StudentShare
Contact Us
Sign In / Sign Up for FREE
Search
Go to advanced search...
Free

TUI Strategy : Why Size Matters - Case Study Example

Cite this document
Summary
This case analysis “TUI Strategy Case Study: Why Size Matters” looks at the transformation from 1997 of mining firm Preussag AG into the giant tourism industry market leader TUI AG through divestitures and acquisitions. This paper analyses the global tourism industry’s environment…
Download full paper File format: .doc, available for editing
GRAB THE BEST PAPER98.3% of users find it useful
TUI Strategy Case Study: Why Size Matters
Read Text Preview

Extract of sample "TUI Strategy : Why Size Matters"

 TUI Strategy Case Study: Why Size Matters Abstract This case analysis looks at the transformation from 1997 of mining firm Preussag AG into the giant tourism industry market leader TUI AG through divestitures and acquisitions. Using Porter’s Five Forces model and the TOWS/PESTEL analysis, this paper analyses the global tourism industry’s environment and attempts to discover the rationale for the corporate transformation. The analyses models show the attractiveness of the tourism industry and identify some specific reasons that led to the firm’s strategic actions. The paper also discusses the limitations of the strategic analysis tool used and concludes with a summary of threats faced by TUI AG given the current business environment. Introduction: Choosing the Strategic Analysis Tools This paper analyses the TUI Case (Viardot 2007 in Johnson et al. 2008, pp. 619-624) focusing on how TUI AG achieved and maintained leadership in the global tourism industry. Starting with an analysis of the tourism industry and its implications on TUI, the paper analyses how and why competitors find it difficult to imitate TUI’s market leadership in the European tourism industry. The conclusion analyses the likely implications of today’s business environment on TUI’s future and whether TUI can maintain its position. The study of the tourism industry where TUI operates includes evaluating the use and limitations of strategic management analysis tools. Given the number of models and tools and the time frame, the author focused on what could have been the strategic analysis framework used by TUI’s management. Using the model to analyse TUI in the period 1997-2003, the author concludes with TUI’s future prospects based on relevant up-to-date information on the current global economic crisis. A key question that comes to mind whilst reading the case study was: How did an old economy firm like Preussag decide to go into the tourism industry? The use of strategic analysis tools helps find the answer because going inside the minds of TUI (known then as Preussag) management can show the link between strategic analysis and strategic action. Amongst the models of environmental analysis, Porter’s Five Forces and the TOWS-PESTEL analysis models were used. Porter’s Five Forces model analyses five fundamental competitive forces that affect the structure of an industry: 1) entry of competitors, 2) threat of substitutes, bargaining power of 3) buyers and 4) suppliers, and 5) rivalry amongst competitors (Porter 1980). The TOWS-PESTEL analysis looks at the Threats, Opportunities, Weaknesses, and Strengths of the industry and the effects of Political, Economic, Social, Technological, Environmental and Legal factors on the tourism industry and on TUI. If the analyses of these forces and factors are favourable to a firm like TUI, entering the industry becomes an attractive strategy for the firm. But what makes an industry attractive to a firm like TUI? Entry to the industry should be easy for the firm but difficult for competitors. The threat of substitutes should be low. The relative bargaining power of TUI as buyer/seller must be stronger relative to its sellers/buyers. Lastly, the level of competition amongst firms in the industry must be manageable. Using the TOWS-PESTEL analysis framework, the industry would be attractive if the threats and weaknesses of the industry and TUI are manageable, opportunities for business profits are great, and the industry’s strengths are attractive. In addition, the PESTEL analysis should give a manageable industry picture where business opportunities outweigh the cost of doing business, thus maximising the potential to increase shareholder value. Given TUI’s decision to transform itself into a tourism company, the analysis must have been a very attractive one, an offer it found impossible to refuse despite opinions to the contrary as to Preussag’s true motivationsi (Dittmann et al. 2008). Tourism Industry Environmental Analysis: Five Forces and TOWS/PESTEL Models In a 2005 conference on global tourism growth sponsored by the OECD, Prof. Peter Keller, Chairman of the OECD Tourism Committee declared (Keller 2005, pp. 2-3): “there is no tourism industry as such…” Keller then described the economic sector collectively called the “tourism industry” as a complex, volatile, globalising and internationalised industry, marked by imperfect competition amongst many small monopolistic suppliers but with a high potential of economic opportunities, primarily amongst destinations and secondarily amongst industry service providers. Preussag management decide to penetrate this industry, divesting