Hospitality industry is full of rivalry and the most basic uncontrollable condition is quality. Just simply depending on quality does not increase their performance and design encouragement to attract guests. Longo and Cox (1997) and Youssef et al. (1996) spoke that product and development must being planned to emphasis for future and current guests needs. Nowadays, Porter’s five forces are strongly affecting the nature of rivalry in no matter in hospitality industry or other types of industry as well. Still, how strong does a hospitality industry will compete with others doesn’t only related or depending on these five forces because an important role is also linked to the industry structure itself. Without a doubt, the whole five forces are an economic theory and a structure that defines organizations rivalry behavior. According to this model, organization would be likely competing without aggressively with making higher achievement. The histories and cultures of an organization plays a very important role in determining rivalry behavior according to Haberberg and Rieple (2001). This models and ideas which created during 1979 to mid-1980s (Porter, 1998) were based on the idea that rivalry benefit came from the skill to earn back on investment for this industry (Thurlby,1998).
Main features of Porter’s Five Forces Study
The organization in a rivalry market as purposed by Porter include there following:
The rivalry among existing organization
The power used by the customers in the market
The supplier ahead of sellers’ impression
The new trader’s incoming possible treats.
The threat of extra products offered in the market.
A suitable strategy such as those forces above should be applied to an organization in order to lead to a success in any market. For example: Hospitality Industry (Thurlby, 1998).
The force is situated at the central of the graph : Source:(socialcommercetoday,2012)
Force one: The Point of Rivalry
The most observable among the five forces in this industry would be the power of rivalry because it defines the amount of where the price was created by this industry will degenerate direct rivalry.
Force two: The Treat of Entry
Typical industry profitability will be affected by current and potential competitors. Market entry barriers mostly based on new entrants because they are adjusted for the cost of investment, growth beyond zero. In difference, entry barriers happen when it is challenging or not carefully lookout (Porter, 1980b; Sanderson, 1998). Except basic physical are as below examples:
Economies of scale: benefits related with majority acquiring
Cost of entry: technology investment
Distribution channels: Easy entry for rivalry
Value benefits not related to the scope of the organization: connections and capability
Government regulations: Introduction of new laws will decline an organizations position
Diversity: some brand which cannot be copied such as (The Champagne)
Force three: The Threat of Replacements
The risk of this extra product in this industry success depends on the comparative price so as performance of the different products and services to please the same basic need. It also influence by moving cost such as cost reducing but with the same quality that will create a possibility that a customer change to other type of product and service such as below:
Product-to-product replacement (email, fax) is based on the substitution of need
General replacement (Video dealers compete with travel businesses)
Replacement that tells to something that people can do without (cigarettes, alcohol).
Force four: Buyer Power
Two forces that affect the assumption of the value created by an industry is buyer power. There is one of the most significant factors of buyer power are the scope and the attentiveof customers. Other factors are the total to which buyers are educated and attentive among the competitors. According to Kippenberger (1998) it is useful to differentiate possible buyer power from the buyer’s willingness to use that power, willingness that grows usually from the treat of failure related to a product’s use. This force is moderately higher where there a few, large players in the market, as it is the case with retailers a grocery stores
Existing where there is a huge amount of homogeneous, minor suppliers, such as small farming businesses supplying large grocery businesses
Low cost of changing among suppliers, such as from one fleet supplier of trucks to a different.
