Strategic Analysis of IHG's Market Expansion in Vietnam Hospitality

This report provides a comprehensive analysis of the Intercontinental Hotel Group's (IHG) strategy for entering the Vietnamese hospitality market. It begins with an introduction to the hospitality industry and IHG's background, followed by an examination of Vietnam's strategic position as an emerging market. The report delves into market segmentation, including geographic, demographic, and psychographic segmentation, and emphasizes its importance. A detailed SWOT analysis of the hotel industry in the emerging market is presented, identifying strengths, weaknesses, opportunities, and threats for IHG. The report then explores the global hospitality market, including a macro-environmental analysis using the PEST framework, and discusses micro-environmental factors. Finally, it outlines market growth strategies, corporate strategy directions, market entry modes, and strategic management implementation for IHG in Vietnam, concluding with recommendations and references to support the analysis.

GLOBAL HOSPITALITY
MARKET

TABLE OF CONTENTS
INTRODUCTION...........................................................................................................................1
MAIN BODY...................................................................................................................................1
1.1 Background of Intercontinental Hotel Group (IHG).............................................................1
2. Strategic position of Vietnam..................................................................................................1
2.2 SWOT analysis of Hotel in the Emerging market................................................................2
3. Global Hospitality market.......................................................................................................4
3.1 Marco Environmental Analysis (PEST Analysis).................................................................5
3.2 Micro Environmental Analysis.............................................................................................7
4. Implementation of the strategy and moving forward..............................................................8
4.1 Market Growth Strategy to be adopted and to be implemented within the entering market 9
4.2 Corporate Strategy Directions.............................................................................................10
4.3. Choosing the market entering mode..................................................................................12
4.4. Implementation of strategic management..........................................................................13
CONCLUSION..............................................................................................................................13
RECOMMENDATIONS...............................................................................................................13
REFERENCES..............................................................................................................................15

INTRODUCTION
Hospitality is a broad category in which it includes tour and tourism sectors, hotels and
restaurants, etc. It is a type of business which helps in providing services to their customers.
Their main aim is to focus on the satisfaction of their clients. This industry is much broader than
most other industries in comparison. Present report will talk about Intercontinental Hotel Group
(IHG). It will focus on expanding their business in Vietnam. This study will discuss about the
SWOT analysis of hotel in the emerging market and will also explain about the macro
environmental factors which has a huge impact on their business, such as, PEST analysis,
Porter’s, Porter’s 5 forces model, etc. Market Growth Strategy that is adopted by the hotel and
implemented is explained. Different modes for entering into new market and corporate strategy
directions related to them and its implementation of strategic management will be discussed in
detail in this report.
MAIN BODY
1.1 Background of Intercontinental Hotel Group (IHG)
Intercontinental Hotel Group (IHG) is a chain of hotels of British multinational
hospitality company. It was established in 1946 by JuanTrippe. It is headquartered in Denham,
Buckinghamshire. It has the capacity of approx. 776,982 guest rooms and has more than 5,400
hotels that located in 100 different countries. It has approximately 375,000 employees working
with them currently. Intercontinental Hotel Group includes several brands, for instance, Crowne
Plaza, Holiday Inn, Holiday Inn Express, Hotel Indigo, Hualuxe, InterContinental and Resorts,
etc. InterContinental Hong Kong is a chain of Intercontinental Hotel Group (IHG). It came into
existence in 1980. Intercontinental Hotel Group (IHG) provides various facilities to its guests.
2. Strategic position of Vietnam
Vietnam is on the middle of sea line of Hong Kong - Singapore. Vietnam has a nautical
corridor for economic development within nations in the region as well as all others all over the
world. The favorable location has helped Vietnam to reach the world first-class active trade
centers very easy and in convenient manner. Vietnam plays crucial role in historical development
as well as in regional and international economic and cultural exchange (Vietnam’s strategic
trajectory, 2017). This country has recently emerged as a key player in Southeast Asia which is
very useful for them making business relations with other countries as well. Vietnam’s pursuit
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for international economic integration and a greater political role has therefore gave the
international community possibility to engage in order to enhance their business activity.