itself of old corporate assets and using the funds to buy tourism companies. A “Five Forces Strategic Analysis” summarised in Appendix 1.A shows how TUI determined the tourism industry to be an attractive strategic option and why it took strategic action. Entry of competitors Preussag entered the tourism industry with its 1997 purchase of Hapag-Lloyd, a large tour operator with a chain of travel agencies that offered airline and logistics services, and TUI (Viardot 2007, p. 621). Tourism was a growth industry in the previous years, measured by international tourist arrivals and turnover (see Viardot 2007, Exhibit 1, p. 620). Compared to its old business, tourism offered Preussag better prospects. Such an industry, however, would attract competitors, and competition would drive down profits, but TUI entered the tourism industry just the same. Why? Keller’s quote implies that competition in the tourism industry is primarily amongst destinations and secondarily amongst service providers. A tourist must first be attracted to the destination and the experience. Only then would the cost of the experience enter the mind of the customer. Companies compete on the “product” (a destination) and the service (getting to the destination and making the experience unique and special). The tourism industry’s “product” is actually the experience of getting to and staying at the destination and the chain of activities/services to accomplish the delivery and consumption of this product. Thus, tourism has a uniquely complex value chain, and the firm that can compete profitably is that which can squeeze the highest value from this chain of products and services: attracting the visitor to the destination, getting the visitor to the destination in the fastest and most economical manner, and letting the visitor enjoy the best value from the experience. This value chain is “complex” because of the lack of control that a tour operator such as TUI would have on the quality of both the product and the service. An example would be having a health epidemic or accident on site. This is where the entry barrier is high and experience is important. Whilst there may be many competitors at several distinct points in the value chain, such as transportation and accommodations at the destination, the firm with the lowest barriers to entry along the value chain enjoy a competitive advantage. By purchasing Hapag-Lloyd with its network of agents with experience and transport assets with its high entry barrier, TUI could develop synergies along the value chain and exploit economies of scale by consolidating services and selling these at affordable prices, thus enhancing the attractiveness of the tourist experience. By buying firms with substantial industry experience, Preussag would own a portfolio of travel agents and a network of service providers and leverage its transport assets for both tourism and logistics services. The key issue of the tourist experience as a personal service likewise offers an advantage to providers with a strong brand name to which customers exhibit high loyalty and thus higher switching costs. This explains why TUI went on a buying spree so its size would attract and strengthen customer loyalty by using established brands, at the same time defending itself from retaliation by large and established competitors. Threat of substitutes The variety of global destinations and tourist experiences increases the threat of substitutes in the primary area of competition, but a large firm enjoys an advantage in an important aspect of the tourism experience: convenience. The diversity of destinations and logistical details makes it expensive and difficult for a single or small group of tourists to unlock and enjoy value. The structure of the transport and hotel industries is such that these reward economies of scale through volume discounts and special rates to repeat clients. The clients, in this case, are not the individual tourist but the large tour operators. Whilst there may be a large number of tourists who want a unique experience, most tourists are after a mass leisure lifestyle. People prefer experiences that are shared and enjoyed, such as visits to famous destinations like the pyramids or beaches. A firm that can offer services to more tourists and offer more destinations has an advantage because it minimises threats from product and service substitutions, raising the cost of switching service providers. The commoditisation of tourism experiences is an opportunity to develop a portfolio of brands, each one catering to a unique market segment. Each brand allows a firm like TUI to mix quality, price and value to get the best combination of profitability. Bargaining power of buyers and suppliers In tourism’s unique value chain, tour operators are both buyers and suppliers. Whilst it buys services from suppliers such as accommodations at destinations, it turns around and supplies customers with a unique experience, although much of the experience is beyond the firm’s control. Getting to the destination is part of service delivery, and making sure the customer has an enjoyable experience and returns safely is a critical aspect of the range of services the tour firm supplies to its buyers/customers. Bargaining power is directly proportional to size: the