International Hospitality Management: A Case Study of IHG Plc

International Hospitality Management

Introduction

One of the key markets or sectors, which are increasing at a rapid pace all over the world, is the hospitality sector. During 2019, the number of resorts and hotels all over the globe was 700,000 (condorferries.co.uk, 2021). Contrastingly, the global hotel market comprised of more than 4 million hotel rooms throughout the world (condorferries.co.uk, 2021). This report discusses largely on international hospitality management. The IHG (InterContinental Hotels Group) is one of the leading hotels all over the world (ihgplc.com, 2021). The principle purpose of the organisation is providing real hospitality services to all by recognition and respect of guests while creating best guest experiences. IHG Plc’s diverse portfolio comprises of various well-known brands that include Crowne Plaza, Holiday Inn and others, which are presenting even in developing economies such as China, Bali and Chendu. In this report, SWOT analysis for IHG is going to be conducted to evaluate the internal environment of the organisation. Followed by this, an emerging market in which the organisation can enter is going to be evaluated along with conducting PESTEL analysis. Lastly, the strategic growth options for IHG would be evaluated and their effectiveness for maintaining market share and market growth would be considered.

Background on Hospitality Industry (and tourism)

The hospitality industry as well as the tourism industry has turned out being one of the most important and flourishing industries worldwide (Walker, 2014). As per statistics, the global hospitality industry is currently a thriving one and the total worth of the industry is more than 570 billion USD (condorferries.co.uk, 2021). The global hotel industry falls under the category of the hospitality industry, which is an industry that contributed about 8.81 trillion USD during 2018 to the global economy (condorferries.co.uk, 2021). During 2014, the market size of the global hotel industry was about 466.57 billion USD (Lock, 2020). However, this amount increased to 600.49 billion USD during the year 2018 (Lock, 2020). This reflects that the global hospitality industry. Europe was on the top of the global hotel industry with the highest rate of occupancy across the globe during 2019 with 72.2% occupancy (Lock, 2020). The second was the Asia Pacific region, comprising of 69.3% (Lock, 2020). However, the hospitality marketplace includes sales from lodging as well as dining services (Evans, 1955). It consists of organisations, which extend customers with lodging facilities, snacks, beverages, prepared meals and various such items.

According to Hinkin (2006), economic growth turns out being the key driver of the hospitality industry. As per forecasts, the industry is expected to experience a growth of about 5.8 trillion USD by the year 2022 (thebusinessresearchcompany.com, 2021). On the contrary, the tourism industry directly contributes about 3.6% of the total Gross Domestic Product of the world (gidb.org, 2021). However, the contribution of the industry is approximately 10.3% indirectly (gidb.org, 2021). The industry is one of the largest contributors to the world economy. As per forecasts, the industry of worldwide long distance travel is forecasted on growing faster by about 5.4% every year (gidb.org, 2021). During 2019, the total global leisure travel spends amounted to 4.715 billion USD while the number of international tourist arrivals amounted as 1.46 billion (Lock, 2020). Thus, all these aspects reflect that the hospitality industry along with the tourism industry can be categorised as the two most important sectors of the world. The forecasts also reveal that both these industries are expected to increase their size through consistent growth in the upcoming years.

Background to IHG

The organisation IHG Plc is one of the key players within the hospitality and tourism industry. IHG Plc has about 400,000 employees who work throughout more than 100 nations for the delivery of true hospitality for people (ihgplc.com, 2021). The number of hotels, which the hotel group occupies all over the world, is about 5977 while the number of rooms available within it globally is about 889582 (ihgplc.com, 2021). Regent, Six Senses, InterContinental Hotels and Resorts, Kimpton Hotels and Resorts, Hotel Indigo, Holiday Inn, Crowne Plaza, Avid, Atwell Suites, Holiday Inn Express and Even Hotels are its key brands. IHG Plc claims to comprise of the right hotel brand for not only guests but also owners for various types of needs possessed by them.

The heart of the hotel group is its people and the company mentions that its colleagues have a crucial role in giving life to each of its brands. In the present scenario, for diversification of portfolio and expansion to various markets, various brands of IHG Plc such as the Crowne Plaza Hotels are expanding to new emerging markets. Presence of IHG Plc can be seen in various new markets, which include Chendu, Bali, Kuala Lumpur, Hungary, Russia as well as the EMEAA region. Hence, it can be derived that the organisation holds a significant position within the international hospitality industry.

