Dubai has become one of the most popular touristic destinations in the world. It is also characterized by one of the most favorable business environments. Various largest businesses in the world have offices in Dubai. The present paper provides a brief analysis of Dubai in terms of politics, economy and culture. The present report also provides certain recommendations concerning entry strategies for Starwood Hotels & Resorts.
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The company should take into account regulations existing in the region, especially concerning free zones. The company can also consider cooperation with one of the largest hotels chains in Dubai, Jureimah.
The company should pay special attention to human resources management, including training and internship for nationals. As for the entry strategies, the company should focus on deluxe services provided and specific peculiarities of each of the new hotels. Thus, one hotel can be culturally-oriented; the others can be designed for business people, etc.
Starwood Hotels & Resorts (also referred to as “the company”) is one of the most successful hotel chains in the USA as well as worldwide. It is also one of the fastest growing businesses in the world. Thus, according to the company’s 2011 annual report, from 2007 to 2011 the company opened 389 hotels (Starwood Hotels & Resorts Worldwide 3).
Notably, those were years of the world financial crisis and the company still managed to continue developing. The company owns luxury hotels (The Luxury Collection®, W®, Westin®, Le Méridien®, Sheraton®), select-service hotels (Four Points®, Aloft®) and an extended stay hotel Element®. The company continues opening new hotels worldwide.
At present, Dubai is one of the most favorable sites to develop hotel chains as the city is one of the most popular touristic attractions (Karrar-Lewsley n.p.). It is necessary to note that favorable business environment and prospects this Emirate promises attracts many hoteliers (Hall n.p.).
Nonetheless, Starwood Hotels & Resorts can become one of the leaders in this market as well. The company is planning to open at least five new hotels in Dubai in the period between 2012 and 2017 (Starwood Hotels & Resorts). The present report provides a brief analysis of business environment in Dubai and outlines a possible entry strategy for the company.
Brief Analysis of Dubai
Dubai is the second financial center of the United Arab Emirates (Abu Dhabi is the first). The economy of the country has largely relied on oil production which is regarded as a long-term challenge. However, the government’s efforts to diversify the economy of UAE has been quite successful so far as now GDP “based on oil and gas output” is only 25% (HSBC 8). The government pays a lot of attention to the development of hospitality business and real estate business. The government also creates favorable environment for foreign investors.
It is necessary to note that Dubai was significantly affected by the 2008 financial crisis as its economy heavily relied on the real estate business. The strategic plan of the country is to continue diversification of its economy, paying special attention to hospitality business. The UAE will also focus on improving education to provide the country with domestic professionals and it will focus on increasing its private sector employment.
The United Arab Emirates is “the 36th largest economy in the world and No.2 in the GCC” (HSBC 10). The country is regarded as one of the most favorable places to run business due to the existence of free zones. Zero taxes also attract investors from all over the world. According to The Economist, all top ten companies of Fortune 500 companies have their offices in Dubai (HSBC 10).
It is important to note that tourism is one of the fastest developing branches of economy in Dubai. Recent turmoil in the Middle East and Africa discouraged tourists from coming to those regions. Thus, major touristic destinations like Egypt and Tunisia have lost their popularity among travellers.
At the same time, stability in the UAE and governmental support favorably affected the development of the industry (see fig.1). Tourists from all over the world visit Dubai as one of the most attractive tourist destination (see fig.2). Notably, Islamic countries are now witnessing unprecedented economic rise, which boosts demand for luxury or high standard hotels in the region and major tourist destinations (Fattah n.p.).
Government, Regulations and Taxation
As has been mentioned above, Dubai is regarded as one of the most favorable places to run business. Foreign investors are attracted by free zones and zero taxes. However, there are certain negative points to take into account. The government’s strategic plan is to develop private sector.
Therefore, domestic businesses are in somewhat more favorable position. It is especially true for real estate sector. Thus, the company’s decision to reduce investment in “owned real estate” business and focus on franchising and management business can be winning in Dubai (Starwood Hotels & Resorts Worldwide 3).
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Furthermore, foreign companies which want to operate outside a free zone need to have a local partner. At that, the local partner should own no less than 51% of the business. Therefore, the company should consider operating within free zones. Luckily, there are about 30 free zones in the UAE. The majority of these free zones are in Dubai (HSBC 10). However, even if the company considers operating outside the free zone, there is another possible way out, i.e. franchising.
It is also very important to understand peculiarities of the country’s regulations and laws (Guffey & Loewy 80). When it comes to Dubai, the free zone laws and federal laws are quite complex and can be rather confusing. Finally, the government also pays a lot of attention to sustainable development of the region. There are quite many environmental issues to be addressed. Therefore, the government imposes certain regulations to secure sustainable development of the region.
