Critical Issues In Hospitality Recession Business Essay

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According to research the hospitality industry has a significant multiplier effect on all aspects of the economy through the requirement for supporting products and services. The direct and indirect backward linkages include the food producers manufacturers, transport companies, wholesalers, and related manufacturing industries. Thus, it is a major generator of both direct and indirect employment and contributes significantly to the flow of money in the regional and national economies. (Morison, Rimmington and William, n.d.)

The multiplier effect on employment alone is estimated to be around 1.3 additional jobs for every one directly employed in the hospitality industry. In financial terms the multiplier effect on the economy is estimated to be £1.75 for every £1 spent directly in a hospitality operation. The foreign earnings through the hospitality and tourism has risen and is calculated at £11.40 billion for 1995, a rise of 15 percent over the previous year. Consequently, as a result of globalization and competitive pressures, it is predicted that the hospitality, tourism and leisure industries will become increasing important to the restructuring of the UK economy, both in terms of numbers of people employed and its contribution to the domestic product. (Morison, Rimmington and William, n.d.)

The effect of the 1990s economic recession was compounded by less international travel because of the gulf war in early 1991. As a result, the economic restructuring process claimed victims. Many businesses which had been bought at unrealistically high prices in the late 1980s based on inflated property values, and with large borrowings, failed. (Morison, Rimmington and William, n.d.)

Currently, the economic downturn has reversed with fewer receivership appointments at hotel and catering companies in 1996 than for any other year in 1990s. The total number in the hospitality sector was 89 in 1996, compared with 321 in 1992. This represents a fall of 72%. Clearly economic changes and cycles, and the effect of government policies relative to the economy and exchange rate management, create both threats and opportunities for entrepreneurs. This has particular significant relative to the timing of the launch of entrepreneurial ventures. (Morison, Rimmington and William, n.d.)

Though hospitality is considered to be a growing industry, but if in case of recession, if the consumers do not have money to spend on leisure activities, it will definitely affect the hospitality industry. A hospitality industries main focus is to provide service but without the consumers, it will have no one to provide service to. Hospitality business strives on the turnover of guests it has. But incase of recession, where people wont have money to spend of leisure activity such as travelling which will affect the turnover of guest, hence affecting the hospitality industry.


With the exception of small motels or restaurants that do not have budgets, all larger operations should consider the use of an agency. First, an agency can increase the effectiveness of advertising; its work is more professional, and its use of media is better. Second, agencies can be especially helpful in dealing with the special production requirements of radio and television advertising. Third, using an advertising agency is like maintaining a staff of part-time specialists- copywriters, and layout professionals. Fourth, agencies are able to maintain closer contacts with media representatives versus a single advertiser. Finally, some advertising agencies are able to offer consultative services related to such advertising and marketing projects as test marketing. (Reid and Bojanic, n.d.)

Management must, however, consider the disadvantages of using an agency. First includes money. There is no such thing as a free lunch, and top-quality professional assistance will cost money. Furthermore, if the hospitality organization already has adequate self-employed talent and assistance, the services of an agency may not be required. (Reid and Bojanic, n.d.)

Managers have to make decisions about how advertising will be handled which should be based on the following factors:

The amount of available time to devote to advertising

The sizes of the target market segments

The specific media that are being considered or have been selected

Management's knowledge of and experience in advertising

The amount of money to be spent on advertising(Reid and Bojanic, n.d.)

It is wise to select an agency with proven track record in working with service or hospitality industry clients. An advertising agency may offer specific functions such as media buying services or creative services, or it may be a full service agency. (Reid and Bojanic, n.d.)

Effects on competition- one of the major criticisms of advertisings is its ability to create barriers of entry to firms wishing to enter a market. When large firms spend large amounts of money on advertising, it makes it increasingly difficult for new brands to enter the market with any reasonable level of success. Instead, new brands are relegated to pursuing niche strategies in an attempt to profit and survive. Large firms also enjoy economies of scale in advertising, much the way they do in other areas such as ordering suppliers, recruiting and training, and financing. This is especially true in the area of media buying, where firms that purchase more volume get more favorable rates.this results in large firms' controlling the major media that have the most impact on consumers. Based on these assertions, some critics would argue that advertising could have an anticompetitive effect on the market. It is naive to believe that advertising alone creates the barriers to entry and the economies of scale that large firms enjoy in the marketplace. These benefits are merely the result of fair competition in a free-market society. Also, not all successful firms spend large amounts of money on advertising. Years ago, people believed that McDonald's was beginning to establish a virtual monopoly in the fast-food segment of the industry. Those people held that McDonald's would drive the independent operations out of business and would than absorb many of the smaller regional chains. this has not been the case. McDonald's has experienced its own set of challenges in responding to competitive threats and changes in consumer behavior. Large chains do enjoy certain advertising advantages, but these advantages hardly create a monopolistic marketplace.

