SUBMITTED BY :- Sameer Kumar Swain STUDENT ID
:- c7094007
MODULE
:- International Strategic Management
COURSE
:- M. Sc International International Hospitality Management
Date of submission:- 16
th
Words
May 2011
:- 3500 CONTENTS 1
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Executive Summary………………… Summary……………………… ……
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Introduction……………………………….
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Backgroung on strategic tools And techniques……………… techniques……………………………. …………….
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Strategic Tools and Techniques Used for Shangri-La…………… Shangri-La…………………….. ………..
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Implementation of Strategic tools……….
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Reccomendation and Conclusion……….
Executive Summary:2
The report is all about the strategic role of Shangri-la Asia Limited. First of all a light is thown on the strategic tools and techniques. Then it is told that what tools are used for Shangri-la Asia Limited. Then one by one all the strategic tools are explained and their recommendation are given. And in the end, how these strategies are implemented in proper way is explained. This report starts with an introduction i.e. it carries company overview, history and aims and objectives of article are discussed. Then a theoretical concept of Strategic tools is given. After that all the tools are explained. Then their implementation and recommendation and conclusion is provided.
1. Introduction:In this section, the overview about the company, its history and its international position as a hospitality organisation is discussed. Then the aim and objective of the company is discussed. This section carries three sub-sections i.e. 1.1 Company Overview, 1.2 History and international position and 1.3 Aim and Objectives. Now all the sub-sections are discussed one by one below:1.1 Company Overview:Shangri-la Asia, a Hong Kong based company, is involved in ownership, operation and management of hotels and associated properties with 26,000 people as employers. Mainly it is an investment holding group which operates primarily in Asia. The group did not earn much revenue in the year financial year 2009 as compared to financial year 2008. The group faced a decrease in 9.1% in revenues as compared to FY2008. Also the group faced decrease of 68.5% in FY2009 as compared to its FY2008 in the operating profit i.e. the operating profit of the group at the end of FY2009 was $5.1 million. But the group’s net profit i.e. $255.5 million in FY2009 showed an increase of 54% as compared to FY2008. The group has 65 companies out of which 47 are hotels, 17 are hotels under management and 3
one hotel which is under operating lease and these have spread in Asia Pacific, North America and the Middle East, and European region. Regarding its geographic segmentation, the group have segmented its business into seven geographic regions i.e. the Peoples Republic of China, Philippines, Singapore, Japan, Thailand, Malaysia, and other countries (including Fiji, Myanmar, Maldives, and Indonesia). The brand names that work under this group are Shangri-la, Trader, Summer Palace, Shang Palace and Rasa (Datamonitor, 2010). 1.2 History and Its Position in International Market: The Kuok Group of Companies has founded the Shangri-la groups in 1971 in Singapore and the management group i.e. Shangri-la Hotels and Resorts in 1983. In 1989, they introduced the brand called Traders Hotels and in 1997, the Shangrila Asia group bought Shangri-la Hotels and Resorts. They signed six new hotel management contracts in the year 2002. In the year 2007, the group opened its first spa training centre i.e. Shangri-la Spa Academy in Manila, Philipines and signed an agreement with Vancouver’s Westbank and Peterson Group. In 2008 and 2009 the group has signed its deal with Kerry Properties Limited and China Huaming International Investment Corporation respectively. And again in the year 2010, they had announced openings of three new hotels (Datamonitor, 2010)
1.3 Aim and Objectives:AIM – the main aim is to analyse the current position of Shangri-la using appropriate strategic tool, suggestions and recommendation for the strategic direction and choices to be adopted, provide some ideas about future directions and critically analyse the implemented issues of the recommended strategies.
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OBJECTIVES – explain the need for vision and mission statement of Shangri-la Asia Ltd and the strategic tools and policies used, a complete strategic analysis of the group which will recommend on implementation and choice of strategy and evaluation of business and organisational issues, changes and problems of implementing business decisions.
