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New Analysis Part 2 Essay: Should You Make Or Should You Buy?
Outsourcing Hotel Operations Recently When an entrepreneur wants to join the hotel industry, he can search for a property company for a building for lease to operate his hotel rather than to build it by his capital. Nowadays, there are so many hotel chain do not own the buildings which contribute the hotels, such as Choice Hotels International company, which own 11 hotel brands: Comfort Inn, Comfort Suites, Quality, Sleep Inn, Clarion, Cambria Suite, MainStay Suites, Suburban Extended Stay, Econo Lodge, Rodeway Inn, and Ascend Hotel Collection has 6,600 hotels under franchising (Stephen P. Joyce, 2012). In economic theories, the advantages of outsourcing the hotel building is to provide a use of the building with a lower cost and reduce the barriers to entry and exits for firms in the market. However, a lease may bring some problems in the long run such as the control of the property, the increasing in fixed cost and the ownership. Advantages Of A Lease Cost of production theory of value Firstly, leasing a building helps the hotel owner reduce all the costs of production include fixed costs, variable costs, and sunk costs. Land cost is usually a large component of the fixed expense (Valentino Piana, 2013). By renting a building for the hotel the expense recording annually could be decreased in the same year if the owner build the hotel building. In addition, a lease can help to cut down some variable costs because it’s considered that the tenants pay for the rents, and the landlord pays for the maintenance, taxes, and insurances costs of the building. The hotel owners can also reduce the sunk costs of decoration and furnitures of the building in case that they lease an old hotel building. Therefore, the business can save money for some activities that help increase the revenue such as provide better services, invest money on marketing or
Outsourcing Hotel Operations Recently When an entrepreneur wants to join the hotel industry, he can search for a property company for a building for lease to operate his hotel rather than to build it by his capital. Nowadays, there are so many hotel chain do not own the buildings which contribute the hotels, such as Choice Hotels International company, which own 11 hotel brands: Comfort Inn, Comfort Suites, Quality, Sleep Inn, Clarion, Cambria Suite, MainStay Suites, Suburban Extended Stay, Econo Lodge, Rodeway Inn, and Ascend Hotel Collection has 6,600 hotels under franchising (Stephen P. Joyce, 2012). In economic theories, the advantages of outsourcing the hotel building is to provide a use of the building with a lower cost and reduce the barriers to entry and exits for firms in the market. However, a lease may bring some problems in the long run such as the control of the property, the increasing in fixed cost and the ownership. Advantages Of A Lease Cost of production theory of value Firstly, leasing a building helps the hotel owner reduce all the costs of production include fixed costs, variable costs, and sunk costs. Land cost is usually a large component of the fixed expense (Valentino Piana, 2013). By renting a building for the hotel the expense recording annually could be decreased in the same year if the owner build the hotel building. In addition, a lease can help to cut down some variable costs because it’s considered that the tenants pay for the rents, and the landlord pays for the maintenance, taxes, and insurances costs of the building. The hotel owners can also reduce the sunk costs of decoration and furnitures of the building in case that they lease an old hotel building. Therefore, the business can save money for some activities that help increase the revenue such as provide better services, invest money on marketing or
References: Boyes, W., & Melvin, M. (2011). Microeconomics. 8th Edition. Mason, Oh: South-Western Pub. McEachern, W. A. (2009). Microeconmics: A contemporary introduction. 8th Edition. Mason, OH: Southwest Cengage Learning. Garry J. DeRose. (1999). Outsourcing training & education. ASTD. Gans,J., King, S., Stonecash, R. and Mankiw, N (2009). Principles of Economics, 5th Edition. Milton: Cengage Learning Pty Ltd. RW, Shephard. (1953). Cost and production functions. 111. Retrieved from http://oai.dtic.mil/oai/oai?verb=getRecord&metadataPrefix=html&identifier=AD0665160 (899 words) Comments: The essay analyzes a very simple question but in a neat and clear way. The analysis is logical with good supporting evidence/literature and clear elaboration. The format is professional.