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Scope of Report

Discuss about the Strategic Analysis of Shangri-La Hotel.

Shangri-La is a Hong-Kong based hotel which has spread its services across the region of Asia, Europe, Middle Eastern Zone, Australia and Northern part of America. The hotel has established itself as a five star luxurious hotel with its legendary Asian hospitality. The hotel is located outside the city area in order to provide a soothing and peaceful environment to the customers. The hotel is fully equipped with trained staff which is always present at the customer’s disposal. The infrastructure of the hotel has been created in a manner so as to please the customer and take their minds off through its landscaped gardens, CHI Spa, The Waterfall and picturesque view of the location. The hotel has established its strong brand identity in the market of Singapore through its exceptional services and unique customer experience.

The report would discuss and analyze the strategy of Shangri-La Hotel which has assisted the growth of the hotel. In order to understand the impact of external factors on the hotel, PESTEL analysis would be performed comprising of political factors, economic factors, social factors, technological factors, environmental factors and legal factors. Political factors would help to assess the political stability and scenario of Singapore. Economic factors would shed light on the inflation, cost of labor, income of people and overall economically favoring factors in the country which supports the operational activities of the hotel. Social factors would help us to understand the demographics, disposable income and lifestyle of the people of Singapore. Environmental and legal factors would help us to understand the laws of the country that affects the operations of the hotel.

Industry analysis is performed to shed some light on the market factors and assess their impact on the hotel. Critical success factors, porter’s five forces, competitor’s analysis and strategic group analysis are few of the tools which would be incorporated in the report to evaluate the industry. Further, an internal analysis would evaluate the internal operations of the Shangri-La Hotel. A value chain analysis would be performed to assess the primary and support activities of the hotel. SWOT analysis and core competency would assist to evaluate the strengths and weaknesses of the hotel. Recommendations would be suggested based on the analysis of the hotel.

Shangri-La Hotel has been facing several business challenges which affect its overall operational activities. According to the Sustainability report of the hotel, the company has been consistently making efforts to attain its corporate social responsibility goals and objectives (Shangri-La, 2013). In order to attain its corporate social responsibility goals, the company’s sustainable operations are affected. The sustainability report of the company shows company’s financial status and the measures taken by the company to achieve the future goals. The company has been struggling to reduce its carbon emission activity and potable water consumption in order to attain its CSR goals and objectives. The major challenge is to attain CSR goals by considering the profitability and economies of scale of the company.

Business Challenges

Political Factors

Singapore is a politically stable country with reliable infrastructure and government competency. The country has fostered an open and positive attitude towards the tourists and foreigners (Weizhen, 2015). This helps in attracting the tourist from all over the world which supports the growth of revenue for hotel industry.  Another political factor is international relations with other countries. Singapore has developed and maintained healthy relationship with its neighboring and other countries including United States and Philippine (Embassy of the Republic of Singapore, 2012). Singapore’s relationship with its neighboring and other countries also make it a great destination for tourists. Though, recently there has been threat of terrorism in the country which could affect the tourism of the country by hindering the international air travel or scaring the people (Liang, 2016).

Economic Factors

The overall economy of the world affects the business of Shangri-La Hotel because of global economic recession. The slowing economy of China, US and the countries of Europe also endangers the business of Hotels. The economic turmoil of the world has reduced the disposable income of the people which has lessened tourism. Further, rising income inequality due to rising economic threat has also reduced an individual’s ability to stay at hotel.

Social Factors

Social factors have contributed towards the growth of hotel industry because number of people planning international trips has increased by 13% in Asia. Approximately 15.5 million tourists visited Singapore in the year 2013 which led to growth of sales of hotel by 3.9% (Chow, 2014). The cultural changes around the world have increased the demand for packaged tours and luxury resorts which has also benefitted the hotel industry.

Technological Factors

The emerging technology has increased the business of hotel industry. The online rental services facilitate the consumers to book their hotel rooms in advance. This service has increased the sales revenue of hotel industry by giving the consumer an access to the information about hotels anywhere across the world.

