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In the proceeding of 3rd Asia-Euro Tourism, Hospitality and Gastronomy conference held at
Taylors College, Subang, Malaysia, 2010.
Nor Zafir Md Salleh, Abu Bakar Abdul Hamid, Noor Hazarina Hashim, Siti Zaleha Omain
Management Department
Universiti Teknologi Malaysia
Malaysian tourism industry is a major contributor in the services sector of Malaysian economy.
Hotel industry plays major role in supporting the Malaysian tourism. This paper investigates the
operating issues in hotel industry and challenges in current and future landscape of Malaysian
hotel industry. Based on the in-depth interview held with government officials and hotels
associations representatives, the study identify the operating issues on revenue, human resource,
restaurant and food service operation, the marketing issues on pricing and quality management
issues seems to be the top issues for years ahead. Future challenges like government
requirements, competition among hoteliers and professionalization of hotel workers are to be
faced by the hoteliers in order to stay competitive and retain profit in operating hotel business in
Malaysia. The study adds to the literature of hospitality study which is very limited in Malaysia.
Keywords: Challenges, Issues, Restaurant and Food Operations, Hotel
The growth of tourism industry started way back in the 20th centuries. It then started from
visiting friends and families and later expanded to business and leisure trip overseas. These
figures clearly show that tourism is as important as agriculture or mining in the world economy.
In 2008, 238.2 million jobs were created in tourism industry, 922 million tourist trips which
involve overseas and local trips. These facts reveal the importance of tourism in the worlds
economy and its role as a globalization agent (Weaver & Lauton, 2006).
As according to Muhamad and Henderson (2003), developing nations have taken
advantage of rapid development of this industry in terms of positive economic consequences like
income and job creation, foreign exchange earnings and inward investment. Tourism brings in
substantial revenues for governments whilst stimulating greater investments in infrastructure
which ultimately contributes to overall improved living of the related countries. This includes
Malaysia where tourism has becoming the top foreign exchange sector next to manufacturing
(Malaysia Budget, 2009). It is believed that in the future, tourism will be the biggest foreign
exchange earner surpass manufacturing sector. The expansion of the tourism industry, through
its linkages, has contributed to growth in other related activities, particularly food and beverage,
accommodation, entertainment and shopping (Poon & Low, 2005).

This paper presents the overview of Malaysian tourism and hospitality industry and
highlight issues, challenges and trends surrounding this industry in Malaysia. Using snowball
sampling, this study conducts in-depth interviews with the experts of hotel industry who are from
government officials, hoteliers and hotel associations represent hotels industry in Malaysia. The
first section of this paper described the growth of Malaysian tourism industry, second discussed
on hospitality industry and then the issues and challenges in hospitality industry are explored.


Tourism in Malaysia started quite late as to compare with other ASEAN nations. In 1972, the
Tourist Development Corporation Malaysia was established. The function was to develop and
promote Malaysia as a Tourist Destination. After 15 years of its establishment, the government
set up the Ministry of Arts, Culture and Tourism (MOCAT) and it shows the seriousness of the
government to develop the tourism industry. In April 2004 MOCAT was split to Ministry of
Tourism (MOT) solely to facilitate the fast growing tourism industry (Hamzah, 2004). Recently
they change the acronym to MOTOUR to represent the ministry which they use in the website
www.motour.gov.my to promote Malaysia (www.motour.gov.my).
Table 1: Tourist Receipts

Revenue (RM billion)


Growth (per cent)


Source: www.motour.gov.my
In Malaysia, tourism generates about RM49.5 million in 2008 (refer table 1). The
expansion rate increased at 7.58 per cent lesser than its 2007 figure. This was due to SARS and
H1N1 outbreak in Asia. In the year of 2007, tourism has created about 850,000 jobs in Malaysia
and expected to create more jobs in 2008. This industry shares about 4.41per cent of the total
Malaysian GDP slice of cake.
In the 9th Malaysian Plan, the government announced their plan to develop Malaysia as a
regional centre for health tourism in traditional and modern health treatments. For this purpose,
the Malaysia Healthcare Travel Council (MHTC) was established under the Ministry of Health
Malaysia (MOH) on 3rd July 2009 upon the approval of the Malaysian Cabinet. MHTC has been

set up as the primary agency to develop and promote the healthcare travel industry and to
position Malaysia as the healthcare destination of choice in the region (MHTC website).
Besides that, among other tourism sectors that Malaysia promotes are Ecotourism,
Religious tourism, Rural tourism, Marine tourism and Green tourism. In support of Green
tourism, the government also launched Green Hotel rating system and initiates on many green
tourism activities in Malaysia. Recently, there are 10 hotels from all levels operating on the
platform of Green Hotel being rated and won several awards internationally (Tan, 2010).

