This report analyses the background of IHG and emerging markets. It includes SWOT analysis, PESTEL analysis of Kuala Lumpur, and strategic growth options using Porter's 5 forces model and Ansoff Matrix.
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INTERNATIONAL HOSPITALITY MANAGEMENT 1
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Table of Contents INTRODUCTION...........................................................................................................................3 Background of Hospitality Industry and tourism.........................................................................3 Background of IHG.....................................................................................................................3 SWOT analysis of IHG................................................................................................................4 Background of Emerging markets...............................................................................................5 PESTEL of selected emerging market:.......................................................................................5 Hotel strategy to be adopted and implemented by IHG using strategic model and frameworks within the entering market...........................................................................................................7 Justification of strategy..............................................................................................................12 Practical application of strategy, 5 and 10 years ahead.............................................................12 CONCLUSION..............................................................................................................................13 REFERENCES..............................................................................................................................14 Appendices....................................................................................................................................15 2
INTRODUCTION The international hospitality management refers to the field that involves overseeing the daytodayadministrationandmanagement,commercialandoperationalactivitiesof international businesses in tourism and hospitality industry (Gardini, Ottenbacher and Schuckert, 2020). Various management concepts and administrative skills are applied in the tourism and hospitality management. InterContinental hotels group (IHG) is one of the leading hotel companies in the world with a purpose of providing true hospitality to everyone. The company have 16 brands including luxury, premium, essential and suits collection as their heads. In this report, the background of the company and markets will be analysed. An emerging market for the company to tap and its PESTEL analysis will be conducted. The SWOT analysis of the company and its strategic growth strategies using Porter's 5 forces model, Ansoff Matrix and various growth options will be analysed. The chosen strategy's justification and practical application will also be provided. Background of Hospitality Industry and tourism The history of hospitality rises from ancient times around 40 BC, according to the experts. It was the idea of Greeks to conduct social and religious gathering and providing thermal baths for relaxation. These baths are called Modern Spa days today. Then the Romans came up with the ideas to provide accommodations for travellers on the budget of the rulers. Every community have different contribution in bringing the idea of hospitality generation. Background of IHG In 1946, Juan Trippe established American InterContinental chains. In 1981, he sold the company to Grand Metropolitan, who then sold it to Japanese based Saisan group. In 1998, Saisan group sold the company to British brewery Bass who changed its name to Six Continents. In 2003, the independent corporation of InterContinental Hotels Group (IHG) was created after the Six continents (previous incorporation) split into two companies. IHG then focused on hotels andsoft-drinks.However,aftersometimeitsolditsinterestofsoftdrinksbyIPOs (INTERCONTINENTAL HOTELS GROUP PLC,2021). 3
SWOT analysis of IHG SWOT analysis is a strategic tool that is used by the organizations to analyse their internal environments (Vlados, 2019). IHG can maintain its leading position in the market by analysing its Strengths, Weaknesses, Opportunities and Threats. Strengths:The leading company in its industry, IHG has a number of strengths that enables it to maintain its leading position in the market. The company have highly skilled workforce through their training programs. The company enjoys consistent quality by implementing automation in activities. IHG's go to strategic are highly successful in the market. It has a great track records in product innovation. The customers of the company and highly satisfied through its delicates consumer relationship management. The expansion of company in new markets have creates new streams of revenue generation and has diversified its economic cycle of risks in the markets it operates in. Weaknesses:There are some areas where the company needs improvements. The company is not very good at forecasting the market demands of its customers. Financial planning and marketing of the products is not efficient. Even tough the product have good sales in the market but the positioning is not clearly defied which can