Most businesses in different industries develop various strategies which will help establish the direction of the firm leading to profitability (Asad, 2012). For an organization to do so, it is important to take into account the organizations environments, both internal and external. One of the market advantage a business has over its competitors is its core competencies which include resources, unique capabilities, and processes. Considering an overview of the environment surrounding an organizations setting is a major step in analyzing the position of a firm in a business environment (Dalken, 2014). A breakthrough of the surrounding environment can provide an overview of general factors that impact the market segment operating under the same socio-political, technological and economic conditions. These provide the broad overview of factors that influence the organizations market strategy.
Porters Five Forces Framework
It is necessary to assess a narrower approach to identify the immediate competitive environment surrounding the industry as provided by Porters five forces model (Dalken, 2014). The model was developed as a framework analysis for industries and consider particular forces that impact competition. The five forces which are factors as explained by Porter (1980) include the threat of new entrants, bargaining power of buyers, the threat of substitutes, bargaining power of suppliers and rivalry among competitors in the industry. This framework helps the competitive intensity and attractiveness of a market for firms within an industry (Dobbs, 2014). It is an important theory as it helps an organization using the factors mentioned above to recognize where its influence lies in a business situation. Also, the framework can be utilized by a firm to determine its competitive strength and consequently come up with a position that the company may take in the future to improve weaknesses and avoid mistakes. Some of the benefits an organization can get from using the five forces framework will be to identify factors that affect the overall profitability of a firm. This can be the basis deciding to enter an industry, increase capacity and develop competitive strategies.
Analysis of the Five Forces on Hospitality Industry
Hospitality and hotel industries all over the world offer products and services that substitute each other and therefore is one of the industries that provide great competition globally (Harrison, 2003).Two crucial factors enable hotels to differentiate themselves which include good location and quality of services and products to attract the potential target market (Cheng, 2013). Similarly, the five forces described by Porter will influence prices, investments, and costs among other things within the industry.
Threat of New Entrants
Threats of new entrants is the first force that determines competitiveness in the field of hospitality and associated industries such as a hotel. The barriers to entry here include factors in economies of scale such as size and scope of operations, the loyalty of customers, costs, product differentiation, brand image, reliability and capital requirements (Porter, 2008). The hospitality industry is characterized by high capital costs to run its operations efficiently. Managing to get the necessary capital to run in the hospitality, tourism and hotel industry can be a problem for new investors the industry. Another potential barrier to entry is product and service differentiation (Recklies, 2015). If a new firm entering the industry can be in a position to differentiate itself from other potential competitors regarding products, services, amenities, and location, then it has the greatest advantage of attracting and keeping new clients (Cheng, 2013).
Threat of new substitutes
There is always a threat from substitutes offered by the competitors at lower prices and are of better performance parameters serving the same intended market purpose (Porter, 2008). In the hospitality industry, firms are flooded with all forms of price ranges showing significant variations in the levels of products, services, and amenities provided (Harrison, 2003). Furthermore, the threat posed by substitutes is dictated by other factors such as close customer relations, relative price for substitute performance, trends in technology and customers brand loyalty. Technology advancements in the area of a marketing campaign based on the internet approach of one firm may affect chains of other businesses in the industry (Karagiannopoulos, Georgopoulos & Nikolopoulos, 2005). The idea of electronic commerce is coined in by Porter stating that developing a value chain process analysis in conjunction with sharing the customers focused value data can improve the performance of value chains (Harrison, 2003). Customers are able to compare products and services offered by different firms in the hospitality industry and decide on what to purchase.
Bargaining Power of Suppliers
According to Porter (1980), when suppliers are more concentrated in a certain industry rather than on their customers, then there is a high chance of suppliers being more dominant. He emphasizes that suppliers have more bargaining power if their products is an important input in the industry. For instance, there is the likelihood of high demand for enhanced global information for bookings capabilities in the hotel and hospitality sectors. In the hospitality industry, labor and trained personnel suppliers seem to exercise power over the companies since it is in high demand within the industry. For the firms to overcome this power, it is necessary to have section employee recruitment that deals with the issue of recruiting of personnel to the companies within the hospitality industry. There can be other strategies such as hotel chains that can help attain supplies through internet channels and identify substitutes for a particular input within the industry (Goral, 2015).
