Tourism Industry in the United Kingdom and Europe - Case Study Example

TUI Case Study and Section # of INTRODUCTION There are many industries and companies in the UK and Europe that depend on the tourism industry. Tourism industry is an important part for the people and the economies of UK and the countries in Europe. UK is a country on an Island and has many spectacular historic sites and architectural buildings centuries old. For their tourists, UK offers exceptional facilities and packages which include free security, free health care and hospital visits, excellent night life, historic places and architectural sites which are worth visiting. Europe is the second largest continent of the world and has 50 countries. Most of the countries in the European Continent have a pleasant weather throughout the year with rainfalls is summers and snowfalls and brisk winds in the winters. These countries therefore have a excellent features for attracting tourists. TUI: AN OVERVIEW Many businesses in the tourism industry of UK and the rest of Europe depend upon tourism. These businesses are museums, cinemas, hotels, night clubs, restaurants, leisure parks, spas, resorts etc (Aston, 2009). The UK tourism industry is worth £ 114 billion. The tourism industry of Europe is backed by the European Travel Commission (ETC), which is a non-profit making organization and has its main office in Brussels. This organization has 39 member organizations (European Travel Commission, 2009). The role of these organizations is to promote tourism internationally to European countries. These European countries have now started to focus on “Ecotourism” as mentioned in the European Travel Commission website. The focus on ecotourism and sustainable tourism was initiated when the tourism industries of Asian countries were booming and the Europe tourism industry was stagnated. The tourist destinations in Europe are not a booming business but they are very stable when compared to other tourist destinations of the world. The industry creates a lot of opportunities for the locals as they get more job creation and business opportunities. The single European market has been able to attract more tourists since the European Union (EU) came into existence (Pompl, 1993). The rich culture of the continent and the diversity makes it the most viable option for tourism whether it is for business reasons of for vacations. ENVIRONMENTAL ANALYSIS OF TOURISM INDUSTRY The general population in the world is tilting more towards family oriented fun and travel (FCCA, 2005). Individuals with families want to spend more time with their families on vacations and leisure time. The increase in youth activities together with their ability to earn at a young age has allowed them to spend more on travelling at holidays and vacations towards European tourist destinations. There is a slump in the global economy and many countries are still going through the financial crisis. Even U.S. has not been able to get out of the economic depression and many of its huge multinational companies have bankrupt. As a result the income level of the people around the globe has dropped and the unemployment level has gone up. The general price level has also gone up because of which the consumer demand for goods and services has gone down. Many tourists who want to head for UK for their vacations are unable to do so because of the lack of buying power and lesser savings for vacations. Business activities around the world have cooled down because of which the business tourists, who make up 15% of the tourist visits in Europe (Germany Trade and Invest, 2009), are limiting their business visits and stays in the UK and other the rest of the Europe. COMPETITIVE FORCES – THE FIVE FORCES FRAMEWORK Threat of New Entrants The cost of entry into the tourism industry is not very high for a country or a business. This is because the business does not have to practically do much to gain an entry into the industry. If certain characteristics of the country are attractive for the tourists, they will surely start visiting. The country has to consider costs such as increasing the security for the tourists on specific destinations, cleanliness of the destinations, providing facilities to tourists, investment on the transportation mediums. New destination may be developed by the businesses or the country to which many tourists are attracted (Vanhove, 2005). Each year many new destinations are developed by the government tourism agencies in different countries. Capital requirements, exit costs, government policies, switching costs, climate of the country and unstable political/law and order situation are some of the barriers to entry for new entrants. The Power of Buyers The buyers are very powerful in the case of tourism industry as the number of destinations worldwide for tourists is uncountable. Each destination is offering the tourists everything they want and different prices. The tourists are the buyers here and they have immense power. The more knowledgeable the tourist is, the