Shangri La Hotel Competition and Business Analysis
Introduction
Shangri-La Hotel is a world class deluxe Asian hotel chain which provides services and places for business and leisure travelers according to its Asian standards of hospitality. Shangri-La Hotel provides customers with a number of excellent services. More specifically, guests may enjoy high quality room services and resort, facilities such as sauna, Jacuzzi gym, lounge and pub. Moreover, the hotel chain also provides different and unique products like, The Spa at several hotels and resorts. Through its high quality services, Shangri-La receives international awards and recognition from prestigious publications and industry partners.
Historical data
Shangri-La Hotels and Resorts was founded in 1971 by the Malaysian-Chinese tycoon Robert Kuok and managed by Westin until January 1983. The headquarters are located in central Hong-Kong. Its name was inspired by James Hilton’s legendary novel “Lost Horizon”. In 1982 the company incorporates Shangri-La Hotel and Resorts.
Business Description
Shangri-La Hotel is highly recognized for its service excellence. The hotel chain highly supports its mission statement, according to which “customers should be delighted each and every timeA» More specifically, the company focuses on offering customers an unforgettable experience by blending cultures, exotic art and lively ambience. . “Shangri-La Hospitality” has developed five core principles: respect, humility, courtesy, helpfulness and sincerity. These core principles have positively affected the successful running of the business and thus they have as a result the creation of pleasant customers and employee relations.
The service principles that Shangri-La has developed is consistent to every country they operate. In other words, customers receive the same level of services and treatment in every hotel no matter the country of location. This is very important as the customers identify Shangri-La hotels as high quality and trustworthy.
The company operates 62 deluxe hotels and resorts under the Shangri-La and Traders Hotel brands in Asia and Middle East. Moreover, the company is willing to expand in Europe and North America. Apart from Shangri-La’s ownership and operation of hotels, the company also leases commercial office buildings, retail space, apartments, real estate development and operation and golf club ownership and operation.
Competition
Competition in general is one of the factors that affect company’s existence and growth. Even though Shangri-La is one of the top luxurious hotels in Asia, there is still fear from other top companies operating in the diversified hotel management industry. The profitability of every company depends on efficient operation because many costs are fixed and on effective marketing. The top three competitors of Shangri-la hotel are:
The Hong Kong and Shanghai Hotels Ltd which also operates in Asia, Australia and North America with 24 deluxe hotels, commercial and residential properties.
New World Development is the second competitor of Shangri-La; the company develops and invests in properties in Hong Kong, mainland China, and Southeast Asia. Its property and infrastructure developments include apartments, office buildings, hotels, department stores, roads, and water and power plants.
The third competitor is Mandarin Oriental Hotel Group which is incorporated in Bermuda and owns, manages and operates 40 upscale hotels in two dozen countries.
The 2008 Olympic Games Event has affected Shangri-La Hotel since premium hotels such as Regent, Ritz-Carlton, Hyatt and Sheraton expanded in various cities in China, particularly in Beijing and Shanghai. Since Shangri-La is an Asian Company, it is highly recognized in Asia, the hotel chain had a competitive advantage as far as brand awareness is concerned. However, as many prestigious and luxurious hotel chains started expanding in the Asian continent Shangri-La faced more intense competition than before. The primary competitor of Shangri-La could be identified as the Marriott chain, which operates the Ritz-Carlton, Renaissance and Courtyard brands (26 hotels in China and expanding its portfolio to 100 by late 2010.)
Driving forces in the company
In order for the company to continue to compete within in the industry, Shangri-La decided on expanding its hotel chain. It went through a rapid expansion in the early 1980’s and built 29 hotels over the next decade, and by the end of 1999, it was announced that they were operating 35 hotels within the Asian continent. Shangri-La’s management group decided on expanding even more aggressively and therefore took advantage of their current success and raised fund during this period of time for further expansion. As a result during the early ’00 Shangri-La began entering new markets through both management contracts and owner/operator development. In 2003 Shangri-La Dubai and Sydney were opened.
