STRATEGIC MAGANEMENT FOR TRAVEL AND TOURISM 10 DEC 2010

PRESENTATION CHAPTER 11
STRATEGIC METHODS OF DEVELOPMENT
FOR TRAVEL AND TOURISM
Members of group:
1. Phm Duy Bo
2. L Minh ng
3. Nguyn Phm Thanh Liu
4. Nguyn Th Thy Linh
5. L Kim Nguyn
6. L Th Nng
7. Nguyn Dng Nht Oanh ( C )
8. Nguyn Th Kim Phng
9. Trn Ngc Thu Tm
10. Nguyn Ch Thanh
11. Hunh Bo Thu
12. Phm V Huyn Trm
Content of presentation
1.

Internal and external business growth

2.

Merger and Acquisition

3.

Strategic alliances

4.

Public and private partnerships

5.

Franchising

6.

Management contracts

7.

Cooperative networks

8.

Disposals

9.

The regulatory framework of external.

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STRATEGIC MAGANEMENT FOR TRAVEL AND TOURISM 10 DEC 2010

MORE DETAILS:

I.

INTERNAL AND EXTERNAL BUSINESS GROWTH:

INTERNAL GROWTH

Definition

Advantages

Disadvantages

II.

EXTERNAL GROWTH

Internal
growth
is
expansion by means of the
reinvestment of previous
years profit, loan and share
capital in the existing
business. This results in
increased
capacity,
employment and turnover.
Lower risk
Within existing area of
expertise
Avoid high exposure to
costs of alternative growth
mechanism.

External growth is expansion by

means of the combined market
valuable of a merger or acquisition
is two companies value added
together or joint development that is
where two and more organization
share resources and activities to
purse collaborative strategy.
Increase market share
Reduce competition
Gain control of valuable brand
name
Enter a new market Access to
distribution channel Broaden
product range Develop new
products Gain access to new
production
or
information
technologies
To make productive use of spare
or underused resourced
Asset strip
Enhance corporate reputation
Slower
than
external Higher risk
growth
Outside the ability of forecasting
Little
scope
for of expertise
diversification
High exposure to costs of growth
Relies upon the risks of mechanism.
existing management in the
business

M&As:

Merger: The shareholders of the organization come together, normally willingly to

share the resources of the enlarged (merged) organization. With shareholder from
both side of the merger, it is becoming shareholder in the new organization.
An acquisition is a marriage of 2 unequal (different) companies. The acquiring
company can afford to buy the shares which the target company is acquiring.
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STRATEGIC MAGANEMENT FOR TRAVEL AND TOURISM 10 DEC 2010

A takeover technical term of acquisition: but it is unwelcome from the smaller

target company. The hostile company will offer for the shares of target company
and finally take over.
Integration: the act or process of combining two or more thing so that they work
together
Motivation of M&As:

Increase the market share

Enter the new market
Reduce the competition
Gain control of available brand name.
Access to distribution channels
Broaden product range
Develop new product
Gain access to new production or information technologies
To make productive use of spare or underused resourced
Asset strip
Enhance corporate reputation

SYNERGY the main object of M&As

Two company working together, which make more effective than two company
work apart
Value is added, and only added [in an integration ]if distinctive capabilities or
strategic assets are exploited more effectively
The main failure factors

1.

Lack of research into the

circumstances of the target
company (and hence incomplete
knowledge).
2. Cultural incompatibility between
the two parties.
3. Lack of communication within
and between the two parties.
4. Loss of key personnel in the
target company after the
integration.

Success factors for M&A

1. The identification of a suitable

target candidate
2. A preparation for an approach
should involve a detailed
evaluation of the target
3. companys competitive position
4. the compatibility of the two
companies management styles
and
5. culture
6. the two corporate structures
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STRATEGIC MAGANEMENT FOR TRAVEL AND TOURISM 10 DEC 2010

5. Paying too much for the acquired

company
and
hence
overexposing
the
acquiring
company to financial risk.
6. Assuming that growth in a target
companys market will continue
indefinitely. Market trends can
fall as well as rise.

