CHAPTER III: BUSINESS STRATEGIES FOR VIETNAM TRADE UNION HOTEL IN
Chart 2.2 Organization chart of Vietnam Trade Union Hotel in Hanoi
In this chart we cannot see the other functional departments as they belong to the company not to the hotel. The disadvantage of this organization will be discussed later.
2.1.4. Business results
In the last five years the revenue of the hotel was always the biggest one among all the property and business activities carried by the company. It once again confirms the importance of the hotel to the company business and financial health.
Table 2.2. Vietnam Trade Union Company Business results from 2006 to 2010 (the amount is in billion VND)
Year
Items 2006 2007 2008 2009 2010*
Hotel in Hanoi 33.15 42.43 50.31 60.223 82.45
Hotels in other areas 2.25 4 7.902 23.103 29.21
Other revenue 9.86 14.4 12.048 4.344 10.59
Total Revenue 45.26 60.83 70.26 87.67 122.25
Income before tax 0.580 0.810 0.80 1.865 3.02
* = estimated figure (Source: Vietnam Trade Union Company [2])
24 Manager
(of the company & hotel)
Front Office + Bell Food & Beverage
Department Housekeeping
Room cleaning
Laundry Public
area
Engineering &maintenance
Kitchen
Restaurant
Catering
In the last 5 years the hotel has operated with a fairly good business results and strong development through the years. The following table shows the business results of the hotel from 2006 to 2010.
Table 2.3. Vietnam Trade Union Hotel in Hanoi Business results from 2006 - 2010 (the amount is in billion VND)
Year
Items 2006 2007 2008 2009 2010*
Room Revenue 19.25 23.1 25.12 28.129 39.19
Food & Beverage Revenue 12.77 16.22 20.98 26.441 37.14
Other revenue 1.13 3.11 4.21 5.683 6.12
Total Revenue 33.15 42.43 50.31 60.223 82.45
Income before tax 0.37 0.51 0.87 1.2 1.92
Occupancy percentage (%) 75 89.4 87 86.3 83.6
Average daily rate (USD) 30.26 32.12 35.75 38.87 55.89
* = estimated figure (Source: Vietnam Trade Union Hotel[2]) In terms of structure of guests or market segments that come to the hotel, 56% of guests are foreign travelers, 44% are Vietnamese. The guests of the hotel come from different sources. The main source of guest is from tour operators and travel agencies which accounts for 50% of the total amount of guests. Next in the rank is from Viet Nam General Confederation of Labor with the proportion of 10%.
These are the guests who come to Hanoi for business, meetings related to Viet Nam General Confederation of Labor work or on vacation organized under the system of program carried by this organization. The rest 40% of guests are Free Independent Travelers who come to the hotel either for business or for leisure.
2.2. Vietnam Trade Union Hotel External Assessment 2.2.1. Macro Environment
2.2.1.1. Economic Environment
Both domestic tourists and international tourists are the main sources of money for the hotel and tourism industry. Therefore, the health of hotel and tourism industry is greatly affected by the economic environment both in the country and in the global environment.
In recent years the world economy has suffered from crisis that slowed down the development of tourism industry as people had to consider their budgets for traveling. In 2008, there were over 922 million international tourist arrivals, reaching a growth of 1.9% compared to 2007. International tourism receipts reached US$944 billion in 2008. However, due to the recession, international travel demand suffered a strong slowdown beginning in June 2008, with growth in international tourism arrivals worldwide dropping to 2%. The year 2009 continued with this bad trend when the world tourism declined 4% with only 880 million international tourist arrivals. [11]
After a year of recovery, the global economy started to grow slowly and this slow growth is expected to continue into 2011 and 2012. The United Nations baseline forecast for the growth of world gross product (WGP) is 3.1 per cent for 2011 and 3.5 per cent for 2012, which is below the 3.6 per cent estimated for 2010 and the pre-crisis pace of global growth. [12]. With the recovery of the world economy the world tourism has also gained benefit. According to World Tourism Organization, International tourism recovered strongly in 2010 with the increase up to 7% of 935 million, following the 4% decline in 2009 – the year suffered from the global economic crisis. The majority of destinations worldwide posted positive figures, sufficient to offset recent losses or bring them close to this target. Asia, the area reaching the growth rate of +13% was the first region to recover and the strongest growing region in 2010. International tourist arrivals into Asia reached a new record at 204 million in 2010, up from 181 million in 2009. Following a year of global recovery in 2010, growth is expected to continue for the tourism sector in 2011 but at a slower pace. UNWTO forecasts international tourist arrivals to grow at between 4% to 5% in 2011, a rate slightly above the long-term average. [11]
This fact poses a great opportunity for tourism industry in Vietnam in general and for the hotel industry in Vietnam in particular to get more guests and increase the revenue.