SWOT analysis of IHG

One of the simplest yet most useful frameworks for analysing the internal environment of a company is the SWOT analysis (Ioannis, 2013). It helps in analysing organisational strengths and weaknesses while verifying its opportunities and threats. The SWOT analysis of IHG Plc is going to be helpful for building on what the hotel group does well, work on what it lacks, minimise its risks and exploiting opportunities. Below is a detailed SWOT analysis conducted for the IHG Plc -

Strengths

One of the main strengths of IHG Plc is the business model of the company. The asset light business model, which the hotel group follows, turns out being one of its competitive advantages by improving its process communication, operating efficiencies along with consistency and control. Besides this, wide geographical presence of IHG Plc in over 100 countries with the focus being on priority markets is one of its strengths as well. The customer experience and great relationship focus of the hotel group has enhanced its customer base, thereby acting as its strength. On the other hand, IHG Plc has an occasion wise brand portfolio in addition to a strong digital outlook as well as implementation, which helps the hotel group in standing out from the crowd. Lastly, successful employee engagement of the organisation followed by its high RevPAR and strong financials also turn out being the major strengths of IHG Plc.

Weaknesses

Despite of various strengths discussed above, there are several weaknesses of the hotel group as well. For example, one of the main weaknesses of the IHG Plc is that it is not an economic hotel group. The prices charged to guests by the hotel brands of IHG Plc are often not affordable by various guests. Contrastingly, the IT or information security systems of the hotel group are poor. Approximately 1200 hotels of the organisation have been infected through guest information stealing and credit card stealing malwares. Besides this, increasing competition within the hospitality industry and the increasing market share of rivals has led IHG Plc to slip to the third position amongst hospitality service providers worldwide. Lastly, another weakness identified for the hotel group is that the loyalty programs of the organisation, for example, the Holiday Inn Priority Club have several negative reviews. This includes feedbacks such as customers claiming that points earned by them expire whenever they have tried redeeming them.

Opportunities

IHG Plc has a number of opportunities within the external market as well as within the internal operations of the hotel group. For example, one of the main opportunities of the hotel is the increased travel of international tourists. Due to the increase of the movement of tourists all over the world, the demand for comfortable hotels are increasing. The widening of the geographical presence of IHG Plc further can help in increasing revenues along with earnings. Moreover, the branded hotel market is fragmented. The hotel group can use this as an opportunity for targeting its products to the target customers appropriately depending on behaviour, interests, demographics and such related factors. Entrance into emerging markets such as Mexico and various others is a key opportunity for the company.

Threats

A main threat of IHG Plc is the competitors existing within the hospitality industry. Increasing level of competition from major hotel groups such as AccorHotels Group, Wyndham, Hilton, Marriott and several others act as a challenge for the organisation. Besides this, the hotel industry is a sharing economy. Due to this reason, this results the IHG Plc in having low profit margins along with expensive logistics. It also prevents the hotel group of taking no benefit of its size while dealing with buyers and suppliers, thereby acting as a main challenge for it. Lastly, in the present scenario, there is an increasing dependency of IHG Plc over intermediaries. This is lowering the profit share of the hotel group, also acting as its main threat.

Background to Emerging markets

In the present scenario, emerging economies presently lead the increasing demand for international tourism. Since the number of people accessing greater wealth is continuing to rise, various countries such as Russia, Brazil, India, China, Nepal, Mexico and Indonesia are encountering tourism growth (ec.europa.eu, 2021). In the current scenario, the presence of IHG Plc can be noticed in all these emerging markets. Presence of the hotel group can be seen in Mexico as well. According to Cantarell (2020), the volume of foreign travellers has continued to grow in Mexico. There are various beach and sun destinations in the country have consolidated and grown, the successful ones amongst them being Puerto Vallarta, Los Cabos, Riviera Maya and Cancun. In Latin America, Mexico has turned out being a leading country within the hospitality sector with about 400000 hotel rooms (Cantarell, 2020). However, even if Mexico is an emerging market, there are various new destinations of the country, which are emerging for tourist attraction.

For example, presence of IHG Plc can be seen in various destinations of Mexico such as near the Forum Buenavista. However, there is no presence of any brand of the IHG Plc within the Bacalar area. Bacalar is a Mexican state and is located in the extreme south of Quintana Roo, which has turned out being a major tourist attraction in the recent years. Similarly, the Chichen Itza is also one of the main tourist destinations in Mexico. However, there is no presence of IHG Plc in this destination. As a result, the background of Mexico as an emerging market for hospitality and tourism shows that this market has something special for all its visitors. From unreal beaches, to irresistible artwork, out-of-this-world food, epic volcanoes and mountains, historical places such as Mystic Maya ruins, Mexico is one of the most preferred destinations for travel by many. Thus, Mexico is the chosen emerging market for IHG Plc for growth and expansion. Entrance of the hotel group into various unexplored tourist destinations of the economy can help IHG Plc in seeking both medium and long-term market growth.

