The World Tourism Organization confirmed recently that Asia has taken a dramatic lead in the first half of 2010 with an estimated influx of tourists estimated to increase at 7% over any other region of the world (UNWTO, 2010). This encouraging trend had begun in the 1980s when both Western and domestic tourists swelled the volume of touristic activities in many Asian countries, resulting in dire need of hospitality and hotel industry to tend to their teeming needs (UNWTO, 2010). Shangri-La Hotel Group was one of the series of pioneers that had responded to this challenge. Tourism, as a foreign exchange earner, had immensely helped Asian economies to rapidly expand; hence, leading to the creation of more hospitality services, which include but are not limited to hotel and accommodation services. However, stakeholders have been able to draw a dynamic correlation between the possibility of Asia cashing in on the influx of tourists worldwide and the ability of its hotels to satisfy the desires of these domestic and international visitors. Shangri-La Hotel Group, on its own, has stood out among other rivals in the hospitality business owing to some of the facts and developments highlighted in this paper. Being a dynamic Shangri-La Hotel Group has withstood countless competitions and threats and maintained its prominence among all the hotels in Asia.
Annual Report- Shangri-la Hotel Group
Shangri-La Hotel Group became active in 1971 with its first luxury (deluxe) hotel situated in Singapore. Rapid development at Shangri-La has led to the expansion of its series of Hotels and Resorts, which now stands at 68 across Asia-Pacific, North America, and the Middle East. Altogether, Shangri-La has about 30,000 rooms with excellent services to its teeming population of customers worldwide. The Company also has in its possession two of Asia’s most famous Recreational Clubs—Aberdeen Marina Club in Hong Kong and Xili Golf and Country Club in Shenzen. Shangri-La has begun construction of new hotels and resorts in some countries in Asia, North America, and Europe. Financially, the Company is one of the best performing organizations in the hotel industry with total revenue of $1.23 billion in 2009 and has net assets of $157 million, while the Operating Profits remained at $163 million. Shangri-La Hotel Group has enviable Earnings per Share of $889 million. Shangri-La’s total Assets stand at $7.8 billion (Shangri-La Hotel Group, 2010a).
Exhibit 1: Consolidated Balance Sheet (As of December 31, 2009)
Assets (US $’ 000)
Property, plant, and equipment……………………….3,976,184
Investment Property………………………………..675, 634
Leasehold land and land use rights…………………533, 376
Interest in Associates…………………………….1. 590, 397
Deferred Income Tax Assets…………………….1,262
Available-for-sale Financial Assets………………4,6815
Properties for sale ………………………..27, 921
Account Receivables, Prepayments,
and Deposits…………………………….128, 824
Dues from Associates……………………34, 214
Financial Assets held for trading……….24, 386
Cash and Bank Balances……………….665, 317
Total 7,814, 700
(Source: Shangri-La Asia Annual Report 2009)
A SWOT Analysis on Shangri-La Hotel Group
The following SWOT analysis confirms that Shangri-La Hotel Group is a formidable force to deal with as far as hotel ownership and operations are concerned in the Asia Pacific. The analysis reveals the Company’s strategic importance, its advantages over other players in the hotel industry and the possibilities for future growth precipitated upon the current solid financial background built on many years of providing first-class hotel services in Asia and other parts of the world.
Shangri-La Hotel Group has about 26,000 employees at the end of FY09, which makes it to be one of the hotels with huge human capital. The Company’s financial standing is strong considering its Operating Profit estimated at $163 million in the FY08, as well as Gross Profit stood at $802 million, as shown in Exhibit 2 below:
Exhibit 2: Consolidated Income Statement (As of January 31, 2009)
(US $’ 000)
Cost of sales…………………………………………(551, 249)
Marketing cost…………………………………. (45,065)
Administrative Expenses………………………..(102, 954)
Other operating expenses………………………. (407, 923)
Share of profit of associates…………………76,867
Profit before Income Tax………………252, 883
Income Tax Expense………………………(69, 416)
Profit for the Year………………………183, 467
Equity holders of the Company…………….165, 940
Earnings per share for profit attributable to the
Equity holders of the Company during the year
(expressed in US cents per share)
(Source: Shangri-La Asia Annual Report 2009)
Other strengths of Shangri-La Hotel Group include its great locations that provide good views overlooking the seas and rivers; the Company also boasts of sophisticated hotel designs and facilities that would surely make its customers have the most luxurious experience. The room pricing regime is moderate for the quality of luxury the Company offers.
