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Meliá Hotels International in Hospitality Industry

Introduction

In essence, this essay focuses on giving a circumspect analysis of the nature of international hospitality at Sol Meliá (currently known as Meliá Hotels International) which is a prestigious and highly revered Spanish hotel chain based at Palma de Mallorca in Spain. In doing so, the paper will begin by evaluating the strategies that have been used by the company in dealing with the shifty dynamics of the tourism and hospitality industry over the past three years. Once that has been done, viable short and long-term recommendations towards development, based on three central contextual issues in the company’s business environment over the last three years, will be given. A recapitulation and summary will be given, to sum up, the entire essay.

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Analysis of Strategies Used by Sol Meliá to Cope with Industry Dynamics

Preliminarily, it is inherent to begin by stating that Sol Meliá is a global hotelier based in Spain with its branches spreading across nearly 30 countries. The company manages, owns, franchises or leases more than 350 resorts and hotels no wonder it is ranked as the top hotel in Spain, the Caribbean and Latin America. Even more laudably, Sol Meliá deservedly boasts of being the 3rd largest hotelier in Europe and 10th in the world (Funding Universe, 2011).

Notably, Sol Meliá operates under four major brands namely; Paradisus Resorts, Meliá Hotels & Resorts, Sol Hotels, and Tryp Hotels. In spite of several hiccups in the market, the 56 years old company has been able to grow progressively to become the profitable and respectable institution it is today. The section below analyzes the strategies used by the company, over the past three years, to tackle the industry dynamics that have come it is the way.

Strategic Alliance and Joint Ventures

In this context, strategic alliance and joint ventures refer to the corporate strategy entailing the getting into business mergers with other well-performing companies so as to gain a competitive advantage while intermittently facing off the existing market challenges (Lynch, 2006; Dunning & McQueen, 1982; and Dunning & McQueen, 1981).

According to Godinez (1999), Sol Meliá’s business strategy is mostly pegged on joint ventures with other well-performing companies. Godinez further reports that one of the main reasons Sol Meliá has been able to stay afloat of the murky waters of the hotelier industry is its alliances with other companies and stakeholders like financial institutions, suppliers, hotel owners, and hotel companies, travel agencies or even tour operators. To exemplify the use of this strategy, Godinez notes that among the forty-one (41) hotels that allied to Sol Meliá in 1996; seventeen (17) were in the form of joint ventures.

In the years following the 2008 global financial crisis, which reportedly had a devastating effect on the hotel industry in Spain, the International Markets Bureau (2011) reports that Sol Meliá decided to venture into more corporate alliances and joint ventures, especially in Europe.

Forming business relationships, like getting into joint ventures, is one of the successfully proven ways of managing change during tough economic and financial times (Johnson et al., 2008; and He & Balmer, 2006). Between 2008 and 2009, very little progress was realized from this strategy based on the far-reaching effects of the 2008 recession. However, between 2009 and 2011, remarkable progress has been witnessed in regard to the alliances with other partners (Euromonitor, 2011).

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Cost Cutting (Financial Cut-backs)

According to Olsen et al. (2008), cost-cutting refers to an internal company strategy where the management decides to cut down some costs so as to help them cope with shaky economic times or other challenging financial issues. According to Harding and Hetz (2008), an unnamed director from Sol Meliá told Reuters that their company decided to cut back over 1billion Euros in their investment plans. Harding and Hetz further reported the director saying that this strategic move was adopted by Sol Meliá based on the “economic downturn” being faced by the company thus leading to a reduction in tourists’ spending which, in turn, limited the profits by the company.

The director, who was talking over the phone, additionally said that, on the verge of maintaining the company’s financial health, expansion and refurbishment plans of Sol Meliá had to be pushed to 2009 based on 42% slash on the company’s profits based on the 2008 economic downturn. Compared to the estimated 300 million Euros spending budgeted for 2008, the director said that Sol Meliá had no option, but to cut its budget so as to spend less than 200 million Euros (Harding & Hetz, 2008).

In Porter’s Generic theory, cost leadership is a key method that can be used by managers to help solve financial problems, as has been explicated above by Sol Meliá (David, 2009). However, caution should be taken so that the costs are cut to the point that the organization is negatively affected more than it should (Harris, 2011).

Increased Work (Output) by the Company

In terms of tourism, Spain has a formidable industry ranking as the second most visited place in the world, after France (International Markets Bureau, 2011). According to Euromonitor (2011), Spain received approximately 51.7 million tourists in 2009 mainly composing of Europeans from the UK, Germany, France, Italy and Nordic countries. In the same year, these tourists reportedly spent a total of 154.2 Billion U.S. dollars in Spain. In spite of this large sum of money spent in Spain’s tourism, Euromonitor (2011) reports that 2009 was the worst performing year in Spain’s tourism travel, hospitality and tourism industry based on the resultant effects of the 2008 global economic crisis.

