Strategic Analysis of Shangri-la
I. Introduction
The hospitality industry constitutes an economic sector with the fastest growth worldwide. At present, the industry continues to receive recognition as a profitable and progressive industry. The hospitality industry offers diverse opportunities for employees and varied services and features to customers. This means that overall industry actual and potential provisions are unlimited, which accounts for continuous shifts or adjustments contributing to industry viability. Diversity in employment and service offerings of the international hospitality industry has resulted to the higher number of people employed in the hospitality industry more than in m anufacturing firms. (1998) Due to the profitability and viability of the industry, it has also evolved into one of the most competitive economic sectors ( 2000). Heightened competitiveness in the industry could draw out the untapped capabilities of hospitality firms. On a firm level, hotel managers face the challenges of shifts in its target consumer segments coinciding with changes in consumer demands, issues of liquidity, and intense failure percentage within the industry (1999). To survive, hospitality firms need to deal with all these multifaceted issues by understanding these problems and implementing appropriate strategies. To understand how well firms in the hospitality industry ensure the competitiveness of the firm, a strategic analysis of Shangri-la hotel in Hong Kong is the case in point. Shangri-la constitutes one of the top and long-standing international hotels and brands.
II. Analytical Discussion
A. Introduction to Shangri-la
Shangri-la constitutes an investment holding company focusing on the establishment and operation of hotels together with associated real estate properties as well as providing hotel management or related services. The company primarily engage in operating hotels and leasing spaces for commercial, residential and other purposes. Shangri-la was incorporated in Bermuda but its main
headquarters is located in Hong Kong. At present, Shangri-la has been in operating in the industry for 36 years, which makes the company a stable and strong industry player. In Hong Kong, there are two Shangri-la hotels, Island Shangri-la and Kowloon Shangri-la. 1. Physical Resources Shangri-la carries a long-term perspective by acquiring or holding majority control over the land upon which it constructs its hotels. Kowloon Shangri-la is 100 percent owned while Island Shangri-la is 80 percent owned. Although, purchasing land is more costly relative to leasing in the short-term, the onetime acquisition cost becomes nil when spread in the long-term and when weighed against the profit derived by the company. In line with its long-term perspective, the lands acquired by Shangri-la in Hong Kong are strategically located to bring its hotels as close as possible to the target market. Island Shangrila is located in the central business district to cater to clients engaged in business or tourists interested in scouring through the shopping district. Kowloon Shangri-la is located in the eastern district to cater to clients interested in shopping and entertainment. This hotel is also contiguous to the various forms of transportation such as the airport, trains and buses to provide greater mobility to clients. Although the hotel buildings were built decades ago, the structures were upgraded. In fact, Island Shangri-la fits with the modern buildings in the central business district while Kowloon Shangri-la is also modern but with a creative twist to fit its market environment. Both hotels are strategically located to provide a view of the Victoria Harbour to clients. The view adds value to the hotel services. Capacity is adjusted for peak and lean seasons. Island Shangri-la has a maximum capacity of 565 rooms while Kowloon Shangri-la offers 700 rooms. Based on the operations statistics for the two Shangri-la hotels in Hong Kong, the decision of Shangri-la over the capacity adjustment is more or less accurate to the market demand trends. During the regular lean-peak cycle, the actual capacity of the two hotels is at 68 percent while its actual capacity can reach as high as 82 percent during the peak season. Although, the hotels do not reach full capacity during the regular annual cycle, the difference allows the hotel to compensate sudden surges in tourist flow during special events. Shangri-la hotels in Hong Kong are in top shape and compliant with energy and environmental regulations. As early as 1997, Island Shangri-la already received a certificate of merit for achieving high levels of building efficiency and environmental conservation. Part of the upgrading of Shangri-la hotels in Hong Kong are improvements in the technology features of the building and rooms including automation features and Internet connectivity. With the strategic utilization and integration of all the aggregate physical resources of Shangri-la hotels in Hong Kong, the hotel should be able to optimize its gains relative to the costs of upgrades and maintenance to surpass competitors. Shangri-la increased the value of its real estate assets by 5 percent in 2006 through upgrades and maintenance.
