Business in Tourism Industry in the UAE - Case Study Example

Running head: Business Feasibility Study for a Business in Tourism Industry in UAE Name Course name Professors’ name Date Executive Summary Dubai has the capacity of becoming most exotic and high-end tourist destination in the face of the earth. Attractions in Dubai include: sports, zoo, museums, stadium beaches, entertainment places, and other distinctive places. UAE consist of seven states ruled by Emirs and is located southeast of Arab Peninsula on the Persian Gulf. These states are Abu Dhabi, Dubai, Sharjah, Umm al Quawain, Ras-Khaimah, Fujairah, and Ajman. UAE is among the world’s largest oil reserves and is economically most developed thus makes it a preferred destination for tourist. This research paper presents a feasibility study of a hotel business in Dubai since the city is the populous among the other members of emirates and is preferred by tourists. Tourism in Dubai is a critical part of strategy employed by Dubai government to sustain inflow of monetary values into the emirates. It is from this angle that a proposal to establish a business in the emirates might as well succeed due to governmental support. The main force pulling tourist into UAE is shopping in addition to ancient and modern attractions. The project has been carefully configured to take care of client’s needs and subsequently contribute to development of Dubai economy. Some of the key points about the feasibility study are as follows: Competitive market based on project location, transport system, proximity to public meeting or conference facility, available rooms, food, and other amenities. city development plans will attract more tourist into the market Clients range from corporate body, individual, group ad hoc, government official. the average occupancy rates will range as follows: Corporate clients-35% Individuals-30% Group ad hoc-20% Government officials-15% Table of conten Introduction 3 Feasibility study for a hotel Business in Dubai 4 Geography 4 The vision statement of the project 5 Marketing 5 Economy 6 Financial 7 Segmentation of hotel rooms 8 Administration 8 Legal 9 Assessment 9 Conclusion 9 Introduction The UAE is ranked 18th with high level security and safety among 124 countries in the travel and tourism competitive index. This adds value to tourism business due to the fact that people are always sensitive to security issues when they are traveling. Recently, UAE scored 5.09 out of 7 scores on ‘national perception of tourism’ in UAE. The excellent performance indicates commitment to promote tourism environment especially in Dubai. Coupled with diverse nature of population, hotel business in UAE is bound to register a success. The function of this study is to examine the possible market demand for development of a full service hotel in Dubai City. With an objective of boosting tourism in UAE, the hotel services capture start-up accommodation facility of 20 rooms and a number of amenities stretching from indoor to outdoors facilities. On the basis of study results, estimated operating results for 1 year will be prepared. The scope of the study is summarized with the following headings: The title, the vision, Marketing, Technology, economy, financial, administration, legal, and assessment. Feasibility study for a hotel Business in Dubai Geography For the purpose of this study, the proposed Hotel Business will be based in Dubai city. Dubai is ranked in the second position as a prime emirate in UAE and is most recognized world wide. It is situated on the banks of Dubai which divides the city into Deira city to the north and Bur Dubai on the south thus making it the most critical port and commercial center in the UAE. The location of the hotel is at the heart of the city where it is accessible all the time by diverse transport means. The combination of sunny climate, white sandy beaches, superior shopping and entertainment grounds have raised the reputation of Dubai as on of the most appealing and rapidly expanding tourist destination in the world. The city is well established as the trading and commercial center of the Far East with excellent commercial center and wide luxurious resort. Their strategic locations at the cross roads of Asia, Europe and Africa make it combine traditions of the east and the comforts of the west. This is a reason why travelers and tourist find that Dubai offers high standards of comfort and luxury. Ability to set up a hotel in the city of Dubai will automatically generate substantial returns due to its location advantages. The vision statement of the project The project has a vision of becoming a preferred tourist choice in Dubai by offering diverse services ranging from indoor facilities to outdoor facilities directed to different groups of people both governmental and non governmental. In this case, the hotel will be upgraded to reflect on modern innovative facilities. Through its business activity, the hotel business will generate substantial amount of profits which will be ploughed back for business expansion. Marketing Most tourism businesses in Dubai city are advertised via print and non-print media. Another innovative strategy used by tourism business in Dubai is the discounts on room rates ranging from 60% and subsequent reduction of food and beverage prices by 25%. This strategy is conducted from January to February during the Dubai Shopping Festivals. The aim of this framework initiated by the government is to market tourism in all proceedings the whole year. The campaign stretches from UK, Germany, Gulf Cooperation states, India, Australia, China, and Japan. Provision of special prices on hotel services and other facilities is part of the marketing strategy available in Dubai. Special focus group formulated by the Department of Tourism and Commercial Marketing (DTCM) is to study global changes in the market and its impact on tourism and consequently make recommendations (Matly, 12). This is an additional marketing strategy conducted by government and will come in handy to support the new business. Integration of E-services, One Stop Information Center, and other strategic marketing plans goes along in boosting tourism experience. Attempts by DTCM to practice international promotions and publicity