Grande Bretagne Hotel; External business environment

Strategic concepts in tourism, hospitality and events

Individual assignment: Grande Bretagne Hotel Athens; External business environment

INTRODUCTION

No company in the world is working standalone and in isolation. That’s even more emphasised in the tourism industry where the location of the tourism companies follows the location of the tourism product, the tourism destination. A hotel can not be located standalone in a no attractive tourism destination and expect success, it should be as close to the epicentre of the tourism happening and movement. The problem is, every tourism company wants that, and they all have to compete in the saturated, consistent market with each other and with the environment like a whole.

In this assignment we will discuss the challenges and implications of the external environment applied to our hospitality organisation of a choice based on the selected theoretical model. Further evaluate the competitive environment using the Porter’s Five Forces Model with closing recommendation for the future of the business.

BRIEF DESCRIPTION OF CHOSEN SUPPLIER

For the purpose of this assignment we had chosen the New Hotel Athens.

New Hotel Athens (formerly Olympic Palace Hotel), along with 4 other hotels, is a part of Yes Hotels chain, and they are part of the worldwide Design Hotel company with more than 250 independent hotels in over 50 countries worldwide. (http://corporate.designhotels.com/about_design_hotels)

Situated in Plaka area in central Athens, New Hotel is a 79 room establishment designed by the Brazilian award winning design duo Fernando and Humberto Campana. The hotel also sports exquisite all-day bar-restaurant, New taste, and Workshop Floor, meeting space with teleconference facilities.

IDENTIFICATION OF FACTORS ISSUES IN THE EXTERNAL ENVIRONMENT (MACRO ANALYSIS)

Business environment refers to those factors of the surrounding of business enterprise which have influence on the functioning of a business. The business cannot control these aspects but can respond to change if needed. This is also call macro environemnt.

(http://books.google.gr/books?id=nfADHVmJkTUC&pg=PA3&dq=external+business+environment&hl=en&sa=X&ei=jiJvVNnjHJP5asqEgvgL&redir_esc=y#v=onepage&q=external%20business%20environment&f=true)

External business environment

Economic conditions

Economic conditions are global as well as national, and when there is a global financial crisis as in 2007, and the recent one, changes in the external environment can be dramatic. Positive economic condition of the nation have also positive effect on their spending habits. And opposite, when the nation is suffering financial hardship, the money that will be spent for recreation and holidays will be less. Indirectly, the negative economic condition increase the unemployment rate and the interest rate and taxations.

New Hotel Athens, operates within the EU and Greek economic environment. Considering the not so positive economic condition of the country and the Euro zone generally, we can say irrefutable that it reflects negatively on the business. After a calamitous recession in which the economy shrank by 30%, government debt now stands at 174% of GDP and the budget deficit last year was almost 13% of GDP (The Economist 2014). This leaded to aggressive rise of the taxes, increased interest rate for bank loans and credits and overall increase cost of the raw materials and imports.

In the table below we can see the country’s economic freedom index and few other economy related facts and figures like, the the freedom of corruption, fiscal freedom, business, labour and trade freedom etc. (The Heritage Foundation 2014)

Greece, Economic Freedom index 2014 – Source The Heritage Foundation

Regardless of the present adverse condition in the country, there is a positive forecast for the future economy of the country from international and domestic experts. High government official also promised a new taxation “roadmap” that would be unveiled in the future, with the maximum income tax cut to 32 per cent from 42 per cent and the corporate tax rate reduced to 15 per cent from 26 per cent. (ABC News 2014)

Market (competition)

The market/competition is a constantly amending factor in the external environment of the business. Not only that new competitors arise and other disappear, but also the existing ones are changing and adapting their marketing strategies, product lines and prices. Often those changes are not evident so the businesses must be alerted to what their competitors are doing.

Our hotel is one of the 23, exclusive 5 star hotels in the central area of Athens, excluding Piraeus and Glyfada (Greekhotels.com 2014), and one of the 176, 5 star hotels in the country. (Hellenic Chamber of Hotels 2006). In that saturated market are included as well the big international players like Starwood, Intercontinental, Hilton and other hotel chains with great influence on the market and provide fierce competitiveness. But New Hotel Athens diversificate in many ways from the competition, and their business model follows the fresh market trends providing a product for a niche tourism clients.

Technology

In the last half a century, one of the rapid change factors in the external environment and the constant pusher on the businesses and organisations has been the technological change. If the don’t react sufficiently quick to this change, they can face with the risk of losing market shares. The technological change don’t affects only on the design of the products, but as well on the delivery of service.

In the example with our hotel, we must say that this external factor is taken into consideration seriously, and even used for competitive advantage. The property is recently renovated according to the latest standards and trends, with implemented computer controlled in house systems, offering free WiFi to the customers (unlike most of the 5 star hotels), and having great interactive web page and social networks presence.

Climate change

Climate change is an insidious threat because the pace of change may be recognisable only if considered on a decade-by-decade basis. The effect of climate change will not fall equally on all nations and all businesses. Businesses that depend directly on a good supply of water e.g. agriculture, field sports will be adversely effected if climate change results in reduced rainfall. However the flow on affect of drought will eventually work their way through to all businesses in the affected community.

