PESTEL & Porter's Five Forces Analysis: Millennium Hotels in Japan

Desklib provides past papers and solved assignments for students. This report analyzes Millennium & Copthorne's potential expansion into Japan.

Business Organizations and Environments in a Global Context
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Table of Contents
1. Introduction..................................................................................................................................3
1.1 Short Description of Japan.....................................................................................................3
1.2 Description of Millennium and Copthorne Hotels Plc..........................................................3
2. PESTEL Analysis........................................................................................................................4
2.1 Social Factors.........................................................................................................................4
2.2 Legal Factors.........................................................................................................................5
2.3 Economical Factors...............................................................................................................5
2.4 Political Factors.....................................................................................................................7
2.5 Technological Factors............................................................................................................7
2.6 Environmental Factors...........................................................................................................7
3. Porter's Five Forces......................................................................................................................8
3.1 Industry Rivalry.....................................................................................................................8
3.2 Threat of New Entrants..........................................................................................................8
3.3 Bargain Power of Customers.................................................................................................9
3.4 Bargain Power of Suppliers...................................................................................................9
3.5 Threat of Substitutes..............................................................................................................9
4. Conclusions................................................................................................................................10
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1. Introduction
1.1 Short Description of Japan
Situated in the eastern coast of Asia, Japan is considered one of the largest economies in the
world. The country is further known for its purchasing power correspondence with developed
countries such as China, US and so forth. In context to the hospitality sector, the country is
witnessed to be extremely consecrated; thereby, the industry being considered as a cash cow for
the businesses operating in it. As per the reports of RevPAR, the luxury hotels of the country
generated nearly 10.3 % proceeds as at February, 2016 (Insights, 2016).
1.2 Description of Millennium and Copthorne Hotels Plc
Millennium and Copthorne Hotels Plc is an “International Real Estate” and “Hospitality
Management Group” that mainly operates in countries like North America, Middle East,
Europe, Australia and Asia. The company possesses near about 120 hotels in more than 70
locations. Headquartered at London, the company is a fundamental part of the “FTSE 250
Index” and is listed in the “London Stock Exchange”. As per the current reports, in the year
2017, the company earned a revenue of £1,008M. The reports further stated that the company
witnessed an increase of 8.1% in its revenue significantly owing to the positive foreign exchange
engagements of around £39m (Investors.millenniumhotels.com, 2019).
Figure1: Revenue earnings of Millennium and Copthorne Hotels Plc
(Source: Investors.millenniumhotels.com, 2019)
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Furthermore, the annual report of the country as of 2017 highlights that, the company possessed
net assets of around £3,249m and a total equity of £3249m (Investors.millenniumhotels.com,
2019). The company is further witnessed to be performing extremely well in its operating
countries with a huge and extensive workforce; thereby, earning maximum profits from its
business. In this context, the company is expanding its business to Japan. In order to do so, the
company is apprehensive of considering the business environment of the concerned country;
thereby, ensuring a safe entry as well as smooth operations in the new market. In this
assignment, a number of factors, in business context, such as, cultural, political, economic,
financial and so forth will be discussed in order to analyse the business environment of the
country the company is expanding to.
2. PESTEL Analysis
In order to analyse the external or macro factors of Japan that might have an impact upon the
business operations of Millennium and Copthorne Hotels Plc, PESTEL analysis has been
considered. This will facilitate the hotel company in analysing the social, legal, economic,
technological, political and environmental scenario of the country; thereby, being able to plan its
business expansion accordingly.
2.1 Social Factors
In the present scenario, Japan is seen attracting ever more travellers every year; thus, ensuring
steady and extensive growth in the demand of hotels within the country. This significantly
provides the hotel companies like Millennium and Copthorne Hotels Plc with huge
opportunities of growth and development. It has been further studied that, nearly 70. 93 percent
of the total workforce of the country is employed in the service industry. Therefore, it can be
analysed that, the hotel company will be able to easily employ local employees for its newly
expanded business (Manhas and Tukamushaba, 2015). However, the population of Japan has
been witnessed to be preferring Japanese organisations in comparison to the foreign ones;
thereby, making it quite difficult for the overseas companies to operate smoothly and
successfully in the market. It is also one of the major reason behind foreign companies failing in
the country. In context to the hotel company, it may be difficult for it to establish and run its
business in the Japanese market at its initial phase. Hence, it is necessary for the company to
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ensure hiring local employees as well as considering the cultures and traditions of the country
while taking their business decisions.