It is very important for the Intercontinental Hotel Group (IHG) to analyze the strategic
position of their emerging market that is Vietnam. Expanding and entering the new emerging
market of Vietnam, it is very essential for them to understand the concept of marketing
segmentation of the country. Market segmentation is a process which is used to divide their
customers on the basis of their needs and preferences. There is basically three different types of
segmentation which is useful for the hotel industry, for example:
 Geographic Segmentation: In this type of segmentation, customers are divided on the
basis of geographic area. In hospitality industry this segmentation is related to the kind of
transportation and tourists destinations in which their potential customers are traveling to.
Focusing on this will help Intercontinental Hotel Group (IHG) to provide the best service
according to their requirements (Bourreau, Sun and Verboven, 2018).
 Demographic Segmentation: In this segmentation, consumers are divided on the basis
of their gender, age, income, social class and lifestyle. This help them in understanding
their customers better. There are various types of consumers, for example, Business FIT
(Free Independent Traveler), Pleasure Group, etc depending upon their purpose behind
traveling. Understanding these factors will be very useful for them to improve their
services. Psycho-Graphic Segmentation: In this type of segmentation, customers are divided on
the basis of their thinking and what they feel and behave about the hotel. This will help
Intercontinental Hotel Group (IHG) to understand their customer's nature more precisely.
Importance of Market Segmentation: There is a huge advantage of this process for the hotel
industry. This will help them to understand the strategic position and market orientation of
Vietnam in expanding their business there successfully (Bourreau, Sun and Verboven, 2018).
2.2 SWOT analysis of Hotel in the Emerging market
It is very important for the Intercontinental Hotel Group (IHG) to analyze their emerging
market and self-capabilities by applying SWOT analysis, which will help them in understanding
their strength and weaknesses that can help them in analyzing the opportunities and threats. It
requires a thorough understanding of each of the variables that have significant influence in
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shaping that factor. The main purpose of this analysis is to help Intercontinental Hotel Group
(IHG) to study the opportunities that are available in Vietnam that can be useful for them in
expanding their business (Ang, Benischke and Doh, 2015). In SWOT analysis, there are
basically four factors that are included in this, i.e., strength, weaknesses, opportunities and
threats, which is explained below:
Strengths This is the factors which helps in identifying the strength of Intercontinental
Hotel Group (IHG) which can help them in improving their services. Various
factors that helps them in keeping up their strength includes,
 Branding: They have very high reputation in the hospitality industry
as compared to other organization.
 Management: They have proper and effective management system
which helps them in managing their work.
 They have very effective customer experience and relationship focus
which is very useful for them to satisfy their clients (Inter Continental
Hotels Group (IHG) SWOT and PESTLE Analysis, 2018).
 Intercontinental Hotel Group (IHG) have very strong employee
engagement that helps them in increasing their overall performance in
this industry.
Weakness This is factors which helps in identifying weaknesses of Intercontinental Hotel
Group (IHG) which they can manage and improve for their effective working.
Some factors that are included in this are as follows:
 The main weakness of this hotel is the lack of knowledge on the
market. This has to be very effective in order to compete with their
competitors.
 They have a very poor information security system which makes their
customers unsatisfied from their services.
 Another weakness on which they have to work is that they invest so
high which affects their other work that requires financial support.
 They have also slipped down to 3rd position on worldwide level which
is a huge backdrop for them.
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Opportunities From the identified strength and weakness it is very easy for them to identify
their opportunities that are present in this hospitality industry, such as,
 They have a high potential to enter into international market which
will help them in expanding their business in the emerging market.
 Also, there is an increase in the number of tourist’s traveling which
will be very beneficial for hospitality industry to attract more
customers.
 They have capability to introduce a new product or service which can
help them in increasing their sale and generate a good revenue.
 Most important opportunity for Intercontinental Hotel Group (IHG) is
that there is a huge advancement in technological aspect which they
use in their management system to make it more advanced and
improved.
Threat This is the factor which has to evaluate very carefully by this hotel. There are
various factors which can give them threat, such as,
 The most important component is the presence of global and regional
competitors in the industry which is giving them a tough competition.