7. key people are retained after the

8. integration.
9. the price paid for the target (of
the valuation of its
10. shares) is realistic

III.

STRATEGIC ALLIANCES:
1. Defining alliances:
A particular horizontal form of inter - organizational relationship in which two
or more organizations collaborate, without the formation of a separate
independent organization, in order to achieve one or more common strategic
objectives. It means that a strategic alliance happens when two or more
companies join together for a set period of time. The companies, usually, are
not in direct competition, but have similar products or services that are directed
toward the same target audience.
Strategic alliance is a primary form of cooperative strategies. "A strategic
alliance is a partnership between firms whereby resources, capabilities,
and core competences are combined to pursue mutual interests.
For instance, alliance between Sheraton Saigon and Taxi of Saigontourist.
2. Strategic alliances in the travel industry:
The arrangements of various types have become an increasingly important
strategic method of development in the travel industry.
Especially, alliances have been growing between airline and accommodation
companies. As you can see on the slide, this is the list of Starwood Preferred
Guest Airline Partners. If guests are members of Starwood Preferred Guest,
they can choose 30 airline partners and collect their points to increase their
interests. The alliance between Starwood and these airline companies bring a
lot of benefits for both of them. Starwood can improve their service, increase
their competitive ability and expand their market segments. To these airline
companies, they have a chance to approach new market, attract their potential
guest, increase their profit and supply accommodation for their staff with lower
price and more benefits.
The alliances differ in:
- Their motives mean they are in the alliances because of the pressure of
global competition, or risk sharing.
- Their scope means their potential, or their ability to do or achieve
something.
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STRATEGIC MAGANEMENT FOR TRAVEL AND TOURISM 10 DEC 2010

Their structures.
Their objectives mean that they make alliances with other for marketing, or
distribution and purchasing.
The ways in which they are managed.

Nowadays, partners often progress from the simple short-term relationships,

this is just offers them the ability to respond to the pressures of global
competition and illiquid. There are still a lot of potential benefits when they are
in alliances such as accrue from enhanced market coverage both
geographically and by segment; greater economies of scale in advertising,
sale, distribution and purchasing; and complementary strength in operations
and marketing.
However, alliances also have some potential difficulties which all
-

companies should consider carefully before beginning alliance with other.

International strategic alliances are often viewed as inherently unstable
organization forms. For example, alliances involve significant costs in terms of
coordination, creating competitors, etc

The failure rate associated with alliances arrangement is high, often resulting in
significant costs to one or both parties concerned.

In travel industry context, alliances can be argued, are usually a second best
options, often necessary only a result of regulatory and legal restrictions which
frequently make mergers and acquisitions problematic.

However, in travel industry where full ownership of travel companies by

foreign based nationals is often prohibited. Thus, alliances can be argued that
they are rarely stable sustainable entities; for they commonly represent the only
viable market entry mechanism when regulatory and other barriers to entry
effectively block other market entry mode.

Many of the alliances that are formed appear in a constant state of flux, altering
their shapes, sizes, and partners in response to changes in the competitive
environment with partner being added or dropped and partners falling out
amongst themselves.

Alliance can fail not because of the partners failure to agree on substantive
points but, on the contrary, the alliances lead to the delivery of a high degree of
collaboration and agreement between partners.
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3. Motivations for strategic alliance formation

Identifying driving forces:
+ External driving forces:

Economic turbulence
Cost savings
Globalization of competition
Globalization of technology
Rapid product/ market changes: the world is changing every moment. Many
new and innovatory products are created to satisfy all requirements of

customer.
Shortening life cycle

+ Internal driving forces

Risk sharing
Economies of scale, scope and learning
Access to assets, resources and competences
Shaping competition

4. Partner selection in strategic alliances:

Partner selection _ must ensure that the proposed partner represents a good
strategic fit the weaknesses of one partner are complemented by the
strengths of the other partner and vice versa.
The four Cs:
+ Capability: the prospective partners have the ability successfully to carry out
their respective roles in the alliance.
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STRATEGIC MAGANEMENT FOR TRAVEL AND TOURISM 10 DEC 2010

+ Compatibility: the ability of the partners to work together affectively.

