[pic] Prepared By: Yee Shan (Sarah) CHUNG, Yan Sin (Jessy) LI, Kim Sang (Anson) HO, Kit Yat (Donald) TAI Table of Contents 1. Introduction3 2. Summary of Macro Environment4 3. Summary of Industry Analysis8 4. Summary of Internal Analysis12 5. Gap Analysis14 6. Recommendations22 7. Appendices26 8. References52 1. Introduction Since the parent company, the Kuok Group, is established in 1949 and until 1979 the home-grown Shangri-La Hotel, Singapore, was opened its doors in 1971 and it was opened under the management of Western International Hotels.
However, Shangri-La International Hotel Management Ltd was founded in 1982 and from that time until now, Shangri- La endeavoured through countless challenged from the Asian financial crisis to the outbreak of SARS in 2003 and a lot of other challenges, Shangri- La Hotels and Resorts (SLHR) recently was announced and located its properties premier city addresses and some of the world's most exotic destinations across Asia, Middle East, North America and Europe. As of 2006, SLHR was the largest Asian – based deluxe hotel group in Southeast Asia.
The company managed a total of 50 hotels under three brands: the five-star Shangri-La, the four-star Traders and Kerry - with total inventory of over 23000 rooms across 39 locations. Furthermore, SLHR also join the stock market of Hong Kong, Malaysia and Thailand. As of SLHR’ mission statement “To delight our guests every time by creating engaging experiences straight from our heart”, SLHR also produce new product differentiation such as Chinese theory spas which named the “Chi” in most of its organization.
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The success of SLHR does not stop there expanding its market or increase their inventory, but the management always concern its competitors who can bring the better product and service base on SLHR’s ones. SLHR management also requires having strategies for long term running the organization. The aim of this strategic analysis report is to create vision for organization in future; by identifying and analysing the major macro-environmental trends which believe the major issues affect to the future growth of SLHR.
The report also quickly examines the five forces within the industry analysis to rough idea the current effectiveness of the industry and also based on evidences to expect the future profitability of SLHR. Besides, to create the advantage competitive of SLHR, all of internal operations in term of resources and capabilities could inspect. Moreover, to have an overall the difference between the desired situation and the actual situation of SLHR, a gap analysis will be point out for bringing all analysis together and base on this analysis gap, organization will have an overall difference.
Lastly, it is definitely not absent in this report will be a list of recommendations which help formulating for SLHR in relation to achieve to greater its position in all markets in the future. 2. Summary of Macro Environment Macro environment or PESTE analysis is the first step in creating the Environmental Analysis. The macro environment examines the general business climate as it relates to the organisation, but the organisation has nothing to do with it. It has an impact to influence Shangri-La Hotels by four different factors, such as Political or Legal, Economic, Socio-cultural, Technology and Environmental.
These four factors had been analysed in the Appendix 1, which is based on the Shangri-La over the world. The Global economic has more negative factors that impact the Hotels, Global Financial Crisis nowadays is one of the big issues for most of the industries around the world, as it leads recession which will affect the finance of the countries or industries. Because of the Global Financial Crisis, the unemployment rate of some countries is still increasing in the beginning of 2012, such as Euro Area increased to 11%, Italy increased to 10. 0%, Spain and Greece has increased over 20%, but some of the countries are decreasing such as Japan, Thailand, Turkey and Hong Kong(Trade Economic, 2012). The unemployment rate is increasing because of the cost of labour is increasing as well which the current financial situation is not good enough to support. People are more concern on price or become price sensitive now because of global financial crisis, as they will think the product is worth with the listed price or not.
Some of the countries had announced Carbon Tax scheme which will affect the hotels, as every organisations need to pay a certain amount for the carbon that they produced. These negative factors may leads the guests rarely go travel and stay in hotels because they have less income, as the net income of Shangri-La Hotels Group had decreased to $253. 0 million (Bloomberg Business Week, 2012). However, the Gross Domestic Product around the world is increasing while the inflation is decreasing in most of the countries. Same as the Economic factors, the Political also has more negative factors impact the hotels.
Over 90% of the countries had established a legislation of minimum wages, the legislation is to prevent the employers when there is the intense market competition and they in order to save costs, at the same time the wages of the employees are unable to meet their basic needs. On the recent years, there are some conflict occurs between nations, for example, there was two attackers rammed a border post with a rubbish truck and threw two grenades, and then attacked policemen with knives in Kashgar, Beijing; and a roadside bomb explosion in Diwaniyah.
