The Control Crisis Facing Rapidly Expanding Labour-Contributing SMES: A Multi-Case Study of The High-End Hospitality Industry in The Yangtze River Delta Region

Abstract

This study examines the governance challenges faced by rapidly expanding high-end hospitality SMEs in the Yangtze River Delta region of China. The research focuses on how informal governance mechanisms — including founder authority, guanxi-based relational control, and tacit cultural norms — become structurally insufficient during geographical expansion. Using an interpretivist qualitative approach and a multiple comparative case study design, the study investigates six independently owned hospitality SMEs that expanded from single-site operations into multi-site businesses between 2016 and 2024. Data were collected through semi-structured interviews with founders and senior managers, supported by secondary sources including staff documents, customer reviews, and press coverage. The findings reveal that governance failures consistently emerged after expansion in four key areas: service quality consistency, staff retention and behavioural alignment, financial control, and organisational culture transmission. The study shows that governance systems based heavily on founder presence and personal relationships become unstable once direct supervision is removed. Firms that successfully sustained expansion introduced structured governance adaptations such as written service standards, formal financial reporting, and systematic onboarding processes. In contrast, firms that relied solely on increased founder involvement without structural change experienced operational decline, site closure, or contraction. This study contributes to SME governance literature by extending theories of organisational control and guanxi-based governance into the context of expansion-stage Chinese hospitality SMEs. It also provides practical recommendations for entrepreneurs seeking sustainable multi-site growth in labour-intensive service industries.