General description of the business
The business will be structured as a limited liability company. The international hotel business has a lot of potential as more people are moving across borders for leisure, business or tourism purposes. United Arab Emirates (U.A.E) has been categorized as 18th among tourism competitive businesses by the World Economic Forum (WEF).
The UAE is well known for its great shopping facilities, hotels and other tourist destinations. All the year round, tourists and business people flock the UAE to catch a glimpse of the splendid world out there and spend some money too.
The hospitality industry in the UAE is experiencing a boom in business as new and returning customers are flocking the local hotels causing an influx of patrons. Travelers, such as tourists are in pursuit of comfort, which they are willing and able to part with a fortune, while businessmen are in search of convenience and the business opportunities the region offers.
Considering the hospitality industry in the UAE, there is still a lot of potential although the market is quit dominated by established brand names. However, for new entrants into the market there is still a lot of potential. We intend to establish a startup company in Dubai, by the name C-Zones Bar & Breakfast.
The B&B is a charming facility that would be located in a remarkable region recognized as a trendy tourist and traveler target, it is well appropriate for this use. In addition, the locality is recognized for its magnificence and focus of such facilities.
Tenancy, income and room rate analysis are confirmed by broad research carried out over a four year period. The analysis consists of certified data and information obtained through countrywide commerce associations and the personal market analysis. Expenditure management procedures have also been acknowledged through industry connections. From these connections, the facility will be able to gain from reserves which were not available to a smalltime purchaser.
An growth map is also in position that will let the Bed & Breakfast to expand its client blend and enhance revenues. The premise has an amazing common lounge where the patrons may hang out, a private garden courtyard, and the adventurer Culinary Centre.
The market
Within the hospitality industry, C-Zones will be competing directly with other Bed & Breakfast facilities and indirectly with hotels. C-Zones will be targeting three main categories of clientele: the holiday travelers. This category of visitors to the UAE is increasing at 12 percent a year with 14,000 prospective clients. The second category is the business travelers, which is growing at 10 percent with a lot of potential. The last category is the locals.
Competitive edge
C-Zones has two main cutthroat edges that distinguishes it from the opponents. The first is to provide a first class facility with attention to detail and client service. The employees realize that their mission is to make sure that the clients have the best stay with them and are happy. Their second competitive edge is the uniqueness of the premises whereby, the premises has a wonderful structure that is located in a unique place.
Mission
The task of C-Zones Bed and Breakfast is to offer an amazing bed and breakfast experience within UAE. We intend to attract and retain customers and get a market niche. Our facility is expected to go beyond the expectations of our clients by providing a contemporary, world class experience, through never-ending commitment to the advancement of our affiliates and products to attain optimum growth and profitability.
Company Summary
C-Zones is an amazing inn located at Dubai. We are a startup company that will provide several furnished rooms to our clients who are looking for the finest service. All the rooms are individually furnished with antiques and overlooking the town’s splendid scenery. We will offer a full breakfast every morning to our customers at our competitive prices.
Ownership
The C-Zones Bed & Breakfast is owned and managed solely by Jamaal and Aziz. They have renovated an old house that can accommodate 105 visitors at a time. This is a new start-up company for the partners who are equal owners in the business in terms of capital contribution and share of liability. Jamaal and Aziz bought the premises a little over a year ago and have renovated the place to become a wonderful facility.
Strategies and objectives
The goals of C-Zones B & B for the first three years of existence are:
- To create a Bed & Breakfast whose main objective is to go beyond the client’s expectations together with the guideline of “unprecedented hospitality and service standards”.
- The C-Zones B & B will attract more visitors on a weekly basis at any time of the year.
- To raise the number of customers by 10 percent every year through deluxe service to 90 percent occupancy in the third year.
- To create an ongoing concern, which carry’s on off its individual cash flow
- Create a customer satisfaction rate of over 90 percent.
Strategies
According to (Wheelen and Hunger 30-66) strategy for business falls under a hierarchy of three levels, a company’s most important strategy that determines the overall direction of the organization which are called corporate strategy and can be fulfilled by formulating and implementing business/divisional strategies which occur at the product level and go ahead to give businesses an advantage over others as far as their product offering is concerned.
