Hospitality Industry Revolution: Traditional Versus Information Technology Age

The tourism economy is one of the fastest growing activities in developed countries. In the era of the knowledge society, access to the infrastructure to share information and knowledge is important for social and economic development. Technology revolution is actually affecting poverty for most of the world’s population. Going forward, in today’s global economic, technology will be the most important competitive weapon for any hospitality businesses. The world is rapidly moving towards knowledge-based economic structures and information system, which integrate networks of individuals, firms and countries that are linked electronically and in interdependent relationships.

Information technology offers new ways of exchanging information, and transacting business, changes the nature of the financial and other service sectors and provides efficient means of using the human and institutional capabilities. In an increasingly globalized economy, information technology is one of the key determinants of competitiveness and growth of hospitality industry as it has a huge impact on future generations of workers and on a country's economic prospects. It is known that the traditional forms of technology are insufficient to foster knowledge society. Either developed or developing world needs access to the technology that provide multiple sources of information and information exchange by which traditional method of gaining and exchanging knowledge might not be delivered efficiently. There was a time when people used to write simple expense statements and general ledger to balance sheet manually. Most difficult front office operation used to be monitored manually through a long sheet of paper. However, this is due to the policy of certain company in which believe and prefer with traditional method as it is more practical to compare with newest technology. As for an example, if there is an offline due to high traffic, this could make the company to revise their statements manually. This is what makes some of people believe that new era of technology as IT might gives slightly disadvantage to them. But, this new IT in today’s development is vital in order to reach global market especially for hospitality industry (Shekhar, 2008). This could ensure hospitality businesses reach their market and provide with information much more efficient. Moreover, established businesses prefer to adopt this Information Technology in order to maximize their profit more effective and save time and cost to reach markets.

From the economics point of view, IT changes both costs of capital and information in which it can be substituted for traditional capital and labor (Laudon and Laudon, 2010). IT is one of the key factors of competitiveness as far as tourist markets and hospitality industry are concerned. Moreover, it reduces transaction and operational costs. Internet, mobile technology and wireless computing provide tourists to gain immediate access to relevant information regarding destinations for traveling. Internet is becoming the primary channel for business-to-business communication. In the United States, for example, it took 38 years for television to get into 50 million homes but for the internet, it took just five years (Cline, 2001; as stated in Ip, Leung and Law, 2011). Moreover, around 90 percent of population in the developed countries is using internet with opportunities to choose holidays on the basis of available information at the internet (Ip, Leung and Law, 2011). Several tourists are already making their own traveling and holidays’ decisions on the basis of the information provided in the internet.

Nowadays, hospitality industry is using a computer reservation system and a global distribution system for tourism management and marketing as factors for building and maintaining competitive advantage (Buhalis, 2003; as cited in Bojnec and Kribel, 2006). This could help hospitality industry to boost development of economic not just domestic but international as well. As stated, it is beneficial for hospitality industry to understand and use the new era of Information Technology to support their daily operations and managerial decision-making. However, there is one of the greatest challenges with the industry’s current technology that is its inflexibility. This means inability for applications to effectively communicate and share data with one another. Marketers can make use of these technologies to both enhance the level of collaboration between tourist operator and travelers and create a new high-customized tourism product (Ingvar et al., 2007; as cited in Pantano and Servidio, 2011). The use of this technology will also enhance the customer relationship in which is redirecting customer attention to new sellers of products and services and move away from their traditional relationships. And as this occurs, the traditional approaches that hospitality businesses have taken to distribution are all being affected. From customer’s perspective, the use of IT provides a new tool for shopping and product or service comparisons. The result is that customers are more informed and more demanding. They are demanding more value, higher quality, better prices, and faster service. This contradicts with traditional method in which they waste lots of time and energy to search for the product or service in particular before they can purchase it. In the end, customers want both convenience and consistency.

