Rising Issues in Hospitality and Tourism - Case Study Example

Running head: EMERGING ISSUES IN HOSPITALITY AND TOURISM Emerging Issues in Hospitality and Tourism [Writer’s name] [Institution’s name] Emerging Issues in Hospitality and Tourism Introduction Hospitality and tourism is an extremely important element every country’s economy. It tends to generate high revenues for the country. if a local hospitality and tourisms company wants to enter into a foreign market or country , its new foreign venture may be considered as international business and the profits it generates from the this foreign venture shall be considered as service export. The phrase hospitality industry includes all aspects of the business which fulfill the needs of all to while they are in anew country or are not in their home town. Hospitality and tourism industry may be defined as the spatial movement of tourists or and the treatment and leisure of travelers who have come to visit the home countries, either for leisure or business sake. The hospitality and tourism industry is an ever green industry, however currently it’s growth has been influenced by a number of issues. The most major one being rescission. This has affected the Australian part of the industry in various ways. Rescission has effected world the inflation rate has made people spend less of leisure and luxuries and more on necessities. Inorder to analyze it’s effect on Australia’s hospitality and tourism industry the Porter 5 model shall be used in the paper. Analysis It is a known fact that hospitality and tourism industry is extremely important for overarching label for ventures whose key objective is to provide food, drinks and lodging for sale. The major division of the industry in the International Standard Industrial Classification of all Economic Activities and Division 55 of the industry include hotels, restaurants, bar and catering . This entire industry is an extremely important yet costly one. It requires a lot of research regarding the price. Apart from this the concept of this business has faced intense marketing and economic competition if the profit of hospitality and tourist industry is considered. The competition I mostly effected by the recession and inflation rate which serves as an contributing internal factor that particularly effect the development of tourism and hospitality industry This recession makes it difficult for the industry to deign packages with affordable prices. It becomes even more difficult to provide culturally environmental area flourishing with the exotic traditions in such low prices. The recession has especially effected the tourism and hospitality industries of countries which are full of the natural attractions, provide their traditional cuisines and drinks as they tend to offer expensive pancakes and in a time when recession is at it’s peak, people do not want to spend of leisure and luxury. Porter’s forces theory may be able to give a detailed explanation of how rescission has affected the tourism and hospitality industry. Michael Porter’s Five Forces Model Michael Porter’s Five Forces model is an important approach which provides a complete over view of the market dynamics of any industry or business. The Five Forces model also assists in developing a complete and clear concept of a certain market or industry, which as a result helps to recognize the key characteristics of the industry i.e. entry barriers, supplier power, rivalry, substitutes, and customer power. The model will also provide an analysis how to improve the situation by analyzing the industry outside the present competing rivals to factors which may help in increasing the profitability and growth of the industry which is going in a downward trend. The above mentioned model will analyze the competitive forces which have an impact the industry. Porter claimed that the approach is based on how an organization, can effectively compete with other organizations of the same industry or market. Porter stated that this approach is not only a chain of approaches used at during improving a business or organization’s operations. Thus, the reason behind using this approach to analyze the tourism and hospitality industry is that the approach helping in giving a complete over view of analyzing potential entrants, suppliers, buyers, substitutes and competitors by means of analyzing these factors one can judge the impact of recession on the before mentioned industry i.e. the tourism and hospitality industry. The theoretical outline may help to provide information that is useful in matching the assets and aptitude to the competitive environment of the before said industry in time of rescission the industry has effect severely and leisure has reduced in the past few years, however if the Porter 5 model is used to analyze the factor and it’s impact on the industry then improvement also become a possibility. The rescission has effected good management and development of the industry, even though they are important factors of the industry if it wants to survive the recession. It is thus necessary to deal with the factor in question, particularly at a time when the industry is like other markets are being affected by global recession. This in turn may help to reduce the intensity of the issue, while analyzing the possibilities of improvement in the industry which recession has truly left it’s impact. Porter’s Five Forces Analysis Porter’s model being the most appropriate model for such situations is selected for the analysis of the issue at hand. The reason behind its efficiency for the analysis of how recession has affected the industry is that it’s five forces, has the capability to evaluate the forces which are an important part of an industry and assess the probability of a firm effectively entering and surviving in the industry. Therefore, one can evaluate the opportunities for entry or exist, evaluate viable trends, and stratagem while keeping in mind the factor which is being analyzed (Perreault & McCarthy 2006). The external business environment of the firm is most often largely uncontrollable by management. The recession is analyzed using demography i.e. Where it is most prevalent, economic conditions i.e. level of degree, competition i.e. How much competition is prevailing in the industry even though it is facing recession, industry structure and how recession has effected it, social and cultural forces which may have caused the recession in the industry, political and legal forces which may have played an important role in the industry’s recession. However it’s technological level the hospitality and tourism industry maintains even