Competitive Strategies in the Service Industry

This assignment examines competitive strategies within the service industry. It requires an in-depth analysis of market forces using Porter's Five Forces framework. The Ansoff Matrix is also applied to explore potential growth strategies. Case studies on successful companies within the service sector, such as Sheraton Hotels and Resorts, provide real-world examples and insights into effective competitive practices.

Running head: INTERNATIONAL HOSPITALITY MANAGEMENT
International Hospitality Management
Name of the Student:
Name of the University:
Author’s Note:

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Table of Contents
Introduction......................................................................................................................................2
Background of Sheraton Hotel........................................................................................................2
Strategic Position of Sheraton.........................................................................................................3
SWOT Analysis of Sheraton...........................................................................................................3
Global Hospitality Market...............................................................................................................6
Background to Emerging Market....................................................................................................6
PEST Analysis of Russia.................................................................................................................7
Porter’s Five Forces.......................................................................................................................11
Threat of new entrants...............................................................................................................11
Threat of substitute products.....................................................................................................12
Bargaining power of suppliers...................................................................................................13
Bargaining power of buyers.......................................................................................................13
Threat of competitors.................................................................................................................14
Ansoff’s Matrix.............................................................................................................................14
Market entry strategy.....................................................................................................................16
Justification of the adopted strategy..............................................................................................16
Conclusion.....................................................................................................................................17
References......................................................................................................................................18

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Appendices....................................................................................................................................23
Appendix 1.................................................................................................................................23
Appendix 2.................................................................................................................................24
Appendix 3.................................................................................................................................25

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Introduction
The hospitality industry is a continuously growing sector due to increased demand for
luxury travel, leisure, and business. In order to sustain the competitive business market, it is
essential for the business organization to increase their business and customer base. In order to
strive for continuous growth, the business organizations need to emphasize on the international
establishment. This will allow the companies to explore new markets and customers thereby,
increasing the business. Tough competition is seen among the hospitality industry, as the
business organizations have to implement strategies for attracting customers and business
expansion.
This report introduces the background of Sheraton Hotel, is a chain of luxury hotels
owned by Marriott International along with evaluating the strategic positioning of the hotel
chain. The internal environments of the Sheraton Hotel chains are analyzed in order to judge of
the suitability of the hotel chain for international business expansion in Russia. Therefore, the
external environment of Russia, both micro, and macro are studied to judge the suitability for
international expansion. Additionally, the report also discusses the various market entry
strategies along with justifying the most suitable market entry strategy for The Sheraton Hotel
Chains in Russia.
Background of Sheraton Hotel
The Sheraton Chain of Hotels is a subsidiary of the Marriott International. The chain of
hotels is a Starwood brand and is considered one of the world’s largest and oldest brands. The
chain of hotels has more than 800 chains around the world. The hotel believes in offering luxury

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and comfort to the customers’ throughout the world. The main aim of the chain of hotels is to
provide the best and superior quality of service to the customers thereby, providing them a
lifetime experience. Until now, the hotel has been successful in providing high-quality service
for the customers. Due to excellent work and customer service over the years, the Sheraton
Hotels have received awards such as Trip Advisor Certificate of Excellence in 2016 along with
Global Business Travel Association (GBTA) in 2017 (Starwoodhotels.com, 2017).
Strategic Position of Sheraton
In order to sustain in the competitive market and establish a successful business in the host
country, The Sheraton emphasizes on creating lifetime experience and value for the customers
(Skift, 2017). The company has introduced different types of signature elements that highlight
superior customer service. According to the chain of hotels, the customers not only stay in the
hotels but the customers belong to the hotels. Therefore, the new strategic positioning of the
hotel emphasizes on comforting and warm service for the customers. The system of four points
by the Sheraton chain of hotels provides honest and good value to the customers (West, Ford and
Ibrahim 2015).

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High quality
High priceLow price
Low quality
The Sheraton Chain of Hotels
Figure 1: Strategic Position of the Sheraton Chain of Hotels
(Source: Author)
Based on the type of service provided by The Sheraton Chain of Hotels, it is strategically
positioned in the category of high quality and high price.
SWOT Analysis of Sheraton
A SWOT analysis is conducted in order to evaluate the internal environment of the
Sheraton Hotels.
Strength
 Above 800 hotels worldwide
 Strong brand presence
Weakness
 Innovations are easily duplicated by the
hospitality competitors

