Guam’s Economy

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Situation

Guam’s population is expected to increase dramatically due to the military build-up that we anticipate in full force by 2011. The other kinds of changes that can be expected include more major equipment for the military and their operations, an increase in their training activities, more construction, changes or improvements of existing or new infrastructure, and more usage of land. With these changes, how will this affect Guam’s tourism industry, particularly in the line of hotels? In our findings, the main source for Guam’s economy lies within the military and the tourism industry.

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In the 1960s, the military had a higher source of revenue for Guam than did tourism (where 75% of Guam’s revenues came from the military). Since 2003, tourism has been responsible for 60% of that revenue. Japan, Korea, Taiwan, Hong Kong, the Philippines, and the U.S. are Guam’s main markets, with Japan being our major market, covering 80% of our market demographics (Guam Economic Development Authority, 2010). We anticipate that the market dynamics will change whereas an increase in the population of military personnel equates to the military market taking a bigger piece of the pie in Guam’s total market demographics.

Issues

The perception of the island is a major social issue at hand. With the island expecting this military buildup, the people are anticipating a change of environmental and social lifestyle. This goes back to the “stigma” that the same servicemen and women who were stationed in Okinawa were the root cause of most of the crime and problems. With this information being spread and talked about in Guam, the military may be a threat to the island’s family-oriented culture.

According to a survey conducted by Amy Owen at the University of Guam, the majority of Guam’s residents believe that the buildup will be good for the economy, but bad for our culture (Kelman, 2010). With Guam’s culture and friendly environment being a very attractive feature to Japanese tourists, the change or modification may also affect whether tourists from Japan come back or not.

More population means more trash and more traffic. With an increase in population in Guam, it is expected to be more trash-filled as well. In the hotel industry, the majority of the hotels are strategically placed right next to the beaches so that the guests who stay within the hotel can easily walk to the beaches (Ysrael, 2010). The scenery is yet another one of the attractive features of the island. With this being said, the beaches are one of the top locations where trash is found lying around.

Traffic affects the hotel industry in ways where parking may be of concern, where there is a higher risk of accidents, and where it may make “pleasure island” a complicated road to drive through for it can disrupt a smooth flow of trolleys, buses, and hotel vehicles coming in and out. The military and their dependents will be staying in Guam for several years. In addition to their long stay on the island, transportation is an important aspect of their daily activities. Thus, an increase in the number of cars is to be anticipated as well

Internally, hotels may have to re-adjust their target markets. A change in population because of the build-up puts the whole island’s demographics in a different dimension. Some hotels may traditionally stick to their target markets (Quindara, 2010). However, change may be the perfect opportunity to boost their sales, make the hotel(s) name known, and use other features of the hotel that weren’t as used before.

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Employment and occupancy are yet another issue. Military rates are lower than tourist and local rates. Assuming that an increase in the military population would mean a regular hotel to be fully booked with all military for days, weeks, or months, can we conclude that this is enough to support the hotel’s survival? Is this profitable for the hotel? Every hotel in Guam has Japanese speakers/concierges who deal especially with Japanese tourists.

If any of the hotels in Guam are occupied with the military, what will happen to those employees who are involved in guest relations or concierges who specialize in dealing with Japanese guests? They are paid more for speaking the Japanese language, so will hotels take out the extra payment if their market changes? How will this affect the employees? Will employees want to continue to work for these hotels, or will they want to find a better opportunity elsewhere?

Our group conducts the research to see what hotels have in preparation for the military buildup and whether the military market would dominate over Guam’s Japanese tourist market or not. We especially look at the social, political, economic, legal, and technological factors to see how hotels will respond to the buildup, to recommend what changes to be made, what improvements will be seen, what jobs will be more focused on, to watch out for what jobs may be lessened out, what room rates will stay or change, and so forth.

Problem statement

Given that the military build-up will result in a changing market, in what way(s) can hotels in Guam ensure their success in the long term?

