First of all we will be analyzing the Hotel Industry of United Arab Emirates (UAE) using Industry Life Cycle Model. Then after deciding the stage in which the industry is, we will be analyzing the threats and opportunities associated with the industry using Michael Porter’s “Five Forces model”. Then after deciding the threats and opportunities respectively, we will be deciding the business level strategies that will be best for our growth and development. This selection of business level strategy will be on the basis of Michael Porter’s “Generic Business-Level Strategies”. Then we will be analyzing the areas that can prove to be our strength and then we will be deciding the functional strategies accordingly. The selection of the functional strategies will be according to the “Value Chain Model”. After that we will be having the internal analysis of our capabilities in order to mark our presence in the industry. Then the suitable business model will be proposed according to the resources available and constraints. Further we would be focusing on our mission, vision and our goals and finally the conclusion.
2. External Analysis:
Industry Life Cycle: The life cycle of an industry is very similar to a person’s life cycle. Just as a person takes birth, then grows, matures and finally dies, similarly the industry also experiences such phases. The various stages of industry life cycle are:
i. Early Stages Phase – It is the first stage when any industry comes up. The main focus is this phase is design of the product i.e. the different firms try to attract as many customers as possible to create the domain and boundaries of the industry.
ii. Innovation Phase – In this phase the main focus is on the process design rather than on the product design. The competitors try to sustain the customers by providing attractive services or adopting creative processes. This phase also helps in designing energy efficient practices.
iii. Cost or Shakeout Phase – Here the dominance of the major players in the industry is clearly shown. The established firms force the smaller players to leave the industry by acquiring them or by achieving economies of scale which makes it difficult for a smaller firm to survive in the market.
iv. Maturity – Once the industry is established the focus shifts from growth to market share. Companies try to earn as much profit as they can. Market share becomes the main attraction for a company.
v. Decline – After seeing the happy days, the industry has to face this phase also. There comes a significant decline in the sales of the firms, they no longer are able to attract new customers but also the older customers are also decreasing.
The hotel industry in UAE is in its maturity phase definitely. A number of facts and figures support this. UAE is being famous for organizing a number of events (sport events, trade fairs, business meetings etc.) due to its profound infrastructure and world class facilities in terms of transportation, hospitality. This has attracted a large number of people from countries all over the world including Europe, Asia, and America for the last many years. Definitely this is possible when there is an established Hotel Industry having world class facilities in UAE.
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Dubai has also been voted as one of the top ten desirable places to be visited by the people all over the world. This clearly shows that the hotel industry in United Arab Emirates is established and is in a healthy state. It has been estimated that about 500,000 new staff will be required in the hotel industry in UAE over the next five years. Thus hotel industry will help in the economic development of UAE as it will be providing employment to a large number of people in the upcoming years. Also a handsome amount of foreign currency will be earned that will further help in the development of United Arab Emirates.
Michael Porter Competitive Forces model analysis:
The threat of the entry of new competitors: Since the hotel industry is an established industry in UAE there is very little threat for any established player from new entrants. On the other hand it is definitely a challenging task for a new entrant to enter and keep the pace up with the already established players, as they have an upper hand in adopting new strategies.
Thus for a new entrant in the Hotel Industry in UAE it is better to enter through merger or acquisition with an already famous brand name. Alternatively in order to survive, the new entrant can come up with some innovative idea that has not been implemented by the existing players. In terms of legal issue, there is no major barrier being established by the law and regulations. However there are laws when a new player (including foreign player) wants to enter the industry.
The intensity of competitive rivalry: Definitely there is a very strong competition among the established rivals like Burj Al Arab, Sheraton Dubai Creek, and Dubai 7 Star Hotel etc. Thus this is definitely a threat for a new entrant as the customer loyalty is one of the major factors in the hotel industry. The customers prefer to stick to the hotels they used to visit unless and until some other hotel is providing something exceptional. Thus this can be considered a major threat because even if a new player is able to make entry in the industry, it will be very difficult for him to survive in such a competitive environment.
