The modern era of business is much complicated than the previous. Any organisation must seek to understand the nature of its competitive environment if it is to be successful in achieving its objectives and in establishing appropriate strategies. For this the organisation and those leading them need to improve their understanding of the nature of the organisational structure, the importance of technology and the role they play in the organisation for improving the performance. This report presents the overall analysis of the tourism industry, achieving, maintaining leadership and implications of the changing business environment with respect to TUI case study.
TUI is one among the largest European tourist operator in the world which is the leading international leisure travel which operates approximately in 180 countries worldwide and serves more than 30 million customers in over 24 source markets. Starting its business as Preussag which was operating in smelting and mining industry, profitability was decreasing in that sector so it gave an exit to that sector and entered tourism industry, a radical decision to change. It started acquiring other tourist operators included its acquisition of major European tourist operators by late 1990s. In 2001, all the brands and firms were put under the ‘World of TUI’. Till 2005 and after that TUI has taken the first position in tourism industry and has worldwide operations. TUI’s strategy was to have its label in almost all parts of the world. Their main objective is to have a strong brand portfolio in all parts of the world and constantly raising the performance of the international tourism industry.
BUSINESS ENVIRONMENTAL ANALYSIS AT TUI:
“Strategic management includes understanding the strategic position of an organisation, strategic choices for the future and managing strategy in action” (Johnson et al, 2008). Strategic position identifies the impact of external environment, strategic capability, expectation and influence of stakeholders on strategy. The business environment can be divided into (refer appendix 11.2): Through the DEEPLIST (Demographic, Economic, Ecologic, Political, Legal, Informational, Social and Technologic) analysis, from a macro level, examining factors within the remote environment and show how they influence tourism industry. Moreover, Porter’s Five Forces, including the bargaining power of suppliers and buyers, potential threats from domestic substitutes and overseas entrants, and the intensity of rivalry, will focus on the structural determinants of the intensity of competition that affect the tourism industry from a micro level (Stubbs, 2000).
Business change due to technology is the transformation of business activities which is not regular and not done all the time. According to Anderson et al (2001) change is catalysed by number of forces that trigger it and these forces start off in the organisation or the marketplace. Change in business is required if core processes, organisation structures, rules and procedures are not efficient enough to achieve the desired goal. Following are the change drivers which triggers change in tourism industry. The Key drivers to be considered here are Political, Technology and Socio-culture/Demographics (refer appendix 11.2).
Social issues can create great problems to business and this can result in business change in the tourism industry. One aspect of social change consists of changes in people’s attitudes, values and beliefs when they visit different places. Other aspects of social change are in the field of culture, social structure and of the patterns of behaviour. Social problems can be anything affecting the nature, social institutions, and community of people or group of individuals. The business might be aiming at developmental change and benefit of the society but it can be taken in negative sense by some group of people who believe the business is eliminating the existing way of living. Thus this may affect the TUI’s operations and market share as customers are the main asset for company’s growth.
In general form the case study, international tourist arrivals recorded across the world was more than 800 million which was due to the growing annual pace 10 years back in the tourism industry was quoted according to World Tourism Organisation (WTO) in which policy issues are accounted.
Terrorism: We can know that there was 5.5 per cent growth rate and 10 per cent growth in 2004 seemed to be like the tourism industry had taken a boom indicated the rise which was followed by insecurity created after the various terrorist attacks in Newyork (2001), Djerba (2002), Bali (2003) and Madrid (2004) during 2001-2003.
London bomb attacks in July 2005 really did not affect the arrivals in UK. In fact there was a 10 per cent increase on tourist arrivals in the Northern Europe and UK. Usually terrorist attacks at destinations have an adverse effect on tourism industry as people tend not to visit those places out of fear and insecurity.
Security: In 2005 TUI was considered to be the biggest tour operator in Europe. The wholesaler tour offers packaged or ‘all-inclusive’ prepaid and pre planned holidays to its customers which offered security and the value for the vacationer.
Taxation: if any common Value added tax is introduced for every booking made through internet/mobile. Poor people will be affected greatly compared to rich in the society. This may reduce internet transactions.
Traumatic effect on international travel from 2000 to 2004 is due to global economic downturn and the health crisis, such as the outbreak of SARS in 2003.
We can also consider the Demography, social values which lead to social problems, cultural features wherein people’s attitude for the tour can change accordingly.