be attacked by the competitors. The company needs to put more investments in its product innovations given the size of expansion it is planning. Opportunities:Thecompanycanusenewtechnologieswhichcanbeusedtopractice differentiated pricing strategies in new segments or new market. It will enable the company to maintain its customer loyalty (Vlados, 2019). New trends in consumer behaviour provides the company to build new revenue streams and new product categories. The stable cash flow provides the company an opportunity to invest more in product segments. Market developments can help the company in building a competitive advantage in the market. The company can also diversify its online channels of sales such as social media platforms which can be used to forecast the product demand easily. Threats:IHG operates in a highly competitive industry. The storage of skilled workers and rising pay scale of workers in a certain global market poses a threat to the company. The highly profitable products are only seasonal and any event organized expect in the season will incur huge losses to the company. Product imitation of IHG is easy which can impact the sale margin of the company. Changing government regulations posses big threats to the company (Quezada and et.al., 2019). 4
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Background of Emerging markets The emerging market chosen here is Kuala Lumpur, Malaysia. It has one of the best economic growth records in the world, with a growth rate of 6.4% per year. Once it was dependent upon mining and exports but now it boosts a diversified economy. It has transformed itself into an external oriented global manufacturing hub from the primary commodity focused economy. The economy consists of young, diversified and multicultural society. It is 5thlargest trading economy in the world. Besides manufacturing goods, it is also a large commodities' exporter. It is the largest palm oil exporter in the world. Due to exports the economy has become one of the fully fledged member of developed world (Nath, Han and Lechner, 2018). PESTEL of selected emerging market: PESTEL analysis is used to analyse the external forces like government, laws and technology, etc. that impact directly or indirectly on an organization or an economy (Perera, 5 Illustration: SWOT analysis Source:Growth strategy for business – The Ansoff matrix,2020
2017). PESTEL analysis of Kuala Lumpur can be used by IHG to explore its emerging market trends. Political factors:The politics in the state has been stable from last few decades. Despite changing governments the political situated remained stable. The government has established various schemes to support various MSMEs and to deal with the impacts of COVID-19 global pandemic. The country's ease of trade across the borders is high as compared to internationals. Government has been recalling its foreign policy framework especially when dealing with the United States and China. However, the country faces the major problem of corruption. The political corruption is a recent highlight of high state political figures. There are general guidelines on halal food production its preparation and storage which is considered as stricter than other halal standards. The country is also facing issue of internal hostility. Economic factors:The country has a healthy and industrialized economy. The economy receives benefits from adoption of cutting edge technologies (Quezada and et.al., 2019). The economy will achieve the high income status in upcoming years. New economic policy was introduced by the government to improve the economy by doubling up its Per Capita income. The further plans of the country are to step towards the advanced economy status and greater inclusion by a range of developed issues like equity, inclusiveness, economic stability and human resource and infrastructure development. Unemployment rates will be stabilized by next year according to the experts. However, Due to the political crisis and low exports the economy of Kuala Lumpur, the unemployment rates are more than triple in which the rural youth is not considered statistically. Social factors:The communities of Kuala Lumpur is multi-ethnic and multi religious. Even though the community is diversified, the city is known for its communal harmony. People enjoy high standards of living because of its low income tax, free health care systems, low cost of local foods and household products and social welfare system. The people of the country live a rich and luxurious lifestyle. However, the society in the country have set different dimensions of social status like the rich families send their kids to foreign counties. The society prefers to be within their ethnic social groups only (Shtal and et.al., 2018). 6
