International Hospitality Analysis: The United Kingdom - Term Paper Example

The hospitality sector in Britain is a large and diverse sector employing a workforce of over 9m across the UK. There are more than 180,000 establishments generating an estimated total turnover of £135 billion per year. This sector is closely tied to the strength of the economy. The hospitality sector comprises of hotels, providers of holiday accommodation, pubs and bars, restaurants and take-away food outlets (Lowpay 2005). The hospitality sector is very sensitive and any small changes in the economic and business environment can have an impact on it. The sector has been through several upheavals. When the economic performs well the consumer confidence is high and people are keen to spend their disposable incomes on holidays and easting out. As the same time, the sector is also sensitive to unforeseen events beyond its control – like threats of terrorist attacks, foot or mouth crisis and the bird-flu outbreak (LSC 2006). In addition, there are other drivers of change which include minimum wage and holiday entitlement, health and safety, no-smoking legislation. The economy becomes affected due to changes in legislation, changing market forces, and periods of recession and inflation (Wilson et al. 1997). In fact everything from the impact of globalization to consumer savings can impact this sector. Hospitality is the fastest growing industry and exhibits tremendous diversity both with respect to the types of job available and the workers. As far as the human resource is concerned, there is a huge demand in the sector but the availability of staff is difficult. This sector is characterized by low rates of pay, high staff turnover, low levels of training, low skills levels, unsocial hours, seasonal nature of work, predominance of casual staff, and the non-professional image of the industry (LSC 2006). This sector traditionally recruits a young workforce yet the biggest challenge that this sector faces is that of skills shortages. The local people are reluctant to enter this sector because of low wages and job uncertainties. The hospitality sector in the developed countries is facing labor shortages and can expect to face even greater shortages in the future (Choi et al. 2000). As per the economic law of supply and demand, this means that the sector needs to offer higher wages to attract skilled staff as there is short supply of staff. If the sector offers higher wages, the profitability is affected specially during economic downturn. As such the hospitality managers need to prepare themselves for the future. In any case the unemployment rate in the UK is low and even though the local people resent it, according to Kaylan of Novotel London Hotels, agrees the sector must look outside the UK to guarantee a full workforce (Redford 2005). They need to look beyond the country as recruiting globally has become easy due to advanced communications and information technology. This implies that the sector should employ more of migrants. Migration of labor worldwide in the hospitality industry is very common. Legal Migrants are good for the economy (Blunkett 2003). They contribute 2.5bn pounds in taxes but consume much less in public services such as housing. They also contribute to the economy by way of insurance payments. Additionally, immigrants have better “work ethic” and “attitude” than British workers. They seem to have more to offer than the British workforce, according to the British Hospitality Association (House of Lords 2008). Hence the hospitality managers can look for migrant workers. A 10% wage increase may attract the domestic workforce but since the employers in the sector have easy access to cheap labor they are not keen to assess the alternatives. The decision to respond to labor shortage would depend on the relative costs. They would naturally not be keen to invest in training and skill development of the domestic workforce but this in the long run affects professionalism and service standards. This conforms to the law of supply which states that the price is directly related to the supply (Nationmaster 2003). Since the supply of immigrant labor is in abundance, the wages that the sector offers can be kept low to remain competitive in the market. Hence the sector is not keen to invest in training and development of the domestic workforce that demands higher wages. Smoking is as much a part of the pub culture as drinking but the smoking ban in Europe has been imposed on virtually every covered space. Smoking had been associated with glamour and sophistication until recently and it is expected that the ban effective 1st July 2007 would impact the hospitality industry. However, contrary to the claims made by the hospitality industry, people would continue to dine in establishments once they are smoke-free and many would even frequent more often when restrictions on smoking are imposed (Bartosch and Pope 2002). In fact the hospitality managers are advised to use the smoking ban as an opportunity because many would be encouraged to dine out more frequently who would otherwise refrain to avoid passive smoking. Consumers have been keen on smoking ban and this gives the individual businesses in the hospitality sector, competitive advantage. Besides, due to the smoking ban the designs of the layout at hotels and pubs can be changed. The hospitality managers should take note that visual cues like the ash-trays turn the non-smokers away (Cheevers 2000). With the new layout these can be avoided which may increase footfall. Consumer spending is directly affected by inflation and the global economy. When the global economy is weak there is excess capacity in the global markets. The global pricing pressures exert downward influence on UK inflation (Sentance 2007). Strong global growth denotes high consumer spending because this means increased flow of business visitors and also holiday makers. Exchange rate movements also become a source of concern to some businesses. The country’s growth becomes dependent on the world economy and investment when the consumer spending is reduced. All these factors directly impact the hospitality sector. The hospitality sector is not taking the current economic dip lying down. The consumers are feeling the impact of the credit crunch and the sector is passing on overheads like rising fuel costs to the consumers (Eatout 2008). The sector is also likely to pass on the taxes to the customers rather than absorb them. Under such circumstances, the hospitality sector should set the priorities should where the primary business objectives should be to reduce the costs of goods and services (Eatout 2008). They should also focus on growing the customer base and look for alternative ways of attracting guests. As pert the law of demand, demand is inversely proportional to the quantity demanded