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Hospitality and tourism industry

Discuss about the Evaluation of Global Hospitality Sector Trends.

With the service sector contributing over 70 percent of the Gross Domestic Product (GDP) of the global economy as of 2010, questions arise as to how the sector appeared unnoticed over the manufacturing industry with regard to economic growth. Despite the realization of the importance of the services sector as an important driver to global economic growth, it is important to understand why the services sector appears to be underutilized by companies in statistical measures thereby being noted as a decline in comparison to the virtual contribution of services sector to the global GDP. The hospitality industry, particularly, has played a crucial role in facilitating global trade growth. The industry can be said to be one of the largest industry globally in terms of driving the global economy and job creation. Despite the realization of the importance of the services sector as an important driver to global economic growth, in practice some businesses within the hospitality sector still continue to struggle even in the advent of global growth. The essay seeks to evaluate and explain the challenges affecting the hospitality industry and how strategies taken to facilitate growth.

In 2014, the hospitality and tourism sector generated 9.5 percent of the global GDP and creating over 250 million jobs, estimated to be 11 percent of the total employment across the world. The industry continues to grow at a rate significantly higher than the wider economy as well as other major sectors such as financial, automotive and health care sectors. However, the volatility of the hospitality industry is high, as it is heavily dependent on a variety of political, economic and environmental factors. Following the financial crisis experienced in 2009, that saw the industry register a negative growth of 6 percent, the hospitality and tourism industry has shown tremendous turnaround registering growth in 2010 (WTO, 2012). Over the preceding years there have been challenges affecting the hotel industry despite the turnaround. Some of the issues are linked to the reduced activities within the hotel industry.

The advent the global economic recession has affected many industries causing a decline in almost all the service sectors. Notably the recession has created a negative impact on job opportunities among many countries globally. There have been cases of job insecurity within the hospitality sector, low working conditions as well as inadequate pay.  Additionally, the recession also caused a declined demand in travel and tours in tourist generating countries as well as destinations.  The fact that almost 80 percent of the travelers originate from at least 20 countries globally, mainly developed countries, it is important to note that there was bound to be a decline in tourism as well as travels since the developed countries were most affected by the financial crisis(Chu, 2014). It is often realized that people would tend to reduce spending especially in the wake of future uncertainty. On finds that as a result, households are increasingly cutting down on luxuries such as holidays. Consequently, many hotel operators especially recently opened and those dedicated have been experiencing hard times due to lower number of guests leading to inability to maintain sustainable businesses. However, while some of the hotels have been pushed to a point of closing down some remain resilient but are also forced to reduce the price on hotels significantly to attract guests, thus affecting their bottom line. The industry has therefore been affected by the shrinking capital market and decreased spending by corporates and individuals (Global Financial Crisis Bulletin, 2009).

Global Financial Crisis

Previously, before the global financial crisis the hotel and tourism industry remained as one f the fastest growing services industries. With widespread effect on other industries such as the transport industry, the industry has become a great opportunity for investment. As a result, the hotel industry experienced a boom construction of new hotels. In fact, according to Forbes Travel Guide (2014), in the previous year, Total Number of five star and for star hotels rose by 33 percent and 28 percent respectively with the number expected to grow. However, in the event of the global financial crisis, many hotel services providers have found themselves struggling to compete for the declining market through offers and promotional activities that live the some of the small hotels unable to compete. High-end luxury has a great advantage over small and medium hotels. The former enjoys Strong financial bases as well as a wide network of chain hotels thereby finding it cost effective to market their hotels and also offer a wider variety of services globally (Chu, 2014). The small and medium Hotel continue to find it hard to remain competitive since they may not be in a position to offer wide variety of services and still remain sustainable. This situation has led to the closure as well as struggling hotels across the globe.

