Recommending an Overseas Market Briefing - Emporium Hotel - Case Study Example

Recommending an Overseas Market Briefing The Emporium Hotel is located in Brisbane just a short distance from the city centre. It is a leading hotel in the Australian Hotel industry. The hotel has been growing in leaps and bounds and in 2012 it was awarded Australia’s Best Boutique hotel. Emporium hotel has plans of expanding its presence in markets overseas. This report recommends that India is the most suitable country for the planned expansion because of the state of the hotel industry in that country. The need to open the overseas branch has been prompted by the hotel’s great success in the Australian market. To have a clear understanding of the market, this report of the market analysis of the Indian hotel market has been developed. The report will be used by the hotel to determine how attractive the Indian Hotel market is. The report will provide the much needed guidance on which things should be changed in the investment strategy. Emporium Hotel is a major hotel in Brisbane and the whole of Australia. It is among the leading hotels in Australia and in the near past it has hit the headlines for being among the fastest growing investments. In 2012 the hotel received an award known as Australia’s Best Boutique hotel. The profit margins of this hotel have been growing and this has enabled the hotel to widen its market share and service to its clients. As a result of a strong position in the Australian market, the management has decided to open an international branch of the same hotel in India. This is in line with the hotel’s strategy of offering the best services to the world. Economic Environment Market size India is a very vast country and its population is growing rapidly. It is among the countries with the highest populations in the world. In 2011, India was rated number 68 in the list of the top tourist destinations in the whole world. In order to support the tourism sector, the Indian government has taken certain measures aimed at benefiting the tourism sector. The tourism and hospitality industry in India grew by 24.6% between 2009 and 2010. The hospitality industry in India is the third largest foreign exchange earner with 6.2% of the GDP of India and 8.8% of the total employment in India. This is based on a report produced by the planning commission. It is closely linked with other sectors in the economy such as horticulture, construction, agriculture, handicrafts and transportation. The tourism industry of India also includes travel agencies, tourist transportation agencies, tour operating agencies, units that provide facilities for adventure, cultural and wildlife tourism. It also includes water and air transport facilities for the tourists and convention units and organizations (Justin 2008, pp. 45). Reports from the planning commission of India show that the sector generates more jobs per million rupees of investment compared to all the other sectors and it can provide employment to many different employment seekers including the specialized and the unskilled and even in the remotest parts of the country (Wall & Rees 2004, pp. 27). Market trends The hospitality industry registered very healthy growth in early 2000 and this led to an increase in the rate of occupancy in 2005 into 2006 and in 2006 into 2007. As a result the average rates for the rooms in hotels also grew in 2006 and 2007. The growth in average rates was also the consequence of the gap between demand and supply for hotels rooms especially in the big metros (Sarkar 2009, pp. 90). The charges hotels were having were high and these rates were at certain times higher than those that their counterparts were charging in different parts of the world. Lured by the high returns that the hotel industry was experiencing, different players both domestic and international joined the market. India turned out to be one of the most promising destinations for investments of this nature. On one hand there were investments flowing into the Indian hotel industry with and with rising rates companies began looking for other cost-effective options for lodging (Sushma, Seth & Bhat 2005, PP. 88). This resulted in corporate guest houses emerging in big metros as well as in leased apartments to replace hotels. The average rates of the rooms increased between 2007 and 2008. However, the rates of occupancy fell. Occupancy rates dropped drastically with the decline of demand because of the global economic melt down and the Mumbai terror attacks. Consequently, the hotel rates fell between 2009 and 2010. Between 2009 and 2010 the hospitality industry registered improvement with the country having an improvement in domestic tourist movement. Average rates did not grow but the rates of occupancy increased coupled by a big increase in domestic tourist movement. The hospitality industry reported a steady growth between 2010 and 2011(Babu 2008, pp. 119). Market Growth Rate The Indian government increased its expenditure on advertising campaigns such as Athithi ‘Devo Bhava’ and ‘Incredible India’ that are meant to strengthen Indian tourism. The ministry advertised India as a proper tourist destination and put in place different measures like increasing vigilance in important areas such as significant tourist sites. Based on the latest research by the Tourism Satellite Accounting (TSA) that the World Travel and Tourism Council released there is expected to be a growth in the demand for tourism and travel in India by 8.2% from 2010 to 2019. This will enable India to occupy the third position in the entire world. The travel and tourism sector of India will become the second largest provider of employment in the world (Superuser 2012, pp. 17). It is expected that the capital investment in the tourism and travel