bigger the tour operator, the greater the competitive advantage vis-à-vis smaller companies. However, “the availability and distribution of resources varies greatly from one place to another (and) creates a situation of monopolistic competition in tourism markets. The different natural, cultural and civilisation-related attractions that exist in each country make it possible to differentiate destinations on a geographical basis. Each tourism country, region and place is thus unique and unmistakably individual” (Keller 2005, p. 4). This monopolistic characteristic of destinations enhances the bargaining power of tour operators and of service providers as suppliers of a unique experience, allowing them to charge prices higher than market costs as long as customers are willing to pay the price to enjoy the pleasures that tourist destinations offer. However, whilst such “value-based pricing” allows a wide range of pricing policy measures, Keller (p. 5) emphasises the advantage of firms that are able to adopt a differentiation market strategy and partly explains what he called the exchange of tourists amongst countries: people from rich countries want to experience the unique ambience of nature in cheaper developing countries, whilst people from developing or emerging countries want to experience the high-level lifestyles in developed countries. This situation balances the power of tour operators, providers and tourists who play dual roles as buyers and suppliersii of the unique tourism experience. Rivalry amongst competitors The tourism industry has many small competitors between and amongst its primary and secondary sectors. The primary sector includes the many possible destinations all over the world. Its secondary sector includes travel agencies and service providers like small hotels, restaurants, and transport providers. Once the customer decides to become a tourist, the rivalry amongst the primary and secondary competitors begins. Rivalry between primary (the destination) and secondary (service providers) sectors takes place because tourists are looking not only at the uniqueness of the destination but the quality of service. The average tourist, which dominates the industry numbers, want the highest value in both destination and service and look for a balance between these two. There is also intense rivalry amongst or within the primary and secondary sectors. Destinations compete amongst themselves – mountains or beaches; so do service providers – tour operators, hotels, transportation services, etc. Given the numbers of small-scale firms in the industry, rivalry is very intense. Aside from the number of competitors, rivalry is determined by the degree of product differentiation, industry cost structure, switching costs, strategic objectives of competitors, and exit barriers. Product differentiation is intense, switching costs are high, and exit barriers for most competitors in the industry are low. Thus, aside from product differentiation to come up with unique experiences, tourism companies compete on the basis of lower costs through economies of scale, explaining TUI’s strategy towards consolidation and horizontal and vertical integration. Consolidation and integration result in bigger-sized tour operators that allow the firm to exploit a bigger portion of the value chain to generate higher volumes and revenues, to raise the entry and exit barriers, and to bring down costs. By investing in airlines, ships, hotels and new technologies, TUI can develop more unique products, enter new markets, intensify the degree of product differentiation, and eventually dominate the industry. The number of brands being sold by TUI over a wide range of industry sectors, five business units, almost 200 brands and a customer base of over 40 million (TUI 2009) are clear signs justification of its strategy to achieve and maintain market leadership. Horizontal and vertical integration allow TUI to earn profits across the value chain. Horizontal integration includes owning hotel chains, transport services, and travel agencies that allow differentiation, giving customers the power of choice. Vertical integration means that TUI owns a wide range of services from marketing destinations to booking reservations to owning the transportation and accommodation systems that service the tourist. By combining operation and distribution and taking care of the tourist from start to end, a consolidated firm has a better chance of pocketing a bigger share of the tourist’s money. Appendix 1.B summarises the TOWS/PESTEL analysis of the tourism industry. The top part shows the TOWS analysis whilst the bottom part shows the PESTEL analysis. The TOWS/PESTEL analysis shows that the challenges facing Preussag/TUI are manageable, even those that are very difficult to control such as the state of the global economy, the behaviour of competitors, and the threats – political, environmental, legal, etc. – that exist at the tourist destinations. Perhaps, the main “threat” or difficulty of Preussag prior to its entry into the tourism industry is having the cash to buy companies and grow. However, because WestLB, a dependable cash source, owned Preussag, this threat was diminished. Besides, management confidence was one of its perceived strengths, and a good management would always