SOTC - India's Leading Tour operator

Opportunities of Expansion in Spain

Batch: 2010-2012 Group Members Sr. No 1 2 3 4 5 6 Name Debashish Bagg Priyank Dalal Rishabh Maheshwari Rohan Mehra Sahil Malhotra Samarth Bharadwaj Roll No: 2010298 2010167 2010179 2010184 2010195 2010198 Section: D Group No: 6 Country: Spain

Page |2 Project Report

Project Group 6 Feasibility study of SOTCs diversification to Spain

Abstract: ECO Forecasters has been approached by SOTC Indias key outbound travel brand, to conduct a study on Spanish economy, and comment on feasibility of its expansion in Spain. This report starts up with brief introduction of client and Host Company and presents terms of reference of the project. It would then brief on the project methodology and data sources thus arrive at structural features of Spanish economy and then assess future position of SOTC if diversified to Spain.

Table of Contents
Abstract:......................................................................................................................................................1 Introduction of SOTC..................................................................................................................................2 ECO Forecasters..........................................................................................................................................3 Diversify to Spain........................................................................................................................................3 Objective of the assignment.....................................................................................................................3 Reporting.................................................................................................................................................3 Deliverables and timeframe.....................................................................................................................4 Financial compensation...........................................................................................................................4 Required qualifications and experience...................................................................................................4 Data source and Methodology of study:......................................................................................................4 Structural features of Spanish economy:.....................................................................................................5 Current State of Spanish Economy..............................................................................................................8 Interest rates:...........................................................................................................................................8 Credit Availability:..................................................................................................................................8 Stock Market:..........................................................................................................................................8 Assessment of the Future Economic Scenario.............................................................................................9 Recommendations.....................................................................................................................................10 Reference:..................................................................................................................................................10

Reference:

Page |3 Project Report

Project Group 6 Feasibility study of SOTCs diversification to Spain

Introduction of SOTC SOTC[1], Indias largest outbound tour operator was acquired by Kuoni Travels - World's leading premium Tour Operator in the year 1996 and is a leader in all segments, namely Escorted Tours, Free Individual Travel, Special Interest Tours and Domestic Holidays. SOTC has escorted over 4 lakh passengers across the globe to various destinations including Europe, USA, Australia, New Zealand, Far East, Africa and many more. SOTC has been voted "Best Outbound Tour Operator" five times in a row by the Galileo Express Travel & Tourism Awards Committee. The company has not only fully utilized the existing market potential but has also created new markets through innovative packages namely BhramanMandal brand which is dedicated for the Marathi speaking population and 'Gurjar Vishwadarshan' brand that is dedicated for the Gujarati speaking population.

ECO Forecasters Eco Forecasters have in the past conducted feasibility study for expansion of ICICI to Turkey, Bharat mills to China etc. Most of these predictions have worked in favor of the company. Eco Forecasters have been approached by SOTC on 2nd January, 2011 to conduct an economic survey on Spain and thus comment on feasibility of its move to Spanish economy.

Diversify to Spain With such an extensive growth that SOTC had in previous years it is expanding to all favorable tourism destinations, Spain being fifth sorted destination in the world according to the World Travel and Tourism Council[2], the fifth highest tourism direct industry GDP after the United States with $510.8 billion, Japan $172.5 billion, China $113.4 billion and France $107.6 billion. SOTC also runs a short tour of 6 days in Spain at present but would like to startup a franchise to milk booming Spanish tourism industry. Objective of the assignment The objective of the assignment is to develop a concept review of Spanish economy and particularly structural features of Spanish economy and its current changes that are critical in deciding feasibility of SOTCs above move:

Comprehensive study and analysis of structure, growth rate and performance of Spanish economy.

Page |4 Project Report

Project Group 6 Feasibility study of SOTCs diversification to Spain

Government and trade deficit in the economy and its effect on Spanish tourism industry. economy, also on labour and other laws that may make the venture unfeasible in Spanish economy. Analyse growth of SOTC in Spanish and its future opportunities.

