The Strategic Direction of Any Company: the Attributes of the Industry and Its Internal Strengths - Research Paper Example

Overview Goldtrail Holidays was a UK based company which was established in 1996. The company served the customers within national boundaries and also internationally with specialised tour packages to Greece and Turkey. The company provided complete tour packages including the airline services, fooding and lodging facilities in its well furnished resorts. Some extra services provided by the tour operator were a 24 hour service for the customers in overseas to Turkey and Greece. Despite being one of the most renowned companies related to the tourism sector the company was recorded to reach its insolvency point by 2010 (Sawer, 2010). Analysis of Company Business Environment The company’s business environment dealt with the UK economy. PESTLE Political Right after the end of the economic downturn, the UK economy is on a mode of recovery till date. There is a certain level of instability arising in the political affairs of the economy which is the result of reformation of several policies and other regulatory codes. For instance, the circulation of more power to the backbench members, power to the democrats to enjoy the facility of by-election, and several other changes did occur in the current fiscal (Roger Darlington, 2010). Economical Similar to the political affairs, the economical factors are also in the recovery mode. The GDP is rising at a slow pace of 0.8% in the third quarter of 2010. Other influencing factors, such as inflationary rates and unemployment rates are rising slowly. However, to determine the fact about the current status, the economic facts also show that UK market is having a slow growth and is not yet stable (Statistics, 2010). Social According to the statistical data, the country in the last fiscal year, i.e. 2009-2010 had a population of around 61,792,000. While the migration chart depicts that the socio-economy of the country contained larger proportion of migrants than compared to emigrants. The total population of the economy is however estimated to grow in the future which shall create a problem with such low GDP rate (Statistics, 2010). Technological The economy realising the fact that technology can prove to be quite beneficial for the growth, have projected many technological reforms and therefore has committed to provide budgetary support to the industry. However a few of its actions, such as the decreased investment rate for low-carbon technology in order to control the climatic conditions are recommended to be harmful for the future economic sustainability (Jha, 2010). Legal The present legal environment of the economy has many regulatory bodies to control the travel and tourism sector activities. A few of them are, the ABTA, BTA, CAA, FTO and others. These bodies indeed have a great impact on the tourism sector with different kind of laws for the participant organisations and the customers. For instance, the law procedure amended by the ABTA states that assurance on the services provided by the host company are applied only to the customers of some package holiday operators (ABTA, n.d.). Environmental Relating the environmental factor to the tourism sector, the domestic material consumption of the economy was recorded to fall by 6.6% from the last fiscal. On the contrary, the continuous hikes in the prices of oil and gas reserves are also affecting the transport sector at a high ratio (Statistics, 2010). Porter’s Five Forces Model Figure 1: Porter’s Five Forces Model Source: (Investopedia, n.d.). According to the above represented diagram, the five competitive factors are described below. Threat of New entrants In the sector of tourism, the threats of new entrants are a major problem. Due to the fact that travel and tourism industry is presently accounted as one of the most promising and sustainable growing sector, there are many small and large players who participate in the industry per annum. Even in the UK economy, there are huge numbers of tour operators and this number is expected to increase accordingly with the increase in number of overseas visitors (Statistics, 2010). Figure 2: Inbound and Outbound Visitors of the Economy Source: (Statistics, 2010) The remark is further proved by the diagram above that the proportions of inbound visitors are increasing, while the numbers of outbound tourists are decreasing. Bargaining Power of Suppliers With a huge number of package holiday suppliers and various substitute choices in the UK market any kind of package tour operators, like the Goldtrail can get affected with relatively low bargaining power. Threat of Substitutes In the tourism market, the challenges also can arise from the end of substitute products. Such as, the adventure based small duration package tours can be a substitute for the luxury package tours and especially at the moment when the spending power of the potential customers is at a slow growth with a low income. Bargaining Power of Buyers In the UK market there is continuous increase in the number of visitors, both the holiday and the business visitors. In this type of market situation it is very likely that the bargaining power is more in the hands of the buyers than that in the suppliers end. Moreover, with a low income level the potential customers in the economy have the risk to be price sensitive which in turn increases the power of cost control in the hands of the buyers. Competitive Rivalry Competitive rivalry at the very