This is an assignment question on Internationalization at Sheraton Hotels.
1. Background on the marketing strategy of Sheraton hotel
The liberalization of economies and deregulation in the various nations around the world has opened up new avenues outside the borders and thus, International Business became a buzzword. It is defined as all the business activity that transcends national boundaries. The business activities include the transfer of resources, raw materials, finished products, sharing patented information, technological know-how, managerial and organizational skills. However, in order to strike a balance between achieving efficiency on a global scale and staying open and receptive of the needs of the local markets.
Strategies for Internationalization
- Global strategy
- Transnational strategy
- Home replication strategy
- Multidomestic strategy
The international strategies of the companies are thus classified on the basis of these variables and the degree to which international integration and local responsiveness gather importance (Carpenter and Dunang, 2012). The four strategies of internationalization are global, transnational, multi-domestic and home-replication or international strategy, as illustrated in figure 1 (Ashwathappa, 2010). Global strategy, which places high emphasis on global integration and is low on being responsive to local needs, is the strategy of interest for this paper. The tenets of the strategy are explained and then, PEST analysis of the hotel industry is conducted. The internationalization of Sheraton using global strategy is described. Further, SWOT analysis is conducted to evaluate the status of the company and recommendations are made based on the assessment.
2. Global Strategy of Internationalization
The products or services offered by the companies using global strategy are more or less standardized, by making small customizations to suit the tastes of local customers. Thus, the same product is offered, considering the buyers to be global consumers. The operations in the various countries, that the company functions, are, therefore, interlinked and the headquarters aims to integrate these operations across the globe. The emphasis is on core competencies, efficiency and economies of scale. This strategy offers the advantage of using the learning curve, best practices and advances at one destination across all the company’s offices. Handicapped by its inefficiency to respond to local needs, the companies might not achieve as much as the local or the other multinationals practicing multi-domestic strategy. The decision making is centralized to a large extent, thereby increasing the response time and raising the need for coordination, the pressure to apportion resources and cooperation (Neubert, 2013).
2.1. The significance of Internalization Strategy to Sheraton Hotels
Sheraton Hotels and Resorts, a brand of Starwood, is started by Ernest Henderson and Robert Moore in 1937. It stood sixth among the worldwide hotel brands in 2003. It is one of the major players in the hospitality sector, offering services through its 400 hotels, which are spread over 70 countries across North America, Australia, Asia, Middle East, Europe, Latin America and Africa. It has an experience of 70-years in the industry and believes in travel being a mode of bringing people together and improving conversations. Starwood has acquired the brand in 1997 and has undertaken the renovation of existing hotels and expansion over the global arenas. Sheraton has developed the image of a firm offering traditional service with a stylised backdrop (Sheraton, 2014).
International expansion and developing global strategies are the concerns of Sheraton, as to any other player in the hospitality industry at present. Hotels invoke international internationalization because of numerous reasons (Kandampully & Hu, 2007). Developing countries offer emerging markets, which are enthusiastic to taste the services of multinational hotels. The customer base in these markets is huge. Recession periods of 2001, following 9/11 and that of 2009 warned the firms against investing in a single geographical location. Economic crises also hit hard the business cycle. Even if the firms target only to operate locally, other international players present fierce competition, pressurising them to expand globally (Aliouche, 2014).
However, imparting a global strategy and international expansion is a risky proposition, which is pregnant with failure, if not handled with care. Right mix of parent control over strategy and local control over operations and resources has to be implemented. Matching core competencies of the parent with local environment leads to competitive advantage (Brown, 2007). So, firms are resorting to investing incrementally and exercising caution about where to invest. The political, cultural, economic and geographical distances are primary considerations internationalization, and necessary adjustments have to be made. The present and future competition prospects need to be studied before making a decision. The general mode of expansion along global strategy would require the company to open a wholly owned subsidiary or a strategic business unit in the host nation (Clarke & Chen, 2007). Thus, the pressures of global competition and the interdependencies among the countries drive the internationalization of companies.