Hospitality Industry
Malaysian hospitality industry grows rapidly consistent with its tourism industry. This is seen in
the increasing numbers of new hotels open and rooms offered in Malaysia. As referring to Table
3, for the past 9 years the supply of hotels in Malaysia grew 60 per cent from 1492 in year of
2000 to 2373 in 2009. The supply of rooms increased from 124413 to 168844 in the respective
year. Currently, the hotels industry supplies more than 160,000 rooms for the guests. The
average occupancy rate for hotels in Malaysia is 60 per cent and at top tourist spot places like
Langkawi, Penang, Pahang and Labuan the occupancy rate goes up to 70 per cent (Malaysia,
Table 2: Supply of Hotels and Rooms in Malaysia (2000-2009)

Supply of Hotels

Supply of Rooms










Source: Tourism Malaysia, 2010

This is agreed by respondent A and B when asked about the occupancy rate of Malaysian
hotels, respondent A said The occupancy rate so far has been fair to each state, you can see the
average of 60 per cent of occupancy rate in hotel rooms, however in Langkawi and Penang
depending on the season, the rate can go up to 70 to 80 per cent. While respondent B said
Well they share the equal pie when on average the occupancy rate is at 60 per cent for the
whole Malaysia.
In comparing Malaysia with other Asean countries, Malaysia is more fortunate to have 60
per cent room occupancy than Indonesia and Thailand with 50 and 40 per cent respectively in
2008 (MInistry of Culture and Tourism, 2008), ((Langdon & Ping, 2009). However, Singapore
is still top in the tourists list when its 80 per cent room occupancy is the highest among other
ASEAN countries (Singpore, 2009).
In many previous studies on challenges of hospitality industry, researchers found that
Operating issues like shortage of employees, increasing cost in operation, second, Marketing
issues like market segmentation and overlapping brand, changing customer needs and awareness,

third, Technological issues like online reservation systems, guest-room innovations, data mining,
and yield management, lastly, Economic issues like dependence on nations economy and
globalization were among the challenges faced by many hoteliers. This section will discuss
several studies on challenges and issues of hospitality industry globally available in academic
Table 3: Challenges, Issues and Trend from 1996 to 2009.


Shane C.


Jones, P.


Jin-Zhao, 2009
Wang and
Jing, Wang

Challenges, Issues, Trend

a. Hospitality training and education: Change of education approach to provide
quality workers to the industry.
b. Human resource and organizations: Empowerment for workers, legal matters,
c. Restaurant and food service operations: Quick service chain restaurant, to
increase customer satisfaction by innovations, employee training, operating
d. Hotel operations and development: Use technology to increase level of
customer service, guest programmes, improve methods to increase customer
e. Travel and tourism management: Cooperate with government to establish
environmental programmes and disaster planning methods.
a. People and organization: Leadership, Orientation, Teamwork.
b. Service quality and customers: Customer service, Quality, Customer
c. Strategies and operations: Franchising, Target markets, Technology.
d. Food service operations: Food costs, Menu marketing, Genetically altered
e. Education: Masters program, International students.
f. Eco-tourism: Eco-improvements, Tourism.
g. Legal: Sexual harassment, Tax incentives.
Strategic Operation: Location, integration, affiliation, configuration, organization,
implementation and adaptation.
Operations Management: Assets, employees, capacity (or customer), productivity,
service, income (or control), and quality.
a. Operating Issues: Labor shortages, cost containment, increased competition.
b. Marketing Issues: Market segmentation and overlapping brands, increased guest
c. Technological Issues: Interactive reservation systems, guest-room innovations,
data mining, yield management.
d. Economic Issues: Dependence upon the nations economy, globalization.
a. Rapid growth of vacation ownership.
b. Integration and globalization.
c. New management.