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 Effective marketing campaigns
 Strong strategic positioning of the chain
of hotels
 Tough competition of in the market
 Dilution of brand
 Due to high price the hotel encounters
challenges during economic downfall
resulting in fall of stock price
Opportunities
 Scope of luxurious expansion
 High growth in hospitality sector
 Has potential opportunity for business
with diverse market
 Rise in expectations has added value to
the hospitality sector
Threats
 Income of the customers
 Industry development highly dependent
on economic conditions
 Constantly changing political
environments
 Presence of black market
The major of the hotel is the brand name and presence over the years among the
customers of various countries (Starwoodhotels.com, 2017). The Sheraton Chain of Hotels is one
of the oldest organizations in the hospitality industry that has been able to mark their presence in
the market successfully. The Sheraton has been operating over 800 countries over the years.
Incorporation of latest technologies allowed the company to provide a better experience to the
customers thereby, promoting continuous up gradation for the business (Houtari and Hamari
2012). Moreover, strategic positioning has helped the chain of hotels to create a unique image in
the eye of the customers over the years.
The major weakness of the company is that the company is under the threat of another
chain of well-established hotels. Hotels such as Marriott International and Hilton Group possess

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tough competition for The Sheraton Group of Hotels. The faster rate of global expansion for the
chain of hotels can result in dilution of the brand (Starwoodhotels.com, 2017). The innovative
strategies undertaken by the group of hotels are vulnerable to other hospitality organization
making the survival of the company tougher. The business of the company is highly dependent
on the economy of the country. Therefore, the economic fluctuation is a potential weakness for
the company, as economic downfall will fail in continuing the business (Mahamid 2012).
The potential opportunities for The Sheraton Chain of Hotels include high growth in the
hospitality sector along with the luxurious expansion of the chain of hotels. The company can
achieve this by catering the preferences and needs of the customers (Starwoodhotels.com, 2017).
Due to aforementioned strengths such as strong brand presence along with unique strategic
positioning, has huge opportunities for the chain of hotels in the international platform. The
increasing demand of the hospitality sector will provide an opportunity for the chain of hotels for
luxurious and global expansion. The ability to fulfill the demand and expectations of the
customers will ensure success for the company (Ward 2016).
One of the major threats for The Sheraton Chain of hotels is the presence of black market
in the hospitality sector. Due to this, the recruitment of the skilled labor has become a
competitive factor (Starwoodhotels.com, 2017). Lack of skilled and experienced labor in the
industry has compromised with the quality of service provided in the hospitality sector. Another
major threat for the industry is terrorism and imbalanced political scenario that has led to the
downfall of the economy of the country (Raza and Jawaid 2013). Economic declination will also
hamper the income of the customers thereby, reducing opportunities of availing luxurious hotel
services.

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Global Hospitality Market
The hospitality industry has entered a new era of transformation and growth. In 2015, the
hospitality sector has recorded almost $1.2 trillion, that is, five percent higher from the previous
years (Bharwani and Butt 2012). It can be seen that the demand of service industry has increased
drastically over the years, as the customers prefer boding comfortable and luxurious hotel
services. For holidays or business purpose, the customers prefer availing standard hotels for
high-quality service. For this, the customers also prefer paying a considerable amount of money
without hesitation (Hawkins and Bohdanowics 2012). Moreover, another recent trend identified
in the hospitality industry is the use of technology in the service industry. The use of technology
will help the customers to personalize their tour by evaluating and analyzing all the options
present. For example, the customers will be able to select hotels accordingly, book transport for
sight-seeing along with booking accommodations and ordering food and beverages.
Additionally, the customers will also be able to modify the changes in case of emergencies.
These are the present global scenario of hospitality industry (Refer to Appendix 1).
Background to Emerging Market
The optimistic nature of the Russian hospitality industry resulted in high domestic trips
along with facilitating the increase of employment rates and foreign investors for establishing the
business. Post-2014 Olympics, the hotels in Russia has recorded an increase in inbound tourism
in 2016 Olympics (2016.export.gov, 2017). Moreover, in 2015, the hospitality market of Russia
has seen positives in terms of 80% occupancy rates in summer in St. Petersburg. Such high
numbers were previously recorded only during the peak season. High rate was also seen in Sochi
and Moscow where the occupancy rates reached nearly 100% (Export.gov, 2017). According to
the Federal Agency for Tourism of the Russian Federation also stated that as challenging

