Macro Analysis & Porter Five Forces - Casino Industry - Coursework Example

UNIVERSITY OF SOUTH AUSTRALIA Assignment Cover Sheet – Internal An Assignment cover sheet needs to be included with each assignment. Please complete all details clearly. If you are submitting the assignment on paper, please staple this sheet to the front of each assignment. If you are submitting the assignment online, please ensure this cover sheet is included at the start of your document. (This is preferable to a separate attachment.) Please check your Course Information Booklet or contact your School Office for assignment submission locations. Name: Saw Yeong Shiun Student ID  1 1 0 0 1 0 7 2 3 Email:Y_shiun@hotmail.com Course code and title: BUSS 3023 -  Strategic Management   School: Marketing Program Code: DBMK Course Coordinator: AsPr. Stephen Boyle Tutor: Mr. Anthony Bishop Day, Time, Location of Tutorial/Practical: Wednesday 03:10 PM 05:00 PM CWE/BH4-33 Assignment number: 1 Due date: 24ed August 2009 Assignment topic as stated in Course Information Booklet: Global forces and the European brewing industry Further Information: (e.g. state if extension was granted and attach evidence of approval, Revised Submission Date)   I declare that the work contained in this assignment is my own, except where acknowledgement of sources is made. I authorise the University to test any work submitted by me, using text comparison software, for instances of plagiarism. I understand this will involve the University or its contractor copying my work and storing it on a database to be used in future to test work submitted by others. I understand that I can obtain further information on this matter at http://www.unisa.edu.au/ltu/students/study/integrity.asp Note: The attachment of this statement on any electronically submitted assignments will be deemed to have the same authority as a signed statement. Signed: Saw yeong shiun Date: 24ed August 2009 Date received from student Assessment/grade Assessed by: Recorded: Dispatched (if applicable): 1. Introduction The legalization of gaming in Nevada in 1931 led to the start of the Casino industry. This has been followed with the proliferation of casinos in other States. For instance gaming was legalised in New Jersey in 1976 and has led to Atlantic City being a casino hub. After this casinos have been built in many areas for instance Mississippi and Illinois in which riverboat casinos have seen growth. The casino industry in has also grown outside the United States; Macau. It is therefore important that the casino industry in the United States should have internal and external factors in perspective. This is because the aforementioned factors will help the casino industry players to be better placed in making profit and being the leading casino industry. 2. Summary of macro environment (PESTEL) From the PESTEL analysis of the casino industry case study, it is clear that the government and the economic environment are the main influence of the industry. The government plays a major role as it is the body that determines the legislation and regulation of industries and thus forms the main restriction in the running of the casino industry. Government legislations have seen the casino industry being concentrated in only specific States and areas. From the study it has been seen that casinos are mostly found in Nevada State; Las Vegas city and New Jersey State; Atlantic city. This is due to the legislation of gaming in 1931 and 1976 respectively. It has been noted that Nevada was for a long time the only state that allowed for casinos and as such garnered high revenues and status for it. Its gambling revenues as at 2008 have been recorded to be $ 12 billion. Numerous legislations have been amended to allow for gaming. This has had an impact on competition. The amendment of laws has led to the legislation of gaming in over 20 States thus the emergence of riverboat casinos and Native American Casinos. The move has been advocated for so as to increase the States’ commercial activities and create more job opportunities. There has also been the passing of laws in Mississippi to allow for the construction of casinos as far as 800 feet from the shore. This law was to support the reopening of casinos damaged by hurricane Katrina. Legislations to ban internet gambling have served to stop local casinos in initiating gambling. However, offshore companies have capitalised on this niche and make around $15 in revenues. Lastly, legislations have been passed to allow for gambling in racetracks. The economic environment is also a major factor in that it is the major determinant of the number of available casinos. For instance the global economic crunch led to the abandoning of the building of casinos in Las Vegas. For example the construction of Echelon Place was stopped due to dwindling funds. It was expected to be more expensive than its predecessor; Steve Wynn’s resort. The stop of construction of St. Regis has also been seen in the wake of the global economic crunch. The economic climate affects the number of customers in casinos. The global economic crisis has seen an unprecedented drop in the number of conventions held in Las Vegas. This has led to a large number of organisations changing their venues as a result of financial restrain. The casino industry is a booming business which has helped in growing the economy. In 2008 $ 12 billion revenue was generated by the existing waterborne casinos. 