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MIDLANDS STATE UNIVERSITY

FACULTY OF COMMERCE

BUSINESS MANAGEMENT DEPARTMENT

Group assignment

Module: Strategic Management (BM405)

Programme: Business Management (PDP)

Surnames First names Registration numbers

Chapanda Kudakwashe Gracious R0645087

Tengende Edina R0645047

Murungu Tafadzwa R0645048

QUESTION

Evaluate relevance and adequacy of turnaround strategy as used by any


organisation of your choice in the hospitality and tourism sector.
In Zimbabwe, tourism played a very significant role in the development of the national
economy taking advantage of its most diversified tourism resource base. The contribution
of the 0.7% in 1980 to 9.8% in 2007. Notwithstanding natural attractions, very limited
tourism development occurred during the past nine years owing to challenges associated
with perceived country risk, lack of working capital, inadequate domestic services, and
deteriorating infrastructure.

Turnaround strategies of the Rainbow Tourism Group

RTG wage bill continued to increase from 15% in 2009 to 35% of total costs in February
2010 and since 2009 the company only made a profit in May 2009 and a loss of
US$742000 was realised in June . Due to continuous increase in operational costs, and
continuous losses, the company implemented turnaround strategies. The company has
developed strategies to boost tourism, focussing on: (a) destination re-branding; (b)
review of our international marketing strategy; (c) development of market-specific
marketing programmes; and (d) targeting the world’s top tourist generating markets.

Cost reduction strategies

According to Robertson (2010), in order to reduce operation cost the company is now
importing from China and India, Look East where despite the long distances involved
landing policy costs are 30% lower than local goods. This strategy is feasible since lower
operations costs will enable competitive pricing and the company will be able to use the
money to invest in other sectors. Also this strategy will also attract China and India
tourists into the country.

According to www.fingaz.com March 2010, RTG’s wage bill had increased from 15% to
32% and to reduce these costs the company retrenched non core staff and contract
workers. This strategy is to a great extent relevant since the company should focus on the
core activities and reduce unnecessary expenses. However some of the staff may be
needed in the future since the company is in the process of expanding its operations.
After realizing that one of its small business unit (SBU) Tourism Services Zimbabwe
(TSZ), had diverted from focus of operation or core activities, the company reshuffled
top management. Also different lodges were placed under one umbrella management.
This strategy is very relevant since it help to reduce unnecessary cost.

The company also signed a lease agreement for 182 roomed hotels in Mozambique,
Zambia, and South Africa. This was aimed at increasing revenue and capacity of the
company. The strategy is viable considering the negative publicity of political issues in
Zimbabwe. Locating in other countries without such negative publicity will attract more
visitors thereby increasing revenue for the company.

Financing strategies

As part of STERP, tourism revival will be prioritised through securing external lines of
credit for working capital, rehabilitation of infrastructure and importation of capital
equipment among others. Financing will also benefit from engagement and incentivising
Zimbabweans in the Diaspora to make meaningful investment in the tourism sector.

The Rainbow Tourism Group (RTG), Zimbabwe’s second largest hospitality concern, has
shifted its funding options to pension funds after encountering muted resistance from
foreign financial institutions skeptical about Zimbabwe’s poor credit rating. The
Zimbabwe Stock Exchange-listed group, which reported a US$742 000 loss in the half-
year ending June 30 2009, has revived its regional expansion drive after failed attempts to
penetrate the Democratic Republic of Congo in 2003. Chipo Mtasa, the group chief
executive officer said foreign financial institutions were making restrictive demands
before approving proposals from the group, which operates the Rainbow Towers in
Harare, in addition to close to a dozen hotels and lodges across Zimbabwe.

The primary “wishful thinking” turnaround strategy is the search for conventional
financing. When a firm gets into financial trouble, it often seems just a little money will
fix the problem. They spend months looking for the funds. When you speak to the CEO
and CFO, they are always certain the last financier they met with will come through. But,
funny thing … the money never arrives and the financiers never offer a term sheet. The
leadership gets into a trap of always believing the financing is just around the corner, and
they stop focusing on their business problems. Big mistake. We have seen several cases
where CEOs think that they were going to get their financing the day before they had to
take bankruptcy! Clearly, they were living in a fantasy world.

Why does the funding never come through? Because no financier in his or her right mind
will invest in a troubled business with declining sales, profits and cash flow. The risk is
too high. But, financiers always like to negotiate and tell others that they have deals
working, even if it is unlikely that they will ever fund the company. So, the management
team thinks the funding is imminent, when in reality they don’t have a chance.

