Case Study - Shangri- La Hotel & Resort

SHANGRI-LA HOTEL & RESORT

EXECUTIVE SUMMARY

Shangri-La Hotel was started in year 1971 with th e first deluxe hotel in Singapore which is inspired by the legendary land featured in James Hilton’s 1933 novel, Lost Horizon. The hotel also regarded as one of the world’s finest hotel ownership and management companies with over 85 hotels and resorts throughout Asia Pacific, North America, Middle E ast and Europe. However, in this case study and report the focus will be mainly about the Shangri-La and Resorts which located in Malaysia only. Shangri-La has three major brands under und er its family; Traders, Kerry and Jen. Traders Hotels are the practical choice for both business bu siness and leisure travellers which located in the business hubs of Australia, Asia and the Middle East as it cater to savvy and passionate travellers who appreciate smart functionality and getting things done. It is perfectly designed to have vibrant yet professional environment to complement guests at work, rest or play. While Kerry Hotels is a new five-star brand in Shangri-La family which was launched in Shanghai and Beijing in 2011. Kerry Hotels is designed with the vibe of spirited style and a careful attentiveness that bestows a sense of individuality to all guests which focus on bringing a luxurious stay and inspirational experiences to the guests. However, in Hotel Jen which is a rebrands of the existing Traders focuses on delivery the quality, comfort, convenience and value. This hotel was inspired by a virtual persona, Jen, a professional hotelier and all-time lover of life, travel and discovery. The Shangri-La Hotels (Malaysia) Berhad, SHMB which is an investment holding company, continually honoured worldwide recognition for their extraordinary service and Asian hospitality. As an example, when in year 2015, Shangri-La Hotel Kuala Lumpur was named the Top Hotels in Malaysia, Top Hotel Romance, Top Luxury Hotels and Top Hotels for Service by Trip Advisor Traveller’s Choice Awards and this hotel also once again be as one of the best ecoecofriendly hotels in Asia by winning the ASEAN Green Hotel Awards 2014-2016 for the fourth time running.To adapt in the challenging operating environment, SHMB determined to build their strong marketing capability and cost performance while driving services and products improvement. Their strategies in improving the financial performance and operational effectiveness by the reinforcement of leadership position and competitiveness within the industry by maintaining and enhancing the quality of its portfolio through on-going capital investment programmes, underpinned by product and service service innovation, while maintaining unrelenting focus 1


on delivering the highest standards of service to guests.Thus, by applying the right strategies and sustaining competitive advantage initiatives, SHMB is truly competent enough to overcome the hurdles in this new centuries. SHMB needs to continually use strategic planning in order to be successful in the competitive industry of hospitality. Shangri-La Hotels (Malaysia) Berhad current position and performance.

Shangri-La Hotel is a world class deluxe Asian hotel chain which provides services and places for business and leisure travellers according to its Asian standards of hospitality. ShangriLa Hotel provides customers with a number of excellent services. More specifically, guests may enjoy high quality room services and resort, facilities such as sauna, Jacuzzi gym, lounge and pub. Moreover, the hotel chain also provides different and unique products like, The Spa at several hotels and resorts. Through its high quality services, S hangri-La receives international awards and recognition from prestigious publications and industry partners. Shangri-La Hotels (Malaysia) Berhad is always struggle to chase the success even that the industry has develop extremely fast that have make the industry become more competitive and the struggle have result them to get award from worldwide recognition for their excellent service. Based on Conde Nast Traveller which is a luxury and lifestyle travel magazine, Shangri-La Hotels is one of the gold list properties in Asia. Shangri-La Hotels also was been awarded as Best Luxury Hotel in Malaysia by Trip Advisor Travellers Choice Award in 2015. Shangri-La Hotel (Malaysia) has winning the ASEAN Green Hotel Awards in 2008, 2010, 2012 and 2014. In 2014 also the Shangri-La Hotel had collect Kuala Lumpur Mayor’s Tourism Awards. Shangri-La Hotel (Malaysia) Berhad disclosed that in the twelve months to 31st December 2014, the hotel registered a marginal increase in revenue to RM 513.679 million from RM 511.225 million reported in 2013. Net profit attributable to shareholders for 2014 fell by 39% to RM 79.340 million, compared to last year that earned RM 130.367 million. Earnings per share for 2014 were fall down at 18.03 cent compared to 2013 that was 29.63 cent. For the dividend, Board of Directors were recommended a final single-tier dividend of 9 cent per share together with the interim singletier dividend of 3 cent per share paid in November 2013, brought the full year dividend for 2014 to 12 cent per share.