3. Summary of industry environment (Porter's 5 forces) According to Porter (2008, pp. 78-93) the threats of substitutes are the presence of close substitute products. This increases the tendency of customers to switch to alternatives in response to exclusivity and a variety of entertainment options. There has been the development of casinos outside the United States. This has seen big casino owners venturing into the building of new resorts offshore. For example the construction of the following resorts in Macau: MGM Grand Macau and Wynn Macau. There was different need and different price of the consumer willing to pay for this substitute casino. However, the biggest threats have been that of Internet gambling, racetracks gambling and Native American casinos. The threats of the entry of new competitors are low since legislations have been passed to protect the casino industry. There has been a ban on internet gambling. It would have posed a very big threat to casinos which are already located in very expensive buildings. The legislation has therefore protected the industry from the internet. The intensity of competitive rivalry is high in the casino industry. There are instances in which rivals compete aggressively and sometimes in non-price dimensions such as by having innovative buildings, services, mergers to take over the other company and acquisitions. For instance, Harrah bought casino Caesar in 2004 which resulted in it taking the front row in operations. The bargaining power of customers is low which is also described as the market of outputs. The ability of customers to put the casinos under pressure is low but the casinos still meet the customers’ wants and needs. The bargaining power of suppliers is high also described as major influence market of inputs. This is due to the notion that gambling mostly takes place in Vegas. This led to the famous phrase by Caprelli “What happens in Vegas stays in Vegas.” 4. Interconnections between 2 analyses identified. With the 2 analyses we identified the interconnection the power of supplier are connected with legislation since the casino hubs are known to be in Vegas and Atlantic cities. Legislation plays an important role in that it protects the casino industry players through the internet gambling legislation ban and it allows for gambling in racetracks. Socio and culture have interconnection with power of buyers where the customers have a need for high class entertainment, exclusivity and shopping services. According to Porter (2008, pp 78-92) both models never having the center of attention on alliance point, company and company also have alliance where we can see mergers, acquisitions and joint ventures between casinos in order to lead the industry. 5. Recommendations - what will it take to be an industry leader in 2015 and who may that be? The casinos which want to lead the industry in 2015 are those with the vision of what the future service preference of the customer will be and the quality of the services. While the need to ensure that gambling takes place smoothly, casino owners should also be able to provide top notch entertainment accompanied with complimentary gifts and packages. The players believe that as the aging boomers retire the new young players will take over the running of Las Vegas and Atlantic cities. It is thought players who rule the market are those based in the aforementioned cities. It is therefore advisable to build more casinos in Nevada and New Jersey. This will be a prudent move after the global economic crisis. The looking towards the legalization will also be a prudent to encourage more players in the market and thus help in revenue generation. It has been noted that around $15 billion is lost in offshore markets which should be ideally tapped in the United States. Appendix 1 Macro analysis According to Scholes and Whittington (2009) political is where government influences the economy. In the casino industry political force have power over the types of legislation passed on modes of operation, area of operation, trade restrictions and political constancy. The following were the moves taken by the government; legislation of racetrack gambling, outlawing of internet gambling, legislation of Native American casinos and the facilitation of casino mergers and acquisition. Racetrack gambling is a situation where people are allowed to gamble during horse racing by the use of slot machines. The government has endorsed this activity by passing laws that allow it. Internet gambling is a process in which people gamble by the use of the internet. It is usually very easy and convenient as an individual can do it in the comfort of his/her home. It allows for casino owners who do not have buildings to run their business. It is not allowed in the United States at the moment but analysts project its use in the near future. Native American Casinos are local casinos available in people’s hometowns. They have increased in number since the government passed laws allowing their existence. According to reports they have been able to generate a lot of revenue in the form of tax for the government. A casino merger is a process in which casinos come together and join their assets and manpower. Mergers serve to put casinos in a better place to serve their clientele and also have an edge over the existing casinos. According to Scholes and Whittington (2009) economic factors are inflation rates and economic growth. These factors have major impact on how businesses function and the decisions they make. The factors include: economic slow down during the global economic crisis; drop in the number of constructions taking place and offshore service provision. An economic slow down is a situation where the economy does not operate normally either due to inflation or deflation. A slow down means people’s spending will be