As referring to the Table 3, it can be seen that the most challenge for the hotel is
operating issues pertaining human resource management which is to retain qualified hotel worker
thus lower down the turnover in the hotel. Issues regarding workers include low motivation
causing o low quality service delivered to the customers. Thus, Prabhu (1996) suggested that
giving more empowerment to the employee helps to increase motivation, productivity and

burnout. Improvement on working environment was being suggested by him to give satisfactory
organizational environment to the employee (Prabhu, 1996).
In terms of challenges in marketing, the changing customer preferences and demand
(Jinzhao, 2007) put a test on the hotel to deliver high quality service in satisfying them. Blum
(1997) summarized that customers may provide service solutions that meet their preferences,
regular audits can identify errors and prevent mistakes or low quality services and lastly several
key factors were mentioned to be customer preferences when staying in a hotel which are
cleanliness, value and friendliness. The other key point here is increasing usage of market
segmentation by not only hotels but F&B restaurants which target on niche travelers (Blum,
1997; Jinzhao & Jing, 2009) for example F&B restaurants diversify menus based on region
where they operated.
Next, it is undeniable that technological innovations improve customer service level and
hotel operations in many ways (Prabhu, 1996). Among the challenges of keeping up with fast
changing technology includes the usage of interactive reservation system which enables
reservation through internet and so far 20% of the reservations in United States made through
internet (Jinzhao & Jing, 2009). Other innovations include guest-room innovation with multiple
phone lines, guest-room check-out are among the preference of the guests, however it is
expensive to install and implement. Despite the high costs involve in installing the technology,
computerized yield management help to maximize hotels profitability and database systems can
be used for effective planning (Blum, 1997).
Then, many researchers emphasized that current practice of training and education does
not meet the needs of hospitality industry in terms of providing high quality candidates (Blum,
1997; Prabhu, 1996). The educator has to give realistic pictures on how the working
environment would be in hospitality industry. Frequently, the students perception was
unrealistic when they want to secure the corporate-level position after graduation, whilst in
reality an executive at a hotel starts her career the operations level. The gap between what is
expect and reality, always bring the motivation down for new employee which lead to low
quality service and high turnover.

This preliminary study uses in-depth, open-ended interviews through snowball sampling to seek
information about challenges faced by hoteliers in Malaysia. Snowball sampling is adopted in
this study since the population is small and specialized. The interview process began with two
experts in Malaysias hospitality industry who later recommended other experts to provide more
information regarding the subject matter. In total 6 respondents were interviewed and the
background of respondents is as in Table 1. The interviews were recorded, transcribed and
categorized within a week, based on interview questions. Categories based on relevant themes
were established after examination of the data. The data were sorted into categories using key
words as codes.
Table 4: Background of respondents



Background of the respondents

Hotel Association

Executive of

Representative for many government led committees to

improvise hotel industry.
Association represents 515 hotels members throughout
The association acts as a voice of the industry, working as
one body to promote protect, represent and advance the
interest of its members.
The association was established since 1998.
Represent 62 hotel owners in Malaysia.
Representing the interests of members in safeguarding their
return on investments.
Promote the development of hotel industry especially in
dealing with authorities on issues affecting the hospitality
Responsible in planning and development of Islamic
Tourism in Malaysia.
Committee member for hotel ratings evaluation.


Responsible on hotel ratings and tour operator operations.

Committee member for hotel ratings evaluation.


Assists in preparing and maintaining MS 1500:2009* and

MS 1900:2005**.
Internal Auditor for the above standard.
Person in charge in handling both Malaysian Standards.
Assists in preparing and maintaining MS 1500:2009*.
Internal Auditor for the above Malaysian Standard.

