Banyan Tree: Entering Indian market

Table of Contents

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Executive summary...............................................................03 Introduction .........................................................................04 Current Situation .................................................................05 Opportunity Analysis – OLI model ..........................................06 Segmentation and positioning of Banyan Tree in Indian market ............................................................................................11 Strategic implications of the business strategies ...................13 Sustainability of the company in the global market ................15 References ..........................................................................16

1. Executive summary

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Banyan Tree Holdings Limited is a Singapore-owned company with core businesses in hotel, resort and spa investment, management and operations. Driven by the founder’s vision, the group has just become a public-listed company 2 years ago, showing its commitment towards being a global company. In 2008, Banyan Tree group has numbers of investments and operations in several exotic cities in China, Maldives, Thailand, Indonesia and Bahrain. This report investigates Banyan Tree’s expansion stage in Asia-Pacific region, with focus on entering Indian market. The first section of the report provides details of the current situation of the company and the industry. The second section gives an in-depth analysis of the factors that favors Indian market as the next potential target country, as well as assessing the best mode of entry(s) into that market. The last section presents the strategies and implications of the chosen mode of entry(s).

2. Introduction

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Banyan Tree is a leading manager and developer of premium hotels, resorts and spa in the Asia Pacific region. The company was established in 1993 by Ho Kwon Ping (founder), and the business has been run under family umbrella. After 51 years working as a developer of economist-cum-journalist backpacker in the Singapore, He transformed his family business into a focused hotel and resort group. Due to its rapid expansion needs and strategies, the company then became a public-listed company in Singapore Stock Exchange in 2005. Banyan Tree Group has six core businesses in tourism and hospitality markets: hotel investment, hotel management, property sales, spa operations, gallery operations and design services. The company focuses on the premium/high end market, with its core competency in design and management know-how. The brand is also strongly recognized by consumers/visitors with its characteristics of outstanding services and beautiful and romantic sensations. At the end of 2006 financial year, Banyan Tree’s family business operated 20 resorts, 53 spas and 62 galleries at around 20 countries in Asia Pacific. As part of its global expansion strategy, Banyan Tree had launched new projects, which include three core components of the Banyan Tree’s line of business (i.e. resorts development, spas and retail galleries) in more than 10 countries.

3. Current Situation

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Banyan Tree has a strong portfolio of near about 20 resorts, 53 spas and 62 galleries around 20 countries in Asia Pacific. In hotels, resorts and spas industry, Banyan Tree is seen as a well-known brand in the market. Resorts like Banyan Tree Maldives Vabbinfaru and Banyan Tree Phuket are considered as some of the best resorts in Asia Pacific as well as in the world. Since the launch of the first Banyan Tree resort, Banyan Tree Phuket, in 1994, Banyan Tree has received over 250 awards and accolades for the resorts, hotels and spas that the Group manages. The Group has also received recognition for its commitment to environmental protection and emphasis on corporate social responsibility. Currently Banyan Tree is among the most rapidly growing resort and spa chain which has already created a well known brand image globally. Of these, two new resorts were launched in 2006: Banyan Tree Lijiang, China and Angsana Velavaru, Maldives are the new services in the resorts market with a unique pristine location and outstanding services. The company had a robust growth in 2006; All six of our operating business segments performed well, showing marked improvement over the previous year. Banyan Tree group has experienced, qualified management team whose core members have been instrumental in our development since inception. The team possesses the appropriate mix of multi-disciplinary expertise and experience. The company targets to enlarge our footprint to 81 locations in 29 countries by 2010.

4. Opportunity Analysis – OLI model

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To understand opportunity in a new market, the OLI model is used as a basis of the overall analysis. Inside each factor, specific models are applied to perform a more indepth analysis.
4.1. Ownership advantage

In a global environment, Banyan Tree must only focus on its core competency that can be applied globally. The company’s competitive advantages are: • Strong brand recognition in Asia Pacific and global markets. • Experienced team who have mastered Banyan Tree’s unique, eco-friendly design and management know-how. • Special location, this is really important role for success of hotels and spas industry and by located at the pristine location like mountains, oceans, and forests that already become the CA of Banyan Tree. • Clever marketing campaigns. • Innovative and efficient service management/operation. These competitive advantages must be protected by the company. In global market, where competition is very fierce and imitation of competitive advantages is a major issue, a company like Banyan Tree who depend on the skill and management knowhow must be able to secure its competitive advantages. The mode of entries and strategies to be used in entering a new market must be in line with such protection.
4.2. Location-specific advantage The selection of location is crucial, especially at the initial step in entering a new market. The first city that Banyan Tree wants to choose could be used as a foundation for its next tier of expansion strategy, and also to promote brand presence in the market. It is wise to choose a country that already has a tourism exposure locally and globally, since the demand (i.e. the ‘pull effect’) is already there. Banyan Tree just needs to expose its brand, run and promote it (i.e. creating the ‘push effect’). To filter the target countries around the world, we use