The innovation of core brands of Shangri-La Asia Ltd, including the four-star Traders which was established in 1989, provides luxurious experience and sophistication to the business traveler, Rasa Resort and Spa which was launched in 2006 as a new brand spa provides treatment and relaxation based on Chinese principles, Far Eastern Plaza Hotel and Shang Palace are the force driving the changes in the industry. These hotel chains provide differentiated and unique products to a niche market.
Key Success Factors:
The key success factors of Shangri -La Hotel are the following:
1. Unique characteristics of Asian hospitality and high luxury quality of service and products offered to its customers
2. Differentiated products (spa and treatment in hotels and resorts)
3. The use of culture training program in everyday performance More specifically, Shangri-La Care Modules that line out what a service personnel should do and how to serve their customers in the best possible way
Care 1: Shangri-La Hospitality from Caring People
Making the guests feel special and important during their stay in the hotel and focusing on the core values of Shangri-La’s hospitality.
Care 2: Delighting Customer
Delighting guests consistently not just the first time they visit but every single time in order to achieve srotng customer loyalty.
Care 3: Recover to Gain Loyalty
The importance of recovery when mistakes happen. A well done recovery may be an opportunity to gain further commitment and loyalty, and the other way round if recovery is poor. The five steps to recovery as developed by Shangri-La hotels: Listen, Apologies, Delight, Fix the Problem and Follow up.
4. Take Ownership.
Effective promotion and special offer to attract the customers’ attention about the Shangri-La hotel. Promotion and special offer build long term relationship between Shangri-La hotel and their loyal customer. The promotion and special offer by the Shangri-La hotel include special festival, weekend special, value rate and value vacation.
5. Effective process management perspective.
This refers to the system used to assist the organization in delivering the service. Shangri-La demonstrates processes involved in delivering the services provided into six encounters including among others check-in, room encounter, restaurant and breakfast, vacation trip, spa and check out.
Check in Encounter: Shangri-La ensures that guests will be served directly at the receptionist counter or online.
Room Encounter: it provides extra room accommodation for guests. For example, they provide extra bed for children under 12 to stay with their parents in the same room.
Restaurant and Breakfast: Shangri-La provides Children’s Meal Plan; this accommodates hotel guests under 12 can enjoy complimentary meals in Coffee Shops and Pool Cafes.
Vacation Trip: Specially trained staff is assigned in handling booklets with valuable information concerning rooms, airfare and car rental at popular Shangri-La destinations, in order to make guests’ planning vacation easier.
The Spa: provides unique service for treatment activities such as massage, aroma therapy and bathe.
Check-Out: same as check-in but may be crucial to determine the final outcome of satisfaction.
6. The use of effective advertising through television and online commercial
7. Compensation and Career Growth: this is a driving force for the employees to perform high standard performances within the company and making its employees valuable. If employees are motivated they are willing to provide and satisfy customers in any circumstances, therefore gain customer loyalty.
Resource strengths and competitive capabilities of the company:
Valuable organizational assets
Organizational design is an important aspect in every company. Without an organized Chain of Command severe issues could occur in the company. Shangri-La’s organizational design consists of five major levels in order to group its employees. More specifically:
Level 1: Divisional Manager
Level 2: Departmental Manager
Level 3: Sectional Manager
Level 4: Front Front-Line Supervisors
Level 5: Front-Line Employees
Note: Decision comes from the upper level of the structure
Valuable intangible assets
The employees are one of the most important intangible assets of Shangri-La. Therefore, Shangri – La’s corporate management heavily invests in employee development (to gain know-how asset)
Another intangible assets of Shangri-La is its brand name, a synonymous for providing services with the unique characteristics of Asian Hospitality
Unique products such as spa and treatments could also be considered as their intangible assets
Valuable physical asset
One of the most important and crucial physical assets of Shangri-La hotels are its architectural design externally and internally. Every single hotel of the chain has different characteristics and features that differentiate it from other Shangri-La hotels in the world. The design of every hotel matches the culture and environment where it operates. For instance, a typical Shangri-La hotel set in lushly landscaped tropical gardens with huge swimming pools that creates an oasis from the city’ thriving business and social center. Moreover, Shangri-La hotels and resorts provide hotel facilities like Airport Transfer, Parking, Foreign Exchange, Non-Smoking rooms, baby-Sitting or Child Care, Facilities for Disabled, Dining and Entertainment, Restaurant, Bar/Lounge, Sports & Leisure, Spa, Sauna, Steam Room and Fitness Center. They have invested in these assets so as to provide customers with great experience during their stay in the hotel.