Lavin et al. state that it is crucial to study competitors when entering a new market (96). Hospitality business is highly competitive. Major competitors of the company are world hotel chains like REIT (Starwood Hotels & Resorts Worldwide 3). As far as the region in question is concerned, the major competitors of the company are Jumeirah, Mövenpick and Marriott. The three hotels chains have announced that several new hotels will be built in Dubai within three years (see fig. 3).
However, it is necessary to add that this competition is not quite direct as the company and the companies mentioned above are in different segments, provide different range of services. Of course, Jumeirah is the most potent competitor as it is in the same segment as it specializes in the sector of luxury hotels.
This hotel chain is owned by government of Dubai, which means it has direct governmental support. However, the number of hotels existing in Dubai and hotels which are to be erected is quite small. Therefore, Starwood Hotels & Resorts can be competitive.
Starwood Hotels & Resorts is famous for its luxury hotels. Mövenpick is also famous for its 5-star range hotels. Though, this company provides less diversified services than Starwood Hotels & Resorts. Marriot specializes in full-service lodgings and extended-stay lodgings. As has been mentioned above, there is need for high standard services in Dubai. Thus, segment of luxury hospitality services is quite promising in the region. It is important to add that the hospitality market is far from being saturated:
Dubai, should be able to absorb more hotels as the government continues to develop demand generators [like the expansion of airport and harbour capacities and focusing on tourism, trade and logistics]. (qtd. in Jain n.p.)
As has been mentioned above, Dubai is one of the most popular tourist destinations. People from all over the world come to Dubai. As far as the perspective customers’ characteristics are concerned, the company’s customers are diverse. People of all nationalities and ages come to Dubai. However, the most distinctive feature of the company’s customer will be the customers’ income. The company will focus on people having high income. These people are accustomed to the highest quality of services provided.
The company should also take into account needs of the potential customers. Family vacation, romantic vacation and business meetings should be the company’s priorities. It is also important to take into account cultural peculiarities of the country and cultural peculiarities of potential customers. It is possible to work out special services for Muslims especially in such period as Ramadan.
Notably, human resources management needs special attention. Of course, the company will have a number of expatriates in the new hotels. However, it is important to take into account the government’s incentives and strategic plans (HSBC 24). Employers are encouraged to hire UAE nationals.
Therefore, it is important to minimize the number of expatriates in Dubai. Fortunately, the government has launched various incentive aimed at improving quality of education in Dubai. Thus, it is possible to hire a staff of professionals. Besides, tourism is a highly developed sector of economy and there are quite many high profile professionals.
It is also necessary to note that the company will need to adjust its HR strategies to Federal Law No. 8 of 1980 which is also referred to as Labor Law (HSBC 24). Apart from this, it is necessary to adjust code of conduct to cultural peculiarities of the country as well.
Another successful strategy the company can exploit is concerned with training. Admittedly, employees of the company take various training courses. It is possible to launch a program which will enable students from Dubai to take an internship in the company’s hotels in Dubai. This will enable the company to acquire the most aspiring, loyal and skilled workers (Plessis & Beaver 173). This will also help the company (as an employer) develop a favorable image.
Importantly, salaries should be competitive. Employees should be motivated. However, high salaries cannot be regarded as the only possible motivating tool. Thus, promotion and extra perks should be taken into account. Besides, the most successful local workers can take training courses at some of the company’s hotels worldwide. This cultural exchange will be favorable for the entire company.
Potential benefits of the company’s presence in Dubai can hardly be overestimated. In the first place, the company will be presented in one of the most popular tourist destinations. Dubai is one of the fastest developing touristic sites, which attracts millions of tourists worldwide.
It is estimated that interest to this tourist destination will grow (Karrar-Lewsley n.p.). This is important as coverage can be crucial for hotel chains. Starwood Hotels & Resorts is represented in some countries of the Middle East. Dubai is one of the centers of this region, so it is but natural that the company should also be represented there.
Besides, running business in Dubai is very profitable as region has a very favorable business environment. Dubai is also one of the places where luxury hotels are competitive. As has been mentioned above, Islamic world’s wealth is rising and there is need for luxury services which the company can provide. The region has a great potential (enough resources) which can help the company develop.
Possible Entry Strategies
In the first place, it is possible to open three hotels in free zones and two hotels can be opened in non-free zones. To open the latter two hotels, the company can resort to franchise. There are various local companies which can be interested in such kind of cooperation.
It can be also possible to start negotiations with one of the leaders on the touristic market of Dubai, i.e. Jumeirah. It is possible to launch a mutual project in one of the non-free zones. This co-operation can be beneficial for the company as it will be one of quite few foreigners in non-free zones.