Hotel Owners


Ministry of
Tourism, Policy,
Planning &
Affairs Division
Ministry of
Tourism, Licensing


Hotel A
4 stars

Hotel B
3 stars

*MS1500:2009 is Halal Food-Production, Preparation, Handling and Storage**MS1900:2005 is Quality Management SystemRequirements from Islamic Perspectives


Maximizing Revenue
Hotels revenues are normally collected from rooms, food, beverage, telecommunications, rentals
and others (refer Figure 1: Hotels Revenue Mix). Room is the hotel industrys largest revenue
earner and the individual hotels most profitable department. However, full service properties
and resorts have higher non-room revenue as they offer many additional services (Vallen &
Vallen, 2009). US hotels main expenses include 15 per cent for utilities (operating cost,
management fees, property taxes, insurance), 29 per cent for labor, and 24 per cent for food and
beverage (US Hospitality Investment Report, 2006 and Walker R., John, 2009).
In Malaysia, labor cost is the major cost, followed by utilities and operating cost like food
and beverage, and rooms department cost. As according to Respondent A, the utilities charges
for hotels are very high, resulted in low revenue earned by the hotels. Major contributor to the

utilities cost is electricity tariff charged to the hotel. The hotels are charged at commercial rate.
Instead, the factories which normally operate in fewer hours than hotels, are charged at the
industrial rate which is cheaper than the commercial rate (refer Table 5). This has been an issue
for many years ago, however there is still no feedback from power supplier. If they charge at
commercial rate, the hoteliers can make more profit and this will invite more investors to invest
in Malaysia.

Table 5: The Electricity Tariff Rate

Industry rate
Tariff E2 - Medium Voltage Peak
Tariff E2s Special Industrial Tariff
Commercial rate


Tariff C2 - Medium Voltage Peak


Source: www.tnb.com.my

Respondent B mentioned that, the return on investment is still unsatisfactory to the hotel
owners. One of the contributors is the electricity tariff which result in high operating cost in
Malaysia. Most of the hotels ceased out from hotel business because of too high electricity tariff
rate. This is supported by respondent E and F who agree that the electricity costs took up large
budget in their hotels. The electricity bill of the hotel is up to 13 per cent of total hotel
operations costs and to some 4 and 5 stars hotels it is equivalent to RM4.5 million. Thus the
hotel industry through its associations, has been requesting the government to give them a
special tariff similar to the industrial tariff category E2 (refer Table 4) or a special hospitality
tariff which should is lower than the current tariff (The Star, 26 May 2008).
In Malaysian hotel, electricity tariff is the second biggest expenses and it is differed with
US where the second biggest expense is food and beverage. Government need to help the
hoteliers to reduce utilities cost so that they are able to survive and compete in hotel industry.

Source: (Vallen & Vallen, 2009).

Human Resource Management


Shortage of labour

Like other service industries, labor constitutes one of the largest costs in hospitality
organizations. In US, it is not unusual for labor costs to exceed 30 per cent of total sales revenue
(Walker, 2008). As hotel industrys product is service, employees are the service delivers (Van
Hoof, McDonald, Vallen, & Wiener, 2007). So the employer has to ensure they train, motivate
and acknowledge employee to enable them deliver service of excellence. Unhappy workers are
not motivated to give good service, neither are poorly treated or unacknowledged workers.
Realizing this, successful hotels regard their workers as their greatest assets. As according to
Goldsmith and Mohd. Salehuddin (1994), Malaysia suffered from acute shortage of skilled
employees. Study shown that not many Malaysian are willing to work in service industry
especially in hotels (Goldsmith & Mohd Salehuddin, 1994). This is agreed by all of the
respondents supporting that employee is important in delivering good service, thus having
employee with good motivation is crucial to give best service.
Respondent A highlighted that we are having problem with the labor in Malaysia. They
do not want to work in hotel industry. Malaysian would rather work in the offices than in the
service industry like hotels. Respondent B supported this and added the government limit to only
50 foreign workers depending on the size of the hotel. The regulation limits foreign workers to
work as back liner and not front liner such as waiter and front office staff. So the hotel industry
is suffering from shortage of workers. This will directly affect the service quality.
The scenario is expected by Goldsmith and Mohd Salehuddin (1994) when they
examined the skilled labour supply after the governments effort in putting Malaysia as one of
the tourist destinations in 1994. This is because the hospitality education started late, only in