Credit availability and situations of credit crunch or interest rate that is prevailing in the

Reporting The consultancy has been directly reporting its status to CEO of SOTC, India. The consultant has submitted four stage reports on health of Spanish economy and the present report is summarization of the same with suggestions and analysis of opportunities and threat in its Spanish venture. Deliverables and timeframe Deliverable and time frame of this project is as follows.
Table 1: Time Schedule for Deliverables and Project Reports

Group Activity Deliverable 1 Deliverable 2 Deliverable 3 Deliverable 4 Final Project Report

Topic of deliverable with respect to Spain Structure, growth and performance Government Deficit Interest rate and Credit Availability Trade and capital account deficit Feasibility report of SOTCs move

Date of Delivery 20/1/2011 5/2/2011 25/2/2011 4/3/2010 15/3/2011

Financial compensation The consultant is promised to be paid a lump sum fee at the end of assignment and on acceptance of the work by SOTC, India. Required qualifications and experience Education: Masters Degree in Business Economics, Economics, other related discipline. Experience: 4 years of relevant experience in a similar area. Skills: Proven record of similar consultancy assignments accomplished. Strong analytical and drafting skills in preparing reports/concept papers. Computer skills: Proficiency in usage of computer and MS office software package.

Page |5 Project Report

Project Group 6 Feasibility study of SOTCs diversification to Spain

Date of initiation: 02nd January, 2011; Data source and Methodology of study:

Closing date: 24th March 2011, 18:00

The study is based out on data sourced from Instituto Nacional de Estadstica[3], IMF data-mapper[4], Bank of Spain[6], Macroeconomic Indicators of Spain[7], CIA Factsheet[8], OECD
stats[9], Spanish financial Market[10] and Eurostat[11]. This data that is obtained from different sources

is collated and used to study on feasibility of SOTCs business decision in purview of Business environment theory and concepts. Indicators considered are GDP, inflations, unemployment level, taxation level & formation of capital for tourism sector. We have also considered level of customer sentiment and capital availability in Spanish market that can be pulled in by SOTC.

Structural features of Spanish economy: Table2 shows shift in structure of Spanish economy over the years and that employment is moving towards service sector at rapid pace. Fig1 shows that the Spanish GDP is a more open economy.

Fig2,3 shows how Spain was successful in keeping away from 2008 slowdown and also keeping inflation under control. Fig4 shows volatility of unemployment level in Spain, which also signifies that employment at a low wage rate, is available. Spain's budget deficit3,9 post 2008 worsened, making it vulnerable to financial contagion from highly-indebted euro zone members. Fig5,6 shows growth in real value of trade and budget deficit in Spanish economy.

Fig7 depicts Spanish deficit and its contribution to GDP, showing that Spain has been following contractionary fiscal policy since it joined European Union16 in 1995. Fig8 shows

Page |6 Project Report

Project Group 6 Feasibility study of SOTCs diversification to Spain

income tax as part of GDP being constant over the years, though total tax has increased over years due to increase in employment and in tourism tax which forms a major part of Spanish economy.

Fig9 shows that Capital formation (formation of asserts in tourism industry) is increasing steadily from 1995 and as it increases unemployment has been steadily brought down till 2008s slowdown. Fig10 shows increase in government revenue income and capital asserts over the years, showing causes of Spans surplus.

Current State of Spanish Economy Interest rates: Fig11,12 show that interest rates both in money and capital markets have been reducing over the years also cost of capital in primary and secondary markets are reducing, showing that funds are available at relatively lower interest rate. Credit Availability: High unemployment rate post 2008 had a toll on existing market sentiment & also is increasing unrecoverable loans, creating credit crunch for Spanish banks[6]. High government deficit due to global recession[2,6] has constrained credit availability for public sector too. Worsening present situation is news of plausible collapse of Spanish democracy[8], which is stopping other European governments come to its rescue. Stock Market: Fig13 shows variation of sentiments due to prevailing global economic scenario. Fig14 depicts fluctuation in Spanish Stock market which follows trends of internal economic sentiments which inter also coincides to unemployment rate & internal interest rates[4]. Recent labor laws[5] have induced positive sentiments in the economy thus pushing Stock prices high.

