A Principal-Agent View on International Hotel Branding

The establishment of an international hotel to serve travelers requires the joint inputs of a foreign manager and a local developer, in that the focal hotel may carry the brand of the foreign manager, the brand of the local developer, or the brands of both specialists. An international hotel can even bear the name of an integrated chain that covers hotel management and hotel development. In the study, we argue that the branding status of the focal hotel dictates the principal-agent relationship in the manager-developer dyad, where the brander/principal claims the gains in hotel reputation by paying a fee to buy out the contribution of the nonbrander/agent. Naturally, the brander must incur a cost to monitor shirking by the non-brander in building and protecting hotel reputation, a special type of agency issue called branding agency. The right to brand an international hotel can be reallocated between the parties to support their cooperation in multiple markets. Integration of hotel management and hotel development under the hierarchy is necessary only when agency costs are too high in all market interfaces. This branding-governance connection contributes to two seemingly unrelated literatures on organizational economics and branding.