PEST of selected emerging market

The PEST analysis is a tool, which is used for analysing along with monitoring the macro environment of a company or a destination, country or market (Brotherton, 2003). Application of this tool is done below for IHG Plc to evaluate the various factors in the external environment of Mexico, which can affect the hotel group on both a national and international level -

Political factors

In Latin America, Mexico is the second largest nation in terms of population. It is a presidential democracy with the President as the head of its government. It has a regional power along with significant presence in the global economy. At the national level, the political stability of Mexico is high. However, corruption is a key national political problem existing within it. The country maintains diplomatic relationships with majority of the countries across the globe being a founding member of the United Nations. Thus, political factors such as corruption can be a great threat for IHG Plc.

Economic factors

Mexico is the fifteenth largest economy worldwide along with being a G20 member. It represents about 1.97% of the world economy with strong GDP (tradingeconomics.com, 2021). The corporation tax rate of the country is high while VAT is applicable on sale of majority retail commodities and services. Exports of the country are considerable and includes vehicle parts, crude petroleum, computers, cars and delivery trucks, which are sent to USA, Germany, China, Canada, Japan and several others. However, minimum wage differs from one location to another while poverty prevailing in the country is considerable. Due to this, earnings from national or domestic customers for IHG Plc in Mexico might be limited. However, earnings from the international market are predicted on being considerable.

Social factors

Social factors in Mexico include that the majority of people in the country speak in Spanish for which IHG Plc requires hiring native people as staff members. However, most of people reside in urban areas while education and literacy rates are high in spite of the poverty problem. Women mostly take care of the home and children, due to which IHG Plc might be facing troubles to find women employees. These are social problems of Mexico at the national level. However, at the international level, it can be seen that urban light and natural beauty is a social factor of the country, which attracts international visitors. Good education and literacy amongst people will help IHG Plc to hire suitable employees who can interact with all international tourists. Moreover, Mexican cuisine has great fans and it is a main social factor, which can help IHG Plc to attract customers and increase its revenues in this market.

Technological factors

Being the second largest country in Latin America, Mexico is a main target market for technology giants such as Facebook, Google, Uber, Amazon and such others. A bill has been recently passed in the country for removing uncertainties and barriers for crowd funding and crypto currency technologies. This shows that as the technological aspects of the country are growing, which can help IHG Plc in attracting both national and international customers via technology. However, as corruption is high, chances of hacking technological platforms, money laundering, data stealing and such aspects are high.

Hotel strategy to be adopt and to be implemented (using strategic model and frameworks) within the entering market

There are different types of strategies and tools, which organisations use whenever they enter into a market (Tribe, 2016). For example, for entering the various markets in Mexico, IHG Plc requires the adoption of various strategic models and frameworks. The following are the three main strategic models and frameworks identified for IHG Plc to adopt for entering the Mexico market -

Porter’s Generic Strategies

The Porter’s Generic Strategies refer to the strategic model, which describes four different ways in which companies pursue competitive advantage throughout its selected market scope (Porter, 1986). Different strategies suggested in this model include cost leadership strategy, the differentiation strategy and the focus strategy (Porter, 1990). The cost leadership is the strategy to gain competitive edge by increasing profit by reducing costs and charging industry-average prices or enhancing market shares via charging low prices (Porter, 1980). Contrastingly, the differentiation strategy involves making of goods and services, which are different and more attractive than that of competitors. Lastly, the focus strategy is concentrated over specific niche markets for developing low-cost yet well-specified offerings for the marketplace through understanding market dynamics and customers’ unique needs (Porter, 1985). The Porter’s generic strategy selected for IHG Plc is the focus strategy.

Ansoff’s Matrix

According to Okumus et al. (2010), the Ansoff Matrix is a strategic framework used within companies or analysing and planning the growth strategies. The strategic framework consists of four diverse strategies for expansion of a company, which include market penetration, market development and product development along with product diversification. While market penetration focuses on increasing sales of existent products in an existing market, product development focuses on introducing new commodities within existing markets (Okumus et al., 2019). Similarly, market development focuses on entrance into a new market with existent commodities whereas product diversification focuses on entering new markets with new commodities (Olsen and West, 1998). The strategy under Ansoff Matrix, which has been selected for IHG Plc, is market development.