2. Background to the Strategic Tools, Techniques and Concepts:Before going into deep about its tools and technique, it is very necessary to define Strategic Management, because without knowing the meaning, it is very difficult to talk about its concepts. According to David, “Strategic management can be defined as the art and science of formulating, implementing, and evaluating cross-functional decisions that enable an organization to achieve its objectives this implies that strategic
management
focuses
on
integrating
management,
marketing,
finance/accounting, production/operations, research and development, and computer information systems to achieve organizational success” (2009, p. 36). And according
to Johnson, Scholes and Whittington, “Strategy is the direction and scope of an organisation over long term, which achieves advantage in a changing environment through its configuration of resources and competencies with the aim of fulfilling stakeholder expectations”(2009, p.3).
And “Strategic management includes
understanding the strategic position of an organisation, strategic choices for the future and managing strategy in action” (Johnson, Scholes and Whittington, 2009,
p.12).
As it has been said that strategic management includes three things i.e.
Strategic position, Strategic choices and Strategy in action (Johnson, Scholes and
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Whittington, 2009). Now one by one these three Strategic steps will be discussed i.e. make out what exactly they want to do. 2.1 Strategic Position:This element is required to find out or to identify how the company is affecting its environment, strategic capability and expectations and influence of stake holders (Johnson, Scholes and Whittington, 2009). Every company have to find out what are there basic strenths, what all weakness are there which can affect them, who are their major threats that can affect their business and how is the environment, culture, people affect them. These all can be found out by SWOT and PEST analysis. This tool only tells them about the area or sector that is to be evaluated or improved and where they can do their business more profitable. 2.2 Strategic Choice:This element is used to know the direction of the company in which their strategy might work and the process by which the strategies can be implemented. For example, the company might be entering into new products and markets and to know which strategy will help them to succeed, they use this element. This element contains tools like BCG Matrix, Ansof’s model, Five Porters analysis and product life cycle. In this report, BCG matrix will be used to now the group’s present market condition; Five Porter’s analysis will be done to get a clear knowledge about present market so that the group can get strategies according to that and product life cycle to know the groups growth i.e. in which stage it is (Johnson, Scholes and Whittington, 2009). 2.3 Strategy in Action:This the element is used to determine the techniques to implement the present strategies according to the market and also how to manage them properly.
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Basically this element is for using the strategies properly i.e. putting them into action (Johnson, Scholes and Whittington, 2009).
3. Strategic tools and techniques used for Shangri-la Asia Ltd:This section carries a complete analysis on the Group’s Vision, Mission Statement, SWOT and PEST analysis, BCG Matrix, Five Porter’s Analysis and Product Life Cycle. The analysis starts in the following sub-sections:-
3.1 Vision and Mission:Vision – “To be the first choice for guests, colleagues, shareholders and business partners” (Shangri-La International Hotel Management Ltd, 2011). As far is their
vision is concerned, they have a very good vision but from past few years they are not able to maintain their business. They want to be first choice of guests but this is not at all happening. They are having a lower occupancy level i.e. 50% in FY2009 as compared to 65% in FY2008 (Datamonitor, 2010). This data shows that they are not able to fulfil their vision. But the next three things i.e. colleagues, shareholder and business partner, they are able manage their relations with them. The annual report of Shangri-la is telling, despite of decrease in occupancy level, they had a increase in share of profit of associates by 253% due to which profit of the year increased by 42% (Annual Report, 2009). Basically if the company wants
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to abide by their vision, they need to concentrate on customer satisfaction so that they can be the first choice of the guests. Mission Statement – “To delight our guests every time by creating engaging experiences
straight from
our
hearts”
(Shangri-La
International Hotel
Management Ltd, 2011). Again the same, they want to delight their guests, but as there is a low traffic of guests, it is self explanatory that they are not fulfilling the needs of their guests. According to their mission they want to differentiate them with others by providing the guests a feeling of home and interacting but for that they need customers, without that they can’t do anything. 3.2 SWOT Analysis:Strength:•
Strong Brand Image in the Lodging Industry – The group operates 65 hotels with over 24, 432 rooms and its recreational clubs, the Aberdeen Marina Club in Hong Kong, the Xili Golf and Country Club in Shenzhen has very good reputation and are leading in Asia. Due to this, it has become a good customer choice (Datamonitor, 2010).