In response to the crisis which reduced the revenues earned by most people, International Markets Bureau (2011) notes that most tourists chose to work more and engage in more economic endeavors that would help them have enough money to use in tourism during the next holiday season. Statistics from several quarters indicate that in 2010 and 2011, more people got to tour Spain and spend more than was done in 2009; an indication that the strategy of increased work duly served its purpose. Traditionally, increased work has been a strategy that has been used in most industries and countries with positive results realized thereof (Harris, 2011). Thus, this strategy is typified in the case of Sol Meliá was not a surprise to most macro-economists.

Diversification of Products and Services

In a market that is collapsing or facing a lot of challenges, diversification of products and services can be of great (Altinay & Altinay, 2003). This is based on the arguments such as; diversification helps in catering for new needs of the targeted population, offers a competitive advantage over new competitors, and allows for new or better products and services to be introduced in the market (Ansoff, 1957).

In Sol Meliá, diversification of products was mainly done because of the mergers that the company had gotten into, especially with other tourism-related companies, thus, necessitating the introduction of new products. Additionally, the increased multicultural and multiracial society in Spain meant that new eating habits had to be catered for. Examples of such newly introduced foods include pita bread, bagels and corn tortillas (International Markets Bureau, 2011).

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In some instances, diversification into superior products and services, when compared to those existing in the market, led to increased sell prices thus offering more revenues to the companies (Harrison, 2003; & Harrington, 2004). This, probably, is the reason Kotler et al. (2010) says that diversification is considered a key aspect of Ansoff’s matrix and it is believed to offer the great strategic capability to companies by providing products and services that are not only valued in the present but may also be of immense value in the future.

Through increased marketing, companies such as Sol Meliá were able to market their diversified products and services in a better way. This helped in dealing with their financial and economic challenges in a better way due to the increased customer bases as well as increased sales (International Markets Bureau, 2011). It is, however, noteworthy that not all marketing endeavors resulted in positive growth.

Branding and Re-branding

A brand is a commodity, service or company characteristic that distinguishes it from other commodities or companies; it is the name or a symbol that identifies one product or services from the others in the market. Big brand names have been developed over the years as competition for products and services has continually been on the rise. Brands help the buyer easily recall and recognize a product (Ray & Teckchandani 2008). It also helps the sellers increase the market reach and thereby minimizing the marketing costs of the product (Randall, 2000). As was earlier mentioned, Sol Meliá’s brands have, over time, been used and fostered positive progress by dealing with the needs of various diverse markets (Funding Universe, 2011).

Despite the economic stagnation, high rates of employment and drop in revenues for the consumer food market in Spain, after the 2008 global recession; the International Markets Bureau (2011) notes that the good brand name of Sol Meliá has been able to boost its image both locally and internationally thus providing a relatively soft cushion to bounce on during tough financial times (Hayes & Ninemeier, 2009).

It is also worth noting that, over time, Sol Meliá has been able to change its name (re-brand) based on research done in the consumer market. In conducting researches on preferred brand names, aspects such as awareness of the brand, brand image, brand associations and the loyalty to the brand are normally assessed then, depending on the customers’ views; re-branding can occur or be avoided (Aaker, 2004; and Helfat & Peteraf, 2009). Most recently, it changed its name from Sol Meliá to Meliá Hotels International so as to accommodate its local and international endeavors. According to Olsen et al. (2010), getting into alliances with other well-performing brands hugely helps in boosting the progress by various companies.

Recommendations: Short and Long-Term Development Strategies

The recommendations that are going to be given below will be based on three major trends/issues namely: Economic, Business Environment and Competition. In explaining these recommendations, other general factors and issues will be detailed.

Economic Issues

In spite of Spain being highly rated with a high quality of life (the twentieth highest development Index in the whole world), the global economic crisis had a huge negative effect on the country and its industries (. According to Euromonitor (2011), Spain’s high rate of unemployment together with the effects of the economic downturn lead to a 0.4% drop in the country’s GDP.

Even more importantly, the International Markets Bureau (2011) the consumer foodservice industry sales dropped by 4.2% in the year 2009. As a short-term recommendation, it would be advisable for the government to work hand-in-hand with its industries to improve on development agendas (Israeli, 2007). Merging with donor institutions like the International Monetary Fund (IMF) can prove invaluable in offering short term solutions in the form of funds to the country. As for Sol Meliá, the fact that more people resorted to food from hotels and restaurants instead of cooking at home should act as a motivation for them to tailor more fitting services to their clients.

