Introduction
The tourism industry has been a major source of revenue for Hong Kong. Along with the boom of tourism is the increase investment in hotel industry. Indeed, these two sectors have been indispensable that the subsequent decline in tourism following the economic crisis has impacted hotel operations significantly. The tourism and hotel industry in Hong Kong has been suffered major decline although it has manifested recovery during the previous years.
The factors contributing to the decline include high rates due to the high cost of living, the outbreak of SARS, deteriorating image of Hong Kong as shopper’s paradise and the development of tourist attractions in other countries in the region. The following section will review the development of the tourism industry from its subsequent decline and its way to recovery.
Part A
Macro Analysis
The business environment is generally successful and attractive. The gross domestic product has grown consistently and became the envy of developed and developing systems. The unemployment rate has always been in a low rate while the demand for the employment remains to be buoyant. With this, there appeared to be an increase in the standard of living explaining the social stability in the country (Ash et al, 2002, p. 14). The government policy on the other hand has adopted a policy of positive non interventionism. In general, the business environment of the country is favorable for investors.
Hotel Industry
Hong Kong’s hotel industry is a popular channel of investment along with the booming of the tourism industry. Tourism is a major revenue earner in Hong Kong. It has become the second largest source of foreign exchange. Hong Kong serves as the travel gateway for the vast majority of business and recreational travels to China and as the primary travel hub for South East Asia. The hotel industry was geared to the tourist trade especially at the upper end (Gerzenberg, 1994). In the years prior to the hand back to China, hotel room rates rose to high levels. Room rates may have been slashed and two for one flight promotions run but the image of Hong Kong as expensive destination has been fixed in the minds of potential tourist travelers.
Tourism and hotel industry has slumped badly during the Asian financial crisis. Despite the major rebound in the number of tourists coming during 1999-2000, the actual revenue received has declined. Explanations for the decline in revenue from tourists differed but include the high costs of living compare to other locations in the region. In addition to this, HK is no longer seen as a shopper’s paradise. It has been characterized by the lack of initiatives to provide tourist attractions and above all the high level of pollution affects the territory (Ash, p.19).
In 1999, hotel prices in Asia rose again as the region recovered from the economic crisis of 1997-1998. Room rates in South Korea, Japan and Taiwan rose by 32%, 38% and 30% in euros. However, China and Hong Kong experienced continued fall in room rates by 31.5% though it stabilized slightly in 1999 and towards the end of that year. Yet the reality remains that hotels are property and properties are major investments and assets in Hong Kong. By 2000, room rates and occupancy are again at high levels (Joseph, 2005). One of the bright spot for Hong Kong hoteliers is the climbing of tourism.
By the end of last year, there were about 612 hotels and tourist guest houses in Hong Kong with 52, 512 rooms. The average occupancy rates in all hotel categories were 87% for the whole of 2006. This marked a one-percentage-growth as compared to 2005 regardless of the 7.4% increase in room supplies between December 2005 and December 2006. During 2006, about 62.75 of all visitors stayed one night and longer, a trend which reflects the importance of Hong Kong as a regional transport hub (‘Tourism in Hong Kong’, 2007).
Today, the Hong Kong tourism and hotel industry is gambling its future as a tourist destination for Disneyland. The industry is expecting a boost from the increased number of tourists especially those coming from mainland China. In 2003, Beijing has eased the travel rules for mainland tourist to Hong Kong which allowed people for Chinese cities to travel individually rather than in organized groups. It has also doubled the currency allowed for mainland tourists to take with them when traveling abroad. These new polices are part of the series of measures to help stimulate Hong Kong’s’ flagging tourism, lift property and share prices (Bezlova, 2004). As a result, China has become the major source of tourist arrivals in Hong Kong (See Appendix B).