Due to the increasing competition, hotels are increasingly using offering a wide range of services, facilities as well as amenities to maintain a competitive edge over their competitors. For instance, luxurious hotels around the global offer unique service products that are very diverse to the extent that the hotels become a destination themselves. Inclusion of health reactional center, Shopping complex, sporting grounds, unique hotels suites as well as technological improvements. Hotels going beyond their primary services such as food and accommodation have had a significant increase in walk-ins and bookings.  According to the Smith Travel Research (2010), There was an unprecedented turnaround in 2010 followed by a significant growth worldwide. Studies show that this rebound of the luxury hotels is as a result of changing consumer trends who are increasingly preferring spending on experiences. However, this works at the detriment of lesser hotels which are unable to offer such a wide variety. Digitization of hotel rooms to accommodate the new generation of technologically savvy clientele. Hotels lacking such modification are unable to appeal to this new emerging client market. While the number of clientele continues to go up, the bottom-line decreases as a result of higher cost service delivery cost.

High competitiveness within the Hotel Industry

As Technological advancement continue to improve integration of business activities to positively affect the Hotel Industry, there is a downside with the advent of social media. Technology has allowed the hotel industry’s ability to cut costs on promotional services as well as administration services. Hotels generally applying technology in their operation have been able to cut cost on a variety of areas including renewable energy adoption over oil and gas, as well as communication tools such as digital over paper communication. Such effectiveness has been a common trend in Hotel industry that helps improving their bottom-line(Chu, 2014). Even when a there is a lowered number of customer walk-ins, a Hotel has the ability to remain profitable again While social media is used as a personalized marketing tool, it can also create a negative effect in cases of bad service experiences. In the current world, many people share their experience with friends in social media and a negative commentary regarding a particular hotel has the potential to spread really fast thereby decreasing the attraction towards the hotel. Additionally, negative information regarding the regions where the hotel is located reduce the hotel’s appeal, especially when such alerts pose a threat to customers such as political unrest, and violence. Therefore, although technology remains an added advantage to the hotel industry in terms of promotional cost effectiveness, there are concerns where negative publicity creates loss of customers.

In countries faced with political unrest, the Hotel industry is adversely affected. Some tourism and travel exporting countries often provide travel advisories that may advise their citizens to avoid some tour destinations, which are highly regarded by the tourists. For example, Greece experienced a downturn of its hotel and tourism industry partly as a result of demonstrations as well as civil unrest within the countries. The Hotel industry in the current did not recover until 2013 and is slowly showing growth (OATEN, LE QUESNE, SEGAL, & Deloitte LLP, 2012). However, it is expected that some with the slow recovery, some hotels may be unable to sustain themselves.

In the hospitality industry, the management of the financial crisis management has proved to be an unpredictable event requiring continuous analysis and improvement of organizational performance according to Paraskevas (2013). Notably, in crisis management, awareness of potential crisis, prevention and mitigation of the crisis are essential for organizations within a particular industry to apply corrective measures as well as adapt to change. Such strategies have allowed the hospitality industry to successfully recover from the recession and emerge stronger. Adaptation of sustainable business practices that added value to the hospitality industry have enable the sector to become resilient to economic pressures. Several trends within the hospitality and tourism industry have enabled its survival.

Product offering

Despite this decline, the tourism industry has proven resilient where it registered a significantly rapid recovery in the 2010 registering 5.3 percent tourist exports. The figure has remained consistent over the years. It is fortunate that the hospitality sector has been able to take advantage of the crisis in a bid to mitigate the impact the recession as well as preventing redundancy (World Economic Forum, September 2011). Hospitality companies are consistently innovating new ways and strategies in order to remain competitive that have allowed growth within the industry. Favorable economic conditions such as the fall of oil prices has in turn caused a reduction in travel cost prompting more people to afford travel fare. Additionally, the financial crisis has awakened the hospitality companies in working more efficiently which includes cutting cost while providing more quality services to customers (OECD, 2007). Some companies have had to streamline their management structure to retain only the essential department. Additionally, the current crisis has served as an opportunity for the service industry to implement proactive ways increase communication with consumers and also attract skills development within the industry. In the job creation areas, for example, tourism industry in Italy made efforts to improve working condition by subcontracting companies in charge of providing seasonal employees on a contractual basis during peak seasons for a moderately higher pay.