Nykiel’s Fourteen Hotel Strategic Growth Options

The Nykiel’s fourteen hotel strategic growth options is a strategic framework, which shows the fourteen different strategic growth options, which hotels or hospitality organisations can use for expansion (Nykiel, 2005). These strategic options include horizontal expansion, geographic expansion, product hybridisation, product tiering, specialisation-specialist, product re-branding, franchising, non-franchising, management contracts, brand collection, singleness and vertical and horizontal integration. The other strategies mentioned by Nykiel include global positioning and value related products and services (Kotler, 2017). All these strategies turn out being effective for a hotel whenever it is expanding its operations to a new or emerging marketplace. Amongst all these fourteen hotel strategic growth options, only one option has been selected for IHG Plc, which is geographic expansion.

Justification of strategy

There are different types of reasons because of which the strategies mentioned above have been selected for IHG Plc. For example, the focus strategy has been selected from the Porter’s Generic Strategies. The focus strategy has been selected for the hotel group since the Mexico is a niche market for the hospitality and tourism industry. IHG Plc is going to understand the dynamics of this marketplace along with the unique requirements of its customers. Based on this, the hotel group is going to develop a unique low-cost strategy as well as well-specified services for the Mexican market. This is going to assist IHG Plc to serve customers within the Mexico market uniquely well, thereby tending to build strong brand loyalty between their customers. However, the focus strategy that would be adopted is differentiation focus. It is because IHG Plc does not compromise on cost when it comes to serving customers. Rather, it focuses on differentiating its services from services provided by competitors to gain and retain customers.

On the other hand, from the Ansoff Matrix model, the selected strategy for IHG Plc is market development. Market development has been selected for the hotel group, as Mexico is a new market that IHG Plc is targeting. However, the entrance of the hotel group into the market is going to be done with existing products. The IHG Plc would launch no new products or services apart from the old ones since the market is a new one and customer responses are not known. Lastly, from the Nykiel’s fourteen hotel strategic growth options, the selected strategy is geographic expansion. Geographic expansion has been chosen as the strategic growth option, as IHG Plc is going to expand its operations to Mexico. Additional locations will be added to the existing locations in which IHG Plc is present.

Practical application of strategy – 5 and 10 years ahead

The strategic growth options, which have been selected for IHG Plc, require being applied practically over the long-term so that market growth of the hotel group can be maintained. Moreover, the practical application of the strategy is required for long-term market share as well. Firstly, practical application of differentiation focus strategy can help IHG Plc in standing out from all other major resorts and hotels existing in Mexico. At the same time, market development strategy is going to help IHG Plc in gaining new customers, organisational growth as well as enhanced revenues. The application of these two strategies would be leading the hotel group towards expansion of its geographical presence followed by finding new group of customers for existing service offerings. As an untapped market, IHG Plc can be exploring the Mexico hospitality market, gaining new customers in a structured manner, building a strong team and establishing strong market position. Consequently, in the next 5 years, the market growth of the hotel group can be ensured in terms of not only market growth but also maintenance of the market growth in the next 10 years ahead.

On the other hand, the practical application of geographic expansion reflects that the strategy will be helping IHG Plc in accessing new markets as well as talent pools. The access to new markets can help the company in developing new customers in the next 5 years while reducing costs in the long run due to accessing new talent. Besides this, IHG Plc can be enabled to provide robust pipelines for fuelling the future growth of the organisation. This is because this expansion will open new streams of revenue for the company with low costs due to local talent hiring. As a result, the customer base of IHG Plc can improve in the next 5 years in Mexico, thereby yield high market growth and sales in the next 10 years.

Conclusion

Therefore, from the report, it could be identified that the hospitality and tourism industry of the largest as well as growing industries across the globe. At the same time, it could be identified that IHG Plc is one of the leading and most significant hotel groups operating in the international hospitality market. The discussions made within the study helped in understanding the background of IHG Plc while identifying its strengths, weaknesses, opportunities and threats. Moreover, the background of emerging markets as attractive hospitality destinations could be analysed while Mexico could be determined as one of the key markets. At the same time, the use of Ansoffs Matrix, Nykiel’s fourteen hotel strategic growth options and Porter’s Generic Forces could be identified as the three major strategic growth options for hotels. Lastly, the report helped in determining how and why these three strategies are helpful for maintenance of long-term market share and bring about market growth through the example of IHG Plc.

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Appendices

Figure 1: SWOT analysis framework

Figure 2: PESTEL analysis framework