SWOT Analysis s4

SWOT Analysis

SWOT analysis is a simple framework for generating strategic alternatives from a situation analysis. It is applicable to either the corporate level or the business unit level and frequently appears in marketing plans. SWOT (sometimes referred to as TOWS) stands for Strengths, Weaknesses, Opportunities, and Threats. The SWOT framework was described in the late 1960's by Edmund P. Learned, C. Roland Christiansen, Kenneth Andrews, and William D. Guth in Business Policy, Text and Cases (Homewood, IL: Irwin, 1969). The General Electric Growth Council used this form of analysis in the 1980's. Because it concentrates on the issues that potentially have the most impact, the SWOT analysis is useful when a very limited amount of time is available to address a complex strategic situation.

The following diagram shows how a SWOT analysis fits into a strategic situation analysis.

Situation Analysis
/ / \
Internal Analysis / External Analysis
/ \ / / \
StrengthsWeaknesses / OpportunitiesThreats
|
SWOT Profile

The internal and external situation analysis can produce a large amount of information, much of which may not be highly relevant. The SWOT analysis can serve as an interpretative filter to reduce the information to a manageable quantity of key issues. The SWOT analysis classifies the internal aspects of the company as strengths or weaknesses and the external situational factors as opportunities or threats. Strengths can serve as a foundation for building a competitive advantage, and weaknesses may hinder it. By understanding these four aspects of its situation, a firm can better leverage its strengths, correct its weaknesses, capitalize on golden opportunities, and deter potentially devastating threats.

Internal Analysis

The internal analysis is a comprehensive evaluation of the internal environment's potential strengths and weaknesses. Factors should be evaluated across the organization in areas such as:

·  Company culture

·  Company image

·  Organizational structure

·  Key staff

·  Access to natural resources

·  Position on the experience curve

·  Operational efficiency

·  Operational capacity

·  Brand awareness

·  Market share

·  Financial resources

·  Exclusive contracts

·  Patents and trade secrets

The SWOT analysis summarizes the internal factors of the firm as a list of strengths and weaknesses.

External Analysis

An opportunity is the chance to introduce a new product or service that can generate superior returns. Opportunities can arise when changes occur in the external environment. Many of these changes can be perceived as threats to the market position of existing products and may necessitate a change in product specifications or the development of new products in order for the firm to remain competitive. Changes in the external environment may be related to:

·  Customers

·  Competitors

·  Market trends

·  Suppliers

·  Partners

·  Social changes

·  New technology

·  Economic environment

·  Political and regulatory environment

The last four items in the above list are macro-environmental variables, and are addressed in a PEST analysis.

The SWOT analysis summarizes the external environmental factors as a list of opportunities and threats.

With the opening of the nation's hotel market to international competition at the end of 2005, China's hotels are at a critical juncture--a timely moment for a SWOT analysis to highlight the industry's strengths, weaknesses, opportunities, and threats. The strengths of China's hotel industry rest on the facts that China is a leading international destination with growing international brands and that the government has made a concerted effort to improve domestic brands through ownership changes and government regulation. At the same time, inefficient state ownership and management has held back many hotel operations--leading to overleveraged, unprofitable properties. That very situation opens a great opportunity for managers and owners who are willing to upgrade existing hotels, affiliate with growing brands, and expand their horizons into mixed-use developments. Ancillary businesses, such as appraisers, will also see great opportunity as properties are privatized. Moreover, educational institutions will have the opportunity to train a new generation of professional managers. Standing in the way of further improvements in China's hotel industry is the threat of an economic slowdown or a flare-up in regional political tensions that would reduce tourist arrivals and exacerbate potentially overbuilt markets. Also threatening existing properties is the very situation that provokes the SWOT analysis, namely, the opening of the industry to full competition from international operators, as well as effective domestic operators. On balance, it seems fair to say that as long as demand remains solid, the industry will continue in its efforts to upgrade existing properties and management methods, as well as work out overleveraged properties.