The recent increase in the room prices stands to discourage more customers from using Shangri-La Hotel Group. Similarly, the Company’s rising borrowing profile may drive away potential investors in the Company. Not a serious weakness though, Shangri-La is perceived by many international customers as a typical Asian hotel and resort—this regional classification may affect the Company’s performance outside the Asia Pacific sub-continent, in circumstances where there is stiff competition between Shangri-La and other hotels abroad. The Company has not fully implemented a policy of diversity in the composition of its employees: most employees at Shangri-La are of Asian origin with a few Europeans. Every company that aspires to internationalize its services must adopt a policy of diversity in employment (Mor Barak, 2010).
Shangri-La Hotel Group would benefit immensely from the new market of Greater China. And as Asia has been forecast to be the leading tourism destination this year, Shangri-La stands to gain from this unique opportunity by providing luxury hotel and resort services to a large number of international and domestic tourists that would potentially visit Asia in FY10. For the fact that the Company is located across the Asia Pacific, Europe, and North America, Shangri-La could cash on the increasing number of Asian tourists flocking outside the continent to Europe and North America. Most Asians perceive Shangri-La as their brand of hotel and resorts, and they would be happy to patronize the Company outside the continent. Now that China has become the second-largest economy in the world, there is every possibility that more foreign businesses would move to Asia, and Shangri-La may benefit from the rentals of halls for executive meetings, exhibitions, convention, and so on, in addition to taking the Company’s luxury hotel rooms.
Shangri-La Hotel Group always faces stiff competition from other well-known hotel companies like Marriott, Hyatt, Starwood, and so on. This intense rivalry has led to improvement on Shangri-La’s services, which are costly to manage. Sometimes, a change in price at these rivals would force Shangri-La to change its pricing regime as well (an action that may drastically reduce the Company’s revenues and profits). Labor protests and strikes are getting common nowadays in Asia, Shangri-La may confront similar problems shortly if its employees felt that they had not been properly rewarded for the top-class services (Perry, 1995). Likewise, the threat of terrorism is spreading across the globe now, and some hotels in India, Indonesia, and Thailand have been recently attacked, leading to regrettable loss of lives and valuable property. Being classified as an Asian hotel, Shangri-La may find itself under annoying restrictions outside the continent in case there is trade rancor between Asia and other countries in the world. Most importantly, increased borrowing may undermine the Company’s financial health as potential investors would shy away from the Company out of fear. Shangri-La Hotel Group also stands to lose its Asian character as the wind of globalization is spreading across the globe and companies are being acquired by foreign investors. Some of the threats explained above are immediate; others may take a long while before they could materialize. The possibility of Shangri-La Hotel Group surviving these threats depends solely on the management policies in the Company, and how the Company is being shielded against such internal and external threats. These are real threats that could threaten the survival of any hotel in the industry(Best, R., 2009).
Key Performance Indicators,
Tourism and Hotel Industry in Asia
Asia has been recognized as the current hotspot for both domestic and international tourism (UNWTO, 2010). The recent economic prosperity and empowerment of people in the Asian continent have led to these interesting developments. To facilitate tourism, good roads have been constructed and fast trains and subways have been built around big cities like Shanghai, Hong Kong, etc. The influx of tourists from all over the world to Asia has sparked the unprecedented establishment of luxury hotels and resorts that are meant to cater to the needs of these tourists (Hall and Page, 2000). It is in the spirit of this tourism revolution that Shangri-La was established as one of the pioneers in the hotel industry in Asia. According to the current Asia Pacific hotel review carried out by Goldman Sachs, Shangri-La is touted as being the greatest hotel to watch in 2010 with a projected command of the hotel market due to its exposure to Greater China. Its recent surge in demands for big meetings, incentives, exhibitions, and convention facilities, and its relative value estimated at 12.9X EV to forward EBITDA (Goldman Sachs, 2010).
Shangri-La has adopted specific marketing strategies in recent years that are targeted at customers to initiate constant patronage. Some of these strategies have been undertaken since the 1980s when the Company witnessed tremendous business expansion. Shangri-La has put in place policies and programs that aimed to guarantee customers’ convenience by providing state-of-the-art hotel facilities that would supply the teeming customers with the luxury they desire. Referring to the management culture in Shangri-La Hotel Group, emphasis is laid on creating a smooth communication network between the customers and the management, the process of services has been modernized to encourage quick and reliable attendance to customers’ requests, and the quality of services has been preserved for sticking to the enviable of the Group. One of the mission statements of the Company is to strive, at all cost, to satisfy the expectations of the customers, which may include smooth checking-in/checking-out procedures; fast payment process; clean and hygienic services; timeliness and respect for variety, and other customers’ requirements (Shangri-La Hotel Group, 2010b; Sheela, 2007).
