- May 6, 2020
MELIA HOTELS 9
Strategicanalysis has become an important aspect in the hospitality industrybecause it is helping firms in the industry plan about their future(Hassanien & Dale, 2013 p. 68). This is an essential element tothe companies since they can be in a position to determine theirshort-term and long-term growth achievements. Once an organizationunderstands the microeconomic and macroeconomic environment, it canbe capable of establishing the opportunities that it holds for thefuture growth (Varghese,2012 p. 48).Emerging markets have become the new targets for hospitality firmsbecause they present enormous opportunities for the growth of thecompanies. However, it is essential for companies to choosestrategies that they would use in entering the emerging markets forgrowth. The purpose of this report is to discuss the Melia hotels inregards to its SWOT analysis, emerging market where the hotel shouldoperate, and the generic strategies for the company.
Backgroundof the Hotel Company
MeliaHotels International is a Spanish hotel chain, which became foundedin 1956 by Gabriel Escarrer Julia. The hotel has a collection ofabove 350 hotels in approximately 40 countries. The company is one ofthe leading resort entities in Latin America, third largest inEurope, 19thlargest in the globe, and is deemed as the largest hotel organizationin Spain (Ivanovaet al., 2016 p. 28).Besides, the hotel has been considered as the globe’s largestresort organization. The company employs over 38,200 individuals inthe world and is publicly owned and traded on the European StockExchange, and the trade name is MEL (Penneret al., 2013 p. 32).However, the founder’s family members are the main shareholderswith 65% of the shares. The common brands of this hotel companyinclude Melia, ME by Melia, Gran Melia, Club Media, and Paradisus(Mattera& Melgarejo, 2012 p. 43).The company embraces certain values that help in guiding itsbusiness, which entail proximity, excellence, consistency, andinnovation. The leadership of the organization believes in teamworkand encourages skilled professionals and other individuals globallyto join their network (Epsteinet al., 2016 p. 42).
TheSWOT analysis is a presentation of the strengths, weaknesses, as wellas opportunities and threats of an entity. It helps in understandingthe weaknesses and threats facing an organization and the availableopportunities and strengths that the company can utilize ineliminating the threats and weaknesses. The following is a SWOTanalysis for the company.
Oneof the strengths of the company is brand recognition. A company’sreputation is an important aspect because it helps an entity to havea strong customer base, which translates to high earnings andperformance. International has a global recognition(Carreraset al., 2013 p. 60).Its hospitality services are well recognized all over the globe dueto their quality. This gives the hotel an advantage since it can bein a position to attract clients from different parts of the world(Pizam,2012 p. 62).The reputation of the company can also be considered a strong pointfor the entity since it can help the organization in realizingsuccess.
Theuse of technology is another strength for the organization.Technology has become a significant aid in the performance ofbusiness. With the use of technology, companies have been in aposition to make operations easier and effective. International has embraced the use of technology in most of itsundertakings, which facilitate operational efficiency. Indeed, theuse of technology in the company’s services has helped in enhancingthe customer experience, which is an essential factor because onceclients are satisfied, they would always think of coming back to thebusiness. Also, the application of technology has aided in upgradingthe processes of the organization, which assists the company inproviding quality services.
Accessibilityto customers provides another key strength of the hotel. In thehospitality industry, accessibility is a critical aspect because ithelps clients to be in a position to receive services near theirlocality without the need of traveling far to seek the services. Thisensures customer satisfaction and retention. Accessibility to thecompany’s hospitality services can be deemed a strong considerationfor the hotel since it has various branches spread out on fourcontinents. At present, the company has 350 hotels in 40 countries.This helps clients to easily access the services of the organization.
Anothermajor strength of the company is that it employs highly-skilledindividuals and retains them. Employees are perceived as crucialassets to the business because they help in the realization ofobjectives set by entities. Employing highly-skilled individualsprovides the company with the advantage of offering the best servicesin the industry since skilled workers have the ability to providequality services. Alternatively, their retention is also a merit tothe organization because it helps in avoiding situations where thebusiness has to use unnecessary resources in the training of newemployees. Furthermore, the retention of the workers motivates themto work for the company and offer the best services to clients.