The hotel industry in China is currently going through fundamental reform in ownership structure and development. A SWOT (strengths, weaknesses, opportunities, and threats) analysis as reforms go forward reveals development opportunities as well as vulnerabilities to internal organizational and external environmental changes. Notable strengths include a growing market and the government's push to upgrade all hotel standards. Weaknesses include an overleveraged industry that has long been operated inefficiently by government entities. New and reinvigorate operators have great opportunities in this situation, as do those who offer ancillary services and management education. The greatest foreseeable threat is an economic slowdown or other event that interferes with tourist growth. With the 2008 Olympiad to be held in Beijing and a World Expo slated for Shanghai in 2010, such a downturn would most likely be temporary--meaning that the Chinese hotel industry has excellent prospects overall.

Keywords: hotel reform; ownership transfer; financial performance; SWOT analysis

China’s Hotel Industire

China's dynamic economic growth has attracted business and investment interests from around the world over the past decade. Corporate demand for travel and lodging services will increase as additional international corporations establish operations in China. Increasing corporate demand will put great pressure on four- and five-star hotels to maintain international service standards. In addition, China's long history and diverse tourism resources will attract both international and domestic leisure tourists to visit different parts of China, creating demand for different types of hotel products and services. The 2008 Beijing Olympics and the 2010 World Exposition in Shanghai will drive and sustain tourism and hotel development in this decade.

Since China's accession to the World Trade Organization (WTO) on December 11, 2001, China has been gradually opening its hotel market to international development and competition.

(1) By December 2005, China will completely open its market to international investors for hotel, restaurant, and other mixed-used real estate development projects. (2) Intensified competition from international developers and operators will pose great challenges to domestic hotel operations, of which 57 percent are owned by various government entities.

(3) To prepare domestic hotels--particularly state-owned hotels--for global competition, the Chinese government has initiated fundamental reforms in the hotel industry.

Strengths

China has witnessed the rapid development of its hotel properties over the past two decades. The strengths of China's hotel industry rest in

(1) Growing popularity of China as a major international business market and tourism destination

(2) Diversity and quality of China's hotel products

(3) Eefforts to standardize operations and improve service quality

(4) Increased development by global hotel corporations.

The growth of hotels appealing to international tourists has been fuelled by aggressive economic reforms in the past decade. This growth has paralleled rapid national economic expansion and the emergence of China as one of the leading tourist destinations in the world, from the eleventh most visited international destination in 1990 to the fourth most visited destination in 2002.

Second, China's hotel industry is now characterized as having diverse products that cater to various market segments. As Exhibit 1 shows, tourist-oriented hotels in China have grown steadily, from 1,987 hotels in 1990 to 8,880 hotels in 2002.

ustrates the distribution of the star-ranked hotels in each of the five star categories.

Five-star hotels made up 2 percent of the total star-ranked properties in 2002; 7.2 percent of those hotels held four-star ratings. One-third of China's tourist hotels were ranked as three-star hotels, and half were classified as two-star hotels. One-star hotels accounted for 9 percent of the total tourism hotels in China. There is no clear relationship between ownership patterns and star-ranking status since both state-owned hotels and privately owned hotels were found in all star categories.

Weaknesses

As China's hotel industry prepares for the international challenges ahead, its operators are keenly aware of the weaknesses that have been hindering effective management in domestic hotel operations. These weaknesses are particularly evident in

(1) Certain ownership structures,

(2) Debt issues

(3) Financial performance.

Excessive indebtedness is a national problem that has been plaguing not only the hotel industry but all businesses in China. China's banks are carrying an estimated US$500 billion in bad loans. The magnitude of bad loans by state-owned banks is attributable to poor lending policies, which forgo the vigorous assessment of project viability, and to corrupt lending practices between banks and borrowers. Many of the bad loans underwritten by state-owned banks were made in the past twenty years and have resulted in the banks' owning hotels, in whole or in part. For instance, the Bank of China formerly owned five hotels solely, and had partial investment interests in approximately two hundred hotels.

