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Moderating Effects External Environmental

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Question:

Discuss About The Moderating Effects Of External Environmental?

 

Answer:

Introduction

The growth of franchising has significantly been on the rise particularly in the hospitality industry (Brookes,& Altinay, 2011). Examples of companies that have adopted this method include Mc Donald, Pizza Hut, and Hilton among others. However, other researchers have criticized this approach by the mode of entry into the new market and sustainability, in comparison with the independent hotels.  The objective of this paper is to examine the assumptions of the research article, objectively critique it and further explore its impact on the hotel industry.

Assumptions

The performance of both franchise and independent hotels vary in almost all the market conditions. The research attributes this variation to the pre-entry experiences. The franchise businesses are characteristic of rich experience, an established brand, and existing infrastructure. The pre-entry advantages also include financial, supervisory, promotional strategies and benefit of technology. The firms that are venturing into a new industry derive their performance advantage from their opportunities in the accessibility to channels of distribution and corresponding assets (Niu,  Dong,  & Chen, 2012). Prior experience is significant in impacting the performance of new businesses in a new industry (Cassar, 2014).  The study by (Wang, Chen, & Chen, 2012) showed that the venture capitals were most likely the contributor towards the initial entries. Additionally, in a similar set-up of the market with relatively same conditions, the prior experience provides the hotels to adopt its tested and proven marketing strategies which in turn lowers the costs of operation hence contribution to the early returns.  The independent hotels that usually start from scratch are less likely to realize returns within the initial years. This is because; the organization invests a lot in the foreign market in trying to study it. Also, the market share is already dominated by the already established franchise, and any returns are further invested in the market.

 

Prospective customers depend on the brand of a firm as a sign of quality products

The brand image of a company is often assumed to be predictive of the quality of the product (Johnson & Zinkhan, 2015). The researcher supports this finding by arguing that customers have the natural fear of trying out products from new companies in the market and therefore would like their confidants to make the first move. Organizations that have existed in the market for long are most likely to be branded by the customers because of familiarity and won confidence. This is an advantage to the franchise compared to the independent hotels. The franchise with its long-standing market experience is likely to attract customers with less effort because the brand name is already in the market domain and therefore would not fear to try it out their products. As opposed to independent hotels, who for the first time are introducing themselves and their new product to the market. Due to fear, customers would not rush to buy their products.

Pre-entry experience is less significant in some market situations

On the contrary, the researcher argues that the market pre-experience is not always beneficial to the franchise hotels but can, in turn, be advantageous to the independent hotels. This is only possible because of the variations in the market of the hotel industry. Some innovative independent hotels have a strong internal structure as a result of the pre-determined procedures, systems, and organizational cultures. In situations where there are no developed systems, the independent hotels may thrive well mainly in environments that do not depend on prior experiences because they do not augur well with the current market conditions (Chen,  Williams & Agarwal, 2012). Furthermore, the independent businesses may attain a competitive advantage because of their flexibility to create external relationships with the suppliers and partners (Thrikawala, 2011).  The entrepreneur may also acquire, retain and adventure information obtained from both internal and external sources (Lichtenthaler, 2011).  The researchers also reason that because the independent businesses are apparently known not purchase any business model, it is likely that they will critically examine the new technologies s or engage in the seminars where such knowledge is shared or even by the team up with others through the social network (Philipson, 2012). The pre-experience may also be insignificant in situations where the independents decide to preserve their options by investing in bits on the external knowledge instead of engaging in a long-term obligation such as a franchise to maintain a lot of flexibility in case of market shift (Cantarello et al., 2011).

Hotel operations can stabilize after two years to five years after initiation

The researchers postulate that the hotel industry can pick up after two years of its start. This assumption is dependent on various factors such as market conditions and mode of entry. With an established marketing plan and strategies, organization plan, and market analysis, brand name the researcher's reason that a hotel can venture into the hotel industry and stabilize within the first two to five years of business operations. The researcher argues that two to five years are enough for a serious hotel to observe and analyze the market conditions and determine an entry strategy (Gavetti et al., 2012)

 

Hotels are forever unstable

According to O'Neill (2011), hotels can never stabilize forever because of the unique hotel industry. The uncertainty of the market and the necessity for continuous investment in the renovation of property contribute to this instability. The hotel industry is a tourism sector whose hygienic level is to be observed highly. Such costs among others are re-invested into the industry hence the reason for its continuous instability.

The investment in brand affiliation is directly related to the performance level of the operating business.

This assumption is based on the premise that brand image is the primary determinant of business performance hence the reason why most organization invest more in brand affiliation. This is because most people associate the brand name with the quality of a product (Johnson & Zinkhan, 2015). It takes a long time in the market for an organization to acquire a brand name. The reason why organizations prefer to promote brand name is to win customer confidence after which they will associate the brand name with every product bearing the brand name.