The threat of substitute products or services: The threat of substitute products or services is somewhat low in this case as the substitutes of hotels and restaurants cannot be much. The alternatives will again be some hotels with different specialties or features that make it stand alone from the rest. Thus it can be considered to be an opportunity for any new player as UAE is organizing a number of events in 2011 and subsequent years. Some of these events are Dubai International Parachuting Championship and Gulf Cup, Dubai trade fair and conference, Dubai Shopping Festival etc. This will attract a large number of people to Dubai. Thus it can be considered as an opportunity for a new entrant as well.
The bargaining power of customers (buyers): Here in UAE customers do have the bargaining power with them as there are a large number of hotels with similar facilities available. The customers can anytime switch to another hotel whenever they feel dissatisfied with a particular hotel. Thus bargaining power of customers can prove to be a threat for a new entrant.
The bargaining power of suppliers: The bargaining power of suppliers comes into light when there are many buyers or customers for the product they produce or they are limited number of suppliers of a particular item. Here in the Hotel Industry the suppliers can be the real decorators, real state builders, raw material suppliers, crockery suppliers etc. There are a large number of suppliers of all these basic requirements. Thus the suppliers do not have a very significant bargaining power and hence do not provide much threat to the Hotel Industry in United Arab Emirates.
Thus some of the forces of the Michael Porter’s model appear to be a threat for a new entrant whereas others provide opportunities and new prospects for the new entrants.
3. Business- Level Strategy
Michael Porter has laid down several “Generic Business-Level Strategies” to neutralize the threats and at the same time exploit the available opportunities. He has basically categorized the Business- Level Strategies in basically three broad heads. These are used by different business people to have a competitive advantage over others. The three categories are Cost Leadership strategy, Differentiation Strategy and Focus Strategy. The strategies are based on two dimensions: namely strategic scope and strategic strength.
Strategic scope is a dimension that is based on the demand whereas strategic strength is a dimension based on the supply side. Strategic scope deals with the composition and the size of the targeted market whereas strategic strength looks at the core competency of the business.
Cost Leadership strategy: This strategy aims at producing the products and services at the minimum possible rate. Then the firm sells its products at either the average market price or sometimes even less than the average market price. Selling at average price helps a firm to make profits while selling at a price even less than the average price helps a firm to acquire market share. The cost leadership strategy is applied in a wide market where there are a large number of buyers and sellers. The cost leadership is achieved by improving the efficiency of the various processes involved, by acquiring the materials at a lower rate, vertical integration and minimizing the wastage. Here in the Hotel Industry of United Arab Emirates (UAE) outperforming the established players on the basis of price is definitely a very challenging task because all the major hotels are into existence for a very long time. Thus they know how to deal or change strategies. Thus for a new hotel venture cost leadership is quite difficult to achieve and can only be implemented with some new innovative plans.
Differentiation Strategy: This strategy focuses on developing unique products and providing unique services. This allows business firms to decide their own prices which can be more than that what is charged by the competitors. This helps the firm to capture a large market share and that too with making handsome profits.
Here in the Hotel Industry, product differentiation strategy can play a crucial role in making a hotel distinguish from others. Thus a new entrant can come up with a differentiation strategy that will make him stand distinguished from others. The new entrant can specialize in particular area, this will him to attract the customers.
c) Focus Strategy: This strategy focuses on a narrow aspect that is either on differentiation or on the cost advantage. The new entering Hotel should better focus on a narrow segment of the industry. This will help in gaining the new loyal customers as the services being provided to them will be better. The firms having focus strategy are likely to have lower market share as they are targeting a particular section of the industry initially. Thus the new Hotel entering in UAE hotel industry should initially focus on a particular section of the industry and should then expand itself.
Thus it will be best for the entering Hotel to adopt differentiation strategy as it will attract the customers.
4. Functional-Level Strategies
Michael Porter’s “Value Chain Model” divides the activities at either support activities or primary activities.
The primary activities include:
Inbound logistics: It includes transportation scheduling, storing, inventory control etc. These are basically the requirements that are necessary for the production of any product or service.
Operations (production): It includes assembling, packaging, maintenance of equipment, testing and packaging. These are associated with all the process from product (service) design, manufacturing, quality testing.
Outbound logistics: It includes all those areas which are required to transfer the finished goods to the customer like warehouses. The manufactured products are transferred from the store of the company to the warehouse or store of the retailer so that he can further transfer the goods to the customers.
