The Analysis of the Hospitality Industry - Essay Example

Hospitality Operation Management Report 28th Sep, Contents Executive Summary 3 Introduction 4 Discussion Analysis 5 Social Factors 6 Political Factors 7 Economic Factors 8 Cultural and Environmental Factor 9 Technological Factor 9 Environmental Factors and Other Factors 10 Conclusion 15 Bibliography 16 Hospitality Operation Management Executive Summary The topic under review is “Hospitality Industry”, and how different regions manage their operations. There are many factors that play a significant role in the decision making process of the hospitality industry. This report is primarily based on discussing the critical factors that can affect the hospitality operation management. In our paper we have selected the third point in which we have to critically analyze and evaluate the key environmental factors that have a role in influencing the business development decision with respect to the hospitality industry. In this regard we have selected tourism as our topic. In our report we would also highlight the reason why we have selected tourism as our core hospitality feature. In our study we will use secondary sources to gather our data and based on the gathered data we will reach our conclusions. Hospitality industry is a well-researched topic, and we have plenty of credible sources which can assist us in better research of the discussion questions. We will start with a brief introduction of hospitality industry and the vast services that are a part of it; further we will also give a brief introduction of tourism industry. After the introduction we will discuss and analyze our core topic and would elaborate on few of the main influential decision in the business development process for the tourism industry and how they can be eliminated to achieve the desired optimal results. We will further substantiate our discussion question with examples of various geographical regions. Once we have elaborated on the issues and discussed the solutions we would conclude our topic with the research analysis and findings. Introduction Hospitality industry is field of service industry and includes a large range of customer services such as event management, transportation, tourism and many others. The core concept behind hospitality industry is customer service which is shared by all the sub-segments of the industry. The three core categories of hospitality industry are food and beverages; this is the biggest segment of the industry and takes into account food places from the most expansive to the least (Reynolds, 2014). These also include the sub-chains which are open as facilitation to other units i.e. shopping plaza. The second part of the hospitality industry is accommodation; these include hotels, and other places offering lodging facility. These are the facilities provided by different lodging units. The third and final category of hospitality industry is travel and tourism. These include travel from all modes such as train, aeroplanes, ships and even rented vehicles (Reynolds, 2014). Since these factors are largely operated and influenced by the economy of any country, the more stable the economy of a country, the higher the business it will generate from the hospitality industry. The economy of the country includes all the aspect of the environment and political stability. Any business run by an individual or the government will only sustain if it being provided by a healthy environment, where the people feel safe and free to eat, travel and live in peace. Tourism defines all aspects of our society, and is related to geography, history, language and economics of the country. It is an integration of all the subjects and has an integrated model. The core of the model is the object to travel and visit different places, which could be within the geographical region and across the boards as well (Haskayne, 2009). The outer circle of objective is tourism promoters, the team which includes the travel agents, planners, marketing team, tourist board and the tour operator. The third circle in the model represent the tourism suppliers which include the organizations and places that provide for accommodation, food, transportation and other activities. The final and outer layer of the model represents external environment which include economy, society, politics and the environment (Tune, 2014). There are many factors that can influence the productivity and performance of the tourism industry. Detailed analysis of these factors are done in the third part of the paper; however few of the macro-environmental factors that can play a significant role in the decision making process of tourism industry includes economic environment which refers to the economic system in which the business operates, politics and government which include the political institutions including the law and legislature which provides the basic frame work, socio-cultural environment which includes the social trends of the geographical region, natural environment which includes the weather and climatic conditions, demographic environment which shows the ratio of male and female in the society, the age group and the population parameters, technological environment which is a depiction of the flexibility of the country of how quickly can it adapt to the changing technology and finally the international environment which shows the influence of the global perspective on the existing boundaries (Pardeep, 2014). Discussion Analysis There were three choices given for the paper, and we have selected “Critically analyze and evaluate the key environmental factors currently influencing business development decision making within a sector of the hospitality industry of your choice”, and shall conduct research on tourism industry. As discussed above, various factors that play a significant role in influencing the effectiveness of the tourism industry in positive and negative manner include social, cultural, political, environmental and technological