The most recent hotel bombing is the Marriott Jakarta bombing in 2009 because of terrorism which leads at least 9 people killed and 50 people injured. For a hotel chain as Shangri-La, the properties are everywhere in the world, they need to prevent and consider about the location’s political issues before or after they take over or establish a new Shangri-La. On the other hand, some nations have a legislation to control the people own arms or guns. But when the numbers of arms holding increase, the country and properties need to increase the insecurity as well (Shah, 2011).
By having legislation of arms controlling is good for Shangri-La. As in 21st Century, everything is being high technology which means there are lots of new technology products invested and announced into the market such as 3D televisions and surrounding audio systems. When those products had announced to public, the guests may expect the hotels will have one of these products in house. Most of the technology factors are neither positive nor negative impact for Shangri-La, as the number of the internet users is increasing rapidly every year, nearly everyone will have at least one computer and smartphone.
When most people have at least one technology product, some of the companies will start produce some up-to-date communication softwares and some new applications will announce to the sociality. By the time when the number of internet users is increasing rapidly, Shangri-La can take advantages from that, as they can do marketing via internet, especially the social networks (e. g. Facebook, Twitter, Myspace). The guests can book a room via their official website or some travel agents website, and Shangri-La can announce the latest news on their official website and social networks for the guests to read.
For the industry, the socio-cultural has average impact. As the population in the world is increasing which is good for all the industries, there are more consumers to consume their products. But at the same time, the fluctuating death rate is increasing which is the age population is increasing as well, because the medical technology has been improving year by year, the people will have longer life than the past. Most of the people will expect a better quality of life, such as for living and for travelling, they would like to have good experience on everything, especially on travelling and accommodation.
Multi-cultural is a good for the business as well, because Shangri-La can adopt the culture and develops a different experience for the guests, for example, in India, Shangri-La can design an Indian style hotel to cater and adopt the environment to attract the guests to stay in. However, because of different culture and the religion of the culture, they need to understand and get known about these before they establish the hotel in a country or city. In addition, there are several environmental issues that affect the industry, for example, natural disasters will occur in some countries such as Earthquakes, Floods, Tsunamis and Hurricanes.
Nowadays, natural disasters had become more serious and more often, because of the climate change within a decade and global warming, ozone depletion are caused primarily by increases in “greenhouse” gases as Carbon Dioxide. Due to the natural disasters and the global warming, the lands will be destroyed and lead land shortage. Land shortage will influence Shangri-La as there is no enough land for it to build new hotels, it can make them could not expand their business.
While they building new hotels or running existed hotels, pollutions will be produced, for example, building new hotels will produce lots of dust and the lighting of running existed hotels as the light will open 24hours 7days. On the other hand, 3Rs policy has been announced as Reduce, Reuse and Recycle, the government encourages people to reuse and recycle the products that they used. According to Lincoln (2007) Shangri-La have a wide of environmentally friendly measures such as fitting all guestrooms with water saving device in taps and showers as well as using energy-saving lamps in more than half of the group’s guestrooms.
For saving energy and resources, Shangri-La has variety of methods, as by rainwater harvesting, hot water production using solar panels or heat pumps and improvements in building envelope design to reduce heat loss or heat gain as well as air filtration. Shangri-La also has several methods to reduce the greenhouse gases, such as through existing systems and processes, the use of new technologies and alternative energy sources and by building more efficient buildings. In summary, the luxury hotel industry has opportunities and threats associated with the macro environment. There is variety of positive, balanced and negative trends.
There are still opportunities for reasonable growth in this industry despite the threats. 3. Summary of Industry Analysis Industry environment has a more direct effect on the firm’s strategic competitiveness and ability to earn above-average return as compare to the general environment (Misangyl et. al, 2006). Hitt et. al (2011, p. 51) mention “Industry analysis will be using the five forces model of competition such as the threats posed by new entrants, the power of suppliers, the power of buyers, product substitutes, and the intensity of rivalry among competitors to understand the profitability potential within the industry”.
