PEST and Five Force Analysis of the Brazil Tourism Industry - Case Study Example

Brazil Tourism Industry Table of Contents Brazil Tourism Industry 2 Tourism Industry: Latin America 3 2.2. PEST Analysis of Brazil Tourism Industry 5 2.3. Five Force Analysis: Brazil 8 2.4. Tourism trend 13 Reference 15 The Economist. October 15, 2009. Brazil’s recovering economy. [Online]. Available at: http://www.economist.com/countries/Brazil/ [Accessed on 8 February, 2010]. 17 World Economic Forum. No Date. Travel and Tourism Competitiveness: Highlights. [Online]. Available at: http://www.weforum.org/en/initiatives/gcp/TravelandTourismReport/Highlights/index.htm 17 Bibliography 18 2.1. Tourism Industry: Latin America With an impressive growth of the global tourism industry, Latin American travel and tourism industry has also forwarded its leaps in the past two decades. In 2005, Latin America accounted for third highest number of tourists arrivals of 133 million (16 %), following Europe with 56% (444 million) and Asia Pacific with 19% (156 million) (Fayissa, Nsiah & Tadesse, 2009). One of the many reasons behind this growth rate is that, Latin American countries have made certain numbers of market oriented reforms aligned with the global trend to make their tourism industry more attractive. Latin American E-commerce industry has contributed a substantial amount to this remarkable growth of its tourism. E-commerce has made information easily accessible. People can book flights, get to know about the prices, reservations, all in a simple click. Latin American tourism and travel industry is getting more efficient and translucent day by day; but it will be erroneous to say that the stages of growth, learning and experience curves are all equal for all countries out there. Different countries are in different stages of development life cycle. For example, Brazil is slowly expanding the development of its ecotourism industry in its Amazon region; at the same time initializing the progress of beach tourism centres in places such as Costa do Suipe. In the period 1990-2000, many Latin American countries had seen an increased number of tourist arrivals. Mexico, being Latin America’s main tourism spot, saw the number of tourists increase to 19.42 million in 2000 from 6.39 million in 1990 (Gouvea, 2004). The below mentioned table shows number of tourists per capita starting from the year 1985 till the year 1998. Brazil is leading with a positive slopped yellow line. Costa Rica is the nest one in big row. (Source: Martin, Morales, Scarpa, No date, pp 5) The tables, below, are showing the environmental aspects for some selective Latin American countries. In environmental Sustainability ranking Costa Rice has ranked 9th with highest environmental sustainability index (ESI). Another important tourist region, Brazil has the highest percentage of lands as forest areas. Mexico has the highest number of mammals while Columbia is known for highest number of birds. 43.1 % of the total land area in Ecuador is announced as nationally protected areas. (Source: Gouvea, 2004, pp. 4-5) 2.2. PEST Analysis of Brazil Tourism Industry Brazil is the maximum populated country in Latin America. Being blessed with natural beauty, Brazil is one of the leading tourism destinations in Latin America. Several political, economical, social and technological environments are there, which can put an impact on the tourism industry. The currency of Brazil is comparatively weak against other important currencies (PRLog, 2009). Along with it the country has low end flights connecting it to other countries. These positive issues have helped Brazil to make a note in tourism industry (PRLog, 2009). Political issues: Partido dos Trabalhadores, led by Luiz Inácio Lula da Silva is the leading party in Brazil. Partido do Movimento Democrático Brasileiro (Brazilian Democratic Movement Party); Partido da Social Democracia Brasileira (Brazilian Social Democratic Party); and Democratas (Democrats) are the main political parties in Brazil. The ruling party has given a firm performance in recent election on October 5.Inspite of such a outcome, chances are bright that another president will take over in 2011 after President Luiz Incio Lula da Silva leaves the office. Dilma Rouseff, Lulas chief of staff, is being seen as the party’s candidate to run for president in October 2010, against So Paulo, state governor Jos Serra.The political environment is quite stable in this country (Mainwaring, n.d.). Even Brazil has signed a cooperation agreement which is supposed to be beneficial for Brazil tourism (JTA, 2009). Social: Brazil’s social life is quite rich with different cultures and heritages. This must be one reason why Brazil tourism is getting intensified day by day. As per a survey conducted by the Institute for Public Policy Research (IPPR) in 2006, there were 11,000 Britons living in Brazil, making Brazil the 37th most popular country for British citizens to stay in (Prospects, 2007). These positives are somewhat diluted by Brazil’s reputation for lower level of safety and security. World tourism organization has ranked 128th out of 130 countries on safety and security .These conditions were mainly for low level of infrastructure and communication over this country. So as Brazil has initialized development in its infrastructure and communication, one can really hope Brazil to improve its safety level in near future. Economical: Brazil has an up growing economy. Blessed with natural resources Brazil is heading towards a strong economy. This country is watching a steady