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economic situation resulted in decline in travel to Egypt and Turkey, hospitality industry rose by
almost 30% in Russia between 2014 and 2015. Moreover, the strong economic growth of Russia
over the recent years also facilitates the country in attracting international business venture and
expansion.
PEST Analysis of Russia
PEST analysis has been conducted in order to evaluate the external environment of
Russia thereby, judging the suitability of international business expansion for The Sheraton
Chain of Hotels.
P- Political  Open foreign relationship strategy
 Good opportunity for the trade and
economic of the country
 The political side undertakes the
principle responsibility of running
business for the whole country
 It is a federation but there is
relationship between regional and local
government
E- Economical  GDP rank 10th
 4th largest country in terms of
agriculture
 Mainly dependent of natural resources
 Extremely dependent on crude oil price

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S- Social  Adversely affected by alcohol
poisoning and HIV
 Well reputed in terms of literature,
music, arts and culture
 Aristocratic structure of the society
 Increase in the death rate whereas
decrease in the birth rate
T- Technological  One of the first country to send people
in space
 The government emphasizes more on
modernization and technological
advancement
 Rich in science tradition
 Use of technology for building military
materials and weapons
Political: Until 2009, the country had official relationship with more than 199 countries and 144
embassies. This signifies that the country has been maintaining an open relationship with the
foreign countries. The strategy of maintaining an open relationship with the foreign countries
facilitates good opportunity for international trade and commerce (Zhao 2012). Moreover, the
country has been playing a significant role in maintaining safety and peace in the world. Russia
has the largest store of nuclear weapon including navy, air force and military. It is one of the
countries with established domestic arms industry. The government of the country also

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emphasizes on growing their military base by investing more on it. Therefore, the country ranks
on top in manufacturing and exporting of weapons. It has been seen that the country not only
manufactures weapons but also export weapons in more than 80 countries in the world (Sutela
2013). This contributes largely o the economic growth of the country.
There is a close relationship between the local and the national government. The national
government is actively involved with the regional governments thereby, facilitating the growth
of trade and commerce. As a result, it is easier for the governments to monitor international
investors and business organizations thereby, helping them to conduct business in the country.
Moreover, as the governments are actively involved in running business, it is easier for them to
develop strategies facilitating and promoting appropriate business environment (Clapp and
Helleiner 2012).
Economical: The country ranks 10th in terms of the economic growth and is expected to reach
$3.18 trillion by 2018 (Kudrin and Gurvich 2015). As a result, the country is expected to gain
huge economic strength in the upcoming years. However, corruption in the Russia adversely
affects the economy of the country. Due to the prevailing corruption, the foreign business
organizations and investors are highly concerned. The increasing number of crimes such as
murder and robbery affects the economy of the country largely as it highlights the risk of internal
security of the country. However, the country has sufficient skilled workforce that are of great
use for the foreign investors in their relevant field. The available resources of the country largely
contribute in making the economy of the country strong and stable (Munda 2012).
Russia has one of the biggest resources of oil and gas and contributes largely for the
economy of the country by exporting them. Moreover, the country has the biggest area in terms

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of agriculture that facilitates the growth of crops. Majority of the crops are exported to Europe
and Asia that contributes to the economy of the country. On the contrary, the economy of Russia
cannot be compared with other countries in market, as it is extensively dependent on the price of
crude oil. Moreover, the government has been able to maintain an effective tax system
successfully along with monetary policies (Fernández-Rodríguez and Martínez-Arias 2014).
Social: A huge difference in the living standard of the people in the society was created after the
economic recession hit the country in 1990. This resulted in formation of an aristocratic society
from democratic society that eventually divided the society into rich and poor making their living
standards more distinguishable. As a result of the rise of aristocratic society, the people
emphasizes more on living high standard life and started spending more buying expensive items
and living a luxurious life (Koptseva and Kirko 2014). Therefore, due to lack of concern and
planning for family, the death rates increased whereas the birth rates decreased. Moreover, due to
lavish and luxurious lifestyle, huge number of people in the society died due to alcohol poisoning
and HIV (Rhodes et al. 2012).
However, on the contrary, the entertainment and the social activities saw a rise in the
Russian society that eventually improved the living standard of the people. Ballet, music, arts
along with philosophers and literatures were commonly seen in the Russian society. Inequality
between the income of the rich and the poor is very high and distinctively visible. Reports
suggest that the difference between the 10% rich and 10% poor people was over 42 times.
However, the difference reduced to 38 times in 2015. This is due to anti-crisis measures
implemented by the government but the social spending has not been reduced due to the
initiative (Willetts 2014).