2.2 Legal Factors
When operating in a foreign country, it is necessary for every business organisation to know and
adhere to the legal norms and legislations of the concerned nation. In context to Japan, the
country has imposed a number of laws and legislations, which the companies operating in the
Japanese company are liable to adhere in order to run their businesses smoothly. As per the legal
standards of the country, Millennium and Copthorne Hotels Plc needs to ensure that the
employees working in their organisation are provided with all the employment benefits and
rights, such as, holidays, scheduled work hours, work breaks, maternity leaves, and so forth
(Takahashi et al., 2014). In addition to this, the government of the country has made it obligatory
for the business organisations to register its employees with unemployment insurance, health
insurance, pension policies, accident compensations, and so on. All the mentioned criterion are
applicable for all the organisation operating within the country irrespective of the nationality of
the employees. Therefore, in order to ensure employment retention, the hotel company needs to
abide by the legal obligations of the country.
2.3 Economical Factors
Japan is considered one of the largest economies in Asia. The country adheres to a mixed
economic structure; however, its government is witnessed to be closely involved with the
industries. It has been presently witnessed that, the exchange rate of the Japanese yen with the
currencies of other nations has been constantly swinging. This has turned out to be a major
reason behind the rise as well as the fall of the bubble economy of the country. This fluctuating
rate of exchange may affect the business operations of the company in numerous ways. In
addition to this, the inflation rate of the country may also have significant impact upon the
business of Millennium and Copthorne Hotels Plc. It has been witnessed that, the inflation rate
of the country has witnessed substantial ups and downs. For instance, in the year 2014, the
inflation rate of the country was 2.76 percent; whereas, in the present year, the inflation rate has
gone down to nearly 1.2 percent (Statista, 2019). Therefore, it can be stated that, the current
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inflation rate of the country will allow the hotel company to ensure better business in the foreign
market.
Figure 2: Inflation rate of Japan
(Source: Statista, 2019)
The gross domestic product of Japan was witnessed to be nearly $4872.14 billion in the year
2017. Furthermore, the GDP of the country represents nearly 7.86 percent of the economy of the
world (Tradingeconomics.com, 2019).
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Figure3: Gross Domestic Product of Japan
(Source: Tradingeconomics.com, 2019)
2.4 Political Factors
Japan is a legitimate monarchy where the emperor is considered the supreme head. Owing to this
reason, the government of the country has very little say regarding the political undertakings of
the country. The country further consists of a post-war placatory constitution. This plays a
substantial role in global community. The micro political environment of the country is presently
stable; however, the post-war placatory constitution has significantly raised apprehensions. It is
governmentally contentious and therefore may have an effect upon trade and FDI (Foreign
Direct Investment). The current income tax rate of the country is nearly 45% for income ranging
over ¥40,000,000 (Marshall, 2015). This may have a significant impact upon the business
operations of the hotel company post expansion.
2.5 Technological Factors
In the present scenario, Japan is considered one of the most advanced countries in terms of
technology. The people of the country are extremely advanced technologically and at all times
look for ways of using modern technologies (Huang et al., 2014). It has been further witnessed
that, a number of industries such as, aviation, health care, hospitality sector and so forth make
use of automation systems. In addition to this, the country is ahead of all the other countries in
context to robotic development. This can act as a positive factor for Millennium and Copthorne
Hotels Plc, as it will be able to make maximum use of the highly advanced technologies being
provided by the country. This will further facilitate the hotel company in enhancing its services;
thereby, being able to ensue better customer satisfaction and customer earnings.
2.6 Environmental Factors
Japan is considerably environmentally accountable and clean; however, still experiences a
number of environmental issues in the present times. Waste management is considered one of the
major issues in the country. A number of factors such as, industrial activities, modern society,
agriculture, tourism and so forth play a significant role in waste production in the country;
thereby, putting immense pressure upon the country for minimising waste as well as controlling
environmental pollution. This further asserts that, the hotel company will have to ensure
effective waste management in its business processes in order to cater to the environmental needs
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of the country. In addition to this, Japan is also highly prone to natural disasters and calamities
such as floods, tsunami, volcanic eruptions, cyclones, earthquakes and so forth (Montz et al.,
2017). This may have a strong impact upon the business operations of the country, as it may
result in preventing the visitors from visiting the country.
3. Porter's Five Forces
In order to analyse and identify the competitive forces of the hospitality industry in Japan, the
Porter’s five forces has been considered. This will further help the hotel company to determine
the corporate strategies that it’s must adopt in order to gain profits and recognition in the
Japanese market.