factors. In this section of the report we will study each factor in detail to understand the manner in which it affects the tourism industry and the decision making and what corrective measures should be taken to improve the effect. Tourism industry is mainly influenced by the environmental factors, factors that define the nature and factors that are affecting them. However, the other factors such as social, political, cultural, and technological are linked to the environmental factors that affect the business development decision making of tourism industry. We shall study all the factors individually and finally study the direct and indirect effect of the factors on environmental factors that finally influence the tourism industry. Social Factors Social factors are the factors that relate to the society of the country and most importantly the thoughts and behavior of the people. These social factors include the demographic information about the country. These include population parameters, culture, religion, literacy rate, household structure and similar factors. Social factors becomes the most critical part of the decision making process in the tourism industry. The lifestyle of the people, the fashion trends being followed, the religious factors, consumer attitude and opinion and the buying pattern have huge impact on the business strategy of the tourism industry (Zapalska, 2007). These factors have a high influence on the business development of the organization. The social factors affect the pricing decision of the business. These include the cost, organizational marketing objectives, competition, distribution channels and buyers’ perspective (Morello, 2014). The changes in these factors affect the demand and supply chain of the business, one of the examples that can be quoted there is the age demographics, if there are more old aged people there is decrease of labor force in the society, which is increase in labor cost, they have a long lasting effect on what people think and how they plan to live their lives. The tourism industry and its management operations are greatly influenced by these factors. Political Factors Political factors include the government and the representative body for the country. They are the law making and abiding people who ensure the safety and security of the people within the country and travelling from all other regions. Government is the key to support the tourism and travelling industry, there infrastructure and investment in the industry shows their willingness for the interested candidates. The political factor is an important factor when considering for travelling, because the change in the political scenario has led to cases of violence and war, which can cause the traveler to feel unsecure due to low security (Morello, 2014). There are many regions in the past and in the present which are being negatively affected by the political factors especially with respect to the tourism industry. Egypt was one of the most popular destinations with respect to travelers but in the recent past they have lost the interest due to the change in the political environment which has negatively impacted the face of the country outside the region. Travelers have started looking for other options that could be availed instead of travelling to Egypt (Pardeep, 2014). Like-wise Thailand-Bangkok was also negatively impacted by the political changes in the year 2010, which led to decrease in the travelers and the profit contribution to the GDP (Rauch, 2014). Government is the core body that ensures that all the needs are met for an effective tourism industry. The clashes of the society should be handled with great care and maturity and must not leave the boarders. Economic Factors Economic conditions do not only influence the travelers but also the business operations of the tourism industry. In poor economic conditions the tourism industry will have to price them at low margin, and generating low profits. It represents the ability of the humans to spend money on leisure, and the most spend leisure activity is tourism and travelling. If the people have favorable economic conditions the people would have more motivation to invest in tourism and if they are under pressure in meeting their daily requirements it becomes difficult for the individual to even plan a leisure trip. Travel trends are also developed from the economic factors, they determine the places to which people will prefer to travel, and it also determines the mode of travelling that will be adopted by the tourists. Economic conditions also influence the currency fluctuation which affects the cost of travelers (Slide, 2014). The key decision is the conversion of money from one currency to another, which is also a key factor that affects the business development decision in the tourism industry. Economic stability has to be achieved at global level, and it can only be achieved by generating prosperity and addressing the cost effectiveness of all economic activity. If the people would have low cost living they would save more and would be better able to spend on tourism industry. It is also reflected from the viability of the company and its sustainability in the long run. If the economic conditions are better, the business development of the tourism industry will flourish and the organizations at private or government level will have much more room to explore and expand. Cultural and Environmental Factor The environmental factors have also played key role in business development of tourism industry. These factors include the weather conditions, climatic conditions and the change in weather and climatic conditions, what are the external risk factors of floods, earth quake and drought. These factors have a vital role to play in the traveler’s decision making because these conditions are related to the nature. Stability in the environmental factors means to manage the resources in a manner which provides with the optimal utilization to the citizens of the