think it has the competence to manage complexity and challenges, so the decision to enter the tourism industry was not much of a problem. TUI’s Industry Leadership and Difficulties of Competitors TUI became a market leader because it had the resources, such as cash from WestLB and the confident management at Preussag, needed to manage the complexity in a high-growth industry. Part of the strategic decision to move into tourism was the choice of two of Porter’s generic strategies – differentiation and cost leadership – to achieve market leadership. Although Porter (1980) suggested that a firm should choose only one of the three generic strategies (the third is focus), TUI was able to choose two of the three. TUI was able to do so by using its financial resources, selling old companies to generate cash, to acquire size by buying other companies. Size allowed TUI to exploit economies of scale, acquire hundreds of brands, achieve synergies along the tourism industry value chain, and serve a huge customer base. TUI was also able to integrate horizontally and vertically and, thus, to consolidate its primary and secondary activities along the value chain. Doing all these increased its bargaining power with buyers and suppliers, thus increasing its margins and, lastly, its profits. It is the “domination” of this whole range of strategic activities in the tourism industry that made it difficult for its competitors to imitate TUI. Future of TUI TUI needs to look at four looming threats: growing intensity of competition, the growth of technology, global security, and the impact of the economic crisis.iii Intense rivalry brings prices down as smaller competitors adopt cost leadership and differentiation strategies but, since mass-market packages can lose their appeal, tourists would seek more differentiated products, and unless TUI sustains its ability to think like a “small” firm that understands customers well, it would lose out to smaller rivals who adjust faster because they do not have the huge fixed assets TUI owns such as planes and hotels to which TUI, naturally, channels their customers. Intense rivalry in the transport sector likewise provides TUI with the competition that customers are ready to capitalise on, especially if there is a price war or extra amenities that enhance each customer’s perceived product or service value. If TUI can sell these assets (especially logistics) and focus on the service side of the tourism business, it could have more financial resources to invest in improving the customer experience. The rising trend in eco-tourism presents both an opportunity and threat for which TUI is already offering several brands (TUI 2009a/2009b). Technological developments, the Internet and websites where people can share and enjoy one another’s experiences, offer TUI a growing rivalry challenge. As the Internet becomes more efficient and customers become more adept at technology, companies like TUI will begin to compete with their own customers who may decide to package their own tours; and these numbers continue to grow. TUI should learn to use the Internet as a marketing tool, since it can empower service providers at destinations to use their experience and the databases to compete with TUI. Rather than be afraid of technology, TUI must learn to use it to improve the value of the customer experience. Global security is also a growing challenge that may discourage tourism. Large tour operators would suffer the most since terrorists target the more popular and populated destinations, placing both the tourists and tourism infrastructure at risk. Tour firms must continue working with foreign governments and locals at destinations to enhance security and make everyone realise that tourism is a good income source. The global economic crisis in 2008 continue to pose a threat to TUI as customers see incomes go down, leading them to spend less on leisure activities. Economic uncertainty lead tourists to either forego or trade down their holidays from international to domestic tourism or to none at all. Although TUI’s luxury brands would suffer, target marketing and promotions may deliver results, and whilst the crisis would lead to losing out to budget, mid- and low-priced hotels and carriers and alternatives like camping and self-catering, companies with a wide range of low-cost options and a diversified brand portfolio are positioned to benefit from the economic downturn (Euromonitor 2009). Its highly differentiated product offerings and efficient service delivery enhance TUI’s ability to face these challenges and help secure its ability to sustain competitiveness and leadership (Arrants and Raleigh 2004). Analysis Summary: Limitations of the Models Whilst the Five Forces model helps analyse the industry at the macro-level, giving a potential entrant firm a map for its strategic positioning – differentiation and cost leadership in TUI’s case -- or where the firm plans to go, and helping it determine how to get there, the model’s outside-in methodology disregards core competencies or what the firm is good at doing. This model is static in that it takes a snapshot of the industry at a certain point in time and identifies threats and opportunities at a fixed point. In reality, conditions evolve, new threats and opportunities come up, and