more he will have the bargaining power. The Power of Suppliers The suppliers in tourism industry are not so powerful because there are numerous sellers. Every day new hotels, resorts, restaurants and night clubs are being inaugurated which is making the supplier market less concentrated (Vanhove, 2005). At this moment in time when the world is suffering from economic crisis, the power of suppliers goes down further as there will be no buyers. Many firms are seeking to integrate vertically (Vanhove, 2005). This approach is making some suppliers powerful against the others. The Threat of Substitute Products There are a lot of substitute products available as a family may choose to stay in a resort rather than a hotel because of their children. A business tourist may choose to travel by air rather than by train because of comfort and time saving. Internet ecommerce is a threat to the traditional travel agents who used to sell tickets and plan vacations seeking commission (Vanhove, ). However the biggest threat for the UK and Europe is the development of domestic or inter-region tourism in many countries (Vanhove, 2005). Domestic tourism is cheaper and pure leisure activities of European level can keep the tourists at home (Vanhove, 2005). The Competitive Rivalry in the International Industry Asian countries such as Sri Lanka and Malaysia are the biggest competition for UK and Europe. This is because these countries are dependent heavily on the international tourists and put in a lot of investment for the advertising and the government policies are very supportive. The competitors are much differentiated but the tourists have to choose anyone place to visit. The destination which gives tourists lower rates and good leisure time is the place where they want to be. There is a lot of competitive rivalry within the tourism industry of UK as well. There are a lot of options for the tourists to select from, this makes the competition in the industry more intense and the destinations engage in price wars and increase in facilities of the tourists. PESTEL ANALYSIS Political Factors The industry plays a crucial role in the economy of UK. The government has funded a number of bodies whose job is to promote and market tourism at home as well as at international level (Bardgett, 2000). Since 1997, UK government has reviewed the tourism policy at a number of instances. There are direct and indirect favorable policies for the tourism industry, particularly because it is a labor intensive industry. The industry creates a lot of jobs each year and a total of 1.8 million tourism related jobs are in the industry (Bardgett, 2000). Economic Factors The Western countries are suffering from a major economic recession which has led to the downfall of many businesses. This has led to rise in the level of unemployment. Therefore the demand for the tourism industry has gone down. Most tourists are heading now for cheaper substitutes such as domestic tourism of vacations in Sri Lanka, Thailand or Malaysia. Socio-Cultural The lifestyle of the population in the world is changing and they like to spend their off time in other countries. Demand for low cost carriers has gone down and most people prefer self service lodges rather than hotels for their stays. Young people are now able to earn and save and then plan their vacations. This has led to many youngsters participating in short holidays. The population used to spend their summer vacations or winter vacations in visiting other counties but now the tourists tend to smaller vacations all year long. Technological The low cost carriers and more efficient aircrafts such as Boeing 777 are being developed which are helping the tourism industry to thrive. Technological breakthroughs and advancements in air and cruise industry have reduced the cost per passenger. As a result, the passengers are able to travel at a much lower rate than before. Use of Ecommerce in tourism industry has allowed the tourists to get more information, plan their holidays without any intermediary and get lower rates on hotels, travelling and restaurants on advanced booking. Environmental There have been a number of natural catastrophes in the areas where the major and the most popular tourist destinations are. The weather is very unpredictable; hurricanes and storms hit the coasts of many European cities frequently. Rise in tidal waves and strong winds can be caused by earthquakes and changes in weather. Many bodies have been formed by the EU to support the sustainable development of tourism in the region. Most authorities are focusing on sustainable development and maintenance in the coastal areas (Ellul, 2000). Legal The businesses in the tourism industry have to comply with many legal requirements and any kind of discomfort if provided, to any tourist, can get the businesses into many lawsuits. There are many laws to protect the environment and these businesses are not allowed to cause any harm to the natural environment. The privacy of the tourists has been the top priority for many tourism