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STRATEGIC MANAGEMENT

ARVIND’S HOTEL BUSINESS: What to do?


(case study )

Submitted to : Sir Atif

Submitted by: Wajiha Khalid


Ramsha Imran
Urooj Ghulam Nabi

Group Name : Creators


Q1: WHAT MAKES AN INDUSTRY ATTRACTIVE?
ENTERPRENUERIAL PERCEPION

According to enterpreneurial perspective an attractive industry must have following


characteristics

Industry with low Start-Up Capital

The industry should allow relative ease for a new venture to enter.

Growth through innovation

Low amount of resources required


GENERAL PERCEPTION
According to general perspective an attractive industry based on these characteristics

High Profitability
Not crowded
Important to customers
High operating margins
Threat of entrants is low.
Bargaining power of buyers is low/weak.
Bargaining power of suppliers is low/weak.
Intensity of rivalry among existing firms is low.

WHAT MAKES AN HOTEL INDUSTRY ATTRACTIVE?

 DEMAND SUPPLY GAP IN INDUSTRY

According to a report, the Indian hotel industry has a current supply of 110,000 rooms and a
scarcity of 150,000 rooms.

According to ballpark figure, demand will go above supply by 100% within the next 2 years.

 INCREASE IN OCCUPANCY RATIOS

Tourism in India is the third largest foreign exchange earner of the country.

The booming tourism industry has had a cascading effect on the hospitality sector with an increase in
the occupancy ratios and average room rates.

 HOSPITALITY SECTOR OF INDIA IS AMONG TOP TEN


ATTRACTIVE SECTORS
The tourism and hospitality sector is among the top 10 sectors in India to attract the highest Foreign
Direct Investment (FDI).

 GOVERNMENT MEASURES TO INCREASE ATTRACTIVENESS:

The decision of government is to advance 28 regional airports in towns and to expand


Mumbai and Delhi airports so that the business prospects of Indian hotel industry will
progress. The advancement of highways linking to various parts of India has helped to open
new budget hotels.

The Indian government has also taken several steps to make India a global tourism hub.. The
government has introduced e-Tourist Visa (e-TV) for 150 countries as against the earlier
coverage of 113 countries (source: Ministry of Tourism).

Q2: CAN A NEW ENTRANT STILL ENTER AN INDUSTRY IF IT IS


UNATTRACTIVE?

Following characteristics makes an industry unattractive for new entrants

Low profits margins


High cost of capital.
No one is willing to invest
High entry barriers.
Less chances of growth.
Nature of business.
A Concentrated industry where areas of competitive advantage have already been exhausted
by existing players.
Many substitutes

New entrant still enter into the unattarctive industry in following ways
 Unattractive segment can be made attractive by introducing unique offerings.

 Not by fulfilling the existing demand but by creating a new one.

 Online markets are also option

Q3: DO A PORTER FIVE FORCES ANALYSIS OF HOTEL BUSINESS AND


SUGGEST TO ARVIND WHAT SHOULD HE DO. ALSO DEVELOP A
INDUSTRY STRATEGIC GROUP PROFILE AND WHICH CLUSTER DO
TO SUGGEST HE SHOULD ENTER AND WHY?

PORTER FIVE FORCES MODEL

1. BARGAINING POWER OF SUPPLIERS

Limited/low due to higher competition

The customers in the hotel industry are fragmented, so suppliers might have to trim down the
bargaining power in order to draw the customers.

2. BARGAINING POWER OF CUSTOMERS

If the price of the hotel changes is moderate, the customers are price sensitive and have low
margins. (High force)

The hotels are providing more information about them to attract the customers. Sometimes
hotels provide discounts and incentives in order to reduce the bargaining power of consumers
3. BARRIERS TO ENTRY

Economic risks
High capital cost
Scarcity of Land (In India, the cost of land is 50%)
High market captured by other firms in industry (Customers brand loyalty like TAJ, ITC and
LEELA palace)

4. THREAT OF SUBSTITUTES

There is going to be a threat from the substitutes if there are alternative lower priced products
with better performance for the same purpose.

These substitute products can attract a part of the market reducing the sales of existing
players.

Hotel connection with the customers and cost are the causes for switching to substitutes

5. THREAT OF INTENSE SEGMENT RIVALRY

High pressure of competition which results in hike on prices, pressure on margins and hence
for every single company in the industry on profitability.

There is an increasing competition from the startups/online industry due to increasing


penetration of the internet

STRATEGIC INDUSTRY PROFILE TO ENTER( A SUGGESTION)

In the long term, the demand-supply gap in India is very real and that there is need for more
hotels.

The shortage is especially true within the budget hotels and the mid-market hotels segment.
There is an urgent need for budget and mid-market hotels in the country as travelers look for
safe and affordable accommodation.
Largely depends on business travelers tourists traffic is also on its rise, this would be more
good if tourist guide will be available along with hotel services.

Various domestic and international brands have made significant inroads into this space and
more are expected to follow as the potential for this segment of hotels becomes more obvious.