Effects on product costs and price- probably the most common criticism of advertising is that it results in higher costs that lead to higher prices charged to consumers for products and services. There is no question that advertising is a cost of doing business, similar to a firm's payroll, supply, building leases, insurance, and financing. It appears as a line item on the statement of income and expense as an expense, and it must be covered if a firm expects to be

profitable. (Reid and Bojanic, n.d.)

The concept of fixed expenses being covered by the contribution margin for products and services is presented in the pricing chapter that follows. Basically, any increase in expenses must be offset by an increase in price or a decrease in other expenses if a firm is to maintain its current level of profitability. Therefore, it is easy to see how critics could argue that advertising leads to higher prices. A quick review of financial statements would most likely how that firms that spend more on advertising tend to charge higher prices than the competitors. (Reid and Bojanic, n.d.)

The proponents of advertising would argue that advertising is necessary to inform consumers of these quality differences. Since consumers are better-informed, firms can provide higher-quality products at lower prices. Consumers can readily compare competitive products and services, thereby putting downward pressure on industry prices. (Reid and Bojanic, n.d.)

Motivation in hospitality industry

The most important asset of an organization includes highly motivated employees. Motivation helps the employees to become more productive, energetic, and very much willing to take on more responsibilities. It is important to motivate the employees so that they can give in their hundred percent and the organization can work smoothly and successfully (Silva, 2007).

Usually the main motivator for an employee is money but it may vary from individual to individual. Therefore, compensation may not work as a motivator for all employees. The motivational policies cannot succeed if they are restricted to monetary rewards (Desler, 2007).

According to Boella (2001) the most important function of management is to motivate the employees at all levels. It is the responsibility of the hospitality managers and HRM to create an environment within which the employees constantly feel motivated to put their best foot forward and provide higher levels of customer service and productivity.

The work environment in the hospitality sector is a challenging one. It provides opportunity for growth and advancement with a working environment that can be considered the best in the industry. But everything comes with a price i.e. rewards and benefits come long working hours, stress and demanding seniors. Understanding and using motivation techniques is central for managing people in general, and managing people is a central concern for the hospitality industry (Kusluvan, 2003).

Motivation is internal to each individual. Managers cannot actually motivate their employees. Only when the employees feel that their personal goals and interest will be met by helping the organization meet its goal, they feel motivated. Motivation is intangible and cannot be measured; only the results can be observed. The role of Management is to create an organizational culture that encourages positive employee behaviors so that they perform to the best of their capability. Hence management in today's environment however, cannot rely on the manipulation of pay, benefits, or working conditions to stimulate workers to perform effectively. Motivation is a much more complicated process (Boella, 2001).

Many employees may not be satisfied with the appreciation and incentives system of the hotels. There may be a few employees though who are satisfied with the intensive system. Therefore, it is important to understand the needs of the employees and make sure that motivators are targeted towards the different needs of individuals rather than giving them for the sake of doing it. The needs can be identified as per the content and expectancy theories. Thus points mentioned by the employees should be taken into consideration and implemented by the management so that the employees can be motivated and perform their respective job with efficiency. One can conclude that the management must motivate their employees be it a supervisor or a manger because it is the motivated manager or a supervisor that helps in increasing the productive and ultimately in achieving the goal of the organization. (Motivation In Workplace, 2010)

Until and unless the employees of the hospitality industry are not motivated, they might not be able to perform to the best of their capability. Therefore, it is important for the employers to understand how to motivate its staff and act upon it so that the employees are motivated and can perform with the best of their capability. (Motivation In Workplace, 2010)

Motivation has a great effect on the output of the hospitality industry in both qualitative and quantitative terms. Incase the job requires efficiency, the staff must be motivated to achieve the task efficiently. Incase the staff is not motivated, it may lead to the target not being achieved, thereby leading to a disastrous consequences. This is because if motivation is lacking, simple things becomes a major burden.

