Boutique Hotel And Tourism In Mexico Tourism Essay

Introduction

This report conducts the feasibility study to invest a boutique hotel in Mexico. It illustrates the structure of Mexico economic system, tourism industry, and the situation analysis. In order to evaluate the potential business, marketing mix is carefully analysis. Since the product is already chosen as boutique hotel, we must define boutique hotel and where is the location to be investing in. A boutique hotel is a small to medium size usually with no more than 150 rooms; provide personalized service and distinction design to attract the niche market. Boutique hotel is attracting the niche of customers looking for individual and special needs different than other property can offer. The investing boutique hotel will be located in Cancun Island, which is well known by its sea resort, and wide variety of activities can be done; it is voted one of the best tourism destinations.

Mexico

United Mexican States, which is commonly known as Mexico; it is located in the central of Americas. Mexico is the 14th largest nation in the world with estimated population 112 millions. Before Mexico declared independence in 1821, it was Spain colony for three hundred years. The most spoken language in Mexico is Spanish. The GDP by country in 2009 is 1.017 trillion. Felipe de Jesus Calderon Hinojosa is the current president in Mexico.

Cancun

Cancun is located in the east part of Mexico, in the state of Quintana Roo alone with the Caribbean Sea. Cancun is famous by the beautiful nature, beach, and the ancient Mayan archaeological sites. There are about 140 hotels in Cancun with 24000 rooms (Cancun Tourism Center); the occupancy focus in 2010 is 80% during the high season in July to the end of August. The weather of the city is sunny 70% the time during the year, and the temperatures are between 26C to 36C all year around. There are plenty of activities to enjoy in Cancun city with the water activities in the beach, nightlife in the downtown, and also the well famous heritage, the Mayan ruins.

Yucatan General Information

State name: Yacatan

Capital: Merida “White City” (955,000 population)

Population: 1,945,840

Area: 39,612 square kilometers

Currency: Peso (1 Peso = 100 Centavos)

Language: Spanish

Religion: Roman Catholic 76.5%, Protestant 6%, other 0.3%, unspecified 13.8%, none 3.1%

Cancun population is 542,043 people.

Tourism industry in Mexico

Tourism is a very large industry in Mexico; it is rank as 2nd foreign destination within Latin America, 1st in Spanish speaking country, and 10th place in term of international tourists’ arrival (World Tourist Organization), figure 1 shows the international tourist travel around the world. Tourism sector 8% of the total GDP in Mexico. Mexico has one of the largest tourism industries in the world; in 2008, it had total 22.6 million tourists, with 13 billion generated by tourism industry. However, due to the economic crisis and swine flu H1N1 in 2009, new visa regulation and drug dealer violence act; Mexican’s tourism industry had a large drawback, which causes the tourism visit Mexico drop by 16% in the 2nd quarter of 2009.

The year 2009 was rather difficult for Mexico’s travel and tourism industry. The situation expects to change in 2010 with 5% annual growth for the next decade. Experts of the AMHM are looking forward to 2010 are forecast this year will become an eventful year for Mexico with the upcoming bicentennial and action plans for extensive program of events. The tourism and hospitality industries are counting down on these events as a lot of tourists are expected to come to Mexico, which will become the first step to recover from the recession. The tourists will be able to learn more about Mexican culture, history, and the people.

International tourist arrival

Tourist (Stop-over) Arrivals in by Year

Destination

2004

2005

2006

2007

2008

2009

Bahamas

1450043

1514532

1491663

1527726

1462404

1326722

Cancun

2331362

2134180

1586942

2022302

2165320

1434416

Jamaica

1414786

1478663

1678905

1700785

1767271

1837091

Tourist Attraction

An amazing fusion of European and especially Spanish and Meso-American cultures, which make up a unique culture, plus the coastal climate make Mexico even more attractive. The peak seasons in the country are during the month of December and the months of July and August. Cultural event in Mexico are mainly focused on:

An amazing fusion of European and especially Spanish and Meso-American cultures, which make up a unique culture, plus the coastal climate make Mexico even more attractive. The peak seasons in the country are during the month of December and the months of July and August.

Cultural event in Mexico are mainly focused on:

Religion

Art

Literature

National holidays

Music

Dancing

Cuisine

Cinema

Sport

There are three categories of event in Mexico:

Catholic religious events,

national events

cultural events.

El Día de Los Reyes which is the Three Kings Day is the traditional gift giving day. Carnaval (Mardi Gras) festivities take place from February to March with parades, dancing, fireworks and music. From 10-13 May, the Cancún Jazz Festival takes place, featuring top musicians.

The nation celebrates Independence Day on 15 and 16 September with fireworks and parties. The International Caribbean Festival is celebrated in November which is followed by the Fiesta of Isla Majors that honours the patron saint and the Cancun Fair in early December.

Potential Problem in Mexico tourism industry

Passport & Visa requirement

Start from June 2009, all the U.S. travelers returning/entering to the United States from Mexico must present a valid passport or other WHTI documentation, such as passport card, birth certificate or enhanced drivers’ license.

Hurricane impact the coast

Since our hotel is located in at the coast of the Yucatan Peninsula, Cancun, the area can be affect by the hurricane season. Hurricane season in Mexico last from June to November, in 2009, the hurricane season was relatively mild in comparison with the few previous years, but the heavy storms had affected the tourists come to visit the country.

