Research Korner: Porter's 5 Forces Analysis Example

Hotel Industry in 2007 in the Middle East

Hotel Industry in the Middle East: Trends, Policies and Prospects   Executive Summary             The Hotel industry in the Middle East is growing in a rapid phase. The Hotel industry is considered as one of the fastest growing and income-generating industries in some countries in the Middle East. There are different factors that led to this growth. The growth of the hotel industry is primarily caused by the thriving tourism in the region. More and more countries are also opening their economies and the governments are implementing new policies. This paper aims to analyze the hotel industry as a whole - the life cycle stage of the industry and the various factors that affect its growth. The paper will also present an in-depth analysis and study of some major hotels in the region.             This report summarizes the current situation of the hotel industry in the Middle East. The report aims to discuss the different strategies that hotels in the Middle East are employing as well as the innovation and the market structure of each hotels and how these affects the hotels’ positions in the market. Three hotels have been selected. These are Ritz-Carlton in Doha, Qatar, The Al Bustan Palace in Oman and The Banyan Tree Desert Spa and Resort Al Areen in Bahrain. These hotels are operating under International Hotel Chains. Ritz-Carlton is managed by Ritz-Carlton Hotel Company. Albustan Palace is managed by the Intercontinental Hotel Groups while Banyan Tree Al Areen operates under Banyan Hotels and Resorts Group. A hotel chain is a group of hotels that operate and function in different locations around the world. Hotel chains use franchising to penetrate markets quickly and to expand, particularly abroad. Their international reputation guarantees franchisees a ready-made market. In addition, franchisers often sell a management contact to provide the expertise to run the hotel. Support is provided regionally with advice from franchise service managers, face-to-face professional assistance in marketing and training in hotel operations (Jafari 2000).   Introduction         The tourism and hospitality industry in the Middle East has experienced a positive growth in the last years. The World Trade Organization (WTO) expects global tourism to triple in size by 2020, with the Middle East region poised for spectacular growth (Wells 2004). Figures from The World Travel Market Global Report 2004-2005, reveal that all regions of the world are benefiting from the growth of global tourism. The Middle East region experienced a rise of 3 per cent with growth levels of 24 per cent to total 23 million arrivals (Wells 2004).             Along with the growth of the tourism industry, the hospitality industry is also thriving. The United Arab Emirates (UAE), recorded a rise in revenue per available room (RevPar) due to the dynamism of Dubai. Saudi Arabia, the best perceived regional destination in terms of security, is seeing its hotel results remain on a growing trend. Religious tourism continues to flourish and the authorities are extending the pilgrimage periods towards the holy cities of Mecca and Medina (Wells 2004).   Research Method Secondary Research             The researcher conducted a secondary research in order to gather information about the topic. The research conducted on the hotel industry in the Middle East and the other resource materials such as books, magazines, journal articles and internet resources were used to form the report. Using the said resources, the researcher was able to form an idea regarding the current state of the hotel industry in the Middle East as well as the future prospects of the industry. The researcher gathered information from the following resources: Search Engines             The internet played a vital role in the research. The researcher used the internet to gather information about the hotel industry in the Middle East, the different hotels and the strategies that each chain group employs. The researcher made used of the following search engines wwww.google.com, www. msn.com and www.yahoo.com. Wikipedia, an online encyclopedia was also consulted. Published Materials             The researcher also used a wide range of research materials. The materials used were books, journals, magazines and newspapers. These resources have helped the researcher in accomplishing the paper. Group Discussion             In addition to the different resources that have been used, the researchers also conducted a brain storming in order to discuss the issues and developments in the hotel industry in the Middle East.   Hotel Industry in the Middle East  Life Cycle Stage             The hotel industry in the Middle East is one of the rapidly growing industry in the region today. The increasing market size, greater demand and more open political and economic policies have all contributed to the growth of the industry. However, we can say that the hotel industry in the Middle East, while rapidly growing, is still in the emerging stage of the life cycle. The hotel industry in the Middle East has experienced different changes such as technological innovations, emergence of new consumer needs, economic shifts and political and sociological changes. These changes has caused a ‘reformation’ of the industry that has been stagnant in the late 70s to mid 80s. Market Structure             In order to analyze the current state of the hotel industry in the Middle East, it is important to discuss the market structure – the way businesses compete in a given market. The term market structure deals with the number of firms in an industry is. It is the way an industry is organized. The main feature used to separate one market structure from another is the degree of competition that exists is an industry (O’Connor and Faille 2000). There are four types of market structure. These are perfect competition, monopolistic competition, oligopoly and monopoly. Perfect competition is a model market structure in which thousands of firms, acting independently, produce an identical good to sell to consumers. Monopolistic competition is a type of market structure in which many firms produce differentiated products. Differentiated products are goods or services that are similar, but not identical. Oligopoly is a type of market structure in which a smaller number of firms produce most of the industry’s output.  Monopoly is a type of market structure in which one firm produces virtually all the industry’s output (O’Connor and Faille 2000).   Porter 5 Forces Model             The industry mapping process, developed by Michael Porter is also referred to as Porter 5 Forces Model. This model is used to analyze the competitive environment in which the organization operates. It aids in the identification of the strength of the competitive forces that affect the industry. Porter’s 5 Forces Model identifies five industry forces that directly influence an organization. These forces are: 1. Competition among existing firms – this is the natural competitive rivalry, which exists between the various business operating within the industry market place. 2. Threat of new entrants – this is the potential likelihood of, and ease of, entry for new firm into the market. 3. Threat of substitute products or services – this is where a product or service, perhaps produced through a different technology, enters the market. 