Macro-Level Analysis of UK Hotel Industry
The assignment will focus on determining the key market forces as well as the external and internal factors affecting the business environment. These external and internal factors are considered to be significant because they are responsible for influencing the organisational decision making as well as strategic designing. Throughout the assignment a macro level analysis or PESTEL analysis of the UK hotel industry will be performed followed by a Porter’s five forces analysis. On a concluding note two key macro factors have been identified which are responsible for affecting the business.
Industries do not operate in a vacuum; they are certainly surrounded by an external as well as internal environment. The factors which constitute the external environment of an industry are often referred as the macro environmental factors. In order to evaluate the macro environmental factors, a few strategic analysis tools are used. The most popular among them is the PESTEL analysis. PESTEL is a strategic management tool that analyses the political, economic, social, technological, environmental and legal factors and thereby determines how these macro-level factors affect the business environment of an industry (Aldehayyat, 2011). In this assignment a thorough PESTEL analysis of the UK hotel industry will be performed.
In the context of political factors there are numerous aspects which play an important role in shaping up a business. Political factors mainly consider the governmental framework, administrative rules and regulations which are specified by the designated authorities of the country in which the business is operating (Aldehayyat et al., 2011). The hotels of United Kingdom design the business framework in such a manner that it complies with the different laws and policies. Moreover, the policies regarding Value Added Tax, health and safety issues of the employees, Civil Rights Act, food and services quality and maintenance should also taken into consideration. The hotels operating within the industry strictly monitors whether these policies are being followed appropriately or not so that they can take necessary measures to mitigate these requirements. United Kingdom is generally considered as a politically stable country. The country possesses a strong democratic setup coupled with a parliamentary form of governance which also known as the Westminster system. According to the data revealed by World Bank the United Kingdom is considered among one of the most successful nations for the implementation and maintenance of rule of law (Fernández et al., 2011). Therefore, the hotel industry operating in this nation is strictly required to follow the political notions established by its government otherwise they will have to suffer the consequences. However, there are certain negative aspects as well the emergence of national level terrorism has affected the tourism sector of the country adversely.
Political Factors
Presently United Kingdom depicts a very high per capita GDP and favourable investment climate. However, the government is facing a debt and high deficit which is compelling it to curtail spending. United Kingdom is one of the largest economies in the world and is also characterise as a stronger one in terms of social welfare and standard of living. Among the countries within the European Union United Kingdom has the highest level of per capita GDP measured in terms of purchasing power parity (Robinson et al., 2016). As found by the World Bank’s business indicators United Kingdom is the seventh best country for doing business. Moreover, the openness of the economy encourages competitive business environment. Therefore, due to the robust economic condition of the country along with the high density of high income group people hotel industry in this country is also experiencing a splendid growth rate (Mohammed et al., 2014). Moreover, as the international business environment of the country is the quite favourable huge number of foreign nationals visits the country for business purposes and it is quite likely that these high-end business professionals will look for expensive and luxurious hotels.
The people of United Kingdom enjoy a significantly high standard of living compared to the people of other developed countries. Decades of robust economic growth rate have helped the nation to achieve this structurally sound social infrastructure. The education, hospitality and healthcare systems of the country are characterized as one of the best in the world. The hotel industry of the country has earned this social reputation by delivering high quality of services to the clients. Moreover, the government of the country is also adopting certain necessary measures for alleviating poverty and inequality and thereby enhance the purchasing power of its citizens (Lee-Ross and Pryce, 2010). Therefore, it can be stated that as the citizens of this country are well educated and cultural this leaves positive impacts on the business environment and hence it can also be inferred that due to this the hotel industry of this country will evolve towards prosperity.
The UK government so far has remained successful in steering the research and development segment of the country in the right direction. Research and development and information technology is the key factor for the success of any industry (Aldehayyat and Al Khattab, 2013). In alignment with this principle, the hotel industry of this country has successfully incorporated all the technological aspects so that it can induce its growth and development. The customer database maintenance has been computerized as a result the service quality is improved as well as the rendering time is reduced.
Economic Factors
The key environmental factors take into account the responsibilities of any company towards the environment. The government of the country has established certain frameworks to ensure that the businesses are not causing harm to the environment. In accordance with this framework, the hotel industry of this country follows the frameworks. Reduces the waste, uses recyclable products, reduced the use of plastic materials and so on (Bharwani and Mathews, 2012). Moreover, the use of non-renewable resources such as water has also been standardized so as to establish sustainability. Therefore, it can be stated that the hotel industry is presently following all the necessary guidelines so as to become responsible towards the environment.
