External and Competitive Environment for Tourism Industry - Essay Example

?Introduction Tourism industry is undoubtedly a booming industry. With the digitalization and technology orientation, people have become more informative of the world. Thus, the urge to visit different places has increased thereby, making tourism an integral part of GDP. Tourists could be found all over the world be it the Great Wall of China, Malaysia referred to as Truly Asia, the tourist attractions in Florida or the Canary Islands. However, it is very interesting that some countries of the world heavily rely on their tourism industry as a source of income. Tourism Industry Total receipts from tourism are 9% of the world GDP and the tourist industry employs 2.8% of the total world population (Quick Facts, 2010). The Tenerife economy is greatly reliant on the tourism industry. The service sector of the economy contributes 79.4% to the GDP where hostelry comprises of 14.29% of the total of the tourism industry of the Canary Islands (Economic Sector, 2005). It is approximated that 10 million tourists visit the Canary Islands which includes 5 million tourists every year in Tenerife alone (Osborne). It was once viewed that more tourists meant more money in the industry but now a new concept have revealed (Osborne). The Tenerife Industry is focusing more upon quality of the services provided rather than increasing their sales (Osborne). This is mainly due to the realization that tourists enjoy quality vacation and are ready to pay higher amounts to stay in “good quality” four and five star hotels (Osborne). The volcanic eruption in Iceland in 2010 carved a caricature of the Tourism Industry in Europe. Initially, the volcano eruption rose excitement among the tourists and they went on to Iceland to have a look at the natural catastrophic eruption. However, later the danger aggravated and not only the tourism industry of Iceland but of the whole Europe was messed up. The situation was made worse by the layers of smoke that created havoc and spread far away from Iceland to the other parts ranging around 1500 km within Europe (Gupta, 2010). The tourist activities have also been hindered by the disruptions in flight schedules and the shutting down of airports (Gupta, 2010). According to experts, there is a possibility of an adverse climatic change and Europe might not experience summer which would then result in the loss of tourism revenues from countries like Switzerland, France and Italy (Gupta, 2010). Thus, the tourism industry all over the Europe seems to face the trickle down effects of the volcanic eruption in the region. Objectives The video demonstrated a situation of the tourism industry in Tenerife and the effects after the volcanic eruption. The tourist Nigel experienced the whole situation in a hotel and came up to the conclusion that he liked the hotel whereas, he was unsatisfied with the services if Ryan Airways through which he was flying. This was utterly due to the different behavior adopted by both the organizations. The hotel was hospitable and accommodating whereas, he faced the opposite reaction from the Airways and was in a complete dismal. Thus, the focus of the report is to investigate the reasons for the two distinguished reactions of the organizations that were going through the same natural circumstances. Both the organizations are an integral part of the tourism industry, yet they resulted in different attitudes. Therefore, further analysis would seek to clarify. Spain PEST Analysis Since the Canary Islands are a province of Spain the PEST analysis would enhance the analysis. Political Analysis Spain has a mixed capitalist economy and ranks as the 12th largest in the world. The political conditions are somewhat stable and hence, the economy has been successful until 2007 when the effects of recession began to be felt in 2007 (World Factbook, 2010). Economic Analysis Real GDP growth decreased in 2007 in the wake of recession by 3.9% and later in 2010 by 0.2%. Per capita income also saw a declining trend and the public debt increased from 53.2% of GDP in 2009 to 63.4% in 2010 (World Factbook, 2010). Social Analysis Unemployment rate rose to 20% in 2010 from 18.1% in 2009. Moreover, as per the estimates of 2005, 19.8% people live below the poverty line and the Gini coefficient is 32 (World Factbook, 2010). Technology Analysis Spain is more focused upon tourism industry as a source of revenue and the services sectyor composes 71.6% to the GDP. Thus, technology is more of an import good (World Factbook, 2010). SWOT Analysis The Internal Environment - Hotel and Airline Industry Theory of Firm Distinctive Competence The hotel industry and the airline industry both face a problem of the distinguishing interests of shareholders and managers. Thus, in this case, the hotel managers seem to be more dominant as they kept the prices constant as compared to the airlines where the shareholders