Economic and Social Factors Influencing Indian Hotel Industry - Assignment Example

Module and number The and ID number Feasibility Study for Establishing Luxury Hotel in India By Jumeirah Group of Dubai Word Count : 2981 Your tutor’s name Table of Contents Table of Figures 2 1. Introduction 3 2. PEST analysis of Indian Hotel Industry 3 a.Political Influences 4 b. Economic Factors: 5 c. Social Factors 7 I.Cultural Perspective 8 d. Technological factors: 9 e. Other Aspects 10 3. Conclusions 11 4. Recommendations 11 a. Marketing Mix Implications 13 References 14 Table of Figures Figure 1: Occupancy Rates of Indian Hotels 2009-2012……………………….6 Figure 2: Annual Rates of Return of Indian Hotels 2009-2012……………..6 1. Introduction Jumeirah is a group of hotels started by the Jumeirah International Group, that belongs to Dubai. It was started in 1997 and one of its most famous product is the Burj Al Arab, a seven-star hotel venture. The businesses of the company include restaurants, residential and office real estates, theme parks, resorts and hospitality management institutions. Today, the company has its operations spread over 12 countries, including Dubai, Abu Dhabi, Russia, Germany, China, Maldives, UK and many more destinations with its more than 50 hotels. Jumeirah group has reported an increase of 22 percent in its revenue per room in the first quarter of 2013. This reflects the success of the company in various countries (Jumeirah International, 2013). The company has mainly eyed tourist attractions and travel destinations for the placement of its properties and this have hugely contributed towards the instant popularity of the group in that particular area. The architectural finesse of the group is appreciated the world over and these hotels and resorts are the sought after destinations for sight-seeing purposes too. As a part of its expansion plan, the Jumeirah group is viewing the feasibility of setting up its foot in India, also a country in Asia with huge population and growing economy. The hospitality sector is estimated to generate revenue of $ 30 billion by 2015 (ICRA Limited, 2011). This paper aims to undertake environmental analysis that would help the parent company in arriving at a positive decision towards establishing their business in India. 2. PEST analysis of Indian Hotel Industry In order to evaluate the macro-environment of the country with regard to the hotel industry, a PEST analysis is conducted. The sector is explored to assess the political, economic, social and technological factors that impact the business. a. Political Influences The hospitality industry hugely contributes towards the economy by the way of taxes and tariffs, as per the luxury and services that they provide. Thus, decisions pertinent to hotel industry are definitely under the scrutiny of the government and its intervention into the operations in the sector is inevitable. Incentives and tax concessions are given to aspirant hoteliers serving foreign tourists and generating income in foreign currencies. The government also allows tax concessions for hotels in hilly areas and remote places and these concessions helped the industry wade through the economic crises. However, the terrorist attacks in Taj hotel at Mumbai has affected the sector, as the tourists do not feel enough secure in these lodging set ups. The hotels have stepped up their security measures in order to build the customer confidence (ICRA Limited, 2011). The government has invested hugely on air connectivity to various cities in the country and then privatized the airport expansions and renovations in existing destinations. This is set to increase the tourist inflow, both domestic and foreign, into the country. Thus, hotel industry is set to prosper in the country with multiple tourist destinations. Further, the government has spread the tagline of ‘Athithi Devo Bhava’, which means the guests are Gods and they need to be treated well. This has furthered the business of hoteliers. The national and state highways connecting the various places and cities are developed to facilitate comfortable and hassle-free travel for the tourists. This development has laterally nurtured the growth of hotels along these paths (Renuka & Mythili, 2011). All these political factors contributed to the expansion of hotel industry in India. b. Economic Factors: The disposable incomes, projected economic growth and inflation are some of the economic factors that influence the hotel industry in India. India is an emerging market and has been promising in terms of its growth potential. The country which is a home for 1.2 billion people cannot be neglected when it comes to be considered as a target for various businesses. India has also seen heavy flow of foreign direct investments (FDIs) which amount of 28.4 million USD in 2012 and up to 4 percent of this had been in hotel industry and these FDIs have been consistent growth since the opening up of the economy (Desai, 2012). Thus, the point that investments in India are definitely profitable is proved beyond doubt. There has been huge disparity between the demand for the rooms and the supply. The rooms are only 10,000 while the demand is almost 125,000 (ICRA Limited, 2011). The hoteliers are trying to take advantage of this situation and it has been observed that the same room is allotted to more than one person as the stay is just a few hours and the charge is levied for the entire day. This has been the secret behind the sustenance of hotels, but for the disturbances in the economy. Consecutively, the companies are also trying to convince the government to lift the restrictions on the rooms and other related limitations to face the demand in future. Indian financial system is strong and its stability has been proved when the country remained the least affected in the face of recent economic crises. So, even if the foreigners did not frequent the hotels due to recession, there has been no dearth of domestic travelers and customers for the hoteliers. But for the terrorist attacks in Mumbai, the industry has been successful in increasing the inflow of consumers for tourist and business purposes. This has in turn increased recovered the revenues, but the increasing service and other costs are chopping up the profit margins of the players. The projections of ICRA (2012) in this regard can be seen in the figures 1 and 2 below. Figure 1: Occupancy Rates of Indian Hotels 2009-2012 Figure 2: Annual Rates of Return of Indian Hotels 2009-2012 The disposable incomes of the huge Indian middle class have