Economic Factors Impacting Hilton Hotels' Business in the UK

The investigation highlights the impact of economic factors on the business of UK leading hospitality company, Hilton Hotels. The study reveals that various economic factors such as unemployment rate, interest rate, foreign exchange rate fluctuations, corporate tax rates, inflation rate, and gross domestic product (GDP) affect both opportunities and threats to the hospitality industry. For instance, an increase in GDP can lead to increased customer base, while high inflation rate may result in changes in consumer behavior.

Economics Essay
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TABLE OF CONTENTS
INTRODUCTION...........................................................................................................................3
Macro-economic changes Hilton’s external environment while evaluating opportunities and
threats .........................................................................................................................................4
CONCLUSION................................................................................................................................8
REFERENCES..............................................................................................................................10
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INTRODUCTION
External business environment affects the working of an organization and it includes the
factors such as economic, legal, political, social etc. Hospitality industry is ever changing and
counted to be one among the fastest growing sectors in the world. UK's hospitality sector
employs millions of people from domestic and worldwide countries which accounts for 17% of
total UK net employment growth in 2014 (Powers and Barrows, 2009). Here, this report is going
to focus on external environment of UK hospitality industry, especially to economic factors.
These are uncontrollable factors in the hospitality industry which are further associated with
macro environment (Harrison, 2003). Economic situation of UK or even the world affects the
business of hospitality sector. To complete the present report, a leading hospitality Company of
UK is taken into account which is “Hilton Hotels & Resorts”.
The mentioned company was previously recognised as Hilton Hotels. It is a global chain
of full service hotels and resorts which was founded in 1919. Hilton Worldwide is the brand
which is associated with the hotels and resorts of Hilton. This group has its operations in more
than 78 countries and has 530+ luxuries hotels. The mentioned hotel brand owns Hilton Hotel
brand which remains company's flagship brands and counted as the largest hotel brand all-round
the world. Marketing practices of the company focuses on business activities. It includes leisure
travels, along with brand promotions at city centres, convention centres and near airports.
However, the major operations of Hilton hotels are affected by the economic fluctuation faced by
country and global market.
This report represents the macroeconomic changes in the external environment of Hilton
Hotels and resorts. Impact of various economic factors such as unemployment rate, interest rate,
foreign exchange rate fluctuations, corporate tax rates, inflation rate and gross domestic product
is further discussed in this unit.
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Macro-economic changes Hilton’s external environment while evaluating opportunities and
threats
GDP
In general words, GDP (Gross Domestic Product) is termed as a macro economic
indicator of business strength employee’s wealth. Hilton Hotel significantly contributes in the
GDP in the UK as in 2011, the company contributions around 6.7% of total GDP of UK’s
hospitality sector. In the recent years, Hilton hotel employs more than 36,000 people from home
country (Here comes the latest British GDP data, 2016). In 2015, UK is predicted to get the
highest GDP figures, showing good growth of economy. Hilton employs number of people in the
country that further helps in multiplying the effect on monetary value earning of the nation. This
is because of people’s earning and spending on other business activities.
Gross Domestic Product: An Opportunity or Threat-
Hilton hotel uses GDP measures to decide whether to increase or reduce the employment
rate. In addition to that, it provides opportunities to design the effective cash deployment
strategies to home country. In addition to that positive figures of GDP allows hotel company to
be confident and comfortable in spending financial resources to hire new employees, business
expansion, purchasing new equipments and constructing new hotels (Houston, 2016). An
increase in GDP of company allows organization to make necessary changes in production of
goods and services. Along with this, it provides opportunities of efficient capital deployment.
The negative figures of GDP becomes threat to management of Hilton as company will no longer
invest in capital expense projects such as purchase of plant and equipment in the period of
recession (Here comes the latest British GDP data, 2016).
Wage rates
Wages are categorised as the salaries that are to be paid to the industry workers against
their services. However, it directly affects the profitability of the organization. Within UK,
organizations have to decide wages as per the National Minimum Wage which is designed as
UK's pay floor. The hospitality, retail and cleaning industries account for 52% of NMW jobs.
The profitability of Hilton hotel is significantly affected by the fluctuation in minimum wage
rates (The Impact of the Living Wage on the Hospitality Industry, 2016). Recently, in 2015
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minimum wage increased which directly lead to the increase in salaries. With the slight rise, the
labour cost for the Hilton hotel also increases which is a threat to Hilton.
