Team Parts Case Solution
1. Case Review
1-1 Majestic Hotels, Inc, Background
Majestic Hotels, Inc. established in 1970 in Western Europe and it’s a private company which expanded to the North America, U.S and UK. In addition, it has four hotels settle down in Charleston, Asheville, Savannah and West Palm Beach located in Florida, all these hotels work for providing the best vacation to travelers’ .the hotel management is elite, well-groomed and professional executives that matches the Brand image of Majestica as they attract the developers and owners of luxury hotels in the world. Since 1999 Majestica tried to enter the mainland China. Richard Roy-the executive vice-president, at Majestica Hotels Inc. took the responsibility to start negotiations with (CPS) the Commercial Properties of Shanghai about having a contract to decide the operator of a new luxury hotel, which will be owned by Shanghai Industrial Holdings. On 20 of August 2004 CPS signed the letter of intent with Majestica’s which make them being the operator for the new luxury hotel that will be under construction in Shanghai. However, Majestica’s working philosophy to hold the full control of the hotels that are managed by them, make it face the deadlock regarding two key issues, the first one was about contract term and second one was about the responsibilities and rights for both parties and, if they fail to solve those issues, the Majestica will lose the game to enter the China market and expand thereafter in other emerging markets.
1-2 CPS Background
Commercial Properties of Shanghai is one of the biggest investment holdings companies where it is considered one of the important investment overseas companies to the Government of Shanghai. In addition, the CPS was the parent companies for the biggest abroad aggregation totally owned under shanghai municipal government. On the other hand, the CPS had interest in many countries and cities such as: - Shanghai, Hong Kong and some cities between Americas. The most things to consider about CPS that it was on the list of the stock exchange of Hong Kong it realized gains and successful obsession operations and this lead to raising the market value for CPS company.
Majestica want to get involved in the hotel business in shanghai due to the growing market and potential in the area but every company has its own rules, CPS and Majestica have their own interests and rule and both companies did not want to change the rules. The basic and immediate issues which was most important for the deal, is the process of the negotiation which involves the contract and which is defines the involvement of the both groups in the hotel management. These issues are considered as very important because it involves the stakes and rules of both companies.
2-1 Immediate Issue
· Length of contract
The immediate situation for Majestica is to deal with the period and length of the contract, Majestica hotel is involved in long term contracts while due to strict regulation from government, it was creating difficulty in achieving approach .The case study shows that Majestica wants maximum period of contract like 55 to 60 years, while the laws of CPS don’t allow them to sign contract more than 12 years. CPS wants to sign the contract of 30 years which currently is unacceptable for Majestica. As it is known that the Business development in Shanghai for Majestica is very important because of the potential in the area. So they put forward their concern before CPS. The issue was negotiated between two parties and this cause resolved as CPS showed some relaxation and they have extended the period of contract for 30 years. But it is also not good with the negotiating team of the Majestica hotels, they wanted the period not less than 55 years.
· Equity & Ownership Structure
The control of the hotel is another issue for both terms and parties, as both of them wants to get control of the hotel. According to the rules the ownerships is limited to 20% for the business companies. The current operating procedure of Majestica is to focus on the management of the hotels but CPS wanted to limits the role of the Majestica in the management and they wanted the minor involvement in the management system of the hotel of Majestica management.
2-2 Basic Issues
Both companies are taking much time and it is causing problems for the Majestica team because it is not giving any profit to the company. The problems which seem to be minor but have great impact on the business are also causing hurdle in the finalization of the contract. The below mentioned are the basic issues being faced by Majestica and CPS:...................................
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