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Geographically Diversified in Asia – the Group is diversified in number of countries in Asia i.e. Hong Kong, Mainland China, The Philippines, Malaysia, Singapore, Thailand, Japan, and other countries. This has helped the group have a good advantage from different markets (Datamonitor, 2010).
Weakness:•
Increase in indebtedness – the company’s debt has increased upto 47% from 2007-2009 and also the net borrowings has increased from 20.5% in FY2007 to 40.6% in FY 2009. Due to this the company is facing lower
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rating and in this difficult situation, they are not pretty well prepared to finance more on their business (Datamonitor, 2010). •
Low occupancy levels – As compared to FY2008, with 65% occupancy level, they are facing a decrease in occupancy level i.e. 50% in FY2009 which has caused a loss in revenues per available room i.e. a decrease in 9.1% as compared to FY2008. Due to this, they are not able to make enough revenue to compete with their competitors (Datamonitor, 2010).
Opportunities:•
New openings – they have opened few hotels in Guilin and China and have planned to open four new hotels in 2010. Not only this, they are aiming to open 35 new hotels and add 26 new destinations. These openings in new markets can help them to gain their lost revenues and can help them to stand again (Datamonitor, 2010).
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Hotel management contracts – they have planned operate their hotel under the third party i.e. 17 management agreements have been already signed for 2010. they have also planned for at least give 30% of its rooms under management contracts in 2011. This might help them to improve and work properly without much expense which seems to be impossible at this stage (Datamonitor, 2010).
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Opportunities in China – their most of the chains are in China and China ahs helped a lot to increase their revenue. As China is improving very fast in economy and travel, they might get a good success here. 58.9% of Shangri-la’s revenue comes from China. If they aim at China, then it could be very profitable market for them and also they already have a good reach in China, so it would not be difficult task for them to increase their market (Datamonitor, 2010).
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Threats:•
Increased Labour Costs – due to recession and inflation, there is a rise in labour costs. As it is already discussed that they are facing a decline in revenue, it is very difficult to pay the labours too. Therefore, it has caused a rise in overall costs which is affecting the groups margins (Datamonitor, 2010).
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Recession – due to this, there is a very slow progress in global economy and in the same time H1N1 effect came to the Asia. These all have made the group little bit weak. As the has only diversified its branch in Asia, they have face these problems and wait till the global economy increases. Due to the disease, the customers have stopped going to hotels and restaurants (Datamonitor, 2010).
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Terrorist attacks and natural calamities – Due to terrorist attacks in hotels and natural disasters like Tsunami, customers did not prefer much to the hotels. This was the reason of low occupancy levels. This has harmed a lot to domestic and international customers, due to which they were not able to have enough revenue (Datamonitor, 2010).
3.3 PEST Analysis:Political:-
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Health Centres – they should operate some health centres for older generation as the majority of the customers are old in Asia. This might help them to increase their brand image and can add to the revenue (Lei, Strueby and Justin, n.d.). Economic:•
Inflation – due to rise in inflation the company is facing lots of problem. Already the company is in loss and due to inflation it is facing more loss (Lei, Strueby and Justin, n.d.).
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Exchange rates – the exchange rates are also getting high, due to which they are facing difficulties in convert the foreign currencies (Lei, Strueby and Justin, n.d.).
Social:•
As there is lots of options for the customers, they have to be best and cheaper so that the customers get attracted towards them (Lei, Strueby and Justin, n.d.).
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The society is full of older generation, so for them they should innovate some new and attractive plans which will be helpful for them (Lei, Strueby and Justin, n.d.).
Environmental:•
Environmental protection laws – due to this they have spend money on environment otherwise they will get sued according to the law (Lei, Strueby and Justin, n.d.).