Oneof the weaknesses of the organization is the stiff competition in theindustry. Firms in the hospitality industry are faced with a tightcompetition since there are low barriers to enter into the industry.This being the case, new firms are likely to enter the market wherethe International operates, which would bring morecompetition in the market. This is a weakness of the company becauseit cannot claim to completely have power in the market since there isa possibility of other companies offering competition.
Afall in market share is another weakness of the company. The marketshare of an entity is a critical aspect because it helps in providingan assurance to customers that all is going on well. When the marketshare of an organization is promising, customers are likely toassociate with the organization because they tend to associate itwith quality services and high performance, which provides a positiveimage of the firm. International has some market shareissues for the past few years, which may affect its image to theclients (Carreraset al., 2013 p. 62).This may also affect the financial results of the company.
Thecompany has the opportunity of increasing its performance through itsvarious branches. The revenue of an organization is likely toincrease emanating from the undertakings of an entity, where theunits of an organization are a critical factor. The company hasvarious branches globally, which have not yet been fully utilized inproviding incomes. The units can become fully used in order toprovide additional revenues. Such revenues will have the likelihoodof enhancing the performance of the organization. Besides, from theinitiatives of the company to improve customer satisfaction, theentity will also have an excellent opportunity for enhancing itsperformance. This emanates from the reasoning that the satisfiedclients are likely to seek services from the organization (Zairi,2012 p. 48).In addition, there is a growing demand for hospitality services,which offers the organization an opportunity to increase itsrevenues.
Oneof the threats that the organization has is an economic downturn. Theeconomic cycle is exceedingly critical in influencing the performanceof an organization. When the economy is doing well, businesses arealso likely to have excellent outcomes. However, when the economy isin a bad state, firms are likely to face problems in raising incomes(Jacobs,2012 p. 28).Therefore, the economic downturn is a threat to the company giventhat its operations are exposed to different economies. Furthermore,another threat is the changing regulations in the industry. Dependingon the area of operation, International is open to thethreat of changing policies in different countries where it operates.
Theglobal economic view remains uncertain since most developed economiesare indicated to depict sluggish growth while the emerging marketsstruggle to maintain higher advances. Economic growth across theworld continues to be uncertain due to the rising geopoliticalunrest, Eurozone crisis, oil price instability, and potential U.S.interest rate increase. The tourism landscape is currently beinginfluenced and transformed by mobile technology in terms of consumerbehavior, customer service, and bookings. Internationally, thehospitality industry has been impacted by the issues of terrorism andpolitical instability of regions. Terrorism has become morepronounced in different areas leading to bans of touristdestinations. Thus, security remains a key concern affecting theglobal hospitality market. The hospitality market has evolved to aninteresting phase, where the emerging markets have become the newareas of focus. Most of the emerging hospitality markets are nowexpanding since they have been underserved for a very long time. Theworld is now more connected than it was in the past due toglobalization. This has made the areas that were initiallyunderserved to become connected to the global travel destinations.The emerging market areas comprise of regions that have emergingbusiness and economic opportunities, but tend to be underserved byhotels and tourist accommodations. The rise of the emerging marketshas provided a good opportunity for investment in the regions in thehospitality industry (Hotels & Hospitality Group, 2016 p. 6).The emerging markets continue to experience high growth, and they aregoing to shape the hospitality industry. However, the companiesoperating in the industry must be in a position to select theemerging markets well so as to maximize their outcomes. Therefore,emanating from the opportunities that emerging markets hold, theyhave the potential for supporting the growth of the hospitalityfirms.