Furthermore (Wheelen and Hunger 82) suggest that for business strategies to be successful functional/operational strategies which aim to maximize productivity within various functional areas must be formulated and implemented.
Therefore strategies are divided into 3 classes. The top most level of strategy includes corporate strategies which are the overall set of strategies that define the overall direction which a business is to follow. Corporate strategies may consist of growth, stability, or retrenchment strategies.
Startup businesses in this case, the hotel, employ a strategy which is known as a stability strategy in its first years of operations, this is because in most cases entrepreneurs who operate start up businesses understand that during the initial year of their businesses they expect to make no profits because of the huge costs that are involved in setting up the businesses.
This is therefore why startup businesses employ a stability strategy that intends to take a pause and rest because of the usually large investments that investors might have put in the business. If managers of these businesses do not do so, they may exhaust all resources and end up with no further resources to operate their businesses forcing closure.
As time goes on, the hotel can then adopt a pause and precede strategy that is dependent upon the actual situation on the ground. After a period of say 2 years, the hotel may then decide to adapt a growth strategy or settle upon serving a smaller market depending on the situation on the market then.
Hotel’s business strategy is a cost leadership model that intends to sell its products at a low price. In order to achieve these corporate strategies, the hotel will be required to put strong policies, programs, budgets and procedures that will go to ensuring production schedules and sales targets are met in time without and delays. Functional strategies intend to foster quality, cost saving, and differentiation.
Tactics that will be used to achieve strategic goals
Keeping the Customers is quite important once the hotel acquires a customer, it will be best if it attempts to maintain a relationship between itself and its consumers in order to retain its customers. The company will need a loyal customer base, and the loyal customers are the most important factor of their company.
The company has to device some important promotional strategies so that the customers always come back to their concern. These strategies include providing a superior customized service for its products at the cheapest possible prices that is consistent with the specific consumer needs (Case 220-238).
Trying to acquire new customer will mean that the hotel will device means to allure new customers and try to retain them as far as possible. These will increase the boundaries of the company in a new level.
Furthermore, the hotel will encourage existing consumers by using various techniques to bring in new customers and therefore the importance of maximizing the consumer experience is critical so that consumers will always have something good to say. When consumers use Word of mouth and lure other consumers it is cheaper than using other means of acquiring consumers.
Safety is a key concern for consumers and therefore in recent times security has been a very important concern for the individuals who use hotels (Kotler ‘Principles of Marketing’ 20-50). The company therefore, will take strong security policies that will ensure the safety of consumers and their property
Trying to acquire new properties by expansion and is a long-term corporate strategy that involves either acquiring and opening up new branches with the aim of serving a larger market in order to increase revenue. It is therefore necessary if the hotel wants to expand to acquire new properties.
Keeping an eye on the competitors is a very important tactic that leads to technical excellence especially since every day new organizations are entering into the hospitality market with a very huge financial backing. It is therefore necessary to use competitive intelligence to gather useful data that will be used by the hotel to achieve a competitive advantage (Case 210).
Promotion is a critical part to a brands success and therefore entrepreneurs and companies should appropriately apply various parts of the promotion mix in order to increase the chances of the product selling in the market. Promotional activities aim to educate, inform, remind, persuade and encourage repeated purchase about products and brands at the end of the day. A good promotional mix should always target the consumers and sellers. Consumer promotional activities encourage consumers to buy more of the product. And therefore consequently the hotel will use advertisements, brochures and direct selling to achieve its objectives and stimulate sales and revenue growth.
Liabilities and risks
The hospitality industry is faced by many risks. For C-Zones just like any other player, the market is still an open place.
Management Team
The C-Zones Bed & Breakfast can only attain its missions and objectives through the management. Jamaal is an experienced entrepreneur with work on invaluable business experience. While Aziz has earned his MBA giving him amazing insight and experience directly related to what he is doing now.
The C-Zones Bed & Breakfast will be able to leverage its wonderful facility and turn it into a beautiful, deluxe Bed & Breakfast catering the entire city. This will be done through the commitment and business skills of the two partners. It is expected that the Bed & Breakfast will be doing so by the third month in operation and will make reasonable returns by the end of year one.
Organization Structure
Organizational structures trys to explain the relationships between authorities and communication lines in the organizations hotels (Kotler ‘Principles of Marketing’ 20-50). Organizational structures within companies cause or allow views to be brought forward, or presented as a model to be studied on how those businesses are managed and run.