 In hospitality industry, there are high chances of unprecedented events
which can affect their functions (InterContinental Hotels Group (IHG)
SWOT and PESTLE Analysis, 2018).
 It is very difficult for Intercontinental Hotel Group (IHG) to recruit
highly skilled and experienced employees which can help them in
increasing their overall performance in this industry.
3. Global Hospitality market
For Intercontinental Hotel Group (IHG), it is very essential to study all the factors that are
related their emerging market. For global hospitality market it helps an organization to expand or
increase their business in different location of another country. For IHG, it's very crucial to
understand the market of Vietnam which will be very useful for them in establishing their
business successfully. Studying their market analysis to get all the information which can highly
impact them, such as, Vietnam's political, economic factors, customers preferences and needs
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from any particular industry, etc. will be very beneficial for them (Diestre, Rajagopalan and
Dutta,2015). The impact of hospitality on global economy is very significant as there are so
much travel and tourism industry which is operating in it. To study the emerging market
effectively, it can be done by applying PEST analysis to understand all the factors of that
country.
3.1 Marco Environmental Analysis (PEST Analysis)
PEST analysis is a tool which is used to analyse the macro environmental factors which
can affect any organization (Collinson, 2015). Elements that are present in this analysis includes,
political, economic, social and environmental factor, which is explained in detail below:
Political Factors This is the factor in which there are various governmental policies that
are included in this political factor which can affect the functionality
of Intercontinental Hotel Group (IHG). These factors include:
 There are various rules and regulation which is mandatory for
hospitality industry implement in their organization. For
example, various laws related to employee, company, etc.
 Brexit effect is another political factors which has to be
considered very carefully by the Intercontinental Hotel Group
(IHG) in order to work effectively as it can affect them a lot.
 Tax is another factor which has a huge impact on this industry.
Government interventions like shifts in interest rate can have
an effect on the demand patterns of company.
 Change in inflation and interest rate should be considered very
carefully by them (InterContinental Hotels Group (IHG)
SWOT and PESTLE Analysis, 2018).
Economic Factors There are various factors which can affect the business of
Intercontinental Hotel Group (IHG) economically. For example,
economy outlook of Vietnam is very essential before establishing their
business.
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 Prices of raw material: This can be an important factor for the
organization which can affect them a lot.
 Purchasing manager index (PMI): These are the economic
indicators which is derived from monthly surveys of private
sector companies. It helps to check the business activities of
different companies to understand the impact of economy on
them.
 Consumer price index (CPI): This process helps in measuring
the price factor of consumer goods and services which is being
purchased by the households. The annual percentage change in
a CPI is used as a measure of inflation.
 Level of unemployment is another factor which can also affect
their overall performance in that emerging market.
 There is a huge influence of GDP growth on the sales (Laufs
and Schwens, 2014).
Social Factors These are the social culture factors which is related to the behavior of
the customers which can impact them a lot, such as,
 Difference in cultures: This is the main reason which has a
huge impact on hospitality industry as there are various people
from different country and culture which can affect their
system. For example, in Indian culture most the tourist prefer
vegetarian food.
 Emerging new trends: Increase in new trends due to any
reason, like, demographic, lifestyle change, etc. also has a
huge effect on this sector. They have to update their system
with all the latest trends to match their customer's expectation.
Technological Factors These are the factors which is related to the technological aspect
related to hospitality sector. These factors include:
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 Digital booking: This is the most effective measure which can
help Intercontinental Hotel Group (IHG) to improve their
services. They can implement digital booking of their
customers using personal websites which also help them to
save a lot of their time and money.
 Promotion: They can also use internet and social media to do
promotional activities to promote their goods and services in
market. There are various tools which they can use, for
example, Facebook, Twitter, etc.
3.2 Micro Environmental Analysis
Porter's Five Forces is a simple but powerful tool which is used to understand the
competitiveness of the business environment and for identifying the strategy's potential which is
used by the organization (Upson, Sanchez and Smith, 2017). There are five forces which is
included in this which is explained below:
 Threat of New Entrants – Barrier to Entry: This can be a huge factor which can affect
the functioning of Intercontinental Hotel Group (IHG). To deal with this situation they
can implement various strategies which can help them in competing with these new
entrants, such as, through lower pricing strategy, reducing costs, and providing new value
propositions to the customers.