+ Commitment: The willingness of partners to commit resources, effort and
know-how to an alliance.
+ Control: The appropriateness of the arrangements for the coordination of the
alliance activities.
The geographical fit
5. A conceptualization of the collaborative process for international airlines:
There are 4 stages:
First: analysis the internal organizational and external environmental drivers
Second: alternative strategic options are postulated and evaluated and the option of
strategic alliance formation (either with or without equity) participation is chosen.
Third: implementation issues have to be considered including the choice of
appropriate partners and issues relating to the structure and scope of the alliances.
Finally: the strategic alliance is evaluated against selected criteria purporting to
measure the success of the alliance. The evaluation is fed back into the analytical
phase so that any changes based upon experience can be incorporated.

IV.

Public Private partnerships:

STRATEGIC MAGANEMENT FOR TRAVEL AND TOURISM 10 DEC 2010

Definition: Another form of joint development common in travel and tourism is

what are often referred to as publicprivate partnerships which are a response to
the nature of the industry
Tourism is recognized by governments as a significant and growing contributor to
revenues and as a contributor to the viability of other activities and investments such
as cultural venues and transportation improvements. Beside, Public sector
involvement in tourism is commonplace and has been brought about by a variety of
factors (Heeley, 2001). These include the need to:
regulate private sector activities;
provide non-remunerative infrastructure and superstructure;
remove obstacles to more effective private sector performance;
redress market failures;
provide industry leadership and promotion.
And Governments may see an advantage to be gained from supporting tourism
through publicprivate partnerships; such support must be balanced against other
state-funded areas of expenditure
For examples: national park, water puppetry

V.

Franchising:

As we know, franchising is one of the most popular methods of growth in parts of the
travel and tourism Industry. Franchising is also very popular in Vietnam.
-

Franchising is a method involving two Parties: the franchisor and the

franchisee.
KFC trademark of the series of fast-food restaurant as an example, it is derived
from the U.S, and when it comes to Vietnam, KFC Vietnam has been the
franchise mark by KFC Yum
Business mainly KFC fast food dish made from chicken. And the most famous
Kentucky Fried Chicken by Mr. Invention Harland Sanders.

The reasons for the popularity of franchising for the franchisor include:
Seldom having to provide the capital: because in franchising, KFC is only
responsible for providing recipes, brand .... But all costs are paid by the franchisee in
Vietnam.
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STRATEGIC MAGANEMENT FOR TRAVEL AND TOURISM 10 DEC 2010

Not having to endure alone the problems associated with licensing and regulations in
some countries required: with this, the franchisee will not have to worry, not alone
solve the problems arising when putting your brand return, because all had the
managing company of KFC in the U.S. will take responsibility.
Not having to engage in extensive site selection: that is KFC, they do not worry too
much about business expansion, and that, also not in the reach of them, by all depends
on brand and KFC's reputation in the market, as well as tastes, needs of the people of
Vietnam.
Specifically the franchisor needs to:
Scrutinize the structure, organization and Financial viability of the franchisee;
Ensure that safeguards are in place as compared to control operational standards and
procedures of the franchisee.
Because when a company decides to franchise the business partners, they will review
the organizational structure and financial ability of the franchisee, in addition, the
franchisee must comply with a provisions of the franchise given to ensure that no loss
of capital as well as what is the reputation of the brand.
VI. Management contract:
A management contract is an arrangement under operational control of an enterprise
is vested by contract in a separate enterprise performs the managerial functions in
return for a fee.
Management Contracts are a popular method of international joint development
growth in the hospitality sector. That is, contract management is a method to ensure
that the terms of the contract will be enforced strictly and closely to ensure the rights
and obligations of both parties about what was agreement
For instance, when you sign a contract with a company, the management contract need
to show that all of the terms strictly implemented to ensure what is written in the
contract. When partners have signed the contract, if they want to cancel the contract,
they must follow strictly all the terms regarding to cancelation in contract they have
signed.
+10% compensation immediately after signing the contract.
+ Before you start 3-day party: 60% of the total compensation value of the contract.
+First 2 days: 70% of the total compensation value of the contract.
+Before 1 day: 80% of the total compensation value of the contract.
+Before dinner hours begin: 100% of the total contract values.

