In Asia, many hotels work under management contracts, as they can easily achieve economies of scale, global reservation systems, brand awareness, etc. It is not uncommon for contracts to be signed for 30 years and have a royalty of up to 3.5% of total turnover and 6 to 10% of gross operating margin. Management contracts have been widely used in the aviation industry and when foreign government measures limit other methods of entry. Management contracts are often concluded where local skills are lacking to carry out a project. This is an alternative to foreign direct investment, as it does not carry as much risk and can generate higher returns for the company. The first registered management contract was initiated by Qantas and Duncan Upton in 1978.  [Audit Failed] Hiring an external contractor makes it more difficult for the company to predict the number of conflicts that may arise. For example, a businessman uses a contract management company to operate the business. For its part, the management company can also take over the management of the supplier company.
This can lead to several compromises on discounts, price negotiations and the operation of suppliers. There may be other conflicts, even if the same management company simultaneously assumes the management of several competitors.  The hotel and restaurant sector has a number of important players and stakeholders who have been involved in the realization of a successful hotel. Hotel brands, hotel owners and asset management companies often collaborate to create transformations and combinations of operating models to maximize profitability and increase guest satisfaction. The question asked to the hotel owner is: „How to choose between a franchise agreement or a hotel management contract?“ and „Which model is best for your hotel?“ This article is intended to give a brief overview and comparison between the two hotel operating models. Any software, including codes or other materials made available by HotelExecutive for download, is the copyrighted work of HotelExecutive and/or its suppliers and associated companies. When you download software from HotelExecutive, use of the software is subject to the license terms in the license agreement for the software that is attached to or provided with the software. You may not download or install the Software until you have read and accepted the terms of the current license agreement….