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Technological: Russia is one of the first countries that have sent people on space thereby,
signifying the rich tradition of science in the country. The country has emphasized more on the
development of latest technologies such as nanotechnology. Moreover, the country has made
significant development in the field of information technology that has improved the living
standard and development of the country largely. However, such technological advancements do
not contribute to the economy of the country (Law, Buhalis and Cobanoglu 2014). Therefore,
noticing the significance of technology in the economic growth of the country, the government
has emphasized on technological development for the country. For example, the government has
started investing more for the technological advancement of the country.
The government is also supporting the youth of the country who want to pursue career for
technological development. Therefore, motivating people for getting involved in technological
advancements is the main thing the government needs to undertake. This will help the country to
compete with the rest of the western countries in terms of using technology for economic
contribution. This will help in facilitating the trade and commerce for the country by the foreign
investors (Holden 2016).
Porter’s Five Forces
Threat of new entrants
As mentioned by E Dobbs (2014), barriers to entering the host country are measured
from the potential threats. The threats include both the operational scope and the economic scale
in terms of customer loyalty, product differentiation, structure and switching of cost. The
hospitality industry emphasizes on the capital costs, that is, comparatively higher. A considerable
amount of economy is associated with the hospitality industry, it is essential to manage the

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capital of the project effectively. Effective management of the financial resources helps in the
appropriate use of finances in the hospitality industry. For example, filling up all the rooms of
the hotels with customers should be the main aim of the company, as this will help in conducting
business and incurring profit. The locations of the hotel along with the quality of service
provided to the customers are the main factors that help in filling up the rooms. These factors are
highly dependent on the management of the hotel along with the motivation level the employees
receive from the company. On the contrary, due to unavailability of a suitable location in the
urban region, the growth of hospitality industry is slow.
Threat of substitute products
The organizations in the hospitality industry are not threatened due to economic downfall
in the cities. This is because international traveling easily replaces the cost of domestic traveling.
The concept of substitute product aim towards reducing the cost of providing higher or lower
service thereby, allowing the customers to avail the service due to technological advancements.
In the niche market segment, the operators in the hospitality industry compete because of low
cost. The competition in the hospitality industry is basically based on the luxurious and modern
style of hotels along with the location and the quality of service provided by the organizations. In
addition to, the threats in terms of the substitute products are not directly related to the products
and services provided by the organizations. Targeting the operators and the tour packages will
create a powerful impact on the buyers. As the hospitality sector generally encounters healthy
competition, the hospitality industry is not vulnerable to the negative rivalry (Lee, Kim and Park
2012).

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Bargaining power of suppliers
As commented by Haucap et al. (2013), more concern towards the customers results in
more power to the suppliers of the hospitality industry. Moreover, long-term relationship is
established, as command over business shares is not facilitated. As a result, the customers are
generally open to a variety of products. Moreover, the cost of the products encounters continuous
fluctuation. Therefore, the customers will be casual in spending considerable amount due to
fluctuation in the hotel price. Thus, if the aforementioned changes affect the image and service
quality of hotels, the service level will be affected drastically. The supplier possesses the ability
to create an impact on the labor force and the experienced personnel that are highly demanded in
the hospitality industry globally.
Bargaining power of buyers
The bargaining power of the buyers might adversely affect the hospitality industry
because the buyers might emphasize more of mass purchase of hotel rooms. These buyers
generally include the tour operators, national and international airlines along with the people
organizing conventions for the business class people. The impact of this strategy generally
affects small groups and does not bother travelers. This is because the travelers travel for
business or leisure purpose. The differentiation factor plays a significant role in terms of the
independent traveler thereby, helping the travelers with a limited travel budget. The customers
visiting the hotel will hardly agree with paying a higher amount as a huge investment is required.
The customers prefer spending more in the airline industry but not in the hospitality industry (Li
2012).

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Threat of competitors
The rivalry level depends on the number of the competitors along with the size of the
industry in a potential market. When it comes to product differentiation and cost switching, the
rivalry of the market becomes fierce, as the cost is comparatively low. More rivalry is
encountered in the fixed costs such as the cost of hotel reservation that is affected by the locality
of the hotel. The economic and the strategic factors are the potential barriers in the hospitality
industry, as this allows turning out low profits for the business organizations (Webster, McNutt
and McComb 2012) (Refer to Appendix 2).
Ansoff’s Matrix
The market penetration strategy for The Sheraton Chain of Hotels is that it has been
operating at a global scale for several years and is not a new company in the hospitality sector.
As commented by Taylor (2012), conducting business for long term helps in easy penetration of
the market. Therefore, as it will be easier for The Sheraton Chain of Hotels to penetrate the
market of the host country, Russia easily, as the company has been operating globally for many
years. Moreover, this would not have affected the financial position and strategies of the
company in the new market in the host country.
As mentioned by Mugo, Wanjau and Ayodo (2012), targeting the right customers
according to the standard of the service prevents failure in attracting suitable customers. The
Sheraton Chain of Hotels needs to target appropriate customers, as this will allow the company
to incur profit. Based on the standard of the hotel, the company needs to target customers with
high income (El Namaki 2012). This is because targeting customers with moderate and fewer