Hospitality businesses that traditionally provided room, board, management and marketing may need to rethink their roles in the new economy, particularly as services become more valuable than products. In today’s IT age, the rapid growth of “infomediaries” and their facilitation of transactions, hospitality businesses may need to redefine themselves in order to strive in the new era of economic where one-to-one customization is becoming trend. According to Buhalis and Law (2008), “infomediaries” here means to provide information and access to develop matches between buyers and sellers. For example, for hotel operators, they are moving forward positively towards IT by using special software made for hotels which are generally called as Property Management System (PMS). This software comprises of both front end and back end solutions. This reduces not only the manpower but also reduces mistakes that happen when handled manually. Computers and software in today’s technology can give solutions to the most complicated logical problems in any operation. The computer system can be used to enable both planning and control function to achieve the objectives of the organization. Thus, computers makes life easier in getting right reports at the right time that helps in decision making process easier and faster for any hospitality personnel. Computer system can prompt if any mistake is made, it can take corrective action if necessary. IT especially the use of networks, can help hospitality businesses reduce the cost of market participation and also reduce internal management costs (Laudon and Laudon, 2010).

Television, radio, banners, billboards and other medias might not provide huge impact to community, as it is hard to reach certain markets for a particular period. The use of traditional method is to targeting masses and making brand conscious while IT focuses on target segments and placing strategies. As the supporting technologies improve, consumers will have instant access to information about organizations and their product offerings without having to use any intermediaries. The obvious differences between traditional approaches and IT are cost and time. Even traditional method holds some advantages, but times are changing and prospective clients are far more likely to search on the internet their needs as a first option than go anywhere else for information. Traditional approaches such as television, radio, road shows and brochures costs the hospitality businesses to invest huge amount of money while waiting for customer’s feedback to response regarding the advertisements or marketing purposes. However, IT such as search engines and mobile marketing provides low investment, higher possibility to reach market in shorter time and it is also good for long-term investment. IT also provides a huge advantage in updating customer data in which will provide with more accurate information to be delivered by workers. As for an example, a guest that once stayed at a particular hotel should have personal information that already been given previously. Thus, the personnel could search it by typing any data about the guest and at the same time reduce time waiting and provide more efficient service to the guest. This contradict with traditional approach in which the personnel needs to search the entire files manually and could not have it with an accurate updates about the particular guests.

The technological revolution experienced through the development of the IT has changed dramatically the market conditions for hospitality organizations. If hospitality organizations want to compete successfully, they must do so by using technology to drive value to both the customer and to the firm. As IT is used to facilitate a company’s entry into the world of electronic commerce, our industry’s leadership will also need to overcome barriers by the role of IT in achieving competitive advantage. It provides opportunities and challenges for making progress with accelerated growth. And as alliance partners, vendors, customers, employees and systems all become Web-enabled, hospitality companies must adjust their strategies, organizations, processes and technologies accordingly. To achieve success, the governments need to create the supportive external environment for promoting the use of information technology. This provides a clear assumption as countries that invest and adopt IT will quickly move forward and those that fail to adopt Information Technology will be left behind.

REFERENCES

Bojnec, S., and Kribel, Z. (2006). Information and Communication Technology in Tourism. Retrieved on September 21, 2011 from http://www.fm-kp.si/zalozba/ISBN/961-6486-71-3/445-454

Buhalis, D., and Law, R. (2008). Progress in information technology and tourism management: 20 years on and 10 years after the Internet - The state of eTourism research. Tourism Management, 29, 609-623.

            Ip, C., Leung, R., and Law, R. (2011). Progress and development of information and communication technologies in hospitality. International Journal of Contemporary Hospitality Management, 23(4), 533-551.

Laudon, K. C., and Laudon, J. P. (2010). Management Information System: Managing the Digital Firm (11^th ed.). Prentice Hall: New Jersey.

Pantano, E., and Servidio, R. (2011). An exploratory study of the role of pervasive environments for promotion of tourism destinations. Journal of Hospitality and Tourism Technology, 2(1), 20-65.