seemed dominant and non-compromising about their profits. Moreover, the organizational problems would be greater in the airline company than the hotel. The External Environment - Hotel and Airline Industry The Maslow’s 5 forces would be used to compare both the industries so as to draw a conclusion for their distinct behaviors. Industry Competition Tenerife is tourist hotspot where there are a variety of accommodating opportunities available for the tourists. In retrospect, the hotel industry is a “monopolistic competitive” industry. The demand for the hotels is elastic and hence, the concept of “differentiation” needs to be prevalent to be a dominant market player. The Marginal Revenue curve is downward sloping which indeed represents that the fact that the inverse relationship of demand and price prevails. In comparison, the airline market is the ultimate example of an oligopoly market structure. The competition is few as there a few sellers that have a strategic behavior and respond quickly to their counterparts. Thus, industry competition in comparison is weak. Threat of New Entrants The hotel industry indeed has no barriers to entry and exit. Thus, new entrants with an “X-factor” could be very successful in the market. Contrarily, the airline market involves very large investment which in itself is a barrier. However, new entrants are restricted and the former firms in the market can collide to drive out new entrants. Threat of Substitute Products Substitutes for hotels could be other forms of living such as rented apartments and villas. Whereas, travel by bus and train could be a substitute for air travel. However, the rail tracks and bus routes are limited to certain distances and air travel is necessitated to be considered. Thus, hotels have more substitutes comparatively which is a reason for the high elasticity of demand. Bargaining Power of Suppliers The hotel industry is not a price-taker as it does not have a perfectly elastic demand curve. Therefore, the hotel owners can alter the prices without losing much clientele. The airline industry has sticky prices and due to their oligopolistic nature they are the price setters. Thus, the bargaining powers rest with them. Bargaining Power of Buyers Since the demand curve is somewhat elastic, for hotels, the buyers can respond by lowering their demand to higher prices. However, for the airline tickets, the buyers have simply no bargaining power. Conclusion Due to the nature of the market structures the companies were prevailing, they responded distinctively to the changing environment. In light of the “Porter’s generic strategies”, the cost efficiency does not imply lower prices. However, this has been true as the more cost efficient airline company did not produce these results whereas, I comparison the lesser cost efficient hotel did. The generic strategy of “differentiation” and “niche market” seems to be followed by the hotel which managed to devise a strategy to build a clientele in the hour of need. Thus, by adopting a “client friendly” attitude, the hotel increased its goodwill. Although, the airline company was in a worse situation due to the smoke layers their “client unfriendly” attitude did not leave a good mark on its customers. Thus, it should worked upon a strategy so as to inform its customers rather than losing them. In retrospect, the tourism industry is a sensitive industry and the market players need to devise operation strategies by analyzing the prevailing circumstances. References Quick Facts (2010) Ontario Ministry of Tourism and Culture, Available: http://www.mtc.gov.on.ca/en/research/quick_facts/facts.shtml Last accessed: 23rd April, 2011 Economic Sector (2005) Tenerife Capital Business, Available: http://www.tenerifecapitalbusiness.info/porque/economicos.asp?leng=eng Last accessed: 23rd April, 2011 Investments in Tenerife Tourism Increase Sales Osborne, Available: http://www.allbestarticles.com/travel/vacation/investments-in-tenerife-tourism-increase- Sales.html Last accessed: 23rd April, 2011 Gupta, M (2010) Iceland's Volcano Blows Away European Tourism Travel News, Available: http://www.easydestination.net/blog/index.php?itemid=553 Last accessed 23rd April, 2011 The World FACTBOOK (2010) Central Intelligence Agency, Available: https://www.cia.gov/library/publications/the-world-factbook/geos/sp.html Last accessed: 23rd April, 2011 Lipsey, R & Harbury, C (1992) First Principles of Economics. 2nd ed. Oxford: Oxford University Press. 172-184. Generic Strategies - Michael Porter (1980) Available: http://www.marketingteacher.com/lesson-store/lesson-generic-strategies.html Last accessed: 23rd April, 2011 Swot Analysis Available: http://www.ecofine.com/strategy/Strategic%20plan.htm Last accessed: 23rd April, 2011 THE EXTERNAL ENVIRONMENT: Drawing on Other Disciplines Available: http://exporters-sources.com/the-external-environment-drawing-on-other-disciplines/ Last accessed: 23rd April, 2011 Read More