1967 by the MARA Institute of Technology, offering diploma and certificate courses. However,
the situation today is far better when many private and public institutions offered hospitality
degrees. Still, after 43 years of the hospitality education started, Malaysia is having shortage of
skilled labour supply.
One of the reasons is the low numbers and poor transfer rate of graduates into the
industry. This is perhaps due to the perception of new hospitality students who have an
unrealistic image of working life in the industry and expect a different working environment
from what the hotel can offer (Fraser, Mohd Zahari, Othman, & Radzi, 2007). Thus the industry
and government have to educate the students sufficiently about careers and working conditions in
the hospitality industry. This will reduce high expectation of a hotel careers from the prospective

b. Employee Motivation
Hotel industry is not only suffering from shortage of labour but they also suffer from low
motivation of the hotel employee. Respondent B highlighted that the government should deliver
more information, educate and create awareness on the working environment of hotel industry to
the school students. This is agreed by respondent E and A. For example, respondent E said,
Hotel staff doesnt have pride in their career. They often refuse to serve their relatives or family
or friends as customers when they visit the hotels. It will disturb on the effectiveness of
restaurant operations in hotels.
As Malaysia is geared towards the development of human capital, this issue will affect
the service delivery to the hotel customers mainly tourists (Taib, 2010). At macro level
government should encourage more professional education for hotel industry. This way
Malaysia will have a professional hotel workers supply. Awareness on the working environment
and condition while working in the hotels has to be highlighted to the school students so that
they will have clear picture on the commitment level they need show to work in the hotels.
Hopefully, the level of quality will be improved and resulted in satisfying customers. Since
tourism is second contributor in foreign direct investment and the biggest sector in services, low
service quality affect directly on number of tourist arrivals.
However, hotels at micro level too have to improve their training programme, orientation
programme and improve remuneration to their employees as these steps can increase retention
rate of hotel employees (Prabhu, 1996). As according to Hogan (1992) hotels are not paying
attention on the emotional and information needs of the newly employeed staff. He also
suggested that hotels should emphasize on ongoing training and education, employee
empowerment, open communication with management, and appreciation for accomplishment
(Hogan, 1992).

Government Regulations

Minimum Rate

All respondents agreed that competition among hotels nowadays are stiff, with the changing
needs and preferences of customers, hotels need to cope up with the demand and innovate by
delivering satisfying services to the customers. While the operating cost is increasing, however,
they are tied up with the rate that they are advised to charge guests only USD80. All respondents
felt the rate is too cheap and not enough to cover the costs. Respondent C mentioned that, in
Vietnam, you will not get USD80 for the 5 stars accommodation, it is USD100 and more.
Majority of other respondents also agreed with this statement and expressed it is time for the
government to increase the minimum suggested rate for 5 star hotel.

Old and New hotel dilemma

As mentioned earlier, the competition is stiff in this industry, when the government set the lowest
rate at USD80, it intensify the competition. The old hotel will lose in competition with the new
hotel. Respondent B explained that the customers will definitely choose to stay at a new hotel
rather than paying the same rate with an old hotel. New hotels offer new furniture, latest interior
concept, use up-to-date technology and add on new services relevant with the needs of its
customers, while the old hotel is as it was 5 years ago with limited services, backdated
technology and dull interior design. Obviously, the old hotel cannot compete and survive with
the new hotel, so they have no choice but to refurbish and upgrade the hotel.

Tax Incentive

Only respondent B highlighted that, the refurbishment of old hotel enable them to get some tax
allowance in the income tax, however only three times refurbish or renovations are allowed to
get this allowance. Thus, many individual hotel owners will sell the hotel after 3 times of
refurbish, as they project low profit in the long run. Government has to consider giving tax
allowance for hotel every time they do refurbishment. Hotel refurbishment play major roles in
attracting tourist to come to Malaysia and it establish good image of Malaysia in term of services
offered in the eyes of the tourists.

Hotel Operations
Only one area mentioned by one of the respondents is about hotel operation which is related to
the lobby area pertaining to the concierge desk. The concierge is a uniformed employee of the
hotel who has her or his own separate desk in the lobby or on special concierge floors. The
concierge is a separate department from the front office department. Services given by the
concierge includes advice on local information (eg. restaurants, acitivities, attractions, amenities
and facilities), airline tickets and reconfirmation of flights, VIPs requests like shopping, actually
almost anything that the guests wish for (Walker, 2008).
In Malaysia, some hotels offers ground arrangement for tour and often it is handled by
concierge. However, recently big hotel for example, Genting Group, Legend Hotel and YTL
have subsidiaries to handle tour operating companies. Thus, the tour operating companies make
use of the hotel lobby to do sales of their touring packages. As according to respondent D,
tourists complained as they are uncomfortable when tour operating companies urge them to
purchase the tour packages and the lobby look so busy with loud noise. She said, the