Shekhar, C. (2008). Information Technology: A boom in the hospitality industry. Retrieved on September 21, 2011 from http://www.4hoteliers.com/4hots_fshw.php?mwi=3336

Starbucks in China (Strategic Management)

1.0 INTRODUCTION

In the 1990s, Starbucks Corporation, the world's specialty coffee retailer from United States, started expanding into international markets. Starbuck’s mission statement reads, “To establish Starbucks as the premier purveyor of the finest coffee in the world while maintaining our uncompromising principles as we grow”. In September of 1994, Starbucks bought its first acquisition, The Coffee Connection. After its success in Japan in the mid-1990s, it started focusing on China in 1999. China is considered one of the most important markets due to its size and the growth. Starbucks is making its way to become a household brand in China.

2.0 MAIN ISSUES

2.1 STARBUCKS’ GREATEST CHALLENGES AND SOLUTION

Starbucks faced challenges like cultural differences, high real estate prices, unavailability of land and suitable employees. In this study, it focuses on the sociocultural challenges of broad environment in order to answer Question 1. As Starbucks choosing China, a strong base of tea drinker, it is definitely a barrier and challenge for Starbucks in which given a country of devoted tea drinkers who do not readily to accept the taste of coffee. Besides that, the opening of a store like Starbucks, for the Chinese, symbolized a threat from the Western world (Rui, 2007). Many local people saw it as interference into their traditional lifestyle and culture.

Starbucks introduced nine kinds of tea drinks in China including three original-leaf Chinese-style tea drinks, four original-leaf foreign tea drinks, and two handmade special tea drinks, making this coffee shop chain's entry into the huge Chinese tea drinks market. Apart from these tea drinks, Starbucks has also launched related accessory products such as teacups and teapots. Furthermore, Starbucks has also programmed cultural activities to celebrate traditional Chinese holidays with local people, for instance, incorporated moon cakes during the traditional Chinese moon festival (Harris, 2007).

In order to overcome the problem regarding the intrusion into Chinese traditional culture, Starbucks started to create innovative products by strengthen ties with local people to create opportunities for organization. According to Starbucks has not only helped popularize coffee in China, it's also aiming to bring Chinese coffee to the world (Lowe, 2001). The company started a wide-ranging strategic commitment to doing business in China, in a way that's locally relevant. Thus, they going to plant trees and grow coffee in China, in the Yunnan Province. Yunnan coffee is already known as some of the best in Asia. The chain will help develop and operate a farm and processing facilities in Yunnan and will also work with local farmers to boost their crop's yield and quality. The mission is to share coffee knowledge, to help Yunnan continue to develop into a top-quality coffee-growing region and bring the distinctive Yunnan coffee taste to Starbuck’s customers around the world. As a result, China sees Starbucks concerned about their tradition and positively changes the perception of Chinese people against Starbucks in their country.

2.2 STARBUCKS’ COMPETITIVE ADVANTAGE

Competitive advantage indicates what the company can do something that their competitors can’t do which has significant edge over the competition. Starbucks underline their Strengths, Weaknesses, Opportunities and Threats (SWOT) in order to ensure its competitive advantage sustainable over time. Starbucks gain strength as are a global coffee brand built upon a reputation for fine products and services. It has almost 9000 cafes in almost 40 countries. As the weakness, Starbucks point out that although they have a reputation for new product development and creativity, they remain vulnerable to the possibility that their innovation may falter over time. According to Schultz (2007), sustaining the differentiation advantage is difficult, rapid growth has led to the dilution of customer experience and the commoditization of the brand. Apart of these internal influences, Starbucks has the opportunity to expand its global operations but they are exposed to rises in the cost of coffee and dairy products and lead to the market entry of many competitors and copy cat brands that pose potential threats.

Starbucks has made sizable efforts to distinguish from traditional coffee drinks. Starbucks coffee is considered to have redefined the coffee experience. At Starbucks, consumers not only drink coffee, but also gain a lifestyle and experience a third place between home and work. It is very important for its competitive advantage and consumer’s perceived positioning of the company. Starbucks ensure that the quality of their products are the best and certainly dilute the core concept of Starbucks in which providing a premium quality. Starbucks also has a joint venture with multinational company, Pepsi to bottle its iced coffees. This indicates that Starbucks are using a well-established company to market its products in order to maintain their image as premium brand. On top of that, Starbucks practice customized service in which consumers are allowed to order the product according to their preferences (Lovelock and Wirtz, 2007). This is also known as customization bonds. Starbucks implement it by providing customized service to its loyal customers and it is difficult for competitors to imitate this type of service. This specialized form of customization treated each individual as a segment by itself. This shows that Starbucks differentiates their service against competitors in providing premium quality of coffee and retains their competitive advantage in its business category.

