With Examples from the International Hospitality Industry Critically Comment on the Main Methods of Integration and Growth

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INTRODUCTION

Planning for growth within firms involve a number of strategic decisions that need to be made. These include the direction in which to expand, expansion method and how far or fast they should aim to grow. Firms may choose to expand by increased involvement with their existing products or services, or diversify into new activities. They may also set up new capacities within the firm or expand externally through mergers, acquisitions, strategic alliances, joint ventures with one or more firms (Morgan, 1980; Hornby et al, 2001; Johnson et al, 2008). The service sector has grown rapidly in both developed and developing countries during the past three decades. The hotel industry is characterised by high capital intensity, contrary to other industries in the service sector, and its logistics and supply chain can be as complex as those in manufacturing operations (Dimou and Chen, 2005).

GROWTH AND INTEGRATION

The growth or decline of firms can be viewed in terms of the operation of the industry and competitive success as a whole. Fortunes of industries within an economy tend to ebb and flow over time based on technology and trade patterns among other factors, which are bound to change. Some firms may grow at the expense of less efficient ones, new ones may challenge established leaders while firms that fail to adapt to change may be forced out of business. Problems arise when firms wish to grow or expand at rates faster than total demand for existing products especially in oligopolistic markets where competitors are also striving for growth. This tends to lead firms towards diversification or mergers with competitors. According to Johnson et al (2008) however, growth is not optional in many markets, and organisations that grow slower than the competition will most likely lose to competitors on many fronts.

White (2004) argues that the choice of business size is a very strategic question. He further stated that, not too long ago, it was prudent risk management for an enterprise to diversify by acquiring new business units, therefore growing this way. Businesses consisted of very different products, services outside their core interest and often lacking synergy. However, in recent times businesses are starting to stick to a core activity, identifying the units with strong competitive advantage and divesting other non-core activities or outsourcing to those who have competencies in the areas. Size which was a big advantage is now interpreted as a disadvantage if it masks underperforming units or activities. According to Wheelen and Hunger (2006) the most widely desired corporate directional strategies are those designed to realize growth in sales, assets, profits or a combination of these. Therefore companies that do business in expanding industries must grow to survive. Growth based on increasing market demand may conceal flaws in a company which could be largely visible in a stable or declining market, it could also cushion a turn-around in case a strategic error is made. Growth could also offer more opportunities for advancements, promotion and interesting jobs.

Enterprises can get larger by merging with other competing enterprises or integrating related but separate activities. Horizontal integration shows the range of the products or service the enterprise chooses to sell or the portfolio of business units and the market in which it chooses to sell them, while vertical integration reflects those parts of the value chain an enterprise wishes to locate in-house (White, 2004).

The basic growth strategies employed by firms including the hospitality industry are concentration and diversification (Wheelen and Hunger, 2006; Hill and Jones, 2007). Concentration of resources on services or products that have real growth potential makes a good growth strategy; firms can decide to employ concentration strategies vertically or horizontally. Vertical growth can be achieved by taking over activities and...
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