Competitor Analysis
The erosion of Hong Kong’s price competitiveness resulting from regional currency turmoil and depreciation has made other destinations such as Thailand, Malaysia and Singapore to become more competitive. Thus, the industry must try harder to attract the foreign market by providing competitive packages, attractive tourism products and high quality services and satisfactory experiences (Zhang, p. 84). The need for such initiatives has been illustrated by the decreasing rate of hotel occupancy despite increase of visitor arrivals (See appendix A).
There are increasing worries that the current tourism boom may fade in the years to come as wealthy mainland travelers set their destinations to Paris and London. Hong Kong is also competing with the nearby Macau. For the next decade, it plans to create 60,000 new hotel rooms (Joseph, 2005). Macau is also planning to penetrate the untapped market of China by investing in the monopolized gaming industry. It is next to Hong Kong which is likely to benefit from the ease of travel rules from China. As Chinese people enjoy more and longer holidays, the urban rich are traveling in great numbers to Macau for gaming activities. The influx of mainland Chinese has already uplifted the economic growth of Macau which is highly dependent on tourism (Bezlova, 2004).
The local competition in the hotel industry is intense. The choices are vast and there are so many competitors. Few cities offer large numbers of first rate hotels and few places competes with the services that made the Hong Kong hotel industry legendary. Most of the hotels and guest houses are situated on Hong Kong Island and in Kowloon but there are also selections in the New Territories (including the outlying islands). The keen competition and the laws of supply and demand have ensured that these hotels maintain the highest standards.
PESTLE Analysis
This analysis audits the impact on the market of large and usually long terms factors: political, economic, social, technological, legal and environmental changes going around the industry. These factors have dramatic impact on the working dynamics of the marketplace. Political factors such as government intervention distort the marketplace. Economic factors include the cycles of growth and decline that impact business. For instance, the increase or decrease in consumer spending impact the host of businesses from consumer goods. Social factors such as the increasing number of double income families impact the standard of living which may increase the purchasing power of consumers (Cheverton, 2004, p.75).
Technological factors are changes in technology which created the need for people to upgrade their skills to remain employable and for businesses to engage in new technologies so that they are not left behind by their competitors. Legal factors involve general legislations that affect all organizations such as employment laws and other industry specific regulations. Lastly are the environmental factors such as pollution control and the spread of diseases such as SARS that has affected businesses in the Asian region (Butler, 2001, p.40).
Political Factors
- Government Policy of non Interventionism on Businesses
- Autonomy from People’s Republic of China
Economic Factors
- High Gross Domestic Product
- High Purchasing Power
- Low unemployment rate
- High Operating Costs
Social Factors
- Social Stability
- Increase in the Standard of Living
- Lack of Skilled workers
Technological Factors
· Use of Information and Communication Technology in the Hotel industry
- Technology transfer arrangements with foreign investors The use of Information Technology in various aspects of the industry
Legal Factors
- Ease of Travel Rules from Mainland China
- Accommodations are subject for 3 percent government tax
Environmental Factors
- High Levels of Pollution
- Fear of SARS outbreak
Five Forces Analysis
This analysis discusses five competitive forces governing the tourism and hotel industry.
Potential Entrants
Developers are seeing new hotel prospects at the South side of Hong Kong. This would mean new entrants in the industry. Also, 37 percent increase in hotel development is expected until 2008.
Competitive Rivalry
The competition for tourist with neighboring countries is likely to increase. The development of tourist attractions such as casinos in Macau is likely to affect arrivals in Hong Kong. Also, the competitiveness of Thailand, Malaysia and Singapore in terms quality and price competitiveness is likely to impact the industry
Substitutes
Hotels are not the only means for lodging. Hotels may also compete with lodging services such as tourists’ guest houses and resorts.
Bargaining power of Buyers
The high purchasing power and increase in disposable income would mean that tourists are likely to spend more in exchange for satisfaction and best experience. This would require the hotels to improve their service standards if they are to remain competitive. Conversely, this may cause tourist to go other destinations such as Paris and London.
Bargaining power of Suppliers
Hong Kong industries in general are suffering form the shortage of skilled workers. In the hospitality industry such as the hotel industry, customer service and satisfaction is paramount and this requires the best employees. Thus, the hotels must acquire the most skilled workers through competitive offers.