sector of India will grow at 8.8% from 2010 and 2019. The report projects that India will get increased capital investment and it will rise to occupy the position of the fifth fastest growing business destination beginning 2010 up to 2020. The quick economic growth in India has prepared the country for important changes in the population of the country. With people having higher disposable income there is an increase in the demand for travel and tourism. Even though at the currently domestic tourism accounts for only a mall section of the whole tourism sector, the segment is showing tremendous growth (Mohanty 2008, pp. 56). The way the hotel industry operates has a direct link with the local and global growth of the economy and investor confidence. A strong economy is necessary for lasting recovery. Unfortunately after a few bad periods of low growth, it was expected that the hospitality industry in the entire world would recover starting 2011. Although there were positive signs, the expected recovery did not come. Because of this, the process of recovery has been weak and the Indian situation is a reflection of this world trend (Harris, Kuivalainen & Stoyanova, 2012, pp. 90). Market opportunity There are investments opportunities in the Indian hotel industry. New brands such as Satinwoods, Manda, Hampton Inns, Banana tree, Mandarin oriental have plans to get established in the Indian hospitality industry. The industry is booming and this has attracted the desire of many hotels of international repute. Some global players have already taken their position in the Indian market. These international players are among others Shangri-La, Hilton, Mariott, Hyatt, Radisson, Holiday Inn, Sheraton, Crown Plaza and the InterContinental. The hotel industry in India is fragmented and it has many small players that are not well organized (Babu 2008, pp. 210). The Indian hotel industry has very bright prospects. The global economy is already getting revived and therefore the inflow of international tourists into India is expected to go up. In addition playing host to international events, exhibitions and trade fairs could help in the inflow of tourists form the domestic and international community (Superuser 2012, pp. 30). The increase in manufacturing facilities, ports and industrial parks in India present investors with an excellent opportunity for mid market and budget hotels. Even through more than 89,500 more rooms will be constructed in India in the coming five years the availability of quality rooms is still lower in comparison to the other states in the world. This shows that there is a very big potential for those who want to invest and operate in India’s hotel industry (Mohanty 2008, pp. 67). The growth in the number of hotel rooms will definitely increase the competition within the hotel industry and all hotels will be forced to maintain quality and service levels at prices that are very much competitive. Competition in the prices of the branded hotels together with addition of more mid market and budget hotels will increase the cost competitiveness of the hotel industry as compared to other destinations (Sarkar 2009, pp. 29). The potential is great but there are concerns about the growth of the industry. The concerns include high prices for real estate, threats on security, manpower shortage, lack of uniformity in taxes and the high tax structure. Demographic Environment India has a very high population. Among the states of India, UP has 199.5 million and Maharashtra has 112 million. These are the states with the highest population. India has the second largest population in the world after China. The highest population density is in Delhi. It has 11, 297 people per every square kilometer. Arunachal has only 17 people for every square kilometer. 22% of the population is below the poverty line. Unemployment is at a rate of 7.8% and the nest rate of migration is 0.05 migrant for 1000 populations. The life expectancy rate in India is 70.32 years on average. India has a surprising demographic dividend in which over 50% of the people are below 25 years. Over 65% of the population is below 35 years (Sarkar 2009, 30). It is projected that come 2020, the average age for an Indian person will be 29 years. There are more than two thousand ethnic groups in India. India’s population at the moment is 1.21 billion and it is projected that this population will overgrow that of China to become the highest by 2025. In 2050, the population is expected to reach 1.6 billion. Its population growth rate is at 1.41 percent. In 2010 the population was in position 102 in the whole world (Babu 2008, pp. 211). Natural Environment India occupies an area of close to 3 million square kilometers which fall under three major geographical regions. On the Northern border with Bhutan, China and Nepal there is the Himalaya. Some parts of the country have very good soils for agriculture and India is a major producer of rice (Babu 2008, pp. 68). All of India is hot except the Himalaya. The southwest monsoon winds come with very heavy rains and a lot of humidity. The temperatures at such times are always low. This happens between June and September. In summer, the temperatures are about 48 degrees centigrade. Most of the rain comes in the southwest monsoon season of between June and September (Harris, Kuivalainen & Stoyanova, 2012, pp. 30). The weather is always cooler. Between October and November there is normally the monsoon and the rainfall is normally less. Winter comes between December and February and it is always dry and cool. India has many climatic zones resulting from the altitude and geographical location. The precipitation and temperature varies each year. In the Himalayas the temperature is always cool at high altitudes. On land that is over 4,500 m temperature goes below freezing point. In lower valleys temperature in summer falls to the low 30s Celsius. In the North eastern region of India in Assam and West Bengal there is a hot and humid climate. In the south it is hot. The Himalayan portion of the states is much cooler (Superuser 2012, pp. 87).   