(Motivation In Workplace, 2010)


The hospitality industry is one of the largest traders of foreign currency and world¹s largest employers as lot of international travel takes place. Due to globalization, it is the central point where people meet and it witnesses a lot of cross cultural ideas. At its heart, the hospitality industry plays an important part physically in bringing people together in a global community. And those countries suffering from trade imbalances due to high imports frequently look to tourism and hospitality to close the gap. Hospitality is thus not only an industry, it is a concept -- and a major force in the rapidly evolving global marketplace. (Hospitality Adjusts To Globalization, n.d.)

Globalization and international business can only exist if the hospitality industry is strong, makin it the core of international business. Enough Hospitality companies therefore need to consider the implications of the global context in which they operate and must be prepared to address the questions that arise from this changing environment. What tangible trends driven by an inter-linked global marketplace will shape the hospitality industry of the future? What does globalization mean for the internationally oriented hospitality company, as well as hotel operations that compete locally and regionally with these organizations? (Hospitality Adjusts To Globalization, n.d.)

The globalization of business and lifestyles is characterized by communicating over vast distances in foreign languages, frequent travel to overseas countries, dealing in many currencies, and coping with a variety of political and social systems, regulatory environments, cultures and customs. While these aspects of globalization are easy to identify, understanding the underlying current and future trends can be problematic. Analysis, however, reveals that a number of issues are reshaping the global hospitality industry, although there are clearly some complex questions that are still to be resolved:

International expansion with common product and brand position;

Sales and marketing programs that fully capture global economies of scale;

Organizational structures that allow global delivery of services with local operational control;

Cross-border employee training to support operations; and

Use of the world capital markets as sources of funding. (Hospitality Adjusts To Globalization, n.d.)

A hotel organization, for example, may reach a point in which there is no other viable option than to expand across national boundaries if it wishes to grow, achieve critical mass and benefit from the economies of scale that accompany it. If this is the case, leadership will need to recognize the imperative of organizing as a global company. As an example, consider an international hotel company that is well established in North America and Europe. In today's world market, company leadership may cast attention on the potential for moving into burgeoning Asia/Pacific markets to compete with established regional companies. Companies considering such strategic options can succeed against strong local and regional competitors only if they capitalize on the advantages derived from being a global company. Hotel companies expanding globally will also need to confront varying traditions, structures and attitudes to property investment and valuation in different countries. It is possible that there will be a more common set of standards in the future but we are still far from that level of standardization. (Hospitality Adjusts To Globalization, n.d.)


The message today is that it is incumbent on all hotel organizations that have aspirations to develop brand names across national boundaries to understand what globalization means. A truly global enterprise will have the ability to react quickly to market opportunities, no matter where they present themselves by applying business concepts that have been proven in the context of a global undertaking.

In a world moving more and more towards globalization, hotel organizations will need to communicate more quickly, operate more productively, offer their employees greater opportunity and deliver their customers enhanced benefits. Those companies that address these issues today will be better prepared for the global market space of tomorrow. (Hospitality Adjusts To Globalization, n.d.)


Boella M.J. (2001) Human Resource Management in the Hospitality Industry Sixth Edition Great : Stanley Thomas Publishers Ltd.

Desler G. (2007), Human Resource Management, Tenth Edition, Pearson Education.

Hospitality Adjusts To Globalization, [Online], Available: HYPERLINK "" [11 December 2010].

Kusluvan, S. (2003) Managing Employee Attitudes and Behaviours in the Tourism and Hospitality Industry, New york: Nova Science Publishers, Inc.

Morison, A., Rimmington, M. and William, C. (n.d) Elveiser, Burlington: Butterworth-Heineman.

Motivation In Workplace (2010), 21july, [Online], Available: HYPERLINK "" [13 December 2010].

Reid, R.D. and Bojanic, D.C. (n.d) Hospitality Marketing Management, 5th edition, New York: John And Wiley.

Silva, S. (2007) Does Empowerment Motivate Employees in the Hospitality Industry, Norderstedt: Grin.