Financial: The WTO forecasted that the 1 billion arrivals spot would be passed in 2010 and by 2020 there would be 1.6 billion international tourist arrivals, which seems to be the expansion of tourism shaping the future of the world economy and activity.
Exchange Rate: Typically, an income per capita of source countries and the relative price of exported tourist services as the main determinants of demand. Demand has generally been found to be highly income elastic, consistent with international tourism being a luxury good and highly responsive to changes in the relative price of tourist services when measured as the real exchange rate relative to the destination country.
Competition: All the package tours offered through travel agents such as Thomas Cook, My Travel Group, Rewe Touristik and First Choice Holidays are the main competitors for TUI even though in 2005 it took a major market share in European tourism market.
Lodging, food, beverage, leisure, tourist demand spending, channels of distribution leads to weakness and strengths of economic sectors. Tourism is the major trend in economy (Manuel et al, 1999).
Ecological /Environmental Issues:
Carbon is the main affluent which is taken into account when tourism industry is concerned about package tours offered to customers which is composed of air transportation. Even oxides of nitrogen due to the combustion of fuel, packing plastic bags for food preservation by travel industry are hazardous to environment.
Climate change is one of the biggest challenges as a tourism sector. According to the UN World Tourism Organization, travel and tourism contributes around 5% of total global carbon emissions. Along with many other industries, the leisure travel sector is feeling the effects of climate change, and in the future we can see changes in the quality of tourist seasons, an increase in the intensity of tropical storms and rainfall, and more severe droughts (www.tuitravelplc.com, 2009).
Tourism is known as a ‘thirsty industry’, due to the amount of water required for tourism activities such as golf courses, swimming pools and washing of linen. Water scarcity is likely to be an issue for the business in the medium to long-term (www.tuitravelplc.com, 2009). Climatic conditions may influence the decisions of customers effectively in tourism industry (Example change in season or heavy rain pour).
However, tourism sector also has a significant positive impact on the people who live and work in the destinations. Tourism is one of the world’s largest industries, contributing around 11% to global GDP. It is particularly important for developing economies, and is a top five export in 80% of developing countries.
2.1.6 Technological Issues:
In March 2005 TUI launched the virtual tour operator Touropa.com, in Germany, selling travel tours not only online, but also through travel agencies, television and call centres which bolstered TUI’s place as the European head in the direct sale of travel products with a turnover of â‚¬2.6 billion in 2005.
Online transactions and booking include broadband service and internet technology in tourism industry.
2.1.7 Legal Issues:
Issue of online trademark protection, spawning, mouse-trapping spoofing, cyber-squatting, domain name fraud, as well as spyware. Internet Marketing in Hotel industry and Tourism lets us to know that loss of control of a company’s trademark can occur (for example when a third party bids on a trademarked term on search engines), not only may lead to loss in revenues, but also brand confusion by the consumer.
For Example: My Travel Group was under reorganization after several bad years, including 2005 when revenue decreased by 19 per cent, under claims of accounting and mis management.
TUI is active in the shipping business which includes logistics and containers, during shipping legal factors are to be considered with many country’s legal scenarios which have to be met with high terms. Import and export duty are also considered.
International trading is the other part of TUI wherein most of the activities were taken into account other than shipping where in legal terms will have a greater impact on the tourism industry.
PORTER’S FIVE FORCES ANALYSIS:
PORTER’S five forces diagram explains how forces like buyer power and threat of new entry creates competitive rivalry and ultimately leads to business change for the current tourism industry based on the development in the market and detail analysis is carried out in the appendix 11.3 (Porter, 1985).
INTERNAL ANALYSIS OF RESOURCES AND CAPABILITIES AT TUI:
Internal analysis is done to explore the contribution of resources in achieving profits and to analyse how the internal resources of an organization helps in achieving sustainable competitive advantage. The importance of internal resources in adding value to TUI can be analysed using two approaches- the value chains the value system (refer appendix 11.4).
3.2 VALUE CHAIN ANALYSIS
3.2.1 Primary Activities
Preussag, former TUI took more interest on acquisitions of many tour operators (Hapag-Llyod AG, TUI Deutschland, Thomas Cook etc) during early stages. This many acquisitions lead to the formation of TUI tour operator, which has become the first player in tourism industry in European market (refer appendix 11.4).