Franchise hotels exhibit initial performance and later on drops with market changes whereas independent hotels may or may not experience first performance but improve performance.

The research compares the performance of the independent and franchise hotels. It first describes the advantages that franchise has over the independent hotels in the new industry (Enz & Canina, 2011).  The franchise hotels have the initial wealth of experience in the industry, financial resources, already established structures and brand name. On the contrary, the independent entrepreneurs are new to the market, with no experience, structures, in adequate, marketing finances, etc. In such a scenario it is evident that the franchise will outperform the independent. However, the research found out that the franchise indeed can initially grow, but with time they do not survive in the market in the long run. The researcher attributes such a trend to change in market conditions, the branding of the independent business thus becoming fierce competitions which end up sharing the market share. As for the independent entrepreneur, market changes can be of benefit to the firm because of its nature of flexibility to adapt to changing market conditions. Additionally, the independent business efficiently obtains knowledge from the partnerships and attended seminars to understand the current events.

Full service and new limited service hotels have different level of complexity in operation

The full-service hotel segment is more complicated to operate and is likely to depict a high level of output when affiliated with the franchise. This is due to the effect of brand affiliation which is to boost the performance of the full-service properties. On the other side, the independent hotels with limited service may personally find ways of dealing with this situation on a smaller scale(Enz & Canina, 2011)

The pricing strategy of the independent hotels was crucial to the increased performance. The owners of the independent business who decide to acquire a business model ended up with improved performance. The outcomes indicate that independent enterprises had higher ADRs than those branded as early as from the start. This points that the pricing strategy might have led to the higher performance.

Outcomes of the research show that brand affiliation enables the full-service hotels to increase revenue within the initial six months attributable to occupancy. Conversely, the study outcomes show that the inherent knowledge and skill that is accompanied by franchise system for full-service hotels are not associated with continuous performance.

Criticisms

When looking at the pre-entry experience as a factor affecting the performance of a hotel, this assumption can be challenged (Mulotte, Dussauge & Mitchell, 2013). This is because not all the experience gained in the past is only applicable today. New ideas could be in the market that affects the effectiveness of a hotel such as advanced technology, latest marketing strategies, and the current trends. If the entrepreneurs are flexible and competitive in the market, to them pre-entry maybe be of little advantage to their industrial performance because they can work in any dimension to produce quality services due to their flexibility. On the other hand, starting a new industry with all the current trends and full knowledge of the latest needs and requirements in finances, managerial skills, technological capabilities, and marketing can make it very industrious and meeting the up to date standards without necessarily having the pre-entry experience.

There is an assumption that prospective customers depend on the brand of a firm as a sign of quality products. Looking at the issue of relying on the company’s brand name as a signal of product quality, it is subjective in that it is not applicable everywhere (O’Neill & Carlbäck, 2011). Different people have different cultures and norms. A Franchise Hotel may be established in a small metropolitan place, with the same name and products and services, yet an Independent Hotel starts at the same location and same time meeting all the cultures, goods and services of the people. It is evidently sure that the Independent Hotel will pick within a short time compared to the Franchise Hotel which is holding to their brand but again failing to meet the requirement of the small metropolitan market.

The idea that pre-entry experience is less significant in some market situations is not that accurate (Chen, Williams & Agarwal, 2011). If the innovative independent hotels can wisely use the pre-entry experience as well the franchise hotels, their services to their current customers will be high value. The main idea is how well to get access to channels of distribution and the corresponding assets.

There is the assumption that the hotel’s income may stabilize between two and five years while others say that it will never stabilize. Looking at this, from the first perspective, the hotel industry may fail to stabilize within the first two and five years of innovation (Legrand,  Sloan, & Chen, 2016). If the hotel does not run with the current technology and services, it will force the management to use more of its income for continuous investment to maintain the up to date facilities to meet the competing market. This will result in low productivity since most profit will be used to improve facilities of the Hotel and thus to be unstable.

On the other side, the hotel being unstable for good is not realistic either as some analysts consider.  By reviewing the market trend and required facility, the investor will quickly identify the vagaries of the market, refine how they work and monitor the hotel’s performance now and again (Jones et al., 2016). This will give a clear picture of its flow of income and with flexibility and be aggressive; the hotel industry will be able to stabilize even within the first two years. For a hotel to never stabilize is due not improving the hotel facilities and not being aggressive to get and work with new trends in the market. This is for both the Independent and Franchise Hotels.

It is not very obvious to conclude that investment in brand affiliation is directly related to the performance level of the operating business.  The brand image may not be the primary determinant of business performance which results to theoretical assumption (Hankinson, 2012). There are always some mistakes made when too much is invested in brand affiliation to market the name of the organization. At the end of it, more money is channeled to the advertisement of the brand, and unfortunately, the services offered are entirely different from the brand advertised. The main challenge here is that the organization may attract the customers but at the end lose their confidence since what is being advised in the brand is different from the services offered and this will at the end lower the level of performance of the operating business.