The strength and interaction of the five competitive forces are what influence profit potential. This section will discuss about the industry analysis of hotel industry and a more detailed analysis can be seen in Appendix2. The threat of entrants in the hotel industry is not significant which leads to high industry profitability. New entrants need to have sufficient amount of budget in order to build and run the hotel such as require substantial upfront investment in building, specialized equipment, infrastructure and staffs.
Products and services are easy to replicate in hotel industry, therefore, brand identity is the differentiator in the hotels. It is difficult for new entrants to gain access to the capital requirements needed to develop and build hotel. The industry’s incumbents have established relationships and experience, which enables them to achieve significant cost savings. In addition to brand loyalty and costs the new entrants must also contend with the probability of retaliation from the established hotels. The xisting businesses in the industry have a high degree of absolute cost advantages as they have built good relationship and trust between the suppliers and customers. The number of suppliers to the hotel industry is extremely high. The types of suppliers for hotels include construction suppliers, monopoly suppliers such as electricity, gas and water, furniture suppliers, linen and bedding suppliers, food suppliers, decor suppliers, appliance suppliers, uniform suppliers and most importantly then staffs. The suppliers have medium bargaining power which will affect the attractiveness and profitability of the industry.
There is high concentration of suppliers. However, the majority of hotels have regional contracts with suppliers. This locks the hotel companies into using certain suppliers and creates switching costs. The volume being sold to the industry is important to the raw materials sources suppliers and equipment manufacturers because hotels will purchase in bulk to operate the business. Contracted suppliers costs and employees’ costs are high because they are needed to work for the operation of the business. These suppliers have high bargaining power.
However, they are unable to bargain and will make close to their best offer at the first opportunity in order to gain profit for their business. Differentiation of outputs from suppliers is necessary to deliver performance in order to be more profitable in the industry. Hotels and resorts are part of the accommodation in the lodging industry. Rooms are highly perishable products. There are other options to stay when the customers are away from home such as apartments, condos, cabins and town houses. Buyers have high bargaining power in choosing the accommodation that they would like to stay.
Hotels can create differentiation strategy to add value to attract customers such as dealing with the pricing strategy, good customer services and provide up-to-date technology in the hotels. However, there is high concentration of buyers relative to the industry. There is very little threat of backward integration from the consumer due to the high costs of start up in the hotel industry. Hence, when the buyers have medium to high bargaining power, then the industry profitability will be low. Substitutes to the hotel industry have a high level of power which leads to low industry profitability.
There are a lot of substitutes in the industry. Leisure customers have more alternatives when they travel overseas as well as business customers, they can plan whether to fly to a city in order to have meetings. Nowadays due to the advance technology invented, Internet helps the business people a lot. Business man can do video-conferencing in their own country without flying to other country. This helps the business to save a lot of money. In regards to leisure customers, they have more choices to choose such as staying in boutique hotels, motels, apartments, camping, cruise ships and even caravan.
Substitutes gave greater power. The substitutes can provide similar services and products and providing better value for money which make economic sense for buyers to switch. The intensity of rivalry in the industry is medium to high which leads to low industry profitability. Hotel industry is in mature stage, there is no industry growth. With the increase of competitors such as the expansion of luxury Asian brand - Mandarin Oriental, it makes it difficult for the hotels in the industry to maximize its profit by strengthening its occupancy rates.
The high cost of building, furnishing and servicing the hotels in the industry create high fixed costs and high exit barriers. This increases rivalry as they need to maximise profits to have significant returns on investment. It makes it difficult to withdraw from the industry and has to compete with other existing rivals. The level of diversity among the companies is medium because the majority of the hotels provide similar types of high quality service. Due to this reason, it is easy for buyers to switch from one competitor’s product to another.
While there is great rivalry in this industry, there are opportunities for expansion into national and international markets. Moreover, there are many stakeholders involved and large dollar investments, thus, it involves high commitment from every members in the organisation. Overall, analysis of the five forces in hotel industry found out that hotel industry’s attractiveness is rated as medium-low in terms of the potential to earn adequate or superior returns.
It is considered as a partly unattractive industry because it has low entry barriers, medium to strong bargaining position of suppliers and buyers, strong competitive threats from product substitutes and intense rivalry among competitors. 4. Summary of Internal Analysis Internal analysis is an analysis about the organisation itself, it finds out organisation resources and capabilities to create value to customers and identify area of weaknesses to be addressed by future strategic and evaluate core competencies (Evans, Campbell and Stonehouse, 2003).