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SES (Strategically Equivalent Segment) model by selecting some important criteria. After a country has been chosen, then we can focus on the PESTEL analysis of that particular country 4.2.1. SES (Strategically Equivalent Segment): The target countries we choose for banyan tree are Vietnam, Australia, India, New Zealand and Oceania (refer to fig. 1.0) as these countries have comparative advantage like geographical condition (Under Asia Pacific region, Untapped coastal lands/islands and exotic views, natural attractiveness), rich in local culture, and economic advantages (Growing economy especially in tourism and hospitality industry, tourism demand). Out of these five, Banyan Tree may want to consider India as the first country to enter. The reasons for choosing India (i.e. the criteria we use) among all other countries are:  Political instability in several countries in Oceania, Srilanka and Vietnam to certain extends. This increases the risk of doing business in these countries.  Unlike New Zealand, countries like India, Vietnam and others still do not have high-end spa facilities targeting at niche market. So its will be the first mover advantage for Banyan Tree.

Tourist arrivals in India increased to 4.43 million in 2006, up 14.2

per cent from 3.92 million in 2005. The foreign exchange earnings from tourism grew to $6.569 billion in 2006, an increase of 14.6 per cent from 2005. These numbers also include the non-resident Indians that make more than one trip to India every year (Brand Channel.com, 2008). Others are also growing, but not at the faster rate as opposed to Banyan Tree. It means the there is a huge demand is India.

The cost of entering the country and setting up the business there

would be cheaper and worthy, therefore, increase the benefit factors.

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BANYAN TREE ”HOTEL AND RESORT”

VIETNAM

SRILANKA

INDIA

NEW ZEALAND

OCEANIA

GOA

KERALA Fig 1.0 SES diagram

NANITAL L

There are numbers of attractive tourist places in India such as: Goa, Kerela, Nanitaal, Jaipur and Simla. Out of these cities, Kerela, Goa and Nanitaal could be considered in this first stage of Banyan Tree’s expansion strategy in India due to the availability of infrastructures and the level of cultural readiness to accept foreigners in the particular cities. The very first city the company may want to consider is Kerela as in comparison to other states, Kerala is the one that has the most tourist arrivals by destinations in India (Ministry of Tourism India, 2007). This city, as explained above, is the most demanded by foreigners. So, Banyan Tree may use this place to further expand its resort business in India (i.e. Beachhead strategy by Drucker, 1999). After establishing a business there, the company can then target the second tier cities like: Goa and Nanitaal.
4.2.2. Environmental analysis (PESTEL) of India

Political factors: India remains relatively stable nowadays (i.e. little issues on internal political unrest), and the local government is stimulating opportunities for foreign investors by inducing various ways to reducing the barriers to entry. Example of government’s commitment, especially towards tourism

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infrastructure can be seen from the budget allocation to tourism sector with 4 new institutes of hotel management were being set up (Asian Development Bank, 2006). However, the level of government intervention and self-protection is still quite high in India, and sometime organizations face with some difficulties because of that. Another concern is India’s trans-border issues with its neighbours (Pakistan, Nepal, Bangladesh, and even China) due to borders issues (CIA, 2007), which may affect the cities nearby the borders as well as the businesses. Economic conditions: Economic factors affect organizations' decision in terms of tax rate, stability of economy, exchanged rate and so on. When we see the India's economy in general, the country's GDP is in a good condition that it grew to 9.4 % in 2006 and 8.5% in 2007 (CIA, 2007). India’s per capital also grew to US$2,700 in 2007. It can be seen as India is more stable than before and it is obvious that India's economy is doing well and it tends to growth in the future. Moreover, according to official in July in 2007, the number of tourists visiting in India was 2.82 million in 2006 and only in January 2007 nearly 532,000 tourists arrived, which is a highest record so far for India’s tourism industry (Presszoom, 2007). So, India’s tourism industry is seen as one of the fastest growing in the world now. This gives the great chances for Banyan Tree to expand their businesses to the India market. Socio-culture: People’s life style, tradition, size of the population and education of a country determine the level of market attractiveness. In India, all aspects are supportive for the growth of tourism industry; except that Banyan Tree must consider the level of poverty in India is still at the moderate, slightly high (official figure is 25% of population). The income level is not well distributed and because of that, the standard of living, clean air, etc may not be as good as developed countries. Technology: Technology available in a country is one factor that organizations need to