3. External Analysis
Environment or the external factors that influence a business is dynamic and lively. It has to be taken into consideration, in order to make the organization responsive to the changes, take advantage of its strengths to counter these factors and thus, emerge as a serious contender in a competitive environment. Brooks et al., (2010) remark that this is more dynamic and turbulent at times, in case of international business, as the environment is influenced by innumerable factors, including the cross-border issues and culture. The political, economic, social and technological factors affect the internationalization. The PEST analysis for the hospitality industry reveals the following facts.
3.1. Political and Legal factors:
Stable government and steady political conditions in the host nation are the prerequisites for any company to enter it. When the governments in a country remain volatile, the future of the business, which is a factor of the decisions of the changing governments, becomes blurred (Nandi, 2010). It gathers further significance for Sheraton because tourism, business and leisure travel are a function of the political activity in the country. Thus, the companies must seek out to expand into countries that are reasonably firm in these aspects.
The local restrictions of international business, health and safety standards, minimum wage requirements, labor acts and other related laws and regulations of the country, that are all applicable to the hotel industry need to be abided by the company.
3.2. Economic Influences
The GDP, phase of development of the nation, the scale of economic and business activity and the international events that the country hosts affects its economy as well as the growth of the hospitality industry as well as the patronage for big names such as Sheraton. Global happenings such as Olympics, Asian Games, etc., promote good business for the hotels. Further, the expected growth of the country is another factor. Emerging countries such as the BRIC nations form attractive destinations for the hotels too, as these are the global hotspots that every business seeks to trade with. Such trade stimulates related travel and thus, business for the multinational hotels. Additionally, liberal and open economies facilitate international business, as the tax and duty restrictions of these economies are liberal too (Dlabay et al., 2011).
3.3. Social and Cultural Influences
Sheraton is famous among international travelers and the countries that are destination for such travelers would be favorable for hospitality industry. The ongoing developments in shopping patterns, standard of living, earning, their decision process and population are all the factors that impact the growth of Sheraton in the host country.
Giving due consideration to the language, religious faith, principles, ideals, customs and societal interactions are the social and cultural expectations from a company operating in a country. While shaking hands is acceptable in some cultures, shaking hands with female associates is not received well in some cultures (Doole and Lowe, 2008). Further, the companies need to essentially develop a good rapport with the local population and business circles, in order to penetrate through the markets in these countries (Dlabay et al., 2011).
3.4. Technological Influences
The global trends within the industry, in terms of technology of infrastructure and state of art facilities affect the success of Sheraton in the host nation. Power conservation, cost-cutting and maintaining quality of service through the use of novel technologies would also fall under this mandate, since these are the essential elements in the operation of hotels. Enabling online booking, social media presence, multiplicity of travel and ticketing sites influence the industry. Thus, being technologically sound in this competitive business environment is vital to the success of the business (Gandalleni, Pezzi and Venanzi, 2012).
Sheraton has been a success story in internationalization since 1939, when it bought three hotels in Boston and then eventually expanded its holdings throughout USA. Canada was its first global destination in 1949, emerging markets of China, Bulgaria etc followed. Then, Sheraton expanded to the greener pastures of Australia and Europe. Today, there are around 466 Sheraton facilities, spread over 70 countries. It is also the most recognised brand among business travellers (92%) (Sheraton, 2014).
Even during the hard times of recession of 2009, Sheraton has never looked back in its strategy of internationalization and renovation of existing hotels. During this period, it has started 20 new facilities. When the economy started stabilizing, the efforts put during lag period paid off. However, not all expansion efforts have been appreciated, as the brand demands certain standard of service, and had to let off some of their subsidiaries (24 hotels in 2008). At the same time, average occupancy rates of the hotel were also found to be 73%. On the overall, the brand’s performance towards expansion has been successful consistently. The company is still on an expansion spree and was ready to invest $5 billion for starting 50 more new hotels worldwide by 2013 (Sheraton, 2009).
