The structural theory of business demand: a reply to Hughes

Abstract

I need to start by correcting Howard Hughes’s understanding of my Structural Theory of Business Demand (Howard L. Hughes, The structural theory of business demand: a comment, I. 1. Hosp. Man. 12,309-311). Whereas the proportion of GDP from services and the proportion of the workforce in services are necessary conditions for the growth of business demand in hotels, they are not sufficient. The progression from phase I to phase II in the structural theory also requires the emergence of national chains of service businesses and Hughes has chosen to ignore this feature of the theory. When retail chains, financial services chains, professional services chains, wholesaling chains and, indeed, hospitality chains develop a national spread then the secular growth of business demand into hotels progresses apace as it has done in the USA and the UK. In the structural theory it is not just the proportion of services in an economy, but also the structure of the service economy which is necessary for the acceleration of business demand. There are three main types of business demand which are prominent when an economy develops service chains. First, the emergence of service chains such as retailers and wholesalers, requires a cohort of corporate executives from across the full range of management functions who need to spend a proportion of their time interacting with company branches across the country and this produces demand into hotels. In service chains there is a greater proportion of corporate executives travelling on business more frequently than there is in extractive, manufacturing or state controlled services. Secondly, financial and professional services companies, which are nationally and internationally based, require business travel at a greater frequency than extractive or manufacturing companies to service clients and this adds to hotel demand. Thirdly, service chains use hotels as quasi offices in which company meetings, training courses and strategy courses are held. Hughes is right to record that several developing countries have the majority of GDP derived from services, but much of this is state controlled services and these countries do not have national chains of service businesses. Therefore they do not have sufficient conditions to trigger secular growth in business demand. Hughes did not mention that the structural theory explained why business demand into