Customer Feedback Policy
Shangri-La Hotel Group relies solely on the Customer Feedback Policy to constantly gauge the Company’s quality of service to its array of customers. The outcomes of this policy have helped the decision-makers in the Company to fashion out programs that would encourage continuous patronage from the travelers or visitors. One of such programs is dubbed Golden Circle Program, which aims to reward repeat customers by offering them benefits like priority check-in, easy room upgrades, and the ability to enjoy free partner stay with appreciative breakfast (Shangri-La Hotel Group, 2010c).
Shangri-La Hotel Group prides itself on taking good care of its employees. Apart from the regular salaries, the Company’s employees receive generous benefits, which include but are not restricted to provident fund, insurance, and medical cover, housing, and share option, which allows each member to become part of the company. This is an attempt to encourage the employees to do their best for the Company’s guests by providing first-class services for them. Corporate Social Responsibilities:- Shangri-La Hotel Group invests a lot in fulfilling its social responsibilities to its customers and the public in general. Concerning the environment, the Company has worked hard to make all its activities environmentally friendly by establishing procedures for reducing the effects of global warming. these procedures include lowering the overall energy consumption in the Company; by using new energy-saving technologies like chillers and boilers and rejecting the use of CFCs in refrigeration and aerosol systems; by erecting energy-efficient buildings through a program termed Green Hotel Design Standard (Shangri-La Hotel Group, 2010d). Attempts have been made by Shangri-La to set a standard for reducing the Greenhouse Gas Emission and guarantee Environmental Management System by receiving ISO 14001 certification. The Company instituted SANCTUARY, which is a biodiversity preservation program, aiming at giving Shangri-La the recognition as a nature-conserving Company (Shangri-La Hotel Group, 2010d). To maintain this culture, Shangri-La has trained and instructed all its employees about service safety and customers’ health. In 2009, the Company began to work toward being certified in Occupational Health and Safety (OHSAS18001) with the viewing of establishing a framework for making both its customers and employees safe and healthy. Shangri-La is not doing all these alone, but it has also informed its 50 chain suppliers to conform to environmental and health standards (Shangri-La Hotel Group, 2010d).
Financial Operations of Shangri-La Hotel Group
In each fiscal year, Shangri-La undertakes some financial activities that include trading in securities, mergers, and acquisitions, investment in properties, and property development.
Trading in security
One of the financial decisions made at the management level in the purchase, hold and sales of stocks, currencies, and other kinds of futures. The Company engages in these financial activities to increase its capital base and protect the value of its shares from depreciating over a certain period. For instance, when the Company’s shares depreciate, the difference in the interests could be offset with a successful security trading in the lender’s currency, say in the US dollar. This process has the capability of balancing liquidity for the Company if all things are equal.
Mergers and acquisitions
Shangri-La Hotel Group has participated in the process of mergers and acquisitions on separate occasions. In 2009, the Company formed a consortium with its other associates to bid for land use rights of some sites in Tangshan City, Mainland China on which a hotel was supposed to be erected. This deal cost Shangri-La a total of $62.5 million (Shangri-La Hotel Group, 2010d). Also in 2009, the Company worked closely with its partners in several Joint Ventures to place bids and purchase titles, rights, and interest on land property in places like Nanjing City, Mainland China; Mactan, in the Philippines; Qufu City, Mainland China; new establishment of Shangri-La Hotel, Changchun, Mainland China; and New Joint Venture Project, Mainland China. Some of these land properties were obtained for building hotels or to hold them for possible re-sale in the future. This happened to be a huge investment for Shangri-La as it was reported that the investment on the property in Nanjing City, Mainland China cost the Company about $120 million (Shangri-La Hotel Group, 2010d). The Company often transacts these deals with its long-time associates and partners like Kerry Holding Limited (KHL), Shang Properties, Inc (SPI), and KPL and Allgreen.
Investment in Properties
Shangri-La Hotel Group has invested immensely in properties in some strategic places in Asia and on other continents. The Company, in association with some of its partners and associates, has bought properties in Mainland China, the Republic of Mongolia, Singapore, and Malaysia. For fair practice, Shangri-La uses the service of an independent company of professional valuers to estimate the fair value of these properties; this is following the amendments of the Hong Kong Accounting Standard for investment in properties (Shangri-La Hotel Group, 2010d).