Hospitality industry used to be occupied by numerous small players, but because of the internationalisation and global expansion strategies, the industry is seeing consolidation, in order to operate with synergy and then, face competition using the core competencies of multinational hotels. Sheraton mainly looks after the management. Most of its facilities are not owned, but are managed by them. Sheraton takes up the responsibility for quality of service, improving owner’s percentage of market pie and the venture is profitable for the client.
Sheraton is a hotel that serves guests from large business concerns and leisure customers. It has tapped the need of large businesses for convention centres and other official occasions. The hotel has also been sensitive to changing needs and expectations of its consumers. Online reservation facility is one such example.
Internationalization strategy also needs to be supported by proper diversity management initiatives. Starwood is an inclusive organisation, that accommodates diversity into its recruitment, supplier management and customer management initiatives. It has been listed among the top 50 companies for diversity by DiversityInc (Sheraton, 2014).
Sheraton’s internationalization strategy is driven by various considerations. It plans for managing a hotel only after careful analysis of business potential, environmental impact and appeal to the guests, in terms of accessibility, closeness to tourist spots etc,. The outlook also has to be a visual treat. Thus, location plays a significant role in differentiation and is the first priority. The location, especially when it is in an isolated area (tourist location) has to facilitate provision of amenities such as water, food etc,.
Expansion decision process starts with the evaluation of the new facility by the local office, which then forwards it to divisional headquarters. They further analyse its scope and recommend to the headquarters, where the final decision is taken (Lee and Frydrychowska, 2008).
As the economies speak of globalisation and open markets, luxury hotels such as Sheraton in metropolitan locations are the most sought after places for international meets and conferences. It has grabbed this opportunity too and placed its expansions in strategic business locations. Emerging economies also allured its interests, as pockets of future and Sheraton has expanded into South-east Asia.
Sheraton has aligned itself along the travel and tourism industry and has services specifically designed to cater to resort-seeking families and newly-weds. While refurbishing and expanding in happening and ‘honey pot’ tourist destinations, it is constantly on the lookout for futuristic and emerging ones too and planning its internationalization efforts beforehand. Gaining customer loyalty guides the business in such locations, as these places are equally attractive to the competitors. Starwood Preferred Guest Program(SPG) is one step of the company towards recognising such loyals and offering them special award points, that can be redeemed across various facilities of the hotel (Sheraton, 2014).
In order to complement the internationalization strategy, Sheraton hotels made necessary changes to structure and lines of decision-making. The corporate layers are reduced to four. Headquarters of Starwood holds five international divisions, together for all its portfolio hotels, categorised by their location. Divisional headquarters for each division are setup. Employees actually serving the customers are equipped with making operational decisions, based on the situation. This helps in reducing the time-lag due to decision delays and serving customers better. Managers run the routine operations. However, minimal standard guidelines for service are dictated by the head office. Headquarters act as knowledge base and is involved in strategic decisions such as marketing and brand-building for the organisation as a whole. This ensures economies of scale and scope.
SWOT analysis is a useful tool to analyse the internationalization strategy that Sheraton hotels is following.
Projecting itself as a high-end luxury brand, supported by pricing that best suits the highly effluent leisure segment customers and business travellers, is a strong point for Sheraton. Wise location decisions, backed up by innovative marketing strategies spell its success. The pipeline of growth and expansion followed by Starwood, increases the brand’s presence worldwide. Demand for indiviualized attention by tourists is being tapped by Sheraton, by giving them a quality service experience.
Sheraton’s well-developed cash-flow management which has kept them confident, even under tough economic times is Sheraton’s main strength. Sustainability initiatives such as Element, celebration of Earth hour and Go Green highlighted their environmental concerns, that are regarded highly by eco-conscious tourists and business concerns. Internet connectivity facilitated by SMART rooms and Link@Sheraton (Sheraton, 2014), in collaboration with Microsoft, has shown its responsiveness to changing customer needs.
SPG is another strength of Sheraton, that promotes brand loyalty. The fact that Sheraton is the most recognised hotel brand among business customers adds a feather to its crown.