STRATEGIC MAGANEMENT FOR TRAVEL AND TOURISM 10 DEC 2010

VII. Corporative network:

Various types of cooperative networks or consortia have been developed in travel and
tourism. We can understand that, the network collaboration, who teamed together to
achieve a certain goal. For example, in our tourism, towards the absolute satisfaction
of tourists, all related industries such as transportation, accommodation,
entertainment, etc need to work together to meet and satisfy the needs of tourist.
VIII. Disposals
What are disposals? Disposals are demergers and divestments involve taking a part
of a company and selling it off as a self-contained unit with its own management,
structure and employees in place.
Liquidate part can be sold to a single buyer or may be floated on the stock market as a
public limited company.
Ex: A restaurant wants to change their business strategy from popular restaurants to
the hi-end restaurants, they have to liquidate part is no longer consistent with current
needs.
REASONS FOR DISPOSAL
There are a number of reasons why a company may elect to dispose of a part of its
structure. The most prominent reasons include:
1 Performance ineffective, possibility due to negative synergy;
2 A change in the strategic focus of the organization in which the candidate for
disposal is no longer required;
3 Promising medium to long term for the candidate low liquidation. They see the
ability to liquidate in the future is lower than the current.
4. The disposal candidate is an unwanted acquisition.
5. The need to raise capital from the disposal to reinvest in core areas or to increase
liquidity in the selling company;
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STRATEGIC MAGANEMENT FOR TRAVEL AND TOURISM 10 DEC 2010

Ex: Companies need capital to invest in a new area so they will proceed to liquidate
unnecessary to raise funds
6 The belief that the disposal candidate would be more productive if it were removed
from the sellers structure;
Candidates will use the funds to liquidate the investment in more efficient.
7 In some circumstances, disposal may be used as a tactic to deflect a hostile takeover
bid, especially if companies are mainly interested in hunting to acquire companies to
gain control candidates for treatment.
8 As part of a programmer of asset stripping the process of breaking a company up
into its parts and selling them off for a sum greater than that paid for the whole.
SHAREHOLDERS AND DISPOSALS
The most common method of corporate disposal is a private transaction between two
companies, which is intended to be of benefit to both parties. The seller gains the
funds from the transaction, and is able to focus on its core areas. The buyer gains the
product and market presence of the disposal, which, in turn, will be (we assume) to its
strategic advantages.
Disposals are designed to create synergy to the shareholders in the same way as are
integrations. We should not lose sight of the fact that business organizations are owned
by shareholders and it is the role of company directors (as the shareholders agents) to
act in such a way that shareholder wealth is maximized. If this can be achieved by
breaking a part of the company off, then this option will be pursued.
IX. The purpose of regulation
Most governments have taken the view that there is some needs to put in place a
Regulatory framework for external business growth because of the implications for
competition in markets. There is a careful balance to be struck in this regard.
Governments are usually keen to encourage business activity in their countries
because of their beneficial effects upon employment, tax revenues, exports and
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standard of living. At the same time, it is generally true that the larger
organizations become, the more difficult it is for smaller competitors to make
headway against them in terms of pricing and market share. Regulation is
therefore a matter of some discretion.
For examples: government tax for 5-star hotel and motel, regulatory in national
forest, etc.

THE END

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