the firm may lack the competence to deal with these. Thus, whilst the Five Forces model may help identify an industry for diversification, it does not fully answer the issue of whether the firm is competent enough to do so, or whether this industry is the best strategic option to exploit. The firm needs to complement this model with the inside-out core competence model (Hamel and Prahalad 1994), the TOWS/PESTEL analysis of the firm in addition to doing the same for the industry, or the BCG matrix (Johnson et al. 2008, pp. 366ff) that are more dynamic, adaptable and emergent. The TOWS/PESTEL analysis of the tourism industry, together with the Five Forces analysis, showed TUI tourism’s attractiveness before its decision of strategic transformation. Tourism’s growth rate gave TUI the potential to increase shareholder value by dominating the whole industry’s value chain, from the support activities such as its network of agencies, human resources, and technology to the primary activities such as inbound and outbound logistics, marketing and sales, operations and services, making imitation difficult. Whilst barriers to entry at some parts of the value chain are high, e.g., in brand loyalty, transport and accommodations, there are parts where these barriers are low, making the industry easy to enter. The existence of a few large tour operators added to industry attractiveness for a firm like Preussag with the financial resources to invest. Size in the business was seen as providing greater competitive advantage, minimising the threat of substitutes, optimising the firm’s bargaining power with buyers and suppliers, providers and customers, and dominating industry rivalry and achieving market leadership. Appendix 2 summarises TUI’s strategic imperatives and key performance indicators. In light of future threats, these need to be reviewed to sustain its momentum for the firm to continuously deliver greater shareholder value (Laurent 2008a, 2008b, 2008c). Bibliography Arrants, M. and Raleigh, L., 30 November 2004, “ISHC Top Ten Issues & Challenges for 2005” [Online] International Society of Hospitality Consultants. Available from: http://www.traveldailynews.com/pages/show_page/20274-International-Society-of-Hospitality-Consultants-ISHC-Top-Ten-Issues&Challenges-for-2005 [20 October 2009]. Dittmann, I., Maug, E. and Schneider, C., 2008, “How Preussag became TUI: a clinical study of institutional blockholders and restructuring in Europe”, Financial Management, Vol. 37, Issue 3, pp. 571-598. EFT.com, 30 September 2009, “TUI Travel to target “attractive M&A opportunities” [Online] Eyefortravel.com. Available from: http://www.eyefortravel.com/news/europe/tui-travel-target-%E2%80%9Cattractive-ma-opportunities%E2%80%9D [20 October 2009]. Euromonitor, 2009, The Forecast Restatement – Travel and Tourism in a Crisis, Euromonitor International, London. Europe Intelligence Wire, 30 September 2006, “TUI to continue with double-pronged logistics and tourism strategy – CEO”. Europe Intelligence Wire. FVW.com, 28 February 2007, “TUI AG: Questions over the future group strategy” [Online] FVW.com. Available from: http://www.fvw.com/index.cfm?objectid=25F759F5-C160-FC91-A2BDD0E042029B87&navID=FDF7C510-C114-A5DF-CBBB1D776C960BB0 [20 October 2009]. GCN (Global Crisis News), 10 June 2009, “Tourism and travel industry set to contract in 2009” [Online] GlobalCrisisNews.com. Available from: http://www.globalcrisisnews.com/travel/tourism-and-travel-industry-set-to-contract-in-2009/id=945/ [22 October 2009]. GCN (Global Crisis News), 21 February 2009, “Tourism Predictions 2009” [Online] GlobalCrisisNews.com. Available from: http://www.globalcrisisnews.com/travel/tourism-predictions-2009/id=499/ [22 October 2009]. GCN (Global Crisis News), 8 November 2008, “Global economic climate affecting tourism industry” [Online] GlobalCrisisNews.com. Available from: http://www.globalcrisisnews.com/travel/global-economic-climate-affecting-tourism-industry/id=73/ [22 October 2009]. Hagemann, B., 17 May 2009, “Global tourism industry caught between economic crisis and flu” [Online] Agence France Press, p. 12. Available from: http://www.taipeitimes.com/News/bizfocus/archives/2009/05/17/2003443795 [21 October 2009]. Hamel, G. and Prahalad, C.K. 1994, Competing for the Future, Harvard Business School Press, Boston, MA. Harnischfeger, U., 8 May 2003, “Recent reports from the Financial Times on poor prospects for TUI” and 7 May 2003, “A surprising boardroom shake-up at TUI signaled internal differences over future strategy” [Online] UNI Global Union. Available from: http://www.union-network.org/UNITourism.nsf/0/833550B27F818AC0C1256D200031F953 [20 October 2009]. Hayhurst, L., 30 November 2007, “The big two reveal strategy differences: Thomas Cook and TUI Travel to deal with each other)”, Travel Trade Gazette UK & Ireland, pp. 23-24. Johnson, G., Scholes, K. and Whittington, R. 2008, Exploring Corporate Strategy: Text and Cases, 8th ed., Prentice-Hall, Essex. Jones, M., 28 January 2008, “Travel seen focusing on savings, airline scaleback” [Online] Reuters.com. Available from: http://www.reuters.com/article/companyNews/idUSL2573778120080128 [20 October 2009]. Keller, P., 2005, “Conference on global tourism growth: a challenge for SMEs. A few thoughts by way of introduction.” Organisation for Economic Co-operation and Development, Centre for Entrepreneurship, SMEs & Local Development. 