2) Human Resources Shangri-la hotels and resorts is the second largest employer among the top international hotel groups. Its 23 hotels and resorts employ around 14,885 people and by 2008, its new 12 structures would open 9,923 more jobs. The company selects its employees carefully for qualifications to match the various organizational departments and then trained for career development positions. The purpose of training, especially for executives and managers is the recognition that the competence and efficiency of lower-ranked employees depends upon the excellence of its leaders in these two aspects. This adds to the competitive advantage of this hospitality company because it is able to integrate organizational management to achieve cohesiveness within the organization. With a unified organization, strategic direction becomes easier to achieve. Shangri-la’s human resource has been organized into nine centres including rooms, food and beverage, other revenue areas, engineering and maintenance, accounting, marketing, human resource and security. Each of these centres is tied through collaborative relations supported by communications involving the sharing of information, airing of concerns, and resolution of issues. Although intraorganizational communication is a commonly recognized tool in business management, a number of firms in the hotel industry remain weak in communications even with international operations. Shangri-la builds its competitive advantage through the recognition of the importance of communication in creating a strong, unified and unique value from its business organization that result to high levels of efficiency. Shangri-la adheres applies the market-driven perspective by adhering to the principle that having satisfied employees translate into satisfied customers. This means that the value accorded by the company to its human resources translates into service values that add to the satisfaction of consumers. Satisfied consumers eventually make-up the market base of the company. Having a stable pool of consumers constitutes a representation of competitive advantage, when considered relative to other market players. Shangri-la is able to set the company as a competitive firm in the hospitality industry by relying on the value contributions of its employees supported by motivations for efficiency and minimized turnover rates. 3) Financial Resources Shangri-la has a well-managed financial system. It funds its operations through share offerings, loans and its revolving cash. According to its 2006 annual report, it increased its asset value from 2,630.2 million US dollars to 2,975.3 US dollars by issuing new shares worth more than 33 US dollars together with sales of convertible bonds amounting to more than 147 million US dollars. The company offers two
kinds of shares depending upon the preferred payment and other terms preferred by investors. Shangri-la manages its asset value by maintaining its brand value to draw the interests of shareholders. Investors find motivation to purchase shares based on the industry standing of a company and since Shangri-la was able to gain huge shareholder investments, this means that it is able to establish brand value and at the same time investors recognize its ability to sustain or enhance this value at least in the medium term. Investments into a company reflect the competitive advantage of Shangri-la. By using its equity assets in expansion and development projects, it was able to gain 2.1 percent giving the firm .8 million in dividend income. Since Shangri-la has twelve projects targeted for completion in 2008, the company obtained six unsecured corporate loans to fund these projects. The firm manages its debt by selecting loan arrangements with the least possible interest maturing in the medium-term to ensure immediate payment. This means that the company has to complete its projects on time and operate based on the expected cost to revenue ratio in order to meet its debt obligations. This entails disciplined and target-directed finance management and hotel operations. Shangri- la also closely evaluates the firm’s loan portfolio relative to new offers and exchange rate shifts to support refinancing decision. The competitiveness of Shangri-la finds expression in its ability to obtain the trust of investors through shareholdings and convertible bonds. This means that the company has a good industry standing and it is expected to have the capability of returning the amount invested by maintaining or increasing share value in the future. Since Shangri-la was able to obtain six unsecured loans, this means that it is in good standing in the banking and finance industry as a firm that should be able to meet its loan obligations by relying upon its brand value. 4) Intangible Resources In 2002, Shangri-la Group invested 130 million US dollars to build its brand as a top international company. This value was allocated to building upgrades to develop Shangri-la hotels as rich or contemporary and marketing activities. Although, Shangri-la is an internationally known brand the company has not been able to focus on the point of difference (2007), which is the value message that sets the hotel apart from its competitors. In its China hotels, brand value is reflected by the luxury hotel message but in other hotels, it is a people hotel or bottom-line hotel. Failure to establish a unique point of difference for its hotel brand constitutes a weakness in its internationalization efforts even if points of difference stand in the particular business contexts. B. Internal Part of the Company
