Shangrila Hotel Case Study

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The market in the hotel industry is fragmented. Customers who are price-sensitive may opt to stay at hostels, motels, or other cheaper places, including homes of relatives. Business travelers, however, have limited options for substitutes that cater to their needs.

Conclusion

The hotel industry is a moderately attractive industry.

FRAMEWORK 2: STRATEGY AS A 3-LEGGED STOOL

Leg 1: Market Opportunity

The hotel industry closely follows economic indicators both in the local ecosystem and globally. Tourist arrivals shift the fastest, while corporate travel follows the trend in 3 to 6 months. At the time of the case, the Asian Tigers were in full strength while neighbor China was waking up to the opportunities of a market economy. Singapore has already gone ahead of the curve and grown its potential near maturity; consequently, it is an established regional hub and port city where a lot of international hubs have established their operational headquarters. While there are signs of challenges in the market and against competitors, the overall outlook is still positive.

Leg 2: Resources

Shangri-La’s Kuok brothers are very well connected in their native Malaysia and in Singapore. Aside from their established financial prowess, they had important political connections. David Kuok served as an ambassador for Malaysia while Robert Kuok was the chairman of Malaysian Singapore Airlines.

Considering that people do business with people they know, like, and trust, it’s easy to appreciate the trove of goodwill capital that Shangri-La sits on. Such competitive advantage is especially important in the high-end hotel market where image and relationships often trump cost considerations.

As a home-grown Asian company, Shangri-La understands the habits and quirks of the Asian market. For example, the Kuok brothers need only reference themselves to get a quick survey of their typical clientele. Coupled with modern management methods learned from the Westin group and Shangri-La’s own “total training plan”, Shangri-La has the tangible resources, connections, and human capital to succeed in its market.

Leg 3: Execution

Shangri-La’s execution has been characterized by a tempered mixture of risk-taking and consistent results. Its very roots were grown from the Kuok brothers diversification from commodities trading, shipping, insurance, construction, and real estate. Shangri-La has undergone numerous expansions and renovations to keep up with the times. The company has also ventured abroad with interests in Canada, China, Hong Kong, Philippines, and Indonesia. With these bold investments, Shangri-La shows that it is looking to grow.

At the same time, Shangri-La has showed steady growth over the last 10 years and “somewhat consistent health in areas of profitability, leverage, and asset management.” - not a trivial feat in the potentially volatile luxury market. This success could be attributed to its improved room rates and increased food and beverage sales, internal achievements which are complemented by the company’s diversification activities.

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ALTERNATIVE COURSES OF ACTION

OPTION 1: Continue efforts in capturing the high- and low-end markets locally and internationally

ADVANTAGES

DISADVANTAGES

- Take advantage of the positive outlook on the tourism

- Major revenue-generating activity

- Could benefit from the annual business conventions in Suntec City

- Shangri-La is well-known in the high-end segment

- Maintain the luxury brand

- Good relationships with other institutions and government would be beneficial to further add value to the already exclusive brand

- Neighboring countries where Shangri-La already has investments is growing as well

- Expected tighter competition on both markets

- Labor costs remain to be a challenge

- Concerns with efficient allocation of resources

- Costly

OPTION 2: Focus on the low-end segment and slowly divest in the high-yield market

ADVANTAGES

DISADVANTAGES

- Efficient allocation of resources since efforts would be channeled mostly to the low-end

- Growing market especially from the neighboring Asian countries

- Dilute the exclusivity of the Shangri-la hotel brand

- Recent developments in the high-end properties would not reach its potential

- This market is fluctuating and customers are very price-sensitive which could compromise the quality of services offered

OPTION 3: Focus entirely on the high-yield market and drop other initiatives

ADVANTAGES

DISADVANTAGES

- Would be able to focus on capturing the high-yield market

- Efficient allocation of resources

- Corporate clients are not price sensitive

- Costly

- Corporate clients might end-up going to fresher and newer hotels

- Expected tighter competition in the high-end segment

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RECOMMENDATIONS

Shangri-La has witnessed how Singapore improved as a nation throughout the years and could arguably say that it has indeed contributed significantly to the growth of the island-nation. As its economy grew further, tourists poured in and paved the way to the internal developments in the hotel as well. After analyzing the situation with the group chose Option 1; which is to continue efforts in capturing the high- and low-end