Analysis of External Environment

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Analysis of External Environment5
The Macro-Environment6
The Industry Environment8
Strategic Groups11
Arguments For and Against Entering Emerging Markets12



Appendix 116


This assignment is based on a series of articles about the hotel industry published by The Economist and The Times between March 2005 and February 2009 and these can be found in appendix 1.


Examine the external environment in which the big hotel chains such as Intercontinental operate. Using relevant B820 course models and concepts firstly assess the main challenges they face and secondly consider the arguments for and against entering ‘emerging markets’.


This report is based on a series of articles about the hotel industry published by The Economist and The Times between March 2005 and February 2009 and presented in the course file (B820, Strategy, Course File ,November Presentation, p60 - 72) these can also be found in appendix 1.

With annual sales approaching $65 billion and growing at an estimated annual rate of approximately 2-3%, the hotel industry can be divided into three segments consisting of budget/economy, mid-scale, and luxury hotels. The major players in the industry are the 10-12 parent companies that operate a chain of international hotels, often with brands that are spread across the three segments. In addition to these global players, each segment also contains an abundance of smaller hotels that compete at the regional level.

This analysis will concentrate on examining the external environment in which the big hotel chains operate and the unique set of challenges this presents. Relevant B820 Strategy course models and concepts will be applied. Arguments in favor of, and opposed to, entering ‘emerging markets’ will also be presented.

The following report was derived from the primary use of secondary sources, in addition to telephone

Analysis of External Environment

The Industrial Organization Model suggests that above-average returns for a business are largely determined by characteristics outside of that business. The model largely focuses on industry structure or attractiveness of the external environment rather than the internal characteristics of the enterprise.

There is a need to differentiate between the broad, macro-environment and the near, industry environment that encompasses the impact of industry structure and the organization’s competitors. Figure one below shows this differentiation.


Figure 1 – The macro-environment and the near industry environment

(Source: Best)

Each environment typically requires different types of strategies. Generally, strategies for dealing with the industry environment are more proactive than strategies for responding to the macro-environment. For example, the hotel chains typically have little influence on general trends in the economy such as currency rate fluctuations. Consequently, it is more reasonable to predict and adapt to broad trends rather than considering ways to change them. On the other hand, most firms can have substantial influence on stakeholders in their industry environments, such as customers or competitors. Therefore, strategies for dealing with these stakeholders can be proactive. For example, hotel chains have developed robust customer loyalty programs that reward customer stays and aim to encourage repeat business.

The Macro-Environment

The macro-environment forms the context in which the firm, its industry, and other external stakeholders exist. The STEP (B820, Analysing the External Environment ,Unit 2, p10) analysis below seeks to identify and assess the external drivers of change that will have an influence on the hotel marketplace.

Social & Environmental:...
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