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customers will eventually incur a loss for the company. Therefore, the Sheraton Chain of Hotels
needs to develop strategies that will help the company in attracting potential high-end customers.
According to Hussain et al. (2013), market segmentation helps the business organization
to determine the potential target group of customers based on their pricing strategy. The
segmentation will allow The Sheraton Chain of Hotels to offer high-quality service at a
considerably higher price. The Higher price will enable the hotel to maintain the quality of
service provided to the target customers (Shaw 2012). High-quality service to the customers will
help the hotel to create a unique image in the eye of the customers thereby, standing out among
the competitors in the market along with providing service in Russia.
As mentioned by Bocken et al. (2012), identifying the products or services in demand
among the customers is essential, as this allows the business organizations to develop services
and strategies considering the customer’s demand. Therefore, The Sheraton Chain of Hotels
needs to identify the services that are preferred by the customers of the host country. For
example, the hotel can incorporate Russian cuisines in their menu thereby, allowing the
customers to enjoy traditional cuisines while their stay in the hotel. Additionally, the hotel can
design the infrastructure and architecture by the culture and tradition of the host country (Barile
et al. 2012). This will allow the company to provide a cultural taste for the customers.
Post establishment, The Sheraton Chain of Hotels needs to ensure that they allocate a
low-profit margin. This will help the company in increasing the competition level within the host
country along with analyzing the market of the host country in terms of skills. This will help in
recruiting the most skillful and qualified employees by the hotel. This will help in gaining a

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competitive advantage by The Sheraton Chain of Hotels over the competitors in the market
(Krauss et al. 2012) (Refer to Appendix 3).
Market entry strategy
The different types of market entry strategy include licensing, franchising, exporting,
outsourcing and joint ventures (Ogutu and Samuel 2012). In the case of franchising, a number of
stakeholders share a single brand name. This market entry strategy is faster and cheaper. On the
other hand, licensing enables the international companies in securing an agreement with the local
companies. However, the host company holds the sole right to the services and products
provided and the partner company needs to pay a certain amount to the host company. In the case
of exports, the government of the host country actively participates for the ownership of the
business (Putnins 2013). On the other hand, the local business organization helps the host
company to bring the required resources to the host country and run the business successfully.
Justification of the adopted strategy
The Sheraton Chain of Hotels needs to adopt franchising and licensing as the preferred
market entry strategy in Russia. This is because selecting franchising and licensing as the market
entry strategy will help The Sheraton to acquire sufficiently and required knowledge of the host
country (Leitmannslehner and Windsperger 2012). These will also provide an opportunity for
The Sheraton to give certain responsibilities to the local or home organization in Russia.
Moreover, franchising and licensing are the easiest market entry strategy for the international
market. Because of using franchising and licensing as the market entry strategy, The Sheraton
can market their service without very less or no capital investment (Brown 2014). On the
contrary, The Sheraton needs to emphasize on the management, as it is mostly hampered. As

19INTERNATIONAL HOSPITALITY MANAGEMENT
mentioned by (Jayachandran et al. 2013), licensing offers low market risks due to previously
existing established market. Therefore, The Sheraton Chain of Hotels has to encounter minimal
legal and financial risks in the host country. Additionally, the brand name of The Sheraton will
eventually lead to huge success in the host country. Due to the selected market entry strategy,
The Sheraton Chain of Hotels will have greater access to finance and reduced risk.
Conclusion
In this report, it can be concluded that, international business expansions are significant
for the business organizations as this provides them with the opportunity of exploring new
markets and increase the customer base. The Sheraton Chain of Hotels has been successfully
operating in the hospitality industry wants to expand their business to Russia. Internal analysis of
the company helped in identifying the strengths and weakness of the company thereby,
strategizing and planning international establishment. Moreover, external analysis of both micro
and macro environment of Russia helped The Sheraton Chain of Hotels to judge the suitability of
the country for international business expansion.

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Appendices
Appendix 1
Preference of Service Industry in Russia

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Appendix 2
Porter’s Five Forces