Chapter 6 Strategic Management PDF

STRATEGIC MANAGEMENT AND TOTAL QUALITY MANAGEMENT IN HOSPITALITY AND TOURISM INDUSTRY College of Business Administration and Tourism NETWORK LEVEL STRATEGIES JOHN PAUL ROBERT T. MARZAN...

STRATEGIC MANAGEMENT AND TOTAL QUALITY MANAGEMENT IN HOSPITALITY AND TOURISM INDUSTRY College of Business Administration and Tourism NETWORK LEVEL STRATEGIES JOHN PAUL ROBERT T. MARZAN Faculty-in-Charge TABLE OF CONTENTS Strategic Alliance Franchising Management Contract Joint Venture Strategic Alliance Formation in the International Context PURPOSIVE COMMUNICATION Department of Languages and Humanities What is Strategic Alliances STRATEGIC ALLIANCE The term strategic alliance is often defined as an agreement between two or more partners to share resources and knowledge that could be beneficial to all parties involved (Chathoth, and Olsen, 2003) Overall, strategic alliances play a crucial role in helping organizations achieve their strategic objectives by collaborating with external partners to create value and drive growth. PURPOSIVE COMMUNICATION Department of Languages and Humanities JOINT VENTURE A strategic joint venture is a business agreement between two companies that make the active decision to work together, with a collective aim of achieving a specific set of goals and increasing each company's bottom line. PURPOSIVE COMMUNICATION Department of Languages and Humanities  JOINT VENTURE Advantage of Joint Venture Disadvantage of Joint Venture 1.Increased growth, productivity and 1.Higher likelihood of conflicts arising profits 2.Decreased control and flexibility 2.Reduced costs and risks through joint decision-making 3.Growth opportunity that does not 3.More widely shared knowledge, which require having to borrow funds or look can lead to sensitive information being for outside investors Quick access to communicated to other parties expertise PURPOSIVE COMMUNICATION Department of Languages and Humanities EQUITY ALLIANCE Equity partnerships are generally better suited for long- term business ventures where shared ownership and mutual commitment are desired. PURPOSIVE COMMUNICATION Department of Languages and Humanities Non- Equity Alliance Non-equity partnerships are more suitable for short-term collaborations or projects where specialization and limited risk are key considerations. PURPOSIVE COMMUNICATION Department of Languages and Humanities Strategic Alliance The strength of using strategic alliances as a vehicle of growth is that this approach can rapidly take advantage of the brand recognition of several multinational organizations. Those H&T firms involved in strategic alliances seek to achieve organizational objectives better through collaboration than through competition. Alliances provide opportunities to learn new skills and core competencies, but at the same time, alliances create the potential danger of transforming a partner into a competitor. In addition, the dissolution of alliance partnerships due to the inappropriate selection of strategic alliance partnerships and/or conflicts during the partnerships might result in a poor fit, leading to adverse monetary and strategic effects. PURPOSIVE COMMUNICATION Department of Languages and Humanities FRANCHISING?  Franchising Franchising emerged as a powerful way of facilitating the growth of hospitality organizations. Franchising gives hospitality and tourism industries and organizations an opportunity to form an alliance with partners in different country markets (Lashley and Morrison, 2000). Franchising is a partnership between different parties that involves assigning rights by the brand and business system owner (the franchisor) to the franchisee to use the name of the brand and format via a contract. Franchising offers mutual benefits to both the franchisor and the franchisee. Franchising offers the franchisor relatively trouble- free and inexpensive market penetration. PURPOSIVE COMMUNICATION Department of Languages and Humanities  Franchising Franchising is a partnership between different parties that involves assigning rights by the brand and business system owner (the franchisor) to the franchisee to use the name of the brand and format via a contract. This contract is usually for a fixed period of time with a geographical scope requiring a franchisee to pay an initial up-front fee and thereafter a royalty based on a percentage of actual revenues generated (Taylor, 2000). Franchising offers mutual benefits to both the franchisor and the franchisee. Franchisors prefer franchise partnerships because this business format is seen as a "risk-averse" mode, as it allows fast growth with minimum financial capital input. On the other hand, franchisees benefit from being part of a well-proven and widely recognized brand name and business format associated with managerial assistance and marketing support. Franchising offers the franchisor relatively trouble-free and inexpensive market penetration. In addition, franchising entails a high degree of control from the franchisor: being unable to adapt to local tastes and needs without the franchisor's authorization and payment of a continuing fee The franchisor and franchisee may have different objectives regarding turnover and profits, so conflict between the two parties may result. When conflicts do occur, however, the franchisor often cannot dismiss the franchisee and is only able to buy the franchisee out. Finally, the franchisor may face competition from the franchisee in the future.  - PROS CONS 1. You Get Ready-Made Framework 1. You’re copying a mainstream approach 2. You can operate under a recognized brand name 2. The cost might be higher than you think 3. You start off with a track record 3. Might not be suitable for life coaching  Franchising is a popular development strategy in the hotel and fast-food industries, with potential for rapid international expansion due to its lower capital requirements. Most US-based international hotel chains have expanded internationally through various franchising methods. Master License Branch or Subsidiary Joint Venture Master License Direct License Operation A business issues a A franchisor company A company first creates a In the target territory, a license to a person or grants a license to an branch or subsidiary in a corporation forms a joint organization within the operating franchisee and given region, and then it venture with another, intended territory, provides direct backup grows into that region by granting the on-site allowing the licensee to and support awarding franchises and partner licenses to run run all of its owned offering its franchisees their own stores, outlets. direct services. subfranchises, or both. A number of factors have encouraged H&T organizations to become inter- nationalized by adopting a franchise system: DEMOGRAPHIC TRENDS INCREASED TRAVEL AND QUALITY OF TOURISM PRODUCTS AND SERVICES EXPANDED MARKET TECHONOLOGICAL ADVANCEMENT A number of factors have encouraged H&T organizations to become inter- nationalized by adopting a franchise system: EXPANDED MARKET An increase in population and a rise in disposable income, which can be rapid in some countries, have generated a market for hotel companies. A number of factors have encouraged H&T organizations to become inter- nationalized by adopting a franchise system: DEMOGRAPHIC TRENDS Trends that favor the increase of franchising in foreign markets are increased educational levels of the local population; technological advancements that facilitate travel overseas; the ability of the younger generation to try new, foreign products; rapid development of rural areas; and concentration of population in urban and industrial areas. A number of factors have encouraged H&T organizations to become inter- nationalized by adopting a franchise system: INCREASED TOURISM AND TRAVEL More frequent travel for both business and pleasure has positively exposed successful and fast-growing hotel franchising to visitors worldwide. PURPOSIVE COMMUNICATION Department of Languages and Humanities A number of factors have encouraged H&T organizations to become inter- nationalized by adopting a franchise system: QUALITY OF PRODUCTS AND SERVICES The standardization process that is used by many franchise concepts has created quality assurance and consumer satisfaction. PURPOSIVE COMMUNICATION Department of Languages and Humanities A number of factors have encouraged H&T organizations to become inter- nationalized by adopting a franchise system: TECHNOLOGICAL ADVANCEMENT Advanced information technology has led to more sophisticated control and management techniques being implemented in many parts of the world and this has made the concept of a franchise system easier to implement. PURPOSIVE COMMUNICATION Department of Languages and Humanities MANAGEMENT CONTRACT  MANAGEMENT CONTRACT A management contract is a particular kind of agreement in which one party, usually a business or organization, appoints another party to oversee particular areas of their operations. The terms and obligations of both parties are outlined in the management contract, along with the nature of the work to be done, the payment schedule, and any special demands or expectations. This benefits in several ways, including increased efficiency, clarity, and compliance. It is formed at the undersigned's paper and approved by the relevant parties. PURPOSIVE COMMUNICATION Department of Languages and Humanities MANAGEMENT CONTRACT Every action meant to establish a legal relationship includes a contract. Effective management agreements can boost productivity, expand a company's reach, and give all stakeholders a clear, transparent structure. They are especially helpful for businesses that don't have the resources or know-how to properly handle specific areas of their operations. Furthermore, management contracts can provide a substitute for foreign direct investments, enabling businesses to grow globally without having to take on major financial PURPOSIVE COMMUNICATION Department of Languages and Humanities (Eyster, 1997). Typically, an owner must agree to the following: Provide the property, equipment, furniture, fittings, inventories, and working capital. Grant the operator sales and exclusive right to control and operate the property. Not interfere with the management of the property since they have the expertise and responsibility to perform this task. Cover the payment of all wages and salaries of employees. Carry adequate insurance coverage. Pay an agreed contract fee and a percentage of the operator's head office expense, if appropriate. Give the operator first refusal on buying the property if the owner sells during the term of contract. PURPOSIVE COMMUNICATION Department of Languages and Humanities STRATEGIC ALLIANCE FORMATION TO INTERNATIONAL CONTEXT STRATEGIC ALLIANCE FORMATION TO INTERNATIONAL CONTEXT A strategic alliance is an arrangement between two companies that have decided to share resources to undertake a specific, mutually beneficial project. A strategic alliance agreement could help a company develop a more effective process. A strategic alliance partnership is often referred to as a "marriage." Improper partner selection may not only prove to be a bad fit, but it would also result in increased management conflicts, slow decision-making processes, and a lack of communication. Moreover, it may also give rise to issues about reduced sales volume and profit and would hamper the overall implementation of the operative strategy. In order to avoid these issues internationally, it is essential to consider critical factors such as selective matching of partners, information sharing, role specification, ground rules, and exit provisions between partners. In addition, the parties involved must develop elements of trust, fairness, flexibility, commitment, open communication, and compatibility both before and after the establishment of the partnership. PURPOSIVE COMMUNICATION Department of Languages and Humanities STRATEGIC ALLIANCE FORMATION TO INTERNATIONAL CONTEXT This framework suggests that the formation of a successful strategic alliances involves a clearly laid down internal formation process. This process starts with the firm's own assessment of its needs, wants, and objectives and leads to the initial agreement between parties. These are the key stages of the process: Five (5) Key Stages 1. Formulate the firm's strategy 2. Develop a partnership benchmark 3. Eliminate undesirable business sectors 4. Select promising business sectors 5. Choose from potential candidates PURPOSIVE COMMUNICATION Department of Languages and Humanities CONNECT WITH ME Feel free to get in touch! Mr. John Paul Robert T. Marzan Instructor [email protected] Messenger: John Paul Marzan