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Shangri- La Hotel & Resort financial performance by using financial ratios.

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Strengths and Weaknesses of Shangri- La Hotel & Resort. (Using SWOT analysis) Strengths

i.

Industry Leader and a well-established brand name Shangri-La Hotels and Resorts operate under five brands with 85 hotels and with an overall

room inventory of almost 40,000 rooms. Brand is very important for every business as it helps to internationally recognized for its luxurious hotels and resorts. Shangri-La hotels is said to be an aspirational brand to the public. Besides, the leadership and management skills of Shangri-La hotels is well known for its fine and tuned management that is capable enough to run the whole corporation. It helps Shangri-La hotels provide great and excellent service for every customer. Next, Shangri-La hotels also has a very wide spectrum of hotels in Asia Pacific operating under the Shangri-La Asia group and it also known as five star luxury hotels across Asia Pacific, North American, Middle East and Europe. In Asia Pacific especially in countries of Singapore and Malaysia Shangri-La hotels and resorts is the market leader. ii.

High Quality and Get Awards The high quality service of Shangri-La hotels also attracts a large number of repeat

customers which form a loyalty between them. In addition, another strength of Shangri-La hotels is its five-star venture that won numerous awards including the leading spot as the Top Asia Hotel in Malaysia, Best Luxury Hotel in Malaysia by the 2012 Trip Advisor Traveller's Choice Awards and World Luxury Hotel Award's Global Winner in the Best Luxury Business Hotel and Best City Hotel category 2011. These awards build up a branded image for Shangri-La hotels and reputation in the hotel field. Not only is that, Shangri-La hotels also the leading corporation on its line of food expertise in various cuisine from eastern to western. Many customers visit Shangri-La hotels are mostly due to the delicious and relaxing restaurants. Clean and tid y of the hotel rooms are the main reason of customers likes to visit Shangri-La hotels as they always satisfied with the environment.

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iii.

Visionary Forecasting and Implementation In the financial year starting 2016, it was decided that the company will reposition and

renovate its profit making hotels and resorts. It was predicted that it will cause adverse effects to operating profits in the year 2016. Visionary forecasting and decision making was a key reason that group overlooked the short term financial implications and had a goal of making long term profits. iv.

Corporate Level Strategy The strategy that being implemented by Shangri-La hotels is strategic growth into markets

that can support the long term goals of the company. As they will build properties in those areas of the world that have greatest possibility to provide above average returns. Shangri-La hotels alsp developed their high growth business model. This is important, because this basic strategy would allow the company to be able to realize a gross profit margin. Weaknesses

i.

Inadequate of staff with Qualifications One of the weaknesses is the inadequate of staff with qualifications as Shangri-La only

hires personnel with skilled expertise and the d raught for manpower. This may affect the shortage of workers and influence the performance of the hotel. ii.

Expensive The concept of Shangri-La is outdated and does not appeal to younger generation. They

rather go for hotels such as Hard Rock Hotel or G Hotel. Next, the maintenance cost is too high to handle as Shangri-La's hotel and resort must be excellent to its quality for accommodation. This will increase the expenses of Shangri-La hotels and thus the price of the hotel room will also increase. It will lose a great number of customers, who cannot afford to pay the services.

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iii.

Limited to Asia Pacific Shangri-La group is primarily limited to Asian markets only so when the global brands

plan to enter the markets it can lead to competitions because the visitors coming from west would prefer that brand of hotels. Shangri-La hotels also primarily positioned as the hotels giving best Asian hospitality experience which limits their reach in Europe and American countries. Opportunities

i.

Can expand their growth As economy of Malaysia had improve steadily nowadays and tourism sector is growing

and booing in the recent years making the demand for hotels to increase significantly. Economy of the country will directly enhance the tourism sectors, thus service industry such as ho tel will be attractive. Besides, online market is one of the opportunities that help the growth of Shangri-La hotels as it ranks No.1 in the Trip advisor website. The technology also helps Shangri -La hotels to attract customers as it is kind of marketing and promotion strategy. ii.

