Shangrila Hotel Case Study

CASE 4

SHANGRI-LA HOTEL

STRATEGIC MANAGEMENT

Prepared by:

John Joseph Gochingco

1. PROBLEM

In order to maintain its status, should Shangri-La Hotel hold on only to the limited shrinking high-yield market? How relevant is the positive growth in Singapore’s tourism to Shangri-La’s market representation? Would the increase in the China market have any relevance to Shangri-La?

1. POINT OF VIEW

The group takes the view of a consultant to the CEO of Shangri-La Hotel.

III. OBJECTIVE

To maintain Shangri-La Hotel’s status as a leading hotel in the Asia-Pacific lodging industry

1. ASSUMPTIONS

The group assumes there will be no new legislation in SIngapore that will adversely affect economic conditions, especially with regards to foreign trade.

1. SWOT Analysis

1. FRAMEWORKS

FRAMEWORK 1: PORTER’S FIVE FORCES

Competitive rivalry (moderate)

In 1994, the Singapore Hotel Association noted a total of 78 hotels with a total of 24,573 rooms in Singapore. Because of its strategic location in the ASEAN region, the country has a strong potential in the tourism and travel industry.

Singapore’s stronger currency, however, had increased the attractiveness of cheaper destinations like Malaysia, Indonesia, the Philippines, and Thailand. These are bigger countries growing from a smaller tourism base, so their growth in visitor arrivals and rate of repeat visitors may become higher compared to Singapore. So Singapore hotels, while competing against one another, also competed on the regional level.

Hotel differentiation depends on an effective reservations system, the location, the facilities and amenities, the friendliness and efficiency of the hotel staff, pricing policies, and marketing practices. Hoteliers are also expected to have an ISO 9000 certification as a de facto requirement for doing business in Singapore’s hotel industry. In terms of image and customer loyalty, hotels may also benefit from being part of an international chain of hotels.  

Supplier power (low)

The hospitality industry demands enhanced global information and an efficient reservations system. Although they are also subject to the supply of experienced and trained personnel, the industry is not significantly affected by the bargaining power of their suppliers. High labor costs, however, has exerted a strain on revenues and earnings in the hotel industry.

                Suppliers of the hotel’s food and beverage outlets, may somehow affect the hotel’s earnings, as hotels also benefit from the restaurants within their vicinity.

Buyer power (moderate)

The bargaining power of buyers varies within the industry. Lower-tiered hotels tend to cater to cost-conscious travelers as they would tend to look around for discounted rates. Asian travelers tended to have second home or relatives to provide for their accommodation in Singapore. With the opening of the Singapore International Convention Center, the country has positioned itself as a premier business center in the region that is expected to bring in higher-spending business and convention tourists. Business travelers, however, are not price sensitive. As corporations bear the cost, these hotel guests are less likely to think about the hotel prices. High-profile travelers and social events also consider the prestige of a hotel when making reservations.  

Threat of new entry (moderate)

The cost of capital and the proportion of fixed costs to total costs in the hotel industry are high. There are economies of scale with the optimum size for a hotel in metropolitan areas is 500 rooms that must be filled as profitably as possible, relative to the levels of room occupancy and tariffs applied. Suitable hotel locations are limited. Belonging to an international chain of hotels is also a benefit in terms of brand image and customer loyalty.  

Threat of substitution (moderate)