Shangri-la is able to achieve competitive advantage to take the position as a top player in the Hong Kong hospitality industry by building on its support activities. As mentioned earlier, the company has a cohesive organization by valuing intra- organizational communications. The company also translates this into its inter-organizational networking with local suppliers. Shangri-la collaborates with individuals and businesses that add value to its services and networking is achieved through communications in the context of the local domestic business environment. Even if networking occurs based on business context, every hotel is able to integrate with its international counterparts by applying uniform standards for inbound and outbound logistics. By having satisfied employees, Shangri-la is able achieve high levels of efficiency in its hotels that positively influence operations as well as marketing and sales. Satisfied employees willingly contribute value more than what was expected of them, aggregate value contributions then enhance the perception of consumers on hotel value. Shangri-la also constantly upgrades its technological capability. By automating its hotel services and security operations, it was able to add value to operations and service offering. In engaging in networking, Shangri-la was abele to tap into online marketing and sales channel as well as connect to its supply networks to improve outbound and inbound logistics. C. Firm Competencies 1. Corporate Culture and Personnel Shangri-la has a strong corporate culture that revolves around the customer-based approach. This constitutes a firm competency because this greatly contributes to the Shangri- la’s achievement of a top position in the Hong Kong hospitality industry. By valuing its human resources, the company was able to ensure the value of contributions of organization members considering that the industry is highly reliant upon human resources. Training of employees not only ensures efficiency in service delivery but also maintain the loyalty of its employees through career development programs. 2. Operations Shangri-la operates on a target achievement basis. The company sets its short and long-term targets for completion. It then practices discipline and experience-based foresight in evaluating its level of performance and task completion. This gives the firm control towards the success of operations. 3. Marketing
Shangri-la has been able to influence successfully a positive market perception of the company through consumer responsiveness. Through its market-based approach, the company is able to meet exactly the needs of the target consumers as well as add to service value. Positive reviews from regulatory bodies and independent survey companies also reinforce the positive reputation of Shangri-la in Hong Kong. It was also able to tap into all revenue-generating marketing channels, particularly online sales to support its internationalization. 4. Capability Analysis Shangri-la has developed a number of essential and unique resources as well as essential and core competencies. The company has been able to achieve competitive advantage by developing a positive reputation in the market relative to its competitors together with the establishment of a stable consumer base. Competitive advantage also accrues to the company by developing its organizational values, particularly its customer-based and context-based operations. To remain competitive, the company relies upon its unique resources such as cohesiveness of its working units and satisfied employees while using its core competencies in maximizing service or brand value and employing targetbased approach to ensure the achievement of business objectives. Essential Resources Unique Resources 1. Reputation 1. Organizational Cohesiveness 2. Customer Base 2. Satisfied Employees Essential Competencies Core Competencies 1. Customer-Based Values 1. Value Maximization 2. Context-Based Values 2. Target-Based Values
5. Financial Plan
As mentioned earlier, Shangri-la has been able to take control of its finances through disciplined disbursement, targeting approach, and performance evaluation. This is expressed through the achievement of the company of increase in both its current and non-current assets between 2005 and 2006. The company’s capital reserves and equity earnings also increased due to the ability of the firm to
draw investments by relying upon its positive reputation. Although, Shangri-la also incurred increased liabilities by obtaining loans, assets less liabilities resulted to a positive amount. This means that even with increased liabilities, its assets remains bigger than its liabilities. This further implies the viability of the company since it has the assets to cover its liabilities. In the next three years, it is expected that the Shangri-la should be able to accomplish its projects and operate its new hotels as well as well meet its liabilities. During the third year, the company should be able to concentrate on profitability after the full operations of its new hotels and the payment of all its obligations. Based on the firm’s consolidated income statement covering the financial periods 2005 and 2006,
the company has been able to increase its revenue generation and costs. However, since the increase in revenue is greater than the increase in costs, the company earned higher profit allocated to dividend payments and operating profit. This supports the continuing profitability of the company. In the next three years, especially during the third year when the new hotels are able to operate fully, the company should increase its profitability by at least thirty percent. During the second and third years, the operating profit of the company together with external funding should support the further expansion and development of Shangri-la hotels.
III. Conclusion Shangri-la has achieved competitive advantage in the Hong Kong market due to its essential and unique resources and it continues to maintain its competitiveness through its essential and unique competencies. Since its competitiveness hinges on its ability to implement a holistic approach, it needs to focus on its weakness, which is the lack of a strong and clear point of difference that would propel the company as an industry leader.
