Online Travel Agency Industry in China - Essay Example

ONLINE TRAVEL AGENCY INDUSTRY: CHINA Executive Summary The online travel industry is one of the fastest growing industries in the global economy. This is attributed to the increased number of travelers both for leisure and business. Moreover, the improvement in travel infrastructure and technology within global markets has necessitated the need for information by travelers to enhance the efficiency and effectiveness of travel in addition to the improvement of the travel experience. The online travel industry in China is very competitive and is impacted by political, legal, social cultural and economic environments within the domestic and global travel markets. Table of Contents Executive Summary 0 Table of Contents 1 Introduction 2 Globalization in the Industry 2 Political and Legal Environment 3 Technological Environment 4 Economic Trends 4 Cultural and Social Environment 5 Ctrip.com International Ltd Porters Analysis 5 Tencent Holdings Ltd Analysis 6 Expedia Analysis 7 Conclusion 7 Appendix 8 References 9 Introduction Ctrip.com International Ltd is the leading online travel agencies in China which has demonstrated effective corporate strategies for increased competitiveness in the online travel industry (Stettner, 2010). This report gives a critical analysis and discussion of the online travel industry in China with a view of describing this industry within the global market and the globalization process, environmental factors which affect this industry and the justification for preferred investment in Ctrip.com International Ltd. Globalization in the Industry In accordance to Boehmer (2005), Globalization in the travel industry is demonstrated by the increased travel of individuals across the world and the interaction of various cultures. Additionally, the global economy has allowed people to work and do business anywhere in the world. This shows that people are now able to live within any nation. In this regard, globalization has led to increased travel of people across the world. As a result, there is necessity for travel companies which would facilitate the travel processes by increasing the efficiency in bookings for travel, dining and accommodation (Ho and Ho, 2011). Globalization within the travel industry is also characterized by the apparent ability of travelers to book flights from anywhere in the world including return tickets. Moreover, hotel services can be booked from any part of the world as long as the traveler accesses internet services. More significantly though is the fact that the travel industry has enabled travelers to pay for their travels services from any part of the world. Furthermore, travel companies, agencies, hotel and accommodation industries of the world have formed collaborations which are aimed at promoting the travel experience of the global travelers. Hanqin Qiu, Qi and Haobin (2008) add that what is notable in the global travel business is the fact that travel industry involves travel agencies which compete within the global economy. This means that a travel agency within china competes with its business rivals in the US. As a result of the globalized competitive environment, companies are mandated to provide quality services and products for the travelers so that they would win their loyalty. Gold (2010) reveals that Ctrip.com International Ltd has been able to survive in the global; online travel industry by being highly competitive in the global travel agency industry through application of the most appropriate corporate strategies for improved and high quality services for its customers. Political and Legal Environment The Chinese political and legal landscape has liberalized the economy which favors that business environment as demonstrated by (Hui, Law and Ye, 2009). Nonetheless, there are legal factors which affect the industry such as the taxation laws in China which acts to regulate the operations of companies within the travel industry. Additionally, licensing of business operations in the Chinese market is a requirement of the law. Gold (2010) adds that the Chinese legal framework has restrictions in the use of technology which couple has specific restrictions in the operations of the travel industry. For example social networking sites are closely regulated by the Chinese governments and thus travel agencies which have pages in these sites may not be able to achieve success which streams from the application of the social networking technologies. Hanqin Qiu, Qi and Haobin (2008) further revel that the political environment in china favors operations of local businesses to avoid the infiltration and dominance of the western economies in the Chinese market. Nonetheless, it is notable that the Chinese political landscape is in favor of the foreign investments in the travel industry regardless of the few restrictions. Technological Environment The online travel agencies within China have been favored by the abundance of the infrastructural framework within the country. This includes energy and telecommunication industries which have provided internet networks within the Chinese market. Hui, Law and Ye (2009) explain that it is in this regard that those online travel agencies such as Ctrip.com International Ltd have achieved success in their online travel business. Online bookings for travel in addition to the payments of the travels services by clients of Ctrip.com International Ltd have been made possible through the favorable technological framework within China. Due to this factor, the company has able to coordinate travel arrangements for its clients across the world and thus making their travel arrangements to be met with increased efficiency and effectiveness. This is the justification for the increased growth and relatively high performance which Ctrip.com International Ltd has registered both in the domestic and global online travel industry (Gold, 2010). Economic Trends The recent global economic crisis has affected the travel industry within the china market. Hanqin Qiu, Qi and Haobin (2008) demonstrate that this is due to the difficulties that travelers have in making prior travel arrangements and paying for specialized online booking and travel arrangements for convenience in travel. Hui, Law and Ye (2009) further reveal that the competitiveness of online air travel industry has been affected by the economic hardships within the global economy. This is due to the competitive prices which are provided by business rivals. For example Ctrip.com International Ltd has been mandated to provide relatively low prices for its online travel services due to the limited ability of the clients to pay for the costs related to travel processes and arrangements (Jopson, 2004). Cultural and Social Environment The Chinese culture affects the travel industry due to the various tastes and preferences that travelers have as a result of the social and cultural values. Online travel agencies for example are affected by the attitudes of the consumers in the use of