Legal Factors

The change in jurisdiction of Singapore which deals with the food hygiene and standards has an impact on the business of Shangri-La Hotels. Singapore has very strict laws concerning the food safety management. Singapore has also adopted a grading system for the food industry in order to maintain the quality standards of food (NEA, 2017). The other legal factors which could affect the hotel are immigration rules and procedures for Singapore visa and consumer protection and employment laws in Singapore. Singapore has recently eased its immigration policies in order to stay economically competitive which had a positive impact on the hotel (Chang, 2015). The consumer laws of Singapore are strict to ensure a fair transaction between the supplier and the consumer (Singapore Statutes Online, 2017).  Singapore has strict policies to protect the rights of employees.

External Analysis

Environmental Factors

The hotel industry faces criticism for polluting the beaches, forest areas, historical places and other tourist places. The Shangri-La Hotel is required to adhere to the strict government laws which increase its operational cost.

Critical success factors are those factors on which business must focus in order to survive within the market. The factors keep changing with the time due to global competition and the changing need of the customers. For hotel industry, following are the critical success factors:

  1. Location: Location has always been a significant factor of the hotel industry despite the changes in the industry. The travelers prefer to have a location which has a picturesque view and close to the airport and other basic amenities. The business travelers specifically look for a hotel which is close to the city and airport (Howell, 2009).
  2. Global Outlook: The consumer perception tends to get biased towards the globally owned hotels. A hotel must establish itself on international level in order to attract customers.
  3. Quality Management: This factor takes into consideration several factors including customer services and employee satisfaction. Hotels can improve their quality standards by making their employees satisfied which could lead to customer delight. When the employees of the hotel are satisfied then they would put their best individual efforts to satisfy the customers (Melia, 2010).
  4. Flexibility: The personnel staff of the hotel must have the liberty to deal with the critical situations in order to satisfy the customers. On the other hand, a manager with strict policies would not be able to resolve the customer conflict which would lead to customer dissatisfaction. Therefore, the manager must have the authority to take appropriate actions to turn a situation around and offer a great deal to the customers (Howell, 2009).

Threat of New Entrants

This factor is determined by barriers to entry such as economies of scale, switching costs and loyalty of the customer, product differentiation and other factors (Hill & Jones, 2009). The hotel industry has very high cost of capital which is required for construction, furnishing and the pre-operational expense. The minimum number of hotel rooms required in a metropolitan city is 500 rooms.  Shangri-La Hotels has developed a brand image of its own over so many years which is difficult to build up within a short span of time. Therefore, Shangri-La does not face any threat of new entrant in the industry.

Threat of Substitute Products

The substitute products offer the products which are less costly and offer same services as that of the original product. Motels, hostels, guest houses are some of the substitute products of Shangri-La Hotel. The target market for substitute products is low income consumers or price sensitive consumers. Shangri-La Hotel does not face any competition from the substitutes because it has a different target audience which does not clash with the substitutes (Cheng, 2013). Shangri-La has very strong marketing strategy of attracting tour groups to maintain its sustainable framework of business. Thus, the hotel is not vulnerable to the market competition because of fragmented nature of the competition.

Bargaining Power of Suppliers

According to Porter, suppliers could dominate an industry if they are more concentrated as compared to their customer. In order to maintain the sustainability of the business, the hotel must develop a strategic relationship with its suppliers (Cheng, 2013). Labor and trained staff is the most crucial suppliers of Shangri-La Hotel.  In order to have a competitive edge over its competitors, the hotel must work to reduce its labor cost. The hospitality staff is in great demand all over the world which is the main challenge of hotel industry. Shangri-La faces challenges to recruit competitive staff at lower cost because of their great industrial demand. Further, the hotel has to abide the employment laws of Singapore which creates intense pressure on the hotel.

Industry Analysis: Critical Success Factors

Bargaining Power of Buyers

According to Porter, the buyers could exert great pressure to bring down the prices of product or service if they are more concentrated than the players. Shangri-La is consistently working to increase its customers through strong marketing strategies. Now in order to increase the number of customers, the hotel has to listen to its customers and bring down the prices.

Existing Competitors

According to Porter, the intensity of completion within an industry depends upon the size of competitors along with their number. Shangri-La is a five star hotel and does not face intense competition from its rivals. The rivals of the hotel are Mandarin Oriental Hotel Group, Four seasons hotel resorts and Marriott hotel.