  • Strategic Segmentation
  • Customer Need: Long-term stay
  • Technology: CondoTel
  • Geographic Scope: Guam
  • Customer Type: Military Family
  • CondoTels (1)

For those in the military with dependents, the Naval and Air force bases may not be able to accommodate them all. Only so many families will be able to get housing on base. This means that the island will be seeing more houses, apartments, and condominiums being built off-base. However, hotels may choose to convert several rooms into “Condotels” to ensure their rooms are being used and that they are generating revenue. Condotels are more expensive than regular hotels, which the military can afford. The OHA (Off-Base Housing Allowance) in the military is $2,100 for both single and married.

The utility allowance that is offered is $755 for married and $500 for single. This means that hotels that offer the condo-tel feature may generate an excellent amount of revenue. Because there’s such a high possibility of Guam’s main market changing or increasing to the military, certain changes will eventually take place to ensure that the hotels on Guam stay in business. Hotels that offer this “Condotel” feature allow for greater revenue and a guaranteed room occupied for a couple of months/years. Renovating a room into a condo-tel depends on its architectural features. Estimate of the cost on average: $140/sq. ft.

  • Customer Need: Eco-friendly Hotel
  • Technology: Eco-hotel (usage of Solar Power Panels)
  • Geographic Scope: Guam
  • Customer Type: Military
  • Eco-Hotels (2)

Eco-hotels and environmentally friendly hotels are advantageous in ways that they reduce or eliminate the usage of wasteful energy. Since “going green” is a trend worldwide, many hotels have already instilled several eco-friendly practices in their companies, including Guam. However, an eco-hotel deals more with its structure rather than simply just eco-friendly “practices”. There are already many eco-hotels in North America, Central America, South America, Africa, Europe, Asia, Oceania, and Antarctica (Eco Hotels of the World, 2009). Different hotels use various eco-friendly technologies. Some use wind power. Some use the pressure from the water. Most popularly, solar power is in use.

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Analysis

General Environment

Guam covers an area of about five hundred and fifty-five square kilometers, making it the largest island in Micronesia. Just a few years ago, the island had a population of about one hundred and fifty thousand people, but members of the U.S military have been entering the island at a very high rate. Currently, Guam populates about 170,000 people. Guam is expected to have an additional 8,000 marines and their dependents to arrive in Guam (McAvoy, 2010). The tourism industry in Guam has been the major source of income in the region. The sandy beaches and the hot sunny climate attract many tourists.

The entry of the U.S. military has brought many changes in the market. There are several varieties of hotels in Guam and this has an effect on the market dynamics and also affects how room inventory is sold. The hotels cover a stretch of about six kilometers along Tumon Bay. There are several hotels in Guam. Tumon hotels include the Hotel Nikko, Hotel Okura, The Westin Resort, Guam Reef Hotel, Outrigger Guam Resort, Hyatt Regency Guam, Holiday Resort, Guam Marriott Resort, Pacific Islands Club, Guam Hilton, Royal Orchid, Holiday Plaza, Grand Plaza, and Guam Plaza.

Beachfront hotels outside of the Tumon district include the Palace Hotel, Onward Beach Resort, Santa Fe on the Bay, and Alupang Beach Tower Inn on the Bay.

Other off-beach hotels include the Imperial Suites, Tamuning Plaza Hotel, and the Mai’Ana Airport Hotel.

Legally and politically, the island of Guam is a territory of the United States of America. There are no legal issues about the military build-up on Guam (Global Property Guide, 2010, para.5). The federal government sub-cedes Guam’s local government.

A good example of this is that the federal government can take over situations that the Guam Police Department had responsibility for. The people of Guam may sign a petition in regards to the military-buildup; however, the decision lies within the president of the United States. The EPA has also criticized the buildup stating that the increase in population would negatively affect Guam’s water supply, sewage system, and the coral reefs (McAvoy, 2010). In regards to the usage of condotels or eco-hotels, there have been no found issues under the legality of whether hotels should include condotels or eco-hotels.

Technology determines how difficult it is to acquire the resources to make up condotels or ecohotels in Guam. First off, condotels require renovations. Another blueprint or plan is needed for hotels to situate certain rooms to be converted into “condos”. Many hotels also think about the cost, which additionally would be expensive to renovate and fill the condo rooms (on average, $140/sq. ft). Hotel clients usually spend $25,000 per room to renovate into condo-tel rooms. When construction starts it goes down to $12,000-$15,000 (Arcellana, 2010). Price varies from hotel to hotel.