Force five: Supplier Power
Able to charge customers in different price with different value generated for each of those buyers normally specifies that the market is categorize by high supplier power and at the mean time by low buyer power (Porter, 1998).Buyer power is a reflective image of a supplier power. As a outcome, supplier power mostly aim mainly on the comparative size and focusing of suppliers comparative to industry contributors and second on the point of variation in the responses supplied The bargain power example situation as below:
When a switching prices are high (switching from one Internet source to another)
High influence of brands (Burger King, American Airways, Tesco)
Opportunity of forward combination of suppliers (Brewers buying bars)
On 14 August 1992, Shangri-la Asia Limited was merged. Initially it was listed on the Hong Kong Stock Exchange and then followed by the Singapore Exchange (Singapore exchange LTD, 2010). Many investment holding involve by thiscompany. This holding is in charge of supplementary company and also operating hotels, running hotel management and other facilities. Most of the group subsidiaries are also registered proprietors of various trademark and service symbols for example: Shangri-La, Traders, Rasa, Summer palace and Shang Palace as well (Singapore exchange ltd, 2010). This product expansion strategy is one of the important cause that Shangri-La can proceed to the leading result in this industry. Robert Kuok the founder still holding his wish to see the number of Shangri-La hotel properties reach one hundred (Cohen, 2004)
(Sources from: Business balls, 2009)
The Threats of Bargaining Power of Suppliers – Low
An important factor can affect the industry attractiveness which is supplier. Mostly company will buy input with low price and change them to outputs and sell at high price (Marcus, 2011). They not consider about the profit but the quality with its supply chain partner (Shangri-La Ltd, 2010). They are so strict in selecting supplier, as one of the biggest hotel chain of course the position is higher than supplier so the bargain power of supplier is lower
The Threats of New Entrants – Medium
Singapore is one of the famous destinations in the world and causing their hospitality industry open to many types of competition from new entrants. In 2010, Marina Bay Sands moved into market to take some market shares. This new entrants continuously involve on rivalry without hesitation, however this new entrant must have strong capital and competitive advantage to compete otherwise its difficult to ahead Shangri-La, moreover the treat of new entrants to Shangri-La is medium.
The Threats of Existing Rivals – High
In Asia, there are around 30 luxury hotel such as Mandarin Oriental, Hilton, Raffles Hotel Singapore and so on (AsiaHotels, 2010). This will cause Shangri-La to face more rivalry, in this case treat of existing rival for Shangri-La is consider high.
The Threats of Substitutes – High
Substitutions are another strength which can affect the industry attraction (Marcus, 2011). If pricing of Shangri-La is much more higher than others, there are possibilities that guest will choose others for example some budget hotel in Singapore which is much more cheaper with a normal service it has the possibility to lost some regular customers. Furthermore, there are other luxury hotel with cheaper price as well that’s why threat of substitutes for Shangri-La is high.
The Threats of Bargaining Power of Customers – High
Bargain power of customer is high to Shangri-La because customers will consider the cost, performance, services and all factors to make up their mind and choose which hotel to stay with as there are more luxury hotels around. To know the needs of customers, Shangri-La can use website to listen and survey customers concern and ideas (Marketing, 2010), Shangri-La should apply Michael Porter’s Five Forces Theory in their company to keep their competitive advantage in hospitality industry.
To create a surface for plan design, the SWOT analysis is used for driving management of company to make a candid list of internal strengths and weaknesses as well as a gathering of external opportunities and threats (Lasher, 2005). SWOT is a shortening that stands for strengths, weaknesses, opportunities and threats (Gunelius, 2008).
Strength of a company is having something that other company doesn’t have (Lasher, 2005). For example Singapore International Airlines is to provide the best service among all the other airlines company which maybe other cannot do it and the main assets for Shangri-La are trying to provide updated and luxury service offered by Shangri-La (Garg, 2010), the better Shangri-La can provide the higher level of satisfaction customer may get. Shangri-La hotel has a strong capital and has already built a good reputation around Asian can provide best quality service that can help in earning good image and customer loyalty.
