Red carnation is a UK based family owned and run business. The hotel group consists of Seventeen luxury boutique hotels and spas locations such as UK, Ireland, South Africa, Switzerland and the USA. The hotel was established around fifty years ago in 1950 by a woman named Bea Tollman. The company has strong core values that develop the commitment of hoteliers towards employees, guests and communities in which they survive. The company works on the tagline “No request too large, no detail too small” (Red Carnations 2014). The company aims to provide best experiences to its customers by offering creative & traditional cuisine, splendid luxury, private art collections and passionate service. Red Carnations had been consistently receiving top ratings from trip advisor. It has been listed amongst top 10 on Sunday Times list of 100 best companies to work for. In the coming future company is exploring opportunities to expand its business in more international markets. The main purpose of the report is to know where and how this expansion can be done. The report includes PESTLE and Porters five force model analysis of global hotel industry .Internal environment analysis through SWOT and value chain analysis. It includes a deep analysis of potential markets of Nigeria, France, Thailand and China using the 12C framework. The report will also consist of appropriate strategy development, decision regarding modes of entry and risk evaluation in the preferred market.
Red Carnations is also a part of Global hotel industries and PESTLE analysis for the same is discussed in Appendix 1.1. Following is the
Political factors affecting the hotel industry are government regimes such as tax, visa rules, currency exchange, competition regulation etc. affect the hotel business. Terrorism adversely affects the hotel industry. Egyptian hotel industry is struggling since 2011 because of terrorism issue (Selah & Ram 2015). Major political issues such as Brexit, also affects the hotel industry. Brexit had adverse effects on the hotel industry (Hutchinson 2016).
Economic factors include income level and the income distribution in different countries. Inflation/ deflation rate that are prevailing in the county affects the prices in the hotel industry. Purchasing power of travellers of different countries, also have economic implications.
Socio- cultural factors affecting global industries include work carrier and leisure attitudes of different people, lifestyle, social customs and habits. For example Australians spend too much on travelling, about $12,393 in 2014.
Technological changes in the environment affects the industry are new inventions, changes in mobile or internet technology, software use. For example introduction of new software to manage both guest and employees will have a positive implication on the industry.
Legal environment of different countries is different. Legal factors include various kinds of laws such as anti-trust laws, consumer protection laws, employment law, health and safety law etc.
For considering operations in various countries hotel industries have to take into account rules regarding various environmental factors such as weather, climate change, waste management, attitude towards green or ecological products etc.
Porter’s five forces analysis of the competitiveness of global hotel market sector (please refer Appendix 1.2):
Initial capital expenditure in hotel industry is very high this acts as a barrier for the new entrant. Some of entry barriers have reduced by enhancement in internet technology. But threat for new entrant is very low in hotel industry.
There are different suppliers for different suppliers in hotel industry therefore bargaining power of suppliers is relatively low than other industries. Supply threat is faced only in case of recruitment and employment because this industry needs well trained and skilled staff.
Bargaining power of buyer is usually high in hotel industry. It is higher if the particular location has more competitors. Buyers exercise more power in case of bulk purchases.
In hotel industry threat of substitute product is very low. Nowadays, changes in technology increased it to little extent. Video conferencing reduces the need to travel and stay in hotel.
Threat of rivalry is usually high in hotel industry. Many big players such as Marriot, Hilton, Hyatt etc. have already most of the market share. Also customers do not have the defined preference; they shift to the place where they are offered more services.
Red Carnations successfully manages its activities throughout the value chain. Value chain analysis of Red Carnations, identifies the activities that create value and competitive advantage to the firm. The primary activities and secondary activities of the firm are discussed in Appendix 2.1. Inbound logistics include activities such as adequate maintenance of supplies, storing etc. Operations of the firm include maintain the service standards. Outbound logistics involve delivering what is been promised to the customer. Marketing & sales of the firm involves adequate promotion & communication mix. Services include 24/7 assistance to the customers. The activities that support these primary activities are HR, Infrastructure, procurement and technology development. Red Carnations have well developed infrastructure. It key strength lies in its workforce. Also the company tends to maintain long term relations with the suppliers for procurement of raw material. The company makes optimum use of technology and keeps updating its technology at frequent intervals.
Strengths of Red Carnation include skilled and well trained staff, well developed IT infrastructure, amongst top 10 on The Sunday Times, 100 best companies to work for list for the last three years, top rating on Trip Advisor. The hotels also have remarkable room designs. Weaknesses of this hotel are it is operating on very less locations as compared to its competitors and has a limited portfolio; it focuses only the high income segment. Opportunities for today’s global hotel industry are people are investing more in travelling, More people have become a part of labour intensive industry thus they need relaxation from normal life and they more often go on holidays. Globalisation has resulted in increase in the number of international travellers. Also today’s business structure year- round customers to the hotels. Threats for the global hotel industry include political instability in different countries, fear of terrorism and easy availability of cheaper alternatives. (Please refer to appendix 2.2)
Comparison of the market alternatives China, France, Nigeria and Thailand according to 12 C frameworks is done in Appendix. According to the comparison every country has its own pros and corns. Still the most preferred country for expansion of Red Carnation is France.