Technological factors:It is one of the most digitally connected economies in the world. It is great place for technological countries due to its tech savy workforce, strategic location and its IT infrastructure. However, the employees in the economy are concerned with issues like shortage of locally skilled workers. There are other technical barriers to trade such as halal certification for the import of meat and poultry are regulated through licensing controls. Environmental factors:The country is considered as a beautiful destination for tourism. Its dynamic cities, food, beaches and weather attract tourists in a large number to the country. The climate is best for the tourist and hospitality industries. However, climates related natural disasters and air pollution affect the businesses a lot. The other factors like excessive waste and river pollution and escalating carbon footprints are big challenges faced by the economy (Aithal, 2017). Legal factors:It is a common law country consisting two laws; Separate Islamic law for Muslim communityandBritishcommonlawfor secularand Non-Muslimpopulation.Themain legislation on the labour matters of the country is The Employment Act, 1995. The government implements the Federal Laws throughout the whole country as common. The constitution of the country is their supreme law which provides basic rights and frameworks to its citizens. Hotel strategy to be adopted and implemented by IHG using strategic model and frameworks within the entering market A strategic growth planning is the plan of the organization for overcoming or reducing the possible future challenges to attain its goals for development and expansion (Roghani, 2017). The Best strategic growth options that the company can adapt to persuade its business in Kuala Lumpur are: Licensing:Kuala Lumpur is a beautiful destination for tourists and hospitality industries. The government policies are stable in the state and the trading policies are very simple. The foreign trade policies are simplified by the government which just require appropriate licensing for business operations and licensing for food standards. Communities of the city also lives a luxurious lifestyle which enhance the chances of profitability. IHG can easily enter the market and set up its business in the city by acquiring trading licence. Acquisition/ Partnerships with local businesses:The city have the best food and local stores that the people of the city feel attached to. If the company grabs this opportunity and partners 7
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with the local businesses around that are it will build a trust of customers on the company. The company can either start partnerships or can acquire the business. The already set up business can help the company in better settlement and better demand forecasting (Soundarya, Lavanya and Hemalatha, 2018). Porter's 5 forces model: The company's competitiveness can be analyzed by using porter's five forces model (Grebenshchikova and Yakushev,2017). The company can use above mentioned strategies to expand its business in emerging market of Kuala Lumpur. These strategies can be analyzed using the Porter's five forces model to study its compatibility and competitiveness: Threat of new entries:Threat of new entries explains the powers of new entries to enter a particular market. The hospitality industry requires huge capital investments and licensing that every company cannot afford. IHG can start partnership or either acquire the local businesses which will gain public trust. This will lower the threat of new entries to the company. Threat of substitutes:Threat of new entries means the power of other companies to enter the business. The company will be partnering with the local businesses which will enhance its marketing positioning and create goodwill. The industry requires food licensing and maintaining food standards which are not easily maintained. Local businesses and IHG have established names in the hospitality industry which can lower the threat of substitutes. Bargaining power of suppliers:The bargaining power of suppliers refers to the power of negotiation of suppliers of materials (van Steenbergen, Ramos and Sousa, 2021). The company will be establishing in a new market. The suppliers can use this a leverage and can bargain hard. This provides the suppliers high bargaining powers to IHG. But with the acquisition or partnership with local businesses the company can have a portfolio of suppliers to whom it can go and bargain with. So the threat of bargaining power of the suppliers is mediocre on IHG. Bargaining power of buyers:Bargaining power of buyers is the power of negotiation that the customers have with the business. Since, the company will be new in Kuala Lumpur's market then the customer base will be small. The smaller the circle of buyers, the greater is the threat of customer bargaining to the company. The company can increase the number of buyers by partnerships or acquisition of local businesses. The potential customers of that local business can be tapped and retained. Thus, the bargaining power of the customers will be low on IHG. 8
Rivalryamongcompetitors:Hospitalityindustriesfaceshugecompetitioninthemarket (Berisha , Kutllovci and Shiroka Pula, 2017). IHG can enjoy distinct advantages of partnerships and acquisitions with the local business of the city. However, the already established businesses having a greater goodwill can give a tough competition to IHG. So the threat of competition or rivalry is high to the company. Ansoff matrix in IHG It is a product or marketing extension/ development tool which is used by the companies to plan and analyse their growth strategies. It shows 4 possible strategies that can be used by a company to grow and analyse the risk associated with those strategies (Loredana, 2017.). IHG can use Ansoff matrix to check the feasibility of its entry strategies in Kuala Lumpur. Market penetration:The company can use its existing products in its market segment. There is no need to change the market or any