though it is undergoing rescission. The capability of the industry to offer its services to its future customers and to maintain its sound and stable business environment also still has not been completely affected. The five forces of the Porter 5 model are as follows: potential entrants with their threat of entry; buyers with their bargaining power; suppliers with their bargaining power; substitutes with their threat of substitute products or services; Industry competitors with their rivalry among existing firms (Perreault, W., & McCarthy 2006). Al the above mentioned forces are based on the how a factor can effect the industry ; it also analyzes how all the forces has an effect on the industry in question. All five forces together can evaluate the amount competition and profitability in the tourism and hospitality market (Mohammadian, 1999 519). Buyers and bargaining power: Buyer power is the ability of buyers, management of purchase, and clientele of the industry which may have an impact on the price and the requisites of the purchase. As per the hospitality and tourism industry, it may be kept in mind that as recession is at it’s height the If buyer power is low and .buyers do not have much of an option. Thus, if the industry in question is considered then people tend to be quite sensitive when it comes to sometime expensive as a vacation and stay in a hotel. The recession has made people turn to amusement parks and picnics for vacation entrainment of the family. Due to the recession it must be noted that there is a low switching cost to buyers this maybe because people do not want to indulge in too much luxuries. However the low differentiation of products along with less significant number of substitutes restricts the bargaining power of buyers because people do not have a lot of substitutes for tourism However due to lack of money they have to turn towards options . Business men who tend to select a hotel for business trips are consumers who have knowledge regarding traveling and the hospitality industry and thus they know how to handle their budgets. They at times even go online to book tickets and reversion to save their money and time as well as the extra cost which an agency might add to their bill. Thus, this effect the travel agents who are also apart of the tourism and hospitality industry. As they intermediaries who help people decide where to go and stay, they basically may also be the main marketing stream for the industry. As per the Porter’s five model travel agents may be not be able to survive the recession as people will turn towards less costly methods of reservations. . In this period of recession the hospitality and tourism industry is quite uninviting to possible competitors who desire to enter the industry (Perreault & McCarthy and2006). It also must be noted that the factor being discussed has affected the buying power in a manner that low switching costs leverage has taken place in the industry. Customers do not comprise on high price packages and prefer something extremely affordable. The switching of prices is due to the fact that recession has affected the industry and budget of people. Thus, current individual consumers who reserve and use hospitality and tourism services due to the rescission have limited or no bargaining power. Potential entrants and entry barriers: Due to the recession the hospitality and tourism industry has become a centre of research for studying the designing and sustaining market entry barriers. If organizations already operating in the hospitality and tourism industry can keep possible competitors at bay and discourage them entering the hospitality and tourism market, it may help them to serve the recession. The entire topic of rivalry and its effect on current operating organizations in the industry in question conclude that due to recession a high generation of profit becomes close to impossible. It may also be noted, that there are imperative structural elements in the hospitality and tourism industry to limit or restrict new organizations and firms from entering the industry in question. All the components are related to the effect of recession and are as follows: scale economies differentiation capital requirements switching cost Access to distribution channels and cost disadvantages (Mohammadian, 1999 519). New firms cannot enter the industry in a time when recession is at it’s height as not only is it a risk for their profits but it may also be that the existing firms in the industry do not let them enter by using the above mentioned strategies. In order words recession has cause the industry to face aggressive competition instead of a healthy one. Even if the early investment in the industry in question are made still there is a barrier to entry however a few barriers for new competitors to enter into the industry . However recession makes their marketing costs limited to some extent, and thus provides the new entrant with less access to possible suppliers and assets. However, new bed and breakfast may not have much of a hard time surviving as people want to lower their budget. . At times business men stay at bed and breakfast and attend their conference and business meetings else where like the main head office (Hoyer and MacInnis 2001) Suppliers and bargaining power: Even Suppliers of hospitality and tourism in a time of recession can have an impact on the attractiveness and productivity of the segment in question, even if they their prices it in turn increases industry costs and this affects the profit. It must also be kept in mind that the increase in prices in the present economic condition may have a negative effect of the sales of the hospitality and tourism industry. Supplier power may be defined as the ability of suppliers to select a price and the conditions of supply. These suppliers can be suppliers of workforce, raw materials, and capital goods. It may also be noted if supplier power is high, in this case the generated profit of existing organizations in the industry are likely to be low. Low profit margins is quite common as recession is at its height, this has effected the industry in manner that possible entrants analyze the entire conation of the tourism and hospitality industry before entering it. In a time of recession Powerful suppliers tend to monopolize the entire industry by that controlling almost all the supplies of goods and services in the hospitality and tourism industry, the degree of monopolization is different in very country. The supplier power may be evaluated by the number of suppliers operating in the any industry; therefore, the presence of various suppliers usually