1. Analysis of the firm, Banyan Tree of Thailand (Banyan here after) and the potential for further international expansion in the hospitality industry hotels segment in India.
2. Which is a summary of my course for Global Strategy and International Management - Please use this as a guideline to source your information and base any arguments. You can then expand on the information from researching on the internet.
Strategic Capabilities in the Hospitality Industry
How to make use of and Develop Dynamic capabilities
Every organization irrespective of the market where they operate and size, must depend on a strategic capability to create a sustainable competitive advantage. Johnson, Whittington & Scholes (2008) refer to strategic capability as resources and competencies needed to ensure survival and prosperity. Hospitality industry in India and Thailand has continued to grow because of the initiative of individual businesses such as Banyan Tree of Thailand to utilize their resources and competencies (ILO, 2011). Collis & Montgomery (2008) refer to resources as the assets that businesses depend. While on the other hand, the competencies involves what the company does in order to convert the assets into usefulness. This implies that Banyan Tree of Thailand has resources in terms of tangible and intangible that are all important. However, how the business end up utilizing on them and deploying them is what should matter (USDA, 2016). Of course, the business management will have no point of having a state-of-the-art rooms, lodgings, chars, beds, cash flow, or employees if it cannot use it in the most effective way.
Johnson, et al. (2008) maintain that the efficiency and the effectiveness of either physical, financial, or the human resources, does not just rely on their availability, but the system and processes that the business applies to manage, the relationship and cooperation occurring between people, the rate of adaptability, the capability to innovate, the level of relationship with suppliers and customers, and the understanding about what is likely to work well and what cannot work well. The success of hospitality industry in both Thailand and India has continued to depend on dynamic capabilities to achieve long-term success. According to Sharma & Shanks (2011), one thing to remember and acknowledge is that strategic capabilities cannot continue to be static. And this is evidence on how the industry has continue to utilize an ever changing resources and competencies. Ambrosini, Bowman, & Collier (2009) refer to dynamic capabilities as the ability of a businesses to renew and recreate the available strategic capabilities to ensure that the business continues to meet the challenges and needs of a competitive environment.
The dynamic capabilities can only be used within Banyan through three clusters of activities and adjustments: sensing, seizing, and continued transformation (Teece, 2011). The use of resources in the company requires that management identifies and conducts an assessment of available opportunities such as increased number of tourists in Thailand and India. Sensing involves an inherent Banyan set of capabilities that calls for exploration of technical opportunities, trying to probe the markets in both India and Thailand, and continued listening to the target customers found in India and Thailand. Besides, this involves scanning of some other elements found in hospitality industry (Euromonitor International, 2016). It’s therefore, calls for Banyan management to continue building and testing its hypothesis regarding Indian market and its technical evolution, including acknowledgement of a latent customer demand. For example, Banyan in Malaysia has succeeded in recognizing and exploiting the opportunity that comes from tourists coming from hotels, short-term rentals, lodging offline/online, and general lodging (Euromonitor International, 2016). Based on the above explanation, it therefore implies that Banyan management must conduct constant scanning, searching, and exploring different opportunities found in hospitality industry in India and Thailand.
Dynamic Capabilities in the Hospitality Industry
Seizing capabilities involves Banyan designing models that can satisfy customers and tourists and capture value. The use of dynamic capabilities would also include securing access to Banyan capital and human resources. Just as explained by Teece, Pisano & Shuen (1997), it is critical to continue motivating employees. Furthermore, it is also critical to design incentives though not sufficient, to motivate employees from Banyan to deliver superior performance. In addition, Banyan management should also ensure that it forges for a stronger relationship with suppliers, customers, and complementors. Other companies in tourism industry that have been found to successfully build and orchestrate assets in tourism industry, have been found to record higher profits (Lin, & Wu, 2012).