Increasing capacity
The Zimbabwe Tourism Authority (ZTA), responsible for promoting and developing
tourism will be adequately resourced to effectively carry out its mandate. The Rainbow
Tourism Group had until recently been making huge preparations for the World Cup.
Three years ago, the hotel chain entered into an agreement with the National Social
Security Authority to jointly construct a US$12 million 150-room hotel in Beitbridge as
part of the 2010 World Cup preparations.

The development of infrastructure came at a time when the tourism sector was faced with
a huge opportunity through the 2010 World Cup to be hosted by South Africa. This,
coupled with the removal of travel warnings by many countries, has seen occupancy
levels increasing. As a result, the sector is set to grow by 10 percent in 2010.

THE Rainbow Tourism Group (RTG), the country’s second largest hospitality company,
strongly believes that the Zimbabwe government exaggerated potential benefits that the
World Cup, which kicks off in South Africa on June 10, would bring to the local tourism
industry. Contrary to popular belief created by the authorities, the RTG says very limited
opportunities would be derived from the tournament. An ambitious blueprint authored by
the government in 2008 captured the huge expectations the country had for the
tournament.
Marketing campaign

The RTG launched an aggressive marketing campaign covering regional and


international markets. In that regard, high level teams were dispatched to different
countries to reflect on the correct image and potential of the company and the country, as
well as removing the country risk perceptions entrenched in source markets and
consequently lobby for the removal of travel warnings. Such marketing strategies also
included forging of more strategic alliances with regional and international tour operators
destinations.

The marketing strategy is very important if the RTG is to succeed in its expansion. The
foreigners have a perception that things are not well in Zimbabwe, so they are more likely
unwilling to come in this country because of that. The marketing campaign will help the
potential tourists to know the real emerge of the company and the country as well as the
services they will be expecting to find in Zimbabwe. To a large extend the marketing
campaign is relevant. However the issue of political and economic instability have
negative impacts on the expected demand. Marketing strategies may be very effective but
without good infrastructure, roads, hospitals, water, and other resources the tourists will
be reluctant to come in our country.

Tourism Product Re-Development

The Rainbow Tourism Group is trying to improve its services by offering dishes from
different countries like Chinese, Japanese, American, and so on. The company also
employed people with ability to speak many languages so that people from different
countries can be served in their languages other than English. This is because some
people are not able to properly speak English. This strategy is relevant since many people
are comfortable to speak in the own language and have their own meals apart from the
comfort of the bed.

The tourism product has deteriorated over the years thereby impacting negatively on the
competitiveness of the destination. Product redevelopment is required as a matter of
extreme urgency. The 2009 Budget has already given incentives for investment into the
tourism sector such as exempted duty payments on capital goods used by registered
designated tourist facilities. This also included exemption of duty on equipment used for
expansion, modernisation and renovation of tourist facilities. A Tourism Revolving Fund
will therefore be established to allow the Tourism Operators to revamp, renew and
refurbish their products and services.

Attract foreign direct investment

The need for a conducive investment climate is as important for the tourism sector as it is
for all other sectors of the economy. The Ministry of Tourism and Hospitality Industry
Management will intensify its efforts to promote foreign direct investment in the tourism
sector. In this regard, the 1st International Conference on Investment opportunities in the
Tourism and Related Sectors will be held during the 2nd quarter of the year. However the
above strategy seems to be not viable considering the publishment of the indeginisation
which is hindering foreign investors. Considering also the poor credit rating of the
country published in www.theindependent.co.zw in April 2010, it will be difficult for the
company to obtain foreign direct investment. Foreign investors also are unwilling to
invest in the country unless until the outstanding issues in the Government of National
Unit are resolved.

Pricing of the Tourism Product

The pricing of the tourism product is critical for destination competitiveness. In trying to
increase revenue taking advantage of the 2010 world cup opportunity, RTG increased
average room rates from US$70 to about US$90. However this would require massive
product improvement programmes. Also according to Robertson (2010) in
www.thezimbabwean.com, Zimbabwe’s southern neighbour is now expecting arrivals to
reach 330 000 from the 450 000 previously budgeted for. This shows an overestimation
and such pricing with low demand will not attract many tourists. Also currently in
Zimbabwe’s financial sector there are very few if any internationally acceptable modes of
payment such as credit cards.

Most organisations are using cash payments which might make it difficult for tourists
from developed countries to make payments. Therefore the RTG will not attract many
tourists under such situation. It is important that the price of tourism products be seen as
contributing positively to the total attractiveness of the destinations. To a slight extent
this pricing can be feasible since it is reported in www.thefinancialgazzette.com the
Inclusive Government through the Zimbabwe Tourism Authority will continue to monitor
prices in the tourism sector so as to keep prices in line with the total marketing strategy.