specifies low supplier power, especially when the current economic condition is unstable. According to Yu (1999 10). The multifarious and different industry of hospitality industry may be segmented 3 distinct yet equally inclusive elements: originating market, international transportation, receiving destination The tourism and hospitality industry has developed at a fast rate since the mass travel began in the early 60s however due to the recession it has comparatively slowed down, although its development still seems to be ongoing. However due to new markets continually emerging the industry growth rate has slowed down. Yet, it may be noted that there is still better hospitality and tourism supply as compared to it’s demand, which is apparent if the amount of seats which hospitality firms are accredited for in any specific period and the number of passengers signify the growth or downfall of the industry (Pender and Sharpley, 2005 ). Due to the recession it may be noted that in the industry in question suppliers have high negotiation powers in opposition to firms who have a low market share in the tourism and hospitality industry. However in a industry where suppose four of the most strongest suppliers own more then half the market share , here there is a threat of backward integration . It may be noted that the above mention situation is taken place in the tourism and hospitality industry, which in turn has caused a power balance to occur. Thus, it may be said that the industry has a moderate bargaining power for the suppliers. Small suppliers in this kind of recession cannot survive in the market as the ones who own 50% of the market share usually makes sure that their bargaining power. It also may be noted that some hotels and tourism based organizations usually prefer small suppliers as they have more appropriate prices. Substitute products and services: Substitute industries offer contending product offers that achieve the same objective. However when recession is at it’s height such Continual developments in which prevent the possible threat from substitute products become difficult. This has particularly been noted in the hospitality and tourism industry where development of Substitute products has become a necessity but such products have also become difficult to obtain. The accessibility of substitutes for the tourism and hospitality industry’s firms and services changes the power which the present organizations of the industry have. In the industry in question substitutes increases and while the accessibility substitution rises, the present firms already functioning in the industry get an opportunity to control it. However, in the time of recession it becomes quite difficult to use substitutes, firms usually prefer to maintain the present system of operations. It my be noted that Television , movie nights, picnics ect may serve as substitutes during the recession period , but these substitutes cannot completely replace travelling. Furthermore, with such high rescission and inflation a low differentiation of products is present; however the industry also has a Low threat of substitutes. Small hotels may be gain more business and profits than the 5 star or 7 star hotels, as people will tend to use the substitute of a small hotel which is suitable for their budget. There are hotels and tourism packages of all price ranges, with different kinds of service and facilities. Even though people may not substitute travelling with other industries but the industry it’s self has a lot of substitutes which makes competition quite aggressive and high. Such choices make the whole industry well-organized while increasing the size of the present industry as well as giving rise to new substitution threats. Thus it may be noted that strength of this threat a well organized tourism company or hotel is quite important for survival in the industry. Threat of new entrants: The threat of new entrants usually arises when an industry has enough flexibility and space. in times of recession the hospitality and tourism industry does not face any such threats as presently it’s capability to produce economics of scale as well as sound and profitable experience is low, the industry currently does not have any opportunity to introduce product differentiation, the assets and economic stability to monopolize or control the market is no more possible . the barriers in the hospitality an tourism are quite high for entry as new incumbents will face more severe effect ion times of recession as customers do not turn towards the industry as much as the used to (Bowie and Buttle, 2004 93-94). The primary investment in the hospitality and tourism creates a strong barrier to entry. However, some barriers may be removed by means of selection choice of services by customer. The recession may have had a negative effect and has reduced the upstart marketing costs to some extent, and has also affected the entry of potential suppliers and resources. Small bed and breakfasts may have a chance of survival as their entry seems quite harmless to the leaders of the industry, these bed and breakfast are not considered as strong competitors of the industry. This makes it easier for them to survive even when rescission is taking place. Customers usually prefer the bed and breakfasts if they go for a small visit to another city or country as it is less costly for them. A very important barrier in the tourism and hospitality industry would be variation. A hotel or tourism company that can prove to the customers that it is different I location and services, facilities or in packages suitable for all kinds of budgets has the possibility to catch the attention and maintain its clients. One more barrier could be expertise. regrettably, in a fast moving industry where rescission has effected it the most, employees often resign from one hotel chain so that they can join another one and when they leave they their experience and knowledge of how to effectively operate a hotel goes along with them. The above two barriers may help the industry to realize in which direction it needs to improve inorder to survive the recession and inflation present in the current global economic condition . In fact a lot of well known companies have realized this and have implemented new and improved methods. Competitors and rivalry: Competitive rivalry amongst present organizations in an industry is the reaction firms give to each others competitive strategies. Especially in the tourism and hospitality industry, an inherent strategy which includes the fact that one firm does not implement their competitive strategies in another firm’s niche market. But