This particular report is
going to briefly talk about the environment of the Hotel Industry within the
UAE, with the help of taking the five competitive forces according to Michael
Porter’s Model. We shall also discuss in brief the competitive method and it’s
CSF. The focal competitive forces and factors within those areas will determine
the feasibility and potential profitability in a hotel. It will also be Looking
at United Arab Emirates as a whole and how the environment works.
Industry is a group of
companies producing products and services that gratify a necessity, function
and consumption. Business strategy can be defined as an integrated set of acts
aimed at safeguarding a sustainable competitive advantage over competitors.
Normally, Porter’s model will influence investors, prices and ultimately prices
in the hotel industry.
TYPES OF OWNERHIP IN THE HOTEL INDUSTRY
Ownership: This type of ownership warrants huge capital allocation and the
owner undertakes higher risk. It provides the owner with full control over
pricing, operating expenses and their business decisions when it comes down to
Contract: Under this procedure, certain entities called as operators run the
hotel and collect remuneration directly from the proprietor as a percentage of
sales, around 2-3%, and an incentive fee, around 8-9% of operating profit.
In this case, franchisors license their brands, thereby giving the hotel owner
to use the brand and reserve rooms. The franchisees need to comply with certain
conditions and standards specified by the franchisors and are imperiled to
checks. Franchisees may pay fees that come in form of an original fee plus
and License: An owner of a certain property
leases it for a definite period. The lease rental is removed from the gross
revenue and a penalty is enforced if the agreement is not abide by the any
party. Also, the licensor earns revenue in the form of a license fee and the
revenue earned is given to the operator.
In this paper we shall be
looking at Emirates Palace, a seven-star hotel located in the heart of the
United Arab Emirates.
Emirates is a federation of seven states that’s has grown from a humble and
quiet backwater to one of the middle easts most valuable and important economic
centers. It has quite a different approach when it comes to political factors
compared to other countries, for instance each state has Individual government
organizations which to be fair allows flexible management across the whole
country. The UAE generally has a healthy trade relation with many countries
across the globe, but occasionally the UAE has conflicts with nearby countries
about the ownership of the oil reserve’s or land.
United Arab Emirates is well recognized
in the international property world as a highly lucrative investment
opportunity and international joint ventures are working for the financial
benefit of both the local and international population. This country has one of
the most highly developed and industrialized economies on earth as reflected In
its GDP per capita, ranking 5th in the world. On the other hand, The
UAE has a very low unemployment rate and has one of the highest amounts of
foreign Direct Investment.
The UAE’s inhabitants typically live a
comfortable life thanks to their well-paying jobs. Religion is an vital matter
in the UAE and it generally affects society and how people live their
lifestyle, for instance how women dress. As the religion continues to grow
strong, so does the Globalization effect on this country, i.e. Many different
cultures are starting to mix with the Emirates .
In today’s world, technological variables
are more important than we can imagine, and when we talk about technology in the UAE, that
shouldn’t be a problem considering their wealth and middle aged population.
November2005, the Emirates Place opened its Door for the first time after
starting their construction in December 2001. The hotel is operated by the
Kempinksi Hotel group and owned by the government of Abu Dhabi. The hotel was built
as a superlative for national prestige and not as a profit making concern, even
though next to oil, tourism is the largest money contributor in Abu Dhabi.
Five Forces Model with Respect to the Hotel Industry
The hotel Business is highly influenced
by the travel and tourism trends as Globalization continues to play its part.
It is possible to enter the business in a relatively low key way by opening a
small, independent motel or hotel as a sole proprietor, However the business is
capital intensive and for a large scale entrance, the upfront investments to
ALL the amenities such as building’s, décor and furnishing, ICT infrastructure
and staff, will be too expensive, and so the need of more revenue. To sustain the
revenue growth in the market, operating a chain of hotel is generally an
important strategy as it reduces dependence on tourism in any particular
location. Regulations in terms of real estate
and buying in any country should be taken in consideration when entering a
business. Overall, the likelihood of new entrants is moderate.
