Marriott International's Diversification Strategy
Marriott International's brand is well-known over the world because it is the world's largest hotel corporation. From its 2016 capital structure, overseas investment will help it to diversify its portfolio in order to mitigate the negative effects of economic recessions as well as political risks in its existing markets. In comparison to domestic investments, the diversification of the stock and bond markets results in low correlation levels. Furthermore, there are opportunities for expansion in developing countries, which might boost its market share and revenue from $ 17 billion in 2016 to higher levels (Marriott International, Inc., 2016). Furthermore, it can get different options to invest in such as the mutual funds and the exchange traded funds. Hence, it facilitates risk reduction by capitalizing on the fast-growing economies with international capital markets whose prices are relatively fixed and predictable in behavior. Marriot can also benefit from the tax incentives offered for foreign direct investment as well reducing the disparity between costs and revenue. Therefore, it can use its large capital base to exploit a broad range of investment opportunities in the international markets which will help it gain a strong global presence.
Disadvantages of International Investment for Marriott International
However, the international investment may bring various disadvantages to this hospitality company. Firstly, the currency risks resulting from the uncertainties on the status of future exchange rate may discourage Marriot to invest internationally. Secondly, the transaction costs such as the brokerage commissions, stamp duties, clearing fees, and taxes are high which increases overall expenditure, and if it does not have many customers, then profit maximization shall not be achieved. Another disadvantage includes the risks resulting from political instability that may lead to the expropriation in the foreign countries as well the economic non-viability as the investment may be capital-intensive.
Reference
Marriott International, Inc. (2016). Annual Report. Retrieved on May 8, 2017, from
http://files.shareholder.com/downloads/MAR/4434102096x0x936409/834E45D9-8979-4190-AE47-702FBFF54755/Marriott_2016_Annual_Report.pdf