products in Kuala Lumpur. The company will increase its market share by decreasing the prices of its product to tap new customers. IHG can also increase its promotional strategies and distribution channels. The company can penetrate the market by acquisition of local businesses and grab their share of the market too. Product development:The company can also innovate a new product or service to attract customers to its existing market (Schaweland Billing, 2018). This will require huge R&D and expansion of its product range. The company can use the strategy of acquisition to enter the market and merge the acquired businesses' products and resources to create a new product that can fulfil the needs of customers better. The company can also gain access to distribution channels of other businesses by partnering with them. Market development:IHG can also enter the market by using its existing products but in a different market segment (InterContinental Hotels,2021). These strategies can help the company in exploring new customer segments. This strategy will be more successful when the company will leverage its technology in new market. The strategy will be more successful as Kuala Lumpur's people live a luxurious lifestyle and their disposable incomes are very high. IHG can expand its market internationally. Diversification:In this strategy the company can enter a new market with a new product. This strategy is the riskiest but the potential for revenue generation is also very high. IHG can adopt two types of diversifications; 9
RelatedDiversification:Thecompanycan diversifyitsbusinesswith theexisting business but the product and the market for the same will be different. Unrelated diversification: IHG can diversify the business with the entire new business with new product and a new market. The best strategy that IHG can adopt in Kuala is “Product development”. The company can use its entering strategy of acquisition of local business and use it to develop new products by merging products of the acquired business. Nykiel's hotel strategic growth option Nykiel presents 14 strategic growth options that can be used by hospitality sectors to create a sustainable income (Köseoglu, Okumus, Dogan and Law, 2019.). IHG can use these techniques in Kuala Lumpur to create a sustainable income there. These 14 strategic options if explored by IHG, will be useful for the company as: 10 Illustration: Ansoff matrix Source:SWOT Analysis: Bringing Internal and External Factors Together, 2017
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Horizontal expansion:IHG can try to expand from one line of hospitality to another for entering the market of Kuala Lumpur and enhance its market share. Geographical expansion:IHG can grow its international boundaries to greater geographical locations before entering the market and leverage this to lure more customers. Specialization specialist:IHG can specialize in associating with upscale growth in pricing and services being provided by them before entering the market (Wang and Nie, 2019,). Product tiering:The company have to deal with demographic and economic changes and population growth and the increased segments of Kuala Lumpur before entering their markets. The company can then explore these dimensions and tap the desired dimensions for the growth of business and products. Product Re-Branding:The company can rebrand its products in new ways to diversify its portfolio before entering the market. Re-Branding will ensure that the new market and customers are aware of the products and services being offered by IHG. Non Franchising:IHG can acquire the local business and keep the whole control on their products, services, quality, ownership and management with themselves when entering the market. Franchising:The company can use the highly established strategy of development, Franchising with the businesses which is followed inside the hospitality industry before entering the market. IHG can enjoy perks of less economic risk cycle. Brand collection:The company can seek the benefits of its comparatively limited stock for purchasing branded functions which are assumed to have potential growth. Management contacts:The company is already specialized in the field, yet it can improve further more its management in managing the hotels and their services in Kuala Lumpur (Heath, 2020). Vertical and horizontal integration:IGH can involve more than one segment of hospitality with a view to gain competitive edge by investing in numerous elements of the hospitality industry for entering the new market of Kuala Lumpur. Singleness:Thecompanycandevelopasingleserviceswhosecontrol,ownershipand management will be all in the hands of itself even when partnering with the local businesses. Value related products and service:IHG can spend investments to gain knowledge of customer demands and needs in Kuala Lumpur and launch the same products and services when it will enter the market. 11