Backgroundto Emerging Markets
Theoutlook for the emerging markets is considered to be improvingsteadily. Although there has been a recession in Brazil and Russia,as well as a reduced growth in China, the prospects are high for themarkets since they are anticipated to recover and grow with highmargins. Emerging markets are exposed to the impacts of astrengthening U.S. dollar. Although the emerging markets have apotential for growth, they are also exposed to some risks that mayhurt the hospitality businesses. One of the risks is the higher ratesof interest in the United States (Advito, 2015 p. 5). The UnitedStates may opt to increase the rates of interest in an attempt torecover from economic turmoil. However, the increase in interestrates is likely to affect the economies of the emerging markets sincethe act would have the impact of weakening the currencies of theemerging markets’ economies. Also, there may be uncertainties inthe markets since some aspects may influence the economic performanceof the emerging markets. Nevertheless, since the opportunities inthese markets have not yet been fully tapped, they have the potentialfor providing excellent business prospects.
Inseeking medium and long-term market growth for the International, I select Brazil as the prospective market for thecompany. The following is a PEST analysis of the Brazil market as thetarget for the entity.
PESTELAnalysis of the Brazilian Market
Today,Brazil has been considered a land of opportunities, which can beassociated with the stabilization of the country’s democracy. Theprevalence of peace in the nation has made it possible for companiesto flourish since stable political climate offers an opportunity forexcellent performance of business. The laws of the country favorinvestments in different areas, which make Brazil a good investmentdestination for International. Although the politicalenvironment is conducive to the existence of the business, thegovernment may hinder the prevalence of the suitable setting throughraising taxes or interest rates that foreign companies such as MeliaHotels International may be required to pay.
Althoughthe economy of the country has been experiencing challenges, it hasbeen recovering with time. The performance of the country’s economyis a bit stable and is recovering from the inflation. The recovery ofthe nation’s economy is promising for businesses since it impliesthat they have the potential of realizing growth. Also, Brazilreceives huge amounts of foreign direct investment, which is criticalin stimulating the economy. Therefore, economically, the countryprovides a suitable destination for the hotels medium and long-termgrowth.
Brazilis one of the countries where there is an inequality gap between thedisadvantaged and the rich. One of the social factors that make thecountry a favorable destination market is the decrease in the numberof poor individuals while the population in the middle class hasincreased (Roser,2015 p. 1).An augment in the middle-class population as well as a decrease independent individuals is a clear implication that there is a largepopulation in the country that can be involved in leisure activities.However, the rising inflation in the country has a bad outcome forthe country since it has affected the rising middle class andresulted in unemployment increase (Kiernan, 2015 p. 1). However, asthe country stabilizes from the inflation, the gaps are likely to beeliminated.
Technologyis an exceedingly vital factor in influencing the hospitalityindustry given the current use of social media platforms and mobilesto interact with consumers. Although Brazil is a developing country,it has invested a lot of resources in research and development in anattempt to become innovative in the application of technology. Theuse of technology has been appreciated in different areas of thecountry. The availability and use of technology provide a goodopportunity for the International to invest in thecountry.
Attractivenessof the Brazilian Hospitality Industry
Brazilcan be considered as one of the world’s popular destinations. In2012, the country became ranked as the 35thmost popular tourist destination. Also, according to WTO, Brazilemerges as the most visited country in South America (Plötner,2012 p. 40).There are different incentives that have been provided by theMinistry of Tourism in stimulating the industry. Although there arefavorable aspects that tend to attract investments in the industry,there are unfavorable factors that affect the growth and developmentsof the industry such as increased competition due to new entrants,cost of credit for international investors, lack of qualifiedindividuals in the provision of labor, the price of land, and thebureaucracy of public legislation (HVS, 2014 p.5). The country’scompetitiveness as a travel destination has increased with itsselection as the host for the FIFA World Cup in 2014 as well as theOlympic Games in 2016. During this period, it was estimated thatthere were shortages in accommodation, which offers an opportunityfor investment in the hospitality industry.
Porter’sFive Forces of the Brazilian Hotel Industry
Thehotel industry can be considered to have different substitutes thattend to depend on the type of traveler. Business travelers can havevideo conferencing, guesthouses, and corporate apartments assubstitutes for the hotel. Alternatively, a leisure traveler cansubstitute hotel for recreational vehicles, cruise boats, or stayingat a friend’s house. Therefore, the threat of substitutes in theindustry can be indicated to be medium.