The legal system of United Kingdom is quite organised and efficient. This certainly ensures the comfort for the business organisations operating in this country. the hotel industry is also liable to follow certain legal frameworks. These include paying the employees the minimum wage as mentioned by the government, specifying the working hour, ensuring no workplace discrepancies etc (Mohammad et al., 2014). It has been observed the hotel industry follows these frameworks quite effectively.
In order to analyse the external environmental factors Porter’s five forces framework is used. This framework takes into account five key forces which operate together and leaves a strong impact on the business environment. These five key forces in accordance with the UK hotel Industry are explained one by one as follows,
The bargaining power of the buyers arise when they are3 faced with a large number of alternatives and low switching costs. As the hotel industry of United Kingdom is very competitive in nature as there are numerous hotels which are operating in the market for years. At the same time the reaction time of these competitors is very low, this means that if any hotel implements a certain strategy to attract customers, its competitors will react immediately (Wadongo et al., 2011). Therefore, the buyers are faced with a wide range of alternative options which are providing same type of products and services. Due to the similarity in service type the price is also same. Therefore, the customers can shift to any other option at a very low switching cost.
The bargaining power of the suppliers is low. This is because there are numerous suppliers which are responsible for supplying materials to the hotels. As a result if a supplier bargains for prices the hotels can switch to other supplier who will be supplying at a lower price (Al Khattab and Aldehayyat, 2011).
Social Factors
The force threat of new entry arises when a new company enters into the industry with a new and unique set of strategies to compete with the existing organisations. This threat in the context of UK hotel industry is low. This is because there are numerous successful hotels which are currently operating in the market quite successfully (Zorpas et al., 2012). These hotels are enormous in size and have earned good reputation as well. In order to compete with these hotels enormous capital investment will be required and significantly large time frame should have to be taken into consideration. These are not possible always for a new entrant.
It has already been stated previously that there are numerous hotels which are profitably operating in the market of United Kingdom. As a result it is quite likely that these hotels are competing with each other and implementing significant strategies so as to increase individual market shares (Jackson, 2010). Therefore, in such an industry providing unique products or services is quite difficult and hence the hotels provide slightly differentiated products and services at more or less same prices. Hence it can be stated that a wide range of alternative products are available in the market and therefore gives rise to a high level of threat.
The competitive rivalry determines the interrelated competition level among the hotels operating in the market of United Kingdom. Due to the investment friendly economic structure of the country the number of hotels within the country is increasing over time (Helms and Nixon, 2010). As a result the level of competition is also rising. Therefore, the level of competitive rivalry in the context of UK hotel industry is increasing with the passage of time.
Two macro factors have been identified which acts upon the business environment. These are the political factors and economic factors. The political factors of the country are in favour of the hotel industry. The strong democratic position coupled with the firm administrative framework has made the investment scenario quite favourable. After the two consecutive world wars United Kingdom has rebuilt the country in a stronger and modern nation (Tavitiyaman et al., 2011). It holds a major power in the global politics by the virtue of its permanent membership in the UN Security Council. Through the strong economic as well as administrative framework the country has depicted robust economic growth and high per capita GDP. A major proportion of the residents of United Kingdom possesses high purchasing power which is a result of these government framework and this also makes it beneficial for the businesses to expand in this country.
Technological Factors
The economic situation of the country is found to be in a very good shape and structure. In the context of future aspects, the government of the country may reduce the corporate tax rate and strengthen the financial structure. This will, in turn, contribute to developing the business organisations and thereby increase their profits (Benson and Henderson, 2011). Hence, it can be stated that the economic frameworks prevalent in the country is fruitful for the hotel industry and the future reforms will also help the hotel industry to flourish further.
Conclusion
In order to conclude it can be stated that external and internal factors play an important role in shaping up the business environment of any organisation. In relation to the PESTEL analysis of UK hotel industry, it has been observed that specifically, the political and the economic factors are affecting the business environment mostly. However, as the current position of United Kingdom is better more and more businesses are being attracted towards the UK market. It can be expected that the hotel industry will further grow in future. In the context of external factors, Porter’s five forces analysis have been conducted and it has been observed that the buyers bargaining power and the competitive rivalry among the key players in the market are significantly high. However, this can be regarded as a good sign for the UK hotel industry.
Reference List
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