Competitive Forces In Hotel Industry

Indian continent had been the focus market for all major international players owing to the steady economic growth rates and demand for hotels. There is steady growth in the number of Foreign and Domestic tourists in India (Exhibit 5). Many of the hotel chains have recognized the demand supply gap in these markets and have entered the market very early and have ambitious plans to establish hotels in different categories to cater to the growing demand (Exhibit 1). All these international hotel companies were expected to intensify the competitive environment for all Indian hotel companies (Article 1 & Article 2).

International hotel chains are not just targeting the luxury and premium segment, but also the upscale, mid-scale, budget and upper

Trade unions and labor contractors hold the power as hotels business is a high labor intensive business. The power of property owners is high as hotels chains are looking for prime properties for rapid expansions. Suppliers like GSA’s, tours and travel companies provide consistent and high volumes of business to the hotel, hence they too hold the power.

6.3. Bargaining power of buyers:

Large Corporate companies, Airlines, Tour operators provide large chunk of business and to some extent have the power to negotiate the rates and service terms. Since there exist a tough competition amongst different hotels, hotels often have to compromise on rates and offerings. This shrinks the profit margins to a great extent.

6.4. The threat of substitutes

With the video conferencing facility available to all corporates at affordable rates, it is a substitute to MICE (Meetings, Incentives, Conferencing and Events), which constitutes to a large chunk of business for hotels. Also many large companies and Government having their own guest houses and conference facilities deprives hotels of some business on that front. Holiday homes, home stays, self-service apartments etc in the cities and tourists destinations are cheaper option for travelers and substitutes for hotel rooms. Example in Mumbai, Pune, Goa and Coorg many tourists prefer such accommodations for long

Political

Government policies from time to time have always been encouraging for the hotel and travel industry. 100% FDI is allowed in Hotel industry. Government’s initiatives in promoting Indian tourism through various initiatives of the State Tourism development corporations have resulted in increase in inbound tourists to India at a CGAR of 7.1%. In 2015 7.8 million tourists arrived in India and the figure is expected to be 15.3 in 2025 (Exhibit 5).

Five year Tax holidays and ease in External borrowing terms introduced by the respective Ministries have helped the opening of new hotels and also eased out their liquidation challenges of the initial years.

Issues relating to safety and security also had been a concern amongst foreign tourists. 2008 terrorist attacks in Mumbai has affected overall tourist flow to India due to safety and security issues. Though Taj being at the forefront of the events, has sailed through the after effect of the tragedy very fast– All credit to the Taj staff who displayed extreme sense of concern for their guests who were trapped in the hotel and helped them with necessities and also displayed great courage and helped them to escape safely. Also allowance of long term Visa and ‘Visa on arrival’ for many countries by the External Affairs Ministry helped improve the foreign tourist