Banyan also needs to use transforming capabilities as a way of configuring dynamic capabilities. Teece (2011) argues that any business can do this when it wants to address radical new opportunities. Besides, the company needs most often in order to soften the rigidities that try to arise most of the time when the company accumulate more assets, standard operational procedures such as booking of lodging rooms, an increased misappropriation of revenue. According to Hanna-Kaisa, Ari & Olli (2011) is that any assets for a business must be in line in ensuring that management achieves the best strategic fit. Furthermore, Banyan must ensure that the strategy works according to hospitality industry, try to structure its current strategy, and assets with one another. Management must focus on complementaries and whose management in terms of configuring, must help in achieving evolutionary fitness. This initiative will ensure that the company eliminates on losses of value in a case when the market tend to favor external complements. Banyan Company has already come out as a paradigmatic practitioner that has dynamic capabilities. For example, the business has succeeded in creating and transforming a series of markets. Most importantly, implementation of a strategy by Banyan business in Thailand has led to creating a shaping the market. This process also relates to what Teece et al. (2010) calls renewing and regenerating dynamic capabilities. During renewing for example, Banyan must ensure that management utilizes dynamic capabilities in order to sustain the rent stream within the ever changing environment. They must be refreshed and renewed. The company can continue to extend its intangible brand name (Wirtz, 2011). This has made Banyan Tree Hotels and Resorts to become one of the leading player within the luxury resort and spa industry. The company should continue launching new brands and extension of brands to include retail outlets, museum shops, destination club membership, residence, spas, and resorts.
Sensing, Seizing, and Transforming Capabilities at Banyan Tree
Shifting of the environment will also require that management refresh available resource stock. Just as Teece, et al. (1997) explain, valuable resources can only become core rigidities when the business fails to modify, combine with varying equipment, or achieve extension in order to acquire new use such as producing new product lines. This implies that Banyan can modify its current resource stock to alter the utility and hence, achieve sustainability in rent generation. The company can start to add new service offerings to its only resource stock such as individual villas, spa treatment rooms, private pool all targeting tourists (Wirtz, 2011). Management must also design resorts to blend the natural landscape of the surrounding environment.
Sharma & Shanks (2011) posit that dynamic capabilities are critical for a success of any organization. Dynamic capabilities makes managers understand the optimal value assets that a business has. For example, the use of dynamic perspective ensures that management recognize that under given conditions, a business can use specific bundles of resources to create value in a manner that other competitors cannot. According to Teece (2007), this can be on the account of market failures coming from a number of cases such as thinness of the market, contract incompleteness, and a high transactional cost to identify, build, align, adapt, and coordinate activities used to configure specialized assets. Instead, managers can start to create special value that aligns with assets. Most importantly, businesses success comes from the ability of managers to search, select, and even orchestrates assets to achieve co-specialized assets and maintain high value for targeted customers.
Low-cost leadership strategy
Michael Porter suggested three different generic strategies that any business can adopt to create a sustainable competitive advantage in a market. These includes cost leadership, differentiation, and focus strategies. Banyan can enter hospitality-hotel industry in India by adopting cost-leadership strategy. Johnson et al. (2008) refer to a low-price strategy a way that businesses use when they want to achieve a lower price that what other competitors offer to the same customers. This implies that Banyan can use this strategy in the new market in order to maintain a similar perceived product and service benefits against similar services offered by competitors.
A number of scholars have explained different advantages of a low-cost strategy. According to Johnson et al. (2008) for example, Banyan will start to offer its products and services among Indian customers where other competitors have already found unattractive. The strategy will play a key role of creating a barrier to potential entrants in this segment on the basis that they will fail to maintain a high operational cost. Consequently, Banyan will succeed in avoiding competitive pressures likely to erode prices. Johnson et al. (2014) explain that a low-cost leadership strategy play a key role of offering better value to customers. Among the drivers for the strategy for instance, Duic? & Duic? (2014) explain that product and process design ensures that a business achieves a high level of efficiency in its services. Banyan will be in a position to offer the most efficiency services from the onset. Managers in charge of service and product design will be in a position to create innovative services while using cost-effective standard components that expensive components. Banyan will chose to interact with customers from Indian market through face-to-face communication instead of using telephone. Furthermore, management will also ensure that it tailors its offering to ensure that it continues to meet the needs of most customers, saving on money while at the same time, trying to avoid others. Besides, Johnson, et al. (2008) recommends that while designing a product or a service, management need to acknowledge and recognize the whole-life costs associated costs. This will include the costs to customers in hospitality industry beyond just purchasing the service in future.