Global positioning:The company can spend more to remain on the leading position and leverage this when entering the new market. IHG can use Value related products and service strategies while entering the market of Kuala Lumpur and ensure its profitability and increased market share. Justification of strategy Company can useValue Related Products and Service strategy and Product Development strategy to enter the market of Kuala Lumpur through acquisition and licensing to expand its business. When the company enters the market through Licensing or acquisition of local business then it will be easy for the company to grab the market share and attract a lot of customers. The company can merge its products and market with the products and markets of acquired local business. It can help the company to forecast need and preferences of customers in new market. This will generate new distribution channels and product innovations which can satisfy the needs of customers. The population of Kuala Lumpur is luxurious and have high disposable income, they will prefer to spend on innovative products and services that are distinct from others. The company will use product development strategyto generate innovative and distinct products. The company can forecast the demands of customers with the help of acquired business and provide those products that will satisfy the needs of its customers. Practical application of strategy, 5 and 10 years ahead The strategies that IHG can adopt are feasible in the future. The company is planning to enter the markets of Kuala Lumpur in upcoming year for market expansion. The company have chosen entry strategies of licensing and acquisition or partnership with the local business in the market. The strategy of licensing is applicable in the region as Kuala Lumpur have various food standards laid out by the government. Trade entry is easy but there are some strict legislations that are to followed by the trading companies. If the company acquires the licence of foreign trade, then it is very easy for the company to trade in Kuala Lumpur for next 5 to 10 years easily. Through the application of acquisition of local business or partnership with local business, the company can operate in the country as long as it wants. The acquisition strategy is more feasible here because the company can acquire local business that are existing from a long 12
time period and knows everything about the government, legislations and other external forces that can affect the business. The company can draw the strategies through which it can tackle the possible impacts of those external forces and resolve them. The company will be prepared in advance which will help the company in maintaining the market share and long term growth of IHG in Kuala Lumpur's market. Also, the company can have better knowledge of customer's tastes, preferences and their cultural diversities that can affect the business by using these entry strategies. IHG can offer the products that match with the tastes and preferences of the consumers and maintain its market share in the market. CONCLUSION It can be concluded that the international hospitality management is a field involved in administration and management of international business involved in hospitality and tourism. InterContinental Groups is a leading chain of hotels emerging from 1946 till now. The company enjoys strengths like skilled work-forces etc., to grab the opportunities like stabling cash flows etc. However, company also needs some improvements. IHG is trying to expand its business in Koala Lumpur whose policies and economic conditions are stable for the company to operate in. The company can use acquisition and licensing strategies to enter the market and enjoy high profit generation and success. The company can use Nykiel's 14 strategies to maintain growth in Kuala Lumpur's markets. These strategies can prove to be successful if applied in the next 5 to 10 years. 13
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REFERENCES Books andjournals Aithal, P.S., 2017. ABCD Analysis as Research Methodology in Company Case Studies. International Journal of Management, Technology, and Social Sciences (IJMTS).2(2). pp.40-54 Avelar, P.A.S., 2020.Hotel industry growth trends–the case of intercontinental hotels group (Doctoral dissertation). Berisha Qehaja, A., Kutllovci, E. and Shiroka Pula, J., 2017. Strategic management tools and techniques usage: a qualitative review.Acta Universitatis Agriculturae et Silviculturae Mendelianae Brunensis.65(2) De Haast, A., Busquet, A. and Cescau, P., INTERCONTINENTAL HOTELS GROUP PLC. Policy.112.pp.77-14. Gardini, M.A., Ottenbacher, M.C. and Schuckert, M. Eds., 2020.The Routledge Companion to International Hospitality Management. Routledge. Grebenshchikova,L.S. and Yakushev, N.M., 2017. Definitionof Competitivenessof the Enterprise Using the Five Forces of M. Porter.Vestnik IzGTU imeni MT Kalasnikova. 20(3). pp.51-53. Heath, R.L., 2020.Management of corporate communication: From interpersonal contacts to external affairs. Routledge. Köseoglu, M.A., Okumus, F., Dogan, I.C. and Law, R., 2019. Intellectual structure of strategic managementresearchinthehospitalitymanagementfield:Aco-citationanalysis. International Journal of Hospitality Management. 78.pp.234-250. Loredana, E.M., 2017. The use of Ansoff matrix in the field of business.Annals-Economy Series.2.pp.141-149. Nath, T.K., Han, S.S.Z. and Lechner, A.M., 2018. Urban green space and well-being in Kuala Lumpur, Malaysia.Urban Forestry & Urban Greening.36.pp.34-41. Perera, R., 2017.The PESTLE analysis. Nerdynaut. Quezada, L.E. and et.al., 2019. Measuring performance using SWOT analysis and balanced scorecard.Procedia Manufacturing.39.pp.786-793. Roghani, N., 2017.Financial Advisory Services: Business Analysis and Strategic Growth Plan (Doctoral dissertation, California State University, Northridge). Schawel, C. and Billing, F., 2018. Ansoff-Matrix. InTop 100 Management Tools.(pp. 31-33). Springer Gabler, Wiesbaden. Shtal, T. and et.al., 2018. Methods of analysis of the external environment of business activities. Soundarya, M.B., Lavanya, S.M. and Hemalatha, S., 2018. Merger and acquisition of business organization and its impact on human resources.Journal of Business Strategy, Finance and Management.1(1). pp.69-72. van Steenbergen, D.I., Ramos, P.G. and Sousa, B.B., 2021. Key Drivers of Performance and Profitability in a Social Business. InSustainable and Responsible Entrepreneurship and Key Drivers of Performance.(pp. 264-281). IGI Global. 14