country (Zapalska, 2007). These require corrective measures to be taken on part of the government to ensure that less damage is caused to the natural calamities. The cultural factor is increasing becoming an influencing point in the decision making process of the tourism industry. There are many cultures that have developed and marketed themselves in a manner which have attracted a huge population of tourist one of these cultures is Hinduism and India. Technological Factor Technology have been a driving force in almost all of the industries today, it has changed the course of work and have been the basis to provide with a better working standards. It has been evolving over the years and still in the growth stage. The biggest advantage and disadvantage of technology is the introduction of the world wide web, it is the biggest advantage because now the entire world is connected and people show more eagerness to travel and the tourism industry have flourished with the introduction of web (Ashoka, 2014). People can now search places they want to visit and plan their entire trip accordingly. The same web is a disadvantage because it does not only provide the travel about the place but also all the related details which include all the factors mentioned above. The traveler makes a conscious decision before they plan their trip to explore different regions. Tourism industry amongst many other is one of the fields that have used technology as the key to sustain and grow, using computerized systems and soft-wares, creating extensive and complex database, collecting data and comprehending the knowledge for the use of future strategy and finally the developments and innovations in terms of travelling and tourism (Pardeep, 2014). It is aiding the decision making process for the investors (including government and private investors). They can study the critical factors of a traveler and plan their tourism organization accordingly. Environmental Factors and Other Factors Environmental factors are related to the nature, these include natural and manmade destructions. It is one of the critical factors in the business development decision making process of tourism industry. Travelers are much concerned about the nature of the country before they travel. There is nothing much a person can do about the nature, but there are strategic decisions that can be taken to prevent the region from bigger natural mishaps (UNEP, 2014). In case of floods, water storage plants can be created and in case of droughts the same water can be used. For earth quakes the building can be constructed with protection measures against it. These are decisions which are made by the government. The political stability of the country is very important to ensure the strategic decisions are being taken for the nation. Porter’s Five Forces Analysis The five forces analysis of Michael Porter is a model for business-strategy development and industry analysis. It employs ideas formulated in industrial organization (IO) economics to develop five forces that identify or measure the competitive level and, thus, profitability of a market (Enz, 2009). An unprofitable industry is characterized by combination of forces that works to weaken the general profitability. The five forces are (Enz, 2009): (1) threat of entrants; (2) power of suppliers; (3) power of consumers; (4) power of substitutes; and (5) competitive rivalry. These five competitive forces of industry will affect investment, costs, and prices. Threat of Entrants The threat of new entrants into a specific industry poses a substantial impact on a tourism organization. New entrants could encourage greater price competition or greater allocation of resources or investment in product differentiation as they try to acquire profits and market share and current companies strive to guard profit and market share. The intensity of the threat of new entrants will rely on entry barriers like brand proliferation barriers; natural monopoly conditions; anticipated entry wars; availability of distribution channels; economies of scale (Kozak & Luisa, 2013). Evidently entry barriers will embody an obstacle to be conquered for companies wanting to enter an industry or protections/advantages/defences to be sustained and fortified in the case of major companies. On a global basis, the tourism industry is distinguished by a high ratio of fixed costs to total costs, including high capital costs (Evans et al., 2012). The high capital costs demand that from the start the tourism project should be administered to attain the most profitable allocation or utilization of resources in terms of construction, finance, and pre-operational expenditures. The two important aspects that allow tourism organisations to set them apart from the rest are quality of service and correct location for the target market. The success of a tourism project is highly dependent on the experience of staff, quality of service, management, and location (Evans et al., 2012). The tourism industry is characterised by high entry barriers limiting new entrants, especially due to the mixed forces of high capital cost of entry and economies of scale, alongside scarce availability of good locations. Power of Suppliers Michael Porter stressed that an industry’s suppliers could be influential if they are more intensive and condensed than their customers and these customers do not hold a substantial portion of their operation because these customers do not characterise a prospectively stable or profitable relationship, for instance, regular customers as opposed to unique or unrepeatable customers. Another case would be that their customers are confronted with differentiated services and/or products or high switching costs (Enz, 2009). Customers could be hesitant to switch to another supplier if this switch would incur an additional switching cost. Suppliers have greater bargaining power if their service and/or product are an indispensable component in an industry’s profitability. The input of the