Executive Summary
Internal and external environmental analysis is significant in the determination of the firm’s current competitive position in the industry.
Therefore, this report tends to examine both internal and external environment of the firm through the application of various appropriate management tools. The aim is to determine the strategic position and offer recommendations that would enable the firm sustain its competitive advantage.
Introduction
InterContinental Hotel Group PLC (IHG) is one of the largest hotel chains in the world. The firm operates hotels chains in over one hundred countries across the globe. In terms of bed capacity, value and market share, InterContinental Hotel Group is the largest in the world followed by Marriott International and Hilton Hotels.
The Company operates hotel chains in different brand names ranging from InterContinental to Hotel Indigo. In addition, the hotel chains are operated in different business models including franchising, management and fully owned or leased subsidiaries.
External environment analysis. PESTEL analysis
Political environment
Political aspects have been found to be predominant influencing factor in the management and operations of InterContinental Hotel Group given the fact that most of the hotels and resorts are situated in countries that have experienced both political stability and instability in the recent past.
Like any other industry or business, InterContinental Hotel Group requires politically stable environment in order to achieve its goals. InterContinental Hotel Group will thrive to expand in countries that experience political stability.
Economic environment
The recent economic recessions in many countries across the globe have resulted into many smaller businesses going under the operation levels. The disposable income has reduced considerably and few businesses are transacted. Besides, small hotel chains do not have supportive infrastructures as larger firms do.
Fortunately, InterContinental Hotel Group has considerable infrastructures that can support underperforming facilities. Therefore, economic decline greatly affected InterContinental Hotel Group. Though the economy is slowly recovering, it will take time before the individual disposable income increases while the spending on luxury products increases (Porter, 2000).
Social environment
Many social issues affect hospitality industry. However, the firm aligns its services with the target market needs including age and culture. The most important social factor influencing the industry is culture. However, the services of the firm are aligned with the socio-cultural needs of customers.
In China for instance, the socio-cultural events are highly encouraged not only for the young people but also for the aged. The socio-cultural events form part of the entertainment besides daily fashionable and luxurious setup, which is highly valued. Therefore, the firm is investing in areas where socio-cultural factors promote its business.
Technological environment
InterContinental Hotel Group incorporate online activities in its operations. As such, technology is integral for its success. The company relies in the development of ICT as most of its operations rely on the availability and usability of information technology. In essence, technology forms an integral part of the firm.
All aspects of the firms including sales, purchases, marketing, management, and operations depend on the development of technology. Therefore, InterContinental Hotel Group will only invest in an environment where technology is available and are cost effective.
Legal environment
Legal factors are critical for the establishment and operations of the firm. InterContinental Hotel Group must comply with the legal requirements of the country in which it operates.
Being an international firm, InterContinental Hotel Group must adhere to some of the legal requirements of each country business establishments. InterContinental Hotel Group can only open its businesses or websites in countries where the legal framework supports its business operations.
Internal environment analysis
SWOT analysis
- Strengths
The fact that InterContinental Hotel Group holds the largest hotel chains in terms of value enable it benefit from the leading competitive positioning. In addition, the firm’s broad geographical reach increases its capabilities of broadening the customer base.
Moreover, the firm has diverse brand portfolio. The Company’s brand portfolio consists of about seven diverse trademarks of hotels and resorts fully serviced and with an aim of offering excellent services to the customers. The diverse brand portfolio enables the firm benefit from increased economies of scale and the capability of taking advantage of large clientele.
Further, the firm has strong presence in both developed and emerging economies. The strong presence especially in emerging economies such as China has enabled the firm strengthens its competitive position and enhances popularity of its brand (Kotler & Keller, 2012).
Moreover, the firm’s pipeline development in the developing economies presents increased competitive advantage. Such developments enable the firm strengthens its global market share and take advantage of the flourishing hospitality industry in emerging economies.
- Weaknesses
The emphases on middle and up-scale luxury hotel and resorts brands leave the firm susceptible to several possible large-scale economic downturns. In addition, the single market focus on high-end travelers reduces the firm’s competitive edge.