4. Bargaining power of suppliers – this examines the relationship between businesses in the industry and the suppliers to those businesses. Where the suppliers have a unique or restricted availability product they can exert a strong influence over process and conditions of supply, therefore potentially putting pressures on the businesses purchasing their product/services. 5. Bargaining power of buyers – this examines the relationship between businesses in the industry and the customers of those businesses. The purpose is to identify the relative strength of the business in the customer relationship (Elkin 1998).       Hotels in the Middle East   Ritz-Carlton Hotel Company             The Ritz-Carlton Hotel Company is one of the world’s leading hospitality organizations. The company has received numerous awards particularly in service excellence. The company currently manages more than 60 hotels and resorts worldwide. The Ritz-Carlton brand is famous for its legendary service and its ability to make an exceptional experience for guests in different parts of the world (Marriot International Annual Report 2005).   Strategies             The Ritz-Carlton Hotel Company is committed to service excellence. The company owns luxury different luxury hotels in different parts of the world, all of which received superior ratings from the major travel guides. The company has won the Malcolm Baldrige National Quality Award in 1992 and 1999 in the service category (Baldrige National Qulaity Program 2000). The company aims to the best provider of hospitality products and services in the world. The company employs strategies that will enhance its organizational process. In order to maintain the quality of service and hospitality products the company established a standard that must be adhered to by all its hotels around the word. The company has a rigorous training and development programs for all its employees, most especially for new employees. The company also focuses on the customers. The company has instituted a customer customization strategy in order to keep track of the developments in the customers’ decision-making process, attitudes and behaviors. The customization strategy uses data-gathering through different information technology. Quality             Ritz-Carlton Doha is committed to offering quality service to its guests. Ritz-Carlton Doha is  managed by Ritz-Carlton Hotel Company. The Ritz-Carlton Hotel Company has a wide portfolio of hotels catering to different consumers. Quality of service, facilities, and technologies are the main focus of the company. Ritz-Carlton Hotel Company is one of the world’s most renowned deluxe hotel groups. Innovation             Ritz-Carlton is renowned for revolutionizing the hospitality industry. It was among the first hotels to create luxury in a hotel setting. Ritz-Carlton was among the first to put private bath in each guest room. The hotel also introduced innovation by using lighter fabrics in the guest room to allow for more thorough washing. The hotel was also the first to use fresh flowers throughout the public areas and one of the pioneers of a la carte dining (Ritz-Carlton History 2008).      Ritz Carlton Doha (Qatar) Ritz Carlton Doha is among the luxurious hotels in the Middle East. The hotel boasts its grand and elegant designs with a touch of traditional Arabian welcome. The hotel is situated on its own island resort overlooking the Arabian Gulf. The room designs combine elegance, opulence and comfort.   Porter 5 Forces Model 1. Competition among existing firms – the growing hotel industry in the Middle East presents a fierce competition among the existing firms in the region. Ritz Carlton faces competition among other hotels both locally and regionally. In the hotel industry gaining and maintaining customer loyalty is very hard. There are a lot of choices and a consumer can switch brands quickly. Moreover, every hotel offers enticing packages and promos making strong positioning harder for every hotel. 2. Threat of new entrants – The fierce competition among existing hotels is further intensified by the entrance of new players. Joint ventures, mergers and collaborations are common. Many small hotels are joining bigger hotels to become stronger and bigger. Doha is a growing market. There are new hotels that are opening in Doha. However, Ritz-Carlton is still expected to retain its number one spot. 3. Threat of substitute products or services – many facilities, services and technologies are being introduced. There are also different themed hotels that are entering the market. One example is the birth of the boutique hotels in the Middle East. The number of boutique hotels are rising and it is expected that this type of hotels will attract many customers in the future. In order to keep pace and to remain competitive, the hotel makes it a point that they have the best when it comes to facilities and technologies. The hotel also develops its services in order to satisfy the varied and changing customer needs and wants. 4. Bargaining power of suppliers – the hotel was able to develop a strong relationship with its suppliers. The hotel collaborates with different suppliers. 5. Bargaining power of buyers – the guests are offered with a wide selection of rooms and services. There are different services and amenities in the hotel to choose from.   InterContinental Hotels Group             InterContinental Hotels Group is a multinational company that owns and manages different hotel brands around the world. The group primarily manages hotels owned by other parties. The group also franchises the InterContinental brand. Through franchising, the group sells its expertise in areas such as hotel management, marketing and promotion. Included in the InterContinental portfolio are Holliday Inn, Crowne Plaza and Hotel Indigo. Strategies             One of the group’s strategies is to build a strong brand. Differentiation is accomplished by building a strong brand that creates brand equity. Brand equity produces value to the customer. Brand equity causes brand loyalty among customers. The hotel has been in the business for a long time. The hotel was able to develop a strong brand that serves as one of its competitive advantages. Because of the strong brand, the hotel is able to keep its customers. The service providers – all the staff are trained in order to maintain the quality of service. InterContinental Hotels Group obliges every staff to adhere to the standards in service, product quality, design, construction and operation. The management ensures that opportunities for training, development and continuous learning is available for everyone.  Quality             To ensure quality, the management and staff pay close attention to details. The hotel offers comfort, style and a pleasant and relaxing environment for the guests. One of the things that the guests love about Al Bustan is the excellent service rendered by every employee. Innovation             The Al Bustan is the first five star hotel in Oman and one of the first in the region. The hotel features spectacular blend of Islamic architecture and contemporary state of the art technology. The hotel offers Arabic-inspired rooms. Al Bustan is part of the broad hotel portfolio of the InterContinental Hotels Group. InterContinental Hotels Group is the second largest hotel chain in the world. It owns famous and respected hotel brands such as InterContinental, Crowne Plaza and Holiday Inn.  