supplier is vital to the profitability of the product and/or service of the customer like local tourist operators, thus pulling down the price sensitivity of the customer. Nevertheless, the only supplier which could wield influence over any organization would be experienced staff and labour, which is highly sought-for in the tourism industry worldwide (Kozak & Luisa, 2013). With regard to other industries, tourism organizations are not substantially exposed to or dependent on their suppliers’ bargaining power. For a stable, long-term business strategy a tourism organization should sustain an enduring cost advantage over possible competitors in upper level strategic organisations. Power of Consumers Consumers can be a threat of backward integration since huge numbers of consumers can obtain the supply source. If the contribution of the industry is not important to the success of the consumer’s product and/or service, then price sensitivity will rise. Consumers have the privilege to be influential if procurements from the industry make up a substantial percentage of their overall costs. Consumers will acquire low margins and become price sensitive if they experience difficulties transferring cost escalations easily or quickly, or deal with them because of low profit margins (Kozak & Luisa, 2013). Numerous travel agencies or in-bound tour operators have already experienced such. Specific consumer groups wield bargaining power as an outcome of their bulk procurements of tourism products and/or services. Such organisations would involve convention organisers, international or domestic airlines, and tour operators. Differentiation is an important aspect with regard to the tourism industry and for specific sectors of independent leisure travellers, yet it drops in value in the strategic unit dealing with budget leisure groups and tourists (Evans et al., 2012). Power of Substitutes Porter explained that substitute products and/or services can be available or possible products and/or services which are capable of carrying out the same purpose. Substitute products have the capability to trim down costs or offer higher level of quality with greater service because of technological development (Evans et al., 2012). In the low-income strategic market for tourism, staying with family members, motels, or hostels could substitute low-cost hotels. This strategic group is very price sensitive. The tourism industry in not endangered by substitute products apart from the fact that in periods of recession local travel could substitute overseas or international travel and particular tourist spots substitute more costly destinations on price basis. Theoretically, substitute products fulfil the same purpose, cut down costs, and offer more premium quality. There is no significant threat of substitute products particular to a tourism industry’s product and/or service (Enz, 2009). A tourist operator will be exposed to influential consumers only if its marketing technique focuses on drawing tour groups. A tourist operator may not seem to be specifically susceptible to strong competition due to the disjointed characteristic of the competition in its strategic market and the possible rate of growth of its target market (Kozak & Luisa, 2013). In other words, substitute products are not a significant risk to the tourism industry in general. Competitive Rivalry Porter repeatedly explained that level of rivalry is reliant on size and number of immediate competitors as a large number of competitors could result in high level of competition. This is due to the fact that business growth aimed at is higher than the industry’s growth rate. The competition for market share becomes forceful and concentrated when switching costs and product differentiation is weak (Evans et al., 2012). Exit barriers take place because of economic and strategic aspects which sustain rivalries in an industry. In spite of negative or low-level diversity and profitability, industries and businesses could have diverse strategies, objectives, and origins and an intersection in target market. Conclusion Tourism should be made more sustainable because of its important to the travelling person and travelled region. It provides benefits to both the parities, there are many efforts that can be made to ensure that the industry is growing under safe and secure environment. In order to achieve the same the principles of interaction and awareness can be used. Interaction can include the nature of tourism in which the traveler, host communities and the environment can interact. These should not be affected by any external factors, and the government should take corrective measures to ensure that the place is physically secured and protect. The awareness can include information about the environment where the tourists are well aware of the environmental issues and the difference of culture. A sustainable tourism can only be made possible if the countries at individual level and world tourism organization at larger level create and develop guidelines for management practices and service quality. In which the environmental resources are being optimal utilized and the economic operations are sustainable for a longer duration. Tourism is a growing concept and should be given due importance because it provides the people with an experience, an experience of exploring places and culture an experience of exploring religion and environment. Tourism should be made safe in each region and traveler should make his decision solely on his opinion of traveling and not the factors that affect the core decision of tourism industry. Bibliography Ashoka. 2014. Environment. ASHOKA INNOVATORS FOR THE PUBLIC. [Online] 2014. https://www.ashoka.org/fields/environment. Australia.gov. 2014. Tourism Hospitality. Australia.gov. [Online] 2014. http://www.oph.fi/download/145170_TourismHospitalityEventsScan_Print.pdf. Chan, Diana. 2014. Sustainable Tourism in New Zealand. Newzeland.gov. 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