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The rate of travelling has also decreased due to terrorist attacks, natural calamities and H1N1 disease. This is also one of the reason of their declining revenue (Lei, Strueby and Justin, n.d.).
Legal:-
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•
Illegal entertainment – entertainment like prostitution, night clubs, casinos and etc are illegal in Asia. Therefore they don’t have this option as their competitors are having. To get this the have aim on European and American countries so that if they face any loss in Asia, they get their money from these entertainments (Lei, Strueby and Justin, n.d.).
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They need to practice sustainability, as there are different laws and rules in different countries in Asia (Lei, Strueby and Justin, n.d.).
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3.4 BCG Matrix:-
SHANGRI -LA
HIGH
MARKET SHARE
LOW
?
CASH COWS
DOGS
HIGH
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MARKET GROWTH
LOW
Current position with the market share & growth analysis through BCG matrix model for strategic direction THE SHANGRI- LA GROUP is on QUESTION MARK (A PROBLEM CHILD)is a growing business unit which is developing the
Asian markets well but currently they are not totally internationally renowned which is why their earnings per share is 0.61 whereas the industry in which they are in i.e. the hospitality sector is running with average 0.15 (Lei, Strueby and Justin, n.d.).
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To enter into STAR – SHANGRI- LA needs to gain a high market share & should
invest in heavily in the hospitality sector to make a move & yield better sufficient profits for further investments too. (Johnson, Scholes, Whittington, 2009)
3.5 Five Forces Model:-
Bargaining Power of Supplier
Threats of New Entrants
Degree of Rivalry
Threats of New Substitute s
Bargaining Power of Buyer
(Lei, Strueby and Justin, n.d.) 15
Bargaining Power of Supplier:As the rates of availability of substitutes are high, the bargaining power of supplier is low. Due to which they have agree with whatever rates the supplier is giving, which forces them to make expensive deals (Lei, Strueby and Justin, n.d.).
Bargaining Power of Buyer:They are very much dependent on the supplier and as they have less buyers, in whatsoever money the buyer wants, they provide them the product. Sometimes they have to present the product in fewer prices as compared to the suppliers as the customer traffic is very low. They are also not able to change their prices as their demand is very low at this time, so they have work according to the customer demand and supply to maintain their relations with both the customers and suppliers (Lei, Strueby and Justin, n.d.). Threats of New Entrants:The threats of new entrants like small restaurants and lodges which provide the same products in a very cheaper price. They have very low economies of scale and very low product differentiation. This is the biggest threat due to which they are suffering from customer crisis (Lei, Strueby and Justin, n.d.). Threat of substitutes:They have very less number of substitutes i.e. if the customer does not like their product; they are not able to provide some other substitutes. And if at all they have a substitute, they also do not fulfil the needs of customers. They have to work a lot on this to improve; otherwise their customer will choose some other company arther than this (Lei, Strueby and Justin, n.d.).
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Degree of Rivalry:The degree of rivalry is also very high as the strategic stakes are very high and as far as their competitors are concerned, they have very high substitute performance. This is the reason why they are loosing their position and competition (Lei, Strueby and Justin, n.d.).
3.6 Product Life Cycle:-
(Sam Carrara’s Marketing Education, 2011) Shangri-la Asia Ltd
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Shangri-la Asia limited is in growing stage as it only 65 hotels worldwide that too in Asia Pacific, North America, Middle East and European Region. But the major products are in Asia. It came into existence in 1970, but has not earned enough revenue as it should be. There is a decrease in revenue in 2009 of 9.1% as compared to 2008. it gets its revenue mainly from hotel operations i.e. 94.9% and rest it gets from hotel management and property rentals. This shows that its diversification has not yet worked properly. Itys major revenue comes from China i.e. 58.9% of total revenue. In June 2010 they decided to open three new hotel in 2013 and they have also signed many contracts for 2011 i.e. they are planning to invest 30% of their rooms under management contracts by 2011 (Datamonitor, 2010). These all data says that they are in growing stage and they are fighting with their revenue crisis to come up to level and competition. They have also not made a good profit as it has been discussed earlier, they are still struggling to achieve their vision and mission statement. They need to diversify and make some changes in their products to achieve a good revenue and progress. They are confined to less products and services as compared to their competitors. They also have a very low substitute which leads them to a decrease in customers.