Building Tourism Infrastructure

The Rainbow Tourism Group have built some rooms in Beitbridge and rented some in
Mozambique to cater for the expected demand on the world cup tournament. It also
signed a lease agreement for the 182 roomed hotel in Mozambique, Zambia and South
Africa. However there were no any improvements in roads like what the south Africans
were doing. The most concern was placed on rooms to accommodate more tourists but
nothing was done to the welfare of those tourists. There were no improvements in the
hospitals supply of medicines, reduction of water problems, electricity problems, and the
telephone and television networks. All these will contribute to the demand level.

Moreso, the country had over-estimated earnings from the World Cup. It reminded
industry players that while Zimbabwe was close to South Africa, World Cup games will
not be played in this country. Players in South Africa’s tourism industry are also revising
downwards their previous projections of expected hotel occupancies and revenues.
Recent reports indicate Zimbabwe’s southern neighbour is now expecting arrivals to
reach 330 000 from the 450 000 previously budgeted for. According to the minister of
tourism and hospitality Walter Muzembi, Zimbabwe will be expecting a 30% of the
arrivals to visit Zimbabwe. Since many of the world cup tickets were bought by the
south Africans there is a zero probability that the South Africans will come here during
the world cup tournament. In addition the most rich people in south Africa are the whites
of which some of their colleagues were maltreated during the land reform programme in
Zimbabwe. Tourism is part of luxury and can only afforded by those in the upper class
and the greater percentage of these are whites.

Improving internal access

Currently access to tourist resorts remains a challenge, with tourists spending valuable
leisure time traveling to reach their intended destinations. As such the Rainbow Tourism
Group has improved internal access to local destinations by road, air and rail. The tourists
are taken from the airports to their final destinations, that is reducing bewilderment of the
customers.

The Inclusive Government will make deliberate efforts to facilitate the operations of
domestic airlines and luxury tourist coach services. It will also improve the country's
ports of entry (Airports and Border posts) to international standards through reactivating
its plans to establish a National Ports Authority which will develop and manage our ports
of entry, similar to management of airports by the Civil Aviation Authority of Zimbabwe.

This strategy is very relevant since the tourists need to be treated in a manner that they
will come back again in the future or they will market the services offered by the
company to the world. If the company fails to provide good services this will create a bad
emerge and results in lose of customers. More sales will be recognised if the rumor about
the company is positive.

Promotion and Image Building

Zimbabwe's image in the major source markets as well as investments and trade markets
requires to be improved. The Inclusive Government will launch an aggressive marketing
campaign - Regional and International Markets.
In this regard high level teams will be dispatched to different countries to reflect on the
correct image and potential of the country, as well as removing the country risk
perceptions entrenched in all markets. The Inclusive Government will engage the
different governments that have issued travel warnings against
Zimbabwe to have them removed

However the issue of inclusive government will not work as the are so many conflicts in
the inclusive government. The tourists knowing that there is no peace in Zimbabwe will
not dare to visit our country. There are still sanctions that are affecting the tourism
industry. As supported by the disagreements in the parliament between the parties the
country still have political instability. Worse still the implementation of indeginisation
policy resulted in bad image being given to the country. With all these issues the use of
inclusive government as a marketing weapon will not work now.

International Air Access

Air transport plays a very critical role in tourism development. In 1996, Zimbabwe was
served by 45 foreign carriers linking the destination to more than 100 International source
markets. Currently there are 7 carriers serving the destination. This is attributed to the
restrictive and protective air transport policies that have seen many foreign carriers being
denied rights to land in Zimbabwe.

To increase destination access from the major source markets both long and short haul,
the Inclusive Government will introduce more liberal and less protective air transport
policies and offer competitive incentives to attract foreign airlines in accordance with the
Open Skies Policy

Relevance and adequacy of the turnaround strategies

To a greater extend the strategies are not adequate and relevant. This is because the
country should first implement strategies that are meant to improve the economy. There
are still issues of diseases, lack of services, lack of resources, lack of food, and political
instability in the country. This means even if the company build more rooms in
preparation of the world cup, those may not be occupied because the visitors may be
afraid of their security here. Expansion also need a lot of finance but currently in
Zimbabwe there are shortages of finances and the company found it difficult and
expensive to expand. The world cup which was the main reason for expansion is there
only for one month that means after world cup the company will have overcapacity.
Overcapacity is a waste of resources. The company could have rent some buildings
instead of building.

A recent report by the Sports, Tourism, Image and Communications Taskforce said poor
planning, lack of proper coordination, official hesitation in the implementation of various
programmes lined up ahead of the event, bureaucracy and collapsing infrastructure had,
among other shortcomings, combined to diminish Zimbabwe’s chances of benefiting
from the World Cup.