Mandarin Oriental

Mandarin Oriental Singapore is a part of Mandarin Oriental Hotel Group which is known to offer its legendary services to the customers. The strategic vision of the company is to increase its global visibility through its luxurious services and increase its rental rooms. The mission of the company is to achieve the highest level of customer satisfaction (Mandarin Oriental, 2017). The hotel has developed a long lasting brand image. Mandarin Oriental Hotel has established its hotels at very picturesque location which is one of the major reasons to attract the customers.  The hotel is located in Marina Centre which is connected to Marina Square Shopping Mall and within a short radius of Resort Marina Bay Sands.

Mandarin Hotel its hotels spread across the regions of Europe, middle east, Africa, America and Asia Pacific. The hotel has very high standards of rules and regulations in order to maintain its quality. Due to its large operations, the hotel has very high line of authority which makes the decision making a complicated process. This creates challenges in terms of communication and cooperation among the employees. The housekeeping and front office departments face challenges to maintain the status of rooms. Further, the hotel has to incur huge cost in its food and beverage department.

Further, the hotel has numerous opportunities to increase its revenue from the F&B department. Mandarin serves different variety of food which attracts in house and outside guest (Jardines, 2011). Apart from that, the hotel could also generate its revenue from its meeting rooms and conferences facilities. The opportunity also lies to target the female business travelers along with the families.

Marriott International Inc.

Marriott is an international chain of hotels across the world in over seventy countries which targets the segment of leisure travelers, premium travelers and business travelers (Marriott, 2017). The target group comprises of upper class, corporate, families and newly married couples. Marriott has established its brand name through its prime location and luxury living strategy. The hotel consistently thrives to enhance its technical services in order to improve its business processes. Marriott has very strategically maintained the performance of its employees by achieving high levels of employee satisfaction which has led to highly satisfied customers. The hotel has thus, maintained good employee retention. 

Porter’s Five Forces

Marriott has spread its wings across the globe and has developed very large sized operational system. Marriott has to maintain its quality standards in order to maintain its brand reputation which it has built over a span of time. The decision making process becomes complicated when the hotel manager faces a critical situation of customer conflict. In order to resolve the conflict, the manager must have the authority to take an independent decision. The hotel faces the challenge of brand dilution due to its complicated decision making process.

Further, the hotel has huge potential in the emerging market of Singapore through its innovative services.

Four Season Hotels and Resorts is a five star luxury hotel services which offers wide range of services including accommodation, spa and other leisure services for travelers. Apart from these leisure services, the hotel also offers sports services including golfing, fishing, scuba, tennis, sailing and water sports. Four Seasons has its hotels located across the regions of America, Europe, Asia Pacific and Middle East and Africa. It is headquartered at Toronto in Canada (Four Seasons, 2017). The hotel has maintained its excellent services throughout the world. Four seasons consistently thrives to bring innovative services in order to attract the customers and maintain a sustainable model. Due to the high standards of customer services, Four season has been able to create long term relationship with its customers. The hotel has integrated an effective supply chain system within its process so as to dominate the entire market. One of the weaknesses of the hotel is that it has not incorporated effective communication strategies within its system. Further, due to high cost of labor and maintenance, the hotel is not able to achieve its economies of scale.

Four Seasons has great opportunity through its product and service expansion. The hotel could increase its customer base by strategically partnering with the international airways.

Strategic group is a concept of strategic management which forms a cluster of companies within an industry which have similar business strategies or model (Freeman, 2010). Strategic group analysis helps us to identify those similar characteristics among the companies. The characteristics could be extent of branding, pricing policy, product diversification, degree of vertical integration, target market segment, channel of distribution.