Job Opportunity Partnership with international airways, KLIA, is one of the opportunities that more

foreigners will be able to visit Asia. This in return increases the occupancy in hotels. Besides, as the steadily growth of economy had increase the jo b opportunities in Malaysia and this will occurs the lack of human resource. Thus, the lack of human resource will encourage expatriates to come and work in Malaysia. These are the upper class people and usually require hotels for their choice of stay. Threats

i.

Competition with other hotel The threats facing by Shangri-La hotels are the competition of the business. Rival hotels

are setting up their base in Asia and lower their prices making it more competitive. Those competitors will influence the sales of Shangri-La hotels. Guesthouses will also compete as they provide much lower rate and affordable to all people. Low budget hotels are the competitors which 7


offering lower costs of accommodation for customers to compete with Shangri-La hotels. In addition, spreading virus and robbery cases will discourage people not travel overseas and thus affected the business of Shangri-La hotels. ii.

Shortage of skilled manpower Shangri-La hotels have many branches so it will increase in the cost of employee and it

also will affect the hotel revenue. They also need to uplift its performance through well embedded training, management and leadership programme because some of they do not have the related knowledge and skills. The task environment using Porter ’s Five Forces & PESTLE. PORTER’S FIVE FORCES

Porter’s Five Forces Model of competitive analysis is a widely used approach for developing strategies in many industries. It’s also evaluating the five specific factors that will help the Shangri – La Hotel (Malaysia) Berhad to determine whether the business can be profitable in the industry. According to Porter the nature of competitiveness in a given industry can be viewed as a composite of five forces: 1. Competitors rivalry

Competitors is an entity which is a rival against another. In business, competitors is a company in the same industry or a similar industry which offers a similar product or service. Th e presence of one or more competitors can reduce the prices of goods and services as the companies attempt to gain a larger market share In this case study, Shangri-La hotels is a well-known and among of luxurious hotel in Malaysia. Shangri-La were competing with other luxurious hotel such as Marriot, Westin, Hyat , Sheraton, Intercontinental and E&O. when they knowing who are their competitors and what they are offering, it can help Shangri-La to make their products, services and marketing stand out. It will enable them to set their prices competitively and help them to respond to rival marketing campaigns with their own initiatives. They can learn and use this knowledge to create more strategies on their marketing.

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2. Bargaining power of suppliers

A supplier , also called a vendor is an entity that supplies goods and services to another companies as one of the contributors to the development process on the w ay to the ultimate customer. This entity is part of the supply chain of a business, which may provide the bulk of the value contained within its products. In this case study, Shangri-La has high numbers of suppliers to run their daily operation. They also has corporate purchasing policy to align with their core values and incorporates to recognize as international best practices. 3. Bargaining power of buyers

Buyers is an individual or business that purchases the goods or services produced b y a business. Attracting buyers is the primary goal of most public-facing businesses, because it is the buyers who creates demand for goods and services In this case study, Shangri-La has low buyer bargaining power. It makes an industry more attractive and increases profit potential for the seller, while high buyer bargaining power makes an industry less attractive and decreases profit potential for the seller. Buyer power is one of the factors to consider when analysing the structural environment of an industry using P orter’s 5 forces framework. Bargaining power of buyers are low due to a few factors such as bu yer switching costs are high, threat of backward integration is low, buyer is not price sensitive, buyer is uneducated regarding the product, Highly differentiated product, buyer purchases product in low volume, buyer purchases comprise small portion of seller sales. 4. Threat of new entrants

Threat of new entrants refers to the threat new competitors pose to existing competitors in an industry. Therefore, a profitable industry will attract more competitors looking to achieve profits. It created affects the competitive environment for the ex isting competitors and influences the ability of existing firms to achieve profitability In this case study, Shangri-La is a low threat of new entrants’ makes this industry more attractive and it increases profit potential for the firms that already in competing within that industry. It is 9


because Shangri-La is one of reputable brands and well-known hotels. Another factors are investing in this industry need high initial capital investment that cause entity new competitors will consider on investing in this industry.