Shangri-La is aggressively involved in developing some properties across Southeast Asia and elsewhere. These properties include hotel rooms, serviced apartments, and the group’s interests like a convention center, meeting rooms, etc. Some of these projects have been completed while others are still midway to completion. Examples of these properties are Shangri-La hotels in France, Shanghai, Mongolia, and so on (Shangri-La Hotel Group, 2010d). The Company considers these properties as an investment that could be converted into liquidity in case the Company runs out of operating capital. One important observation about the issue of property development is that these projects are sited in strategic locations that provide rare and beautiful views of the ocean, rivers, mountains, and other nature. Shangri-La’s SANCTUARY program was targeted at reducing the rate at which nature is being depleted and encouraged its customers and employees to strongly believe in nature conservation, an issue that the management of the Company is quite passionate about about about both in its internal policy and business practices.
Shangri-La Hotel Group has been faced with many different challenges in continuing its hospitality strategy. The major problem faced by the company is the achievement of a cooperation level with the foreign hotels. The language barrier between the company’s officials and the foreign workers is a clear reason for this, although some matters are more complex than this. Most costs incurred by the hotel when setting up shop is acquiring technology of ensuring their branches to connect their branches and offer similar services to the customer.
The company has tried an open shop in various countries. Many issues arise from each of the locations. In Asia, particularly in China, the company has been with the problem of tackling or dealing with the administration or authority that handles the use of state-owned facilities. Some other problems arise because the officials of the hotel have different ideals of hospitality than in China. China does not understand the Shangri-La Hotel Group brand concept and the way it had a relationship with the need for quality.
Philosophy, Order, and Inventory
The basis of the order or inventory management system of Shangri-La Hotel Group is on the prospects. This information on-demand is used in the setting of production levels at the hotel’s different outlets all over Asia.
Order or Inventory Management
This strategy has various limits and susceptibilities. The company accepts all the future orders without taking into consideration the consumption capacities of their outlets. Shangri-La Hotel Group tries to deal with this fault by directing their outlets to increase marketing and increase customers. A long lead-time that is associated with its inventory or order policies is a principal susceptibility to managing demand. The time that is taken to order food for the hotel is usually four months. Besides, the pre-orders 4 months hotel cannot be in a position of meeting demand. The hotel does not purposely or deliberately meet the demand for high-end shoes hoping to attract consumers into novel models. Unmet demand, long lead times, and poor predictions add great variability to the supply chain of the hotel.
Customer Relationship Management
Business strategy: motives for expansion in the international arena
The mission of Shangri-La Hotel Group is to transform itself into a one-stop international hospitality service provider that offers resorts and gaming services. The Corporate Strategy of the o Shangri-La Hotel Group is aimed at transforming the organization into a globally valuable organization and world leader in the tourism industry in particular. Business segmentation is the principle strategy that the organization believes in for all its expansion plans. Through segmentation of its business into a plethora of business clusters that would consequently work as a variety of growth engines for the organization.
Market segmentation helps organizations to identify the groups that respond differently to their marketing mix and allows them to frame a tailored marketing mix for different segments. The effectiveness of the marketing activity improves when the markets are segmented. Segmentation also helps in the better allocation of scarce resources.
Targeting is the process of selecting the highest potential customers with whom the organization wants to do business. It can also be described as the process of eliminating undesirable market segments while choosing a few.
After selecting the target markets, a suitable marketing mix is framed for those markets. This mix gives the organization the best returns while generating the maximum amount of value to the customers. Many hotels including Shangri-La Hotel Group have built flourishing businesses in their domestic marketplace, capturing a considerable amount of profits in markets that are regularly safeguarded from the competition. Famished with adequately large-scale prospects in the domestic arena, all these organizations are expanding outside their national borders.
Another motive behind the international expansion of Shangri-La Hotel Group, in general, is a wish for acquiring specific skills and capabilities. The cross-border acquisition is one strategy in which all organizations of Hong Kong believe because it is a kind of border strategy that allows these organizations to gain quick access to the management expertise of the Western companies and the technology.
Competitive Advantages and Mode of Entry Strategies
The entry of multinational enterprises into the country has initiated a kind of structural adjustment in terms of reallocation of resources. The reallocation of resources happened from sectors, which are labor-intensive towards the sectors, which are capital and or technology-intensive. It was felt that these changes would dramatically transform the industrial labor in the country along with the product structure, the interdependence of the various industries that are existed in the country, and the sophistication of technology. The competitive advantage that Shangri-La Hotel Group has got over other players in the industry is its access to internal developments including real estate in important locations.