After studying and analyzing the competitors of Shangri-La Hotel, it can be construed that a strategic group could be formed including Shangri-La Hotel, Mandarin Oriental Hotel, Marriott International Inc. and Four Seasons. They all have similar products and target market. All of these hotels are luxurious five star hotels with customer services. They all offer leisure facilities to the customers such as spa, golfing and water sports. Their target audience circumference revolves around the same market segment of business travelers and upper class travelers. They all have also incorporated strong marketing strategies in order to attract the tour packages and increase their sales revenue. Pricing strategy is also similar among the group of hotels and they have been consistently thriving in order to reduce their prices. The group of hotels has established a strong brand entity through their quality services and going beyond the expected level of customers. Their international presence also increases their overall market value and adds to their global outlook attribute.

Shangri-La value chain comprises of those business activities which offers value proposition to the customers in order to win the competition in the market. Value chain analysis could be broadly categorized into two segments of primary activities and support activities (Ivanova & Ivanov, S2012).

(Source: Ivanova & Ivanov, 2012).

Shangri-La Value Chain Analysis

Primary Activities Inbound Logistics

Shangri-La has an excellent inbound logistics system to maintain smooth operations in all of its three hotels in Singapore. The hotel has a specialized procurement team to develop purchase agreements with the vendors. The hotel has a unique supply chain management and inbound logistics which ensures smooth relationship with the suppliers through fair deals and prices. Warehousing and delivery is handled by the distributors through negotiation.

Operations

Shangri-La Hotel has ownership and franchise operational system. Shangri-La is a Hong-Kong based hotel which operates on both franchise and ownership model. Singapore has a management and franchise model system.

Outbound Logistics

Outbound logistics involves those activities which ensure finished product delivery to the customer. Shangri-La has deployed very high standards of customer services by maintaining trained staff. The hotel also conducts employee engagement activities in order to ensure employee satisfaction, which in turn leads to enhanced customer services.  Shangri-La ensures that employees adhere to the quality standards prescribed.  Further, in order to offer comfort to the customers, Shangri-La offers complimentary Wi-Fi, facilities for physically challenges, business centre, butler service, postal service, spa, child care service, travel and transportation privilege, salon and other basic amenities.

Marketing and Sales

Shangri-La has incorporated effective sales and marketing practices through marketing mix component. The hotel has employed sales professionals in Singapore to create business from leisure travelers, travel agencies and conventions. The company has increases its revenue over the past five years through its effective marketing strategies. Further, the hotel also launches special offers to increase its revenue by attracting the customers repeatedly and build long term relationship with the customers. The offers include special festival, value rate, weekend special and value vacation.  The customers can enjoy the luxurious and valuable services of the hotel at very economical prices (Linsheng, Yu & Na, 2010).

Service

Shangri-La offers quality and prompt services to its customers through its well trained employees. The members of customer service team can speak more than seven languages in order to assist the customers coming from various parts of the world. The team also has its presence on social media network in order to facilitate the customers to resolve their queries.


Shangri-La offers exclusive services of CHI Spa which is inspired from Chinese philosophy. The customers get an opportunity to receive the privilege of one of the most rejuvenating spas by getting access to finest selection of aromatic oils, bath salts, incense, spa robes and other accessories.

Yoga studio is another facility offered by the hotel to the customers. The yoga studio is led by highly knowledgeable yoga master who takes yoga and meditation classes.

VRIN Framework

Resource

Valuable (effectively uses opportunities and neutralizes threats)

Rare (only few of the firms have it)

Imitable (Costly affair)

Non-Substitutable

Human Resource Management

Yes, Shangri-La effectively utilizes manpower resource through deploying training program and policies.

Yes, only few of the hotels have been able to implement it.

No. It requires patience and commitment to develop skillful manpower.

Yes, there is no other substitute for an effective manpower.

Quality Service

Shangri-La offers luxurious services to the business travelers and upper class segment. Its CHI Spa service is a unique service offering. 

Yes, CHI Spa service is inspired from Chinese philosophy and is an exclusive product offering.

No. Providing quality services requires a strong value chain which is costly to build.

Yes, quality service cannot be substituted.

Ambience & Infrastructure

Shangri-La has one of the best ambience and infrastructure where tourists can enjoy their vacation.

No. Almost every competitor has its own unique ambience and infrastructure.

Maybe, though it is a costly process but can be easily imitated.

Yes.

