The Relationship between Generic Theory and Hospitality Applied Research: The Case of International Hotel Development

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This article explores the issue of how hospitality knowledge is created in the context of generic theory. Specifically, it demonstrates how the evolution of concepts and underpinning theory may not be matched by empirical studies in the hospitality field. The limited scale of hospitality research may mean that only some elements of theory a re selected or applied in this field. It is proposed that this creates what we might term a "research discontinuity" in the hospitality literature. This phenomenon is demonstrated and illustrated by considering the theory of entry-mode choice, developed to understand market entry and internationalisation, of which four schools of thought have evolved over time. This theory has been applied to international hotel development, but haphazardly--thereby leading to "discontinuity". The implications of this are then explored.

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The theme of the Council for Australian University Tourism and Hospitality Education 2004 is "Creating tourism knowledge", including issues such as the utility of knowledge created and illustrations of how knowledge is created through research projects. This article has been designed specifically in that context. Hence, rather than simply report the outcomes of a major study into international hotel development, it explores a major issue of concern--the link (or lack of it) between "generic theory" (i.e., the mainstream literature on a topic) and hospitality research. Thus the hotel development study is used as an in-depth case study to draw out conclusions about this link that may have relevance across a range of hospitality-related research topics.

General Theories of Internationalisation and Entry Mode Choice

Having decided to go international, firms then have a choice as to how they achieve their strategic goal. There is a range of modes of entry. According to Root (1994), a company's choice of entry mode for a given product or target country is the net result of several, often conflicting, forces. These forces are difficult to measure and make the entry-mode decision a complex process, so that managers need an analytical model to facilitate systematic comparisons among the modes. Overall, past research, whether empirical or theoretical, has highlighted the relevance of external and internal factors to entry modes. External factors identified by past research relate to the conditions of the host country's environment. Internal factors represented in previous studies examine the nature and number of the specific assets. Table 1 summarises this past research. It can be categorised into four distinctive streams: transaction-cost theory, Dunning's eclectic paradigm, the organizational capability perspective (resource-based theory), and unified theory.

Transaction-cost Theory

Williamson (1975) uses the concept of transaction-cost market imperfection in his analytical framework. Transaction-cost economics focuses on the most efficient governance structure for a given type of transaction. A transaction is defined as "the transfer of a good or service across a technologically separable interface" (Williamson, 1975). A "most efficient" governance structure means that the total cost of production and transaction is, in the long run, less than those of any other governance structure. Production costs include the direct and indirect costs of making the products, such as the costs of labour, energy, raw materials, semi-manufactured products, components, depreciation of the machinery, and maintenance. Transaction costs are the costs connected with finding a contractual partner, specifying a contract, and securing that the ex ante-defined goals will be met ex post.

The transaction-cost approach prescribes cross-border activities according to the economic rationale that firms will minimise all costs associated with the entire value-added chain. This approach stresses the importance of firm-specific variables and has been used to explain that any business transaction bears the costs of negotiating, monitoring, and enforcing contracts with external parties and the cost of that coordination (Williamson, 1975). In the last decade, applications of transaction-cost analysis (TCA) have become fairly common in investigations of entry mode (Anderson & Gatignon, 1986; Gatignon & Anderson, 1988; Erramilli & Rao, 1993).

Dunning's Eclectic Paradigm

Previous studies in the areas of international trade, industrial organisation, and market imperfections have identified a number of factors that influence the choice of an entry mode for a selected target market. Integrating perspectives from these areas, Dunning (1980, 1988) proposed a comprehensive framework which stipulated that the choice of an entry mode for a target market is influenced by three types of determinant factors: ownership advantages of a firm, location advantages of a market, and internalisation advantages of integrating transactions within the firm. Several empirical studies have attempted to directly or indirectly use the Dunning framework in explaining choice of entry modes.

Several factors that determine the choice of a specific foreign market entry mode have been identified in previous research under the eclectic framework. While these studies have made substantial contributions to our understanding of the entry-mode behaviour of firms, an important gap in the empirical literature is the issue of how the interrelationships of the determinant factors influence the entry choices of firms. The importance of examining the effects of these interrelationships is that they may explain behaviours of firms that cannot be explained by the effects of independent factors. A critical theme that the Agarwal and Ramaswami (1992) study pursued was the examination of a number of such behaviours of firms by evaluating the joint impact of a set of determinants. A novel feature of this study is the use of managerial perceptions for measuring the explanatory factors. The study showed that this method of operationalisation was particularly useful for quantifying hitherto unquantifiable constructs. An important research direction is the development of better survey measures for those constructs that had relatively low inter-item consistency.

The Organisational Capability Perspective Mode …