InterContinental Hotels Group is one of the innovators in the hotel industry. It was the first to offer the customers with online reservations. The hotel has a long line of innovations in the hotel industry. Among these was the introduction of loyalty programs. InterContinental also introduced online travel bookings. The group was also the first to offer fully functional websites in seven languages (www.hospitalitynet.org). The hotel was first to use the power of the Internet to reach its customers and guests. This strategy has been successful. InterContinental is now among the biggest hotel groups and the world and one of the most diverse in terms of hotel brands.             Today, the group is among the industry leader in terms of innovative technologies. The group’s website is considered to be the most functional. It is among the most visited hotel sites. The hotel builds alliances with several groups in the travel industry. The reservations system, the industry’s first is also the most technologically advanced today. In addition, the Guest Satisfaction Tracking System helps the group to constantly innovate and develop its services based on the needs and wants of the guests (www.ichotelsgroup.com).   Al Bustan Palace – Oman             The Al Bustan Palace Intercontinental Muscat hotel is dubbed as one of the finest hotel in the world. It opened in 1985; it is identified as the Jewel of the Oman Sultanate (www.destoman.com).  The amenities and activities offered by the ‘palatial hotel’ are its private beach, outdoor swimming pool, gym, windsurfing, kayaking, scuba diving, sailing, tennis and mini-golf. The hotel offer traditional amenities and services. Unlike many new hotels in the Middle East, the Al-Bustan Palace Hotel is traditional and conventional.   Porter’s Five Forces 1. Competition among existing firms – Al Bustan is one of the pioneer deluxe hotels in the Middle East. The hotel has gone through different developments and restructuring, the latest being its renovation that was completed in 2001. The hotel is faced with stiff competition from other hotels. The increasing number of innovative high-end hotels that offer virtually the same services and amenities as Al Bustan is a serious threat. Keeping customers is now difficult. 2. Threat of new entrants – new entrants also pose serious threats to one of the regions oldest hotels. New entrants are having difficulties penetrating the Middle Eastern market. However, large hotel groups such as Hilton, Ritz Carlton and Hyatt are venturing in new businesses and opening new hotels and lodges in the region. 3. Threat of substitute products or services – rival hotel groups always make it a point to offer new services and products in order to maintain their strong status in the region. New hotel and service concepts are increasing. 4. Bargaining power of suppliers – the hotel was able to develop a strong relationship with its suppliers. The hotel collaborates with different suppliers. 5. Bargaining power of buyers – the guests are offered with a wide selection of rooms and services. There are different services and amenities in the hotel to choose from.   Banyan Hotels and Resorts Group             Banyan Hotels and Resorts is famous for its innovative luxury resorts and spas. Banyan Hotels and Resorts offer unique services, amenities and facilities. The theme is different from other hotels in the region. The group positions itself as a sanctuary for romance and intimacy. The group offers luxurious villas and distinctive native settings that create memorable holiday experiences for the guests. The service staff are well-trained in serving the guests. The hotel offers personalized service, making every service encounter memorable. Strategies             Effective branding and positioning have been useful to the hotel and resort group. Banyan Tree aims to position itself as the prime destination for relaxation, well-being and romance. The group offers a brand promise of romance and intimacy to couples. The group develops a strong position in the market trough its active promotional and marketing activities. This is done by implementing direct marketing. The group aims to attract wealthy guests. The advertisements were primarily placed on high-end travel magazines targeting wealthy consumers. The brand reputation is also enhanced by the numerous awards and excellent reviews. Innovation             The concept of boutique hotel is quite innovative in the Middle East. One of the innovations of the hotel is the personalized services. Guests are served in such a way that appeal to senses. The service experience is different from other leading hotels in the region. The group was also the first to introduce to concept of tropical spas and Asian therapeutic massages. The overall service experience at Banyan Tree can be considered as innovative. Banyan Tree All Areen’s main advantage is the innovative concept, theme and services that it offers.   Banyan Tree Desert Spa and Resort Al Areen – Bahrain The Banyan Tree Desert Spa and Resort (Banyan Tree Al Areen) is the first Middle East property of the world renowned Banyan Tree Hotels and Resorts. The Banyan Tree Desert Spa and Resort, found in the Kingdom of Bahrain is one of the most luxurious and expensive spa resorts in the world. The Boutique hotel boasts its 78 lush Villas; 56 single-bedroom Desert Poll Villas and a 22 two-bedroom Royal Pool Villas. Banyan Tree Al Areen offers deluxe amenities such as international restaurants, fitness and wellness center, tennis courts, squash court and gyms. The boutique hotel also houses a library with a wide selection of reading materials (www.gourmetnetwork.de).             The opening of the Banyan Tree Al Areen in Bahrain marks the Bahraini government’s aim to increase the tourism income to double. The government’s strategy is to build Bahrain’s reputation as the ‘boutique’ destination in the Middle East (Global Future and Foresight 2007).   Porter’s Five Forces 1. Competition among existing firms – Banyan Tree is an established hotel group. However, the Banyan Tree boutique hotel concept is quite new in the Middle East region. The existing hotels in the region are a big threat to Banyan Al Areen. 2. Threat of new entrants – the boutique hotel concept is increasing in terms of number in the Middle East. Several hotel groups are now venturing in the boutique hotel concept. There is an expected rise in number of boutique hotels in the coming years. 3. Threat of substitute products or services – the boutique hotel concept is threatened by medical spas that are also growing in the region. Moreover, more and more hotel groups are aiming to offer similar services offered by the Banyan Tree group. 4. Bargaining power of suppliers – there is no known threat in the relationship of Banyan Tree with its suppliers. 5. Bargaining power of buyers – Banyan Tree primarily caters to wealthy couples. The hotel is aiming to increase Banyan Tree brand recognition among this market group.             