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Strategic Management (BM405) Business Management (PDP)
Surnames Chapanda Tengende Murungu
First names Kudakwashe Gracious Edina Tafadzwa
Registration numbers R0645087 R0645047 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 halfyear 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.
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