But for the well-evaluated internationalization decision process of Sheraton, there have been failures, especially in case of franchising, contract and licensing decisions. The brand name was detached from facility in Dhaka due to cash crunch of the owners to undertake renovation and up gradation facilities. The name was also withdrawn from 5 of the Israeli hotels as the necessary standards of service could not be maintained due to low revenues and the brand had to safeguard its trademark. Sheraton Braintree was closed as the location was inept for a luxury hotel (Sheraton, 2014). Its hotel in Ethiopia had to be shut down due to failed talks with labour unions.
Luxury positioning of the hotel also acts against the hotel, failing to attract the middle class, which is the largest set of population in developing countries. While Sheraton is expanding worldwide, USA is still its cash cow and thus the company is dependent on the economy of its home country.
Emerging markets of India, Indonesia, China etc offer growth and internationalization prospects for hospitality industry as a whole and the convalescing world’s economic conditions, after the recession, gives a lot of scope for a well-recognised brand like Sheraton.
Corporate culture and competitive working conditions leave businessmen craving for quality family time at resorts, isolated from the doldrums of cities. Sheraton offers such a solace. As the key markets have become battle grounds for competition and are reaching saturation, the leisure hotel industry players are resorting to diversify their customer base beyond business travellers.
The volatile economic conditions demand for accessible luxury, rather than luxury, which offer growth opportunity for Sheratons. Upcoming events such as Olympics, also act as business opportunities for Sheraton.
Recession adversely effected the income and spending levels of business as well as leisure customers. Luxury spending is the last thing they want to spend on. The number of business trips is being cut by large`business firms and days of stay are being reduced. This may effect the business of Sheraton as it operates more on luxury brand rather than their medium-priced facilities.
Emerging markets such as India where the company is planning 50 facilities may not be able to afford the luxury offering. Reduced airfares and aggressive tourism marketing tactics have opened doors for the middle class to reach the tourist destinations. They may not prefer luxury hotels.
Tourism is being affected by hiked fuel prices, sustainability concerns, security threats, decreased consumer spending on luxury and travel, etc. These will replicate onto resort and tourist accommodation providers.
The future of Sheraton hotels seems to be secure under the shades of globalisation and tourism growth. Globalisation essentially guarantees the increase in the number of multinational corporations, which are prospective customers of Sheraton. Tourism marketing and eco-tourism initiatives, opening up of economies for tourism and hospitality sector depict a successful picture of tourism industry. This also has similar implications for luxury and resort hotels like Sheraton. Internationalization strategy under these conditions helps cater new customers and serve different markets.
Asian countries with good economic growth rates offer new challenges for the expansion initiatives of Sheraton hotels. Fall of communist ideology and widespread democracy and liberalism open up new markets such as Europe and Russia for Starwood group. The group has to push all its brands into the international arena and new destinations on promoting its entire brand, rather than concentrating on Sheraton, as its nine brands are targeted at different customers and the success may ring its bells through any of them.
Use of technology for automation and upgradation of existing facilities and adding new electronic services will reduce time lags of processes and procedures. This will increase the swiftness of billing, lodging and other Sheraton experiences of the guests.
The local government regulations, environmental and ecological concerns, travel and tourism industry and future of the volatile economies dictate the success of Sheratons. Diversifying the offerings to include gaming, casinos, cinema and other entertainment modes will raise the enthusiasm of customers and make the Sheraton hotel itself a sought after destination for travel.
A strategy is the plan of action to implement the goals and objectives identified by the strategic planning process. Multinational and global initiatives by players of hospitality industry should be backed up with commensurate performance controls and diversity management strategies. While financial performance is taken care by ratio analysis, RevPAR is being used extensively to measure the non-financial parameters.
The performance of Sheraton hotels as a whole, in terms of internationalization, has been a success, that has spread its brand and made it more recognisable among its target customers. The hotels’ alignment along the travel and tourism industry is a sure shot path to profitability. Sheraton Hotels undertook the strategy of expansion in a planned manner, however, further caution is recommended in order to ensure their success.
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