The high-end market represents only forty-five percent of the total market share. Moreover, the growth and expansion of chained economy hotels in emerging markets offer alternative high-end services to clientele. The firm is not in a position to exploit new developments in the emerging markets given its size and brand positioning.
- Opportunities
The most probable opportunities are the vibrant growth in developing economies. Developments in economic conditions and infrastructures as well as growth in upper and middle-class in emerging economies presents new opportunities for the firm. Moreover, the increased growth of hospitality and tourism industry in these economies also presents exploitable opportunity.
Further, the growing purchasing power of younger generation, which is regarded as the most active customer demographic in both developed and developing economies presents new opportunity for the firm to exploit. The younger generations are the largest purchasers of fashion, music and luxury (Reid & Bojanic, 2009). The Company is in a position to capitalize on this customer segment.
- Threats
The general economic slump that has greater effect on the business conditions and consumer confidence presents a greater threat to the operations of the firm. Slow growth in global economy and business conditions have contributed to reduced income levels of potential travelers. In addition, reduced confidences of clientele from developed economies have negative impact on the firm’s operations.
Moreover, reduced air travels, political volatility in some countries, global increase in fuel prices, environmental concerns and terrorist threats have the prospective of dampening the performance of tourism industry. In addition, the rapid growth of competing economy brand hotels also poses a greater threat to the growth and development of the firm.
Strategic position
Currently, the firm is in the leading position in terms of value and market share. Besides, the wider geographical reach, diverse brand portfolio, strong presence in developing economies as well as pipeline development projects have enabled the firm increase its competitive advantage despite economic, political, social and technological challenges (Johnson et al., 2011).
Moreover, increased competition from upcoming hotels chains poses a greater threat to the development and growth of the firm’s brands. As such, the firm needs to establish ne plans that would enable continuous maintenance of its position in the market.
- Application of threshold capabilities
Moreover, the firm is using its threshold capabilities such as financial competencies to increase its competitive advantage. As indicated in the financial results (appendix), the firm has a strong financial base that enables the attainment of strategic objectives, which in effect adds to its competitive advantage.
- Application of distinctive capabilities
The firm is also using its distinctive capabilities to enhance its competitive advantage. Distinctive competencies including technical skills, highly professional and skilled workforces as well as quality products are critical for the firm to position itself strategically in the market. In addition, the competencies are the main source of its competitive advantage.
Recommendations
Given the current strategic position in the global tourism market and hospitality industry, the firm needs to enhance its brand performance to counter the threat posed by the upcoming economy hotel chains. In other words, the firm should ensure that its brand remain attractive and sustain market position leadership against competitors.
In addition, the firm should aim excellent returns through increased operations efficiency and revenue delivery. Excellent returns will ensure augmented financial capabilities enabling the firm to operate efficiently and effectively (Davies & Ellis 2000). Besides, the firm should build efficient business with better capabilities. The core capabilities will enable the firm to continue augmenting its market scale and knowledge.
Conclusion
Not only internal factors but also external environmental issues affect InterContinental Hotel Group management and operations. Despite external environmental challenges, the firm has managed to sustain its competitiveness. However, firm needs to enhance its brand performance to counter the threat created by the upcoming competitors.
References
Davies, H & Ellis, P 2000, “Porter’s competitive advantage of nations: time for the final judgment?” Journal of Management Studies, vol.37 no.2, pp.1189–1213.
Johnson, G, Whittington, R & Scholes, K 2011, Exploring strategy, Prentice Hall, Upper Saddle River, NJ.
Kotler, P & Keller, KL 2012, Marketing management, Prentice Hall, Upper Saddle River, NJ.
Porter, M 2000, “Location, competition, and economic development: local clusters in a global economy,” Economic Development Quarterly, vol.14 no.1, pp.15–35.
Reid, R & Bojanic, D 2009, Hospitality marketing management, John Wiley and Sons, Hoboken, NJ.
Appendix
Financial summary (2010-2012)