Threats Of Substitutes
Porter stated that substitute can be
existing or potential products and services which are able to perform the same
function. Substitute products can reduce costs and provide a better quality
performance and better value which leads to technological innovation. The hotel
business in all major cities are not threatened by substitutes products except
that in times of recession domestic travel might replace international or
overseas travel and certain destinations replace more expensive ones on cost
ground. A hotel operator anywhere can compete on a low cost basis in a niche
segment. It can also compete on the basis of a modern, comfortable but not
luxurious hotel situated in a popular and convenient location. There I no major
threat of substitute products to a hotels product or service.
Suppliers in the business are
defined as property owners, developers
and real estate companies, interior design and furnishing companies,
architects, management and training service providers, marketing companies,
industry consultants and information technology ICT. Real estate companies are
often much smaller companies than hotel operators and rather than being globalized,
they are usually local to the property they develop, which reduces their financial
muscle and ability to negotiate favorable contracts. Furthermore, hotels can integrate
backwards and operate their own real estate business. The class and
availability of suppliers’ services and gear is essential to the hotel industry.
The industry is also labor intensive. Staff costs are a major success in the
hotel industry and are strongly influenced by the quality of the service
provided. Supplier power is assessed as moderate.
When a strong group of byers is present
in the market, it can significantly impact a company’s product and selling
decisions. The strongest power that buyer can exert is to lower prices, which
in turn impacts the profit potential. Buyers can also demand higher quality of
services or products and increase competitiveness by forcing different
companies into price wars.
When independent players are present in
the industry, it brings about competition in a good way. Many larger operators
have diversified to some extent and own additional business, such as casinos, restaurants
and shops. To attract and sustain more business, operator’s try to offer more
and more complex packages and value-added services such as free breakfast or
free third night.
Keys to Success in the Industry
What are the key competitive
forces and factors which determine potential profitability in the industry? The
Hotel Industry in most urban cities in the world is characterized by high
capital costs. The high capital costs require that from the outset the project
must be achieved to attain the most cost-effective use of resources applied to
construction, furnishing and equipment, pre-operational expenses and finance.
Revenue managers drive to progress and develop brings optimism, opportunities
and Possibilities. The revenue benefits the travel industry at large and has
been doing so for a while in the United Arab Emirates. As Globalization
continues to grow, so does how things work. A recent survey from Cornell of
hotel revenue managers worldwide has revealed that many want to look beyond the
traditional focus on revenue per available room and focus more on the future.
The Emirate Palace generally
provides a wide range of customer service to its clienteles. Most of the
services are value added and cost pretty high for the hotel. The reservation
system of the hotel is a wonderful customer service but there are some
improvements required in the system so that it can be more valuable for the
customer, this are one of many things that the Emirates needs some adjustment.
One Opportunity for the Emirates would be making the Reservation system much
easier for Prospects to know more about hoe one is meant to reserve and the
particulars. Another opportunity would be to lower their prices at certain time
of the year when the business isn’t at its peak so that to attract more
clients. This would open more doors for the Hotel as it would bring in new
clients which mean more business and growth if properly managed. Another
opportunity is that since The Emirates is well funded, they are always up to
date with the latest Technological feature, they can go a mile ahead and
develop or invest in an advanced Feature in the hotel that no one has ever seen
which will attract more clients.
Threats on the other hand are
not as easy to know or handle as people would think. Some of the threats that
the Emirates might face is;
might get reduced due to the global melt-down.
i.e. considering its on a beach front, it places the hotel in the path of external
risks from nature.
rival the Hotel Burj-Al-Arab is a stiff competition.
All this threats can be
handled correctly if all managers are in-sync with their competitive method.
CRITICAL SUCCESS FACTOR
The Critical success factors
in the hotel industry are the areas which business must excel in order to
survive in the industry. They normally change over time due to Globalization
and the increasingly number of customers who expect top notch quality, and so
hotels are now focusing more on the quality they put out. There can be a number
of factors that may lead to a better business and others which should be considered
before placing them in action. Some CSF’s are
This factor assesses the
companies brand image and reputation in the hotel industry. This includes the
hotels location, its targeted customers or what kind of hotel it is.
(Luxury/mid-priced/economy hotel). As we all know the industry is quit
aggressive, the hotels uniqueness will also be considered as one of its key
factors in determining the pricing.
In this case, The Emirates
Palace has a perfect market position in the UAE as its considered one, if not
the best hotel in the world which brings in a lot when it comes to revenue. Its
also considered to be the “second” home of the Royal Family of The UAE, as they
(The Emirates Palace) are the official residents of them.