Quality and consistency are important attributes in travel and tourism industry for TUI. Thus retaining the brand, TUI transformed its operations by improving product quality and consistency for which people were ready to take the packages. It also enjoyed significant economies of scale.
Setting up different travel agencies across many countries with major presence in Germany, UK and Netherlands and Belgium. By 2005 there were 3500 travel agencies in 17 countries. Acquiring these helped TUI in expanding its boundaries and reaching the world. This helped in building an image over time in international context.
Tourism industries have to ensure that it provides good quality service to consumers because using poor quality raw materials may have major affect on the operator market share. Providing good quality service is a case of social responsibility.
3.2.2 Support Activities
Acquiring raw materials locally and importing consisted of inputs in TUI’s value chain. It also procured its inputs used in value chain from the resources it attained from acquisitions (refer appendix 11.4).
Technology includes the product and process development. It used its virtual tour operator Touraopa.com, where in travel tours are sold online and also through travel agents and call centres from Germany in tourism industry to dominate the market share of the world (Johnson et al, 2008).
Human Resource Management
TUI had 58,191 employees by the end of September 2005 across the group and has more than 180 destinations. It gives opportunity to develop, rewards and recognition, work experience and leadership ability within the group and of which some worked in logistics division, trading and sales operations as well. (www.tuitravelplc.com, 2009)
Preussag created TUI management structure was centralised in order to manage the airlines grouping the year 2002(www.tuitravelplc.com, 2009). Resources for managing operations in different countries have lead TUI to have a better infrastructure.
3.3 HUMAN RESOURCES:
TUI deployed its workforce from the expert operational management skills from different operators which were acquired from the firm during mergers and acquisition. Also since its management structure was centralised during 2002; it has human resources from the international context who will be framing its strategy according to the requirements and it is said to have implement resource based view.
PORTER’S GENERIC STRATEGIES:
The firm’s profitability is the primary determinant of the industry and its position within the industry is an important secondary determinant. Above average profitability is the fundamental basis for attaining sustainable competitive advantage. The basic types of competitive advantage are low cost or differentiation. Along with types of advantage and scope of activities for which firm needs to attain them lead to three generic strategies to pull off above average performance in an industry like tourism.
COST LEADERSHIP STRATEGY:
TUI’s ability to offer lower price to powerful buyers. This usually targets a broad market. Firm sells its products either at average industry price to achieve profits further than rivals or below the average industry prices to put on market share (refer appendix 11.6). Low cost firm like TUI finds and exploits all sources of cost advantage like efficient distribution channels involved in the process. TUI has attained overall cost leadership, as it can command prices or near industry average. Hence it is considered to be above average performer in its tourism industry (refer appendix 11.5).
The value added by the exceptionality of the product may allow the firm to change the best price for it. Large buyers have less power to negotiate because of few close alternatives. Customers of TUI get attached to differentiating attributes, reducing threat of substitutes. Corporate reputation is for innovation and quality of service in the case of TUI (refer appendix 11.6).
It basically aims at narrow competitive range within an industry. The focuser services only a segment or group. Two variants are considered in this: cost focus a firm seeks a cost advantage in its target segment, where as in differentiation focus a firm seeks differentiation in its target partition (refer appendix 11.5). The target segments must either have buyers with strange needs or else the production and delivery system that best serves the target segment must differ from that of other industry segments (refer appendix 11.6).
STRATEGIES TO ACHIEVE COMPETITIVE ADVANTAGE AT TUI
TUI is considered to be more bureaucratic, which is more rigid and it stabilises the decision making progression (Barron et al, 1994). An intrusive firm have more in force and inhibits the choice of more active strategies (Peters, 1992).
Service revolution can happen when industry focuses on people, Optimize technology/processes and empower employees, making service transparent, by delivering invisible excellence, focus on elegant simplicity, adapt and evolve, requirement to achieve best of all which may include society, environment and economy(Silvester et al, 2008).
Well defined centralised process development and structured innovations, framework, with number of fixed points which include high cost innovations whereas most of the functional departments are decentralised and customer feedback helps TUI to obtain competitive advantage(www.tuitravelplc.com, 2009).
Flexible process like running different service for their customer which is usually much diversified in its development of operational units. Whereas in distributed functional departments of TUI primarily were unstructured, emergent process focuses on continuous improvements. This budget may be often taken into operating expenses (Heracleous et al , 2005).