Threatof New Entrants
Theexistence of new hotels in the industry can be measured by thebarriers to entry that exist in the industry, as well as how thealready established firms in the industry behave. In the industry,hotels operating chains usually have huge resource capability thatthey use in keeping away small firms entering the market. However,there are incentives provided by the Brazilian Tourist Ministry forbusinesses to enter into the industry. Thus, the threat of newentrants can be considered to be moderately high.
BargainingPower of Suppliers
Hotelcompanies need to be supplied with different products and servicessuch as bath products, designing services, furniture, architecturalservices, cleaning and housekeeping commodities. The power ofsuppliers in the industry would depend on their shortage and theirimportance for the excellence of the organizations in the industry(Zoephel,2011 p. 90).The need for some of the services such as architectural and designingservices may be only during the initial stages of hotel development.This implies that suppliers of these services would not be in demandfor a long time. However, products such as bathing soaps may beordered from time to time, which would give suppliers some bargainingpower. Thus, the bargaining power of suppliers can be indicated to bemoderate.
BargainingPower of Buyers
Inthe hotel industry, there are individual customers and travelagencies. The bargaining power for individual clients is medium tolow since they tend to exist in vast numbers. Alternatively, travelagencies can be indicated to have high bargaining power because theyare few in numbers and make purchases in high volumes. Besides, theymake regular purchases which imply that they can decide on terms ofthe contract, demand special services, or force price concessions.Therefore, buyers can be claimed to have medium to high bargainingpower.
Thereare many competitors operating in the market. The rivalry is fromboth international and domestic market. The high-end hotels tend topractice differentiation and have a strong brand image, which makesthem demand high premiums for their services. In the lower segment,services are undifferentiated which implies that price competition isevident in the segment. The rivalry in the industry is high.
MarketGrowth Strategy to be Adopted and to be Implemented
Accordingto Porter, there are three generic strategies that a firm may opt touse, which include cost leadership, focus, and differentiationapproaches. These tactics are discussed in the paragraphs thatfollow
Justlike the name suggests, this approach focuses on an organizationshowing leadership in price where it delivers services andcommodities at the lowest cost compared to its rivals in the market(Hiriyappa,2015 p. 74).One of the ways that an organization can use in attaining the costleadership strategy entails increasing gains through reducing costswhile providing industry-average rates. Besides, another way for anentity to attain the strategy is increasing the market share bycharging lower prices while still ensuring that a sensible profit ismade on each sale.
Whenusing this strategy, organizations first understand the dynamics of agiven market niche and special needs of clients in the region. Then,the entities develop well-specified commodities or low-cost for themarket (HarvardBusiness School, 2011 p. 116).Through such initiatives, an organization is in a position to make agiven market segment less attractive to rivals. A focus strategy isnot sufficient on its own once the strategy is selected, one has toselect whether the organization would pursue differentiation or costleadership. Therefore, there is differentiation focus and cost focus.
Differentiationis a strategy whereby an organization comes up with unique featuresthat distinguish the company’s products with those of the rivalentities. When considering this strategy, it is important for anorganization to ensure that the unique features that it decides touse must be valuable to customers this ensures that customers areready and willing to pay for premiums (Schofield,2015 p. 84).In addition, the unique features that the organization decides to usefor its products must be difficult for the competing organizations tocopy. In making the differentiation strategy a success, firms need tobe involved in research and innovation and possess the capacity ofdelivering high-quality services and commodities. Furthermore, acompany needs to have effective sales and marketing in order to havea better view of the benefits provided by the differentiated servicesor commodities.
Throughusing the Ansoff Matrix, the organization may have the alternative ofchoosing new or existing markets, or new or existingproducts/services to sell to clients. The growth alternatives underthe Ansoff Matrix would be as follows
Thisapproach seeks the growth of an organization through selling existingservices and commodities in existing markets. The tactic isconsidered a low-risk strategy since a business does not undertakethe process of developing new services/products or venture into freshmarkets.