6-7 September 2005, Gwangju, Korea. Laurent, L., 14 August 2008a, “TUI's Strategy Pays Off” [Online] Forbes.com. Available from: http://www.forbes.com/2008/08/14/tui-tourism-shipping-markets-equity-cx_ll_0814markets11.html [20 October 2009]. Laurent, L., 21 July 2008b, “Mordashov Takes Lead In TUI Battle--For Now” [Online] Forbes.com. Available from: http://www.forbes.com/2008/07/21/tui-mordashov-germany-markets-equity-cx_ll_0721markets11.html?feed=rss_markets [20 October 2009]. Laurent, L., 22 July 2008c, “Bad Timing for TUI” [Online] Forbes.com. Available from: http://www.forbes.com/2008/07/22/tui-shipping-hapag-markets-equity-cx_ll_0722markets18.html [20 October 2009]. Naidoo, S., 20 November 2008, “Global tourism industry ‘will survive tough times’” [Online] Travelwires.com. Available from: http://www.travelwires.com/wp/2008/11/global-tourism-industry-%E2%80%98will-survive-tough-times%E2%80%99/ [21 October 2009]. New York Times, 5 May 2008, “TUI shareholders set to battle over company's direction” [Online] New York Times.com. Available from: http://www.nytimes.com/2008/05/05/business/worldbusiness/05iht-tui.4.12584857.html [20 October 2009]. Porter, M., 1980, Competitive Strategy: Techniques for Analyzing Industries and Competitors, Free Press, New York. PWC (PriceWaterhouseCoopers), 2008, “Impact of the Economic Downturn”, [Online] PWC.com. Available from: http://www.pwc.com/gx/en/transportation-logistics/impact-economic-downturn.jhtml [21 October 2009]. TDN (Travel Daily News), 8 June 2009, “Industry to grow in 2010 but predictions down on pre-recession forecast” [Online] Traveldailynews.com. Available from: http://www.traveldailynews.com/pages/show_page/31341-Industry-to-grow-in-2010-but-predictions-down-on-pre-recession-forecast [20 October 2009]. TDN (Travel Daily News), 8 November 2004, “Report from World Travel Market- London World Travel Market’s Global Report 2004-5” [Online] Traveldailynews.com. Available from: http://www.traveldailynews.com/pages/show_page/20271-Report-from-World-Travel-Market--London-World-Travel-Market%27s-Global-Report-2004-5 [21 October 2009]. TUI Travel plc, 2009a, Annual Report and Accounts 2008, TUI, Crawley. TUI Travel plc, 2009b, Corporate Website [Online]. Available from: http://www.tuitravelplc.com/tui/pages/home [18 October 2009]. United Nations, 16 October 2008, “Tourism industry starting to suffer from global economic crisis, UN agency warns”, [Online] UN News Centre. Available from: http://www.un.org/apps/news/story.asp?NewsID=28600&Cr=touris&Cr1 [21 October 2009]. UNWTO (United Nations World Tourism Organisation), 9 July 2009. “Global tourism industry collapses: UN World Tourism Agency”, UNWTO World Tourism Barometer, United Nations, New York. Verikios, M., 30 January 2008, “TUI Travel's strategy to deliver strong returns to shareholders” [Online] Travel Daily News. Available from: http://www.traveldailynews.com/pages/print/24315-TUI-Travel%27s-strategy-to-deliver-strong-returns-to-shareholders [17 October 2009]. Viardot, E., 2007, “TUI: Achieving and maintaining leadership in the European tourism industry”, in Exploring Corporate Strategy: Text and Cases, Johnson, G., Scholes, K. and Whittington, R., 8th ed., pp. 619-624, Prentice-Hall, Essex. Wadhawan, J., 9 June 2008, “Global tourism: growing fast” [Online] Tourism Concern. Available from: http://www.peopleandplanet.net/doc.php?id=1110 [19 October 2009]. Appendix 1.A: Five Forces Analysis Summary for Tourism Industry in 1997 Low High Threat of New Entrants Few large tour operators in the industry Advantage for firms with fixed assets such as transport and accommodation systems Few firms have the resources to consolidate services to exploit economies of scale Firms with established networks at the destination and marketing (travel agents) have higher entry barriers Many small and medium-scale firms at the service provider levels Many possible destinations at the primary level of competition Low exit barriers: small firms enter and exit the industry and this can affect the consistency of service delivery Threat of Substitutes Few firms can offer convenience that arise from consolidation and integration Complex nature of tourism “industry” rewards firms that can offer the best value and these are those firms that can exploit economies of scale and pass savings to customers: large tour operators with years of experience in operation and distribution Customers are looking for best value for money from both the destination and the service provider Customers have to decide on the destination before looking for service providers Bargaining Power of Buyers Customers as buyers have low bargaining power vis-à-vis tour operators or suppliers at destinations Tour operators must constantly find ways to meet fickle and high standards of customer expectations Large tour operators as buyers have high bargaining power due to many small and medium-scale firms at destination Customers as buyers want best value and will deal with tour firms that offer diversified products and brands Bargaining Power of Suppliers Service providers at destination as suppliers have to meet customer demand Service providers at destination must give large tour operators best offer to compete