The entry strategy into a foreign market is very important for any multinational. Firms seeking to enter international markets have to first check if there is a potential market for their products in foreign markets. The second step is to choose an appropriate country. Firms planning to enter international markets for the first time should ideally choose a friendly and easy-to-enter economy and preferable one with which it has a common language. Then they have to decide the mode of entry.
Firms should evaluate several dimensions of international environmental uncertainty before choosing an entry mode. This allows them to optimize their returns for the risk assumed. The preference of the entry mode is dependent on a plethora of both the domestic and peripheral factors concerning the firm. The social relations of a company also affect the choice of entry mode selected by the firms. Companies, which work together with diverse groups, obtain information without difficulty. Companies repeatedly prefer to do business with associates in foreign markets or with business owners who are introduced by their friends.
Challenges, issues, and prospects
In an international environment, the workforce of a form has to interact with people from different countries. The complex organizational structure of multinational firms tests the manager’s interpersonal skills to the limit. The leadership styles of people in different countries vary greatly. The work culture in emerging markets like the Middle East is very different. People in such markets are not used to privacy at the workplace. They rather prefer to mingle with everybody and they have an unhindered flow of communication. This kind of situation does not seem to be present in mature markets. There are many differences in terms of culture, perceptions, behavior, etc, among the workforce of different kinds of markets and this becomes a major challenge for companies that are expanding into global arenas. Firms seeking expansion into international markets must gain adequate knowledge about the host country’s culture and try to get information about the perceptions and cultural differences of the people and design their policies accordingly much before they mark their presence in the global markets.
Financial uncertainty is one factor that firms need to consider while entering a new market. In markets where there is higher risk, the bargaining power of the host country decreases. Contractor and Root point out that rules and regulations can relate to “equity limits, local content requirements, and exchange controls.” If the laws of the host country are highly stringent, restricting the entry of the firms, local content, foreign exchange, ownership level, etc will lead to lesser bargaining power.
No business or enterprise activity can begin unless there is a purpose, aim or objective to be reached. It is like a distant navigational aid that helps to keep the direction and re-navigate in case the course changes. The activity of planning starts when the objectives are defined. However, the most common motive of any business for that matter is nothing but profit maximization. Shareholders generally are the ones who provide the capital that is necessary for firms to survive and grow. In turn, they expect the management to operate in ways that bring them the highest possible return on their investment. Shareholders and management sometimes hold different perspectives on business opportunities. The focus of the shareholders is on investment or stewardship. Shareholders are largely interested in the profitability of the firm so that they may be able to assess their share in the assets of the company. Issues may crop up if somewhere for some reason, the organization fails to succeed and Shangri-La Hotel Group r is not any exception for this fact.
Given the opportunities and threats in the hospitality industry and the strengths and weaknesses of Shangri-La Hotel Group, several strategies have been identified to strengthen its positioning in the industry. As enumerated in Table 4, several corporate strategies based on the strengths, weaknesses, opportunities, and threats matrix are recommended. The strategies are as follows:
- Expand into other regions;
- Develop innovative products for niche market segments;
- Implement cost-cutting measures to strengthen financial condition;
- Develop linkages and strategic alliances with a local and foreign government to mitigate political risks;
Table 4: Strategic Courses of Action for Las Vegas Sands
|Internal Assessment |
Top-quality, complete gaming products, and services
Strong brand identity
Vulnerable to political and economic risks
Growing hotel markets in Macau and Asia-Pacific region
Diversify and expand products and services offerings
Expand into other markets in Asia-Pacific and other regions other ancillary sectors and industries
Strengthen relationship with government
Presence of intense competition;Political and economic risks
Develop innovative products for niche markets
Implement cost-cutting measures
Strengthen relationship with government
Engage in strategic alliances
This business portfolio on the Shangri-La Hotel Group shows the intensely competitive nature of the hospitality segment of the hospitality industry. The competitive factors are manifested in the products and services offered; pricing; and brand recognition. Consequently, the industry is heavily affected by economic and political risks. From the economic aspect, consumer spending in recreation and leisure is the main determinant to assess the growth in the industry. If the economy falters, the customer will spend less on travel and recreational activities. In terms of political risk, it is clear that government has substantial bargaining power over hotel operators. Government has immense power to regulate operations and if necessary, they can revoke some licenses.
The Shangri-La Hotel Group has managed to succeed and grow because it has developed top-quality, exciting, and complete gaming products and services. In effect, it has become a one-stop recreational center. It has also attained a strong international presence, which bodes well for its expansion activities. To sustain its success, Shangri-La Hotel Group should implement prudent financial management activities; develop innovative products and services; and engage in strategic alliances.
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