committees. TUI: STRATEGIC ANALYSIS The businesses in the tourist industry of Europe are following joint strategies to provide more facilities to the tourists. To attract more tourists, the hotel rates, sales taxes and transportation fares have been reduced. Many businesses in the UK tourism industry are backing a campaign for the cut in value added taxes (VAT). This would help the UK come in line with its counter parts in the European continent (Aston, 2009). German government is also bringing down the VAT rate on hotel rates bringing it down to 7 percent in the next year (Aston, 2009). Similar cuts have also been noticed in other EU countries. Tourism bodies have estimated that the change in strategic direction could create more than 23,000 jobs in the next year (Aston, 2009). This strategy was followed when the governments realized the true potential for tourism in the European countries. Europe was able to attract 60% of the world’s tourists last year (Bardgett, 2000). But the majority of the tourists were from within the Europe. Therefore the government is making strategic decisions by which the industry can be promoted within the continent. PORTER’S GENERIC STRATEGY IN TUI Figure 1 (icnet.dk, 2008) The source of a business competitive advantage has been attributed to the following strategic strategies which are defined as Porter’s Generic strategies (QuickMBA, 2009). The list of those strategies is as follows Cost Leadership Strategy Differentiation Strategy Cost Focus Strategy Differentiation Focus Strategy The prime determinant of the firm’s profitability is the health of the industry in which it operates in. And the secondary determinant is its strategic positioning in that industry. Even if the business does not generate high profits, other firms which are positioned according to the wants of public, can generate super-normal returns (QuickMBA, 2009). The tourism industry of the UK and Europe is following cost leadership strategy in the global arena (QuickMBA, 2009). This is evident by the cost reductions by the businesses and willingness to absorb the VAT in order to attract more tourists. The businesses in the European countries have decided to provide the same quality with reductions in costs. The government has also encouraged and proposed cost cuts by the businesses in order to make the destinations more attractive to the tourists (European Commission, 2009). The European Commission has made certain laws and European standards to which the profit making businesses have to abide by. The pricing of the room rates, food, leisure activities, and air fares are all set according to the standards of the European Commission (European Commission, 2009). Pricing is done to attract the foreign tourists to the European countries. ANSOFF’S GROWTH STRATEGIES Figure 2 (tutor2u.net, 2009) The tourism industry of UK and Europe are following the strategy of Market Development (tutor2u.net, 2009). This is because the destinations that they offer to the tourists are the same as before and no new destinations are being offered. But new markets are being explored with the help of ecommerce and globalization. The existing destinations are being improved and more facilities to the tourists are given now but there is no remarkable product development. The Ansoff Growth Matrix is an instrument that is used to identify and decide the growth strategies that a firm wants to implement. The two variables considered here are the market and the product. Figure 2 shows the four strategies used when growing. METHODS TO PERSUE STRATEGY The population of Europe is being made aware of the long term economic benefits for the continent from a sustainable growth in the tourism industry (Spall, 2003). South-East Europe is building and growing upon its existing cultural diversity, natural environment and the geographic location. TUI: COMPETITOR ANALYSIS The main competitors for the European tourism industry are the Asian countries which have invested a lot of capital in tourism industry. The labor is relatively a lot cheaper in these Asian countries such as Indonesia, Thailand, Singapore and Malaysia. This causes the businesses to charge less from the tourists and still make high profits. These Asian countries have a pleasant weather almost all year round. There is no snowfall or any other hindrance to the tourists any time of the year. The biggest advantage that the competitors have is low cost of inputs and labor. The governments of these countries have realized the true need of investment into the tourism industry for its sustainable growth. These countries have favorable government policies help the firms in the industry and government backs many legal issues that the businesses face. These competitors provide ease of obtaining visa for the tourists but still the examination of the tourists is stern. TUI: THE FUTURE ANALYSIS The government bodies and agencies responsible for the promotion of tourism in Europe should focus on how to retain a leadership position again in the global industry of tourism (Europe