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According to Euromonitor (2011), sales in the fast-food industry are anticipated to constantly grow by 9% between 2010 and 2014. Therefore, on a long-term basis, Sol Meliá and other related companies should make more investments in regard to these market projections so that the company can capitalize on the growth prospects (Michael, 2003). Going by the fact that Sol Meliá is a company with far-reaching resources and personnel, making adjustments would be much easier for them.

In addition, short and long-term brand management and price-cuts should be made by Sol Meliá to increase their status in the market based on the report that many consumers switched to generic brands to deal with the high prices by original brands. This will go a long way in helping Sol Meliá get more clients and thus better revenues.

Business Environment

In essence, the hotels and restaurant environment is a highly complex industry with several dynamics like suppliers, consumers, and stakeholders. If success is to ensure, then it is primarily advisable that all these dynamics are well coordinated. In Sol Meliá, the management has been able to do great in terms of managing the aforementioned dynamics (Bender et al., 2008; Milla & Shoemaker, 2008).

Nonetheless, going by the challenges it continually faces in the hotel industry, it is recommendable that relevant changes are made both in terms of short and long-term plans. For example, since current reports indicate that there has been an increase in the demand for products such as vegetables, seafood, meat, and vegetables; Sol Meliá should find a way of ensuring that their supply chains provide ample supplies of these products (Rodríguez-Díaz & Espino-Rodríguez 2006).

Over recent times, there has a shift in cultural patterns in Spain based on the increased number of immigrants. The presence of these immigrants has led to dietary changes to cater to the new eating behaviors of these immigrants (Teece 2007). As a short-term recommendation, more foods and cuisines accommodating the needs of these immigrants should be incorporated in the restaurants and hotels like Sol Meliá (Okumus et al., 2010). On a long-term perspective, restaurants and hotels that specifically focus on different sets of ethnic foods like Chinese foods or Indian foods should be put in place. Such diversifications not only help in boosting sales, but they will also help in creating more employment opportunities (Paraskevas, 2006; and Porter, 1998).

On another note, there has been an increased awareness of health-related food for various groups of people in society like people old people or even sick people who need certain specialized dishes International Markets Bureau (2011). In this regard, it hugely recommendable that long-term plans are put in place so that hotels have a steady flow or supply of these specialized foods. This will greatly help in the sustainability of health while ensuring that the hotelier companies benefit from the sale of such foods (Pradeep & Hu, 2009; and Paraskevas & Arendell, 2007).

Commendably, International Markets Bureau (2011) notes that “although Spaniards are attached to their own cuisine and eating habits, they are also open to foreign foods.” This, probably, is the reason there have been increased numbers of food outlets such as McDonald’s, Burger King and Telepizza in the Asian, Middle Eastern, and European markets. Sol Meliá should, therefore, strive to progressively increase such joints so that they can be able to maximize on the available markets

Competition

According to Brotherton (2004), the hotel industry is a very competitive industry with several players actively involved in it. In spite of Sol Melia’s dominance in Spain as the leading hotel and holiday Resort Company, the competition is hugely fierce. To this regard, Sol Meliá is reported to own over 300 establishments and over 77, 300 hotel beds, Riu Hotels follows second with about 100 hotels and over 50, 000 beds and the NH Hotels with approximately 260 hotels and more than 37, 500 beds (International Markets Bureau, 2011).

Other major competitors in Spain include AC Hotels, Barcelo Hotels, Iberostar Hotels, and Princess Hotels among many others. In order for Sol Meliá to stay above these aggressive competitors, it is recommendable that the company not only maintains its current respected ways of operation (which are respected by many) while sourcing for other innovative ways of gaining a competitive advantage over its ever-increasing competitors (Burgess, 2010; and Cartwright &Schoenberg, 2006).

Some of the recommendable ways of staying on top of their competitors include designing new and better products as well as services, implementing price-cuts on their products, offering better customer services than their competitors and engaging more in corporate social responsibility (CSR) activities that will grant them favor with their clients (Chung, & Parker, 2008, DeFranco, 2006, Chathoth & Olsen, 2003).

Conclusion

Based on the above discussions, it can be said that Sol Meliá has done a lot to keep itself ahead of its competitors. However, many other strategies still need to be made in order for the progress to be sustained. For instance, marketers and company management should design ways in which customers are involved in company affairs (Rivera et al., 2008). Other stakeholders like the government, the general public and other related institutions should cooperate towards the betterment of tourism.

Commendably, a lot has been done to improve tourism, tourism endeavors and stakeholder involvement over recent years. However, there is still much more that needs to be done in order for tourism to ultimately find a way of strongly sustaining itself and staying devoid of its challenges. This might seem like a long way to go; but if relevant positive steps are taken, this dream might just be turned into a reality sooner than we think or anticipate. More aptly put in the words of the old adage, “a journey of 1000 miles begins with one step.”

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