France is the fifth largest economy in the world and Europe’s second largest economy (Boyer 2015). Therefore it is a centre of attraction for business travellers; taking part in conferences, seminars and events. Average rate of business travellers to France is 20 million. The country has beautiful landscapes and historical monuments. Therefore it is an attractive tourist destination of various countries. Around 80 million tourists visited the country in year 2010 (France diplomatie, n.d.). Although there was a fall in number of tourist after the terrorist attack in Paris, but now again France is speeding up on the road to recovery. Also domestic travellers of the country having high paying capacity thus they can afford staying in hotels such as Red Carnations. The country also has various established players of the hotel industries such as Accor, Shangri- La hotels, Louvre hotel groups, Best Western etc. Therefore the company has to be prepared to face competition in the market. All the other countries can be emerging markets for budget hotels but not for the luxury hotels. As one of the most attractive tourist destinations among the world and high end customer base France offers various opportunities for hotel industries to grow and expand.
The firm intends to explore in business in the potential market of France. It can utilise both the strategic options of market development a diversification. As shown in the Appendix 4, in Ansoff Matrix have four available strategic options out of which two can be adopted for entering the new market. Strategies for growth, competitive advantage, segmentation, targeting and positioning are given below:
Paris is the most promising city for expansion of Red carnations. As discussed in the appendix 5 the city offers various attractions to the company. It is the topmost tourist destination of France and also the capital city therefore attracts foreign investment in the hotel sector. Also various growth opportunities are present in Paris that can help the firm in expansion. Comparison of most commonly used modes of entry in international markets in done in appendix. Licensing, franchising, joint venture and whole new subsidiary are the modes that have been analysed. For hotel industry licensing and franchising are least preferred options. The suitable options are joint venture and setting up the whole new subsidiary. Joint venture cannot work in this case because finding the right partner is not easy and also the company is a family owned and run business; they won’t tolerate any kind of control sharing. Also the company has never entered into any kinds of joint venture in the past. Considering all the factors and research the best suited mode of entry would be through setting up wholly owned subsidy. This can be done in two ways either through Greenfield investment or through Acquisition (Panibratov 2017). In this case design and structure of the hotel are key aspects therefore Greenfield investment would be a better option. If the company opts for acquisition it would be very difficult to fig desired property at the preferred place. Thus, Greenfield investment is the most suitable mode of entry in the market of Paris.
Product refers to the main goods or services that satisfy ultimate needs and wants of customer (Richter, 2012). Red Carnations has 17 hotels at various places. France tourist comprises mostly of high end customers and they want best services at any price. Therefore hotel needs to be committed to provide unique and attentive services to carter needs of all the customers. This is also one of the major strengths of the company. It should also provide specialized services on different occasions such as marriage, conference, weddings etc. The company needs to expand the market for its products and also it should make entry into segments other than luxury.
Price is the most competitive weapon in any kind of business; therefore pricing strategies are an important source to derive competitive advantage (Schindler 2011). In this case, competition is very high and customers also do not have predefined preferences they will shift to the place where they will get better services. In this case company must adopt the strategy of premium pricing if it offers something different from competitors. The targeted customer base of France has high paying capacity. Otherwise it should keep the prices slightly lower than that of competitors to attract more customers.
Place is very important aspect of market mix. Place describes where the product is available to the customer (Pearson, D., 2013). Red Carnations is operating in very less locations. It is operating only in UK, Ireland, South Africa, Switzerland and the USA. In order to grow the company needs to expand its business to more locations.
For standing out of the crowd the company needs to adopt some innovative promotional strategies. It should be a unique blend of sales promotion, social media marketing, personal selling etc. ( Lamb Hair and McDaniel 2011). The firm has lot of competitors in the market therefore promotional activities are of utmost importance to the firm. Also the France is technically developed country so promotion strategies should make use of latest technology.
Risk are kind of uncertainty that hampers fulfilment of one or more objectives. Risk cannot be avoided it can be managed (Hillson and Murray-Webster 2007). Few risk associated with Red carnations operations in France and their management is given below:
Terrorist attack in Paris has increased potential risk of safety and security (Tarlow 2016). This has also reduced average number of tourists to the place. To effectively manage this risk the company needs to pay lot of attention to its security. In order to maintain security of the place firm has to make use of best available technology. Time to time mocks should be conducted to check the security of the hotel.
Setting a new hotel will incur lot of capital investment and risk of return on investment is high (Harris and Mongiello 2006). It is so because so many established players already present in the market. To effectively manage this risk the company needs to build the hotel after analysing all the requirements of the Paris. It also needs to study in detail the policies and strategies adopted by the competitors to gain the competitive edge over them.
Hotel industry needs to have competent and well trained staff to smoothly conduct its operations (Torres and Kline 2013). This risk can be managed if company offers attractive packages and facilities to attract employees.
Conclusion
It can be concluded that Red Carnations is doing really well in its selected portfolio. Both internal environment of the firm and external environment affecting the global hotel industry is favourable for the company expand its business in more international markets. The analysis of market alternatives China, Nigeria, Thailand and France showed that France is the most suitable market for the company to expand its operations. Although some corns are associated with the country like terrorism and more competitors, still all the other factors make it the preferred country to set up a new hotel. The preferred market for entering in France is Paris. It is one of the most attractive tourist destinations of the world. It is also a centre for various business tourists. The company should enter the market through Greenfield investment. Setting up a wholly owned subsidiary will satisfy both company values and industry requirements. It will not lead to dilution of control. Investment cost will be high therefore company has to adopt adequate strategies to maximise the benefit. Also risk factor cannot be avoided. The market has risk of terrorism, low ROI and getting competent workforce the risk can be minimised with effective management. It is recommended for Red Carnations to carefully evaluate the requirements of foreign market and how competitors are conducting their business. According to it company can develop its business plan for the international market
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