Acknowledging those resources and capabilities can understand company position and competitive advantage to achieve superior performance and profitability by strategic (Hill and Jones, 2012). Resources Tangible Shangri-la group comprises 110 hotels and resorts throughout Asia Pacific, North America, the Middle East and Europe. In future development more than 20 hotels and resorts will be built in variety countries. Revenue has growing up nearly a quarter from 2009 to 2010, US $1,729 million to US 2,145 million.
But, Share of profit of associates of hotel operation total is 15. 0, and property rentals total is 47. 7. Intangible Shangri-la group has great reputation in public, goodwill value is US $84,504,000 in 2010, because create green image to public, ‘Sustainability’ is umbrella brand which has several action to reduce energy consumption, waste water and carbon dioxide emission. It shows the low turnover rate, this is because company pays respects, cares and aware their employee and provide work-life balance program to motivate staffs to work productively and efficiently.
Capabilities It has strong human resource capabilities which is compare to others hotel property, the staff turnover rate is low, Shangri-la provide a series training to staff ensure reach service consistency that ensure meet the expectation of service quality, so this is the competitive advantage. The distribution channels are strongly developed, it has several internet distribution channels, e-commerce is the best way to deliver and receive information nowadays.
However, the product differentiation, marketing and management are not strong enough to be core competencies. 5. Gap Analysis Macro-environment Business Strategy Gaps |Trend |Date of Impact |Business Strategy match or Mismatch | |Economic Growth in Asia |1-5 years |Match – Currently Shangri-La group is focusing on developing the | |(especially in China) | |market in China. |Euro economic crisis |1-5 years |Match – Europe is not an essential market segment for the Shangri-La | | | |group and does not have big influence on the hotel financial | | | |performance | |Increasing value of Chinese |Now and ongoing |Mismatch – As the exchange rate of RMB is getting higher, tourists | |RMB’s | |prefer going to other Asian countries while China is the main market | | | |for Shangri-La | |Green Awareness |Now and ongoing |Match – Shangri-La really makes an effort on sustainability, creating | | | |a green organisation image to the public and gaining goodwill from | | | |that. | |Use of Technology |Now and ongoing |Match – Shangri-La spends significant resources on network promoting, | | | |for example customer can book a room through Shangri-La’s Facebook | |Diminishing Target Demographic |3-5 years |Mismatch – Even Shangri-La group has other brands like Traders and | |Segment | |Kerry, but the target market is also focusing on up-scale market. | Industry Environment Business Strategy Gaps Industry Environment Element |Opportunity of Threat |Effect on Industry Profitability |Business Strategy Consistency or | | | | |Inconsistency | |Suppliers |Natural |Average |Consistent | |Buyers |Threat |High |Consistent | |Threats of New Entrants |Opportunity |High |Limited Consistency | |Substitutes |Threat |High |Limited Consistency | |Rivalry |Threat |High |Consistent | |Government |Opportunity and threat |Various by Location |Some Consistency | |Complementors |Opportunity |Low |Limited Consistency | Key Competitor Business Strategy Gaps |Competitor | |Physical | |Brands | |Decision Making | |Values | | | ECONOMIC FACTOR |Recession |Negative | | |Global Finance Crisis, spend money discreetly (Shah, 2010). | | | | | | | |Good & Service Tax, spend more money in good (Kalia, 2010). |Negative | | | | | | |Some of the countries had announced Carbon Tax which increase | | | |expense (World News Australia, 2012). Negative | | | | | | |Gross Domestic Product is increasing which stimulate people spend | | | |in hospitality (The Economist Online, 2011). |Positive | | | | | | |People are more concern on price due to Global Financial Crisis | | | | |Negative | | |High Labour cost, especially in China grow up rapidly fast. | | | | | | |The inflation in most of the countries are decreasing , | | | |China still growing so fast (Global-Rates. com, 2012) |Negative | | | | | | |The unemployment rate in most of the countries are decreasing | | | |(Trading Economics, 2012) |Positive | | | | | | |Negative | | | |(China) | | | | | | | |Positive | |Overall Negative | |POLITICAL/LEGAL FACTOR |Around 90% of countries had established a legislation of minimum |Negative | | |wages that increase labour cost extremely (Herr and Kazandziska, | | | |2011). | | | | | | |Conflict between nations, it is not safety for travelling that |Negative | | |influence hospitality industry (Global Conflict Map. com, 2011)( The | | | |World Bank, 2011). | | | | | | | |Arms control in some nations, limit import and export goods (Shah |Positive | | |2012).
