External Environmental Analysis

1. How strong are the industry’s dominant economic features?

-Market size and growth: Increasing markets in China because of China’s economic power and place as a
world power. The North American markets are in decline because competition, brand recognition and
volume of deluxe hotels i.e. Hilton etc.

-Number of rivals: The number of rivals is high, dominated by a few large international companies

-Scope of competitive rivalry: The geographic area over which the company competes is international
but focuses on Asia. There is a growing importance on establishing a presence internationally,
particularly Europe and North America.

-Number of buyers: Market demand is fragmented among many buyers

-Degree of product differentiation: The products of rivals are becoming more differentiated and are
causing heightened price competition.

-Product innovation: The industry is not characterized by rapid product innovation or short product life
cycles. R&D is not as important as training and customer service.

-Demand-supply conditions: The demand is pushing profits down industry-wide particularly in the West.
There is an ever growing supply of completion to fill the demand especially in China.

-Pace of technological change: The role of advancing technology is crucial in this industry. With an ever
growing reliance on computers, the industry must strive to keep with the trends. Technology is
important in large hotels to maintain communication and provide efficient and effective service.

-Vertical integration: Most competitors operate in the same stage of industry, no multiple stages

-Economies of scale: The industry low in economies of scale in purchasing, advertising/marketing

-Learning/experience curve effects: There are industry activities characterized by strong learning and
experience effects, strong customer service skills for example. The company does have significant cost
advantages because of the learning/experience in performing these activities.

2. How strong are competitive forces?

Five Forces Model

1. Bargaining power of suppliers: LOW, the availability of substitutes is high

2. Threat of new entrants: HIGH, low economies of scale, low product differentiation, low
switching cost
3. Degree of rivalry: HIGH, product differentiation is high
 4. Bargaining power of buyers: MODERATE, switching costs are low, product differentiation is
low, importance of supplier input to quality of buyers final product is high.
5. Threat of substitutes: MODERATE, difference of substitute products is low, improvement of
substitute performance is low

Wow, it will not let me put a #3 here,

Question 3

What forces are driving industry change and what impacts will they have?

1. China has a strong economy. The demand is there and so is opportunity. The bulk of the
products available for sale are made in China. Demand will continue to rise for deluxe
accommodations in the East.
2. Rising urban incomes will affect change in Asia. As incomes rise so does the demand for high-
end products and services.
3. Changes in the long term industry growth rate which are related to the increasing growth of the
hotel industry in China and the strong economy of China.
4. Technology and Innovation. Shangri-La constantly upgrades it’s technology thereby improving
efficiency and minimizing loss of profit

Question 4

What market positions do rivals occupy?

Revenues 2005-2006

Shangri-La +19%

International Hotel Group -49%

Hilton +83%

Mariott + 5%

Industry Average +14%

Question 5

What strategic moves are rivals likely to make?

The three aforementioned are most likely to increase expansions in Asia. Economic conditions are
favorable, demand is present.
Question 6

What are the key factors for future competitive success?

1. Product differentiation. Increase market share in low to high quality hotels

2. Technology- Meet and exceed competition in technological capabilities
3. Marketing- Increase brand recognition, modern and clever marketing campaigns
4. Talented and loyal workforce
5. Overall cost containment
6. Ability to provide good service at a price the consumer is willing to pay
7. A strong balance sheet

Question 7

Does the outlook for the industry offer the company a good opportunity to earn attractive profits?

 Yes, the industry has good growth potential

 Competitive forces are squeezing profitability but operations can be streamlined