Analysis Porter’s Five Forces Essay

Analysis

Porter’s Five Forces

 

According to the latest report of the Economic Intelligence Unit (16 November 2007), the world travel and tourism industry is expected to record its fourth consecutive year of growth in 2007, following a downturn that began in the wake of the September 11th 2001 terrorist attacks on the US. This bouncing back is impressive, given subsequent large-scale terrorist attacks (often directly targeting tourists), health pandemics, a tsunami and the war in Iraq. All of this points to a shifting mindset among tourists, who are now much more battle-hardened and less likely to be deterred by perceived geopolitical risks. This should spell well for the industry’s ability to ride external shocks.

This industry will be analyzed taking hotel operators as market players and the tourists as the buyers. Buyer power is moderate because although the expenditure by incoming visitors should increase by an impressive 12.4 percent to US$710 billion in 2007 (compared to 8 percent rise in 2006), buyers are generally price sensitive (Economic Intelligence Unit, 16 November 2007). In the hotel industry, brand recognition is also important to attract consumers in a competitive and mature industry. A strong brand image helps to attract first-time customers and also repeat business, as switching costs are negligible in this industry. Despite that international tourist arrivals worldwide beat all expectations exceeding 800 million and achieving an all-time record (World Tourism Organization, February 2008); their buyer power is reduced because they are fragmented and seeking cheaper alternatives. Also, the impact of losing one customer is not a significant threat to the hotel business.

Suppliers in the hotel market are defined as the travel agents, property owners, developers and real estate companies, interior design and furnishings companies, architects, management and training service providers and marketing companies. As the tourism industry is labor intensive, the quality and availability of supplier services and equipment is essential to the hotel and motel industry. Hotel operators are reliant upon sophisticated technology and systems including technology utilized for property management, procurement and reservation systems which strengthen supplier power. The quality of training providers is also vital as skilled employees can boost hotel industry revenues. Staff costs are significant as success in the hotel industry is strongly influenced by the quality of the service provided. This is why supplier power is assessed as moderate.

The threat of new entry is moderate. According to the report of the World Tourism Organization (February 2008), tourism market by region showed that Africa recorded the best growth in arrivals last year (+9%), followed by Asia and the Pacific (+8%), the Americas and the Middle East (+6% each) and Europe (+4%). The hotel industry is strongly influenced by travel and tourism trends. With tourism on the rise, hotel operators will benefit. These opportunities make the market attractive to new entrants. It is possible to enter the industry in a relatively low-key way by opening a small, independent hotel or motel as a sole proprietor. However, the industry is capital intensive, and for a large-scale entrance, upfront investment in buildings, décor and furnishings, ICT infrastructure and staff is expensive. Regulations in terms of real estate and buying abroad can be restrictive and some countries operate general restrictions in terms of foreign investment. The purchase, leasing, and management of property may involve legal and financial complexities that require spending on professional services.

Competitive rivalry is high in the hotel industry. As the market growth is rising, countries with more tourist arrivals benefit their hotel industry. France still leads the pack as the country with most tourist arrivals with 76 million visitors. Also in 2005, Europe is by far the region with the highest number of arrivals per country (See Figure 1). More than two thirds of Europe, 36 out of 53 countries and territories, receive over a million international tourist arrivals a year and thirteen countries even exceed the mark of 10 million arrivals a year (World Tourism Organization, February 2008). In this case, Mauritius, being in the Middle East and Africa, should work harder to attract visitors in their area. The degree of differentiation is also on the rise in the hotel industry because consumers are now seeking a specialized type of tourism, particularly medical tourism. For instance, Dr. Jason Yap, the director of healthcare services for the Singapore Tourism Board, stated that “out of the nearly 10 million visitors to Singapore in 2006, some 410,000 came specifically for healthcare” (Otley, November 2007). In this case, Mauritius should not rely mainly on attracting tourists with its pristine beaches, but they should also explore other types of tourism like medical tourism.

Figure 1. International tourism by region of destination percent share.

Threat of substitution remains high due to the financial slump experienced in the United States. It is believed that outbound tourists in the United States have fallen and these travelers choose to travel locally than internationally. With the cheaper dollar, New York City’s tourist arrival “grew by 20%, to 8.5 million… Many of those visitors came from Germany, Spain, Italy, and France” (Woo, 3 March 2008). In this case, the hotel industry in Mauritius might be affected by the financial woes because one of its tourist sources, the United States, is facing a financial slump. Substitutes include alternative forms of leisure accommodation, such as camping facilities for other recreational activities, or informal accommodation with friends and family.