Competitive Capabilities
One of the strongest competitive advantages of Shangri-La hotel is the service quality that is provided to its customer. Shangri-La is an award winning hotel as it is highly praised for offering world class service and gracious hospitality that has earned a reputation of excellence throughout Asia.
Identifying strongest and weakest points of competitive forces
Competitive pressures created by the rivalry among competing sellers
Competing with other world class luxurious hotels in the world is a strong competitive force that affects Shangri-la hotels. These other hotels have strong competitive strategies to maintain their position in the market. These hotels also provide the same high quality of service to the same target group.
Competitive pressure of new entrants
New entrants have always been considered as a threat by the existing ones. This is a strong force for the company since they target the same customers in the market.
Competitive pressure from the sellers of substitute products
High quality Motels and other local hotels are considered to be substitute for Shangri-La. This is a weak competitive force in the company since Shangri-La customers seek for high and unique quality of service
Competitive Pressures Stemming from supplier bargaining power and supplier-seller collaboration
Supplier bargaining power is a strong competitive force to Shangri-La hotel. Shangri-La has numbers of different suppliers; for example, food suppliers, material suppliers and information suppliers. If these suppliers increase price of goods and services to its customers then Shangri-la would also increase its operating costs .As a result, Shangri-La would increase prices, in order to cover its operating costs. Competitive Pressures stemming from buyer bargaining power and seller-buyer collaboration.
Buyer’s bargaining power is a weak competitive force for Shangri-La Hotel since Shangri-La has a fixed price charge; and this cannot be negotiated.
Business Strategy
Strategy for Expansion to the East and West
The company’s main strategic plan is to incorporate the goal of expanding the Shangri-La brand globally with a strong foundation and reputation for its excellence in Asia, the Middle East, Europe and North America. According to industry analysts, China was one of the most attractive destinations for tourists in 2008 since The Olympic Games were held there. For this particular reason new hotel developments started to pour in the region.
Shangri-La’s strategy to expand in the East is an asset since their core principles of cultural values matches most of the countries in the Asian market but is still a challenge since most of the luxurious top hotels in the world have the same approach.
In general Shangri-La has slow expansion growth in other part of continents like Europe and North America. Nevertheless, it was announced that the company decided to expand its hotel chains in different parts of the world particularly in Europe, North America and Australia as to be able to compete with their major competitors in the market. Even though the company constantly enters new markets, they still maintain and provide its worldwide service quality standards to its customers and ensure that Shangri-La’s quality and service standards are translated to new hotels in new markets in order to deliver consistent experience of “Shangri-La Hospitality”. When Shangri-La enters new markets in new countries, the company brings new cultural understanding and expectations to these markets. This is a challenge for the company since bringing the essence of the brand to new cultures is tough.
Another strategy of the company is to enhance Corporate Social Responsibility activities in five key areas: Environment, Health and Safety, Employees, Supply Chain Management and Stakeholder Relations.
In the Environment section its main focus is in climate change, water use management, waste disposal management, ozone depletion and indoor air quality. Shangri-La has recognized that resource conservation, biodiversity and pollution prevention are ways to maintain a sustainable environment.
By providing safe and healthy environment, Shangri-La protects its customers, employees, suppliers and the public. This includes training employees for emergency situation like fire, earthquake and any other natural disaster. Also, the company promotes wellness program to improve the health and well-being of the employees.
As mentioned before, Shangri-La management recognizes that staff is one of their most important assets and so they are committed to providing fair employment opportunities, dignity and staff development. Shangri-La will provide an environment where employees may achieve their personal and career goals and fair labor practices as to avoid any activity that results in human right abuse.
For the company to be able to mange its direct and indirect impacts in the environment, Shangri-La has to work effectively with its supply chain partners. The suppliers need to meet the local legal requirements relating to the environment, human rights and other regulatory work practices. Also, suppliers are expected to be part of the system to ensure that the food served is safe and of high quality.
