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OYO, has the Indian start-up burnt its wings for wanting to go too far?

The operator is currently experiencing a historic decline in its activities. It has withdrawn from more than 200 markets and has organized a wave of redundancies to cut operating costs. The global company is thus trying, as best it can, to restore a balanced budget to please its investors.

Are start-ups and hospitality truly good partners? How to support exponential growth and deliver the services expected? The giant OYO may have tried to grow up too fast.

The Indian operator has embarked on a comprehensive social and restructuring plan at the request of its largest investor, the Japanese conglomerate SoftBank, in order to reduce expenditure and limit the group's losses. Its founder justified it at the end of 2019: the start-up is living on credit in order to accelerate its development process.

Ritesh Agarwal, founder and CEO at OYO, declared last September:

Since we are continuing to make forward-looking investments in the form of support for our asset owners, technology development, price integration, revenue management, talent acquisition, training and development at the group level, we are not yet profitable.

However, this is no monger a sufficient reason. A global plan to reduce its activity is underway. Already a quarter of the supply on its historic market (India) - slightly more than 65,000 rooms- has been withdrawn from its platform since October. The same month, however, the operator announced it was entering a new market: Japan. The previous month, it was attacking the luxury segment in Saudi Arabia while asking for complementary funds. A month earlier still, it launched the first Capital O in the United Arab Emirates. Last June, it invested massively on the American market.

With unbridled growth, OYO announced its intention to surpass the world's number one hotel group, the Marriott Group, by the year 2023. The Indian was on track so far, with a portfolio as of January 1, 2019 of 458,000 rooms in 8 countries (Hospitality ON data), a figure that was 8.7 times greater than in 2018, placing it 8th in the world rankings.

The order of the day is now economic. In more than 200 cities that would no longer be included in the hotelier's catchment area, nearly 2,000 jobs would be eliminated worldwide according to the American media, while the group hired nearly 20,000 people globally prior to the redundancy plan. The jobs impacted would be primarily related to the wage bill in China, its second largest market where 12,000 people are employed locally, and in India where 10,000 people are employed.

Regarding this subject, Ritesh Agarwal wrote an open letter to his employees regarding the company's strategic goals for 2020. The letter was sent to all OYO collaborators:

One of the implications of the new strategic objectives for 2020, is that, like the leadership team, we will reorganize more teams across businesses and functions. And this means that, unfortunately, some roles at OYO will become redundant as we further drive tech-enabled synergy, enhanced efficiency and remove duplication of effort across businesses or geographies. As a result, we are asking some of our impacted colleagues to move to a new career outside of OYO.

The number of positions suppressed has not been communicated, however. At the same time as announcing this redundancy plan, the company also acknowledges that it is in difficulty and is embarking on a strategy to reduce operating costs by refocusing "on profitable locations and buildings" and by divesting itself of overly expensive assets "which dilute our margins", according to Ritesh Agarwal.

 

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