Background
Marriott International is a chain of hotels operating globally as an American company of hospitality, which is providing multiple services within the travel and tourism industry. It manages a range of hotels and other hospitality facilities in different countries of the world with a franchising strategy for internationalisation (Renner, 2010). The company was established in 1927 by J. William Marriott, which is now being led by his son Bill Marriott as Executive Chairman. Arne Sorenson is a Chief Executive Officer and President of the company. Currently, Marriott International is operating in 80 countries of the world, having more than 4,000 properties and 697,000 rooms while around 195,000 rooms are under development (Marriott, n.d.). The business was begun as a family business in Washington D.C. USA. It is a part of Marriott Corporation that is mainly working for managing hotel globally. Entrepreneurs of Marriott hotel have 30% share and ownership while the company is still operating on its core mission and vision. Marriott International is mainly focused on serving customers and community with corporate responsibility and company as International worked by centred culture strategy. Marriott International has strong reputation and image around the world for its quality service, innovation in travelling and tourism. Marriott International has a powerful global chain of hotels and excellent programs for travelling to satisfy customers (Marriott, 2014). Current report aims to study the company’s current strategies focusing on its specific geographic segment i.e. North Africa. After the detailed external and internal analysis and gathering sufficient information about the company’s key strengths and weaknesses relating to its current business strategies, some important alternative strategies will be recommended. Finally, one strategy will be picked for implementation based on a comparative analysis of all the alternative options with proper justification.
1. Strategy Analysis
1.1. Analysis of External Environment using Pestle
1.1.1. Politics
Political conditions of North Africa are unstable, and terrorism is increasing with high pace in some countries of Africa such as Lebanon, Syria, and Libya, etc. Because of the high rate of terrorism, the tourism industry of North Africa is badly affected and suffering regarding its growth and role in the economic sector of the region (Christie & Crompton, 2001). The political instability in North Africa resulted in the avoidance of tourism by public sectors. It is very important for the growth of tourism industry of any region that the government should intervene and support it as the rate of dependency of tourism on government and public is very high. Tourism in North Africa has less support from public and thus, it is suffering while resources for tourism industry are a gift for North Africa (World Bank Group, 2010).
1.1.2. Economics
Socio-political crisis in North Africa is directly impacting its economy, and it has found that the economic growth rate is slowing down in the region. The GDP rate has been decreased, and it resulted in a poor economy. Political conditions and poor national security are a major cause of economic downfall. Unemployment in many countries of North Africa region is high, and it prevents growth and development in the region. The poor tourism industry is also one of the major reasons of poor economy as tourism is considered as an essential tool to grow the economy (Christie & Crompton, 2001).
GDP rate is decreasing in North Africa, and it is decreasing by 1.3% as growth rate was 5.4% in 2012 while it reduced to 4.1% in 2013. In some of the countries of North Africa region, the inflation rate is decreasing because of high investments in infrastructure, urbanization, domestic support, and trade, but the overall economy of North Africa is suffering (African Development Bank Group, 2013).
1.1.3. Social
The unemployment rate in North Africa is very high which resulted in various social problems in the region. People need to have infrastructures and buildings for employment and services. Tourism is considered as one of a major source of income and employment, but in North Africa students are least interested in choosing hospitality and travel and tourism as higher education because the tourism rate is very slow in North Africa.
Crime and terrorism are at its peak these days in North Africa, which creates fear and security threats among both citizens and visitors. Terrorism because of political instability is resulted in a social crisis and well as the economic crisis in the region (Alexander, 2012) but however, North Africa has the highest rate of tourist arrival among other regions of Africa (World Bank Group, 2010). The chart below shows the data about tourism arrival.
(African Development Bank Group, 2013)
1.1.4. Environmental
Rainfall rate is very low in North Africa as most of the land is desert and Steppe. The climate of North Africa is resulted into a shortage of water as climate results in only 8% rainfall yearly. Water is one of the most important natural resources required for tourism and climate of North Africa affects waterfall and water availability (African Development Bank Group, 2013).
Tourism is very important for economic growth but some countries believe that tourism impacts negatively on the environment. Tourism impacts natural resources, and there is high need of natural resources to maintain luxury infrastructure and other facilities for tourism activities. The tourism industry is called as a smokeless industry, but it creates a negative impact on the environment as it is highly involved in using natural resources. This is one of the major issues in North Africa to consider doing hospitality and tourism business as resources are full, but some natural resources are in deficiency such as water which is very important for tourism services and facilities (Mercuri et al., 2011).