Factors and Policies that Affect the Industry Developments of International Airports             Almost every country in the Middle East is aiming to improve their air travel. The governments of the Middle East have set aside more than 40 billion dollars of funds for airport development. The established airlines remain competitive and new ones are starting to make their presence felt. Emirates continue to soar with its newly constructed terminal at Dubai Airport. Gulf Air is developing a two-hub strategy. Qatar Airways is set to open what it claims is the world’s first dedicated business class terminal at Doha Airport (Wells 2007). Developing Partnerships with Other Countries             Every government in the Gulf recognizes the rapid expansion of the Chinese and Indian economies. Countries such as Bangladesh, the Philippines and Vietnam are expected to be among the top 20 economies by 2050. These developments are opening new opportunities for the Arab countries. The Gulf governments are starting to develop trading relationships, new opportunities and new target markets for inbound visitors and investors (Global Future and Foresight 2007). Increased Government Support             Arab countries are seeing the benefits and potentials of an active investment in the tourism industry. The Arab governments are making determined efforts to make the Middle East tourism and hospitality competitive. The governments are seeking to attract visitors through product development, enhanced funds and vigorous marketing and promotional activities. The governments in the Middle East are creating programs in investment and development in order to increase capacity, improve infrastructures and grow tourist numbers and revenues (Global Futures and Foresight 2007). The Bahraini governments is developing projects in order to enhance the image of Bahrain among tourists and investors. The government of Oman remains committed to tourism development and continues to fund different programs to enliven the industry. The government of Qatar is promoting the country as a leading meeting and incentive destination. The government has taken active promotional and marketing activities in order to attract tourists and investors. The government of Saudi Arabia continues to push tourism projects that will enhance tourists destinations such as Mecca and Madinah. The government aims to attract foreign tourists by relaxing its visa regulations (Younes and Forster 2004). Policies on Foreign Investment             The Kuwaiti government is offering a ten-year tax exemption to foreign investors in order to encourage investments (Younes and Forster 2004). The government of Qatar on the other hand is planning to allow international investors to obtain a full equity in various industries such as health, education and tourism (Younes and Forster 2004). Many countries in the Middle East are making advancements in liberalizing foreign investment regulations. Further liberalization is expected due to the worldwide processes of globalization and integration as well as requirements that might be imposed by the World Trade Organization (WTO). Economic Reforms             To boost the level of business activity in Doha, the government of Qatar plans to develop an economic free zone in the said city. As part of Saudi Arabia’s program to diversify the economy, the government is promoting religious tourism. The government is relaxing its rules on religious tourism and allowing pilgrim visas to be issued for seven-and-a-half months of the year. United Arab Emirates, particularly Dubai continues to have the most diversified and open economy in the Middle East. The government of UAE continues to invest on the tourism industry (Global Futures and Foresight 2007).   Prospects of the Industry             The tourism industry in the Middle East is expected to experience continuous growth in the next five years or so. The industry will continue to flourish and the competition will start to get more intense as more and more hotels, especially deluxe, are opening.             In the following years, we can see majority of hotel developments will still focus on deluxe hotels. The Banyan Tree Al Areen is expected, with government support and backing, to attract considerable numbers of health tourist market. However, Banyan Tree Al Areen, like many boutique hotels face different challenges. In the Middle East, we see different deluxe hotels being developed. Boutique hotels run the risk of being not able to keep with the ever-changing trends in the hotel industry. As what Vickers (2004) say ‘boutique hotels become victims of their own success’. What used to be trendy may no longer be so fashionable tomorrow. Boutique hotels are subject to changes in fashion and it is difficult to be fashionable over a period of time. The changing consumer demands, the rapid development of innovative technology and the intensifying competition in the Hotel Industry in the Middle East may have a negative impact on Banyan Tree Al Areen.             The opening up of the Arab economies has led to numerous foreign direct investment flows to the region. Many business organizations are setting up operations in the Middle East. Competition is becoming more intense. Along with the establishment of new deluxe hotels, is the introduction of innovative technologies, amenities and services. The increasing number of ‘high-tech’ hotels in the region is a threat for traditional hotels such as the Al Bustan Palace Intercontinental Muscat. The development of “Palatial” hotels in the region took away the differentiation value of the Al Bustan Palace. The Al Bustan Palace is threatened by new hotels that offer the same services, amenities and attractions with other added features such as the newly opened Emirates Palace in the United Arab Emirates.             I think that the Ritz-Carlton Doha, with its magnificent architecture and design, topped with innovative technology, services and amenities will remain competitive in the next five years. The Middle East continues to attract leisure tourists with a steady growth of business tourist numbers in the previous years. The business tourism is expected to grow in the following years. If the hotel can keep pace with the trends in the industry, it will remain a strong player in the market.   Conclusion             If the governments across the region continue to introduce innovative programs to ensure the competitiveness of the tourism industry, the hotel industry will continue to grow.             The tourism industry in the Middle East is experiencing tremendous growth. This has led to the development of the Hotel industry. Almost every nation in the Middle East is starting to realize the economic benefits brought about by global tourism. Along with the progress in politics, economy, technology, infrastructure and society is the advancement of the Hotel industry in the region. The region is now home to different deluxe hotels and resorts, offering wide array of attractions, amenities and services. The liberalization the Arabian economy brought about by globalization encouraged and attracted many foreign and local investors and businesses to set up businesses in the region. Now, the region is among the top earners in tourism. Many hotels are opening, various innovations are introduced, attractions are being developed. Governments are in constant search for programs and projects to increase their competitiveness and attractiveness. The hotels studied in this report are the Ritz-Carlton in Doha, Qatar, The Al Bustan Palace of Oman and the Banyan Tree Desert Spa and Resort of Bahrain. These hotels cater to different niche markets and have different strategies. Ritz-Carlton is considered as one of the region’s premiere hotels. The Al Bustan Palace is considered as one of the pioneering deluxe hotel in the region. It is identified as the Jewel of the Oman Sultanate and dubbed as the “Palatial” hotel. One of the newer hotel concepts that were introduced in the region is the boutique type of hotels. It is considered as one of the most luxurious and expensive spa resorts in the world. The boutique hotel attracts health and well-being enthusiasts. The intensification of competition among countries, states and hotel organizations pose a challenge for those that cannot keep pace. The hotel industry is proving to be a fast-changing industry as more and more innovations on technology, services and concepts are being introduced. Governments play a significant role in the progress of the hotel industry.        