technology. Hanqin Qiu, Qi and Haobin (2008) point out that the Chinese culture is generally technologically compliant and thus the increased use of technology in making bookings for travel and accommodation and therefore promoting the performance of companies within this industry. Nonetheless, there are social factors such as class system in china which affect the preferences of travelers in relation to the kind of jets they book for their travel and the hotels which they require to stay and dine in. Tan (2012) reveals that the costs of paying for travel and accommodation and the type of booking arrangements is determined by the social cultural environment within China. However, globalization has streamlines the Chinese cultural values and thus fitting the international standards and preferences for travel and the use online travel arrangements. Ctrip.com International Ltd Porters Analysis The political, legal, social and economic environment within china has some challenges but Ctrip.com International Ltd has managed to overcome them by applying the opportunities within the business environments as a way of achieving a competitive advantage. Hui, Law and Ye (2009) argues that the ability of the company to value the power of buyers who comprise of its customers has enables the company to achieve success in the online travel agency industry. This is demonstrated by the fact that the company values the needs or the customers in terms of preferences in making travel arrangements. Fairclough (2007) adds that the threat of new entrants and substitutes into the online travel agency industry is managed within Ctrip.com International Ltd through application of appropriate corporate strategies in order to remain competitive. This includes the application of modern technologies, proper marketing and provision of quality and efficient services to the customers (Kapoor and Jain, 2010). Tencent Holdings Ltd Analysis Tencent Holdings Ltd has been ranked as China’s biggest company in terms of annual revenue. Nonetheless the online travel function of the company through its e-commerce ventures is only a portion of the company’s online business. As a result of this, the company is facing increased competition in the market especially from the rapidly growing Ctrip.com International Ltd (Fletcher, 2011). Nonetheless, the company’s move to acquire eLong.com has enabled it to remain relatively competitive in the Chinese market. It is the new entrants in the market such as by Baidu.com, Alibaba Group, Renren.com and SNDA that have proved to be a threat to the company’s online business operations. It is due to these threats and the related substitutes to the online travel market that the company has endeavored to value the power of the buyers so that it would remain competitive in the market. However Fletcher (2011) points out that the focus of the company on online travel has not adapted effectively to the technological changes in the market and the increased growth in the online travel agency industry. Investment in Tencent Holdings Ltd is desirable but its competitiveness in the online travel agency industry is relatively low as compared to Ctrip.com International Ltd which is adopting new technology to meet the increased demands in the market. However it is notable that the acquisition of eLong.com is an appropriate corporate strategy by Tencent Holdings Ltd in its endeavor to meet the increased demand in the online market and the global economy which is demonstrating a high travel rate. Expedia Analysis Expedia.com is one of the leading online travel agencies in china which has laid various corporate strategies in order to remain competitive in the market and achieve a greater share in the travel market. Nonetheless Canaves (2010) points out that Expedia’s annual revenue in the online travel agency function is ranked behind Ctrip.com International Ltd and Tencent Holdings Ltd which are the current leaders in the market. Regardless of Expedia’s challenges in the market, it has endeavored to provide quality online services for its customers within China and across the world. This has been made possible through the application of modern and advanced technologies to enhance the speed and thus the efficiency of online bookings and thus meet the needs of the customers. Canaves (2010) adds that the company has provided its customers with a variety of platforms to choose from and thus made it possible to meet the desires of the variety and diversity within its customer base. New entrants into the Chinese online travel agency market such as Renren.com and SNDA and the high competition from Ctrip.com International Ltd and Tencent Holdings Ltd has however been a business challenge to the company which it has to overcome. Conclusion The Chinese online travel agency is an industry which is experiencing increased growth regardless of the challenges which the online travel agencies face in the market. The political, economic, social cultural and legal environments play significant roles in shaping the Chinese online travel agency and the travel industry in general. Nonetheless, globalization and the increased rate of worldwide travel is the greatest boost within the industry which has attracted new entrants in the market and making is very competitive. The analysis of the top online travel agencies in the Chinese market such as Ctrip.com International Ltd and Tencent Holdings Ltd and Expedia illustrates that they have various competencies and competitiveness abilities in the market. In the light of the above analysis and discussion, it is thus justified that Ctrip.com International Ltd is the most appropriate company for investment of capital because high returns are guaranteed by its good performance and competitiveness in the online travel market. Appendix Ctrip.com International Ltd financial Highlights (Fourth Quarter 2011) as presented by PR Newswire (2012) 1. Net revenues = RMB926 million (US$147 million) 2. Gross margin=76% 3. Income from operations= RMB231 million (US$37 million) 4. Income from operations=RMB325 million (US$52 million) 5. Operating margin=25% 6. Net income (shareholders)= RMB253 million (US$40 million) 7. Diluted earnings per ADS= RMB1.67 (US$0.27 8. Share-based compensation charges=RMB95 million (US$15 million) References Boehmer, J. 2005, "China Opening Up To Corporate Travel Management Practices", Business Travel News, vol. 22, no. 10, pp. 20 Canaves, S. 2010, Expedia Charts Local Path in China, New York, N.Y., United States, New York, N.Y Fairclough, G. 2007, Ctrip, eLong Offer Pass to China Boom; Online Travel Firms Ride Wanderlust; Europe Shares Rise, New York, N.Y., United States, New York, N.Y. Fletcher, O. 2011, Chinas Tencent Focuses on Microblog Content, New York, N.Y., United States, New York, N.Y. Gold, D.H. 2010, Ctrip.com, Home Inns Soar After Q1 Reports Both Stocks Lure Big Volume Picture emerging shows growing demand in China for travel-related services, Los Angeles, United States, Los Angeles. 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