Shangri La Hotels
The history, development and growth of the company over time
Shangri La Hotels was established in 1971, with the intention of providing customers the added experience of: a large property and a number of amenities. While being able, to keep the prices at an affordable level for most guests. These two elements created an ideal environment for bringing the best of luxury and affordability together. This would have an impact on the company’s focus and bottom line growth, with the hotel concentrating on gradually expanding during the 1980’s. Then, in the 1990’s and into the early 2000’s, the overall pace of the expansion increased dramatically. This is important, because it is showing how the company is taking these two elements and they are combining them to create a one of kind brand. (Campbell, 2006)
To improve visibility and increase the overall bottom line, the company would take these concepts around the world. As they opened a series of hotels that incorporate them together, to create a one kind product that consumers’ must have. A good example of this can be seen with the property that they opened in Vancouver, Canada in 2009. As this took the concepts of luxury and combined them with the location, to have an impact upon their customers. This is accomplished by each hotel taking and installing various themes for the location such as: Traders Hotels or Shangri La Resorts. What this shows, is how these concepts are allowing the company to create a product that is in demand with customers. While being able to provide specific amenities and tastes for at select locations. (Campbell, 2006) (“About Us,” 2011)
Identification of the Company’s Internal Strengths and Weaknesses
The biggest internal strength of Shangri La Hotels is their heavy investments in their employees. This is problematic, because early on the company was seeing a low amount of turnover in comparison to the industry. Yet, they paid less 35 to 40% in employee benefits than their competitors. At which point, it became apparent that the company’s turnover rate could begin to increase dramatically. As they wanted to maintain their low cost structure, but were conflicted in achieving some kind of balance. To rectify this situation, Shangri La imposed a tiered pricing structure. The way it worked is each employee participated in the performance of the property through: added bonuses that they received. These objectives were placed above: personal goals and allowed everyone to participate in the profits from a particular location. Over the course of time, this created a sense of motivation among the staff and it allowed the hotel to maintain its low labor costs. (Campbell, 2006)
However, as the company to continued to expand in locations around the world, their overall labor costs would rise dramatically. This is because is places such as China, the average cost for wages in the local market was $.61 cents. While in other countries (such as: Japan) the costs rose to $16.46 per hour. The below table illustrates the overall amounts of volatility that they are seeing in these underlying costs. (Campbell, 2006)
Average Labor Costs Per Hour
This is important, because it shows how the company’s strategy has been successful. However, as they continue to expand around the world is when they are going to face a number of different challenges with labor costs.
The nature of the external environment surrounding the company
The major focus for Shangri La Hotels has been the rapid expansion that is taking place in Asia and the Middle East. This is because these two areas have been seeing a sharp increase in demand from: wealthier consumers and business travelers in these regions. As a result, this has been a major area of focus for expansion over the last ten years. Evidence of this can be seen with the fact that the hotel currently own 77 different properties in China alone. However, they have also been focused on rapidly expanding into a number of different markets around the globe to include: the United States, Canada, Australia and Africa. In this case, the overall levels of expansion have been slower, as the company is wrestling with similar challenges from the recent recession and the impact that it is having on travelers. (“About Us,” 2011) (Stern, 2006)
At the same time, the company is also dealing with various security issues from the large number of properties that they own and the cliental that they are catering to. This is troubling, because it can mean that they could become the target of: terrorist attacks and other external security threats. As a result, they have improved security at all of their facilities through: utilizing the latest technology and improving drills / audits. (“Safety and Security,” 2011)
These two elements are important, because they are showing how the company is wrestling with various external challenges that are affecting growth going forward. Where, Asia and the Middle East are showing more growth in comparison to other parts of the world. This creates opportunities for the company, by expanding into areas that realizing above average growth. While at the same time, it is making expansion more difficult in areas such as: North America and Europe. They are also, having to deal with a host of potential security threats that they could face around the world. This is significant, because it shows how the company must deal with a number of issues that could have an impact upon the brand image and profitability. (Campbell, 2006)
