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Hotels in Argentina

A Strategic Reference, 2006

Hotels in Argentina
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How to Strategically Evaluate Argentina

Perhaps the most efficient way of evaluating Argentina is to consider key dimensions which themselves are composites of multiple factors. Composite portfolio approaches have long been used by strategic planners. The biggest challenge in this approach is to choose the appropriate factors that are the most relevant to international planning. The two measures of greatest relevance to hotels are “latent demand” and “market accessibility”. The figure below summarizes the key dimensions and recommendations of such an approach. Using these two composites, one can prioritize all countries of the world. Countries of high latent demand and high relative accessibility (e.g. easier entry for one firm compared to other firms) are given highest priority. The figure below shows two different scenarios. Accessibility is defined as a firm’s ease of entering or supplying from or to a market (the “supply side”), and latent demand is an indicator of the potential in serving from or to the market (the “demand side”).
Framework for Prioritizing Countries

Demand/Market Potential Driven Firm

Relative Accessibility

Accessibility/Supply Averse Firm

In the top figure, the firm is driven by market potential, whereas the bottom figure represents a firm that is driven by costs or by an aversion to difficult markets. This report treats the reader as coming from a “generic firm” approaching the global market – neither a market-driven nor a cost-driven company. Planners must therefore augment this report with their own company-specific factors that might change the priorities (e.g. a Canadian firm may have higher accessibility in Canada than a German firm).

Latent Demand and Accessibility in Argentina

This report provides a detailed overview of factors driving latent demand and accessibility for hotels in Argentina. Latent demand is largely driven by economic fundamentals specific to hotels. This topic is discussed in Chapter 2 using work carried out in Argentina on behalf of American firms and authored by the United States government (typically commercial attachés or similar persons in local offices of the U.S. Department of State). I have included a number of edits to clarify the information provided. Latent demand only represents half of the picture. Chapter 2 also deals with micro-accessibility for hotels in Argentina. I use the term “micro” since the discussion is focused specifically on hotels.

Chapter 3 is also a stand-alone report that I have authored. It covers proxy pro-forma financial indicators of firms operating in Argentina. I use the word “proxy” because the provided figures only cover a “what if” scenario, based on actual operating results for firms in Argentina. The numbers are only indicative of an average firm whose primary activity is in Argentina. It covers a vertical analysis of the maximum likelihood balance sheet, income statement, and financial ratios of firms operating in Argentina. It does so for a particular Standard Industrial Classification (SIC) code. That code covers “general contractors of residential buildings excluding single-family houses”, as defined in Chapter 3. Again, while “general contractors of residential buildings excluding single-family houses” does not exactly equate to “hotels”, it nevertheless gives an indicator of how Argentina compares to other countries for a proxy adjacent category along various dimensions.

Chapter 4 deals with macro-accessibility and covers factors that go beyond hotels. A country may at first sight appear to be attractive due to a high latent demand, but it is often less attractive when one considers at the macro level how easy it might be to serve that entire potential and/or general business risks. While accessibility will always vary from one company to another for a given country, the following domains are typically considered when evaluating macro-accessibility in Argentina:
Openness to Trade in Argentina
Openness to Direct Investment in Argentina
Local Marketing and Entry Strategy Alternatives
Local Human Resources
Local Risks

Across these domains, a number of not-so-obvious factors can affect accessibility and risk. These are covered in the Chapter 4, which is a general overview of investment and business conditions in Argentina. Chapter 4 is also presented from the perspective of an American firm, though is equally applicable to most firms entering Argentina. This chapter is also authored by local offices of the U.S. government, as is Chapter 2. Likewise, I have included a number of edits to clarify the provided information as it relates to the general strategic framework mentioned earlier.