References   Al Bustan Palace InterContinental (2008). Destination Oman and Beyond,             Retrieved January 29, 2008, from            http://www.destoman.com/albustanpalace.htm       Baldrige National Quality Program. (2000). Baldrige: A Global Approach for a Global Economy – CEO Issue Sheet. US Department of Commerce. National Institute of Standards and Technology (NIST), Retrieved on 21 February 2008 from http://www.quality.nist.gov/PDF_files/Issue_Sheet_Global.pdf.    Banyan Tree Desert Spa and Resort, Al Areen unveils Oasis of Tranquility in             Bahrain (2007). Gourmet Network, Retrieved January 29, 2008, from             http://gourmetnetwork.de/uploads/media/Banyan_Tree_Bahrain_Opening.           pdf   Coleman, G. (2001, April). Qatar:The Fastest Growing Economy in the World.             The Middle East, 24.   Elkin, P. (1998). Mastering Business Planning and Strategy: The Power of Strategic Thinking. London: Thorogood.   Emirates Palace (2008). Emirates Computers. Retrieved February 13, 2008, from             http://www.emiratescomputers.ae/content.php?content=20&item=991&url            =content.php%3Fcontent%3D5%26amp%3Bitem%3D2   Emirates Palace, Abu Dhabi (2005). Dorma Group North America, Retrieved             January 29, 2008, from http://www.dorma-         usa.com/pdf/reference.php?ref=946&changelang=28   Images of 7-Star Luxury at Emirates Palace Abu Dhabi (2005). Hospitality Net,             Retrieved February 13, 2008, from             http://www.hospitalitynet.org/news/4022056.search?query=%22kempinski            +group%22+%22emirates+palace%22   InterContinental Hotels Group Launches 'Any Hotel, Anywhere' Card (2005).             Hospitality Net, Retrieved February 13, 2008, from             http://www.hospitalitynet.org/news/4022986.search?query=%22intercontin           ental+hotels%22+%22innovations%22   Marriott International, Inc. (2005). Marriott’s 2005 Annual Report. Retrieved on 21 February 2008 from http://ir.shareholder.com/mar/downloads/2005AR.pdf.    Mudambi, R. and Ricketts, M. (1998). The Organisation of the Firm: International             Business Perspectives. London: Routledge.             O’Connor, D. E. & Faille, C. (2000). Basic Economic Principles: A Guide for Students. Westport, Connecticut: Greenwood Press.     Palatial Hospitality (2008). Global Village Products, Retrieved January 29, 2008,             from http://www.globalvillageproduct.com/media-         files/2007/12/26/20071226_Hotels-1.pdf   The Future of Travel and Tourism in the Middle East – A Vision to 2020. (2007).             Global Futures and Foresight. Retrieved January 29, 2008, from      http://72.14.253.104/search?q=cache:HlM_-         WzvPHoJ:www.thegff.com/Publisher/File.aspx%3Fid%3D14985+the+futur            ee+of+travel+and+tourism+in+the+middle+east&hl=en&ct=clnk&cd=2   The Ritz-Carlton Company. (2008). Our History. Retrieved on 21 February 2008 from http://corporate.ritzcarlton.com/en/About/OurHistory.htm.   Vickers, R (2004). Hotels: Is the Middle East Boutique? Tri Hospitality             Consulting. Retrieved January 29, 2008, from http://www.trimideast.com/images/dynamic/Info%20Centre/pdf/085041a0a   9f34e2125087d2c53fe62914578186741a5e.pdf   Wells, R. (2004, December). World Travel Market Highlights Middle East             Tourism. The Middle East, 32.   Wells, R. (2007, May). The Arabian Dream Becomes Reality: As Dubai Gears Up             to Welcome Delegates to the 13th Arab Travel Market, One of the Major     Events in the Travel and Tourism Industry Calendar. The Middle East, 42.   World’s Largest Hotel Company (2008). InterContinental Hotels Group, Retrieved             February 13, 2008, from             http://www.ichotelsgroup.com/h/d/6c/1/en/c/2/content/dec/6c/1/en/fd/tech. html   Younes, E. and Forster, B. (2004). Middle East Hotel Markets – Outlook, Trends             and Opportunities. HVS International, Retrieved January 29, 2008, from              http://www.hospitalitynet.org/file/152001541.pdf

Hotel Industry in 2007 in the Middle East

Hotel Industry in the Middle East: Trends, Policies and Prospects Executive Summary The Hotel industry in the Middle Ea...

Strategic Management of Zara

Company Background         In 1963, Amancio Ortega started a small company in Spain that manufactured women’s pajamas and lingerie products for garment wholesalers. In 1975, after a German customer cancelled a sizable order, the firm opened its forts Zara retail shop. The original intent was simply to have an outlet for cancelled orders but the experience taught the firm the importance of a marriage between manufacturing and retailing – a lesson that guided the evolution of the company ever since. From a starting point of 6 stores in 1979, the company established retail operations in all the major Spanish cities during the 1980’s. In 1988 the first overseas Zara store opened in Porto, Portugal, followed shortly by New York City in 1989 and Paris in 1990. But the real ‘step-up’ in foreign expansion took place during the 1990s when Inditex entered 29 countries in Europe, the Americas and Asia (particularly during 1998 to 2001 when it entered 21 of these 29 countries). In parallel with its overseas expansion, Inditex diversified its retail offering by adding and acquiring new brands in order to target different customer segments. Each brand operates independently, with its own stores, ordering system, warehousing and distribution system, subcontractors, and organizational structure (Inditex 2006). Zara is the largest Inditex division – accounting for more than 75 percent of total Inditex sales. The first Zara clothing store opened in 1975 in Spain as a small retailer selling men’s and women’s clothing. Since then Zara chains have grown into retailing giants with almost 1000 stores worldwide and an impressive sales record. The success of Zara is partly to do with the appeal of its men’s and women’s and children’s fashions and accessories that display unique style but at real world prices.   Task1 Industry Analysis             Strategic management starts with strategic planning an important part of the strategic planning process is External Environment Analysis. It is important that the company conduct a futuristic view of its environment as the environmental conditions may change from the date of the conception of the strategic Plan. Forecasts are needed in strategic planning and all environmental factors must be forecasted. This section will present an in-depth analysis of the industry where Zara competes. The analysis will include customer analysis, competitor analysis, PEST analysis, Porter’s Five Forces Analysis and to have a complete view of the company’s business environment a SWOT analysis will be conducted.             External environmental analysis reveals the health of an organization, its values, political climate, its use of technology and resources, its competitive rank within the industry, its overall image, and the areas requiring improvement (Gilley and Maycunich 2000). An organization’s environment is composed of those institutions or forces that are outside the organization and potentially affect the organization’s performance. These typically include suppliers, customers, competitors, government regulatory agencies, public pressure groups, and the like (Sims 2002). Because of uncertainty, these environmental factors play an important role in determining the success of the organization. Organizations are now faced with very dynamic environments where government regulations rapidly changes, new competitors arise, raw material are difficult to acquire, and consumer preference continues to change and so on. Now let us look at these external factors that shape the organization’s strategies and objectives and affect the organization’s success.             