5. Threat of substitute products

The threat of substitution in an industry affects the competitive environment for the firms in that industry and influences those firms’ ability to achieve profitability. The availability of a substitution threat effects the profitability of an industry because consumers can choose to purchase the substitute instead of the industry’s product. The availability of close substitute products can make an industry more co mpetitive and decrease profit potential for the firms in the industry. In this industry, Shangri-La has high risk threat of substitute because substitute product is available on market. Customer still can choose hotels or homestay programme to stay in. There are 219 homestay are registered under ministry of tourism. It also requires of low capital and low maintenance fees to setup a homestay. Thus, nowadays there are online platform such as booking.com and airing to choose and book online. Customer can always compare the price and services provided.

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PESTLE

PESTLE analysis, which is sometimes referred as PEST analysis, is a concept in marketing principles. Moreover, this concept is used as a tool by companies to track the environment they’re operating in or are planning to launch a new project/product/service etc. The companies use the PESTLE analysis as a framework or tool to analyze and monitor the external-environmental. Each alphabet of PESTLE refers to political, economic, social, technologies, legal and environment.

1. Political Factors Political are the external factor that impose requirement on Shangri-La Hotels (Malaysia) Berhad (SHMB). These are one of the elements of the PESTLE analysis consider the eff ect of government action on companies’ remote or macro-environment. Political factor that affect SHMB is tax exemption. SHMB get tax exemption by government because of their pioneer status. They also provide Investment Tax Allowance (ITA) for new hotel construction or renovation. Starting from 1st April of 2015, Malaysia introduces and implemented 6% of Good and Services Tax (GST) to replace the 10% Sales Tax and 6% Services Tax. GST can enhance the capability, effectiveness and transparency of tax administration and management.

2. Economic Factors The economic factor that relate to SHMB is exchange rates. Due too many foreign tourist arrive at Malaysia, the exchange rate become increase. Moreover, due to rising household income, educational level the lifestyle and customer buying behavior the average monthly income of Malaysian household rose from RM5000 in 2012 to RM5900 in 2014. Because of inflation in Malaysia unemployment rates increased from 0.1% to 3.2% in February 2015.

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3. Sociological Factors One of the social factors that can relate is SHMB known as five stars luxury hotels in Malaysia. Because of the socialization SHMB was named top hotel in Malaysia, top hotel for romance, and top luxury hotel and the hotel service by trip. In order to fulfill the demand by Malaysian, Shangri-La is a strong implement and ensures the highest level of food safety and on managing food safety risk under the ShangriLa Food Safety Management System (SFSMS). SFSMS is the system that covering the receiving, preparing, cooking and serving of food items and safeguard against any the cross-contamination of products.

4. Technological Factors These factors pertain to innovations in technolog y that may affect the operations of the industry and the market favorably or unfavorably. This refers to automation, research and development and the amount of technological awareness that a market possesses. The changes of technology may affect the operations of the industry and market favorably or unfavorably. Furthermore, people nowadays can used more social media such as websites, Facebook, Twitter and mobile application to survey and book the hotels due to advance technology. Recent survey of Trip Advisor shows that 93% of Malaysian travelers used online resources to plain their trip. Good transportation infrastructure also important in tourism as airline industries plays a key role in hotel business development.

5. Legal Factors One of the legal factors that can relate to the SHMB is environmental management system (EMS) helps to identify and address the immediate and long-term impact of the hotel operations on its local environment. Moreover, SHMB need to practice sustainability as there are different laws and rules different countries in Asia. Malaysia was known to have great diversity of ecosystem. Malaysia created the National Biodiversity Policy 1998 as the one of the important local agenda of Department of Environment. Thus, the quality environment is a key asset for the tourism areas.

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6. Environmental Factors These factors include all those that influence o r are determined by the surrounding environment. This aspect of the PESTLE is crucial for certain industries particularly for example tourism, farming, agriculture etc. Factors of a business environmental analysis include but are not limited to climate, weather, geographical location, global changes in climate, environmental offsets etc. The surrounding environment influence the business operation especially tourism industries. Tourism industry will affect the ecosystem. Water pollution, air pollution, waste problems, deforestation, soil erosion, species endangering and natural disasters are the common issues associated to unethical business conducts. Furthermore, Malaysia regularly has haze problem where the Air Pollution Index (API) reached almost 746. Shangri-La hotels and resorts using the new environmentally friendly CFC free high efficiency chillers, guestrooms electronic control systems, high efficiency lighting, water saving flush s ystem, other water saving devices and water purification system.

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Case Study - Shangri- La Hotel & Resort

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