For instance, North Korea has strict control rules in | | | |hospitality industry. | | |Overall Negative | |TECHNOLOGICAL FACTOR |Growth of Internet with fast broadband can assists consumers to |Positive | | |search for rooms available via websites. They can make | | | |reservations easily which help the costs of industry’s marketing | | | |activities. | | | | | | |Communication software or technology improved every year such as |Positive | | |Facebook and Twitter are Social Medias for marketing. | | | | | | | |Many new technology products announced into the market, energy |Positive | | |saving light reduce pollution. For example, the installation of | | | |solar energy system in hotels which can help saving the budget of | | | |the company. | |Overall Positive | |SOCIO-CULTURAL FACTOR |Fluctuating Death Rate which mean age Population is increasing |Negative | | |(Population Reference Bureau, 2011). | | | | | | | |Expectations of service quality. Consumers now expect to get | | | |intangible experience and want to be recognized by the employees. Negative | | |As long as the industry keep up the standards with what the | | | |customers are expecting then it will bring positive effect to the | | | |industry. | | | | | | | |The number of population is increasing over the world; it | | | |increases the workforce and potential customer (Rosenberg, 2011). Positive | | | | | | |Multi-culture around the world, allow knowledge and technique | | | |exchange. | | | | |Positive | |Overall Balance | |ENVIRONMENTAL FACTOR |Greater awareness in global warming issues is a concern.
Energy |Negative | | |consumption needs to be considered to reduce greenhouse gas. The | | | |most cost-effective greenhouse gas reductions can be made by using| | | |existing low technology in building insulation, lighting, | | | |air-conditioning and water heating systems and electricity standby| | | |(Enkvist et. al, 2007), (Fenger and Tjell, 2009). | | | | | | |Climate change (Shah, 2012) & Global Warming (National Geographic,| | | |2012). For example, mountainous areas reduce snow cover and winter| | | |tourism; southern areas decrease summer tourism period. |Negative | | | | | | |Water use management, reduce water use is a long-term strategic. | | |(Queensland Government, 2012) | | | | | | | |Waste disposal management, Use filters in deep fryers to extend | | | |the life of | | | |cooking oil or sale to driver(Lincoln, 2007) | | | |Indoor air quality, more countries forbid smoking in indoor than |Positive | | |last decade(Lincoln, 2007) | | | | | | | |3Rs (Reduce, Reuse, Recycle) reduce waste cost in daily operation. | | | |For instance, use mugs to instead of disposable cups (USA |Positive | | |Recycling Facility Service, 2012) | | | | | | | |Some countries may need to face the natural disasters, e. g. | | | |Earthquake, Tsunami, and Hurricane (Shah, 2011). Negative | | | | | | |Land Shortage in nations, less land available, so the cost of land| | | |is become expensive. For example, rise around 9% of the total |Positive | | |property price, since 2001 in Australia (Hopkins, 2012),(Asia for | | | |Educators, 2009), (Your Investment Property, 2012). | | | | | | | |Negative | | | | | | | | | | | |Negative | |Overall Negative | 2. Industry Analysis |Forces |Issues |Impact | |Threats of new |Economies of scale |Medium | |entrants |New entrants need to have a certain large-scale production and huge finance because | | | |hotel industry requires substantial upfront investment in building, specialized | | | |equipment, infrastructure and staffs. | | |Small lodges will find it difficult to enter to the industry and compete with | | | |Shangri-La Hotels and Resorts because it requires large investment, however, the other| | | |well-known brands hotels such as Marriot International, Hyatt and Hilton might find it| | | |easier to build new hotels. | | | |Proprietary product differences |Medium | | |Product differentiation in hotel industry is low. It is relatively easy to replicate | | | |differentiation such as the products and services. Every hotels and resort can provide| | | |rooms that meet the demands of the customers and also train their staffs well to | | | |provide personalized service. | | |However, Shangri-La Hotels and Resort have built good brand and reputation; thus, it | | | |is the differentiator to compete with other new competitors. | | | |Brand identity |Low | | |Shangri-La Hotels and Resorts have built a good brand image in the mind of customers. | | | |Shangri-La Hotels and Resorts is already the leader in Asia (Dogan, 2010). They have | | | |established high product differentiation and brand loyalty.
