Resilient Small Hotels and Female Ownership: Adapting to Volatility in Malaysia’s Hotel Industry

The study finds that smaller hotels in Malaysia are more efficient at handling market volatility due to their flexibility, while larger hotels struggle with inefficiency during fluctuations. Additionally, hotels with higher women’s ownership show greater resilience to market instability.

Research by Mohammad Amin and Nesma Ali, part of the World Bank's Development Economics Global Indicators Group, explores how fluctuations in occupancy rates affect the efficiency of hotels in Malaysia, with a particular focus on whether smaller hotels handle market volatility better than larger ones. Using data from a representative sample of private hotels in Malaysia, the study employs a data envelopment analysis (DEA) methodology to assess pure technical efficiency. This measure is based on key variables such as labor costs, number of rooms, and operational costs, offering a detailed analysis of how market instability impacts hotels of varying sizes. The researchers examine not only the size but also gender ownership and staffing practices, providing a comprehensive look at the hotel industry's ability to adapt to volatile conditions.

Small Hotels Excel in Volatile Markets

The study reveals a clear difference in how hotels of different sizes cope with volatility. Smaller hotels, according to the analysis, tend to thrive under conditions of fluctuating occupancy rates. This is attributed to their inherent flexibility, which allows them to adjust more swiftly and cost-effectively to changing market demands. In contrast, larger hotels, which rely more on economies of scale and capital-intensive operations, struggle with short-term market fluctuations, leading to decreased efficiency. The authors found that the smaller hotels demonstrated a significant improvement in efficiency as volatility increased, while larger hotels experienced a substantial drop in their efficiency under similar conditions. The average-sized hotel showed no significant change in efficiency when occupancy rates fluctuated.

Flexibility: The Key to Small Hotels' Success

The research suggests that the flexibility of smaller hotels lies in their ability to adapt inputs such as labor and operational costs more quickly than larger hotels, which are often burdened by higher fixed costs and less flexible operations. Small hotels can reduce or scale their input costs more effectively, making them more resilient during periods of market instability. Larger hotels, however, are constrained by their size and the complexity of their operations, which makes them less adaptable in the short run. As a result, when occupancy rates fluctuate, larger hotels cannot reduce their input costs at the same pace, leading to inefficiencies and a decline in performance.

Female-Owned Hotels Show Greater Resilience

A particularly interesting finding in the study is the impact of female ownership on hotel efficiency in volatile markets. Hotels with higher levels of women’s ownership were found to be better equipped to handle market volatility, demonstrating greater resilience and adaptability. This suggests that women-owned hotels may employ more flexible management styles or maybe more attuned to navigating uncertain market conditions. The researchers highlight this gendered effect as a significant discovery, as it adds a new dimension to understanding how different ownership structures influence hotel performance. The study did not find such effects based on the gender of the hotel’s top manager but focused more on ownership as a driving factor for efficiency under volatility.

Temporary Workers: A Double-Edged Sword

The study also explores the role of temporary workers in the hotel industry. While one might assume that using temporary labor would allow hotels to quickly adjust to fluctuating demand, the findings suggest otherwise. Hotels that relied more on temporary workers tended to fare worse in volatile markets, as these workers are generally less skilled and less familiar with the specific needs and operations of the hotel. This reliance on temporary labor can exacerbate the challenges of adapting to market changes, further lowering efficiency during periods of instability.

Tailoring Policies to Hotel Size and Ownership

From a policy perspective, the findings have several important implications. First, they suggest that government policies aimed at supporting the hotel industry should not be one-size-fits-all but rather tailored to hotel size. Smaller hotels may not need as much support during volatile times, given their ability to adapt more quickly and efficiently, whereas larger hotels may require more targeted assistance to cope with market fluctuations. The authors also suggest that encouraging the growth of smaller hotels in more volatile markets could be beneficial, as these hotels are better equipped to handle instability. Conversely, larger hotels might perform better in more stable markets where economies of scale are more advantageous.

Another key policy implication is related to gender. The study’s findings suggest that promoting women’s ownership in the hotel industry could be an effective way to enhance overall efficiency, particularly in more volatile market segments. This could also serve as a strategy for addressing gender gaps in business ownership and management within the hospitality sector. Additionally, the research cautions against promoting temporary workers as a solution to market volatility, given that the reliance on such labor appears to undermine efficiency.

The research sheds light on the varying capacities of hotels to handle market volatility based on their size, ownership structure, and labor practices. Smaller hotels, due to their flexibility, are better able to navigate uncertain market conditions, while larger hotels struggle with the rigidity of their operations. Women-owned hotels show a greater ability to manage volatility, suggesting that gender may play a role in determining business resilience. Policymakers should consider these factors when designing interventions to support the hotel industry, ensuring that support is appropriately targeted to the unique needs of hotels based on size, ownership, and workforce structure.