Besides, cooperation with Jumeirah ensures governmental support to the project, which is also very important. This project can be quite costly, but it will be profitable. This can be a very noticeable entry on one of the most prospective markets. Possible motto of the project can be as follows: “Luxurious cooperation between the East and the West”.
As for the opening of the hotels in free zones, it is also important to consider major vectors. As has been mentioned above, luxury hotels in Dubai are not scarce. Therefore, the company should not only provide deluxe services, but should meet needs of specific groups of visitors. For instance, cultural peculiarities of visitors can be taken into account. Thus, apart from international and national cuisines, it is possible to introduce special offers for Ramadan. Special diets can also be suggested to visitors.
The majority of hotels focus on holiday travellers. However, Dubai is becoming one of the most significant financial centers in the world. Therefore, various services should be provided to business people. Moreover, one of the hotels can be designed totally to meet needs of this group of visitors. Great number of rooms and large conference halls should be available for business people. This specific feature of the hotel should be central for the advertising campaign.
As for the advertising campaign for the new hotels, the Internet should play an important role in this process. Information about the new openings should also be available in existing Starwood hotels and resorts. The advertising campaign should reach two major aims, to advertise the destination (which is already very popular) and to advertise the new hotels.
Each hotel should have one peculiarity. For instance, one of the new hotels can be designed for business. One of these hotels can be culturally oriented, i.e. focus on certain culture. Of course, the campaign should refer to the image of the hotel chain and high quality of the services provided.
Finally, now sustainability is one of the major concerns of people worldwide. Therefore, construction of the hotels should be sustainable. Sustainability of the projects should be also highlighted in the advertising campaign. Admittedly, this can be one of the major peculiarities of the hotels.
Thus, it is possible to note that Starwood Hotels & Resorts can successfully enter the hospitality market of Dubai which is one of the most perspective markets in the area. Luxury hotels of Starwood chain will perfectly fit the competitive environment of Dubai. The company will need to take into account specific regulations of the UAE and Dubai. The company should consider allocating some hotels in free zones and some hotels in non-free zones. In the latter case, the company should resort to franchising.
The company should also consider cooperation with one of the leaders of the hospitality sector in Dubai. This will make the company more competitive on the market in the emirate. Besides, the company should pay specific attention to human resources management strategies (focus should be made on the employees’ development). The advertising campaign should highlight major peculiarities of the new hotels. Finally, the advertising campaign should also specify that the company promotes sustainable development.
Fattah, Zainab. “Hotel Expansion Surges in Saudi Arabia as Mecca Goes Upscale.” Financial Post. 27 Jun. 2012. Web.
Guffey, Mary Ellen and Dana Loewy. Business Communication: Process & Product. Mason, OH: Cengage Learning, 2010. Print.
Hall, Camilla. “Hotel Group Books in for Gulf Expansion.” The Financial Times. May 2012. Web.
HSBC. Doing Business in the UAE, Dec. 2010. Web.
Jain, Shweta. “Can Dubai Check in More Hotels?” Gulf News. 22 Jun. 2012. Web.
Karrar-Lewsley, Tahani. “Emirate’s New Boom Is Hotel Rooms.” The Wall Street Journal. 2 Jul. 2012. Web.
Lavin, Frank, Peter Cohan and Gary Locke. Export Now: Five Keys to Entering New Markets. Hoboken, NJ: John Wiley & Sons, 2011. Print.
Picenoni, Rico and Hala Matar Choufany. 2012 Middle East Hotel Survey: The Impact of the Arab Spring. HVS, Apr. 2012. Web.
Plessis, Andries J. and Bob Beaver. “The Changing Role of Human Resource Managers for International Assignments.” International Review of Business Research Papers 4.5 (2008): 166-181. Print.
Starwood Hotels & Resorts. Starwood Hotel Directory: New Hotels, 2012. Web.
Starwood Hotels & Resorts Worldwide. A Better Way to Experience the World: 2012 Proxy Statement & 2011 Annual Report, 2012. Web.
Fig. 1. Economic Indicators – UAE
Source: Picenoni, Rico & Choufany, Hala Matar, 2012 Middle East Hotel Survey: The Impact of the Arab Spring, Apr. 2012; Web; 19 Jul. 2012; 16.
Fig. 2. Passenger Movements – Dubai
Source: Picenoni, Rico & Choufany, Hala Matar, 2012 Middle East Hotel Survey: The Impact of the Arab Spring, Apr. 2012; Web; 19 Jul. 2012; 16.
Fig. 3. Development Pipeline – Dubai
Source: Picenoni, Rico & Choufany, Hala Matar, 2012 Middle East Hotel Survey: The Impact of the Arab Spring, Apr. 2012; Web; 19 Jul. 2012; 17.