Other new brand hotels | | | |that want to come into the industry, they have to spend lots of costs to attract the | | | |customers to be competitive advantage. | | | |Buyer/customer switching costs |Medium | | |It is simple and easy for customers to switch costs. Customers can be easily attracted| | | |to different hotels that offer more value for money, or affordable prices. Due to the | | | |presence of Internet, customers will search and compare the hotel’s price via | | | |websites. Loyalty program can prevent the guests from switching costs. | | |Capital requirements |Low | | |High capital requirement is required for new entrants even though the competitors plan| | | |to do franchise, merger and acquisition, there is still high investment costs involved| | | |such as costs of inventories, high risk and law return situation and marketing | | | |activities. Hubbard & Beamish (2011, p. 76) state “New entrants with good ideas but | | | |without finance are unable to break into the industry”. | | |Access to distribution |Low | | |New entrants may have limited sources to access such as raw materials and distribution| | | |channels, as existing hotels have regular customers and partners. | | | |Absolute cost advantages |Low | | |The existing businesses in the industry have a high degree of absolute cost | | | |advantages.
They have built good relationship and trust between each others; already | | | |establish hotel’s experience, favourable raw materials, advertisement expenses and | | | |favourable location. Thus, it is hard for new entrants to enter into the industry | | | |because there is low level of trust and familiarity with the suppliers. | | | |Government policy |High | | |Depends on the country’s regulations, government has the opportunity to set many | | | |restraints in the industry or encourage and facilitate the development of hotels. | | |Expected retaliation |High | | |Retaliation is expected as existing hotels will low down price and promotes some | | | |packages to attract customers. Unique and differentiated products by diversifying it | | | |can therefore persist the retaliation. | | |OVERALL RATING: LOW – MEDIUM | |Bargaining power of |Differentiation of inputs |Medium | |supplier |Supplier’s input is crucial to the final product. Good quality of the products and | | | |services provided by the suppliers will create a good outcome.
Hence, it will have to | | | |boost the economy of the business. Hotels in the industry are the buyers and the | | | |producers of inputs that are the suppliers (Buffett & Munger, n. d). There are many | | | |suppliers involve in hotel industry such as: | | | |The construction companies tend to have a particular strong position when it comes to | | | |the hotel owner who would like to build a hotel. Thus, it strengthens the power of | | | |being a supplier. | | |Monopoly suppliers who control electricity, gas and water supplies have high | | | |bargaining power. | | | |Hotels need to spend lots of money in the operational costs. Hotels need to buy | | | |Property Management System and Point of Sales to help the effectiveness of business | | | |operation. Hotels also need to buy amenities products, chemical products and raw | | | |materials for catering. Moreover, it needs to spend money on maintenance and servicing| | | |the equipments.
If the hotels are locked into a contract, then the power of suppliers | | | |will be lower, they cannot increase the prices when they want to. | | | |Hotels are in the service industry. Hence, it needs people to provide exceptional | | | |services to the customers. High education and good experience employees will have | | | |higher bargaining power. They may negotiate the wages that they would like to receive | | | |and they think is reasonable before working with the hotels. | | | |Hotel customers are fragmented. Hence, as a supplier to the customers, the argaining | | | |power is low because there are substitutes that the customers can choose such as | | | |Marriott International Hotels and Hilton Hotels. | | | |Switching costs of suppliers and firms in the industry |Medium | | |Suppliers have power if there are few firms supplying the product or if there is no | | | |reasonable substitute for it (VBulletin Solutions, 2012). However in large hotel | | | |chains, many things are done by signing contract legally. Legal costs may increase if | | | |one party is not working as per contract listed. Thus, the switching cost is low. | | |Supplier concentration relative to industry concentration |Medium | | |There are high concentration of suppliers to choose from for Shangri-La Hotels and | | | |Resorts. Therefore, the suppliers have lesser power. | | | |Importance of volume to suppliers |Low | | |The volume being sold to the industry is important to the raw materials sources | | | |suppliers and equipment manufacturers because Shangri-La Hotels and Resorts will | | | |purchase in bulk to operate the business.