Summit, 2009). As we know that the international tourists have limited their arrivals to UK and the European countries as a result of racial discrimination, very high prices, restrictions in visa grants and springing up of many viruses such as Swine Flu. European authorities need to improve the environment for the arrivals of international tourists from developing countries like Pakistan, India, China and Japan. The tourism industry is dependent upon many factors such as the income level in the population, employment level, political factors and the prosperity in the global economy. To recover the industry from the current economic crisis, the first step should be the ease of visa obtaining for the tourists. This will enable many tourists from the other continents to arrive in the European countries for vacations and holidays. RESOURCE IMPLICATION: USE AND LIMITATION The main resources that the tourism industry is dependent upon are the labor force and the natural environment. The tourists visit other countries for a peace of mind, relaxation and for leisure. There are limited destinations in the European continents where the tourists can enjoy. All these destinations are not even available all year round. Most of the destinations are not accessible in the dry and winter seasons when there is snowfall and winds. Once these natural resources reach their capacity, more tourists cannot be accommodated at the destinations. This is a limitation for the natural resources in Europe. The snow on the mountains is melting away which will not allow the tourists to ski in the mountainous areas of the Europe. The human resource does not have the required skill set to provide value to the tourists who are arriving from a global base. Most of the people are going into the technology field and a very few are entering the field of hospitality. Because of the low pays to the people in the hospitality industry, the youngsters in the European countries are not coming in this field. Therefore a time will come when these resources will have to be outsourced at a very high price. CONCLUSION The life expectancy of the people in general is increasing in most parts of the developing and developed regions of the world. As the people get older, they spend most of their time visiting other countries and vacating. They spend their savings on tourism. This is the reason that most of the tourists in Europe are from the European countries rather than the other countries. But still only a small percentage of tourists are of the age 45 and above. The TUI needs to search for market niches such as the one described above and exploit them to improve the tourism industry. Levy on hotels, resorts and development of new areas in tourism should be minimized to gain more tourists from the competitors. APPENDIX Appendix 1: Top Ten destinations for UK visits abroad S. No. Destination Visits (thousands) Spending (million £) 1 Spain 13,000 3,300 2 France 21,000 2,660 3 Ireland 4,100 749 4 USA 6,765 4,545 5 Italy 5,645 2,344 6 Germany 3,024 879 7 Portugal 3,300 765 8 Greece 2,980 354 9 Belgium 3,100 866 10 Netherlands 1,506 743 Source: ONS, Travel Trends, A Report on the 1998 International Passenger Survey Appendix 2: Structure of Tourism Industry in UK The tourism industry in UK is very fragmented an subdivide into many parts, with numerous small businesses (Bardgett, 2000) The government of UK has estimated that there are almost 200,000 firms that are related to the tourism industry directly(Bardgett, 2000) Three-fourths of the firms in the tourism industry have a turnover less than 300,000£ per year (Bardgett, 2000) The industry in UK has problems for the tourists as well as the business owners 90% of the visas that are requested by people living in other countries for tourism are rejected by the British Council There is a lack of coordination between the government of UK and the business owners There is a lack of realization for the tourism industry competitiveness The presence of numerous small businesses makes it difficult to forma cartel for advertising and promotion of the tourism industry Large businesses do not engage in the promotional activities as the small firms will be free riding the results of the promotional activities The industry has been unable to take advantage of ecommerce and the use of internet Wintertime packages are not made Appendix 3: European Vacations Many analyst say that there may by ne better time to take advantage of the vacation in Europe (Higgins, 2009) There are fewer tourists in Europe than ever although the rates are very low The government is making favorable policies for the tourists and for the businesses The hotels and restaurants in the European region have decided to absorb the VAT by 19 percent which has reduce it to 7 percent Fares for air travel in Europe have fallen by 13 percent below the last year level (Higgins, 2009) Plenty of hotels which are ready to bargain with the tourists for a lower room rate BIBLIOGRAPHY Book Pompl, W. 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