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look at before they go into a market. As Technology becomes essential in production, distribution and all process of an organization, a country cannot be an attractive market if it cannot provide necessary technology. India is seen as one of the countries with the fastest growing technology in the world. This condition favours the growth of hotel and resort development by simplifying the management and operational activities. 4.3. Internalization advantage Partnership (Joint Venture) with a local company At the initial stage, Banyan Tree may want to consider forming a partnership with a well-established resort construction in India. For the company, the advantages of partnership strategy at this stage are: - Leverage of local knowledge, experience and brand: Since India is a new market for Banyan Tree, partnering with a local company will speed up its understanding and adaptation process to the local differences (i.e. in term of culture, needs, etc). The brand of the local company may also be one of the factors that benefits Banyan Tree by attracting loyal consumers into the business. - Easy access to India market: although the India market is opening and attractive to FDI, the government is still produce lots of protection against foreign company. Tying up with a local company will make Banyan Tree’s way easier in doing business in India. - Reduce the cost of doing business in India: entering a new country, especially a developing country, may incur high risk. Using a partnership, the risk is shared by both parties. - Decision making right: Banyan Tree will have a decision making right in the business. The level of the right may vary depending on the ‘Partnership deed’, but at least 51% of the right must be there because the company have to have a power in the business.

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Franchising After entering the Indian market, Banyan Tree may expand its business using franchising method. It will suit a foreign company by giving more decision making power and become independent to the local company. Some of the advantages are: - Increase in decision making power - leveraging its management know-how, with care. Franchising agreements protect against imitation of the company’s competitive advantages. 5. Segmentation and positioning of Banyan Tree in Indian market Positioning: Banyan tree positions itself in the niche market segment by promising its customers with the best experiences in terms of spa and resort facilities. The Banyan tree provides distinct experience to the visitors by developing and operating resorts without disturbing the natural beauty of the place where it is located and giving high concern for environmental conservation (i.e. combination of eco-friendliness with contemporary design, as well as quality services). The villas of the Banyan tree are priced high, when compared with other resorts and is considered as the premium resorts.
High

Low

High

Eco-friendly concept

Price Low
Figure 2.0 the positioning map of Banyan Tree relative to the nearest competitors in India

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Using Porter’s generic strategies, Banyan tree uses the focus and differentiation strategy to position itself in the global market. The company focuses on developing state-of-the-art, eco-friendly spas and resorts. The company has strong brand recognition which it takes as a strategy to differentiate from others who are competing in price. There will be some package promotions, but reducing price for the purpose of competing with others will not be Banyan Tree’s main strategy. Market Segmentation: Psychographic On the basis of Psychographic, the company has to divide its target market based on life style and interests. It has to give focus in attracting people who has interests on tourism, leisure, spa treatments, etc. Banyan tree, while developing its resorts it has given prime importance to environmental conservation so itself, they can attract segments which are interested in environmental concerns. (eg: setting up a restaurant which sells organic food can attract people who don’t prefer to take food which are chemically treated). Demographic In India, Banyan tree hotels and resorts can segment the market on the basis of demography. This can be on the basis of age, income level, life stage and occupation. The company can target at people who are in mid age who are looking for spa treatments and other resort facilities. Also they can target at old aged people who are looking for relaxation and peace. On the basis of income level, they have to look on to people who have high income as the company itself is considered as premium in the market. Product – Benefit Segmentation It is based on the perceived value or advantages that the consumers get from the product. Banyan tree hotels and resorts are unique for its spa and resort facilities, also with its concern for preserving the environmental / natural beauty of the place where it is located. It has to give more importance in developing all its unique advantages so as to attract people who are keenly looking for such facilities.