Core Competency

Shangri-La has differentiated itself from its competitors through its high quality product and services. Its high quality service has led to the establishment of strong brand recognition across the Singapore. The hotel has also been able to achieve high level of customer satisfaction by fostering high standards of services. Further, the hotel has also integrated unique product and services in order to achieve customer delight. The hotel has been able to attain its high level of customer services through its employee training program. Shangri-La conducts extensive training programs for its staff in order to develop their competency skills and increase their performance level. The hotel has fostered a healthy environment at the workplace to increase the overall productivity of the company by increasing the level of customer satisfaction. The company has very well grasped the concept that only a satisfied staff can lead to high level of customer satisfaction.

Further, the hotel has also deployed loyalty program in order to increase its business revenue. It has also introduced special offers for its loyal customers to give them the privilege of value vacation and other incentives.

CHI Spa service of Shangri-La Hotel is a unique offering to the customers where they get access to the finest selection of oil and bath accessories. The spa service offers personalized accessories to the customers. The customer feels rejuvenated after taking the spa service. This is one of the unique concepts of the hotel industry which leads to customer delight.

Thus, Shangri-La Hotel has very well incorporated the concept of customer centric approach through its unique and quality services.

Shangri-La Hotel has very well structured its differentiation strategy which fully utilizes the resources of the firm. The company has adjusted itself as per the economic trends of the leisure industry to increase its profit every year in spite of decreasing revenue. The company has great financial management system which has supported its overall growth. Further, the company’s plan of expansion within the next two years would increase the value of the company. The current financial performance of the company is positive, yet the firm needs to enhance its overall revenue. The company needs to focus on its qualitative efforts in order to increase its profits and revenue.

Threats

Shangri-La faces threat from the Asia’s market shift towards mid-market segment. Shangri-La is a five star hotel which targets the upper class segment of market. The Singapore tourist market is witnessing a shift in market to mid-market segment which has affected the growth of the hotel. Another challenge faced by the hotel is the increasing labor cost which increases the prices of products and services. The increasing price is the result of scarcity of manpower in the country. Recent terror attacks across the globe have shaken the entire tourism and travel industry because the people are frightened of being attacked. Shangri-La Hotel faces threat due to terrorist attacks and natural calamities which disastrously affect the business of hotel industry.  

Opportunities

Shangri-La is one of the most reputed brands in the Asian region. The hotel has developed its brand recognition through its quality and luxurious services to the customers. The customers perceive the hotel as a luxurious brand. The brand has also developed long term relationship with its customers through its special promotional offers and schemes. On the other hand, tourism industry is witnessing a rise which creates opportunity for the hotel. Shangri-La could use its brand identity and global outlook to enter new market segments.

Weaknesses

Shangri-La has not been able to glorify its brand name outside the Asia-Pacific region because of its limited marketing strategies. The hotel only targets the market segment of business travelers and upper class segment and has ignored the rest of the market which comprises of huge population.

Strengths

Shangri-La has effectively incorporated the culture of Asia in its system and has developed strong brand identity through its quality services. It is known as one of the best business hotels for its quality and quick services. Through its quality services, the hotel has been able to create long term relationship with the customers. 

Objectives

Long Term v/s Short Term

Vision (Long Term Goal): “To be the first choice for guests, colleagues, shareholders and business partners.”

The long term goal aims to build customer centric approaches and ensure customer satisfaction in order to build a sustainable business model. This helps to increase the overall profitability of the business and benefit the shareholder, employee and business partners.  

Mission (Short Term Goal): “To delight our guests every time by creating engaging experience straight from our hearts.”

The mission or short term aims to attract more number of customers in order to increase the business revenue of the company and dominate the market industry.

Growth Strategy

Ansoff matrix is a strategy used by the companies to grow their market share through market penetration, market development, product development and diversification (Baines & Fill, 2014).

Market penetration aims to increase growth of the existing products in the existing market. Market development aims to grow the market share by targeting the new market segments. Product development aims to create new products and services for the existing market. Diversification supports the growth of business by developing new products for new markets.

Shangri-La could use diversification approach and develop new product for new market segment. Shangri-La is a five star hotel which only targets the business travelers due to which it has restricted its growth in the market. The hotel could introduce new product to target the middle class segment. Since the market is moving towards the mid-segment hotels which is a huge opportunity for the hotel. Shangri-La could utilize this opportunity and create a service with less luxurious facilities to target the middle class segment.

