Indian Hotel Operator OYO Faces Hurdles in China
In June 2019, OYO China, the subsidiary of the rapidly growing Indian operator of leased and franchised hotels, announced the launch of its 2.0 strategy. The main feature of this new approach was the guaranteed revenue that hotel owners would receive in return for working with OYO. However, the response to the new directive has been hostile, as recently thousands of hoteliers across the country have sought to terminate their agreements with the company.
OYO, who do not own their hotels but rather lease them from their owners, previously operated under the 1.0 “light franchise” model, where individual hotels could use the OYO brand, while the Indian company provided them with unified renovation subsidies and other services, while charging franchises fees of between 3% and 8%. The 2.0 model emphasizes “strong control” over the owners who are now required to use OYO’s property management system (PMS). In exchange for increased control over the properties, OYO promised to provide the owners with guaranteed income.
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Recently, people working with OYO revealed to Chinese media outlets that the company’s offices in China have been continuously besieged by hundreds of contracted owners who organized through the Internet to defend their rights. Their complaints are almost identical, concerning OYO’s failure to pay the dividends promised to owners under the 2.0 model.
Earlier, OYO revised the contracts signed with the owners changing the amount of the guaranteed minimum payment without consulting the other parties and only notifying them about it by email. To object to the alteration, recipients had to reply “disagree” within 24 hours, otherwise they would automatically accept the newly stipulated terms.
OYO was founded in India in 2013 by the then 18 year-old Ritesh Agarwal. The company entered China in 2017 and rapidly expanded its network to 10,000 hotels and more than 500,000 rooms in China by 2019. However, due to the hurried expansion of OYO, which mainly emphasized quantity over quality, many local pundits assumed that the company might be in a shaky position in China.
The Indian company has also been facing challenges on its home turf where small hotels in multiple cities staged protests against OYO. According to Reuters, more than 300 hotels dropped out of OYO’s Indian network in 2019.
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