government is looking into this matter as it create bad image for Malaysia and affect tourist
Servicescapes (physical environment in service setting) (Bitner, 1992) is one of the
criteria that customer look into when making purchasing. It affects customer behavior towards
purchasing certain service and product (Kotler, 1973). Later in 1992, Saunders and Renaghan
enhanced that hotel lobby is very influential and the top attribute in driving the hotel purchase
decision (Saunders & Renaghan, 1992). Thus Malaysian hotels need to address this issue, by
improving service quality and attracting more tourists to visit Malaysia. As a suggestion, hotels
should think of allocating a proper office for touring packages not just a representative desk to
make the lobby look welcoming. It would be very systematic if there is a specific criterion
addressing this issue in the Malaysian Hotel Rating System.




Nowadays most of the hotels use online reservation system is to enable customers make their
reservation online. One respondent (D) highlighted that recently, there were complaints by
tourists on reliability of online reservation system for hotels in Malaysia. They did the
reservation and pay in the internet through the online reservation system, but when they come to
the hotel, they cannot find their reservation and payment. This tarnished the image of Malaysia
as most independent travelers use online reservation system to get their hotel in advance.
Government has to introduce rules and regulations regarding online reservation system, to
manage this issue before it is too late and become a problem.

Green Hotel

The global call for green hotel, push Malaysian hotels to practice environment friendly in
delivering services. All respondents agreed that this is a new concept in trend globally and
highly demand by foreign tourists. Respondent C and D mentioned that the government has
already established the green hotel rating system and it is to be launched in June this year.
Impressively, 10 of the hotels are already rated as green hotel and in a competition recently held,
many of them get the awards. Malaysian government acts quite fast in introducing green hotel
rating system as green hotel is among new issues and expected to stay in demand by many

Halal Restaurant

The encouragement for hotel to obtain Halal certificate for its restaurant or F&B outlet is seen as
a good one at the right time. Recently, Malaysian government announced that only hotel with
Halal certificate for restaurant can cater the government functions. The effect of the
announcement shows many hotels would like to obtain Halal certificate as to not losing
opportunities with the government events. However the issue is that JAKIM, a body which is
responsible to grant Halal certification, are unable to process the applications quickly while the
requirements of Halal certification is not friendly to hospitality industry, which make it too
difficult for the hotel to apply.

Majority of the respondents have the same opinion that JAKIM needs to simplify the
process and requirement obtaining Halal certificate. Respondent A and B highlighted that
currently, JAKIM is addressing this issues and continuous discussion among stakeholders of
hospitality industry is going on to improve the Halal application system. This move will boost
Malaysia image as one of top tourist country among Muslim tourists for example from Middle
East since their preferred tourist destination change from holidaying in the West before to East
nowadays, and Malaysia is second in the list of Muslim tourist destination.

In general, hotels in Malaysia are being challenged in maximizing revenue, government
regulations which lead to new and old hotel dilemma, minimum room charged rate at USD80
and also tax incentive in renovation of old hotels and human resource management especially on
employee motivation and shortage of labour and lastly, on hotel operations (concierge). Among
the issues found in this study are firstly, increasing demand on Green hotel, secondly, hotel
restaurant in getting Halal certificate and lastly, the usage of technology specifically online
reservation system.
Competition in hospitality is stiff at national level, it is also very hard in the region of
Southeast Asia hence, and Malaysian government has to stay alert and provide solutions to the
challenges hotels faced for example, give more attractive tax incentive to improve old hotels
facilities, universities and colleges should create awareness on hotel working environment for
fresh graduates so as to improve labor shortages and supply of highly skilled employee in hotels,
government need to look back at the minimum room charges and raise it at the acceptance level
at par with the international rate. Some issues mentioned above require attention from the
specific government agency like Jakim on the Halal certification issues and MOTOUR to
improve on legislation of online reservation system in Malaysia. Addressing these issues and
challenges will make Malaysia as a top in the list of the chosen destination for tourist

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