Marketing and sales (demand): The activities covered in this step are the product value enhancing techniques like advertising, promotion, pricing, selling. Depending on the aim or objective of the organization the money spent on marketing strategy can vary significantly from a very small amount to very large budgets.
Services (maintenance): It includes services like customer support, selection, management, training, upgrading etc. Some of the services can be on-site while in some the customer is required to come at the office of the organization itself.
The support activities include:
Administrative infrastructure management: Includes planning management, accounting, public affairs, quality management etc.
Human resource management: The activities being focused here are related to the human labor management like recruiting, educating, compensating,
Technology (R&D): Focuses on the involvement of technology to support the activities of value chain, like process automation, process up gradation etc.
Procurement: Activities related to procurement of items like raw materials, servicing, spare parts, machines etc are covered in this.
Therefore the smart selection of the primary and support activities for the Hotel entrant in the United Arab Emirates’ (UAE) Hotel industry becomes very crucial. The one of the most important activity here for new entrant in the Hotel Industry is a proper selection of the Human work force as it plays a very significant role in this industry. A proper selection of Hotel managers, chefs, workers will help to attain new heights easily. Another important activity includes a very effective management which includes planning, organizing, leading and controlling of the workforce. This management plays a significant role in reducing the cost associated with any service provided by the hotel. The other primary activity that should be given appropriate focus is the services that are being offered that are aimed by the Hotel entering in UAE hotel industry. The services should be such that the consumers feel completely satisfied. The use of technology can ease the work of hotel management department. Some of the work that can be easily managed with use of technology is the maintenance of a database system providing information regarding the rooms occupied, employee database, the information regarding the people coming to the hotel, automated billing system etc. This will help the hotel to provide quality and fast services which will further help the managers to focus their attention on other tasks as well. A proper strategy for the advertising of the hotel is also very important because that is something that will force the customers to leave their regular hotels and try the new one. Thus a proper and adequate amount of resources should be dedicated for the marketing purpose.
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5. Internal analysis:
The various capabilities for the new entrant (including having technologically advanced management, proper procurement, advertising, focused perspective etc.) can be a real bliss for the new entrant. For instance if the new hotel which is coming up in the industry has a proper planning of how to implement the automated system in all the activities (maintaining database of employees and customers, billing etc), it will be much easier for it to implement as compared to an existing hotel as its system has been designed in that way for many years and it will be difficult to shift to the technology. Other capability of the new Hotel that cannot be easily copied by the competitor is the innovative interior design of the rooms, reception, dining hall and other outdoor structures like swimming pools, lawns, parking etc. These better designs cannot be immediately imitated by the competitors because the change will require the redesigning and reconstruction which in itself is definitely a time taking process. Also the specialization in a particular type of food or beverages cannot be immediately copied by other rivals because for that new workers and chefs are required to be recruited which by any means is not an easy task. Also, as UAE is organizing a lot many events in the upcoming years a lot many tourists will come to UAE therefore having a proper advertising plan (online, magazines, newspaper, hoardings etc) will also be very beneficial for the new hotel. Also the hotel can provide some attractive packages like free city tour, or some discount on the hotel rates and food rates. This will help the hotel to make a beginning in the industry where already there are a number of established hotels like Burj Al Arab, Le Royal Meridien Resort, etc.
6. Business Model:
The various components of a perfect business model are:
Value proposition – It is a complete picture of the problem of the customer, the process or the method that should be used to solve that problem and the values that should be taken into account while actually solving the problem. Here in UAE hotel industry the problem or objective is the hotel services to the customers. The process involved in providing those services includes clean and maintenance of the hotel, proper food facilities, proper lightning and water supply in the rooms.
Market segment – This component selects which segment of the market should be targeted according to the need or requirements in the market and then selecting which customers to target, so that the firm can acquire a large proportion of the market. Also focus on different segments of the market help the organization to create innovative processes as different strategies have to be adopted in different areas. The hotel industry of United Arab Emirates (UAE) is also divided into a number of segments. Sometimes need for expensive hotels come while at some other time cheap hotels may be in demand. Generally the expensive hotels are in demand for arranging business meetings whereas cheaper hotels may be preferred during some fair.