Weakness is something that a corporation lack of or something that the company is not going well as it’s rivalry (Lasher, 2005). For an example, even though Singapore International Airline provide the best and high level of service but the air ticket of Singapore International Airline is also much more higher than other airlines. Whereas for Shangri-La the weaknesses are this hotel only has high reputation in Asia country but for other customers like from European countries or American countries it is a different condition, because they maybe might not know this brand Shangri-La as the Asia people. In this case, the Shangri-La may also lose this European and American market share as others non-Asia countries. Shangri-La just targeting for high income customers, so the price is slightly higher than others, so the younger customer might not have the chance and also the medium and low customers are ignored
Every company has a change to improve their strategic position by taking a specific, out of the unusual move (Lasher, 2005). For example, product expansion can be an opportunities for a company, try to figure out a new and creative promotional plan in order to attract more people to but the product or use the product, running business into a whole new market can be also an good openings to a company. With the recapture of worldwide economy, the tourism industry is warming sustainably, the prospect of hospitality industry is very bright, Shangri-La can catch this gigantic opportunity to gain more profit. For example: Shangri-La can accept the Market development and product development to help it to grow and Shangri-La can improve its brand image and become the renowned hotel brand.
Threats are commonly changes in the exterior environment that have the potential to seriously interrupt the firm’s well-being (Lasher, 2005). For example, the credit risk is the principal threat to the Over-The-Counter (OTC) financial market, the threat of the stock market is high level of unpredictability. The incredible threats of Shangri-La are: Shangri-La facing the tough rivalry in the industry as stated before. Find the way to sustain its competitive advantage is the most substantial and major task for Shangri-La, otherwise, there are adequately lot of hotels for customer to choose with.
The Boston Consulting Group Matrix (BCG matrix) is a portfolio planning model created by Bruce Henderson of the Boston Consulting Group in the early 1970’s. It separated company’s business elements into four groups based on mixtures of market growth and market share relative to the largest competitors (BCG matrix, 2010).
(Source from: vector study, 2010)
As the diagram shows, the four categories are: Question Marks, Stars, CashCows, and Dogs. Dogs have the low market share and also growth rate. Whereas, QuestionMark takes the lowest market share but growing up very rapidly, in this deliberation of Question Mark growth very rapidly, even though it takes the lowest market share but there is huge opportunity for it to gain the huge market share in the future. The third category is the Star which can produce the huge sum of cash due to it takes the huge quantity of market share and because it growing so firm, it can be a Cash Cows after its market share drop down and uphold its market share. The last category of BCG is CashCows which is the leader of the industry, as the leader in the established market, it also can produce comparative stable cash flow than others (BCG matrix, 2010).
Company should always study the environment for the reason of supporting the rivalry benefits in the industry, the environment examining can offer a company an arranged overview of the external fact important to the organization and leads whether the organization influence them or not (MDF, 2005). Management choices can be disturb by many factors such as the micro-environment, which are Political, Economical, Social, Technological, Environmental, Legal (Oxford University Press, 2007), A pest analysis is used to analyze the structure and effect of company. The author chooses to analyze the external atmosphere of Shangri-La by using PEST Analysis.
459,729 million dollars was invested from foreign investor in Singapore in 2008 according to the statistic from Singapore Department of Statistics (Singapore Department of statistic, 2010). Shangri-La run its business with no worries and makes investment process in Singapore easier. The three main hotel which own by Shangri-La is Traders, Shangri-La Singapore and Rasa Sentosa Resort. Political environment development are naturally affected by marketing choice (Wilson, R. M. S, 2007). Singapore is a multi-cultural country that government give equal treatment to all the races in different aspects such as housing, education and health care. This create a harmony, fair and power in the level of political stability.
Casino license are included which is Marina Bay Sand Resorts World by Singapore Government to boost the loss of economy in Singapore. These two combined resort quicker the recovery of economy in Singapore with tense over more than $ 5 billion investment and create 35,000 jobs for both citizen and foreign workers (Economy Watch,2010). With the fast recover of economy, Shangri-La still rose its net profit by 54% in 2009, however its core hotel business ached from a sharp decline in demand due to global financial crisis (Hospitality NET, 2009)Despite the geographic size of Singapore is quite small, the economy of Singapore is one of most wealthy in the world. During the recession in 2008 to 2009, Shangri-La implement various ways to maintain its revenue, such like, providing the free Internet services for all of its customer around the world (China Tech News, 2009). As the global economic crisis in 2008 brought serious negative impact to almost every different industry, the tourism in Singapore was not escape from it. According to the report of Singapore Tourism Board (STB), compare to the same period in 2007, the visitors to Singapore for travelling or business dropped 4.1 percent to 739,000 in September, 2008 due to the global economic crises and the downturn (People’s Daily Online, 2008).