Bargaining Power of Buyers
Porter outlines that buyers from industry might be stronger than in the cases where they are more concentrated than the firms within the industry (Cheng, 2013). In such situations, consumers can reduce industrys margin and consequently lead to a reduction in the prices of goods and services. Sometimes in the field of hospitality and hotel industries, buyers might exercise bargaining powers in cases where they purchase services or products in bulk, for example, the bulk purchase of hotel rooms. Groups such as tour operators, convention organizers and airlines can possess such powers in the hospitality, tourism and hotel industries (Florence & Judi, 2013). Intermediaries according to Porter seem to be a thing of the past and will eventually be eliminated due to the buyers bargaining power on their own through the use of internet business websites.
Competitive Rivalry among Existing Players
It is a force that deals with the intensity of competition among the companies and firms in a particular industry. For instance, in the hospitality, tourism and hotel industries, the rivalry for market share becomes more intense when the costs of switching and product differentiation are small (Tavitiyaman, Qu & Zhang, 2011). Most firms within the hospitality and other associated industries maintain the prices at a competitive level. The forms in this industries cover wide range hence the number of competitors is increased. Many factors can determine competitive advantage of one firm over the other. They include but not limited to similar strategies, barriers to exit, the number of competitors, market growth, and product differentiation (Recklies, 2015).
Conclusion
In the field of hospitality and associated industries, Porters five forces model helps in the understanding of the new ideas within the business forms and how each organization is focused on increasing its competitive advantage over the others within the industry (Porter, 2008). Also, the five factors help in understanding what drives products and services differentiation within the hospitality industry. Finally, there is greater bargaining power in the firms within the hospitality industry explained from the fact that suppliers and buyers might have a higher power of bargain under certain circumstances in the market such as a high concentration of suppliers over the customers in the market (Porter, 2008).
References
Asad, M. (2012). Porter Five Forces vs Resource Based View - A Comparison. SSRN Electronic Journal. http://dx.doi.org/10.2139/ssrn.1986725
Cheng, D. S. (2013). Analyze the hotel industry in porter five competitive forces. Journal of Global Business Management, 9(3), 52.
Dalken, F. (2014). Are porters five competitive forces still applicable? a critical examination concerning the relevance for todays business (Bachelor's thesis, University of Twente).
Dobbs, M. E. (2014). Guidelines for applying Porter's five forces framework: a set of industry analysis templates. Competitiveness Review, 24(1), 32-45. doi:10.1108/CR-06-2013-0059
Florence, B., & Judi, B. (2013). Organizational Behaviour for the Hospitality Industry:Pearson New International Edition. Harlow, United Kingdom: Pearson.
Goral, R. (2015). Competitive Analysis of the Hotel Industry in Konya by Using Porters Five Forces Model. European Journal Of Economics And Business Studies, 3(1), 106. http://dx.doi.org/10.26417/ejes.v3i1.p106-115
Harrison, J. S. (2003). Strategic analysis for the hospitality industry. The Cornell Hotel and Restaurant Administration Quarterly, 44(2), 139-152.
Karagiannopoulos, G. D., Georgopoulos, N., & Nikolopoulos, K. (2005). Fathoming Porter's five forces model in the internet era. info, 7(6), 66-76.
Porter, M. E. (2008). The five competitive forces that shape strategy. Harvard business review, 86(1), 25-40.
Porter, M. E., & Strategy, C. (1980). Techniques for analyzing industries and competitors. Competitive Strategy. New York: Free.
Recklies, D. (2015). Porters Five Forces: content, application, critique. Themanager.org. Retrieved 17 August 2017, from http://www.themanager.org/2015/11/porters-five-forces/
Tavitiyaman, P., Qu, H., & Zhang, H. Q. (2011). The impact of industry force factors on resource competitive strategies and hotel performance. International Journal of Hospitality Management, 30(3), 648-657.
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