Shangri-La Hotels and Resorts have a great | | | |deal of power over the suppliers when purchasing raw materials sources and equipments. | | | |Cost relative to total purchases in the industry |High | | |Supplier cost is a huge part of the total cost. Contracted suppliers costs and | | | |employees’ costs are high because they are needed to work for the operation of the | | | |business. Suppliers retain the power. | | | |Information about supplier’s product |Medium | |Hotels are highly aware of the quality of the products they purchase such as raw | | | |materials, equipments and even labour sources. Hotels will not take the risks to | | | |change the suppliers before they did research and compare the market price among the | | | |supplier’s industries. | | | |Supplier profitability |Low | | |Hotel industry has higher profitability as compare to the supplier industry.
Suppliers| | | |will be unable to bargain and they will make close to their best offer at the first | | | |opportunity in order to gain profit for their business. | | | |Decision makers’ incentives |Medium | | |Hotels need to motivate their employees by giving incentives in order for them to | | | |provide good service to the customers. | | | |Hotels will do promotional packages when it is in low season to attract more customers| | | |to stay in the hotel. | | |Threat of forward integration |High | | |Suppliers can sell their products via Internet and even to the supermarkets. They have| | | |the power to enter the industry (Hubbard & Beamish, 2011). | | |OVERALL RATING: MEDIUM | |Bargaining power of |Differentiation of outputs |High | |buyers |Customers determine the profitability of the hotel’s business by choosing which one | | | |they would like to stay with, they have high bargaining power to choose.
Hotels create| | | |differentiation strategy to add value to attract customers such as: | | | |Customers place products and pricing strategy at first. For instance, the hotels | | | |should plan for low price strategy during low season or include complimentary goods | | | |for customers. | | | |Staffs provide good quality of service. | | | |Good geographic location which convenience the guests. | | | |Good atmosphere of the rooms and restaurants. | | |Give service for disable such as have disabled rooms in the hotels which located in | | | |the first floor to convenient the handicapped people. | | | |Switching costs of buyers |High | | |Shangri-La Hotel and Resorts have created a loyalty program named “Golden Circle” to | | | |attract existing customers by earning points and then the customers can redeemed for | | | |hotel stays, dining or spa experiences at any Shangri-La hotel, resort, Traders hotel | | | |or Kerry hotel (Shangri-La International Hotel Management, 2012).
Thus, this group of | | | |customers will most likely be repeat customers and choose to experience services from | | | |Shangri-La Hotels and Resorts. There are low switching costs for customers. | | | |Presence of substitute outputs |High | | |There is an important level of the industry’s output has to the buyer. Hotels and | | | |resorts are part of the accommodation in the lodging industry. There are other options| | | |to stay when the customers are away from home such as apartments, condos, cabins and | | | |town houses (CarrHallCastle, 2012). | | |Industry concentration relative to buyer concentration |Medium - Low | | |Tourism industry is growing rapidly and the demand of hotels for customers increased. | | | |Travellers are highly concentrated relative to the industry, thus, the buyers do not | | | |have lots of bargaining power. | | | |Importance of volume to buyers |High | | |Large volumes of customers are expected to stay in the hotels because they are the | | | |main source of income for hotels to generate profit.
For example, tour operators, who | | | |book thousands of customers into hotels, have a strong bargaining position and can | | | |demand lower prices from hotels. Rooms are perishable, thus, hotels must try to meet | | | |the occupancy level. Buyers have more bargaining power. | | | |Cost relative to total buyer purchases |Medium | | |Corporate customers might invest large amount of money into the hotels when there is | | | |conference happens. They will reserve lots of rooms and meeting rooms. Therefore, they| | | |have more bargaining power. | | |Buyer information about the industry output |High | | |Customers can survey on the best firms that offer great services. They can have | | | |assistance from the travel agents, corporate travel consultants, internet and words of| | | |mouth to determine where they can get the services that they would like to experience. | | | |Positive words of mouth will build good reputation and image to the hotel whereas bad | | | |words of mouth will badly impact the business of the hotel. | | |Buyer Profitability |High | | |Customers have the freedom to choose which property they would like to stay in and | | | |dine for. They will gain ‘profit’ when they receive more services as compare to what | | | |they expected. They are still holding high bargaining power. | | | |Decision makers’ incentives |Low | | |When there is a large group coming to stay in the hotel, hotel will provide a discount| | | |price. | | |Threat of backward integration |Low | | |It is impossible for individual customer to enter the hotel industry due to large | | | |investment required. | | |OVERALL RATING: MEDIUM – HIGH | |Power of substitutes |Relative price/performance of substitutes |High | | |Hotelmule (2008) states “Continual developments in technology keep changing the | | | |potential threat from substitute products”.