Part B
Future Scenarios for the Industry
Hotels in Hong Kong can be described as being capable of providing high levels of services and facilities. More than 20 million tourists are expected to visit the city every year mainly from mainland China. Developers are building up to nine new hotels in the remote industrial sectors on the south side of Hong Kong. Overall, the numbers of hotel rooms are expected to increase by 37 percent by mid 2008 to 56,816 rooms. Occupancy rates among the highest worldwide has already declined to 86 percent in 2005 from 88 percent in the previous year (Joseph, 2005). (See Appendix B).
The introduction of the seven day free visa in 1993 and the five day work week in China had positive impacts in its outbound travel to Hong Kong. This implied that positive policies such as simplified visa application and extended visa-free status play an important role in attracting international tourists to Hong Kong. HK tourism authorities emphasized the importance of positive policies for the China outbound travel market and the top agenda is to make visas easier for Chinese tour groups. Further, the relaxation on the issue of travel document formalities boosts travel numbers.
The tourism industry of Hong Kong has lobbied the Chinese government to increase daily quotas and this allowed additional 358 tourists into Hong Kong each day. With the increasing standard of living and further relaxation of the outbound travel, mainland Chinese travelers will continue to be the most important tourist market for Hong Kong in the future (Zhang, p.83). Tourism related industry such as Hotels must strive to ensure that they provide the best experience and satisfaction possible. With the political and economic condition in China, outbound vacation travel will continue to expand and Hong Kong will be the first to benefit from this growing trend. In order to maximize and get fast return, Hong Kong must shift its emphasis to the China Market and design appropriate marketing strategies (Zhang, p.84)
Conclusion
The tourism and hotel industry has been characterized by significant development, subsequent decline and recovery. This industry has been considered to be one of the major sources of revenues for the country. However, it has declined greatly following the economic crisis and the outbreak of epidemic in the country. This can also be attributed to the high cost of living and the lack of tourist attractions that will entice tourist to visit the country. The condition was even worsen by the intense competition with other international destinations such as Malaysia, Thailand and Singapore. All of which are offering relatively low prices with the quality services.
To date, the industry is recovering by developing attractions such as the Disneyland. While this will boost the industry, competition will also strengthen as other countries are developing their tourist attractions such as casinos in Macau. Indeed, the hotel industry must improve its competitive position by enhancing the experience of guests through quality services, innovation and affordable prices.
Recommendations
- Enhance Hong Kong’s image as Asia’s world city by leveraging endorsements in a wide audience reach. This would entail making use of traditional channels to communicate the essence of unique Hong Kong experiences to the targeted market segments.
- Introduce and develop major tourism attractions that will boost tourist’s stay in Hong Kong. The construction of Disneyland has helped in promoting the country as a tourist destination. Also, Macau’s concept of casino and gaming activities is a good example of tourist attraction.
· The importance of offering high quality experiences meaningful to the hotel guests is unquestionable. They should maximize the arrivals of visitors, length of stay, repeat visits and satisfaction through initiatives that will enhance visitor’s experiences. Chinese mainland tourists are expected to be the most important market of the industry and hotels must ensure that they offer the best experience through quality service and modern facilities.
- Hoteliers must find a way of offering competitive prices that will suit the budget of travelers. The high costs of living has always been the problem of Hong Kong and this has led to the lost of potential tourist to other competitive locations in Asia.
- Offer promotional packages. A great example of this was the cooperation of HKTB and 53 Hong Kong Hotels in 2004 to offer discounted room rates to bona fide employees of airlines, tour operators, travel agents and tourist offices outside Hong Kong. The promotion showed the range of experiences Hong Kong offers so that these key influencers could in turn motivate and inform their customers about the city.
- Develop e-business. This will help hoteliers to better serve e-consumers by improving the quality of their online offers, expanding the quality of services and developing more competitive e-distribution channels.
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