Strategic Analysis of the Taj Hotels, Resorts and Palaces - Case Study Example

Name: Course: Institution: Instructor: Date: Introduction This report presents a strategic analysis of the Taj Hotels, Resorts and Palaces’ (THRP) major macro-environmental determinants and their trends and how they affect the core operations and future growth options. The report largely uses the case study article “Taj Hotels, Resorts and Palaces”. The report borrows from theory specifically three business environment analysis tools, five forces, modified PESTLE and strategic resources and capabilities analysis to present a summary the firm’s business environment (Grant, 62). All these tools will be used to assess how the both the internal and external business environment affect current and future profitability and its growth prospects and also assess how the firm’s resources and capabilities impact on the competitive advantages of the company. Background During their visits to India, some of the world’s most powerful leaders including the Russian President Dmitry Medvedev, US president Barack Obama, French President Nicholas Sarkozy and the Peoples Republic of China Premier, Wen Jiabao, stayed at one of the many Taj branded hotels in India (THRP 2012). This is no ordinary coincidence. The THRP brand is definitely the most influential brand in the hotel, accommodation, and hospitality industry in India that promises unmatched service and quality. By being associated with India’s most recognized brand in the world, Tata Group, the brand has occupied a dominant position in the local market. However, in the international market, the brand is still developing as indicated by below par performance of a number of outlets and even the closure of some especially in the US (Deshpande & Srivastava 2010, p. 5). Summary of Macro-environment Analysis The macro-environment analysis investigates the external factors which are beyond the control of the business and how they influence the industry and how they affect its ability to grow including the individual players. To carry out this analysis, this report employs the modified PESTEL tool that looks into: Political Factors, Economic Factors, Socio-cultural Factors, Technological Factors, Legal Factors, Environmental Factors, Demographic Factors and International Factors. Developments in the western world, particularly opposition to western ideologies through terror acts, saw the THRP caught up in the middle. The terror attacks on the Taj Mahal Palace and Tower in 2008 marked a critical point in the history and running of the group’s operations. The risk of terrorism and security issues had to be evaluated. The attack also dented the organizations image and the Taj brand which was already struggling to recover from the global recession. Furthermore, the organization was readjusting to compete effectively against international players in the domestic market after the industry was deregulated. The entry of new players was as a result of an open door policy adopted by the government to encourage foreign investors as the country pursues to grow its economy further. Such government aspirations have resulted into economic changes which have an impact on the organizations operations. The global recession and recovery called for stricter measures by the government which affected accessibility of finances to the firm and even the availability of disposable income among its consumers. All in all, the global recession saw the luxury market shrink with many people opting for budget travel and backpacking. This decreased the market for THRP by far. Alternatively, the recovery process from the global recession saw Indian government enact numerous infrastructural projects aimed at stabilizing the economy. With changes in the economy, social cultural changes also followed. With the market now exposed to foreign players, the THRP brand had to change its service quality to meet international competition. Furthermore, the growth of backpacker tourists expanded the low end hospitality industry. Population growth also generally expanded the market through immigration. The inflow of foreign expatriates also opened up the way for THRP to invest in the international market. Furthermore, in response to growing global popularity of green energy, THRP had to employ technology such as online booking and online advertising to reach out to the low end consumers and also act sustainably. Technology was employed in other areas such as teleconferencing services and wireless internet. Furthermore, technology has been employed to reduce emissions by taking up more energy conservative options in areas such as lighting and heating. Summary of industry environment analysis For the industry environment analysis, the Porter’s five-forces model was used. The industry investigated in which THRP operates is the hotel, hospitality, and accommodation industry. Threat of new entrants The hotel hospitality and accommodation industry is very complicated. Brand equity and service delivery through human interaction makes the industry very sensitive to demographic changes and changes in tastes and preferences. Therefore, Presence of strongly established brands and the resources and time required in establishing a new brand can prevent new entrants from making their way into the market. Furthermore, the industry is high capital intensive hence locks out minor players. There is little room for product differentiation thus making competition very stiff. The switching cost for customers is low hence any new entrant can make it with a superior product in the industry. Bargaining power of Suppliers Where franchising is involved, switching costs would be high as property owners are locked into agreements with organizations such as THRP. Currently, suppliers of hotel properties in India are