Large tour operators as suppliers have low bargaining power with customers at popular destinations but can be addressed with Tour operators as suppliers have high bargaining power if they have service provider networks at destinations Monopolistic nature of competition at destinations allow value-based pricing and wide range of pricing policy measures Providers at new/popular destinations have high bargaining power Intensity of Rivalry Few large, consolidated and integrated tour operators gives tremendous size advantages Firms with financial resources have an advantage and incentive to buy smaller firms in the industry Intense at service provider level at destination Intense at the level of small and medium scale travel agencies Intense at popular and unique destinations Strategic Positioning: DIFFERENTIATION and COST LEADERSHIP Appendix 1.B: TOWS/PESTEL Matrix for Tourism Industry in 1997 Strengths Weaknesses Fast growth economic sector Many market players, mostly SMEs Tourism as personal experience Growing global population Linked with global economic growth Low entry and exit barriers for tour operations High potential for economies of scale Direct impact on human desires and aspirations Demand-driven by tourist spending decisions Volatile supply-side structure Intense competition amongst SMEs Profits derived from exploiting value chain Market need for variety Primary competition between destinations Secondary competition between providers Inconsistent quality of human resources on site Labour intensive and upward cost pressures Opportunities Threats Globalisation of tourism “industry” Internationalisation Growing economy Standardisation of products and services Large firms can develop new markets, offer new products, and link supply-demand more efficiently Willingness of developing states to subsidise tourism and infrastructure investments High growth potential Economies of scale from consolidation and integration Peace and order in destinations Global health epidemics Internet Uniqueness of destinations offers imperfect competition and monopolistic competition from differentiation (also an opportunity for firms that can differentiate properly) Linked to global economic growth rates: good when economies are booming, bad when in a recession Buying companies “with experience” costs money Good Bad Pol Tourism as agent of development World is more peaceful and attractive to tourism opportunities Rising incidence of terrorism Deteriorating peace and order situation in destination countries Eco Tourism as economic engine (generates employment, development, etc.) Common currency in the EU Economic crisis Inflation leads to higher prices and less affordability of international tourism Soc Globalisation of popular culture Interactions amongst peoples and cultures Cultural corruption of exotic but poor destinations Tech Lower overheads from efficiencies and economies of scale Ease of communications amongst customers, agents, and destinations Internet as threat to travel agencies Use of technology to imitate products and services amongst agencies and compete on cost leadership Env Rising preference for Green Tourism Rising standards of environmental management in developing countries Tourism’s negative effects on environment (pollution, population, cultural, etc.) Health issues and threats of epidemics Leg Improved mobility of people EU common legislation and standards Travel documents take time to process Anti-trust concerns in tourism industry Political – Economic – Social – Technological – Environmental – Legal Appendix 2: TUI Travel plc Strategic Imperatives Imperative 1: Product and Content Provided circa 46% differentiated content in Mainstream. Operated a portfolio of 97 niche businesses within Activity and Specialist Sectors. Offered 50,000 hotels in 100 countries through Online Destination Services. Imperative 2: Distribution and Brands Controlled 53% of Mainstream Sector distribution. Controlled 72% of Activity Sector distribution. Controlled 66% of Specialist Sector distribution. Number One travel website in both UK and Germany in terms of visitor numbers. Imperative 3: People and Operational Efficiency Underlying operating profit margin up 90 basis points to 2.9%. Integration progressing well with synergies upgraded to £175m. Completed sale and leaseback of 20 owned aircraft and four new deliveries. Imperative 4: Growth and capital allocation Acquired 16 niche high-growth businesses in 2008 for £108.6m. Working with local partner to jointly develop a Russian and CIS tourism preference. Underlying operating profit up 53% to £398m. Return on invested capital up 300 basis points to 8.4%. TUI Strategic Imperatives: Differentiation and Size Advantages (TUI 2009a, pp. 5, 7, 9) Endnotes Read More
Cite this document
  • APA
  • MLA
  • CHICAGO
(TUI Strategy Case Study: Why Size Matters Study, n.d.)
TUI Strategy Case Study: Why Size Matters Study. Retrieved from https://studentshare.org/business/1728416-tui-case-study-assignment
(TUI Strategy Case Study: Why Size Matters Study)
TUI Strategy Case Study: Why Size Matters Study. https://studentshare.org/business/1728416-tui-case-study-assignment.
“TUI Strategy Case Study: Why Size Matters Study”, n.d. https://studentshare.org/business/1728416-tui-case-study-assignment.
  • Cited: 0 times