The global textile and clothing industry also experienced changes. One of the biggest changes is the removal of import quotas that has opened opportunities for large exporters such as China and India. The textile and clothing industry, particularly in Europe is characterized by fragmented production with a large number of small and medium-sized companies mainly located in Italy, Greece, France, Germany and Spain (Nordas 2004). The textile and clothing industry in Europe is also becoming more international and international competitors are posing greater threats. Sub-contracting or delocalization of textile and clothing production to countries with lower labor and transportation costs is also becoming popular among European retailers as it reduce lead-time and costs (Berkeley and Steuer 2000). European retailers and manufacturers are also changing their business models to keep up with the changing customer demands and tastes (Lopez and Fan 2007).   The Fashion Industry             The fashion industry is composed of different products and markets where there is an element of style, which is short-lived. The fashion industry is characterized by the following characteristics: 1. Short Life-Cycles – the product is often short-lived, designed to capture the mood of the moment. Consequently, the period in which it will be saleable is likely to be very short and seasonal, measured in months or even weeks. 2. High Volatility – demand for these products is rarely stable or linear. It may be influenced by the inconsistencies in weather, media, celebrities and icons. 3. Low Predictability – because of the volatility of demand it is extremely difficult to forecast with any accuracy even total demand within a period, let alone week by week or item by item demand. 4. High Impulse Purchasing – many buying decisions by consumers for these products are made at the point of purchase. Meaning, the shopper when confronted with the product is stimulated to buy it, hence the critical need for ‘availability’.               The clothing industry has been changed by globalization. Now national brands such as Zara and Mango from Spain, Topshop from the United Kingdom, Hennes & Mauritz from Sweden, Gap from the United States, United Colors of Benetton from Italy, Uniqlo from Japan and Esprit from Hong Kong are crossing borders to become national brands. These clothes retailers are following the internationalization process of US retailers predominantly targeting the youth market (Stone and McCall 2004). Today’s fashion industry is highly competitive and the constant need to refresh product arranges means that there is an inevitable move by many retailers to extend the number of ‘seasons’ (Christopher et al 2004).   Consumer Analysis             Zara positions itself as the designer-boutique alternative for the price-conscious but trendy consumer (Cohen and Roussel 2004). Today’s consumers are spending less on clothing – choosing to spend their disposable income on healthcare, electronics, education, and travel and leisure. Moreover they can now choose from a wide assortment of inexpensive products.   Competitor Analysis             Three main competitors of Zara pose the biggest threats. These are Mango, the Gap and H&M. Almost any retailer can be a threat to Zara due to its wide range of merchandise categories. The Gap is one of Zara’s main competitors as it also sell the same merchandise as Zara does at a more affordable prices and less trendy styles. The company also has a world-wide presence. H&M (Hennes and Mauritz) is one of Zara’s most threatening competitors. H&M also has been quick to internationalize which allows it to gain sales in countries outside its native Sweden. H&M also is more attentive when entering new markets and tends to enter one country at a time, as opposed to Zara who multitasks globally. H&M builds distribution centers in their international locations in order to cut down lead times and potential logistics costs. Another threat to Zara is that H&M carries trendy clothing choices that they have designed based on the melding of international apparel tastes (Craig et al 2004). Mango, also a Spanish fashion retailer is also known for its excellent business model and supply chain management. Mango has a history comparable to Zara’s being a Spanish company with approximately the same number of stores in the same number of countries worldwide, and a recent history of great success. Like Zara, all the Mango stores are located in prime positions, whether in the main shopping centers or premises located in city centers. Stores are of sufficient size to display its collections. The products of Mango are also similar to Zara’s in style, pricing and quality. However, Mango is very different from Zara in organizational strategy as Mango is based on a franchising system, and in marketing strategy, relying heavily on advertising campaigns.   Porter’s Five Forces Analysis 1. Competition among existing firms (High) – the competition among existing firms in the clothing industry is very fierce. Zara does not only compete with local Spanish brands such as Mango or Springfield, it also competes with other European brands such as H&M, Topshop and United Colors of Benetton. Zara also competes with international brands like Gap. 2. Threat of new entrants (High) – the clothing industry is very fluid and open. Small and medium-sized companies enter the fashion arena frequently. 3. Threat of substitute products or services (High) – consumers are always on the look out for more quality trendy products at more affordable prices. The threat that other companies can offer the same quality or better quality products at lower prices is high. 4. Bargaining power of suppliers (Low) – fashion retailers/merchandisers outsource their production in places where transportation and labor costs are cheap. Zara strictly controls its production and has a very stringent contracts with suppliers. 5. Bargaining power of consumers (Medium) – the consumers is the focal point of Zara’s business model. In spite of this, Zara has conditioned the minds of the consumers by offering limited stocks and by quickly replenishing its products.    Task 2 Strategic Capabilities Innovative Business Model             Inditex, the company that owns Zara has an innovative business model that serves as the foundation of its strategic capability. The business model of Zara gives utmost importance to customer and continuous innovation. The organization considers the customer as the beginning and end of its business. However, Zara has pushed forward by giving the customer an active role from the start of the chain and turned it into the principal drive for its entire business model. The requests, comments and suggestions of the customers are considered by the design team which, based on this, create some proposals that are sent to stores immediately. The start of the company’s business model is the store. The store is important to the company’s business model because this is where informatio0n from the customers are received and collected. These information are sent to design centers and commercial departments in real-time. The response from the customer with new requests sets the process going. Zara stores receive new products twice a week , thereby giving a quick response to the customer.   