If an organization has a clear framework/structure put in place, it is made very clear within the departments in the organization on who does what and so forth thus leaving no room for sloppy work and blame games erupting due to unfulfilled objectives. Different organizations employ different organizational structures depending on their objectives and what they intend to achieve after a set period of time.
These structures may either be flat or tall for example the Hotel’s organizational structure takes a flat format. The organization structure of the hotel is a flat structure that will assign the duties of management between all the partners. It is vital that entrepreneurs closely monitor start-up businesses during their initial years of operation by dedicating a lot of time to oversee their smooth running.
Therefore all the employees and supervisors will be directly answerable to the partner who is sitting as the managing director. It will therefore be the responsibility of the partners to perform all relevant managerial duties and consult with other partners to make well guided decisions.
Personnel plan
The final personnel mix will consist of both permanent and part-time employees thus enabling the company save costs. If work and demand for lodging facilities increase according to demand and supply patterns depending on the situation, the company may the make a decision to lay off or employ more part-time workers. The existence of permanent employment contracts goes ahead to instill loyalty amongst employees which can be used to the benefit of for the hotel.
Services
The C-Zones facility offers three-star lodging on the amazing Dubai coast. We are an all inclusive B & B facility with a full complimentary breakfast served every morning. “Impeccable rooms, each with its own theme are ready to embrace the individual who is looking for solitude, or the more adventurist person who likes to be active.” We organise trips around the city for those who are interested.
Market Analysis Summary
The C-Zones B & B has various target groups that it is intending to draw. The first are the local residents who just want to have a weekend getaway. Kotler, (141) notes “they may have activities planned for the weekend on the coast or just chose to relax in a homely environment.
The second category is the travellers and vacationers who choose to stay in Bed & Breakfasts instead of a hotel, or onboard their boats.” While others just want to experience a themed weekend. However, our target customer could include others outside these categories though these are our target groups.
Market Segmentation
Our clients can be generally grouped into three categories:
- Weekend getaway customers. These local residents looking to get away from their life so they come to the C-Zones B & B to escape.
- Travelers/vacationers.
- Experience Executive B & B Service. These people are mostly delighted returning customers who will be looking to experience our deluxe services.
Market analysis
Segmentation and market analysis
Segmentation is a process by which an organization partitions a market in order to make products that are specifically meant to cater for the needs that are specifically meant for that portion of the market hotels (Kotler ‘Principles of Marketing 82).
Companies may either choose to serve the whole market and therefore have a mass market orientation or else decide to serve a given portion of the entire market. It is therefore appropriate to state that the hotel will serve the lower end of the market which consists of individuals who desire to spend less in accommodation and therefore save funds.
The hotel will consequently design bed and feeding packages that will match the needs and resource capabilities of clientele who fall within this specific segment.
Competition
It is highly important that every business operates with a certain degree of competitive advantage. It is also vital that the hotel comes up with an overall competitive strategy that the hotel will pursue in order to compete with other industry participants. According to Michael porters, there are generic competitive strategies that participants within an industry are allowed to pursue.
These strategies either concentrate on a narrow or a wider perspective of the total market and at the same time either adopts a low cost strategy or a high differentiation approach (porter 64). The choice of competitive strategies has an impact on the price strategy followed by an organization.
Companies who don’t adopt a differentiation approach may at the end of the day adopt a mass market strategy end up pursuing a market penetration strategy which is basically a pricing strategy that aims to sell affordable low priced products to the market.
When Companies follow a differentiation strategy they are most likely to adopt a skimming/milking price strategy which involves charging high rates for a product in order to recover extensive funds that may have been involved in the process of product research and development stage of product design.
Marketing Research will be gathered continuously and the subsequently obtained Information that will be used in the process decision making and policy selection will be attained from industry research publications and other sources of data. Marketing research firms can be contracted from time to time depending on the actual situation to achieve more specific information nevertheless the company can also use its resources to serve the same purpose (Kotler ‘Principles of Marketing’ 222).
Diagram 2: A diagram of generic competitive strategies that can be pursued by businesses. Adopted from Wheelen and Hunger strategic management (2002) and business policy printed with permission of Free Press from the Competitive Advantages of Nations by Michael E Porter 1990.