Technological Environment The government of India has created 500 technological institutes that offer education to students in India. 1080 research institutes have also been established such space research center, agricultural research center and medical research center. These have greatly contributed to the technological development of India. The country has a very positive and strong policy for technological growth. This policy has opened doors for the importation of technology from other countries which is used in improving industrial and agricultural development (Superuser 2012, pp. 18).The growth rate of technology in India is very high. India’s IT sector is growing at a rate of 35%. After China, India is the second country in the world that uses the internet in most of the things. The country makes use of the internet on a large scale in things such as e-commerce, e-accounting and e-education (Sushma, Seth, Bhat, 2005, pp. 77). There are many incentives for promoting technological growth in the country. The government has given an exemption on income tax of 100% for expenses that people incur while carrying out research in technology. Political and Legal Environment To begin a business in India a person needs 35 days on average. The world average is at 48 days. Getting a license for a business and shutting down the business can however prove to be very hard. Every business must deal with a lot of federal and state laws and a very slow bureaucracy. The freedom to begin, operate and shut down a business is under the restriction of the national regulatory environment. The country has low transfer payments and consumption (Wall, and Rees, 2004). Two years ago the expenditure of the government was at 16.3 percent of GDP and the Indian government got 14.3 % of state revenues from government owned enterprises. India has moderate inflation which had an average of 4.1 percent from 2003 to 2005. The monetary freedom score is because of the unstable prices. The Indian government makes subsidies for agricultural gas, kerosene and gas production and controls the prices at three levels. These are the level of the factory, retail and wholesale on important commodities such as electricity, certain petroleum products, electricity, pharmaceuticals and certain coal types. In 2005, India had an average tariff rate of 14.4%. There are barriers that are not related to tariffs such as too much bureaucracy, export subsidies, licensing requirements that are very restrictive, onerous standards, import taxes, certifications on goods, negative import lists among many others (Sarkar, 2009, pp. 67). As a result, an extra 20% is taken from the trade freedom score of India because of these costly non tariff barriers. India has moderate tax rates. The top corporate tax rate and the top income tax rates are at 33%. There are other taxes such as property tax, dividend tax, and taxes levied on insurance contracts. Foreign investment is regulated through limits on equity, voting rights and compulsory approval from government. FDI is limited by very complex laws and rules. In certain sectors FDI is prohibited through these laws. Rules created in 2005 restrict many of the present joint ventures but give way for the new ones to have their own terms negotiated on commercial basis (Sarkar, 2009, pp. 23). Residents who want to create foreign currency accounts must have the approval of the central bank. Non residents can have conditional domestic currency and foreign exchange accounts. Capital transactions as well as certain credit operations are also restricted and put under some requirements (Babu, 2008, pp. 45). Conclusion In conclusion, the paper has analyzed the Indian hospitality market. The analysis is meant to provide more in-depth information that will justify the recommendation of India as the most appropriate market for the expansion of the Emporium hotel. The realization of bigger gains in the Australian market has served as the trigger for the hotel to seek expansion. India has encouraging growth in the hospitality industry and the opportunities are there. There are other players that will offer competition to Emporium hotel but this should only be factored into the expansion strategy. Based on the profitability, market size and market trends in the Indian hospitality industry there is a possibility that new entrants will be able to succeed. The Indian government is also committed to growing the tourism and hospitality sector. This means that with a good strategy Emporium hotel will get established in the Indian Hospitality Industry as a major player. Bibliography Babu, A.S. 2008. Tourism Development in India: A case Study. APH Publishing. Emporium Hotel (2013). http://www.emporiumhotel.com.au/FeaturedItem.aspx?EntityId=108615 Harris, S., Kuivalainen, O., Stoyanova, V. 2012. International Business: New challenges, New Forms, New Perspectives. Palgrave Macmillan. Johnson, D., Turner, C. 2010. International Businesses: Themes and Issues in Modern Global Economy. Routledge. Justin P. 2008. International Business. PHI Learning Pvt. Ltd. Mohanty, P. 2008. Hotel Industry and Tourism in Industry. APH Publishing. Sarkar, A.N. 2009. Enhancing Global Competetiveness: Advantage India. I.K. International PVT Ltd. Superuser 2012. Growth of the Hotel Industry in India. RAJ. Sushma S., Seth, P.N., Bhat, S. 2005. An Introduction to Travel and Tourism. Sterling Publishers Pvt. Ltd. Wall, S., Rees, B. 2004. International Business. Financial Times / Prentice Hall 2004. Read More