Legal

The most common law changes that affect business include Workplace Health and Safety, Consumer Protection, Industrial Relation and Environmental Law. But most obvious change in law through legislation is the taxation. Sometimes the taxation changes occur fast and with little warning and there is not much time for the business to prepare.

The New Hotel Athens guests are protected by the general Greek consumer protection law for all transactions you make while travelling in the country. As enterprise, the hotel is obliged to issue written receipts, that safeguards the consumer in the event of any claim or dispute with the enterprises. (VisitGreece 2014)

Media

The significant changes in the technology and the rise of the internet, reflected on the media as well and changed it from ground up. That affected deeper on the external business environment. The old channel for communication where suffocated, altered and brand new ones appeared. The businesses had to embrace this change and adapt to it as fast as possible.

New Hotel Athens following the modern media trends, had build extensive online presence all over the internet (as a medium). And had gained significant positive feedback. For example Trip Advisor, according to the votes by the customers, had awarded this hotel with the “Travelers Choice Award” for 2014 and had ranked it as number 7 out of 324 hotels in Athens. Except the booking sites, New Hotel Athens heavily uses the social media for promotion and communication with the customers and the public.

Political

Just like law, changes in the general government policy can be well notified and discussed or changes without notice. Many organisations depends on the government financial assistance and if there is a change in the government policy, those funding can be reduced or to completely disappear. Also any political instability in the country, leads to destabilisation of the society and have repellent effect on the tourism. For example the recent political crisis in Greece and the rise of the radicalism had negative impact on the tourism as a whole. Some of the media even scared out the tourists with warnings of racist attacks (Hamilton Spectator 2012). Or the few cases when the strict immigrants policy mistreated few tourists by the police in Athens (BBC 2013).

Demographic

The population changes include increasing or decreasing of the population, change in the age group proportion, change in the ethnic diversity, change in the number of two-income families, number of marriages and geographic population distribution. All those changes affects the external environment of a business. Human resources, security and mentality wise.

New Hotel Athens operates in quite diversive demographic environment that just adds to the colourfulness of the business.

USING THEORETICAL MODELS TO SUPPORT THE DISCUSSION?????

PORTERS 5 FORCES (MICRO ANALYSIS)

Porter five forces analysis is a framework to analyze level of competition within an industry and business strategy development. It includes three forces from ‘horizontal’ competition and two forces from ‘vertical’ competition. Porter referred to these forces as the micro environment, to contrast it with the more general term macro environment (Porter 1980).

The Porter’s Five Forces is a powerful and simple tool for understanding where the power lies in a business situation. Conventionally, the tool is used to identify whether new products, services or businesses have the potential to be profitable. However it can be very illuminating when used to understand the balance of power in other situations.

Porter’s 5 Forces (Source Wikimedia)

Supplier Power:

The bargaining power of suppliers is also described as the market of inputs. Suppliers of components, raw materials, labor, and services to the firm can provide power over the firm when there are few or no substitutes. Suppliers may refuse to provide those supplies to the firm or charge high prices for the unique resources. Potential factors are:

Supplier switching costs, supplier concentration, degree of differentiation, substitute, labor unions, supplier competition etc.

New Hotel Athens, being part of the YES Hotels chat and part of Design Hotel chain, can maintain wide supply chain due to the dispersed suppliers connection of the sister companies and the mother company. If there is leak of supplies from one source, they can easily switch to other supplier connected to some of the other properties or globally with the mother company, Design Hotel Chain. From F&B materials to technology. Though, thats not applicable to the suppliers who provide unique supplies to the hotels.

Buyer Power:

The bargaining power of customers, is described also as the market of outputs. It is the ability of customers to make a pressure over business, therefore to affects the customer’s sensitivity to price changes. The companies can take measures to reduce buyer power, such as introducing a loyalty program and promotions. If the buyer have many alternatives then his power is high and opposite. Potential factors for this are: buyer concentration, buyers switching costs, buyer information, substitute products, barganing leverage, buyers price sensitivity etc.

Competitive Rivalry:

For most of industries the intensity, competitive rivalry is the biggest determinant of the competitiveness of the industry. Potential factors includes: Innovation, advertising, competitive strategies, company concentration, degree of transparency etc.

Threat of Substitution:

The existence of different products that can satisfy the same need, can make the customers switch to alternatives. Potential factors here includes: the propensity to substitute, price performance of substitute, buyer switching costs, product differentiation, number of substitute products available, ease of substitution, quality depreciation etc.

Threat of New Entry:

Power is also influence by the ability of companies to enter the market. If it does not cost much time or money to enter the market and compete effectively, if there are few economies of scale in place, or if there is little protection of the key technologies, new competitors can quickly enter the market and weaken the existing business position.The following few factors can affect on how much new entrants can be a threat: existence of barriers to entry, government policy, capital requirements, absolute cost, economies of scale, product differentiation, brand equity, expected retaliation, access to distribution, customer loyalty, industry profitability etc.

BASED ON THE ANALYSIS, FEW REALISTIC RECOMMENDATION FOR CHANGE

Conducting macro and micro environmental analysis we can come up with some conclusion …