Inthis approach, an organization targets new markets or fresh regionsof the market through selling the same services/products to a newclient audience. For instance, a company may consider selling itsexisting services through a different sales channel, selling indifferent geographic regions, or even providing services to a newdemographic group.
Thisstrategy focuses on an organization developing new services orproducts that are to be sold in existing markets. When consideringthis approach, new commodities may be acquired from another entity ordeveloped (Peng,2011 p. 38).Piloting and extensive testing are recommended if an organizationwishes to adopt this strategy.
Thisstrategy entails the development of new services and commodities thatare to be sold in new markets. This approach is considered risky asan organization has to deal with new services/products and freshmarkets (Gimbert,X. & Palgrave Connect, 2011 p. 102).
Basedon the Ansoff Matrix, the organization should consider adoptingmarket development strategy since it desires achieving growth throughventuring into an emerging market. As it plans to enter the Brazilianmarket, this approach would be beneficial since it is not risky asdeveloping new services and products. In case, Porter’s genericstrategies were to be used, the focus strategy combined withdifferentiation would be considered since the strategy would focus onthe needs of clients that exist in the Brazilian market.
Implementationof the Strategy
Inthe implementation process, it would be critical for the International to consider the objectives, tactics, and timeline.These aspects are discussed below in regards to the implementationprocess.
Theorganization would need to have an objective for implementing thestrategy. One of the objectives of the entity that would be used inthe implementation plan is to re. This objective will become realizegrowth through expanding to the Brazilian market.
Inattaining its objectives, the entity will first of all focus itsefforts on improving its business processes. The enhancement of thebusiness processes will help the company to be more focused onclients. The business processes of the firm would be enhanced throughthe organization adopting technologies that back the needs ofclients.
Theimplementation of the company’s plan will take a maximum durationof two years. Within the first year, the organization will be a focuson carrying out research of the Brazilian market and assessing theneeds of clients in the region.
Furthermore,in adopting the growth strategy, the company needs to have acommunication process through which it should provide its intentionto realize the change process. The entity can use the John Cotter’scommunication model, which is discussed below
JohnCotter’s Eight Steps on Communication
Establishinga Sense of Urgency
Inthis step, individuals in the company have to notice that there aresome changes required in the organization in making the organizationrealize growth. This would usually result in people communicating theneed to change the organization’s business processes.
Forminga Powerful Guiding Coalition
Increating the change in the business processes of the company, theidea will initially involve only a few individuals. However, as timeprogresses, the plan will become introduced to a vast group whichwill influence the adoption of the idea because of the motivation andskills that they possess (Kotter& Rathgeber, 2013 p. 87).
Itwill be crucial for the company to develop a vision for the futurethat will be passed to the shareholders, workers and clients. Theentity will match the vision with the change process it wishes toaccomplish.
Accordingto Kotter& Rathgeber (2013),it is vital for an entity to talk about its vision. The communicationrequired should be projected and the effort increased by a factor often. The communication of the vision will aid individuals torecognize and appreciate the process.
EmpoweringOthers to Act on the Vision
Inthis step, it is crucial for the company to allow individuals tostart attempting the planned change process. This will includesupporting any initiatives required in navigation forward the changeprocess.
Planningfor and Creating Short-Term Wins
Becausereal change usually takes time, it is critical for the firm to have aplan for short-term goals. This will be crucial in making the companydedicated to the process of realizing change (Kotter& Rathgeber, 2013 p. 92).
ConsolidatingImprovements and Keeping the Momentum for Change Moving
Inthis step, it is essential for the business not to celebrate orannounce victory too soon. The company should wait until the processbecomes incorporated into the organization’s culture, where everyindividual in the company associates with the change.
Institutionalizingthe New Approaches
Inthis step, the business makes sure that the change becomes achievedfully by making individuals have a positive outlook in the process.Also, the entity ensures that the subsequent generation of leaderswill have faith in the process.
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