According to CSR all stakeholders include customers, employees, members of the communities in which they operate, shareholders and suppliers will engage in a clear, honest and respectful way to the company.
SWOT Analysis:
Strengths
Brand recognition
Unique services and products quality (Shangri-La Hospitality)
Expansion network in Asian Continent
Luxurious facilities like the Shangri-La Spa and Trader
Expansion globally
Strong suppliers relationship
Innovation of unique products
Weaknesses:
Not having enough number of hotel chains in Europe and N. America to compete with other luxurious five star hotels operating there.
Shangri-La is dependant on other hotel owners companies since it doesn’t own all of its hotel chains
One of the problems that Shangri-La’s hotels in China faces is the fact that front-lines employees are uncomfortable in making decisions. Chinese employees are dependent on operational guidelines
Opportunities:
Its market positioning in China; since China has become the world’s fourth largest economy and one of the most attractive destination as far as tourism is concerned
Training program facilities to prepare first-line employees to more effectively utilize decision-making authority
The Olympic Games Events in China increased Shangri-La’s sales
Expand to other geographic destinations
Acquisition of local hotels
Threats:
Intense competition
Local Hotels are considering forming alliances with international brands to manage and operate the business.
Pressure on wages (expanding into high-wage economies)
Since Shangri-La is an Asian company and has been operating in Asian territory, its management group is used to having lower labor costs compare to Europe and N. America
Global recession
Since Shangri-La is expanding with its principles values, it’s a great challenge for the company to expand beyond its Asian territory where cultures are different. Is the company able to adapt in a different environment..?
Target Market
Shangri-La Hotel operates in the five class hotels industry associated with luxury and well-being for customers. Hence, the target market mostly comes from the upper class. We focus on this section to the two Shangri-La Hotels and Resorts that produce greater profitability to the company.
The Golden Sands Resort that is located in Batu Feringgi Beach that is mostly visited by tourists who come from European and Western countries. It is believed that these travelers have high consuming ability compared to local travelers. Therefore, Shangri-La management targeted the tourists that are of higher financial and consuming ability.
The target market for Trader Hotel mostly consists of business travelers and those that come from the upper class groups of society. Business travelers can afford to purchase services from high quality hotels as their expenses are accommodated by their companies.
Strategic Positioning
All of the hotels and resorts of Shangri-La are located at strategic locations that are frequented by a high number of people, either for business purpose, travelling or other reasons. The location selected usually consists of places that are well known for their tourism industry and that are highly visited each year.
Business Model
For the fiscal year ended in December 31, 2006 the management reported that Shangri-La net income was 202.2 million dollars from its services and products. The company’s sales continued to improve in 2006 with 1,002.9 million dollars sale compared with 842 million dollar in 2005. The company owns 50 hotels in Asia and the Middle East and more or less of 40 projects under development in Europe and North America. The company employs approximately 18,400 employees worldwide.
Shangri-La’s case is unusual among international hotel companies since it owns a significant proportion of its hotels,
As shown in the table below, Shangri-La performance in the industry seem to improve every year and ascend to better market positioning.
Shangri-La Income Statement
Our personal Recommendations for Shangri-La Hotel
Improve and give more emphasis to its employees’ training program; especially for the front-line employees to build their confidence and efficiency at the workplace in order to improve its hand to hand interaction with the customers.
Having achieved brand market leadership in Asia, Shangri-La should now try to increase the number of hotel chains in Europe, North America and the Middle East.
Since Shangri-La emphasizes its cultural values in every hotel chains, Shangri-La should take a closer look of its environment in general, to see if the products and services that they provide match the needs of the customer in general. For example, if Shangri -La operates in foreign destinations like the Middle East, they should adapt to its culture and combine it into their own to avoid conflicts between two different cultures.
In general, all of the hotels and resorts of Shangri-La are located at strategic locations that are visited by a high number of people each year, either for business purpose, travelling or other reasons. The location selected is usually places that are well known for its tourism industry that are highly visited each year.