when recession is at it’s height competition becomes quite aggressive and each and every firm may try to monopolize the hospitality and tourist market. Cut throat competition is something which has recently prevailed in the above mentioned industry; recession has made even the noblest players of the industry into cunning strategists. (Perreault & McCarthy 2006). Rivalry is different in every industry and market. The rivalry is based on the quantity governing players, the intensity of productivity, degree of demand and capability; and the character of rival. In hospitality and tourism industry, while competition is severe, the majority of people who own business in this industry have strong personal relationships with people who are employees of their rivals or even with the rivals themselves (Bowie and Buttle, 2004 94). It may also be noted that international hotel industry has had an upward trend due to branding and restructuring affecting their demands for division manpower. Each and every organization of the industry realize that stronger brand definitions, is what given enough space for industry competition and stops new entrants from entering the market. Keeping this in mind that due to rescission few or no new hospitality products have been introduced thus, competition is at it’s height but thus competition does not let new entrants enter the market. Although it may noted that, various authors think that Porter’s five forces model does not consider the modern business conditions; on the other hand, like any approach or theoretical framework, utilizing the Porter 5 model as a principle to be adapted as suitable for the circumstances or setting that are evaluated it offers a practical source for understanding the prominent distinctiveness of the hospitality industry. The level of significance of individual characteristics relies on the environment of the industry as well as its current situation (Pender and Sharpley, 2005 56). The rivalry in the hospitality and tourism industry is quite aggressive. When possible customers find out about the new and affordable services and packages they tend to go towards that offer, so this reduces the differences amongst hospitality and tourism based companies. Customers search for the best price they can get for the most memorable experience and the trend is to lessen price in order to survive the competition. The recession has made people analyze in depth their options before trying something new , however if the new company offers a better a considerably competitive and lower price then people may attempt the option. For instance if a person , wants to spend the weekend in the lovely country side of Australia, he/she can without difficulty select a hotel in a close by town if the facilities or the cost is more competitive . Variable and fixed costs tend to be different in places that are more costly to reside and work, thus it becomes quite hard for a hotel in the countryside to lessen their prices to as much as the hotels in the city. Recommendations For every hospitality and tourism company to perform productively; even if recession is at it’s peak co-dependent individuals and groups in the industry in question must develop working associations across those borders that are subsist. It the industry must realize that time of recession they must try to continue the cut throat competition but have to depend on one another improving the facilities so that the industry condition may improve and become more synchronized and stable (Pizam, 2005 53). Due to the current rescission the hospitality and tourism industry has been extremely slow to adjust to change and is at present trying it’s level best to adjust themselves so that they may be able to successfully with manage process. However it will have to speed up its process of adjustment and will have to respond promptly and efficiently. It is very important, thus, that those concerned in the development procedure achieve a comprehensible understanding of the intricate matters that require solving for the development of the industry in question (Yu, 1999 10). Conclusion The approach of Porter 5 model possesses the benefit of comprehensive and complete strategical analysis while emphasizing on different and vast range of factors that contribute to success and productivity of the industry . it may be noted that in this paper , the notion of Porter 5 model has the drawback of inappropriate concern on the recession which has negatively effected the hospitality and tourism industry and those causative factors that have a helped in improving the conditions of the industry . The analysis given in the paper may also continuously help the industry to successfully operate with the marketing environment. The Five Forces analysis used in this paper also assisted in analyzing the nature of the competitive situation in the hospitality and tourism industry when recession is at it’s peak. All of the competitive environments are present in the hospitality and tourism industry. This may be noted as the characteristics of hospitality and tourism sectors usually are based on the factors use din Porter five analysis. In an uneven competitive environment, as no company has an equal share of the market, especially at the time of recession. It may note that due to the recession hospitality and tourism industry has low-level entry barriers. It also has high product differentiation and low economies of scale. Profitability in the industry in question seems to quite difficulty for any company. The Five Forces analysis in this paper provided a broad portrayal of condition in which the industry is at present. It may be noted that it is the weakness of the process; nevertheless, Five Forces analysis still provided wide range of considerable factors in which the discussed factors were comprehensive and specific in nature. References Bowie, D, and F Buttle (2004). Hospitality Marketing: An Introduction. Elsevier Gibson, P (2006). Cruise Operations Management. Elsevier Hoyer, W.D. and MacInnis, D.J. (2001) Consumer Behaviour, 2nd Edition, USA: Houghton Mifflin Company Jafari, J (2000). Encyclopedia of Tourism. Routledge, Kolb, B M (2006). Tourism Marketing for Cities and Towns: Using Branding and Events to Attract Tourist. Elsevier, Lucas, R (2004). Employment Relations in the Hospitality and Tourism Industries. Routledge, Mohammadian, M (1999). Computational Intelligence for Modelling, Control & Automation. IOS Press,. Pender, L, and R Sharpley (2005). The Management of Tourism. SAGE Perreault, W., Jr., & McCarthy, J. (2006). Essentials of Marketing (10th ed.) 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