The stability of society make the Singapore can attract more foreign traveler visit to Singapore, thereby make the occupancy rate move up steady. The growth rates of population are relatively stable. The number of redundancy in services industry is decrease from 2,850 of second quarter in2009 to 800 in the same quarter of 2010. The statistic data from latest census indicate that the total population of Singapore has reached to 5,076,000, compare to the 2009, there is an approximately increment of 100,000(Singapore Department of Statistics,2010). This data points out that the services and hospitality industry is warming sustainably. Recovery of hospitality industry make the Shangri-La have bright prospect. Reversely, the employment in services industry is increase dramatically from 3.8 thousands in second quarter of 2009 to 27.4 thousands in the same period of 2010 (Ministry of Manpower, 2010).
Jakarta is one of the region provide a free wifi internet access in all public area to let guest feel the up to date technology and privileges, one of the facilities also installed is Close Circuit Televisions (CCTVs) in order to let the guest feel secure , protected and safety. This is one of the back up secuirity system to show that their updated technolofy (Street directory, 2010). If a new product can be accepted by a customer means that the product is successful and can influence market performance (Ali, 2000). Technology is needed in Shangri-La to show the creativity and innovation of the hotel, economic growing sustainably needs technological innovation (Marcus, 2011). Recently, Technology and science is widely practical in each industry to maintain their rivalry advantage that’s why Shangri-La will update their technology often in order to provide best quality and luxurious service and care to their guest. Shangri-La, Jakarta for example, updated security system technology which called Under Vehicle Scanning System was installed on both gates of the car park.
As a fastest growing luxury hotel group in Asian region. Recently, it also had to move on to the worldwide region. Shangri-La will increase their image worldwide and be the world famous luxury hotel to achieve their target as in their vision and mission, high quality service. Shangri-La group must try to do more on expansion or creative marketing strategy like Marriott targeting LBGT community, Shangri-La should do something fresh and creative such as Porter’s Five Forces Strategy so that they can compete with others in a harmony way.
There are some recommendation can be made such as some key stakeholder strategy factors, which are associate to the benefit of key stakeholder of the hotel. Store presentation, Price, Customer service, hours of operation and range of good sold (Kenny, 2005). Once analysis about Shangri-La, the strategy of Store presentation, Price, Customer service, hours of operation and range of good sold need to be adjusted. The price may be the most main factor which can affect their consumer behavior to some ranges of people. Launch some specifically promotion occasionally is the way to solve this problem, for example, cooperate with some airlines, then by staying in the Shangri-La can get extra discount of their air tickets, this specially marketing promotion can reduce the whole cost of the travel, thereby let the customer feel the price for their accommodation is not high. Another way is to provide the service of increasing the number of bed in a room for free, that can attract more customer who want have the limit travel budget. Customer always want to have plenty of choice from wide range of goods, however, Shangri-La is known as the luxury hotel, that means if choose the Shangri-La, you choose the high price for your accommodation, what about the rest of the customers? Can Shangri-Laprovide some hotel with relative lower class? By doing this, for the high reputation and quality services, the lower class hotel from Shangri-La may also attract lots of customer to visits. However, by doing this, Shangri-La must note that too many price promotions can damage brand and detract from the bottom line (Centaur Communications Ltd, 2009). Besides these, Shangri-La can expand their business into other industries, by doing this they can diversify their investment risk, even though suffering the worst scenarios like the 1987 stock market crash and 2008 global financial crisis.
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