This factor covers the whole profile of
their guests. Certain level of diversification
is important to maintain business and cash flow stability through business cyclicality
affected by holiday seasons, economic cycles or less conducive safety
conditions in the country. In our case, The Emirates palace is well diversified
and has plenty to offer. There is a considerable diversity in the strategy and aims
of companies owning hotels which helps in the long run.
HOTEL’S COMPETITIVE ADVANTAGE AND
Competition in the Hotel
business is generally extreme within the environment. Industry growth in key cities
or Capitals is high at present partly due to the explorers from tourist groups,
business and independent leisure travelers, causing low levels of jockeying.
Competitive position consists of Cost and Differentiation. There are no
switching costs, which could increase potential jockeying. Product
differentiation may be high ranging from budget hotels to deluxe hotels. Hotel
operators wish to exploit to establish customer loyalty, image and
differentiation. Fixed costs are high in the industry and consequently high
room occupancy rates are critical. Competition would, therefore, be very aggressive
in a situation of oversupply of hotel rooms. Capacity is augmented in large
increments in recent years due to some major international events such as
Olympia Games, Expo or World Cup. The Competitors’ reaction is expected to be
fragmented, haphazard and insignificant, especially as the common market is
forecast to be one of the more buoyant segments among total arrivals in the
coming future. The key issue remains that whether there are any further sites
in the immediate vicinity of any big cities which may be purchased by other
business groups commanding similar capital resources to any hotel operator
which will pose significant potential future competition.
The two key factors that The Emirates
Palace differentiates its selves is:
1. Perfect location for relative target
2. Quality of service.
The Hotel Industry as a whole
can provide significant opportunity to cross-sell profitable products like Food
and Beverage, Entertainment or Exhibitions and Conventions services or any
other amenity that can bring profit to the business
Tariffs are then placed and
agreed according to the level of differentiation achieved through location,
management, staff and guest ratios or any other miscellaneous factors like the
quality of architecture, its decoration, the furniture and its fittings, layout
or interior design.
In case of a downturn in the
world’s economic cycle the hotel’s target market should be more durable than
the tourist market because of the different forces and motives driving tourism.
Other Unique Amenities
When it comes to Food and beverage
operators, it attracts non-hotel resident business including banquet facilities
which generate income. According to the world standards, Food and Beverage
income is a very large component of the total hotel income in the hotel
industry as a whole. Some of the amenities include:
and Conventions- It provides a steady rental and service income for any hotel
and considering The Emirates Place has one of a kind, its safe to say they are
doing okay when it comes to holding such.
Features like Cinemas, Concerts and business function room are likely to receive
heavy patronage, which lead to revenue. The Palace has quite a number and
generates a huge sum out of its entertainment ranging from Fitness centers to
kids clubs, trust me one can never get bore in this Palace.
and shopping Complex- Shopping space attracts certain brands to come and set up
shop in your hotel which eventually generates rental income depending on how
big your establishment is built. The Emirates has different brand and all of
them being High name brands as part of their customers when it comes to rental
HOTEL’S BUSINESS STRATEGY
If jockeying for position in
a higher strategic group became more intense in a position of oversupply,
hotels might be diverted to another segment of the market, forcing hotels to
cut margins unless it has established sufficient differentiation to maintain
its own position within its strategic group.
The Hotel Industry in any
major cities in the world contains very high exit barriers. Once in, it is very
difficult to get out. There is considerable diversity in the strategy and aims
of companies owning hotels.
The corporate structure of
the company holding the hotel can be designed from the tax planning angle with
a view to being able to sell this development at much reduced rates of stamp
duty and legal expenses.
The Emirates Palace is one of
the world’s few five star hotel that provides top notch and excellent customer
service. These services are carefully done by passing them through various which
include processes of service development, Operational management, Process design
and Service quality management. All these frameworks are key to a successful strategy
which lead to improvement of services. When developing a service, one has to
take in consideration the 3 phases i.e. Giving input, process transformation
and obtaining output. Different guests have different expectations from the
service provider, and if the customer feels let down, he/she might not want to
come back and might end up telling his friends about the horrible experience he
had at a certain hotel, which will lead to tarnishing of brand names. So an
organization such as the Emirates Palace must always vigorously strive to provide
not only the best but of top level in order to stand out and get customer satisfaction.