moment is one of the crucial aspects in the UK tourism sector. With a falling number of both UK visitors and overseas visitors who come to UK, it is quite certain that the participants in the sector are facing a high amount of competitive rivalry. Moreover, the increasing numbers of global players and domestic players within the national boundaries also enhances the chance of competitive rivalry (National Statistics, 2010). Critical Success Factors Critical success factors that influence the tourism industry highly can be the following: The natural and social culture of the economy that helps to attract the potential buyers The difference from one place to another that is served by the tourism sector is also one of the key success factors The attributes of social and natural dynamics are generally scattered in different places. But in certain places these attributes are clustered in a unique manner which can again be a success factor for the industry Implementation of an appropriate promotional technique is also an important tool to achieve success The transportation and seasonality aspects are also important as it states the preferences of the targeted market Apart from all these factors another factor that is termed to be very crucial in any kind of industry is the implementation of an appropriate strategic planning To put into account, the partnership with different participants in the industry, such as the travel industry and the technology industry and even the pricing and safety factors can be helpful to attain the optimum goal (Europe, n.d.). Summary With the given facts and information about the industry’s critical success factors the opportunities that the Goldtrail Holiday Company could enjoy was the rising numbers of buyers in the international market. In addition, the majority of young and middle aged people acquiring the population could also be an opportunity to the company as the group is termed as the potential customer group of the industry. However, there are more numbers of threats in the market than opportunities in the present scenario. There are factors such as low level of income in the economy, high competitive rivalry, and unstable economic outlook that can create instability. Company’s Strategic Compatibility Porter’s Value Chain Model Figure 3: Porter’s Value Chain in Tourism Source: (Mitchell & Phuc, 2007). The model of a value chain is slightly different in the case of tourism industry, as shown in the above diagram. However, the basic diagram of the model is, Figure 4. The Basic Model of Value Chain Source: (IfM, n.d.). According to the value chain model represented above, there are different factors affecting the strategic compatibility of a company. They are discussed as follows, Primary Activities Inbound Logistics The inbound logistics used by a tourism company is the package facilities served to its potential customers. The company thus, had a complete package including travel facilities like airways and roadways. The company also had its well-furnished resorts to serve accommodation to the tourists abroad. Precisely, the company had designed packages supporting both the fooding and lodging services. Operations The company was registered under the local tourism regulatory body, the CAA and also under the ATOL in UK. This implies that the operations of the company were adhered to the rules and regulations mentioned by the two regulatory bodies (Markos Web, 2010). Outbound Logistics The company dealings were basically focused to serve the outbound customers of UK, i.e. the UK residents willing to visit Turkey and Greece. Marketing and Sales The company marketed its product to the customers residing in UK especially. In order to state its achievement in the marketing and sales growth, the company was ranked as one of the giant players in the UK tourism industry, serving a huge base of UK customers (Sawer, 2010). Services The services provided by the company to its national and international customers were the package tours to Turkey and Greece. It included the facility of airways, roadways, and fooding and lodging as well. (Markos Web, 2010). Supporting Activities The support activities of the company had a huge cost of wage bill amounting to £771,604. On the contrary the company had its associate members reducing. The company was also recorded to have an imperfect infrastructure to serve its customers in the foreign nations. A major reason for the collapse was its steep increase in the costs for inbound logistics, while decrease in its market demand. However, the primary activities of Goldtrail were inappropriate to the supporting activities and it led it to a dramatic failure. Competitive Advantage BCG Matrix Figure 5: The BCG Matrix Source: (BCG Matrix Guide, 2010). According to the BCG model, as shown in the above diagram, it becomes quite simple to relate the market growth with the market share acquired by the company, to measure its competitive edge. Therefore, the characteristics of the UK tourism market stated that, tourism sector is in a healthy growth state according to a ten year perspective. As the data shows, the overall tourism market is in a growth by 60% (Josselyn, 2010). On the contrary, the company had a steep growth, rewarding it the 61st position in the market, with an average growth of 76% as was recorded in 2008. Supporting the fact, in the 2009 the company’s profit structure jumped to £54 million (Berman, 2010). Conclusively, relating the market share acquired by the company and the growth of the