The word is out that India is a big and lucrative market, which explains why individual investors like Warren Buffett and entire U.S. industries are flocking to Indian shores now.
In fact, Buffett's Berkshire Hathaway
Automobile makers such as Ford
American hospitality meets Indian demand
Last week, Marriott International
Marriott, though, is not alone in its pursuit. Hilton Worldwide, another U.S.-based hotel chain, is considering introducing the Hampton Inn brand into the Indian markets. Even Starwood Hotels & Resorts Worldwide
Why target India?
Reasons are aplenty. With a growing and affluent middle class and the economy estimated to clock an impressive 8% growth in gross domestic product this year, India undoubtedly is an attractive destination for foreign investment. Improving infrastructure and the availability of cheap labor add to that appeal, and the U.S. hotel industry is perhaps placing its bet on these factors. Moreover, uncertain economic situation here in the United States is forcing these companies to seek alternative revenue sources as they strive to remain in the green.
There's even more to it
As my Foolish colleague Zeeshan Siddique wrote two months ago, the U.S. hotel industry is showing signs of growth. In January, the hotel industry pulse index grew 0.9% to 90.7, even as the average selling price per room and occupancy rates showed an uptrend. That sounds hopeful indeed.
High unemployment rates, an oil price hike, and general inflation in the U.S. have all weighed on people's discretionary spending power, however, and spending more on luxury hotels is something individuals probably want to avoid for now. Strong upward trends in airfares aren't helping the business, either. This all just makes the U.S. hospitality market all the more unstable over the medium term.
Needless to say, U.S. hotels are looking for better opportunities outside of the country's borders. Bigger markets such as India mean better opportunities. If these hotels are successful in tapping the Indian market, it would certainly help them churn out quite a lump of revenue and further solidify their operating base. In short, U.S. hotel industry investing in India seems to be a reasonable and beneficial step to me.
Foolish point to be noted
It's just a matter of time before the domestic economy ramps up and with it the U.S. hospitality industry. In the meantime, large hotel chains are making alternative arrangements. Over time, my guess is that this will solidify balance sheets and income statements for U.S. hotel industry.
What do you think? Sound off in the comments below!