also seen an upsurge in the recent years. Euromonitor International (2011) projects an increase of 44 percent in disposable incomes of the average Indian from 2010 to 2015. This is driven by the rise of middle class that is conscious of consumerism, what is happening around the world and their focus is towards global brands and products. This has brought a commensurate increase in the expenditure on leisure and travel by Indians. The revenue from travel and tourism industry is found to contribute to more than 6 percent of Indian GDP, which amounted to $121 billion in 2011, as per the World Travel and Tourism Council (2013) analysis to augment the increased demand, the hotels had to enhance their capacity too and such a development was seen in 2011. c. Social Factors The changing societal trends and preferences have an influence on the prospects of hotels in India. Social factors are of primary importance in this sector and the consumer-staff interaction results in the service. The demographic, social and cultural backdrops of the consumers thus definitely affect the consumer behavior and thus, the services demanded by them. The hotels that experience good inflow of guests are those near airports, tourist attractions and business centers. To cater to the customers checking in for business purposes, the formats of the hotels are being customized such as having single bed or rooms with two beds, rather than rooms with double-beds. At the same time, the hotels are tying up with large business concerns, so that the staff as well as guests frequent the same hotel for business and conference purposes (Renuka & Mythili, 2011). The hotels are also coming up with banquet halls, conference rooms and garden restaurants and function halls, to diversify their offerings, cater to various customer needs and ensure steady influx of customers and income. The interest raked by medical tourism also encouraged the hotels to start spa and wellness services along with the regular services. These itself are projected to generate more than 2 billion USD annually, from 2012. Thus, the hoteliers are eyeing non-food specialities and differentiation, in order to attract consumers. They are developing amenities, luxuries and comforts that would give the feel of home and more to the consumers, who are ready to pay for the extra offerings (Renuka & Mythili, 2010). I. Cultural Perspective India is a land of diverse cultures and is a web of population coming from different backgrounds. The country has a growing economy, is the second largest populous nation in the world and an emerging market. All these reasons make it a cynosure for all the multinational companies. They eye it with high business intent also due to India’s large proportion of middle class and their increasing affordability. The business idea that too to set up a hotel in the country can only fructify when the cultural factors are also given due consideration in conducting commercial activity in this cultural collage. Language is the primary concern. Though the educated population is conversant in English and the official language is Hindi, every state has its individual language and the dialects vary regionally. To strike a chord with the local people, the service aspects, signboards, communication, etc need to be customized accordingly. Domestic and existing players gain mileage in this aspect and present stiff competition. So, there is a low probability that generic strategies of multinational players work out in India (Shankar and Debdeep, 2011). Indians value relationships and this necessitates the hoteliers to develop a good rapport and working relations with the people. The relationships and the links need to be worked out in order to start a business. This would in turn help in spreading a positive word-of-mouth promotion among the target customers as a company that cares for relationships (Gesteland and Gesteland, 2010). Umpteen religions and castes exist within the country, which set an unmentioned hierarchy among the population, even reservations are based on these aspects. Even in case of business, this plays an important role as the superior castes in each sector are already set. The members belonging to only that caste or religion can thrive within the sector in that area and trespassing is not encouraged. Setting foot in such sensitive areas by the business concerns has to be backed by the support from the existing players and appreciation of the system (CDA Media, 2012). The greetings and salutations are considered as symbols of respect and value locally. The people should be carefully differentiated into those to be greeted with a handshake or a ‘namaste’ for those with a traditional bent of mind. This simple aspect is important in creating an impression on the clientele. If the name includes the connotation of his caste too, the full name has to be used. It carries their pride and prestige (CDA Media, 2012). Numerous other cultural considerations sum up the success of business in India. Chicken is not served on Tuesdays. Cow is a holy animal and beef and cow hide are banned, while pork is not sold in Islam dominant areas. Right hand has to be used predominantly in business activities. Usage of left hand is considered bad omen, careless gesture and disrespect. Thus, small things mean a lot to the Indians and all these aspects must be carefully studied before entering the markets (Gorrill, 2009). d. Technological factors: The internet, wireless connectivity and broadband have revolutionized the world, not leaving the exception of hotel industry. 62 million Indians use social media and the number is forecasted to reach 80 million by 2014 (Jha, 2013). Thus, social media marketing has become mandatory to the hotel industry players in order to stay in touch with the customers, delight them and generate a positive word-of-mouth through the posts and qualitative and quantitative reviews on this online platform. These efforts definitely pay off as people trust their friends and relatives more than the companies. Hotel Management Information Systems is being aggressively used in the industry and the mandatory degrees and post-graduation in hotel management for the staff at certain levels of the hierarchy facilitates the ease of use of such software. This has increased the efficiency of the management (ICRA Limited, 2011). The room reservations and other services are being booked increasingly through internet. However, there is a need for the hotel to step-up their online services, websites and make them more technologically sound