CHECK THESE SAMPLES OF TUI Strategy Case Study: Why Size Matters

Information and Communication Technology Business: The Case of Yahoo

The objective of this work is to analyze on the understanding, the applicability of the new thinking of the strategies and, the prospects of developing a new strategy with the judicious mixture of the old and the new strategies.... Internet portal space is usually characterized by the rivalries of intense nature, imitators with non-paying customers, it followed a constantly evolving strategy in the market that would be quite unconventional if considered on par with the traditional strategies....
10 Pages (2500 words) Case Study

The Strategic Challenges Confronting Starbucks Corporation

52) defines corporate strategy as "the pattern of decisions in a company that determines and reveals its objectives, purposes, or goals, produces the principal policies and plans for achieving those goals, and defines the range of business the company is to pursue, the kind of economic and human organisation it is or intends to be and the nature of the economic and non-economic contribution it intends to make to its shareholders, employees, customers, and communities".... Corporate strategy in effect maps out the businesses in which an organization intends to compete in a way that focuses resources to convert distinctive capabilities into a competitive advantage....
11 Pages (2750 words) Case Study

Thomson TUI Offline e-Tourism Strategy

LateRooms has been sufficiently prominent in the field, having won the award of the Hitwise UK Annual Online Performance in the Travel-Destination and Accommodation category (LateRooms Website) Winning an award is a strategy to automatically generate more business.... This is a strategy similar to the one employed by Hotelopia-getting a third party to certify the business quality, which beats putting an ad through the print media/ hoardings or online....
3 Pages (750 words) Case Study

Preventing and Controlling Infectious Diseases

On the other hand, children that they had their specimen collected by nurses clearly showed the level of infection.... Consequently, the… tion rates in children that had their specimen collected by their parents were much higher compared to children who were catheterized by nurses (Shaw & Eliot, 2012)....
1 Pages (250 words) Case Study

International Advertising and Product Development in the Presentation Change Bite

The paper "International Advertising and Product Development in the Presentation Change Bite" states that In the borrowing of ideas, one should avoid direct plagiarism, or unauthorized use or exploitation of a design.... Strict compliance with regulations protecting IPR rights is critical.... hellip; For producers of goods and services, it is a cost-saving if the middleman could be eliminated and one may proceed directly to the customer, as long as greater costs are not incurred in doing so....
8 Pages (2000 words) Case Study

Relationship Between The Government And Public Sector Unions

Union relationships can either facilitate or restrain a company's decision making and also the implementation of the strategy (Heaton, Mason, Morgan, 2000)The connection of UK trade unions developed noticeably in the post-war time.... The period concluded in the 1978–1979 Winter of Discontent, where public sector trade unions occupied in usual and long industrial action over the then persisting Labour government's strategy of public sector pay moderation....
12 Pages (3000 words) Case Study

The Current Success Factors for Small and Medium Enterprises in Thailand

size, therefore, is no doubt a factor, as smaller enterprises do not usually need to have cumbersome resources.... Finally, we consider why there is a need for conducting further research into this area.... The paper "The Current Success Factors for Small and Medium Enterprises in Thailand" states that Thai SMEs, in particular, have had a rough time since the latter part of the previous century but at the same time, have shown resilience and played a major role in the progress of Thailand's economy....
23 Pages (5750 words) Case Study

Weaknesses and the Best Measures of Corrections of Grayson Manufacturing

According to this paper, it takes more than the size of the company to ensure customer satisfaction.... "Weaknesses and the Best Measures of Corrections of Grayson Manufacturing" paper outlines profoundly the best practices which will revive the company from its predicament.... Some of the issues addressed are international aspects that affect other companies....
15 Pages (3750 words) Case Study
sponsored ads
We use cookies to create the best experience for you. Keep on browsing if you are OK with that, or find out how to manage cookies.
Contact Us