activities have the impact of capturing more visitors. The activities range from exhibitions, road shows, presentations, marketing visits, brochure production and distribution and familiarization and assisted visits. This is a clear revelation that Dubai is the ultimate place to set up a new hotel since marketing strategies employed in the region would ultimately capture more tourism. Economy As part of UAE, Dubai has low crime rates and is politically stable. UAE enjoys financial and monetary stability thus any business establishment will automatically prosper under these favorable conditions. The banking system is sophisticated and well developed featuring extensive credit facilities and ample liquidity (Lonnie, 417). Emirate’s emerging capital markets are established on leading technologies and prolific regulatory system. UAE is committed to liberalized Economy and transparency in all economic system. The kind of infrastructure and service sector in the UAE has reached world class level due to heavy investment in transport, communication, industrial infrastructure and energy. The feasibility further reveals competitive cost structure where international companies establishing their base in Dubai can get substantial cost advantages such as: no foreign exchange control, absence of trade barriers, competitive labor and import duties, and high level of liquidity. These are economic opportunities available for proposed project. Financial Foreign Direct Investment is the main source of finance in Dubai and it is expected to remain strong in the short term with an anticipated FDI of $10.4 billion between 2010 and 2014. A plan by Microsoft and Cisco to invest $1 billion in Dubai over the next four years will automatically enhance FDI. The planned investment by the two companies is attributed to low cost of labor and the depreciating cost of living. From this point of view, the new hotel business investment will seek external funding of approximately $20 million by writing proposals to donors. Due to the intensity of the planned projected, initial capital will range from $ 10 million to $ 20 million. For the new hotel business, the table below demonstrates projected costs and benefits in the first year. Variables ~ values in $ Capital employed $20 million Project costs 2 million Benefits 7 million The summarized operating results for three years is as shown below Year Average Occupancy rate Average daily room rates $ Gross income from room sales Average % of total revenue 2010 50 100 7.5 million 55.25 2011 55 105 8.2 million 55.28 2012 60 110 9.5 million 56.15 The room rates are based on the assumptions that the economy is stable and that no major economic event will destabilize the business. Segmentation of hotel rooms Due to seasonality nature of tourism, the proposed business seeks to segment occupancy in terms of: leisure demand, corporate demand, and group demand. Leisure demand will capture families and other small units seeking vocational experience in Dubai. Tourism research reveals that more than 50% of all travel is leisure related. Peak demand for this category is during the holidays. The proposed new business will therefore need to promote off season recreation events, packaging and special occasions so as to lure leisure travel demand. Discounting therefore is employed as a marketing strategy. Corporate demand comprise of persons traveling for the sole purpose of completing a business transaction or official duty. This segment represents small part of demand. Conference facilities must be modernized due to the nature corporate demand i.e. meetings. Another segment is the group demand that is generated by associations, government, and business groups who hold back guestrooms with series of meetings. Administration For the business to succeed, top management must be qualified and possess high experience level. The leadership style has to be highly democratic with employees left to make informed decisions in their areas of specialization (Truitt, 200). As part of administering human resources selection, appointment and training of workforce will reflect candidate’s qualifications and international labor standards Legal Dubai freehold law that was passed in 2006 allowed for foreign ownership of property in designated areas. Such a move sends a signal that Dubai supports market liberalization especially property market for foreign investment. The legislation further shaped Dubai’s desirability to foreign property investors. Ability to own land in Dubai forms a reason for the perpetual inflow of foreign capital from investors, second home owners and expatriates. This is a great advantage for the new business since it will be established legally. In a bid to increase transparency, law 13 was passed by Dubai legislators. The law required all plan property sales to be registered. This registration system reveals Dubai’s efforts to enhance transparency while at the same time protect buyers of property. Subsequent introduction of Real Estate Regulatory Agency (RERA) is a proof of government commitment to improve transparency and accountability. It is from this angle that planned new foreign owned business establishment in Dubai would run under the provisions of the law. Assessment To assess the business, tools such as break even analysis that illustrates when the business will start realizing profits is calculated. Before calculating break even, variables such as Fixed Cost, Selling price, and Variable cost must be determined (Thompson, 212). Another assessment tool is return on capital employed that is evaluated to determine whether business is viable. Conclusion This paper analyzed viability of a hotel business in Dubai tourism industry. Geographical description of Dubai attracts tourist and other class of personnel visiting the country for various reasons. The study reveals that Dubai receives approximately 15 million tourists yearly who are interested in different activities ranging from Sports to extravagant living and exceptional services. These demonstrates that a hotel business in the city of the sand will eventual prosper due to liberalized and promising business environment. The paper further analyzed economic, financial, administration and legal aspects of the new business. Read More