The underlying strengths for the hotel are: that they have a large number of staff for every guest and their compensation packages are competitive. These two elements are helping to increase the overall quality of services they are providing, while maintaining a stable cost structure. The biggest weaknesses that the company is facing, is that these costs are going to be increasing in the future. This is because, as many of the developing countries are continuing to expand, the costs that they are paying will rise to comparable levels with other regions of the world. The various opportunities that Shangri La Hotels are dealing with are: the rapid expansion that is taking place in the Middle East, Asia and South America. As the company has been aggressively opening, a number of different properties in these regions to address the increasing demand from: consumers and business travelers. The biggest possible threats that could have an impact on the overall bottom line of the organization is rising costs. This can come in the form of higher compensation levels for: employees to rising costs that they are paying for different products and services. As inflation, could have an impact on customer demand and how much it is costing the hotel to deliver the final product. These different elements are important, because they are showing how the company has a number of: different opportunities and threats that they could face in the future. (Campbell, 2006)
The kind of corporate level strategy pursued by the company
The kind of strategy that is being utilized by Shangri La Hotels is: strategic growth into markets that can support the long-term goals of the company. As they will build properties in those areas of the world that have the greatest possibility, to provide above average returns. While simultaneously, building hotels in developed countries that can augment their high growth business model. This is important, because this basic strategy would allow the company to be able to realize a gross profit margin between: $1.6 billion and $654 million (from 2006 to 2009). As a result, the strategy that they have been utilizing, has been allowing the company to prudently grow at moderate pace, in those markets that have the highest profit potential. (“Shangri La Hotels,” 2011)
The nature of the company’s business-level strategy
The basic strategy that is being perused by the company is to increase awareness by: providing the best service in areas where growth is the fastest. A good example of this can be seen with the number of staff in developed and developing countries per guest. As this would averages about 1 to 1.50 employees per customers in developed nations. However, in developing countries this number has been increased to: as high as 4 employees for every guest. This is important, because it shows how in many of the developing regions of the world, the company is focusing on increasing the overall quality of services that are being provided. (Campbell, 2006)
The company’s structure and control systems and how they match its strategy
To improve the various controls inside the organization, Shangri La Hotels has adopted an innovative policy of improving employee accountability. As they have tied the long and short-term goals of the property together, with various financial based incentives. What happens is the company will tie: various bonuses, career advancement and other personal incentives to their long-term objectives. This is designed to take various personal goals of the individual and combine them with those of the organization. At which point, everyone is motivated to go the extra mile for: the customers and will take pride in the company that they work for. As they are benefiting from, the increased levels of customer satisfaction through: various bonuses and other incentives. This is important, because it shows how this basic control system is serving as way to help motivate employees, by addressing their basic needs. While at the same time, it is helping the hotel to realize its different goals (creating a win — win situation for everyone). (Campbell, 2006)
In the case Shangri La Hotels, they are in a good position to benefit from the increased amounts of growth that are taking place in many regions of the world. However, their strategy has stalled in certain developed countries. This is problematic, because it is creating unbalanced growth, by relying on select regions of the world for the majority of their profits. As a result, the company could take advantage of the challenges they are facing of expanding in these markets by: building or purchasing properties in these areas. A good example of this can be seen in the U.S., where they have plans to build facilities. However, they have not completely constructed their first hotel, due to the economic slowdown that has been taking place. This presents an opportunity for Shangri La Hotels, by giving them the ability to purchase commercial properties at a fraction of their value. At the same time, they could consider acquiring a weaker company in this market and then developing this as a part of their brand. This is a similar kind of approach that was taken by Marriot during: the 1970’s and into the 1980’s. As they purchased a number of different luxury hotel chains that were facing serious financial difficulties and then rebranded them (such as Ritz Carlton). (Stern, 2006) This is important, because it shows a similar strategy that Shangri La could use, to rapidly expand into many developed countries, while maintaining their focus on Asia. When you put these different elements together, this means that the recent recession and implosion in real estate prices are the chance for the company to capture significant amounts of market share in these areas. If they can achieve this objective, this will allow them to operate locations that can provide a unique product, to a variety of travelers in locations around the world. (Campbell, 2006)
About Us. (2011). Shangri La Hotels. Retrieved from: http://www.shangri-la.com/en/corporate/aboutus/overview
Shangri La Hotels. (20110). Business Week. Retrieved from: http://investing.businessweek.com/research/stocks/snapshot/snapshot.asp?ticker=SHANG:TB
Safety and Security. (2011). Shangri La Hotels. Retrieved from: http://www.shangri-la.com/en/corporate/safetysecurity
Buckley, M. (2008). Shangri La. Guilford, CT: Brandt Travel Guides.
Campbell, D. (2006). Shangri La Hotels. Harvard Business Review
Stern, S. (2006). Stearns Guide to the Greatest Resorts. Boca Raton, FL: Stern Travel Guides.
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