Vlados, C., 2019. On a correlative and evolutionary SWOT analysis.Journal of Strategy and Management. Vlados, C., 2019. On a correlative and evolutionary SWOT analysis.Journal of Strategy and Management. Wang, X. and Nie, Y., 2019, March. The Strategic Choice: Specialization or Diversification?- Based on Case Analysis. InInternational Academic Conference on Frontiers in Social Sciences and Management Innovation (IAFSM 2018).(pp. 165-170). Atlantis Press. Online referencing: Growthstrategyforbusiness–TheAnsoffmatrix.2020.Online.Availablethrough: <https://www.amigamag.com/growth-strategy-for-business/>.[Accessedon28July 2021] INTERCONTINENTALHOTELSGROUPPLC.2021.Online.Availablethrough: <https://www.vault.com/company-profiles/travel-leisure/intercontinental-hotels-group- plc>. [Accessed on 28 July 2021] InterContinentalHotels.2021.Online.AvailableThrough: <https://www.forbes.com/companies/intercontinental-hotels/?sh=4bb1a0a03687>. [Accessed on 28 July 2021] SWOT Analysis: Bringing Internal and External Factors Together. 2017. Online. Available Through:<https://www.business-to-you.com/swot-analysis/>.[Accessedon28July 2021] Appendices 1. SWOT analysis of InterContinental Hotels Group: 15
StrengthsWeaknesses Highly skilled workforce Automation of activities Highly successful go to strategies High customer satisfaction High consumer Loyalty Diversified economic risk cycle New steams of revenue generated Unsuccessful at forecasting demands Unclear product positioning Inefficientproductandfinancial planning Low investments in product innovation OpportunitiesThreats Use of high technologies Differentiated pricing New trends in consumer behaviours Diversificationofcommunication channels. High competition Rising pay scale of workers Season sales Easy product imitation Changing government regulations. 2.PESTEL of IHG in emerging economy of Kuala Lumpur: Political factorsEconomic factors Stable governments policies Ease of trade regulations Foreign policy framework Global pandemic relief policies Problem of corruption Corrupted political parties Strict general food guidelines Internal hostility Allies with World organizations Healthy and industrialized economy The fastest growing economy Adoption of high edge technologies High income status High exports Neweconomicpoliciesdoublingper capita income Development of Human resources and infrastructure 16
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Controlled media and publications Transparent corruption Advanced economic status Exports are unsustainable in long term High unemployment rates Slowdown in economic activities due to COVID-19 pandemic Social factorsTechnological factors Diversified cultured economy Communal harmony High standards of living Racial harmony Low income tax Luxurious and rich lifestyles Division by social status Groupism in societies Digitally connected society Savy workforce Strategic location Highinvestmentsintrainingand schooling Best IT Infrastructure Barriers of certifications Compulsory Licencing Shortage of skilled workers Embraces high tech companies Legal factorsEnvironmental factors Common laws SeparatelawsforMuslimandnon- Muslim communities Common federal laws Constitutionisthesupremelaw providing rights and frameworks to all population Harsh punishments for law breakers. Tourism destination Wide range of flora and fauna Availability of best beaches and best food Natural disasters are common High levels of air pollution and river pollution High environmental costs Huge wastages Carbon footprints Huge deforestations Extinction of wildlife 17
3.Background of Emerging markets: Kuala Lumpur, Malaysia: The Largest city in Malaysia TheFastestgrowingmetropolitan region Host to many International Political, Cultural and sports events One of the best economic growth records in the world i.e. 6.4% per year Only global city in Malaysia Largenumberofforeign corporations operating and host to Multinationalcompany'sregional offices and centres. Centreoffinance,insuranceand media of the whole country Diversified economy Anexternalorientedglobal manufacturing hub Adiversifiedandmulticultural society One of the fully fledged member of developed world 6thmost visited city in the world with 8.9 million tourists per year One of the leading cities in the world for tourism Frequentoccurrenceoffloodsand natural disasters BestInternetTechnologycompatible Infrastructure Skilled workforce available Stable government Majoremployersarefromservice sectors High disposable income of population Communal harmony among population Low costs and wide shopping variety Almost free health care for all public and tourists. Extinct wild life High water and air pollution Common British laws SeparatelawsforMuslimandNon- Muslim communities Harsh punishments to law breakers 18