reduced due to financial restrains as they are not confident with the economic situation. This also means that there will be fewer service providers in the market due to crippling costs of running their business. There will since be a drop in the number of buildings coming up due to the lack of funds to complete them. This has been seen in buildings such as Regis in Las Vegas. Offshore service provision is when a casino looks to provide its services in international grounds; for instance Macau is a major spot chosen by American Casinos. In the event of an unconducive economic environment offshore service provision will be reduced since prospective clients will be skeptical with trading with foreigners for the fear of taking up their problems. According to Scholes and Whittington (2009) socio-cultural factors are age distribution, health consciousness, population growth rate, career attitudes, emphasis on safety and cultural aspects. The trends in social factors affect the demand for a company's products and the mode of company operations. The factors include; age of the population, activities provided for by casinos, shopping facilities, provision of entertainment and construction of buildings. The median age population of casinos in the States is 47. The casinos are also not able to provide for family activities since they are not popular with their clientele hence the provision of ‘adult’ entertainment. Casinos provide for extensive shopping facilities which provide their clients with a good method of passing time. Casino buildings are constructed with themes for instance theatres and ships. According to Scholes and Whittington (2009) technological factors are those which alter thought invention where it will lead to a reduction in cost, decreased human labor force and an increase in decreasing in production quantity, quality and speed. Technological factors upgrade and increase as time goes by. Other factors include; alternative service provision systems such as the use of automated systems, alternative building outlook such as the construction of buildings to look like ships, pirates, theatres and other assorted themes. Exclusivity is also seen as a big technological factor since most patrons yearn for it. Another factor is computerised forms of entertainment. According to Scholes and Whittington (2009) environmental factors include weather, climate, and climate change, which may especially affect industries such as tourism, farming, and insurance. In-addition to the growing awareness of climatic change the functioning and operations of companies have changed in the creation of new and the destruction of the existing ones. The factors include a rise in the number of natural disasters affecting areas such as hurricanes, weather conditions will determine the forms of entertainment provided by casinos for instance wet weather conditions implies a limited number of outdoor activities. Appendix 2 Porter 2008, ‘The five competitive forces that shape strategy’ Porter Five Forces The threat of substitute products The threat of substitute products include; buyer tendency to substitute the casinos they frequent with others, relative service performance in different casinos, buyer switching costs, perceived level of serviced differentiation and different variety of need or class in casino frequenters. The threat of the entry of new competitors The threat of the entry of new competitors include; restrictive legislation when it comes to internet gambling which keeps off certain market players. Another factor is the looming credit crunch which leads to financial restrains on expenditure and thus a limited number of players in the market due to limited market for their services. The intensity of competitive rivalry The intensity of competitive rivalry depends on; the number of competitors in the casino industry which is directly proportional in that a big number of service providers means a greater intensity of competition and vice versa, the rate of industry growth is high and predicted to be higher thus a high intensity of competition, increased number of mergers and acquisitions also implies a greater level of rivalry since the market players strive to develop an edge in their service provision, the expansion of existing players to offshore markets also implies a high competition intensity and lastly the competitive advantage through improvisation and innovation in companies also increases the intensity of competitive rivalry. The bargaining power of customers The bargaining power of customers depends on the customer need and wants which will ultimately determine the kind of services offered. The type of clientele determines the services offered in that different clientele need different services and exclusivity, accessibility of casinos determines the type of customers which access it hence the bargaining power of customers and the identification to a casino with clients also determines their bargaining power. The bargaining power of suppliers The bargaining power of suppliers determines the specific areas believed to offer better casino services for instance Las Vegas is thought to be the hub of gambling. The accessibility of casinos lays on suppliers hence their bargaining power. Lastly the proliferation of ‘racinos’ racetrack casino shows the bargaining power of suppliers as they offer their clientele a special kind of service. References Johnson G, Scholes K and Whittington R (2009) Fundamentals of Strategy, Prentice Hill FT, Pearson Education, Harlow, England Porter M E 2008, ‘The five competitive forces that shape strategy’, Harvard Business Review, January 2008, pp.78-93. Read More