Environmental Scan of the Hotel Industry in Australia - Case Study Example

Environmental Scan of the Hotel Industry in Australia of of Introduction Managing a hotel is a very complex activity because there are numerous local and international factors that come together to determine the success or failure of the hotel (Hoque, 2000: 34). This implies that top level managers of hotels need to understand all the variables involved in the internal and the external environment of the hotel. With that background knowledge, they will have to formulate strategies that will enable them to maximize returns and minimize costs and their vulnerabilities. “Todays businesses are operating in an increasingly borderless world” (Samson & Daft, 2011: 90). As such, businesses need to understand important elements of the domestic and international environment. When this is done, they will have to remain updated with data and information which is relevant to their operations. With that in mind, they can change various aspects of their strategies in order to operate at their optimal levels. This implies that businesses need to conduct regular environmental scans to understand the trends in the international as well as local environment. Based on this, they can formulate new strategies or adjust existing strategies to meet their vision, mission and objectives. This paper undertakes an environmental scan of the local and international environment of the hotel industry in Australia. It is in two parts. The first part involves a macro-environmental scan of the local and international environment. This will be done by appraising vital information and data relevant to the hotel industry. The second part of the paper will an analysis of the impact of the data and information identified in section 1 on the hotel industry of Australia. SECTION I Every business has its mission. In order to carry out the mission, every business needs to analyze the environment and set objectives which will lead to the formulation of strategies and the implementation of strategy (Lussier, 2008: 125). The analysis of the external environment can be done with several tools. Macro Environment & The Hotel Industry One of the most effective tools for external environment scanning is PEST Analysis (Haberer, 2011: 5). This tool involves the analysis of the Political, Economic, Sociological and Technological Analysis. The evaluation processes that the PEST Analysis utilizes involves a critical analysis of relevant elements of these sectors in a give nation or an economy within which a business in an industry operates. Berger identifies two other variables: Legal and Environment which modifies the PEST tool to the PESTEL model (2011: 6). In the hotel industry of the hospitality sector, the two most important variables of the PESTEL model are economic factors and sociological factors (Hsu & Powers, 2002: Fyall & Garrod, 2005). These two factors come together to determine the vast majority of constraints and opportunities available to a hotel located in Australia. Harberer (2011) identifies that in the hotel industry, these two factors occur on three levels in the external environment, namely global, national and local levels. This is because most hotels targets visitors from other countries as well as from other parts of the community. It is therefore important for the owners of such hotels to factor in the concerns in the international community. Also, concerns about the local conditions are important because they provide guidelines for the attainment of appropriate standards when dealing with customers and stakeholders in the local community. Economic Factors There are several factors that define the economic trends and indicators relevant in environmental scanning in the hospitality industry. Pizam identified four main categories which include (2010: 234): 1. Income determinants like interest rates, gross domestic product (GDP), taxation and inflation rates. These determine the disposable income of potential clients and the ability to pay for hospitality services. 2. Internal cost factors: These include the cost of running a hospitality industry facility like wages, real estate costs and the cost of materials. They are important because they define the profitability and sustainability of a given business model in the hospitality industry. 3. Foreign exchange rate: This affects key elements of international trade by the hospitality facility. More importantly, it determines the level of interest that foreign customers will place on a given destination. Thus, for example, if the Australian dollar is high in value and you will need to convert more British Pouds, Euros or US Dollars to gain a small amount of Australian dollar, Australia might not be a preferred destination for British, European or American tourists. The reverse is true for this case. 4. Expectations in a given economic system: This implies the speculation of possible changes in economic variables in the future. Sociological/Socio-cultural Factors. These factors really affect the trends and activities in the environmental scan of elements in the hospitality industry. Pizam again identifies three key elements of a given context that affects the hotel industry (2010: 234): 1. Population dynamics: The changes of population numbers and structures determine the activity level in a given market. If there is