3.1 Industry Rivalry
In context to Japan, the competition in the hospitality industry is extremely strong. In the present
world, where internet is easily accessible by the potential customers, they can effortlessly learn
about the different hotels in the country; thereby, reducing the level of differences amongst the
competitors (Jogaratnam, 2017). However, the hospitality industry of the country is growing
quite effectively; thus, increasing the competition level in the market. Nevertheless, the industry
rivalry in the country is still moderate; thereby, signifying less threat of competition for
Millennium and Copthorne Hotels Plc. In the view of the fact that, the people of the country are
highly inclined towards their culture and food habits, the local hotels of the country are more
preferred by the people. Therefore, it is necessary for the hotel company to adopt the culture and
traditions of the country in order to attract more number of guests; thus, earning better profits
and market recognition. The major hotel companies that can prove to be the major competitors of
Millennium and Copthorne Hotels Plc are Tokyo Inn, Tokyo Inn, SynXis, and so forth.
3.2 Threat of New Entrants
The hotel industry in Japan is developing rapidly; however, it has not gained major recognition
in the global market as yet. Therefore, it may be quite effortless for the hotel company to enter
the new market. However, the hotel industry necessitates huge investment in the initial phase,
which may act as a major barrier for the hotel company (Vanhove, 2017). However, the
advanced technology in the country will allow the company to make use of effective online
facilities; thereby, reducing marketing expenses. Therefore, it can be stated that, the threat of
new entry is moderate for the hotel company in Japan. In addition to this, the Japanese market is
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extremely inflexible and rigid for the foreign organisations. This may act as a major barrier of
entrance for the company. In order to avoid such situations, it is necessary for the hotel company
to ensure proper market research and business planning prior to entering the new market.
3.3 Bargain Power of Customers
The bargaining power of the customers is high in this context. This can be further justified by the
fact that the concentration of the customers is considerably higher in comparison to the marketers
in the Japanese tourism industry. This mainly happens when the consumers purchase hotel rooms
in greater parts; thereby, exercising clout over the hoteliers (Vellas, 2016). The convention
participants and organisers, international and domestic airlines, tour operators and so forth are
some of the powerful purchasers in this context. In addition to this, the population of the country
are witnessed to prefer the local hotel companies for leisure and business travel in comparison to
the foreign companies. Owing to the fact that, the local hotel companies are highly traditional
terms of décor and food, it is necessary for Millennium and Copthorne Hotels Plc to adopt these
features in their hotels so as to attract more number of customers; thereby, earning better profits.
In addition to this, the company also need to come up with innovative and effective business
ideas so as to ensure reduced bargaining power of the buyers.
3.4 Bargain Power of Suppliers
The bargaining power of the suppliers is comparatively low in the hospitality industry in Japan.
Se The hotel company is only apprehensive of trained employees, labour, and so forth. The
Japanese industry has huge demand as well as supply of these resources; thereby, making it
easier for the hotel company to get access of the necessary supplies when operating in the new
market (Amador and Soares, 2017). Therefore, in this context, Millennium and Copthorne
Hotels Plc needs to ensure that it sustains as well as continues its cost advantages in comparison
to its key competitors in order to gain competitive advantages in the market as well as
differentiate itself from the other major organisations operating in the same market. The price
drive strongly depends upon the bargaining power of the suppliers; therefor, making is extremely
necessary for the hotel company to ensure effective supply chain management; thus, reducing the
supplier’s bargaining power.
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3.5 Threat of Substitutes
The threat of substitute for the hotel company is moderate. There are several hotel companies
operating in the Japanese market; however, the level of competition in the market is
comparatively low. On the other hand, the technological advancement in the country allows the
customers to easily compare and contrast the prices and other facilities being provided by the
hotels (Amador and Soares, 2017). This increases the threat of substitution in the market.
4. Conclusions
From the above report, it has been observed that, Japan can be considered as a good option for
expansion for Millennium and Copthorne Hotels Plc. It has been further studied that, the
political scenario of the country is quite favourable for the company as the government has
minimum say in the political aspects of the country. In addition to this, it has been further
witnessed that, Japan is highly advanced in terms of technology. This will further help the hotel
company in making use of highly advanced technologies in the business; thereby, earning better
profits and competitive advantage. Other than that, it has been studied that the environmental
conditions of the country are not very table as it is highly prone to natural calamities and
disasters. This may turn out to be a major disadvantage for the hotel company. This is for the
reason that, natural calamities may restrict the visitors to visit the country; thereby, affecting the
profitability and income of the company. Furthermore, the bargaining power of the suppliers is
low. Therefore, it can be stated that, the company can easily avail necessary supplies for its
business.
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