Technological advancements in the internet| | | |make the overall market to be more efficient and at the same time expanding the size | | | |of the potential market and create new substitution threats. For example, | | | |video-conferencing has been used instead of holding a conference in hotel. Business | | | |customers tend to travel lesser. | | | |The substitutes for lodging such as camping, hostels and motels, the invention of | | | |cruise ships and trains causes travellers to have alternative choice when travelling | | | |to another country. | | |Switching costs |High | | |It is easy for buyers to switch costs, thus, the substitutes have greater power. | | | |Buyer propensity to substitute |High | | |Substitute products or services will be a threat. Capon (2008, p. 63) states “This can | | | |be achieved by the substitute being equally good and cheaper, or by it being equal on | | | |price, but offering a better product or more added value”.
When other lodges such as | | | |apartments, condos, cabins and town houses providing similar or equally good function | | | |and providing better value for money, it may make economic sense for the buyers to | | | |switch. | | |OVERALL RATING: HIGH | |Intensity of industry |Industry growth rate |High | |rivalry |There is no industry growth. The hotel industry is in mature stage. Severe industry | | | |rivalry occurs. | | |High fixed costs |High | | |The high cost of building, furnishing and servicing the hotels in the industry create | | | |high fixed costs. This increases rivalry as they need to maximise profits to have | | | |significant returns on investment. Shangri-La Hotels and Resorts must sell more rooms | | | |to cover those costs and increase hotel market competition. Hence, it makes it | | | |difficult to withdraw from the industry and has to compete with other existing rivals. | | |Intermittent overcapacity |Medium | | |Due to there are a lot of competitors in the market, there might be a lot of rooms | | | |that are available and cannot be sold out. | | | |Product differences |High | | |There are no product differences because majority of hotels provide similar types of | | | |high quality service. Products and services in hotels are easy to imitate.
It is | | | |difficult to reduce the rivalry through the differentiation of the products and | | | |services. | | | |Brand identity |Medium-High | | |Brand is important because through branding, a business can stand out of the crowd. | | | |People remember the organization and will choose to go to the well-known hotels as it | | | |can heighten the level of self esteem and be part of the social group. Shangri-La | | | |Hotels and Resorts have developed their brand name and are well known in worldwide. | | |However, other hotel groups such as Marriott International and Starwood have great | | | |brand identity as well. | | | |Switching costs |High | | |It is easy for buyers to switch from one competitor’s product to another; industry | | | |rivalry will be increased (Hubbard & Beamish, 2011). Thus, Shangri-La Hotels and | | | |Resorts create a loyalty program named Golden Circle to retain their customers. | | |Informational complexity |Medium-High | | |Consumers can look at rooms available in different hotels and compare prices online. | | | |Internet will have information about the price and service differences. Furthermore, | | | |some hotel websites provide virtual tours which introduce the guests about the real | | | |experience spending time in the hotels. There are also lots of travel websites such as| | | |trip advisor which provide guest’s review about the hotels. Information is readily | | | |available on the Internet. Thus, industry rivalry is enhanced. | | |Concentration and balance |High | | |Cline (n. d) mentions “Hospitality customers increasingly seek predictable services | | | |that support their ability to move quickly and easily around the world”. International| | | |hotel chains are expanding their business to meet the demand of the customers and to | | | |determine the way to be ‘happy’ with their position in the industry. Hence, rivalry | | | |will be significant. | | |Diversity of competitors |Medium | | |The level of diversity among hotels is medium because majority of the hotels provide | | | |similar types of high quality service. However, some hotels like Marriott | | | |International; it diversifies its business into planning and organizing wedding events| | | |for the couple who would like to marry. Marriott provides free assistance from | | | |certified wedding planners and help with everything from selecting centrepieces to |
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