2.3 STRATEGIES IMPLEMENTED CONSIDERING INCOME DISCREPANCIES IN CHINA

Starbucks are well known of their premium brand worldwide. They claim that their products are not expensive but classified as premium price. According to Far Eastern Economic Review (2003), a cup of coffee would typically cost 50 cents and the charge at a US Starbucks is around the region of USD1.75. Consumers are willing to pay these higher prices because they are not only buying a beverage, but also making a social statement at the same time in which consumers purchase an experience, a lifestyle and an attitude.

Considering the income discrepancies, Starbucks' strategy in China is to attract middle class consumers by opening cafes in selected locations (Fowler et al., 2002). In the context of business level, Starbucks should implement best value strategy in which means to provide a product that is very attractive to customer but also delivered at a fairly low cost, thus providing the best service value for cost (Enz, 2010). As Starbucks are known for their premium coffee, they cannot simply reduce their price because it correlates with the quality they served. The key to a best-value strategy is a simple supply and demand principle. Starbucks are the first-mover that create the opportunity in China of a new perception of coffee. They need to understand the demand of Chinese consumers at selected locations to provide the supply that they intend to serve and have the significant resources associated with innovation and learning. As mentioned earlier, Starbucks not just only provide its premium quality coffee, at the same time customers gain experience and service values thus, make the service more valuable in the eyes of consumers. Although the price remains the same, but there are values creation that comes together with the tangible product. On top of that, Starbucks need to find ways to keep the costs low through technology, economies of scale and reducing waste. These would help Starbucks to identify the effective solution considering the income discrepancies of the country.

To ensure Starbucks produce outputs at low cost, they should implement a corporate level strategy called vertical integration in which they own their upstream suppliers and downstream buyers (Enz, 2010). This can be further classified as background integration (upstream), means they produces their own inputs. This automatically will reduce the cost of production as Starbucks produce their own resources e.g. coffee beans, tealeaves, dairy products and other ingredients. Therefore, Starbucks could control the increase of global price of particular resources as they gain the cost advantage by producing their own inputs. Some of the advantages include eliminate steps in production, avoid time-consuming tasks, prevent from uncertain availability for rare inputs and provide superior control of market environment.

3.0 CONCLUSION

Foreign businesses need to learn how to well understand the values of local culture and local people toward Western culture symbolized in global brands, especially under the new communication state of affairs. As for Starbucks, they had to struggle with certain issues regarding the cultural values, ensure its sustainable competitive advantage and come out with strategies concerning the income discrepancies in China. A company should establish and maintain a healthy relationship between local stakeholders on the possibility of negotiating a shared identity as a cultural bridge in today’s globalization to enhance the acceptance of particular countries for company’s growth and development.

4.0 REFERENCES

Beaton, J. (2010, March 11). Starbucks discovers that Chinese people like tea. CNN Daily News. Retrieved from http://www.cnngo.com/

Burke, A. (2010, November 17). Starbucks to start growing coffee in China, CEO says. CNN Daily News. Retrieved from http://edition.cnn.com/

Enz, C. A. (2010). Hospitality Strategic Management: Concepts and Cases (2^nd Ed.). New Jersey: John Wiley.

Han, G., and Zhang, A. (2009). Starbucks is forbidden in the Forbidden City: Blog, circuit of culture and informal public relations campaign in China. Public Relations Review, 35, 395–401.

Lovelock, C., and Wirtz, J. (2007). Services Marketing: People, Technology, Strategy (6^th Ed.). New York: Prentice Hall.

Starbucks – taking on the world: Can the coffee retailer join the all-time greats?. (2004). Strategic Direction, 20 (7), 13-15.

Welsh, D. H. B., Raven, P., and Al-Mutair, N. (1998). Starbucks International enters Kuwait. Journal Of Consumer Marketing, 15(2), 191-197.