4. Implementation of Strategic tools:As it has been discussed earlier that they have been suffering from various problems. To evaluate where all they are lagging, these strategies have been put. Now the important fact is how to put these strategies so that they can improve and will have to expend a lot. There are three basic things which they will have to take care of to implement the strategies i.e. Structure, Organisational Processes and Managing strategic change (Johnson, Scholes and Whittington, 2009).
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Organisational Structure – the managers need to evaluate which strategy suites them best. Whether the people should be handled according to business functions or in product or market division (Fundamental of strategy). For Shangri-la, they need to work in all the sectors. They need to diversify their markets and to increase their business they have introduce some new and innovative products and services because they are lagging of customers and whatever the service it is providing, its competitors are providing in a cheaper way (Johnson, Scholes and Whittington, 2009). Organisational Processes – this is required so that whatever strategy is implemented that can be controlled perfectly. The need to evaluate the strategy very often that is whether it is implemented according to the plan and have to check whether the company is doing any progress or not and if not then make some necessary changes to it (Johnson, Scholes and Whittington, 2009). Strategic Change – this is very important part of the organisation as the company need to know how they will approach the change so that they could make good profit and what all role they have to play in order to manage the customers. This also includes adopting different styles to manage the change and the tools by which change can be effected (Johnson, Scholes and Whittington, 2009).
5. Recommendations and Conclusion:Shangri –la needs to make some heavy investments into the hospitality sector to make a base as its still on the growing stage. There is a need to expand in the new markets & penetrate further in US & UK markets as there is a large scope of the hotel industry. Shangri-la should adopt a reactive strategy to follow the leaders’ strategies too & implement them. For the growth purpose, their product line offerings should be expanded as the growing trends in the hotels to include the other facilities as well for customers (Casinos, leisure hotels resorts). Shangri –la is at growth rather 19
introductory stage evaluated through the portfolio matrices & PLC therefore they need to expand & develop them to gain back the profits as their return on investment is low as compared to the average hospitality markets ROI. Thus they need to put in the strategies on immediate basis or should modify their current strategic management plan to refine their working & gain more markets.
References:•
David, F. R. (2009) Strategic Management: Concepts and Cases . 12th Edition. United States of America, Pearson Prentice Hall.
•
Shangri-la Asia Ltd (2009) Annual Report. [Internet]. Available from:
[Accessed
15th May 2011]. •
Carrara, S. (2011) Product Life Cycle- Overview. Sam Carrara’s Marketing Education
[Internet].
Available
from:
[Accessed 15th May 2011]. •
Shangri-la Hotels and Resorts (2011)About Us. [Internet]. Available from: [Accessed 16th May 2011].
•
Lei, Strueby and Justin (n.d.) Shangri-la Hotels and Resorts-ppt. [Internet]. Available
from:
a=v&q=cache:cFabfaKfhSQJ:www.plu.edu/~leiza/doc/shangrila.ppt+shangrila+ppt&hl=en&gl=uk&pid=bl&srcid=ADGEEShKRIFfJXKhQ wrDCVLThKx2B3ML61b-
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pWPlWYqW6hNVYbuCeqyJ3ISDr5UU4kE3upKP9pR65XjOdQzTcSefMKG Y7WaBnXQ7LW_UdaskmM5YjN3yMPLnr2GL2L71aH98dDDjq5G6&sig= AHIEtbRcS1DWcJ9Jk2MflSDYc6h2-Ai2uQ> [Accessed 16th May 2011]. •
Shangri-La Asia Limited (2010) Company Profile. Datamonitor. [Internet]. Available from:
[Accessed
16th
May
2011]. •
Johnson, G., Scholes, K. and Whittington, R. (2009) Fundamental of Strategy . 1st edition. London, Pearson Education Limited.
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