Franchise hotels are said to exhibit initial performance and later on drops with the market changes whereas independent hotels may or may not experience first performance but improve performance.  This comparison of the independent and franchise hotels is not that obvious. Despite the fact that the franchise hotels have the initial wealth of experience in the industry, enough financial resources, already established structures and brand name, they may retain their performance high and if well managed and being flexible to arising adjustment attain the high performance for its lifetime (Enz,  Peiró-Signes, & Segarra-Oña, 2014). For the independent hotels, if the management is not done well, the performance is not so apparent to improve more so if their services are not to the customers’ standards.

The study only considered the UK in its research. The country is a cosmopolitan comprising of numerous cultures. It is likely that the respondents may not represent other populations that are of different culture and set-up which may not be driven by brands (Sekaran & Bougie, 2016). Therefore, it may not be proper to generalize that mode of business entry is related to performance. The data variables were not spread enough to capture all the variability hence the conclusions are subjective.

 

Interests of the Article

This article serves only the interest of the independent business people. This is because; based on its assumptions it only serves to discredit franchising and all its proven benefits. For example, the assumptions that the pre-entry experience into the hotel industry doesn’t matter in some market conditions directly credits independent businesses in situations where they are more vulnerable than franchising.  Also, with all the known benefits of franchising, the researcher asserts that franchising may succeed during the initial years of business operations but not for a long time. Another researcher shows that brand image is crucial to market dominance for a long time of which franchising achieves.

The assumption that the investment in brand affiliation is directly related to the performance level of business operation indeed contradicts the fore mentioned statements. If a brand association is directly associated with the degree of performance and franchising considers the brand image in top priority. Then franchising is directly related to business performance. Therefore, to conclude that franchising will not thrive in the market long after the start of business operation serves to support the contrary.

The motive of the article is obvious that it was biased on the side of the independent hotels. For instance, the assumption that pre-entry experience is not significant in an entry to the new industries in some market situations is imbalanced. Expertise in any field is fast hand knowledge towards the achievement of the objective. The wealthy experience of franchising in regard to the market policies and operations are central to a successful entry in addition to familiarity with the market. This is because former experience means the brand name which translates to loyal customers.  Therefore, a brand new business cannot be compared with an already established enterprise regarding market entry advantages.

The conclusion that the Prospective customers depend on the brand of a firm as a sign of quality products is subjective depending on the culture of the respondent and the market conditions at that time. It is true that most people associate a firm’s brand with the quality of the product, but it is not always the same. There are products that can be introduced to the market and attract customers without having been on the market for long. What determines the immediate reception of a new product is more of advisement and quality.

 

Impacts of the results of the article on hotel industry

The report discredits franchising which historically has shaped the current hospitality industry. Franchising is the fastest known way of owing enterprises by relieving the entrepreneur from the trouble of serving an apprenticeship. Business people can borrow and later on trade on the experience of the franchising organization (Boella & Goss-Turner, 2013). Franchising has a lot of benefits according to (Armstrong, Adam, Denize & Kotler, 2014). For example in the medium-sized restaurant chains, it aids the employer in the retention of managers and permits the store to offer brand name items and acquire more traffic in their distribution of products.

If the franchise is disregarded as the researchers suggest, then businesses will lose all the benefits that are associated with it. For instance product design and marketing specialization, the limited commitment of financial and quick entry to countries of the target more so in negligible markets not worthy of major investments (Lee & Carter, 2012).

The researcher points out franchising as a risky affair when the market conditions are unfavorable. However, such a conclusion is misleading because the change in market conditions risks every other business venture and not franchising alone. For example, one amongst the many options for hotels and entrepreneurs to optimise their commercial value of their enterprises is franchising. Even amidst the varying and hostile market conditions, when it may appear favorable to for independent operators because of the accessibility to the customer base, franchising still generates revenue from its established brand, without having to first service upfront capital or the or any long-term commitment related to other running structures. Disregard for franchising will negate international expansion. The advancement in technology has made it manageable to regulate international franchising. It is through franchising that entrepreneurs can gain quick access to international markets. For example, USA has 70 percent room stock franchised against t 19 percent of the Europe’ room stock (Dant & Grünhagen, 2014). This indeed calls for franchising in Europe market.

Disregard of franchising will lead to little business regulations internationally. The growth and expansion of international franchising have resulted in the growth of the franchising industry. This has prompted the establishment of rules which promote guides and ensures the smooth running of businesses. The article assumes franchising will initially survive in the new market but not for a long time. This notion discourages the new and upcoming hotels thus shunning away franchising which offers a package alongside training, aid in the business initiation and business strategies and analysis. Such a package is what is fundamental to the success of a new hotel.

 

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