are many different ways to structure management
contracts and what works for some might not necessarily
work for others. However, we have observed some changes
in this very competitive hospitality market, and the way management
agreements have been structured in the past may no longer be valid
in today’s business environment.
Previously it was lucrative for operators to enter into
management agreements as these deals were tailored and structured
to give operators a certain percentage on revenues and profits. These
so-called ‘three plus 10’ agreements (3% of revenue and 10% of
profit) are not aligning the risks and benefits for both parties equally
and can result in one of the two parties getting demotivated over
time.
Focus is now put on a more balanced remuneration mechanism
whereby risks and rewards are aligned in a more balanced fashion. At
the same time, it is for an owner equally important not to demotivate
the operators, as an enormous amount of time and effort goes into
managing any hospitality property.
Hence, fee configurations are now less focused on base fees but
more on the profitability of the operation; the higher the operating
profits, the more attractive the rewards for the operating company
and ultimately for the owners. In fact I like the rewards based on
profitability a lot and perhaps operators should be incentivised on
the maximum sale value of the property too, in addition to operating
performance.
Such benefits are quite attractive for both operators and owners
and result in a ‘win-win’ scenario where fees could end being higher
than with the common fee structure being a certain percentage of
revenue, regardless whether the hotel is profitable or not.
My philosophy going into any meetings/negotiations is that it
must be a win-win for both parties. As soon as one feels that they
were ‘cheated’ into an agreement, the relationship usually ends up
being a painful experience for everyone involved and will likely be
dissolved.
In addition to this, one must be sensitive to different cultures
and religions and show an interest in matters that may be important
to the counterpart. With some, it might be pure business, short,
sweet and to the point; with others the approach might be a game
of golf, a meal or perhaps as simple as inquiring about the family.
For some it is all about the business/contract and for others it
is all about the relationship one has with his/her counterparts. As
for me, it is a bit of both and although the correct and detailed
contract terms are paramount in any contractual obligations, to get
to a mutually agreeable management contract can in my experience
be best achieved via
relation building
process, especially in
Asia but also in other
parts of the world.
C o n t r a c t
n e g o t i a t i o n s a r e
fundamentally different
between Asian and
Western counterparts.
The way people think,
act and behave is
different from continent
to continent, from country to country and even from region to
region, which at times puts even the best contract negotiators in
awkward situations, no matter how skilled.
Different countries mean a different way of doing business and
it is astonishing how different contracts are negotiated even within
the various Asian countries, let alone between East and West. I
observed this during one of my assignments early on in the mid-
1990s when I was hired to manage a hospitality business in Vietnam
for an US-based company. Any contracts that were negotiated were
based on relationships first, even before we headed to the boardroom
to discuss the finer details.
This could happen over a game of golf or a meal and drinks. In
the Western world it is all about the technicalities of agreements
and contracts into the finest details and the getting to know the
other party appeared to be almost non-existent, while in Asia it is
to this day about trust and about getting to know one another first.
Another interesting comparison is the fact that some cultures
in the West go into negotiations with the intention to ‘win’
whereas some Asian cultures tend to find common ground via
a win-win brokering [arrangement]. And there are numerous
other components important to either side, such as how formal
negotiation/meetings are, the sensitivity of timing, the direct or
indirect form of communication, all which make such management
contract discussions, if not paid attention to, a challenge that could
lead to success or failure in the negotiation process.
Kurt Walter is group general manager, hospitality division, Apple Tree
Asia, a diversified group operating in Vietnam, Laos, Cambodia,
Myanmar, Thailand and India. With more than 30 years’ experience
in 12 countries, Walter is currently based in Hanoi, Vietnam, as group
general manager, managing 10 properties inVietnam, Laos, Myanmar
and Thailand with 500-plus employees.