Excellent Supply Chain Management             For Zara stores to be able to offer cutting edge fashion at affordable prices requires the firm to exert a strong influence over almost the entire garment supply chain: design, purchasing, production, distribution, and retailing. Zara produces clothes that resemble the latest couture creations, but they beat the designers to market. Because they use less expensive fabrics, they can also provide the product at a lower price. To achieve this type of competitive advantage, Zara controls most of its supply chain, by managing all design, warehousing, distribution, and logistics functions. Zara design the organization, operational procedures, performance measures and even office configurations to make information and product transfer easy. Because Zara’s merchandise is produced in small quantities, provided on predictable schedules, and displayed in the stores for only a short amount of time, customers visit Zara stores more frequently. This has an added advantage of helping Zara avoid the cost of advertising.             The scheduling techniques of Zara is also very efficient. <ul style="margin-top: 0in; margin-bottom: 0in" type="circle"> <li class="MsoNormal" style="text-align: justify; line-height: 200%">Centrally Managed Inventory – controlled and timely delivery of clothing to all stores across the world</li> <li class="MsoNormal" style="text-align: justify; line-height: 200%">Reduced Design Cycle Time – timely response to items that sell well and ability to quickly alter or enter new designs</li> <li class="MsoNormal" style="text-align: justify; line-height: 200%">Strong IT System – allows almost immediate communication of sales and inventory information across enterprise</li> <li class="MsoNormal" style="text-align: justify; line-height: 200%">Logistics and Distribution – clothes move within hours to their destination, efficient scheduling of shipments</li> <li class="MsoNormal" style="text-align: justify; line-height: 200%"> </li> </ul> Fashionable Items at Real World Prices             The particular operation strategy used by Zara helps it respond quickly to shifts in customer demand and build a powerful brand. Zara estimate that it takes only two weeks to convert design ideas into products on the shelf to satisfy its young, hip, clientele with fashion for the masses. Store employees regularly tour urban hot spots looking for new trends and reporting back to designers. Knowing what’s in today may be out next month is the secret of the success of the Spanish retailer as is the ability to apply operations strategy that puts new fashion concepts on the shelf twelve to fifteen days.             Zara’s appeal is in its clothes themselves. Zara has earned a reputation of being able to come up with more affordable interpretations of catwalk styles into its stores with breathtaking speed. A design presented in a fashion show by a luxury design house will not be available to the masses for months, but Zara is able to create something that looks like it in just two weeks. This enables Zara to attract a large number of customers who cannot afford designer clothes or who are looking for a more affordable alternative (Tungate 2008).             Although Zara is known for its ability to provide more affordable interpretations of catwalk clothes, it is also known as a company that can create innovative fashion pieces. This is attributed to its highly effective design strategy that starts in the stores. The customer feedbacks, requests and suggestions that are gathered from the customers in every store is passed to the design team. The design team also consult magazines, trade fairs, and fashion shows to know the latest in the fashion industry. The company ensures product quality by designing its own products. Zara employs around 300 people in its headquarters in Spain. The headquarters staff is composed of designers, specialists and buyers. Together they produce designs for approximately 40,000 items per year from which 10,000 are selected for production. Unlike their industry peers, these teams work both on next season’s designs and, simultaneously and continuously, also update the current season’s designs. Extensive feedback from the store network also forms an integral part of the design process. Women’s, men’s and children’s designers sit in different halls in a modern building attached to the Inditex headquarters.             The store managers play an important role in making sure that each store only offers what customers want and need. Store managers monitor the tastes and demands of the customers, and tailor stock accordingly. That is the reason why even if there are two Zara stores in the same city the products that are being offered are not exactly the same. Zara’s product managers keep in touch with stores, seeking feedback from customers and monitoring the popularity or otherwise of items (Tungate 2008).   Task 3 Strategic Choices Porter’s Generic Strategies             Michael Porter believed that a firm can choose between two options. These are cost advantage and differentiation. There are according to Porter three generic strategies that a company can employ. These are cost leadership, differentiation and focus. Cost Leadership             Overall, cost leadership requires a firm to develop vigorously an optimally efficient scale of operation and to control tightly the firm’s cost in all activities (Reid et al 1993). Focus Strategy         A focus strategy requires a firm to concentrate on a particular market segment which may be dictated by factors such as the buyer, the product, or the location rather than the overall market. The strategy is predicted on the notion that a firm that devotes its entire energies to a niche or target can better achieve competitive advantage than those rivals which broadly compete across the market (Reid et al 1993). Differentiation             Firms that follow the generic differentiation strategy seek to exploit firm-specific assets by producing goods or services, which are almost unique compared to those offered by rivals. Differentiation is not limited to the physical nature of the product. Other significant dimensions of differentiation include distribution channels, marketing efforts, after sales service and so on. Essentially a firm seeks to establish itself as unique within its industry. Effective differentiation is generally resistant to the forces of competition. Potential and existing rivals must overcome the uniqueness of the product and try to erode customer loyalty. Customers are less likely to switch because of a perceived lack of similar alternatives (Reid et al 1993).   Imperative Strategic Choices             Zara employs different strategies to gain competitive advantage over its competitors. In order to become the leading fashion retailer in the world, Zara employs a combination of both differentiation and cost leadership strategies. This imperative strategic choice is achieved through:   1. Distribution Channels             One of the possible threats to the company and a potential source of failure is its Spain-centric production and distribution. Majority of the company’s processes are being done in Spain and the company’s two distribution channels are in Spain. If the external environment is subjected to drastic changes such as political unrest, economic flux, weather changes, calamities, and terror attacks the company will be vulnerable. In order to avoid this and to strengthen the company’s presence in other locations, the company can develop distributions channels in strategic locations in Asia and in America.   