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In regards to eco-hotels, the technology of using solar power, water, or wind is yet to be a common practice on the island. Despite the high cost of using solar/water/wind-powered machines to energize the hotel, more and more hotels are getting involved in the trend of “going green”. The Guam EPA also enforces hotels to eliminate or at least reduce the amount of wasteful energy in their companies.

The Hyatt Regency Brunswick has partnered with SunPower and has already installed a solar-power system that reduces the emission of carbon dioxide while saving energy costs (Environmental Leader, 2009). SunPower offers solar panels, roof tiles, and ground products to various businesses around the world in the works to save energy (Sunpower Corporation, 2010). Solar panels range from $72 – $809.74 per unit and $1-$5 per Watt (Ecobusiness Links, 2010).

Economically, the military build-up will result in more job opportunities (Quindara, 2010). Guam anticipates more usage of the different restaurants, recreation, and activities because of the drastic increase in population. Construction of apartments, condominiums, a new hotel in Tumon, and placing of more American restaurants have already been in the works to accommodate the U.S. Marines and their dependents who will arrive on the island in full force by 2011. However, the increasing cost of power and water on the island is an obstacle that hotels have to work with.

The island’s social and cultural environment consists of practices that encircle respect and family. The difference of cultures in Guam makes the island a diverse melting pot. With the buildup, there is also a possibility that the residents may be a minority, thus, changing the dynamics of the island’s “culture” and “society”.

Industry Environment

Guam hotels form an industry that is facing many challenges as a result of the recent growth in the population of individuals residing on the island (Captain, 2002, para.7). The military affects the market system where they most likely will become a major source of income for the island. Guam hotels have been a base for many Japanese tourists. The entry of the U.S military means that there will be more issues related to the high population on the island. The threat of new entrants is low, considering that the costs deem high. The quality and efficiency of hotel service into a condominium is also a factor that can be difficult for regular condos, apartments, and temporary housing to duplicate.

The bargaining power of suppliers (condo-tels) is high since it is anticipated that only a few hotels will be able to integrate condo-tel rooms in less than 1 ½ years.

The bargaining power of the buyer is medium since there are only a few options for long-term accommodation, including the Royal Orchid, Pia Marine, and Ohana.

The threat of substitutes is also low since no known hotels with condo-tel features are located right near the beach.

Competitive Rivalries include other hotels with condo-tel features and an attractive price range.

Competitive Environment

The major competitors to Guam hotels offering condo-tel features are the actual apartments, condominiums, and vacant housing on Guam. The price for renting apartments, condominiums, and temporary local housing ranges from $300-$2400, excluding utilities. However, these facilities have to follow military standards and pass safety inspections. A competitive advantage that hotels with condo-tel features have is the fact that employees can service the customers as well as having faster maintenance.

The major hotels in Guam usually have restaurants within them, so having a restaurant just a walk away is another competitive advantage that a hotel with condo-tel features has. In addition to the service, maintenance efficiency, and restaurant convenience, Tumon hotels are located near the beach. In essence, service and scenery (location) are critical success factors for successful hotels on the island. Because condo-tels have service already integrated, this gives hotels (with condotel features) a sustainable competitive advantage against apartments, condominiums, housing, and other hotels that accommodate long-term guests.

Internal Capabilities

A hotel in Tumon situated near the beach with condo-tel features has competent internal capabilities giving them a competitive advantage over other competitors. They can use these capabilities to provide products and services that meet the needs of the military market. The employees in the hotels are very competent as well. These are individuals possessing both skilled and unskilled labor. The employees also have great experience which helps them provide customer satisfaction (QuickMBA, 2010, para.2).

The management in the hotels is also competent and builds good relationships with subordinate employees. This allows for communication which is very important for the success of any organization. The management comes up with strategies that are used to increase revenue in the industry.