an increase in a the number of people in a given age bracket that a business targets, there is likely to be an increase in demand for the services of that business. So in the hospitality industry, where business travelers are primary targets, an increase in the population of the nations working class will be favorable in a hotels demand base. 2. Cultural factors: There are some cultural factors and trends that determine the habits and psychology in relation to given hospitality facilities. In a culture where savings are a priority, the hospitality industry is likely to suffer. This is because most savers might see hotel accommodation as a form of luxury. On the other hand, a culture that renders the need for workers to take breaks and vacations like the Western culture is likely to boost demand and increase the number of visits to hotels. Thus, the Westernization of parts of the world can boost the hotel industry. 3. Health and Safety concerns: In the 21st Century, people are more conscious of what they eat than ever (Simmonds, 2009). Also, recent trends in violence and terrorism can render a given area safe or unsafe. Information about Australia, Queensland & Brisbane/Gold Coast Certain trends in the economic and social aspects of the people and economy of Australia, Queensland and Brisbane have an influence on the external environment of hotels Brisbane. As such, these important factors and indicators can be taken and interpreted to guide the decision making processes of managers of hotels in the Brisbane Region. Economic Information Australias GDP rose from 1.3% in 2011 to 2.2% in the first quarter of 2012 (Reserve Bank of Australia, 2012). In Queensland, the GDP of Australia rose by 1.4% in the first quarter of 2012 (Queensland Government, 2012). This is often attributed in the Australian media to the mining boom which is set to enter another phase. This therefore give prospects of possible increase in the GDP of the nation as a whole and of Queensland and Brisbane in particular. Unemployment in Queensland remained at 5.5% of the labor force. This is because the employment figures did not change in the first quarter of 2012. On the aggregate, the same number of people who were in employment remained in employment. According to the Reserve Bank of Australia, inflation hovered around 2.5% in late 2011. This was a fall from the figure of 4% two years earlier. Again, this success in economic and financial strengths is attributed to the mining boom of the Australian economy. Chung et al (2012) identify that in this year, the Australian dollar has appreciated significantly, after ten almost twenty years of inflation targeting. Although the appreciation of the Australian dollar lowers the overall prices of consumer goods by a tenth in a three year period (Chung, 2012), it has some implications on tourists from nations that have a relatively weaker currency. Socio-Cultural Information According to the Australian Bureau of statistics, the population of Australia was 22.6 million in early 2012. Queensland had a population of 4.6 million. This shows that the population density of Australia is rather huge as there is more land as compared to people. Out of the total population, there was a workforce of about 12 million. Out of this, 11.4 million were employed whilst 632,000, representing about 5.5% were unemployed. Queenslands unemployment rate of around 5.5% is quite close to the national average. Upon an examination of the Australian Age Structure, the age pyramid of Australia showed a narrow base, a sizable mid point and a top level similar to the base. This means that there is a small percentage of Australians aged between 0 and 20 years. However, there is a vast number of Australians between 20 and 50 in the active working class. On the other hand, there is a population of people over fifty which is around the size of the people below 20 years old. This shows that Australias society is an aging one. Australia is identified by the ABS as a multicultural society because most Australians have origins that are from diverse backgrounds. 40% of Australians were either born overseas or has a parent who was born overseas. 14% of Australians were born in the UK or had a parent born in the UK. 70% of Australians are Christian. However, there is a growing migrant community made up of Jews, Buddhists and Muslims who are a significant minority. There are some laws that ensure cultural cohesion in Australia. These include laws on equal opportunities, access and equity, discrimination, harassment as well health and safety (Robert Bean Consulting, 2011). These laws shape the way people relate with others of different cultural backgrounds. Using the Body-Mass Index (BMI) the Australian Government Department of Health and Aging identified that 61.4% of Australians are either overweight or obese. Out of this, 42.1% of adult males and 30.9% of adult females are considered obese. Trends Relating to Information about Australia, Queensland and Brisbane The information provided above will lead to a number of trends in the Australian economy. These trends are mainly based on the implications or what the information given will imply when interpreted. Economic Trends With the rise in GDP and the fall in inflation, economic conditions are likely to be better. There will be more money circulating in the Australian economy. The rise in