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Going with the recovery of the global economy, Vietnam’s economy has gain a good recovery in 2010 with the GDP of US $104.6 billion reaching the growth rate of 6.78% compared to 2009 and 0.3% higher than forecasted. However, 2010 was also the year the Vietnam’s economy was hit by some other remarkable events of:
• The interest rate race started by commercial banks which reached 18% at its peak. This event negatively influenced the goods market.
• The gold and foreign currency market chaos putting the gold price reaching the record high of 38 million dong per tael and pushing the exchange rate to 21,000 VND to 1 USD.
• The high inflation rate of 11.75%
• Real estate prices followed gold prices and urban planning. This event made the real estate prices increased sharply in 2010 by 30-100 percent.
These events are forecasted to continue in the future and thus pose both opportunities and threats for hotel industry in general and for Trade Union hotel in particular.
On the bright side, the recovery of the economy is a positive factor to increase the need and budget for traveling for domestic tourists who are a very important source of revenue for hotel and tourism industry. In addition, the high exchange rate between VND and USD is the one that can help the hotel look less expensive to foreign tourists as most of the expenses are paid in Vietnam Dong.
Further more, the expensive real estate price could be a factor that prevents future competitors in hotel industry.
On the dark side, the slow recovery of the economy, the high inflation rate, the attractive interest rate, the gold and foreign currency market chaos may make people practice economy and cut down their budget for luxury or invest money to bank, dollar, gold rather than traveling.
2.2.1.2. Socio-cultural Environment
Vietnam has an agricultural civilization based on the cultivation of wet rice and Vietnam culture is one of the oldest in East Asia. Due to the long-term Chinese influence on its civilization, in terms of politics, government and Confucian social and moral ethics, Vietnam is considered to be part of the East Asian Cultural Sphere.
After the Chinese domination, Vietnam was then under the French colonial period and thus Vietnamese culture received merchant influences from the Europeans, including the spread of Catholicism and the adoption of Latin alphabet.
Before the 1990s tourism and hotel were perceived as luxury and something against traditional moral value. Hotels and restaurants were sometimes associated with social evils and thus opening or working in these kinds of property were not culturally and socially easy. Since the 1990s, Vietnam has exposed greatly to Asian, European and American culture and media. The new generation gradually considered hotel and tourism a normal business. The association between hotels, restaurants, tourism and social evils has been getting weaker.
Nowadays, Vietnam is very open in every aspect of life while still maintain its core characteristics. It means that there are, now, almost no barriers in terms of culture or social norms for running hotel and tourism business. In addition, Vietnamese people have been long known for their hospitality and hard working.
Vietnam also has young population that is a great potential source of labor for hotel and tourism industry. For that reason the socio-cultural environment is very favorable for doing tourism and hotel business.
However, as influenced by the Confucianism, Vietnamese are more university degree oriented and thus look down on vocational training. They also look for job in offices or at management level rather than at entry level. This fact has created the lack of skillful workers which are very necessary for very industry
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especially labor-intensive ones like hotel and tourism. It is also the reality that the tourism and hotel industry in Vietnam is facing.