1.2. Potential Challenges
Marriott to consider business expansion is North Africa, there are various potential challenges it can face. On the basis of environmental analysis of North Africa region, there are three basic potential risks are considered as most threatening for Marriott International.
1.2.1. Safety challenges
Social and political problems in North Africa have left a negative image for business investors as the region is facing security issues. Marriott International is considering entering in North Africa Market, but it might face safety and security issues for its people, infrastructure, and even tourists. Terrorism and instability also develop a fear among visitors and tourists and Marriott might face loss in business revenue and profitability. Marriott International have been expanding its business within America, India and China and some other countries of Asia where terrorism rate is very low as compared to North Africa, and tourism rate is high but entering in North Africa region is potentially challenged for Marriott International.
1.2.2. Trust building
Trust is very important for business development, but social and political conditions of North Africa create the less trusted environment. Fraud rate is very high in North Africa, and 50% of business organizations are fraud there. Bribery is common in North Africa, and there is no proper code of conduct for business organizations.
1.2.3. Economic crisis
Economic conditions in North Africa are also among one of the potential threats from Marriott International as an economic downfall is directly linked with the poverty rate in the region, and it affects business and revenue. Tourism worldwide revenue is decreasing because of poor states and regions (Steiner et al., 2012).
1.2.4. Bringing employees and workers
1.3. SWOT Analysis
The SWOT analysis provided below is in conjunction with the company’s approach to internationalization with a special focus on its operations in North Africa. The Analysis is based on the insight developed through external analysis and the study of the Marriott’s profile.
1.3.1. Strengths
One of the core strengths of the company is its brand identity and brand recognition that is pillared on its vast history of success. Furthermore, the company is following the proper business expansion plan and is operating in multiple countries quite profitably. Human resource management at Marriott is refined and aligns with modern criteria of satisfaction. The company pays good attention to all its aspects from recruitment and selection to training and skill development. The company enjoys a decent market share in the international market with its positive outlook that is evidence of its competitive advantage. Furthermore, Marriott is financially quite stable and is experiencing consistent growth in its financial strength. Diversity management at Marriott enables it to manage its organizational dynamics smoothly in North Africa as well as in all other parts of the world (Marriott International, n.d.).
1.3.2. Weaknesses
One of the major drawbacks of Marriott is that it focuses solely on luxury hotels. This strategy is in tension with the economic indicators in the region, suggesting a consistent downturn of the economy (as discussed in Pestle analysis). However, the organization has no plan to drive the attention of low or middle income group of customers. Therefore, the company’s African target market segment is very small. Apart from this, the company can be faced with the situation of shortage of skills in North Africa, because the underlying region is not renowned for skilled workers due to lack of education and technical training on a grass-root level. Another of its core weaknesses is its running majority of its hotels under ‘franchise agreement’ without owning them. It limits profit margins and the company’s share in the revenue generated (Mathews, 2016).
1.3.3. Opportunities
Inflation is declining in North Africa that can result in increased purchasing power of African customers. Moreover, North African population is growing at a good pace that is indicative of increased customer base in the years to come (Bish, 2016). Another opportunity as identified by the consultant (the writer of this paper) is that the real estate costs are on the decline in the wake of the recession and are expected to drop further in future. Therefore, it is an ideal time for the company to buy its infrastructure in North Africa rather than to operate through franchises. Furthermore, as discussed in Pestle Analysis, unemployment is increasing in North Africa, which is indicative of the low cost of labour due to the low bargaining power of workers.
1.3.4. Threats
First of all, bad law and order situation and unstable political conditions are threatening the inbound tourism to North Africa. Furthermore, the incomes are declining following the downfall of the economy and this factor goes critically against the company’s approach to targeting (i.e. high-end visitors). By the same token, African students are least interested in taking up tourism or travelling as their educational majors due to declining demand in these sectors. Hence, social trends also go against the business of hospitality. Due to below the mark literacy rate in the region, the company is also threatened by a low supply of skilled labour despite enjoying the high bargaining power.