Value chain structure – It evaluates the position of the firm in the industry and how can the firm capture a major part of the value created by the firm. It can be a very important factor in the deciding that which hotel has how much share of the market and how the new entrant can vary its plans in order to capture the same.
Revenue generation and margins – This figures out the ways in which the revenue can be generated. The different steps could be support, sales, annual subscription etc. The firm always tries to maximize the revenue generated by the operation of the firm like selling products, or providing services. Here the upcoming hotel will try to find out the areas where the revenue generation possibilities exist. It is basically the exploration of the market areas which are still unexplored by the other competitors.
Position in value network – In this step the complementary firms and industries are identified. These complementary firms also need to be as competitive because since both industries are interdependent they need to be moving at the same pace. This will help in deciding that which hotels will be rivals and which other industries are must for the existence and the progress of the hotel industry.
Competitive strategy – Making profits only for the one time is not the motive of any firm. Every firm tries to sustain its profits making processes over larger time so as to prosper at a regular pace so that they can be at par with the major rivals. The new hotel will try not only to make one time profit, but the profits margin should increase steadily with time.
The business models itself are very important factor in the success and profits of an organization. Thus the implementation of the above mentioned steps in a pre decided sequence is very important for the progress of a new hotel like us. We intend to enter the hotel industry of UAE by first opening a hotel and then expanding it as a chain in all the Emirates of Arab while at the same time providing the world class facilities in terms of hospitality, infrastructure, recreation, food, service and all the areas that befall under a hotel. As far as the business model is concerned we would mainly focus on the differentiation strategy that will attract the loyal customers of other hotels as well as the new customers also.
This differentiation strategy includes all those things that are not focused by the established hotel names in United Arab Emirates. The functional strategies include adoption of a proper procurement process, effective management of all the resources (human, material etc), and moreover a separately focused advertising plan to spread to whole of UAE. As far as the core or the distinct competencies are considered, our main focus will be on the quality of service to the customers. We will be having the qualified managers and workers and most of them having past experience. This will help us serve the customers in a better way.
7. Mission, Vision, Values, and Goals:
Our mission is to make an impressive entry in the Hotel Industry of the United Arab Emirates with quality customer service as our priority. It also includes attracting the tourists that will be arriving in UAE to attend events like Dubai Shopping Festival, Dubai International Parachuting Championship and Gulf Cup, Dubai trade fair and conference and many more. First of all we look forward to come up with a single but unique Hotel in the industry.
As far as our vision is concerned we hope to have a chain of hotel all over the Emirates of Arab and become a famous name in the Hotel Industry of UAE. We value the customer as our main area of focus because customer satisfaction plays a very important role in long term run. Also our employees are a big asset for us and hence we value their satisfaction as one of our other priority. Without proper human resources it is not possible to survive in this industry. Our goal is to provide the tourist all the facilities that can ever think of. Some of these include providing best possible service, providing as many types of food types that can be possible, proper hospitality so that the tourists coming from all over the world should feel like “A home away from home.”
8. Conclusion
Based on all the above mentioned strategies and plans we expect to make significant progress both in the short as well as the long term. Although we know that are a number of established players in the market which have their presence in every single area of the area, but we are quite positive about are plans and the strategies. It may be a bit difficult in the initial startup but the things will definitely work our way once we get a start. Also the initial profits may be somewhat less but in the long run we will definitely be able to outperform the existing major players. Our main focus as already mentioned above will be the Customer Satisfaction that will become an asset for us in the sustainable growth and development in the Hotel Industry of United Arab Emirates (UAE). This will help us in attracting the local as well as foreign visitors, tourists, business delegates etc to our hotel. Therefore the prospects of making huge success are quite bright, thus a properly planned and effective implementation of the strategies decided above will help us to achieve new heights in the Hotel Industry of United Arab Emirates (UAE).
Diagrams:
1.Porter’s Generic Business Strategies: E:documentsgeneric-strategies-porters-mbaknol.jpg
2. Porter’s Five Forces ModelE:documentsPorter_Five_Forces1.jpg.png
3. The Value Chain Model
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4. Business Model:
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