Economic in Mexico

The economy of Mexico is rank at the 14th largest in the world, and place 11th by the purchasing power parity. Since the year 1994, when the most severe crisis in the whole history of Mexico, Mexican peso suddenly suffered devaluation due to the high inflation rate, nearly 50% of the population suffered due to the no value in the currency. However, the country has made an impressive recovery, building a modern and diversified economy, and financial support from the U.S. government; even the 2002 South America economy crisis, it didn’t influence much of the country’s economy as the government did everything possible in order to improve country’s economic fundament.

Mexico is characterized by macroeconomic stability, by reducing inflation and interest rates to increase per capita income; however, enormous gap remain between the urban and the rural area, which only the rich and poor people remain, the middle class is almost disappearing. The Mexican government is facing the challenges include the upgrade of infrastructure, the modernization of tax system and labor laws, and the reduction of income inequality. Mexico has a strong business relation with the U.S., it suffered from the economic slowdown and economic recession by -6.8% in GDP in 2009. In 2010, Mexico is expecting a 3% growth and 2-3% growth for the next decade.

Economic system

Free Trade ActMexico is a free-market based economy, by signing up free trade agreements (FTAs) with more than 40 countries, which including the European Union, Japan, Israel, and much of Central and America. More than a quarter of the country’s GDP are generated from the export goods to the U.S. Mexican government are welcome for business to enter. Mexican economy is depending on the following: agriculture and food production, industry& natural resource and services. Figure 2.2 shows the GDP sector.

Taxation

In order to open and develop a business in Mexico, there are some factors that should be taking into consideration before planning the correct strategy of investments. The political situation of the country, economical situation and demand that will help to build a marketing plan directed to making high revenue.

Federal tax in Mexico may vary from 10% to 28% despite to the income. Corporations are been charge for 30% tax rate; however, for foreign private investors, the tax rate is set at 25%, which is slightly lower than the residents. This has a positive effect on the development of business in Mexico and attracts entrepreneurs to invest their money.

The value-added tax (VAT) on the sale of goods, rendering of services, granting the use or enjoyment of goods and importation of goods or services is normally set at 16% in Mexico. In the border areas (international land border areas) is at 10%. (www.taxrates.cc)

The concept of capital gains in Mexico does not exist. The earning that one gains from the sale of a product is treated as normal income.

S.W.O.T. analysis of Mexico

Strengths:

Location is good because it is the major connection between North and South America.

Tropical climate – two main seasons (rainy and dry)

Beautiful nature and rich culture with a lot of history

Weaknesses:

Economy is closely related with export to USA around 70% is export.

Swine flu – that hit very badly the whole country and they need to close it to stop the spread of the flu

Big problem is drugs (selling and transport to USA)

Natural disasters – tsunami, earthquakes and hurricanes

Split oil in the Gulf of Mexico related with tourism

Treats:

Economy depends too much on USA economy

High violence because of drug traffic and cartels related with it

Opportunities:

Reducing dependence of USA economy and increase independency of the economy

Development of the economy

S.W.O.T. analysis of Cancun

Strengths:

Good location

Very good known like tourist destination world wide

Popular with Mesoamericans history and Maya`s ancient buildings

Big variety if worldwide well known hotels

A lot of options to explorer Caribbean Sea or Gulf of Mexico also regions around Cancun (scuba diving, fishing, jeep trips, Mayan ruins, parks, museums) also there are 475 bird species, over hundreds different mammals and twelve hundred plants.

Accessible (airport 10 km)

Weaknesses:

Too crowded because of the many tourists

Hurricane ( “Dean” 2009)

Treats:

Depend too much on the tourism and hospitality industry

Opportunities:

Encourage people to invest and extend the agriculture (support and subsidize the sector)

Develop green sites of the city

Foreign investors in infrastructure

Conclusion – Investment

Three quarter of the hotels in Cancun city are rated as 5 star luxury hotels. The average room rate is $80-200 according to dealbase.com, which is relevantly cheaper than Miami resort, start from $119 and go up. Cancun city became a favorite tourists’ destination by the U.S. and European. The occupancy rate is consistently stayed above 70% in the regular bases (Latin American Berald Tribune), which provide large clienteles to make profit. Cancun city has 140 hotels with very few boutique hotels in the area, by the research on escapio unique hotels web site, there are only 2 unique hotels can be fit into the boutique hotels categories. They are Hotel Villas HM Paraiso Del Mar and Las Nubes de Holbox. These hotels have standalone building for each room and only 20 rooms and 26 rooms each. This creates a huge demand of boutique hotels once the concept and advertising are spread in the area. Since there are only few unique style hotels in Cancun, the sustainability is low, it create inelastic of demand. This is why we think it is a good idea to invest boutique hotel in Cancun. From the customers’ side of view, the VAT is Cancun is at 10% rate, which is 6% lower than other inner states, because it is on the border of Mexico, this will attract more potential customers to Cancun. As we mention earlier, the taxation is set at 30% to corporation in Mexico, 33.3% in Jamaica, 20% in Belize. From an entrepreneur point of view, the taxation is quite high compare to the neighbor country Belize.

To start the business, we must look at the factor of production: capital, labor, entrepreneurs, and land. The capital will be the most important factor to invest due to the high startup capital. However, our aim is to open a boutique hotel with 40 rooms, this can be an advantage to enter the business with lower initial investment. The labor cost is cheap in Mexico; the average minimum wage is at $4.5-6 per day. To maximize the profit, the operational expense will be the key to success, which the salary will be limit to the bottom to maximize the profit.