Tax rate
Tax rate is a percentage of profits that corporations have to pay to the governments of
respective country against their earnings. Form the production of services to its respective sales,
companies have to pay taxes. Being a leading hospitality company, Hilton Group is responsible
for fulfilling tax obligations. However, the rate of taxes is decided by the central government of
UK. Corporate tax rate for company profits is 20% from April 2015. The fluctuations in tax rates
directly affect the pricing decisions of company as well as profitability of business. The amount
of tax is levied on process of products and services. However, the individual tax rate also affects
the business of Hilton hotel as the consumer’s purchasing power is associated with the same.
Corporate Tax Rates – An Opportunity or Threat
Corporate tax rate is the external factor that affects the business of hospitality
industry.=Major impact of these taxes can be seen on the decisions and policies of Hilton hotels.
Reduction in corporate tax rates is a positive indication for business as it has to pay fewer
amounts in terms of tax and customers are offered with low or reasonable price products. The
percentage of corporation tax provides opportunity to business for finding out the best profit
extraction policies to increase the revenues and cutting down the cost of business. However, the
high corporate tax rates threatened stakeholders to receive less dividends and returns on equity
investment. It will become tough for Hilton to raise finance for the capital investments. In
addition to that, reduction in corporate tax will provide opportunity for company to increase its
customer’s base while providing low cost services. In addition, high tax rates lead to change in
the behaviour of entrepreneur to take riskier projects.
Foreign exchange rates
Foreign exchange rate is the major economic factor that influences the business by
affecting its profitability. As per a general concept, depreciation in current policies of UK will
make services cheaper at international market and selling firm will get benefit out from same. On
the other hand, appreciation in currency makes it expensive to sale products and services in other
markets. However, it reduces competitiveness.
Foreign exchange rates- An Opportunity or Threat
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For an example, US Dollar becomes expensive in comparison to British Pound. Most of
the raw materials are purchased from US market by Hilton, and after this situation importing
goods from US market will become expensive. In addition, the demand of hospitality products
from US market will increase (Pettinger, 2013). However, it puts an adverse impact in the home
country that is UK because the company has to face competition from cheaper imports. In
addition, there will be a significant threat to Hilton Group in selling hotel products and services
to home country. Furthermore, the output of business will reduce and company has to cut down
jobs. In case, increased UK labour productivity is reason of appreciating Pound, then mentioned
company will become able to absorb the stronger Pound. This can be seen as an opportunity to
business.
Interest rate
Meaning of interest rates is expressed as a percentage that is paid by borrower to lender
against the accessing capital. Interest rates are charged by banks from local people who borrow
money from financial institutions. The fluctuating interest rates affect the purchasing power of
customers that directly affects the sales and profitability of company. In regard to Hilton hotel, in
the situation of low interest rate, customers put their hands back from borrowing money. Hence,
their purchasing power declines. This causes a great impact on the sales of company and its
profitability.
Interest rate- An Opportunity or Threat
Changes in interest rates affect the business of Hilton hotel in the manner of affecting
purchasing power of companies. A slight change in the market interest rate affects the buying
beg behaviours of company. Hence, the external environment of company affects a lot. Different
banks have different interest rates and the increase and decrease in interest rates create
opportunities and threats for the business organization. When the interest rates are low, the
consumer borrows funds from external environment which is further invested in purchasing
products and services. Thus, company expects to have better sales figures and profits. On the
other hand, when banks increase the interest, consumers are not willing to invest in services and
products of business. This situation is further seen as a threat for the company to have good
profits and higher sales.
Unemployment rate
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UK labour market is witnessed as ‘jobs-rich’ but ‘pay-poor’ scenario. This in turn, affects
the business of companies operating in the economy. From a long run, unemployment rate of UK
has been dropped to the lowest level since 2008. However, the growth of earning is witnessed to
be slow (Allen and Inman, 2015). The recent recorded unemployment rate in UK is 5.6%. For
Hilton hotel, unemployment rate in economy creates insecurity among workforce to lose their
jobs. It further seems to have lower staff turnover ratio which is a good indication for business
entity.