Domestic chain management refers to hotels managed by domestic Chinese management companies. As illustrated in Exhibit 3, several domestically branded hotel management companies have been developed over the past decade, with Jinjiang International Hotel Management Corporation currently representing the largest hotel management company in China. The Nanjing Jinling Hotel managed by the Jinling Group and the Beijing Kunlun Hotel, managed by the Jinjiang Group, are both five-star hotels. Examples of four-star domestic-chain managed hotels include the Jianguo Hotel in Beijing (managed by the Jianguo International Hotel Group) and the Zhejiang World Trade Center Hotel in Hangzhou (managed by the Zhejiang World Trade Center Hotel Group).

Domestic-independent management refers to independent operations without international or domestic management affiliations. Most state-owned hotels are independently managed and are distributed across all the star categories. For example, the five-star Beijing Yanshan Hotel and the Shenzheng Yangguang Hotel are both state-owned and independently operated. The four-star Beijing Friendship Hotel and the Shanghai Yinghe Hotel are also state-owned and independently managed. Most independent hotels that are state owned do not separate ownership and management.

Opportunities

In response to the poor performance of domestic hotel operations, fundamental reforms in China's hotel industry have been initiated. These reforms are intended to transform domestic hotels into profitable and competitive operations by shifting hotel ownership from the state to nongovernment business enterprises.

Several hotel-industry-reform models have been applied in various parts of the China. These include

* internal transfer of ownership,

* partnership between current management and new investors,

* exiting joint-venture projects,

* selling hotels to nonhospitality companies,

* hotel auctions, and

* creating domestic hotel holding and management groups.

Internal transfer. An internal transfer of ownership is essentially a management-led buyout. The property is sold to its management and those employees who are interested in continuing the hotel's operation. This model permits the transfer of state-owned hotels to limited-liability companies owned by the hotel's management and its employees. The general manager holds the majority stake in the new company, the assistant general manager and department managers also participate in stock ownership, and employees can participate in stock ownership if they wish. For instance, Suzhou's municipal government recently transferred the [yen] 63 million Lexiang Hotel to its management and employees.

Threats

Impediments to the future development of China's hotel industry need to be evaluated and analyzed for contingency planning. The external threats facing China's hotel industry include

(1) Overprovision of hotels

(2) Economic slowdown

(3) Intensified competition from neighbouring countries

(4) Political disruptions in the region.

overbuilding of hotels can be a major threat to profitable operations for both domestic and international hotel companies. In a rush to capitalize on potential hotel-market development, foreign and domestic hotel companies will continue to jockey for market position by developing new hotel projects. This development may be further fueled by the 2008 Olympic Games and 2010 World Expo. Development without sound market research and planning will lead to overbuilding of hotel properties, a lesson painfully learned by hotel developers in the United States in the latter part of the 1980s.

Marketing Initiatives

In past business was about revenue generation at all costs, then today's is about being as aggressive as you can with cost-saving strategies.

And yes, this even applies to your marketing and sales operations. Every company is learning to do more with less. Here are seven great low-cost, high-impact initiatives that could transform your marketing department into a lean, efficient, and deadly effective organization.

1. Develop and monitor the performance of your channels.

The current economy dictates that companies divest their underperforming assets. For marketing managers, this means carefully evaluating the performance of your sales channels and partnerships. Since most businesses rely on a network of resellers, distributors, service partners, or retailers to sell to customers, it is important to know the relative performance of each of these channels.

2. Retain and augment your most valued customers.

The cost of acquiring new customers in these choppy waters is very expensive. Sales cycles have increased, new buyers are apathetic, and marketing messages have diminishing impact. Initiatives focused on mining current relationships will prove to be very effective in these lean times. The cost of gaining incremental sales from a current relationship can often be less than that from a new customer.

3. Measure value creation for your customers.

The current macroeconomic downdraft has created a heightened sensitivity to value. Companies are carefully looking at all operations and their impact on profitability. Good marketing organizations have long understood this concept and have measured the performance of products or services in terms of quantifiable customer results. A good example is the claim Larry Ellison makes related to the millions of dollars he, or should I say Oracle products, saved his company.

4. Collaborate with customers.