GDP implies that the net worth of goods and services produced in Australia is higher than the previous years. Due to this, there is more prosperity. A fall in inflation means that the cost of goods will not rise as much as they were in previous years. This means that people will have better lives and they will be able to earn more money and spend less. Unemployment remained static. This implies that the labor force will remain as it was. Thus, until the government take measures to reduce unemployment with the prosperity enjoyed, the number of unemployed persons will remain as it is. This will mean that life will only improve for the employed who are earning money whilst the unemployed might have little change in their economic position. The rise in the value of the Australian dollar will mean that things are going to be less expensive in Australia. This is because Australia will pay less for their imports. On the other hand, Australian exports will be expensive for trading partners like the European Union whose currency has devalued. Socio-Cultural Trends The population of Australia is generally low. Queensland has a low population density. This implies that there is less congestion in the state. The population dynamics imply that there is a high number of Australians in the working class. This gives hope for a vibrant economy. On the other hand, the population is aging because the number of old people is quite high. The number of young people is also small. This means that when the current generation passes, the population will shrink significantly. Australia is a predominantly Eurocentric society. Most of the people are of European origins. However, the backgrounds of each of the people is varied. There is also a growing minority population of Jews, Buddhists and Muslims. With these groups of people, Australian law has had to be invoked to promote respect and cohesion. Most businesses and organisations are required to honour various compliance requirements and rules. Another point of concern amongst Australians is the need to eat healthy foods. The current trend is that most Australians are classified as overweight or obese. Due to this, there is a strong interest in people losing weight and shedding off fats. There is also the consciousness of what a person eats and its calorical value. SECTION II Impact of the Macro-environmental Factors on the Hotel Industry This section will focus on the impact of the macro-environmental factors identified above in the hotel industry of Australia. It will view the impact of the macro-environmental factors from the Australian level as well as state and city levels under study. Impact on Customers & Firms The rise in GDP and fall in inflation is going to cause a general increase in the wealth of individuals in Australia. This is going to increase the number of customers who will be willing and able to spend time in hotels. The increase in wealth will also prompt more business transactions which is likely to increase business travel from state to state. There will be more people coming to Queensland and Brisbane and this will increase the demand for hotel accommodation. The high exchange rate will mean that Australians will have more disposable income. This is because there will be cheaper goods and services from overseas suppliers. Thus, people will have extra income to spend on leisure. On the other hand, the entry of tourists from other countries is likely to increase. This will cause a drop in the number of foreign customers who will want to stay in the hotel. This will lead to a lot of financial and cost implications for the hotels as they will lose money in the peak season of tourism. The number of people in Australia are aging. This means that customers will prefer matured services and packages in hotels. On the other hand, demand is likely to remain consistent since most of the people are in the working class and are old. As such, the age dynamics will not really affect Australian hotels. The growing number of minorities is significant. Some religious hotel customers place certain restrictions on hotels. As such, hotels need to be more cautious and this will affect their plans and policies. This is because there are laws that prevent exclusion. Thus, hotels need to come up with appropriate systems to ensure that all customers are fairly served. The eating habits of customers are also significant. Most customers prefer foods that are less fatty and more healthy. As such, customers will go to hotels that offer healthy foods. Hotels will have to prepare more healthy foods and hire cooking staff that are conscious of modern eating habits. Opportunities for Hotels Australian hotels can provide more luxury services and opportunities for customers. This is because the rise in GDP and fall in inflation is likely to cause increases in the purchasing power. Thus, the hotels can set up appropriate classes of services that suit high worth individuals and simple packages that ordinary people with a little increase in financial position can purchase and enjoy. The high exchange rate provides the opportunity to target Australian clients and clients in nations that have high worth currencies. One of the approaches hotels in Brisbane can use is to attract out of state visitors through national adverts. The aging population provides the opportunity to target older and matured