Positioning Strategy

Positioning is marketing strategy which helps to create a brand name in the market through a differentiation factor. Positioning strategy for Shangri-La could be derived from its long term strategy of quality services. Shangri-La could offer value for money to the middle class segment by offering its quality services at economical prices. Thus, it could use the strategy “Like Services only economical prices”. This would create a differentiating factor and would position the brand in the market. The hotel would be able to drive large number of customers who are price sensitive and look for economical hotels. Since price sensitive customers contribute to the large segment of the population, the hotel would be able to dominate the market by covering a large share of the market.

Arena

Shangri-La Hotel has several options to consider for its target segment. The business class travelers are the existing customers of hotel. The other target segments are low income consumers, middle class segment, youth, family groups, executives. Now, the company could choose one of the options in order to successfully create its marketing strategy.  Middle class segment is one of the lucrative segment and would support the growth of the company.

Vehicles

In order to target the middle class segment, the hotel needs to introduce new products and services specific to this group only. The services would be cost effective so as to not incur huge cost.

Staging

In order to target middle class consumers, the hotel needs to develop strategies and new products which would take minimum of 2-3 years.

Economic Logic

The middle class segment is the growing segment of Asia and therefore, future success can be attained by targeting this market segment. Since the existing market segment is business travelers which could not generate huge profits. The shareholder could be convinced that the middle class segment would drive huge profits for the company.

Differentiators

The strategy would increase the overall sales of the company.

References

Baines, P., & Fill, C. (2014). MARKETING 3E P. UK: OUP Oxford.

Chang, R. (2015). Singapore 'will have to ease immigration laws to stay competitive': EIU. Straitstimes. Retrieved from: https://www.straitstimes.com/singapore/singapore-will-have-to-ease-immigration-laws-to-stay-competitive-eiu

Cheng, S.Y. (2013).  Analyze the Hotel Industry in Porter Five Competitive Forces. The Journal of Global Business Management, 9(3) pp. 52-57.

Chow, J. (2014). Tourist arrivals and spending hit record highs in 2013; spending growth slowest since 2009. Straitstimes. Retrieved from: https://www.straitstimes.com/singapore/tourist-arrivals-and-spending-hit-record-highs-in-2013-spending-growth-slowest-since-2009

Embassy of the Republic of Singapore.  (2012). Foreign Policy. Embassy of the Republic of Singapore. https://www.mfa.gov.sg/content/mfa/overseasmission/manila/about_singapore/foreign_policy.html

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Freeman, R.E. (2010). Strategic Management: A Stakeholder Approach. Cambridge: Cambridge University Press.

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Howell, M.T. (2009). Critical Success Factors Simplified: Implementing the Powerful Drivers of Dramatic Business Improvement. New York: CRC Press.

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Jardines. (2011). Mandarin Oriental Hotel Group – A Global Luxury Brand. Thistle The Magazine of Jardine Matheson, 3.

Liang, C.Z. (2016). ISIS terror threat greater now, says Shanmugam. Straitstimes. Retrieved from: https://www.straitstimes.com/singapore/isis-terror-threat-greater-now-says-shanmugam

Linsheng, F., Yu, H., & Na, W. (2010). Analysis on Hotel Service Innovation and Value Promoting Paths Based on Value Chain Theory. Proceedings of the 8th International Conference on Innovation & Management.

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Melia, D. (2010). Critical Success Factors and Performance Management and Measurement: a Hospitality Context. THRIC Conference 2010: the 6th annual ‘Tourism and Hospitality Research in Ireland Conference.

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Shangri-La. (2013). Shangri-La Asia Limited Issues Second Sustainability Report. Retrieved from: https://www.shangri-la.com/corporate/press-room/press-releases/shangri-la-asia-limited-issues-second-sustainability-report/

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Weizhen, T. (2015). Singapore still 3rd in world competitiveness ranking: Study. Channel Newsasia. Retrieved from: https://www.channelnewsasia.com/news/business/singapore-still-3rd-in/1876922.html

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