External Environment of Hospitality Industry - Essay Example

External Environment of Hospitality Industry Social Factors   Demographic, social and cultural changes provide several threats and opportunities for the players in the hospitality industry. The developed nations of America and Europe have an ageing population, which becomes the dominant majority in the coming years. These people will have more time, opportunities and willingness to travel; however, it is highly likely that they would be looking for the cheapest deals considering the limited pension funds and savings with no regular source of income (Moutinho, pp. 52-53, 2011; Rutherford & O'Fallon, pp. 33-34, 2006). Considering the ever-changing environment for the coming generation, it is highly likely that these people may not provide that much business to the hospitality and tourism industry as compared to their parents. This is true because of increasing pressures on the next generation for hard work, presence of more options to do at home with all the gadgets and challenging work life to maintain an acceptable level of lifestyle in the coming years. Therefore, the hospitality industry will have to cater to these customers by providing them with the most value in limited time considering their busy lives (Tesone, pp. 115, 2009). Another possible socio-cultural factor would be the rise of ethical consumerism in the developed countries where consumers are looking for products and services whose practices are of fair-trade, green, ethical, sustainable and responsible. These consumers are often ready to pay premiums for the products and services of such companies and the same is true for the hospitality industry as well. This niche market has immense potential since it has grown from 13.9 billion pounds in the year 1998 to 40.2 billion pounds in the 2010 in UK alone (Shim, pp. 41-42, 2011).  Economic Factors                 Without any doubts, the economic factors are the most defining and crucial external forces affecting the hospitality industry. Even as of today, the global economic system has not recovered from the recession that hit in the year 2007. In United Kingdom, experts are hinting a fear of double dip recession. The current economic outlook of United States is not healthy considering the fact that for the past couple of years, 2009 and 2010, the real GDP growth rate has been -2.7 and 2.9 respectively and unemployment rate is at alarming high level of 9.1 percent. On top of these, the frustration and aggravation of the people of US is evident from the movements such as Occupy Wall Street and 99 percent (Moutinho, pp. 52-53, 2011). The entire Europe is suffering from the debt crisis, effects of which are evident not only on the Euro but on economies of all Eurozone countries. Portugal, Iceland, Italy, Greece and Spain are facing immense problems in terms of their huge debt to GDP ratios with Greece almost reaching at the brink of collapse and bankruptcy. Therefore, the overall economic outlook of the world is challenging to the hospitality industry (Shim, pp. 41-42, 2011). In such an uncertain economic climate, either majority of the people have cancelled or cut back on their trips, are avoiding the premium options and pushing more, and more for economic deals. The bargaining power of customers has greatly increased as they find themselves strapped for cash and looking for the highest value for their money. Staggering unemployment, high inflation and decreasing investor confidence have also put a lid on the growth of the business of many hotel chains (Conrady & Buck, pp. 88-89, 2011). Furthermore, with fluctuating exchange rates, hotel chains spread in many countries face great deal of ambiguity and uncertainty about the value that the monetary value of the cash that they will receive when exchanged for the local currency (Barrows & Powers, pp. 340-341, 2008).   However, one area where the hospitality industry has benefited and will continue to benefit in the near future lies in the fact that European Central Bank, Bank of England and Federal Reserve of United States has kept their interest rates at record low levels of 0.5, 1.25 and 0.25 percent in order to induce investment and spending in the economy. During economic booms, the cost of capital usually increases which means that this recession offers an opportunity for the big players in the hospitality industry to make capital investments at a much lower cost for the purposes of expansion, productivity gains and others, benefits of which would be reaped during the latter periods (Shim, pp. 41-42, 2011). Technological factors   There is no aspect of human life that has remained isolated from the impact of technology. The same is true for the business world and for the hospitality industry as well. Over the years, information technology has taken an all-important position in the hospitality business. Companies now rely on technology for most of their important tasks. The pace at which innovation is taking place in the industry represents both opportunity and threat for the players in the industry (Tesone, pp. 115, 2009). Firms that can capitalize on these technological innovations, willing to spend a significant amount of their cash on R&D, willing to train their employees and accept these changes as crucial to the survival. However, firms that are not able to capitalize on these opportunities and changes, then these opportunities will become a threat to their survival. Firms that are not willing to accept the changes in the marketplace, invest in R&D or train their employees regarding the use of technology will definitely have to accept an inferior position in the industry comparative to the firms that are spending great deal on their technology (Conrady & Buck, pp. 88-89, 2011). Political-Legal factors In the recent past, political outlook of various countries has appeared relatively unstable. Egypt, Libya, Tunisia have recently witnessed political revolutions and their dictators were overthrown due to mass movements and protests in these countries. Furthermore, protests, rallies and movements have also rocked other Middle Eastern countries such as Syria, Yemen, Algeria, Bahrain, Jordan, Oman and others where experts are expecting political changes in the near future. Economic instability is leading to political changes in many other European countries as well. Recently, Greece and Italy witnessed changes in their government. Important here is the fact that these changes are more likely to be bring about many policy changes by the new leaders as well according to their mandate which means more uncertainty in terms of tax laws, government intervention, tariffs and others (Moutinho, pp. 52-53, 2011). Despite this uncertainty, these changes are most likely to be supportive of the hospitality industry because in many of the developed nations, the hospitality and tourism industry employs considerable number of people and contributes greatly to the overall GDP of the country. However, in order to solve the problem of rising debts, some policymakers may end up increasing taxes on business in an attempt to close the gap in balance of payments (Barrows & Powers, pp. 340-341, 2008). References Barrows, Clayton W., & Powers, Tom. 2008. Introduction to the Hospitality Industry. John Wiley and Sons. Conrady, Roland, & Buck, Martin. 2011. Trends and Issues in Global Tourism 2011. Springer. Moutinho, Luiz. 2011. Strategic Management in Tourism. CABI. Rutherford, Denney G., & O'Fallon, Michael J. 2006. Hotel management and operations. John Wiley and Sons. Shim, Jae K. 2011. Strategic Management: Concepts and Tools. Global Professional Publishing. Tesone, Dana. 2009. Principles of Management for the Hospitality Industry. Elsevier/Butterworth-Heinemann. Read More