Page |7 Project Report

Project Group 6 Feasibility study of SOTCs diversification to Spain

Reserve asserts account (Official settlement) account that is used to offset BOP deficit has almost run out for last few years as shown in fig15. Spain thus would have faced deficit in this account even if 2008 crisis would not have hit. Fig16 also shows that FPI form a major chunck of foreign investment in Spanish economy whereas FDIs chunk is depleting and is being pulled out. This shows a great amount of dependence on volatile resources for sustaining growth and internal funds are also flowing out to other economy showing less trust in Spanish economic structure. Assessment of the Future Economic Scenario The above factors show that economy of Spain is an open economy and prone to fluctuation in global market. Factors like unemployment helps in availability of cheap labor but tax rates that are levied on service industry and the present credit crunch that Spanish economy is going through does not give a rosy picture of Spanish economy. Changing to Euro and following regulations put forward by euro zone has been causes of shielding this economy from many adverse effects of being global. Spanish tourism sector is still growing, to support the same government has been creating Capital asserts in form of building till 2008 slowdown. In the coming few months, Spain is likely to experience further liberalization of markets and privatization in the various sectors. In order to attract more foreign investment, the government will likely institute more labor law reform with the aim of increasing the flexibility of the labor market. Given increased economic and monetary integration in the European Union, it is likely that Spain will benefit in terms of its growth. In fact, economists project significant growth in telecommunication equipment, service markets specifically Tourism, environmental services, and equipment and agriculture. Spanish representatives in the European Commission will play a key role in negotiating trade agreements between the EU and Latin America. There are 3 main challenges that Spain faces in the coming few years: First, illegal immigration & high unemployment rate will continue to offer serious problems. The second deals with eradicating Basque terrorist group ETA. The threat of terrorist activity may likewise discourage foreign investors from locating their business in Spain and hamper the arrival of tourists. The third challenge facing Spain relates to its compliance with future EU initiatives. Spain has generally accepted EU deregulatory policies (that is, policies which attempt to discourage barriers to trade and prevent anti-competitive practices in the freemarket) and economic and monetary policies (that is, Economic and Monetary Union and the

Page |8 Project Report

Project Group 6 Feasibility study of SOTCs diversification to Spain

Single Currency). However, policies which attempt to increase the size of the Union may be met with caution by Spain; enlargement may mean a slowdown in structural funds flowing into Spain and movement of foreign investors presently in Spain to other low-paying, better educated, labor markets in Eastern Europe. Notwithstanding these potential challenges, Spain will continue to be one of the engines behind deeper integration and, along with Germany and France, will attempt to ensure that the EU remains an important player in the world economy. Recommendations The consultancy would like to conclude the report saying that though Spain is one of the greatest tourism center of world, but moving into Spanish economy at this point of time may result in many sever problems or hurdles. Credit is not freely available, market sentiments are still low, and though labor is available the amount of taxation charge to company and also individually is high. Starting operations in present situation would not be a proper move depending on the above macroeconomics factors. SOTC needs to allow Spanish market to settle down and then try to penetrate it market for success of its venture. Reference:
1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13. 14. SOTC, http://www.sotc.in/ World travel and tourism council, http://www.wttc.org/ Instituto Nacional de Estadstica (INE), http://www.ine.es/ IMF Datamapper, http://www.imf.org/external/datamapper/index.php Economy of Spain, http://en.wikipedia.org/wiki/Economy_of_Spain#Employment_crisis Bank of Spain, http://www.bde.es/webbde/es/ Macroeconomic indicators, Spain, http://www.meh.es/ CIA Factsheet, https://www.cia.gov/library/publications/ OECD stat extracts, http://stats.oecd.org/Index.aspx. Spanish financial Market, http://finance.mapsofworld.com/finance/market/spain.html. Eurostat:http://epp.eurostat.ec.europa.eu/portal/page/portal/government_finance_statistics/dat a/main_tables# Luis.R.T, Jues.S.S, Coefficient stability and structural change in the Spanish economy, Economic Change, 2007, pg 387-409. Spanish Credit crunch, http://online.wsj.com/article/SB10001424052748704324304575306471722364404.html Interest rate for small business, http://www.thaindian.com/newsportal/business/spain-to-cut-taxes-on-smallbusiness_100468205.html Spanish democracy in trouble, http://www.dailymail.co.uk/news/worldnews/article1286480/EU-chief-warns-democracy-disappear-Greece-Spain-Portugal.html Maastricht Treaty, http://en.wikipedia.org/wiki/Maastricht_Treaty

15. 16.

Page |9 Project Report

Project Group 6 Feasibility study of SOTCs diversification to Spain

17. Reporting of Government Deficits and Debt Levels in accordance with Council Regulation (EC) N 479/2009, and Statements contained in the Council minutes of 22/11/1993 18. Future trends in Spain, http://www.nationsencyclopedia.com/economies/Europe/SpainFUTURE-TRENDS.html