TUI key issues in the business environment and its strategic capability can be analysed using a SWOT analysis. This will help in identifying the extent to which the current strength and weaknesses of TUI are relevant to and capable of dealing with the changes taking place in a business environment. The table in appendix 11.6 depicts a SWOT analysis of TUI.
GROWTH SHARE OF TUI – A BCG MATRIX ANALYSIS
The BCG matrix analysis will be helpful in determining the relationship between the relative share of the product portfolio TUI and its market growth. The key constitute of TUI’s product portfolio includes its tourism business and also its interests in hotels and shipping industry. Later TUI also expanded its portfolio by adding transportation between airport and hotel, provided local excursions, offered assistance for car rentals etc (www.tuitravelplc.com, 2009). In the tourism sector TUI has to choose whether to concentrate more on its mainstream or the international best segment. However the 2007 annual report of TUI showed that the worldwide trend towards the tourism industry is increasing. The appendix 11.7 depicts a BCG Matrix analysis wherein TUI is marked as Stars (High market share, High market growth).
LIMITATIONS OF TOOLS USED FOR ANALYSIS:
Limitations of PESTEL Analysis
Some corporate strategists comment that since future is uncertain, there is no point in prediction. Therefore while applying PESTEL, factors like economical conditions, lifestyle of the people, etc. should be assumed as static. Also for analysing the strategic position of TUI, a company large by its size and operations and spread in different parts of the world, PESTEL alone cannot help because it only analyses the external environment where as analysing strategic position requires both external and internal environment analysis. Thus, it can be used only in support of other tools.
Limitations of Porters Five Force Analysis
Five Force Analysis demands that all other factors should be static whereas the competitive environment in practice is constantly changing. Also customers and the external environment are given same importance than any other aspect of environment in the analysis whereas customers should be the prime aspect of strategy development for companies like TUI who are selling their products to end customers (shipping, tourism and hotels). Also, a broad analysis of all the five forces makes it very difficult in compound industries with multiple interrelations, product groups, by-products and segments.
Limitations of Market Segment Analysis
Customer needs may vary than predicted about the particular market especially when the target market is large. Another major disadvantage of Market segment analysis is that changes in market conditions will lead to potential threats.
Limitations of Value Chain Analysis
The key actors in the value chain are sometimes affected by certain rules that are set by others like the government. So value chain analysis is influenced by information on these rules. It is difficult for companies like TUI whose business is diversified in different parts of the world for giving specific and meaningful information like fares, quotations, offers, quality standards and environmental standards imposed by tourism places.
Sustainable Supply chain management (SSCM): the main challenge is to apply SSCM. Quality is the most important part of supplier selection by tour operations. Communication between relationship of quality and sustainability to increase market share awareness is the factor evaluating SSCM (Font et al, 2006).
Limitations of Generic strategies:
Risks in generic strategies, inclusion of low-cost strategy. For example if other firms (like My Travel) may also lower the costs due to advancement in technology. Thus, as a result narrow focus groups should be targeted to gain significant market share.
Risks dealt with differentiation strategy are imitation of competitors and change in customer’s tastes. Specialized products and core competency protect against substitutes.
Limitations of SWOT Analysis
The output of SWOT analysis may contain a big list in which some may be more important and some may be less important. Also it is not suitable for more dynamic and insightful analysis.
Limitations of BCG Matrix Analysis
In BCG Matrix analysis it is very difficult to measure market growth rates and relative market shares. Also economical and political factors vary from country to country and BCG Matrix analysis doesn’t take this into consideration.
The analysis reveals that TUI is in a very strong position in the tourism industry. TUI’s current strategic position reveals that it has achieved long term growth from developing markets, acquisitions and resources from developed markets. Its expertise gained from many mergers and acquisition from different tourism groups and gradual development of technology in Europe. Years of experience are its greatest resource of sustainable competitive advantage by which it is able to tackle the fearlessness in a turbulent economy. However it also faces some issues like attitude of customer’s behaviour may change due to economic crisis or personal wish which impacts on its operational productivity as every industry faces in the competitive world. In short, TUI has made its strategic choices very efficiently leading to its success. The options are laid and needs to be decided upon which can help TUI in achieving a niche position in the tourism industry (refer appendix 11.1).
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