2.2.1.3. Politic Environment
The Constitution in general establishes the mastery of the people under the leadership of the Communist Party. The power of the people is presented through the National Assembly at the central level and the People's Councils at local levels.
The National Assembly is the supreme representative and legislative body.
The National Assembly is elected by universal suffrage. The National Assembly elects and the President, Vice-President, Chairman of the National Assembly, Vice- chairman of National Assembly, members of the Standing Committee of the National Assembly, the Prime Minister.
With this system and structure, Vietnam has been political stable. There have not been any major political crises, chaos or unrests that impact the doing of business in Vietnam. Though some international organization issues report showing the doubt on transparence and corruption in Vietnam, Vietnam is till considered a reliable place to do business and Vietnam government is trying to make that happen.
In Vietnam, tourism was determined as an important economic sector in strategy for the social and economic development of the nation and as an important strategic direction in the social and economic development line of the government.
That requires each sector, each branch, and each level of government as well as tourism itself have to adopt a renewed way of thinking to totally mobilize every resource of the nation to “develop tourism, establish the tourism with the scope correlative to the great potential of the nation as adopted by the seventh resolution of the Executive Committee of the Vietnamese Central Communist Party, the eighth office term. [13]. This orientation has been maintain till now and would not possibly change in the future.
In addition, Vietnam is considered a safe country for traveling and tourism.
Hanoi was also recognized as “the city for peace”. This is very important in the situation where there is terrorism, political unrest and conflicts in other neighboring countries in the area who are competing in tourism with Vietnam like: Thailand, Indonesia, Cambodia…
What can be concluded from the above analysis is that the politic environment is also favorable for tourism and hotel business.
2.2.1.4. Natural Environment
Vietnam has idea natural environment for tourism development. Vietnam has beautiful long coastline spreading out in 3,200 km with many various and diversified landscapes, islands and beaches, which are in the original state and are relatively unpolluted. Vietnam also has the strong forest coverage increase. The forest coverage of Vietnam increased from 37% in 2005 to 39.5% in 2010 and planned to be 47% in 2015.
There are several natural environment issues that can impact the business of hotel in Vietnam. They are pollution in big cities, floods and storms, drought which can cause the electric power shortage. Luckily floods and storms normally happen in the summer only and Hanoi, where Vietnam Trade Union Hotel locates, is not severely hit by storms and rarely hit by flood.
Though pollution in big cities in Vietnam is a matter of great concern for both government and Vietnamese people, Vietnam is still considered less polluted than other developed countries.
2.2.1.5. Technological Environment
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In the recent decades, human has witnessed the strong and fast developments of technology. Among these developments, the development of internet is the most important one to hotel and tourism business.
Internet is now very familiar with the world population. Through a study about online population Jupiter Research Corporation forecasted that by 2011, 22 percent of the Earth's population will surf the Internet regularly. They also said 1.1 billion people would have regular Web access. For the study, Jupiter Research defined online users as people who regularly access the Internet from dedicated Internet-access devices, which exclude cellular telephones. With the development of Wireless Application Protocol, 3G technologies there are many more people accessing internet each day from cell phones. Internet has been a very powerful force in every industry and aspect of life.
In terms of hotel and tourism, with internet tourist can search for information about destination, hotels, flights and make reservations online. The internet intermediaries like agoda.com, booking.com, expedia.com etc. are now very familiar with travelers. Internet makes traveling easier and cheaper. It also changes the way tourism businesses do marketing. Hotels now must keep up with the development of internet to stay competitive.
The other technology that hotels now have to rely on is the Personal Computer and hotel management system which is also known in the hotel industry as Property Management System (PMS). Some of the well known and popular PMS are Fidelio, Opera, Smiles, Folio… Most of hotels now rely on PMS for fast, easy and effective operation and management. PMS and Internet make up a very powerful tool for Yield Management which is a necessary part that makes a hotel financially successful.