The ability to operate on cost leadership is advantageous because it means the hotel will use less capital that is usually high in the case of differentiation, the company will in turn go ahead and offer its products and services at a low price and therefore attract a lot of customers ( Porter 12-23)
To further understand forces driving competition within the industry Porter’s model can be used to look at the five forces which shape any industry. These five forces that will determine how well a company can operate in a given environment and be able to satisfy its customers and realize a profit by affecting either the floor or ceiling price for goods and services. The forces in porter’s model include
Threat of new entrants– Barriers are placed by existing companies and regulatory authorities to prevent new entrants from causing abnormal profit flows for existing companies, some of the threats include government policies, exploiting cost advantages, access to distribution, capital requirements. In this case the hotel industry is known to be very capital-intensive since acquisition property to build hotels is quite expensive. Making this venture of the hotel industry an excellent one is vital since the higher the capital structure of an industry is, the more harder is it for new entrants therefore, companies venturing into this industry can experience some sense of security
Intensity of competitive rivalry among existing firms– firms within the same industry always compete for the available market this can be through powerful competitive strategies, innovation, structure of industry costs, switching costs, degree of product differentiation and so on and therefore the hotel intends to place itself strategically to compete with rivals (Case 11).
Threat of substitute products or services-consumers can opt to go for substitute products if quality is better, price is relatively better, or the cost of switching is favorable. The hotel also expects to set strategies that will also compete with any substitute services and products at the same time using its low cost strategy to achieve competitive advantage.
The bargaining power of customers-the bargaining power of buyers depends on the number of buyers within the industry who purchase from the available suppliers. The hotel will develop suitable strategies and products that will enable it satisfy consumers while at the same time spend less therefore leaving them feeling as if they have a high bargaining power.
The bargaining power of suppliers-Suppliers who provide raw material can determine the profitability and viability of an industry by setting prices of implements which in turn affect the profit margins (Case 190). Therefore the hotel will devise strategies which will involve multiple sourcing strategies to reduce the barging power of suppliers that may be disadvantageous to the hotel by imposing extravagant expenses.
Swot analysis
External environment
Strategic planning be it short or long term, is done in the light of company’s strength, weaknesses, opportunities and threats. A company’s strengths and weaknesses take a critical look into internal factors such as company resources, culture and structure while on the other hand opportunities and threats take a look at a company’s external environment (Wheelen and Hunger 2002).
In business management, external analysis is one of the most important factors of the existence of the company this is because only in the light of what the external environment is all about that a company can successfully formulate and pursue strategy. The basic external analysis is an attempt to match an organization with the outside impacts in which the business is situated and how this influences overall strategy. To understand the external analysis on the Hotel International, we have to concentrate on one property of the hotel.
Opportunities-The availability of massive tourists and individuals flying into the U.A.E to conduct business is a perfect opportunity that the hotel is expected to pursue and make a profit out of it. Furthermore the economic integration of U.A.E and other countries within Asia is good advantages that can be exploited in the long run to increase and expand the level of business enabling the hotel even go multinational depending on the business environment (Porter 88-120).
Threats– The increasing level of competition within the Dubai hotel market presents a threat for the hotel. Much bigger and better hotels that have more resources may have the ability to imitate and even steal potential clientele.
Furthermore, increasing government regulations on the hotel industry is more likely to limit the level of business operations simply because the law has made it clear that there are many compliance rules that the hotel must put in place before operations begin and these compliance regulations may have a quite costly impact on business of the hotel.
Internal Environment
The internal analysis of a company basically focuses on the strength and weaknesses of the organization itself, and how they impact the total business scenario of the concern and company strategies (Wheelen and Hunger 2002).
In this aspect one thing is very important, what can be determined as strength can change into the weakness in another aspect. There are factors like finance, marketing, and the service providing capabilities, the macroeconomic factors, the technological changes and most importantly the different legal matters that come with the maintenance of the properties.
Strengths– A key strength of the hotel is expected to come from the highly experienced partners who all have had a background in doing business or either the corporate world. The partners are expected to import their wide variety of knowledge and apply it into the hotel to make the hotel business become successful.