and friendly for the consumers. The electricity and other energy costs have multiplied for the hotels, in their attempt to computerize their services and offer better services to the customers. e. Other Aspects The hotel industry in India is segmented depending on many bases. The first is based on the number of stars, i.e., five star, four star, three star, two star, one star, heritage and other hotels. The capacity of the hotels are sectioned into those with fifty or lesser number of rooms, then 50-150 rooms and those with more number of rooms. The hotels may either belong to a chain or individual. The top tourist and business destinations including Bengaluru, Chennai, Goa, Kolkata, Mumbai, Delhi-NCR, and Pune are the targets of the hotel industry players. Other important destinations include Jaipur, Hyderabad and ten other cities of the country (Renuka and Mythili, 2011). The hotel industry is highly over-staffed in India and the number of rooms is just one-third the staff in the hotel, which is much less in developed nations. The labour and HR rules governing the other industries are over-looked in this sector, mainly due to the service orientation and the business being a round-the-clock and through-out-the-year affair. 3. Conclusions The hotel industry is flourishing in India, mainly due to the business travellers and tourists. It gets enough support from the Government, in terms of incentives, concessions, infrastructural facilities and promoting its prospects by all means. The economy is encouraging too as the country has huge population, good GDP growth rate and is seeing an increase in the disposable incomes of middle class population. Hotels are customizing their offerings as per the demands of the consumers. The diversity of cultures among the Indians need to be considered by the new entrants, as cultural fit is a must for promotion of services. Social media, internet and hotel management information systems have changed the face of hotel management in India and these must not be neglected while strategizing an entry into the country. 4. Recommendations Jumeirah group can take the advantage of the political and infrastructural developments undertaken by the Indian government and its policies, harness them to set up a hotel near some tourist attraction and reap success and profits. The gap between the supply and demand of rooms can be tapped by Jumeirah and encourage the middle class to take a ride into the luxury offered by the group at reasonable rates, so that they actively consider re-visiting the hotel or referring it to their near and dear. The economy is appealing and promises profits to the players. Though the cultural aspects of India and Dubai differ, there exist certain similarities that serve as common points for the Jumeirah group to succeed in the host country. Both the countries have a culture with religion at their heart. While Islam and Koran dictate the Dubai culture (Malinak, 2009), India is an abode to many religions and cultures, the beliefs and values of the people vary region-wise. This necessitates that the companies grasp the local consumer pulse and understanding a single large culture doesn’t suffice(Shankar and Debdeep, 2011). In Dubai, women are accorded high respect. Staring at women, shaking hands with them, enquiring about their wellness and whereabouts or touching them are considered offensive in the country (Malinak, 2009). In India, women are idolized as Goddesses and they must be respected. (Gesteland and Gesteland, 2010). Any products that do not support the Islamic traditions and beliefs, such as pork, alcohol, are not accepted by the population. Advertising, marketing and packaging should consider these limitations. In case of Indians, again the multiple cultures are to be addressed in these aspects and mainly beef is banned and pork is to be served cautiously (Gorrill, 2009). The business salutations and greetings are expected in both the countries and relationships are weighed more than business (Malinak, 2009). .Respecting the guests, business contacts and hospitality are prominent in both the countries, with food being the vital ingredient (Noack, 2007). Culturally, Jumeirah is in a good position of advantage to transfer its practices into India, to a large extent. The positioning and placement of the hotel would play an important role in the success of Jumeirah. The hotel is also known for being a tourist spot by itself because of the design aspects and grandeur. Placing it in a city that has tourist influx would further open doors for the guests into the new hotel. Jumeirah definitely has a mileage over the other players in the technological aspects, as it has proved its mettle in 10 other countries and has been managing more than 50 ventures round the world (Jumeira International, 2013). a. Marketing Mix Implications The information regarding the products and services offered by Jumeirah can be conveyed to the customers through travel websites and posting signboards near tourist attractions. Airports and important roads leading to the landmarks near the hotel can also be used for this purpose. The quality, luxury and competitive pricing must be communicated to the customers through Jumeirah’s regionalized website and social media pages. While positioning itself as a luxury hotel, Jumeirah must price the services reasonably, so that the extra costs levied for its specific services do not overload the consumers. The prices should also be competitive as the industry is heavily loaded with other players. Developing relationships with consumers as well as different people along the value chain is important as this helps in establishing the brand among the target customers. Concluding the analysis, Jumeira International Group would be profiting substantially by entering Indian markets, if it takes the political, social, cultural, technological and economic factors influencing the industry in the country, into consideration. Further, it carries certain advantages in terms of cultural understanding, quality service and brand name as a luxury hotel. References CDA Media (2012). Background to Business in India. [ONLINE] Available at: http://www.worldbusinessculture.com/Indian-Business-Style.html. [Last Accessed 4th May 2013]. Desai, P (2012). FDI in India touches USD 28.4 Billion. [ONLINE] Available at: http://trak.in/tags/business/2012/05/10/fdi-foreign-direct-investment-india-2012/. [Last Accessed 7 May 2013]. Euromonitor International, (2011). National Statistics. 1st ed. 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