The profit capacity of the industry allows it to compete actively with other competitors (Montgomery, 1996, p.48). The Guam hotels advertise their products and services through the media, newspaper, radio, and magazines. This increases the popularity of the hotels. New members of the military are likely to go for accommodation in these hotels because they are the ones that have been heard of. Hence, having condo-tel features at already popular hotels has an advantage at capturing the military market at a faster rate. The management has integrated information technology in the system to ease the work of management and other employees (For example, Westin uses “Opera”, and Nikko uses “Epitome”.)

Firm’s Strategy

To remain competitive, hotels with condotel features follow a differentiated strategy by providing long-term accommodations with regular hotel service, an at-beach location, and faster maintenance.

Diagnose

Hotels can arm themselves in a way that they will meet the needs of the members of the military who will join the market.

Strengths Weaknesses Opportunities Threats
Location Price (Room Rates) Employment Competition
Service Cost Increased Revenues Rising rates in Power and Water
Maintenance Efficiency Gain customers Fixed Room Rates
Brand/Popularity Stable income

Proposed courses of Action

Implementation of Eco-Hotels

The firms should ensure the hotels are eco-friendly. This should contribute towards minimization of the cost of running the hotels by reducing the cost of heat light power. In addition, the hotels should minimize the amount of waste to the environment. This will enable them to reduce the environment in which they operate making it conducive for the customers.

This strategy can be undertaken by incorporating green energy as the key source of heat and light. In addition, the management should ensure that the staffs are aware of how to manage the rooms efficiently. Eco-friendly hotels can also be attained through the incorporation of corporate social responsibility.

Recommendation

  • To survive in the market, Guam Hotels should consider the following recommendations. Implement modern condotel features in their hotels. This will give these hotels a high competitive advantage compared to competitors such as Tumon Hotels. Implementation of these features will culminate into an improvement of the hotel’s brand image.
  • Implementation of condotel features in the Guam rooms will take quite some time and may interrupt the normal processes in the hotels. To retain the customers, it is important to implement the plan in a season when there will be fewer visitors. The steps in implementing the features include closing some sections of the hotels which are not intensively used during the season.
  • The management team should consider relocating the condotel features in other rooms. In addition, the visitors should be relocated to those rooms where the condotel features have already been implemented.
  • The firm’s management teams should consider implementing integrated market communication. This will enable the firms to create effective market awareness.
  • To increase customer satisfaction, the firm’s management team should consider undertaking product innovation. This will enable the firms to offer services that meet the customers’ demands.

Reference List

Campbell, D. & Houston, B. (2004). Business Strategy: An Introduction. Oxford: Elsevier Butterworth-Heinemann.

Captain, N. M. (2002). Guam’s Hotels: A Real Estate Market in Transition. Web.

Global Property Guide, (2010). US Military Buildup Will Power Guam Real Estate Market in 2010. Web.

Global Security, (2009). Military: Guam. Web.

Grim, C. M. & Lee, H. (2006). Strategy as Action: Competitive Dynamics and Competitive advantage. Oxford: Oxford University Press.

Guam, (2010). Military Expansion to Boost Guam’s property Market. Web.

GUAM AND CNMI Military Relocation. (2009.) Draft EIS. Volume 7: Potential Mitigation, Preferred Alternatives’ Impacts, and Cumulative Impacts. Web.

Guam Strategic Workforce Investment Plan. (2009). Pp. 12-16. Web.

Guam Economic Development Authority. Tourism. (2010). Web.

Harden, B. (2010). On Guam, planned Marine base raises anger, infrastructure concerns. Web.

Montgomery, C. A. (1996) Strategy: Seeking and Securing Competitive Advantage. Harvard: Harvard Business Press.

NetMBA, (2008). Strategic Management: The Value Change. Web.

Porter, E. M. (1985). Competitive Advantage: Creating and Maintaining Superior Performance. New Year: Free Press.

Quesne, K. & Anderson, A. (2000). Guam: A Market Profile. Web.

QuickMBA, (2010). Porter’s Five Forces: A Model for Industry Analysis. Web.

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BusinessEssay. 2021. "Guam’s Economy." December 7, 2021. https://business-essay.com/guams-economy/.

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