Furthermore the use of a flat organizational structure means that the managing partner together with other partners will be able to keep a close and keen eye on the business and therefore be part of day to day decision making. This will enable more valid and practical decisions to be made to the advantage of the business (Wheelen & Hunger 44).
Lastly since the hotel is new it will be much easier and simple for the leadership to mold the most suitable corporate culture into the mindset of their employees. Companies with a good culture are more likely to be effective and highly efficient in the process of service delivery and therefore consumers of the service may end up being very pleased and highly satisfied (Case 180-188).
Weaknesses– Constraint financial resource may limit the level of growth that the hotel may intend to achieve during its operations. This is simply because every partner has made it clear that they are willing to operate on a given budget and they are no longer willing to increase the overall capital structure.
They instead intend to wait for returns and plough them back into the business. It is this situation that may hinder the hotel from competitively competing with other hotels who are key players within the same segment of the industry. Additionally, lack of previous direct experience by the business partners in the hotel industry may prove as a challenge to the hotel and may at some point present itself as a weakness.
Financial analysis
Assumptions
- The business will operate smoothly for the first 3 years.
- Only 40% of all costs are fixed costs while the rest are variable costs.
- The business will realize growth in revenues is subsequent years.
Table 1: List of total expenses (2010-2013)
Sales Forecast
Table 2: Sales Forecast for years (2010-2013)
Expense Forecast
Expenses will be incurred on labor costs, equipment and departmental costs, as well as advertising and promotional activities. Labor costs for the company are not expected to rise drastically since employees may be re-assigned to operate in the new department. New personnel may be sourced for if need arises. Labor, advertizing and promotional expenditures are estimated to be around 20 percent of the proceeds from the department.
Breakeven
Table 3: Contribution Margin Forecast (2010-2013)
By assuming that 40% of all costs are fixed costs and the rest are variable costs then the breakeven point in dollars using the formula break even=fixed costs/total variable cost/total sales revenue will be
Year 1 =$ 133,333
Year2 =$64,621
Year3=$73,415
Pro forma Profit and Loss Statement XYZ Hotel
NB: When adding up the total expenses it is advisable to subtract any capital expenditures that may have been used to acquire assets which will be used to realize future benefits for XYZ hotel. Therefore prepaid rent is an asset and so are plant equipment and machinery therefore they will not be included as expenses. Until the end of the financial period falling under year one pre-paid rent will be then entered into financial records as an expense once it has been fully consumed.
Pro forma Balance sheet for XYZ Hotel
Assets
Cash 130,000
Prepaid Rent 60,000
Plant and equipment 60,000
TOTAL Assets 250,000
Liabilities
Equity Capital (500 shares @ $50) 250,000
Total Liabilities 250,000
Implementation Milestones
The brand management department will constantly evaluate its performance levels, which will be measured in comparison to the anticipated contribution margins in the three years of operations. Implementation will start by setting simple short term goals which by using special tactics which will be incrementally applied in order to achieve, long term objectives of department and the company as a whole.
Follow up will be done on a periodical basis so as to make sure that initiatives are complete and targets realized. The plans made should be specific, so that performance can be measurable and realistic enough so that they can be achievable. Once a concrete plan is set upon, milestones will be agreed upon to aid in the implementation process.
Therefore key performance indicators such as month to month customer traffic, sales levels and inventory levels, consumer satisfaction reports can be used in the process of changing and altering strategy.
Conclusion
Businessmen and entrepreneurs can no longer ignore the importance of business planning and strategic planning because they are a key pillar of success for both startup and mature business organizations. It is therefore important to develop plans and ensure that implementation is done within time, furthermore it is important to continuously evaluate progress of business plans and also make strategic adjustments when necessary in order to achieve overall organizational objectives.
Works Cited
Case, James. Competition: The Birth of a New Science (180-236). New York, NY: Farrar, Straus and Giroux, 2008. Print.
Kotler, Philip. Marketing Insights from A to Z: 80 concepts every manager needs to know, New Jersey: John Wiley & Sons Inc, 2003.
Kotler, Philip. Principles of marketing, (2nd edn), New York: Prentice Hall, 1999.
Porter Michael. The Competitive advantage of nations, illustrated edn, Northampton, MA: Free Press, 1990.Print.
Wheelen, Thomas. & Hunger, David. Strategic management and business policy. New Jersey: Prentice Hall, 2002.