and price (Nationmaster 2003). Since the demand is low, the price should be reduced to attract the customers. They can even opt for differential pricing – price can be set differently for different times. They can announce weekend incentive schemes or as some pubs announce happy hours with attractive prices just before the peak hours. Consumers are still willing to dine out so the sector can still make money by providing quality product and memorable service. Dubai however is not facing this challenge in the current global economic downturn. This is because Dubai is the tourist destination for the wealthy and the luxury hotels do not expect a decrease in tourists. As such they will not need to reduce the price as the demand is high (ITCclassics 2008). This has also been found in the US luxury hotel segment through the market Metrix Hospitality Index. It has been found that guests are less tolerant with rate increases except with the luxury hotels where the guests are willing to accept larger rate hikes than last year (Barsky and Nash 2008). The price strength of the luxury hotels can be maintained as there are not too many hotels in this segment. The demand exceeds supply as there are too many guests that can afford luxury hotel rates while there are not too many hotels in this segment. This positive relationship will continue to grow as long as the number of luxury properties does not exceed the number of guests willing to pay their premium prices. As the demand outstrips supply the room rates will continue to escalate. Another reason why the luxury hotels are not affected is that the customers can afford to pay the prices. They cater to the discerning and wealthy guests for whom price is least important when selecting a hotel. Since the affluent groups are not affected by rising prices, the luxury hotels have the opportunity to increase the prices and pass it on to the customers. Foreign exchange regulations and prices also influence the demand. Since the dollar is weak, international tourists take advantage and can opt for a prime vacation spot. At the same time, the hotels should not take advantage of the lack of price sensitivity of the guests. If the prices are increase beyond proportion, it can tarnish the image of the hotel in the long run and customers are sensitive to such issues. The taxes and the macro-environment can impact the industry as has been seen in the case of Orlando and Las Vegas in the US. They have been feeling the pinch of the downturn as the local economy is dependent on the visitors to these parks. Due to spiraling gas prices, most have changed their holiday plans thereby negatively impacting the sector (ETN 2008). The UK’s hospitality industry, according to the British Hospitality Association, is currently experiencing the greatest period in hotel construction and this has surpassed all records including the boom in the 1960s (Hotelworld 2008). Media coverage of the terrorist incidents can affect the accommodation sector. Tourist numbers and the occupancy level are influenced by continuing political instability and frequent violence (Wilson et al. 1997). The poor economic and social image results in low turnover in the entire sector. Even the possibility of terrorism, no matter how remote, can impact the country’s tourism potential. In such a threatening political climate the small units struggle to survive and charge optimum price for services. If the units charge high prices the customers too expect standards to match the price which often becomes difficult for the sector to meet. The service quality too declines and professionalism is lacking. During such times, the hospitality sector should opt for differential pricing during weekends and low season. They can focus on recruiting and training the employees for enhancing the service delivery. At such times slashing prices can adversely affect the brand image (Barsky and Nash 2008). Hence instead they should go in for differential pricing. The consumers have become conscious of the ecological imbalance that has been taking place due to increased tourist activities. As such, eco-tourism has become popular. Developers are now concerned with developing locations that are protected at the same time accessible to tourists (Propertywire 2008). Such efforts draw the conscious consumers who are socially responsible. The initiatives have been taken to meet the rising demand for eco-friendly projects. To remain competitive is another challenge at the time of recession and down turn. To meet such challenges, some units are demonstrating concern for the environment. They are souring ethically produced goods as a means to enhance their brand image (Eatout 2008). They recognize that increased brand value can be achieved through association with environmental policy. It thus can thus be seen in the hospitality sector that the economic situation, the macro and micro environment all impact the demand. The labor market in the sector is also governed by economic factors as the demand always exceeds the supply of skilled labor. Government regulations like taxes and smoking ban can impact the industry although research suggests that smoking ban has not adversely affected the hospitality sector. The sector has to maintain a customer-centered approach in all their strategies including their procurement and ethical policies. Consumer spending is directly related to the entertainment and hence the budget hotels and entertainment areas are the most likely to be affected. The luxury travel is mostly business travel or by the wealthy and that sector is not affected even when the economy is in recession. Nevertheless, the hospitality sector is highly sensitive and the players have to take into account the forces of demand and supply that govern any industry. References: Barsky, J & Nash, L 2008, Are Luxury Hotels recession proof?, Reviewed online 02nd November 2008, from Bartosch, W J & Pope, J C 2002, Economic effect of restaurant smoking restrictions on restaurant business in Massachusetts, 1992 to 1998, Tob. Control, vol. 11, pp. 38-42 Blunkette, D 2005, Is Immigration good for the country, BBC News, (2003), Reviewed online 01st November 2008, from Cheevers, B 2000, No smoke without fire: if new proposals on passive smoking at work by the Health& Safety Executive are implemented, it could signal a big shake-up in the pubs and restaurants sector. (News Analysis)." Design Choi J-G, Woods R H 2000, Murrmann S KInternational, Journal of Contemporary Hospitality Management, vol. 12, no.1, Research paper Eatout, 2008, UK hospitality industry confidence is falling, Reviewed online 01st November 2008, from ETN, 2008, Economic downturn forces consumers to look for ways to save on travel, Reviewed online 02nd November 2008, from Hotelworld, 2008, BHA confirms growth in hospitality industry, Reviewed online 02nd November 2008, from Read More