improvement in economical condition starting from the year 2004. Despite of the recent downturn people are still confident with Brazilian economy. Although some are worried about the recent tightened liquidity and still- rising interest rates in Brazil and prefer the economical growth forecast to be around 3.5% in 2009.A major contribution towards this healthy economical growth comes from Brazilian tourism industry. The following facts gives an idea about the economical condition of Brazil. (Source: INFOAMERICAS, 2001, pp 1) A major part of productivity gap of Brazil with that of United States seems to be there for a main structural barrier. The per capita income for Brazil is quite modest. For this reason even consumers over there prefer to have products and services with low price range. Technology: In 2008, as per the Travel and Tourism Competitiveness Index (TTCI), Brazil ranked 58th in information and communication infrastructure (World Economic Forum, n.d). Technology has a noticeable contribution towards tourism industry development; because today information needs to be easily available to make tourism more transparent, more accessible. Brazil needs to work on their technology part to take the tourism industry one step further. 2.3. Five Force Analysis: Brazil Since last few years, Brazilian tourism is in its booming stage. Regardless of the recent downturn, the economic condition in Brazil is on stable side ((Economist, 2009). Brazil is located in such a geographical area which connects with many developed countries through shorter and less expensive overnight flights. As years are passing by, the number of the tourist is also increasing. Hence Brazil tourism ensigns good for the whole economy and is able to attract more and more investors towards it. Any business has to analyze the environment around it as well as get into the business dynamics to work effectively. Porter’s five force analysis is a way to look at the inner and outer threats in more effective way (Porter, 2008). It takes moderately large amount of capital to be in a hotel industry. So in luxury hotels and resorts, it will not be so easy to get into. Although in low scale budget hotels the entry can be much smoother. Large numbers of tourists, come to Brazil, look for these kinds of low budget hotels. As Brazil tourism is on developing stage, more and more capitalist would like to invest into this industry. So overall, Brazil tourism seems to have a moderately low level of entry barriers. As there is low barrier level in entry, the intensity of competitiveness seems to be moderately high. At the same time, profit amount for this industry is not so high to feed everybody in there; people have to compete for the same .This is another reason why the competitive rivalry is high in this industry. This industry is till on developing stage. Their travel and tourism are still undermined for their low level of safety and security. In such a course the tourists have more power of bargaining than the hotel or transport owners. An example could be that the fare of the flights connecting other countries to Brazil is quite cheap when compared to other flights (PR Log, 2009). Brazil is one of the most favorable tourist spots in Latin America. Argentina and Mexico are two other top tourist spots. Brazil is lagging a little behind for low level of safety and security (Foreign & Commonwealth Office, 2010). In such a scenario, tourists may prefer any other tourism over Brazilian tourism. So threat of substitutes exists for Brazil tourism industry. In overall, any institution, being in Brazil tourism industry, has to compete within the industry itself and even as a whole to outside tourism industries. As days are moving away, Brazil tourism is getting more developed, making it more competitive. The table shows an account of top ten different tourist places in 2005. To spend leisure periods people often prefer Rio de Janeiro, the capital of Brazil, to be the best place to be in .Sao Paulo is the most preferred place for the tourists coming for business events and other purposes. 49% of the tourists arrivals in Sao Paulo are due to business events and conventions, only 14% of the tourists come for leisure purposes. (Source: Anúario Estatístico, 2006). Sao Paulo Hotels and its competitors: From the above table it is apparent that Sao Paulo is one of the most travelled places in Brazil. The charming beauty, the lovely coziness, Sao Paulo has it all. Now it is obvious that Sao Paulo will have a number of hotels to welcome the tourist over there. To name a few, Pan Americano, Linson Suite, Inter-continental Sao Paulo, etc. Although maximum hotels are situated in downtown, a number of hotels are also there in the city itself. For an instance Linson Suite is a hotel in the city itself while others are in downtown. It gives to an idea that maximum tourists like to stay in downtown as staying there they can have a taste of the beauty of Sao Paulo. The price range for the hotels in this the city mostly starts from $75 and can go on till $342. In the downtown it starts with $ 50 and can go on above $300. If we scale this industry on Porter’s generic strategies, it seems that the hotels over this region are mostly work on cost effectiveness. Hotels in other regions are mostly having higher tariffs than those in Sao Paulo region. For an instance hotels in Rio De Janeiro can be taken. Maximum hotels over there start with the range of $200-$300 and can go on above $5000. The tariff in Praia Ipanema hotel starts from $5673. Sao Paulo hotels are very cheap