Development and emergence of other markets have helped widen the variety of services products offered by the hospitality and tourism industry. For instance, it is notable that developing countries registered growth even during the recession. This was facilitated by proactive strategies to develop tourism and ultimately the hospitality industry. Repackaging and rebranding of sustainable tourism such as promotion of culture, arts and heritage within developing countries was a significant factor that allowed rapid recovery of the sector (Levy & Hawkins, 2010).

Additionally, the hospitality industry has also seen shift in the trends among consumers towards more experiential products services over material products including health, environment and business tourism. strategically, the hospitality industry has continued to seek new ways of adding value to the sector as investment within the sector continues to be affected by the slow recovery of the financial sector. Notably the rise in per capita income of the middle class has seen a high affinity for luxurious activities. For this reason, Luxury hotels are increasingly formulating product service packages that are affordable to the middle class. Investment in fully serviced hotels has increased allowing tourist to gain greater satisfaction from their experience. Increase in Demand for such high-end services as well as development of a culture embodying the strategic goals of the hotels have allowed the hospitality and tourism industry to continue showing consistent.

Prevalence of technology and Social media

Global integration and networking among the hotel industry has created an eco-system that allows hospitality companies to market and offer a wider variety of product through mutually beneficial partnerships. Although large multi-national hotels are in a better position to quickly adapt to changing industry condition such as shifting trends, small and medium hospitality businesses do not share the same luxury, lacking the resources competitively targeting new customer. However, the advent of the internet and new technology has opened new innovative ways where small hospitality businesses can effectively market their business as well as network and cooperate with other small business to provide a wide variety of products services, collectively (Wirtz, 2000; Wirtz and Ehret, 2013). Marketing platform for Bed and breakfast businesses are now visible as a result of online platforms that promote them according to location and mutually beneficial payment arrangement creating more employment opportunities. Advent of Smartphones and application allow personalized communication to potential customers. Communication between client and small business hotels is possible as well as immediate feedback (Miroudot, 2016). Information collection about taste and preference of target clients is possible and easily available and reliable in making strategic decisions within the hospitality industry which help to match customers’ expectation.

Similarly, mergers and acquisition have also allowed the integration of the hospitality at a global level which in the past was fragmented. Mutually beneficial partnerships ensure that customers gain access to a personalized service among partnering hotels  (Pforr & Hosie, 2009). The strategy not only creates opportunity but only create added value to customer increasing satisfaction. Therefore, the business structure of the Hotel industry has changed to a more flexible and cost effective model that can easily adapt to change.

Conclusion

In an era troubled by serious economic pressures, there has been proactive and conscious improvement effort, nationally and internationally to overcome the effects of the financial crisis experienced in 2009. In 2010, the hospitality and tourism industry showed tremendous recovery indicated by the positive growth of tourism exports that rose by 5 percent and has continued to growth at relatively the same rate over the years. While there has been a decrease in accommodation prices, there trend has seen more guest being able to afford luxury hotels thus increasing the numbers of tourists in high end hotels. Globalization has encouraged the integration the once fragmented hospitality industry with mergers and acquisition enabling mutually beneficial partnerships.  The reorganization of the hotel industry has also seen an increase in job opportunities along the value chain as well as streamlining employment conditions among employees directly related to the hospitality industry. Demand for skilled labor as well as cost efficient model of operation have allowed the hospitality industry to gain rapid growth with technology innovation and prevalence of the digital platforms facilitating integration and cost effective promotional strategies. Although the hospitality industry is highly competitive, companies in the sector strive to provide more diverse services as well as developing new markets that will see the sectors continued success in the future. we find that in accordance to the WTO 2015 findings, the global service sector continues to contribute a significant percentage of the global GDP. This is because services having incorporated in almost every aspect of business including manufacturing. However, in a bid to capitalize on the global opportunities companies are continually adopting different business models that seek to increase efficiency

References

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OATEN, S., LE QUESNE, K., SEGAL, H., & Deloitte LLP. (2012). Travel and Tourism Competitiveness Report 2015 - Reports - World Economic Forum. Retrieved from https://reports.weforum.org/travel-and-tourism-competitiveness-report-2015/chapter-1-2-adapting-to-uncertainty-the-global-hotel-industry/

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