The Karma Royal Group - Karma Resorts

Case study
Since 1993, The Karma Royal
Group has pioneered vacation
ownership in India and South
East Asia, expanding both
organically and by acquiring
competitors. Karma Resorts
are high-end, boutique villa
resorts. Investors purchase
a whole villa and then rent
it back to an operating
company. In addition to 16
operating resorts, the Group
currently has properties under
development in the Philippines,
Bali, Lombok, the Gili Islands
and India. Karma Royal’s
market share for holiday
ownership in Asia has been
estimated at 60%, making it
the largest business of its kind
outside the United States.
41
The Karma Royal Group
John Spence, CEO, The Karma Royal Group
Entrepreneur John Spence founded
Karma Royal with his life savings,
creating one of the fastest growing
vacation ownership companies in the
industry’s history, while remaining
debt-free. Today he has a $55 million
business and 2,000 employees. He is
the 2010 Ernst & Young Entrepreneur
of the Year.
Most people would have looked at
the global upmarket hotel sector and
decided it was a saturated market.
What made you think there was an
opportunity in India?
Our initial goal in India was to develop
holiday properties and sell them to
the international market. We had
this naïve mentality that India was a
poor country. We soon realised there
was immense wealth in the country
itself — we’d just been blind to it — and
changed our strategy to target the
Indian market. Then we realised there
was a huge secondary market of nonresident
Indians living abroad, in places
like Dubai and Abu Dhabi, earning five
times what they would India, tax free.
This patriotic market was keen to own a
piece of India. During the 1990s we set
up 75 sales offices throughout South
East Asia, Africa, Europe — anywhere
we found pockets of Indian ex-pats.
How did you decide which countries to
expand into next?
We were very much market driven, we
went where we can see direct demand
for our products. Our Indian strategy
was very effective, but we soon found
lots of wastage — we kept encountering
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people who wanted to buy our products,
but not in India. This led to us developing
resorts in Thailand and Indonesia.
Have you made any mistakes?
If you’re not wrong, you’re not trying
hard enough. We had lots of territories
that didn’t work. Bangladesh was a
terrible mistake. We brought in an Indian
manager and sales people, which was
a red rag to a bull as far as the local
Bangladesh clientele was concerned. We
also managed to rent an office notorious
for being flooded, just before the floods
hit. I remember calling the manager
to find out why we weren’t doing any
business, only to be told he’d spent the
petty cash on a rubber dingy and was
taking clients by dingy to the top floor
to hear our sales presentation. Needless
to say, we didn’t make any sales. But the
whole experience only cost us $50,000
— and we learnt a lot.
How has the process of entering a
market varied from country to country?
In South East Asia we always go in
with two principles. First, roll out our
operating template. In each location
we use the same systems, the same
below the line structures and the same
disciplines. Second, we recruit local
people as soon as possible. We implant
non-local managers at the beginning and
then work really hard to swiftly replace
them with locals. We aim to localise
management within 6-12 months. If
we can find the right skills we train
people up ourselves. We have our own
training division.

Photography courtesy of The Karma Royal Group
“We implant non-local managers at the
beginning and then work really hard to
swiftly replace them with locals.”
John Spence, CEO, The Karma Royal Group
The thing is, every country different
and the cultural differences are extreme
- even within a country! India isn’t a
single country — it has 90 different
languages. The locals are the only
people who understand and respect the
culture and can operate effectively in
the business environment. So, under
the bonnet it’s always the same — but
the driver is local.
Can you use Asian managers from
other jurisdictions?
If I put my Goan marketing people in
charge of Rajasthan, I’d have a riot on
my hands. In the same way, you can’t
use Indian managers in Sri Lanka,
or Malaysians in Singapore. People
don’t realise the cultural clashes.
The difference between Thailand
and Vietnam is much more extreme
than the difference between Australia
and Thailand.
What advice do you have for
Australian entrants?
Don’t go into South East Asia and
expect business as usual — this is no
place for rose tinted glasses. The
opportunities are high — but so are
the challenges.
On the plus side there are fantastic
savings in human resources — the cost
base is so much cheaper. We actually
wouldn’t be able to operate in Australia.
The flip side is the cash flow issues
— you often have no recourse when
it comes to getting money, so your
debt write off can be huge. You need
to factor that into your budget and
cashflow and it can outweigh the other
side. Then there are tsunamis, riots,
bombs, volcanoes, plagues — we’ve
had them all. You just write it into your
numbers and expect the unexpected.
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Case study
You have to have your wits about you.
When we first started, we had a lot of
opposition from local competitors in
India — and the banking situation was
interesting back then. We opened a
local account in a bank on the side of
the road… when we went back a week
later and asked for some cash, the
‘bank manager’ took us into a back
room, opened the box he’d put our
money into and gave us some of it
back. It would have been safer in a
piggy bank.
We’ve managed the risks by operating
with zero debt. We have no leverage —
our resorts stand on their own. It may
seem like a corner shop mentality, but
it’s essentially risk management. If a
territory did go wrong, it will only affect
that particular development, without
bringing down our entire operation.

John Spence, CEO, The Karma Royal Group
What structure does your
organisation have?
We have centralised tax and fiscal
reporting in Singapore and centralised
administrative hubs in Bali and Goa.
What is the biggest challenge
in managing your supply chain
across Asia?
Our supply chain revolves around
identifying new land, which we sell
and manage. Because we compete
with global heavy weights like the
Four Seasons, we have to buy in
advance of the market — you can’t be
reactive — so we’re always chasing good
land deals. Sometimes you identify
where you want to be, but you can’t get
the land. We’re keen to go to Hainan
Island in the South China Sea, but the
land laws are very tricky.
Photography courtesy of The Karma Royal Group Case study
43
“The culture that unfolds from
this attitude is: just do it. ”
John Spence, CEO, The Karma Royal Group
How do you go about maintaining a
consistent organisational culture while
being sensitive to cultural differences?
We developed as a young company
with young ideas — and even though
we’re no longer quite so young in age,
we’ve maintained that outlook. We
differentiate ourselves from our global
competitors with a unique, boutique
style. Staff at our resorts aren’t clones
— they don’t have name badges or
uniforms. Our décor isn’t homogenous.
The culture that unfolds from this
attitude is: just do it. Our mindset
encourages people to think for
themselves. We tell people: everything
is negotiable; never pay cash;
always use contra. That seems to be
universally appealing. At the same
time, our local management ensures we
remain sensitive to local cultures.
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