while it comes to tariff rates. So it seems Sao Paulo hotels’ strategies lie in cost leadership. They are mostly focusing on tourists who come with lower budget. Even within the region we can see a focus on the tourists who love to be in downtown, as maximum hotels are built up in there only. The below graphs show occupancy rates, supply, demands for two different regions. Looking at the occupancy graph for Sao Paulo, daily rates are mostly accompanying the occupancy rates. Although in 2014 the projected daily tariff has increased in spite of a stable occupancy rate. The second graph shows a similarity in case of occupancy rates for both the cities. Both the cities have the lowest occupancy rates in the year 2001-2002. Apart from them it shows that Reo de Janeiro has enough supply of rooms against their demands. Despite of having lower occupancy rates in the year of 2001 and 2002; that could not discourage them to increase on their capacity level. (Source: Canteras, 2008, pp. 1) (Source: Cesari, 2005, pp. 6) 2.4. Tourism trend Brazil is known for its natural beauty; so it is obvious that the region would have most of the visitors for this purpose. Apart from it, there have a number of people coming for studies and other purposes. As the connecting flight fares are quite less for Brazil, it is supposed to have maximum tourists from nearby countries like Argentina. Since last several years, technology has become an integral part of the global tourism industry. Information and communication are needed to make tourism industry more transparent and accessible. Brazil is lacking behind in this criterion. As per the travel & Tourism Competitiveness report 2009, Brazil has ranked 57th in internet usage with 26.1% of the Brazilians use internet. The Inter-American Development Bank has approved a $15 million loan for the development of Brazils tourism industry, so that Brazil can take full advantage of its potential. The table gives a snapshot about the internet usage of Brazil. Only 8% of the total population in Brazil used to use internet in 2003. The number, though, is quite disappointing. Although Brazil is the second main tourist spot in Latin America, but it needs to be more information enabled to improve its tourism further. (Source: American University, 2003) Reference American University. 2003. Brazil:Internet Diffusion. [Online]. Available at: www.hvs.com/article/3613/brazilian-hotels-and-global-recession/ [Accessed on 24 December, 2009]. Canteras, D. December, 2008. Brazilian Hotels and Global Recession. [Pdf]. Available at: www.hvs.com/article/3613/brazilian-hotels-and-global-recession/ [Accessed on 23 December, 2009]. Cesari, G. 2005. Rio de Janeiro. [Pdf]. Available at: www.hvs.com/article/1717/rio-de-janeiro-market-overview-2005/ [Accessed on 24 December, 2009]. Elstrodt, H., Fergie, A. J., & Laboissière, A. M. May, 2006. How Brazil can grow. [Online]. Available at:http://www.mckinseyquarterly.com/Economic_Studies/Productivity_Performance/How_Brazil_can_grow_1773 [Accessed on 24 December, 2009]. Foreign & Commonwealth Office. 5 February, 2010. South America and South Atlantic Islands. [Online]. Available at: http://www.fco.gov.uk/en/travel-and-living-abroad/travel-advice-by-country/south-america/brazil1?ta=safetySecurity&pg=2 [Accessed on 8 February, 2010]. Gouvea, R. 2004. Managing the Ecotourism Industry in Latin America: Challenges and Opportunities. [Pdf]. Available at: www.businessperspectives.org [Accessed on 24 December, 2009]. INFOAMERICAS. 2001. What drives tourism in Latin America. [Pdf]. Available at:http://fama2.us.es:8080/turismo/turismonet1/economia%20del%20turismo/turismo%20zonal/america%20del%20sur/TOURISM%20INDUSTRY%20IN%20LATIN%20AMERICA.PDF [Accessed on 23 December, 2009]. JTA. 12 November, 2009. Israel, Brazil sign agreements. [Online]. Available at: http://jta.org/news/article/2009/11/12/1009137/israel-brazil-sign-agreements [Accessed on 8 February, 2010]. Mainwaring, S. No Date. Political Parties and Democratization in Brazil and the Southern Cone. [Online]. Available at: http://www.jstor.org/pss/422073 [Accessed on 8 February, 2010]. Martin, L. J., Morales, M. N., Scarpa, R. No Date. Tourism And Economic Growth In Latin American Countries: A Panel Data Approach. [Pdf]. Available at: http://fama2.us.es:8080/turismo/turismonet1/economia%20del%20turismo/turismo%20zonal/america%20del%20sur/tourism%20and%20economic%20growth%20in%20latin%20america.pdf [Accessed on 24 December, 2009]. Ministério do Turismo. 2006. Anúario Estatístico. [Pdf]. Available at: http://200.189.169.141/site/arquivos/dados_fatos/Anuario/anuario_estatistico_2006_pdf.pdf [Accessed on 24 December, 2009]. PRLog. December 18, 2009. Report: Weak currency, cheaper flights aid Brazil Tourism market. [Online]. Available at: http://www.prlog.org/10453159-report-weak-currency-cheaper-flights-aid-brazil-tourism-market.html [Accessed on 18 December, 2009]. The Economist. October 15, 2009. Brazil’s recovering economy. [Online]. Available at: http://www.economist.com/countries/Brazil/ [Accessed on 8 February, 2010]. World Economic Forum. No Date. Travel and Tourism Competitiveness: Highlights. [Online]. Available at: http://www.weforum.org/en/initiatives/gcp/TravelandTourismReport/Highlights/index.htm [Accessed on 8 February, 2010] Bibliography Prospects. 2009. Brazil: Country overview. [Online]. Available at: http://www.prospects.ac.uk/cms/ShowPage/Home_page/Explore_working_and_studying_abroad/Country_specific_information/Brazil/country_overview/p!eXdeba#Political%20situation [Accessed on 24 December, 2009]. Read More