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Chapter 8: Strategic methods in tourism and hospitality businesses -…
Chapter 8: Strategic methods in tourism and hospitality businesses
Types of strategic methods
Organic development
Mergers and acquisitions (MAAs)
Joint development
Organic (internal) development
Examples
Accor Hotels
French global hotel group expands mainly through organic
growth
Application
Popular in early business stages and public sector organizations.
Large firms use it alongside external growth for market consolidation.
Features
Reinvestment of past profits + financing from shareholders/banks.
Expansion through increased capacity (more hotel rooms, events, holidays, etc.).
Leads to increased revenue and business value.
Most common and straightforward growth method.
Benefits
Sustainable and controlled growth.
Strengthens market position.
Enhances financial stability
Drawbacks
Slower growth
Resource limitations
Missed opportunities
Joint development
Forms of JD
Public-private partnerships
Colorado Convention Center and SMG
City and state join with major event company SMG to
develop and manage a major event venue
Franchising
Holiday Inn Hotels
Large hotel chain acts as the model others follow for
growth
Licensing
Management contracts
Skywest
American regional airlines operating services under
management contracts
Cooperative networks
Best Western
The world’s largest hospitality consortium allows individual
properties to compete internationally
Strategic alliances
Example
Global Distribution
Systems (GDS)
Joint venture companies formed to develop major GDS
systems
Definition
High collaboration between organizations (Yoshino & Rangan, 1995)
Excludes buyer-seller, subcontracting, franchising (Glaister & Buckley, 1996)
Common in airlines, hotels, travel
Types
Tactical alliances – Short-term, marketing benefits (Bennett, 1997)
Strategic alliances – Long-term, deeper collaboration, equity swaps
Motivations
External drivers: Market turbulence, globalization, technology changes, short product life cycles
Internal needs: Economies of scale, access to assets, risk reduction, market influence
Challenges & Risks
High failure rate (Bleeke & Ernst, 1991)
Instability due to legal & regulatory constraints (Porter & Fuller, 1986)
Coordination & decision-making inefficiencies
Alliances may be transitional rather than sustainable
Partner Selection (The "4 Cs")
Complementary skills – Each partner adds value
Cooperative culture – Shared values, effective collaboration
Compatible goals – Equal effort & commitment
Commensurate risk – Balanced risk-sharing
Definition
Two or more organizations collaborate to share resources and pursue common strategic goals.
Favored by airlines, hospitality, and travel sectors, as well as public-private partnerships.
Hybrid Strategy: Sits between full integration (M&As) and independent organic growth.
Mergers and acquisitions
Example: International Airlines
Consolidation of airlines through mergers following partial
deregulation
Definitions
Merger
Two companies willingly combine, sharing resources and ownership.
Acquisition
One company buys another; the smaller company is absorbed.
Takeover
An acquisition where the target company resists (hostile takeover = shareholders accept despite management rejection).
Effects
Creates larger, more financially powerful companies.
Can lead to financial strain if overpaid or poorly managed.
Many old brands disappear, and new companies emerge.
Integration often involves divestment of non-core business parts.
Synergy – The key objective
Combined entity performs better than separate companies ("2+2=5").
Increased efficiency, better resource utilization, and higher profits.
Example: Rezidor & Carlson Hotels alliance ("1+1=3").
Motivations for M&A
Strategic asset acquisition
Gain Control of Valuable Assets: Acquire brands, patents, land, or key industry resources (e.g., airport slots).
Gain Preferential Access: Secure supply chains (upstream) or distribution channels (downstream).
Market & competitive advantages
Increase Market Share: Strengthen industry presence by acquiring competitors.
Enter New Markets: Expand into new geographic or demographic markets.
Reduce Competition: Eliminate potential competitors.
Increase Pricing Power: Gain more control over industry pricing dynamics.
Business expansion & Innovation
Broaden Product Range: Reduce risks by diversifying offerings.
Develop New Products: Faster innovation through acquisition rather than internal R&D.
Gain Access to New Technologies: Improve efficiency, quality, or differentiation.
Financial & Operational gains
Gain Economies of Scale: Reduce costs in purchasing, HR, and marketing.
Utilize Underused Resources: Optimize finance, staff, and other assets.
"Asset strip": Sell off acquired company parts for profit
Enhance corporate reputation