Unemployment rate– An Opportunity or Threat
An unemployment rate affects the business of a company in both the manner. They
provide opportunities as well as threats to corporate sector. First of all, it directly impacts to the
consumer’s spending by lowering it downwards. For the company, lower demand for income-
elastic products has been seen. However, demand for inferior goods increased (Pettinger, 2013).
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Illustration 1: Unemployment rate
(Source:Allen, K., and Inman, P., 2015)

The consumer will move towards lower price and low quality goods. The biggest threats among
the employees can be seen in terms of losing their jobs. The unemployment creates insecurity
among workforce that leads to lower morale and de-motivation. In addition to this, company also
have social problems that are associated with high unemployment. However, recruitment within
the company becomes easier as more applicants will come for vacant posts.
Inflation rate
Inflation rate of UK’s economy is the external major factor that affects the business of
hospitality industry. The inflation rate is averaged to be 2.65 % from 1989 until 2015. In April
2015, it was recorded as the lowest which was -0.10 percent (United Kingdom Inflation Rate,
2016). A low inflation rate is beneficial for the Hilton hotels as its supports operations. It is so as
purchasing power of money will remain stable and consumers generally tends to spend more.
Inflation Rate – An Opportunity or Threat
Inflation rate is a major indication of rising prices of products and services. It represents
increase in cost of living as well. Low inflation rate provides opportunity for business entity in
terms of increasing spending of customers (How high inflation rate affects on business and
economy, 2012). However, high inflation rate in economy leads to distort behaviour of
customers. In the situation of high inflation rate, customers have fear of high price and people
restrict themselves from purchasing their requirements (How does inflation affect a business,
2016).
Furthermore, trade unions demand higher wages in the scenario of high inflation.
Fluctuations in inflation rates make difficult for Hilton hotels to forecast the future. It becomes
also difficult to calculate prices and investment returns. In addition, a small increase in inflation
rate may affect the capital expenditure of Hilton hotel and could also lead to increase in the cost
of production (United Kingdom Inflation Rate, 2016).
CONCLUSION
The above report was aimed at assessing the external economic factors affecting business
of UK leading hospitality company namely Hilton Hotels. From the investigation, it was
witnessed that economic situation of the UK affect the business of hospitality sector. This unit
represents the impact of various factors such as unemployment rate, interest rate, foreign
exchange rate fluctuations, corporate tax rates, inflation rate and gross domestic product as so on.
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It was found that the economic factors provides both opportunity and threats to corporate entity
as it leads to increase the customers base, increase in cost, changes in consumer behaviour etc.
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REFERENCES
Allen, K., and Inman, P., 2015. UK jobless rate falls to 5.6%, lowest since 2008, but pay still
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unemployment-falls>. [Available on: 27th Janurary 2016].
Harrison, J. S., 2003. Strategic analysis for the hospitality industry. Cornell Hotel and
Restaurant Administration Quarterl., 44(2). pp.139-152.
Here comes the latest British GDP data. 2016. [Online]. Available through :<
http://www.businessinsider.in/Here-comes-the-latest-British-GDP-data-/articleshow/
48250047.cms>. [Available on: 27th Janurary, 2016].
Houston, G., 2016. The GDP's Effect on Business. [Online]. Available through :<
http://www.ehow.com/info_8552885_gdps-effect-business.html>. [Available on: 27th
Janurary, 2016].
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http://hubpages.com/education/high-inflation-effects>. [Available on: 27th Janurary 2016].
Pettinger, T, 2013. Effect of the exchange rate on business.[Online]. Available through :<
http://www.economicshelp.org/blog/9328/business/effect-exchange-rate-business/>.
[Available on: 27th Janurary, 2016].
Powers, T. and Barrows, C. W., 2009. Introduction to the hospitality industry(No. Ed. 4). John
Wiley and Sons.
Riley, J., 2009. How are businesses affected by unemployment?.[Online]. Available through :<
http://www.tutor2u.net/business/blog/qa-how-are-businesses-affected-by-unemployment>.
[Available on: 27th Janurary, 2016].
The Impact Of The Living Wage On The Hospitality Industry. 2016.[Online]. Available
through :< http://www.stephensons.com/blog/livingwage/>. [Available on: 27th Janurary,
2016]
United Kingdom Inflation Rate. 2016. [Online]. Available through :<
http://www.tradingeconomics.com/united-kingdom/inflation-cpi>. [Available on:27th
Janurary, 2016].
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