STRATEGIC MAGANEMENT FOR TRAVEL AND TOURISM10 DEC 2010

PRESENTATION CHAPTER 11STRATEGIC METHODS OF DEVELOPMENTFOR TRAVEL AND TOURISMMembers 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 Thu12. Phm V Huyn Trm Content of presentation1. Internal and external business growth2. Merger and Acquisition3. Strategic alliances4. Public and private partnerships5. Franchising6. Management contracts7. Cooperative networks8. Disposals9. The regulatory framework of external.MORE DETAILS:I. INTERNAL AND EXTERNAL BUSINESS GROWTH:

INTERNAL GROWTHEXTERNAL GROWTH

DefinitionInternal 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.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.

Advantages Lower risk

Within existing area of expertise

Avoid high exposure to costs of alternative growth mechanism. 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

Disadvantages Slower than external growth

Little scope for diversification

Relies upon the risks of existing management in the business Higher risk

Outside the ability of forecasting of expertise

High exposure to costs of growth mechanism.

II. 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.

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

Success factors for M&A

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.

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.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

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 ofcooperative strategies. "A strategic alliance is a partnership between firms whereby resources,capabilities, andcore competencesare 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.

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.

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.

+ 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: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 expenditureFor 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. 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 brandreturn, 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 andKFC'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 aprovisions 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 wasagreementFor 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.

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. DisposalsWhat 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;Ex: Companies need capital to invest in a new area so they will proceed to liquidate unnecessary to raise funds6 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 regulationMost 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 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 (((1