low given by the number of room required. This gives them immense power. However, THRP owns some properties hence has diluted the power of suppliers. With the high cost of properties and land in India, especially in prime locations, supplies have immense power. Some of the hotel room/property providers have no ability to forward integrate hence pose no huge threat to the THRP as they do not have brand equity. Bargaining power of buyers Buyers on the other hand have varying bargaining powers depending on which end of the market they are in. For premium buyers, switching costs are high while for low end consumers switching costs are low. The industry can only benefit where buyers switching costs are high. Furthermore, the concentration of buyers is high given that India’s supply of hotel rooms is low with an annual tourist figure of five million which gives them power as buyers. Power of substitutes In the hotel hospitality and accommodation industry, there are two subcategories, high-end, and low-end. There are many substitutes in especially in the low end market which provide accommodation services for back packers. Camping grounds also provide a substitute especially for leisure travelers. The switching costs for buyers from one substitute to the other is low for there are no binding contract made before the purchase decision is made. This exposes the industry to high competition from the substitutes. However, in the high end market, buyers’ propensity to substitute is low, as buying decisions are not based on costs. Intensity of rivalry The intensity of industry rivalry which has a great influence of product range, product differentiation, and quality is dependent of industry growth rate, fixed costs, diversity of competitors, exit barriers among others. For this particular industry in India, the rivalry is relatively low as the industry is growing fast and there are high fixed costs on property taxes. However, rivalry is high as shown by the high commitment of corporate involved, the diversity of the players and the low switching costs for buyers. This makes the industry generally high in rivalry. Summary of Internal Analysis This internal analysis will broadly look at resources and capabilities of THRP and how they are combined to give the organization a competitive advantage. Resources are largely grouped into tangible or physical resources and intangible resources also known as untouchable resources. These are basically resources that enable an organization to carry on its operations. Capabilities are the process or systems that the organization has employed to enable the utilization of available resources, both tangible and intangible, to produce output. Awareness of these capabilities and matching them with the right resources give companies competitive advantage. Tangible resources THRP prides in owning a number of properties in prime location in India and around the world. The acquisition of the prime properties around the world was strategically done during the global recession when prices were down. The organization continues to acquire new properties around the world as part of expansion strategies. Its parent company, Tata Group holds gigantic financial resources with revenues of over $70 billion as 2008 with 27 of the companies listed with a combined market capitalization of about $60 billion. The firm has also acquired other firm such as Tetley and Corus together with the tangible resources. Intangible resources THRP has along history spanning over century in the hotel and accommodation industry. Having being operated as a family business, it has remained strong in the face of competition from other major brands in the market. Over the years, it has gained immense experience and trust from its clientele base in India and around the world. Much of its survival is owed to its ability to innovate, embrace technology and change to adapt to changing market needs. This has earned the brand a strong reputation in the market which has seen the brand nominated as the 64th most valuable brand in the world and the 1st in India. The brands reputation goes beyond India as indicted by the brands ability to attract and house some of the world’s most powerful leaders. This has gained the brand a covetous association with affluence, quality, power and class. Capabilities Many capabilities have been listed based on their functions and the VRIO test has identified that the company has several competitive advantages. The main competitive advantage in terms of management is the association of the brand with affluence, quality, power and class. The firm has succeeded in protecting dilution of its “Taj” brand through rebranding of some its outlets targeting the low end market. This has also allowed the firm to compete in various market segments without impacting on its core brand. The firm has maintained a strong, experienced and loyal workforce of over 357 000 people. It is noted that employees take pride in being associated with the brand hence the resistance to the rebranding program of some outlets. This is a trademark of THRP unifying corporate culture based on family-like bond borrowed from its original ownership structure. Continuous improvement and engagement of technology to power innovations in its operations. This has been evidenced by expansion into foreign markets and strategic acquisitions of outlets in new markets. Lateral integration through the parent company, Tata Group, has increased efficiency for the firm. For instance, Tata Group has acquired a number of airlines in India which helps the firm streamline its business and cut costs. Works cited Deshpande, Rohit & Srivastava, Mona. Taj Hotels Resort and Palaces. Harvard Business School, 2010. Grant, Robert. Contemporary Strategy Analysis: Text Only New York, Wiley & Sons. 2010 Read More