customers this means that hotels can attract working class customers. These customers are often workers and as such, will be willing to repeat their experiences over and over again. Minorities can also be targeted with special packages that have Hallal, Kosher and other packages relevant to minority groups. This can be done by skewing adverts towards such niches. This will encourage people from different backgrounds to also enjoy the services of hotels. On the other hand, popular practices that are connected to certain European cultures could be integrated into hotel services to promote interest in hotel accommodation. Threats to the Hotel Industry The increase in GDP is likely to cause people to consider travelling overseas for holidays or business. This is because many people might have gotten a lot of money which can cause them to become more interested in opportunities elsewhere. Moreover, some people might want to take advantage of the strong Australian dollar to visit nations like Eurozone countries because the value of their currencies have been depleted severely. Another threat is in the population characteristics of Australia. Since most of the people are aging, it is likely that the hotel industry will shrink. This is because most of the citizens are nearing the retirement age. With a small population under 20, there is a fear that the hotel industry might not be profitable in the long run because few people will exist in the country in about 20 years time. At that time, most Australians will be aged. Also, minority protection laws increases the costs of operating a hotel. This is because the minorities are few. However, the ethical expectations that most hotels must maintain equal standards and non-discriminatory practices will mean that hotels will have to spend a lot of money on a group that rarely visits the hotels. This might be an excessive strain on the budgets. Also, the selective nature of healthy foods make it difficult for hotels to please their conventional guests. This is because there are numerous varieties of demands that these healthy eating requirements place on hotels. Honouring all of them could cause rises in operation costs. Tapping Opportunities to Counter Threats The rise in GDP will mean that hotels can charge extra and raise more money. When they make a lot of money, hotels in Brisbane or Queensland can invest in marketing services either individually or collectively as an industry. Through this, they can promote tourism in the area. They could work together with other businesses in the tourism industry to create a general interest in tourism in Brisbane/Queensland. This will prompt the need for hotel accommodation which will bring in high income for hotels. The high exchange rate lead to an increase in local tourism. Also, tourism packages could be designed in ways whereby local currencies of people can be spent at competitive prices. This can be done by carefully designing packages for various nations. These packages will encourage people of all nations to come and visit Brisbane. Again, the concept of segmentation can lead to the creation of packages that will meet the demand of all people of all backgrounds in Australia so that new customers can be recruited into the use of hotel facilities and services. The aging population can always be supplemented by migration. This is because there are numerous people in other nations around the world who might want to come to Australia because of the positive economic position of Australia. As such, encouraging foreigners to settle in Australia can compensate for the dangers that the population dynamics present. Hotels can create appropriate systems for minorities to be catered for at lower costs. This could include the use of part-time and special staff who will work as casual workers. Also, the issues with healthy foods can be solved by training staff members to be volatile and concentrate on cooking healthy foods. These could be done through the provision of scholarships to chefs and staff members through the financial boom that hotels are in line to enjoy. Conclusion Environmental scanning is vital in causing hotels to position themselves in a way that provides them with their best interests. The main elements of the hotel industrys external environment are economical and socio-cultural in nature. The significant economic factors in Australias external environment are the rise in the GDP, fall in inflation and the high exchange rate. The main social factors of concern are the aging population, minority issues and the demand for healthy foods to counter obesity. The main opportunities in the external environment are the existence of a large demand pool and the increase in prosperity in Australia. The main threats are Australian desires for overseas travel in the face of prosperity, threats of the diminishing of the population and high costs of satisfying minority needs and the need for healthy foods. Advertising can increase interest in travel within Australia. Segmentation can increase demands whilst migration can reduce the issue with the aging population. References Australian Bureau of Statistics (2011) Australian Age Structure. [Online]. Available at: http://www.abs.gov.au/websitedbs/d3310114.nsf/home/Population%20Pyramid%20- %20Australia Accessed: 25th April, 2012. 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