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6. Strategic implications of the business strategies

As in entry level, Banyan tree is now expanding its business in South India with focus on Kerala, as it is one state which has got better tourism potential, good climatic conditions, natural resources, etc. so itself the state is abundant with lots of competitors with similar business, however the place still lacks a branded company like Banyan Tree in the resort and spa sector. Banyan tree has good background in doing the resort and spa businesses. The main factor behind its success it greater value of customer satisfaction and its high concern for environmental conservation. So while going into new markets like India, the company has to focus on standardizing its success factors. The company has to follow direct investment to start up with (that is it has to build its own resorts rather than going for franchising or joint venture). For this, the company has to follow the best option from the international business strategies which are plotted below. H i Global g standar Pressure for h Transnational dization cost reduction strategy

Replication strategy L o w L o w

Localization

Pressure for local responsiveness

H ig h

Figure 3.0 four types of strategies to enter global market

The international business strategies are formulated on the basis of two factors – pressure for local responsiveness and pressure for cost reduction. For Banyan tree hotels and resorts it is strategized to the premium segment and so it has little pressure for price. The company is unique in terms of value added customer

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service, conservation for environment / environment friendly, spa facilities and design. The pressure for local responsiveness is also low due to its eco-friendly design ability and the company’s vision. Hence the best strategy to enter the Indian market is replication strategy or international strategy. Based on the replication/international strategy, Banyan Tree will need to focus on its core competencies. Banyan tree develops its resorts by adapting itself into the nature, which is the company give high concern for environments while building their resorts and spa facilities. The resorts are built in such a way that the environment / landscape in which it is located is not altered or modified and this has become one of the major core competencies of Banyan tree. Other than that, Banyan tree promises its customers in delivering value added services and world class spa treatment facilities. The company has to give focus on improving / developing these core competencies so that it remains unique in the Indian market which has got so much of competitors. This can be done by exporting its core products like technology for spa treatments, organic food products, room amenities, etc. from the home country to India. Corporate training programs can be offered to staff so as to standardize the level of services globally. Doing this, the government of India as well as the society will also have little worry and even prefer Banyan Tree to do business in their homeland. However, the company still need to customize some of its aspect. In this, the major aspects to consider are the products and the price. The company has to come up with products which are localized, which will fulfil the tourist demand (i.e. Most of them – if not all – want to have Indian-style products and services that are unique, because they are having holiday in India), along with the products that are standardized globally. For example, when Banyan tree starts its resort in Kerala, it can come up with traditional Kerala ‘ayurvedic treatments’ as part of its spa treatments. Even though the company is targeted at premium segment, they have to consider the economic and inflation trends of the country and pricing should be customized as required.

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7. Sustainability of the company in the global market Consistency of the internal organizational structure with the strategies Banyan Tree’s expansion strategy must be balanced with the internal organization structure. A centralized structure would be the best choice for the company, since protecting/controlling core competencies is a critical factor to sustain in this industry. The current condition of the company is actually favours the use a WWP (World Wide Product) concept. Banyan Tree’s headquarter (HQ) is based in Singapore, and the subsidiaries can be placed in each specific country. However, the main problem is that the HQ will be far away from the consumers (i.e. tourists in each subsidiary). However, the development in technological environment in India can be a positive factor that contributes to the consistency of the company as a whole. Consistency of the partnership and franchising strategies with the local environment India is a new market and new environment for Banyan Tree, so the business operations must fit with the local culture, the employees and the local community surrounding the business. The company must create ‘a learning culture’ from the entire organizations wherever the subsidiaries are. It must adopt both top-bottom and bottom-up approaches altogether so as to allow the top managements (franchisor to franchisee, Banyan Tree with the its local partner, employer with employee and also Banyan Tree with the government and society) to learn local culture. On the other hand, the local companies, the employees can learn from the Banyan Tree’s top management’s expertise and knowledge. This will create a balance situation in order to achieve sustainability.

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8. References Banyan Tree, retrieved: 19 January 2008, from: http://www.banyantree.com/ Bieson University, retrieved: 19 January 2008, from: http://bieson.ub.uni-

bielefeld.de/volltexte/2004/507/pdf/m_entry.pdf Brand Channel corporation, retrieved: 19 January 2008, from:

http://www.brandchannel.com/careers_profile.asp?cr_id=52 Finaly, P (2000), Strategic Management, Pearson Education Limited. Government of India, retrieved: 19 January 2008, from: http://www.incredibleindia.org/india_tourism_05_06.pdf Hill, C (2006), International Business: Competing in the Global Market 4th edt, Pearson Education Limited Susan, SH and David, F (1999), The Dynamics of International Strategy, International Thomson Publishing http://www.lhw.com/searchresults.aspx? searchcriteria=banyan&ext=GLWbrnd&gclid=CKGuxvqp848CFRNJTAodvTmgIw http://www.adb.org/Documents/Economic_Updates/IND/2006/eco-bulletin-ind02.pdf https://www.cia.gov/library/publications/the-world-factbook/geos/in.html http://presszoom.com/print_story_141333.html

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