 Competitive Rivalry: There are various other hotels as well that are present in the
Vietnam which is serving there since very long and has their loyal customers. This can be
a major drawback for Intercontinental Hotel Group (IHG) to compete with. To deal with
situation they have to come up with new and innovative ideas which can help them in
increasing their branding in that particular market.
 Threats of Substitute Products or service: This is also an important factor which can
affect their function in various ways. There are various other hotels as well that are
present in emerging market which is providing same services to customers at an
affordable price. This can give them a huge negative impact on their business activity.
Hotel industry is also faced with technology-fueled indirect substitution such as video
conferencing, banquet halls etc, which can impact their organization.
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 Bargaining Power of Suppliers: This is the factors which is related to their supplier
which help them in supplying material which is required for their organization. This
factor is generally low for the hospitality industry. The bargaining power of most of the
suppliers is low due to lack of uniqueness in their products and services supplied to
different organizations (Murphy, 2018).
 Bargaining Power of Buyers: This factors helps in identifying bargaining power of
buyer. It has to be done according to the requirement of their customers which can be
sometime very demanding. So they have to understand their behavior very carefully in
order to make them satisfied. The smaller and more powerful the customer base is of
InterContinental Hotels Group PLC, the higher the bargaining power of the customers
and higher their ability to seek increasing discounts and offers.
Figure 1: Porter five force analysis
(Source: Porter’s Five Forces of Competitive Position Analysis, 2018)
4. Implementation of the strategy and moving forward
To improve and enhance the business in emerging market, it is necessary to implement
some strategies which can help them in establishing their organization successfully. This strategy
can be very helpful for Intercontinental Hotel Group (IHG) to improve their services. In order to
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reach out medium and long term market growth, they can apply various model into their
management system, such as, Porter's generic strategies, Ansoff matrix, etc. which is very
helpful in analyzing the market situation and to evaluate their competitors as well.
4.1 Market Growth Strategy to be adopted and to be implemented within the entering market
Porter's generic Strategies define and understands competitive advantage through the
market scope that is chosen. In this model, Porter suggested four generic business strategies or
plans that could be adopted by Intercontinental Hotel Group to gain competitive advantage.
 Cost Leadership: This objective aims out to become the lowest cost producer in the
industry. There is a traditional method to achieve this objective is to produce on a large
scale which allows organization to exploit economies of scale. It is important to
implement this strategy in Intercontinental to enjoy best profits by being the lowest cost
producer. This strategy is linked with large scale businesses which offers standard quality
of products and services with little or no differentiation and are accepted to the majority
of customers (Pruthi, Basu and Wright, 2018). It is advisable to use many of the
following points:
 High levels of productivity.
 High capacity utilization.
 Use of bargaining power to negotiate prices for production units.
 Lean production methods.
 Use of effective production techniques in process.
 Cost Focus: By applying this strategy, a business seeks advantage of low cost in small
number of market segments. This is not a separate strategy for big companies because of
small market conditions. It is important to consider this strategy to meet the requirements
of targeted market. These strategies should target market segments with less vulnerability
to substitute or where there is weak competition.
 Differentiation Focus: This strategy is applied to aim at differentiation with small
number of target market segments. This aims at providing customers with completely
different segments with opportunities that differ from other competitors targeting broad
group of consumers. It is important to adopt this strategy to facilitate customers with their
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different and unique needs and wants that existing competitor products cannot fulfill. It is
a type of marketing strategy (Hofer and Baba, 2018).
 Differentiation Leadership: This strategy of model encourages businesses to target
much larger markets with aim of achieving competitive advantage through differentiation
across whole industry. It involves selection of more than a criterion that is used by buyers
and then positioning them uniquely to meet those criteria. In this strategy, higher
production cost is reflected by charging a premium price of the product.
Intercontinental Hotels Group can use this model to gain competitive advantage in the
industry of hospitality sector. Porter's model clearly determine each step and process of each
strategy with their benefits (Hollender, Zapkau and Schwens, 2017).
Figure 2: Generic competitive strategies
(Source: Porter’s generic model, 2018)
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