 

 

 

 

 

SWOT Analysis – Mauritius Tourism

Strengths
Weaknesses
1.      Steady growth in arrivals

2.      Outstanding attractions

3.      Stable country economy
1. Reliant to beach destinations

2. Isolated location

3. Overshadowed by other tourist destinations
Opportunities
Threats
1.      Potential from Internet

2.      India as market
1.      Unresolved risks

2.      Stiff competition in the tourism industry

3.      Oil crisis
Strengths

 

·         According to the Economic Intelligence Unit (7 Sept. 2007), tourism remains the main service industry in Mauritius. Tourism is the third-largest foreign-exchange earner–the 788,000 visitors in 2006 brought in US$1bn–and represents around 9% of GDP. The six largest markets are: France (accounting for 23% of tourists in 2006); Reunion; the UK; South Africa; Germany; and Italy. At the end of March 2007 around 26,000 people were directly employed in the tourism industry and indirect employment is around 35,000.

·         With its tropical climate, beaches, coral reefs and scenery, Mauritius maintains to be an outstanding attraction for tourists.  Unlike many tropical resort areas, Mauritius has always aimed for the top of the luxury market. Mauritius have superb five-star hotels that offer stunning, state-of-the-art spas, alluring boutiques and clean beaches with water sports and most have great kids’ clubs. Visitors can arrange for island tours, big-game fishing, catamaran excursions and scuba diving (Raferty, 2003).

·         Since independence, Mauritius has developed from a low-income, agriculturally based economy to a middle-income, diversified economy with growing manufacturing, financial, and tourist sectors. Both the government and the people generally view tourism favorably as a source of jobs and economic growth. As the employment rate is around 95%, tourists are not overwhelmed by beggars and the crime rate is exceptionally low.  Mauritius makes a positive impression on tourists as a busy, well-organized place and offers ethnic diversity (Durbarry, 2002).

Weaknesses

·            Mauritius is limited to pristine beach destinations. It should consider other types of tourism to make this country draw more tourists in the future.

·            The location can also be a problem because it is far and more money is needed just to get there. According to Rafferty (2003), visitors arrive to Mauritius by nonstop night flights from Paris and London, with only a two- or three-hour time change. Those traveling from the U.S. should plan to add an overnight stay in Paris or London. Some Americans head for Mauritius after an African safari or a business trip in the region.

·            Since Mauritius is a small island nation, it is usually overshadowed by bigger and popular destinations like France, Thailand and Maldives.

Opportunities

·            The Internet can be a venue to popularize Mauritius as a prime tourist spot. As the Mauritius government has placed high priority on creating an “intelligent” or “cyber” island with a high-wage, high-skill services industry, this development can help promote Mauritius.

·            Mauritius is considering a range of measures to encourage tourism from India. These include allowing Indian tourists to use the Indian rupee in Mauritius. The number of Indian visitors to Mauritius has been growing steadily and reached 37,498 in 2006 — 4.8% of total tourist arrivals and an increase of 26% on 2005. In the first three months of 2007 the number of Indian visitors was 12% higher than a year earlier. Air Mauritius plans to increase both the number of flights it operates to India and the size of aircraft used (Economic Intelligence Unit, 7 Sept. 2007).

Threats

·         Mauritius has a large minority of the population is excluded from the benefits of the island’s economic growth. Creoles, who make up almost one-third of the population, resent the political power of Hindus and the economic dominance of the Mauritians of French origin. Some banks are suspected of money laundering, but corruption levels are relatively low and the government appears generally to be committed to regulating its banking industry.

·         In the report of the World Tourism Organization (February 2008), Mauritius remains to have lesser visitors compared to popular destinations. The country should put more efforts to attract visitors into the country.

·         With the upsurge of oil crisis, airfares can increase and this will trigger lesser visitors to tourism destinations like Mauritius.

 

 

References

Durbarry, R. 2002. The economic contribution of tourism in Mauritius, Annals of Tourism Research, 29(3): 862-865.

Economic Intelligence Unit. 2007, Nov. 16. World tourism forecast: Here comes the sun. Acquired online 24 March 2008. http://www.viewswire.com.

Economist Intelligence Unit. 2007, Sept. 7. Country Profile: Mauritius. Acquired online 24 March 2008. http://www.viewswire.com.

Otley, T.  2007, Nov. Patients without borders: it is now cheaper and easier than ever before for patients to receive good-quality healthcare abroad, but how is this medical tourism affecting the host nations? Business Traveller UK/Europe, 32: 36-38.

Rafferty, J.B. 2003, May. Sheer paradise: five of the world’s most luxurious hideaways are located on the island of Mauritius. Town & Country, 157(5276): 103-107.

Woo, E. 2008, Mar. 3. NYC shops cater to Euro-toting tourists; The dollar’s slide has made shopping in the Big Apple a bargain for European visitors. Business Week Online. Acquired online 24 March 2008 http://www.businessweek.com/bwdaily/dnflash/content/feb2008/db20080228_818831.htm.

World Tourism Organization. 2008, Feb. 2006 Edition Tourism Market Trends. Madrid, Spain: WTO.