2. Strategy Generation
The writer of this paper, as a consultant, has built three of the following strategies directed towards the prospects of growth and development keeping in view the challenges, and opportunities faced and strengths and weaknesses possessed by Marriott on its business in North Africa:
2.1. Strategy One
Firstly, the company is recommended to introduce low cost facilities for low and middle income groups in the region. This WT strategy requires the company to overcome a weakness (its high-end pricing strategy) to avoid a critical threat (declining economy of Africa). The company can introduce economy class rooms along with incorporating some economic food items in its menus.
2.2. Strategy Two
The second alternative plan is based on SO strategy wherein the company is advised to have its own infrastructure instead of relying on franchises (as it has been doing in Africa and all other parts of the world so far). As discussed in the section of opportunities, the real estate costs are at consistent decline under the impact left by the recession. Therefore, current financial strength allows Marriott to go for this option and purchase its own property.
2.3. Strategy Three
A third strategy is focused on the role of human resource management. As discussed, the management has an edge over employees when it comes to bargaining power due to the current status of unemployment in the country. However, deficient education challenges recruitment and selection policy of the company on local level. Marriott has its own standards worldwide. And, it strives to attract and employ highly competitive and talented people in its workforce. But, the level of education in Africa does not support the provision of such high quality workers. Therefore, the HRM is recommended to pay increased attention to skill development of workers through training and skill development programs.
3. Evaluation/Cost-Benefit Analysis
3.1. Evaluation of Strategy One
This strategy promises potential benefits for the company, as it will be able to enhance its customer-base. It ensures long term survival and profitability of the company. However, it does not go well with the business style of Marriott which is focused on differentiation. Furthermore, it will also cause alterations in brand identity, as Marriott is currently regarded as one of the top luxury brands in the hospitality industry. In addition to this, the underlying strategy is not justifiable in the background of its operational expenses, either. Therefore, the cost of implementing this strategy is fairly exceeding the benefits (cost < benefits), which puts a cross on the viability of this option.
3.2. Evaluation of Strategy Two
This strategy is a little more practical than strategy one. It allows the company to boost its profit margins by cutting the cost incurred in the form of rent of franchises and shares in the profit payable to the owners of those franchises. It requires company to suffer the huge upfront cost in consideration of purchase of large real estate properties, but increased profitability ensures long term benefits exceeding the said cost. However, this plan is also open to question while given the current situation of law and order in the region. Hospitality market is declining in North Africa and terrorism is contributing massively in this connection. In such high level of uncertainty, it is still better to operate either as a franchise, or come into a joint venture with other entities. Owning properties in North Africa will increase the operational risk for Marriott.
3.3. Evaluation of Strategy Three
It is the most viable strategy for the company, because human resources play a key role when it comes to the hospitality sector. Despite everything going against, the company can, still, attract the attention of its target audience by deploying skilled workers and utilizing them in an optimized manner. For this purpose, the company will have to bear the additional cost of improving its mechanism of training. However, its long term benefits include increased customer base (due to increased quality of services), enhanced sales revenue, and improved level of organizational productivity and profitability.
4. Conclusion
On the basis of comparative analysis conducted between all the alternative strategies developed, the consultant recommends Marriott to go with the ‘third strategy’ for many good reasons. In the first place, it will fix the issue of low quality of services and will allow the company to offset the impact of low standard recruitment and selection. Learning will boost the skills of the workforce with a highly positive impact on employee motivation. All this will reflect on the quality of services, which, subsequently, will add to the competitive advantage of Marriott.
However, it is not easy to implement the proposed strategy, as it requires additional cost and a change in managerial level. The organization means to enhance the capacity and functionality of its training programs. Furthermore, educational activities will also be incorporated that will help the company towards its efforts regarding employee skill development. Apart from this, the company may face challenges relating to resistance at managerial level from the workforce.
As for additional cost, it will be covered in the long run, as the successful implementation will increase the sales volume of the company. The increased visitor - base will be a source of increased revenue and increased profitability for the company. As for resistance, human resource management should adopt a proper approach to that and come up with an appropriate mitigating strategy. For this purpose, meetings should be conducted with managerial level wherein key representatives of the workforce should also participate. Presentations relating to the new plan will be given in these sessions in order to clear all doubts and take everyone into confidence to ensure the smooth implementation of the proposed strategy.
List of References
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