Importance of Dynamic Capabilities for International Expansion
Third, Banyan will manage to attract a considerable high number of customers not served by competitors. Even though the company will fail to benefit from differentiation, it is important to point out that a high number of customers will offer the business with the advantage of increased volume of sales. Consequently, this will translate to higher profitability. Stankevi?i?t?, Grunda & Bartkus (2012) explain that one of the key drivers of low-cost strategy is economies of scale and input costs. Stankevi?i?t?, et al. illustrates that input costs remain critical for a business that seeks to increase its sales volume. Majority of companies that seek competitive advantage for example, ensure that they locate their labor-intensive operations among markets that have low labour costs such as china. Furthermore, location near inputs such as farm produce for hotel, consumables for spas, among others, will become advantageous to Banyan Company in India. Besides, the economies of scale will involve the increasing scale to reduce on the average costs of operation in India. Management will manage to spread the fixed costs over a high number of outputs. For example, some of the fixed costs will include purchasing of kitchen wares, future, bedding, and spas. The company will manage to reach a high output level to reach a minimal efficient scale (Ghemawat, 2007).
However, low-cost leadership strategy has been found to have few disadvantages for a businesses. This implies that Banyan will not remain immune to such disadvantages. Efforts to expand to Indian market will expose the company to low level of differentiation. While differentiation require that the company offers unique products along some dimensions that are sufficiently valued among customers through price premium, the company will limit the number of services and products that is likely to offer to customers. The need to do this will be based on the need to cut down on operational costs. Second, the failure to cut out on some services, would make the business record relatively lower profit margins.
Ambrosini, V., Bowman, C. & Collier, N. 2009. Dynamic capabilities: An exploration of how firms renew their resource base', British Journal of Management, vol. 20, no. S1, pp. S9-S24.
Collis, D., & Montgomery, C. 2008. Competing on resources, Harvard Business Review, July
Duic?, A., & Duic?, M. C. 2014. Organizational Implications of the Cost Leadership Strategies. Valahian Journal of Economic Studies, 5(2), 33-40.
Euromonitor International, 2016. Passport: Lodging in India, Retrieved from https:euromonitor.com/India on 2 June 2017.
Euromonitor International, 2016. Passport: Lodging in Thailand, Retrieved from https:euromonitor.com/Thailand on 2 June 2017.
Ghemawat, P. 2007. Managing Differences: The Central Challenge of Global Strategy, Harvard Business Review, 59-68.
Hanna-Kaisa, E, Ari, J, & Olli, O. 2011. The role of dynamic capabilities in developing innovation-related capabilities. International Journal of Innovation Management, 15(3), 20-56
ILO, 2011. Indian Hotel Industry. India Law Offices: New Delhi.
Johnson, G., Whittington, R., & Scholes, K. 2008. Exploring corporate strategy, 8th ed. Pearson
Johnson, G., Whittington, R., & Scholes, K., Angwin, D., Regner, P. 2014. Exploring strategy: Texts and Cases. 10th ed. Pearson
Lin, Y., & Wu, L. 2012. Exploring the role of dynamic capabilities in firm performance under the resource-based view framework, Journal of Business Research, Vol. 67, Issue 3, 407-413
Sharma, R., & Shanks, G. 2011. The Role of Dynamic Capabilities in Creating Business Value from IS Assets. AMCIS 2011 Proceedings - All Submissions. 135.
Stankevi?i?t?, E., Grunda, R., & Bartkus, E. V. 2012. Pursuing a cost leadership strategy and business sustainability objectives: Walmart case study. Economics & Management, 17(3), 1200-1206.
Teece, D, J. 2007. Explicating Dynamic Capabilities: The Nature and Microfoundations of (Sustainable) Enterprise Performance. Strategic Management Journal, 28(13): 1319-1350
Dynamic capabilities: A guide for managers. IVEY Strategic Management Journal, 18(7): 509-533.
Teece, J. D., Pisano, G., & Shuen, A. 1997. Dynamic capabilities and strategic management. Strategic Management Journal, Vol. 18(7), 509-533
USDA, 2016. Thailand: Food Service - Hotel Restaurant Institutional. USDA Foreign Agricultural Service, Gain Report, USDA: Bangkok.
Wirtz, J. 2011. The Banyan Tree: Branding the intangible. Emerald Emerging Markets Case Studies,