2. Complimentary Sales Channels             In order to reach the consumers and to fully utilize technology, Zara can make use of the internet as an alternative sales channel where customers can shop online. Catalogues can also be used as an alternative sales channel. Zara can choose to grow in three sales channels – stores, internet and catalogue. Although the stores are Zara’s primary sales channel, internet and catalogue sales can strengthen Zara’s profile and increase the level of service to customers, thereby making Zara even more accessible.   3. Expansion in Europe, South America and Asia             One strategic choice that is pertinent to the strategic positioning of Zara is expansion.             Zara continues to expand to new markets. In 2006, Zara entered markets such as Croatia, Slovakia, Colombia, Guatemala and Oman (Annual Report 2007). The chain continued its expansion process with openings in the main commercial areas of large cities. In line with the company’s strategy of growth, in 2007 Zara opened up in Peking with the first store of the Chain in the Chinese capital, and continued growth in the Russian market with openings in Moscow, Kazan, Rostov and Novosibirsk. In Europe, stores opened in such places as Bologna and Naples (Italy), Frankfurt (Germany), Gotenborg (Sweden) and Oslo (Norway). What is more, the chain began to operate in five new markets: Croatia, Slovakia, Guatemala, Colombia and Oman (Annual Report 2007).   Task 4 Recommendation and Justification             The recommended growth strategies for Zara is Market Expansion through Market Development. The focus of market development is entrance to new markets where Zara is not yet present.   Market Expansion through Market Development             Finding new markets may not guarantee success for the firm. A firm can also achieve growth in developing markets. Market development strategy involves developing new markets by duplicating the business operation, with minor adaptive changes. The firm can undertake a market expansion strategy. In market expansion, the same expertise and technology and sometimes even the same plant and operations facility can be used. There is therefore potential synergy and resulting reductions in investments and operating costs. Geographic expansion may involve changing from regional operation to a national operation, moving into another region, or expanding to another country (Proctor 2000).               The expansion of Zara in Europe, South America and Asia requires a more developed and well-managed supply chain. In order to make the expansion strategy effective the company must further develop its supply chain management process. In order to strengthen the company’s supply chain management, Zara can make use of different strategies where necessary. These strategies include Total Quality Management and Quick Response. These strategies do not aim to replace Zara’s supply chain processes but to enhance and support the company’s already effective supply chain. 1. Total Quality Management             The idea of total quality management (TQM) emphasizes planning for quality, including designing the product in such a way that consistent quality is more easily obtained and more easily measured. The impetus for a company to devote significantly more resources to quality through a TQM program comes from a trend that most companies are now experiencing – an increased competitive pressure that leads to higher costs associated with poor quality. The product must be designed in such a way that it can be produced consistently without losing sight of the design aspects demanded by the customer. The production process must be designed with quality in mind (Summers 1998). 2. Quick Response             Quick Response (QR), a program developed by textile and apparel manufacturers and retailers around 1985 as a way to cope with problems challenging the apparel industry, uses a combination of strategies to reduce inventory levels, improve merchandise quality, increase worker productivity, increase stock turnover, and reduce merchandise markdowns and inventory costs. Fundamentally, QR is a way to gather information about consumer preferences and to reflect them in production decisions in a timely manner. To comply with consumers’ needs, QR relies on sales data. Through computerized information systems, sales data are transmitted and transformed as useful information that reveals consumers’ preferences and reactions, and decisions are then made promptly to respond to what consumers want (Kang and Sullivan, 1999).             The QR strategy links all activity to real time demand. It is customized by the individual retailer or manufacturer and is particularly suited to small and medium-sized firms. It is designed to be context specific and to be contingent upon the setting. Quick Response as an operations strategy is designed to overcome the impact of seasonality in operations.       References Annual Report 2006, Inditex, viewed 09 December, 2008,             <http://www.inditex.com/en/shareholders_and_investors/investor_relations/annual_reports>   Annual Report 2007, Inditex, viewed 09 December, 2008,             <http://www.inditex.com/en/shareholders_and_investors/investor_relations/annual_reports>   Berkeley, N and Steuer, N 2000, Comparative Analysis of EU and National Trends in the Textile and Clothing Industry, viewed 09 December, 2008, <http://www.stile.coventry.ac.uk/adapt>   Christopher, M, Lowson, R and Peck, H 2004, ‘Creating Agile Supply Chains in the Fashion Industry’, International Journal of Retail and Distribution Management, vol. 32, no. 8, pp. 367-376.   Cohen, S and Roussel, J 2004, Strategic Supply Chain Management: The Five Disciplines for Top Performance, McGraw-Hill Professional.   Craig, A, Jones, C and Nieto, M 2004, Zara: Fashion Follower, Industry Leader, Philadelphia University, viewed 09 December, 2008             <http://www.philau.edu/sba/news/zarareport.pdf>   Jones, S J 2005, Fashion Design, Laurence King Publishing.   Kang, J K and Sullivan, P 1999, ‘Quick Response Adoption in the Apparel Manufacturing Industry: Competitive Advantage of Innovation’, Journal of Small Business Management, vol. 37, no. 1, p. 1. Lopez, C and Fan, Y 2006, Internationalization of Spanish Fashion Brand Zara, Brunel University, viewed 09 December, 2008,             <http://bura.brunel.ac.uk/bitstream/2438/2003/4/Zara.pdf>     Nordas, H K 2004, The Global Textile and Clothing Industry Post the Agreement on Textiles and Clothing, World Trade Organization, viewed 09 December, 2008, <http://www.wto.org/english/res_e/booksp_e/discussion_papers5_e.pdf>   Proctor, T 2000, Strategic Marketing: An Introduction, Routledge, London.   Reid, G C, Jacobsen, L R, and Anderson, M E 1993, Profiles in Small Business: A Competitive Strategy Approach, Routledge, New York.   Stone, M A 2004, International Strategic Marketing: A[N] European Perspective, Routledge, New York.   Summers, M 1998, Analyzing Operations in Business: Issues, Tools, and Techniques, Quorum Books, Westport CT.   Tungate, M 2008, Fashion Brands: Branding Style from Armani to Zara, Kogan Publishers.

Strategic Management of Zara

Company Background In 1963, Amancio Ortega started a small company in Spain that manufactured women’s pajamas and lingerie produ...

Strategic Management of Zara

Strategic Management of Zara

Company Background In 1963, Amancio Ortega started a small company in Spain that manufactured women’s pajamas and lingerie produ...