Five Forces In Hotel Industry

Threat of New Entrants – Barrier to Entry-Moderate

According to Michael Porter (1980), threat of new entrants in hotel industry is considered a medium level. Although it requires large a sum of capital costs for branding, advertising, product creations, high proportion of fixed costs and need to conduct differentiated strategies to compete with rivalries; it is not a difficult industry for companies to enter (Cheng 2013). Despite of the fact that capital requirements includes cash and financial resources, which are essential for operating a business; political requirements is regarded as another important role in hotel industry, such as licensing, tax laws and different regulations in terms of real estate and property investments in various

According to Michael E Porter (1980), substitutes are able to provide lower costs, higher quality, better value, which is caused by technological innovation. Substitute products are an indication of existing or potential products and services, which provides the same function (Michael Porter 1980). Firstly, video conferencing is a growing trend that it will replace a physical meeting in a hotel’s conference rooms sooner or later. Moreover, there is a new merging online-service in hotel industry. Take the booming business-Airbnb, for example; which provide an innovative platform for customers to select the services and prices they want when landlords are renting out their houses and rooms through the platform. It already has more then 11 million guests stayed in Airbnb in 2008 (Kurtz 2014), which is expanding rooms and houses rapidly. There is no doubt that Airbnb would be recognized as a big substitute in hotel industry because it is going “to surpass the world’s largest hotel chain, including IHG and Hilton globally” (Kurtz

On the one hand, there are different categories of suppliers of products and services in the hotel industry. Thus, they are segmented and having a lower power by themselves. On the other hand, the suppliers have a strong connection with luxury hotels- Intercontinental, Hyatt, Starwood, and Hilton, due to the reason that they are essential to the provision of food and beverage, as well as well-trained services in luxury hotel business. It refers to the high quality of catering and tourist operators’ services. This is influential to hotels’ competitive advantages in price and services, which is a variable factor of reducing the customers’ sensitivity to the price. For instance, the probability of a hotel results in suppliers around associations. In order to meet the individuals’ buffet need, a great amount suppliers ought to choose higher quality of catering, meanwhile; has a lower cost than other suppliers. Employees in a hotel chain are another main supplier, which provide services and goods. They can affect the attractiveness and profitability of hotels by increasing their wages, which results in a higher industry cost and lower profit