overall market, it can be fairly admitted that the company included itself in the category of stars. Therefore, the company had a sharp competitive edge in the market with only two recorded competitors, i.e. the Thomas Cook, and the TUI. Financial Capability Keeping a low price structure was quite helpful for the company in 2009, when it decided to expand it in Greece. The demand was raised and complementarily the revenue structure was also increasing. Other players in the market failed to compete with the growing demand for Goldtrail due to its low prices. As a result the company was recorded to earn revenue of £54 million during the end of 2009. But on the other hand, the company had a huge wage cost of around £771,604 to be rendered to a decreasing number of employees (Berman, 2010). Sustainable Competitive Advantage The company was at a peak of the said ‘discount culture’ in the economy. This rewarded the company with such a huge amount of demand that the company failed to attain its optimum level of service to satisfy the customers. In addition it also failed to keep pace with its rising costs, which again led it to a weaker competitive position in terms of its internal operations. However, the company had a fair competency in the UK market with high market share and lesser competition. Summary Considering the internal environment and its competency level in the UK tourism market, there were both strengths and weaknesses of the company. One of the major strength that the company enjoyed was the high level of market share that it acquired. This certain attribute not only minimised the threat of competition but also gave the reward of huge revenues to the company. On the other side of the coin, the company was facing certain weaknesses, such as high amount of wage costs, inappropriate measures to serve the customers, and huge amount of demands which were actually more than that the company could support. Thus, the weaknesses of the company lay on the side of its internal operations rather than its external field of operations. Strategic Fit and Direction Strategic Direction The strategic direction of any company is based on the attributes of the industry and its internal strengths and weaknesses. Hence the strategic direction of any company can be better understood by a SWOT analysis. Strength Weaknesses The company had a larger market share compared to that of its competitors It dealt with the market segmentation comprising the UK residents to visit abroad It served complete holiday packages for Turkey and Greece It was able to earn high amount of revenue with the strategy of low rates The rapid increase in the operational costs of the company Demand growth had taken a figure which was more than its supply range The company was also recorded to have an inappropriate infrastructure to satisfy its customers The company’s strategies were concentric on a particular segment, which was enquiring a low growth rate in the UK economy (Berman, 2010) Opportunities Threats The UK tourism market was on its hike and was estimated to be growing in its near future The tourism industry in UK is considered to be one of the major supporting industries after the recession period The rising numbers of potential customers, i.e. the young and middle aged group was also an opportunity for Goldtrail There were just a handful of competitors who dealt with the same market segment The overall economic outlook is at an unstable phase The proportion of outbound tourism which the company was concentrating on, was at a decreasing stage The market is likely to reach its matured level after a couple of seasons The low level of income that the economy is facing currently, the growing population and inflationary rates can also be termed as a threat for Goldtrail (Statistics, 2010) Considering the companies SWOT analysis, it had a strategy concentrated towards the outbound tourists. Incidentally, the segment was facing a low growth than compared to the inbound tourism sector and the business visitors. Hence, if the company’s strategic direction was towards the other segments it would have been beneficial for the company. Moreover, the company’s strategies also needed to emphasise on the infrastructure and the cost factors. Strategic Fit and Environment The aspect of strategic fit of any company is also strongly influenced by the external environment. To analyse the aspect the Ansoff Matrix can be used. Existing products New Products Existing Markets Market Penetration It was focused on the outbound tourism only at a discounted price while the market was growing slowly in that sector compared to other sectors The company rendered complete package services but with inappropriate services The acquired market of the company obtained the outbound visitors from Turkey and Greece Product Development There is a growth in the inbound tourism sector The competitive rivalry is in a sustainable position Most of the tourism companies are not into both the inbound and outbound tourism markets A lesser number of players in terms of discounted rates New Markets Market Development The inbound tourism and the business visitors’ proportion is at growing phase More opportunities in the global market Lesser number of players in the package holiday and business travels in the industry Diversification The company could vertically diversify its activities to other sectors of the market, like the business tours and the inbound tours References ABTA, No Date. 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