2.2.2. Micro Environment
2.2.2.1. Competitors
At present, the business environment for hotel industry in general for 3-star hotel segment in particular is very favorable. According to CBRE Việt Nam (a consultant and real estate management firm), the supplies of hotel rooms in 2010 was 6,618 rooms in which the 3-star hotel segment was 1,978.
Table 2.4. Hotel market in Hanoi in 2010
( Source: CBRE’s Quaterly report – January 2011[6].) Going in detail for each segment, the statistics show that the 5-star segment still maintained a slight increase in ADR (0.98%) to 126.22 USD while the decrease of the 4-star segment was 9.97% to 67.57 USD. The decrease of the 3-star segment, was 6.88%, down to 38.55 USD. As also seen from the above table all of the segments enjoyed an increase in occupancy with the lowest is in the 3-star segment with 2.3%.
In another research Savills (a world leading company providing real estate services) predicted that the average occupancy rate of the 4 and 5 star hotels in Hanoi will suffer from strong competition in the next years due to the openings of new hotels. In long term there is no sign of competition among 3-star hotels.
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According to an official source of information from Hanoi Administration of Culture – Sport and Tourism there are 24 3-star hotels with the total number of rooms of 2,025.
What can be seen from the above analysis is that the competition in the 3-star segment where Vietnam Trade Union hotel is in is not so hard.
Regarding direct competition in the 3-star segment, there are 24 3-star hotels in Hanoi but not all of them are considered direct competitors to Viet Nam Trade Union hotel in Hanoi. Due to the unique characteristics of the hotel industry as analyzed above there are several other criteria to identify competitors beside the traditional ones of target market segments, price, product range (quality of hotel facilities, level of hotel and its services, other supporting services). They include the location of hotel and the access to other important places. Basing on the above the criteria used to identify competitors of Viet Nam Trade Union hotel in Hanoi are as follow:
• It must be a 3-star hotel
• The Average Daily Rate must be about 30 to 60 usd
• The main target market is the Vietnamese businessmen
• It must provide other facilities and services of: restaurant, banquet, meeting service, air-ticket booking service, travel arrangement, massage.
• It must be located within a radius of 10 km with Hoàn Kiếm lake – the center of Hà Nội – is the center.
According to the criteria set above the followings hotels are qualified to be the competitors of Viet Nam Trade Union hotel in Hanoi:
• Hòa Bình Hotel – 27 Lý Thường Kiệt – Hà Nội
• Kim Liên Hotel – 7 Đào Duy Anh – Hà Nội
• La Thành Hotel – 218 Đội Cấn - Hà Nội
These current competitors are analyzed in the 4 aspects of product, price, promotion and places which are more or less the same as 4 Ps in marketing mix.
a. Product:
All the 3 competing hotels do not have any products that can out stand to be more competitive. Their main products are hotel rooms, banquet service, convention service and other supporting services like travel arrangement, massage…
In terms of the quality of service, Hòa Bình hotel have better room quality than the other two and it also enjoys the advantage of having traditional French architecture which is very attractive to foreign visitors especially the French tourists. Generally, guest rooms at Viet Nam Trade Union hotel in Hanoi are newer and more beautiful than that of the 3 competing hotels. However, Viet Nam Trade Union hotel in Hanoi does not have the unique architecture like Hòa Bình. For that reason, quality of facilities and guest rooms at Viet Nam Trade Union hotel in Hanoi are equal to that of the 4-star hotel.
Regarding the scope hotel, Kim Liên hotel is the biggest one in both of number of rooms and restaurants among the 3 competing hotel and bigger than Viet Nam Trade Union hotel in Hanoi. However, the quality of both service and facilities at Kim Liên are not high and it is only ranked at higher place than La Thành hotel for quality. In short, Kim Liên just dominates the quantity not quality.
Talking about the Program and Packaging, all the 3 hotels do not have any products that are programmed or packaged to serve as a competitive advantage. The popular package that the 3 hotel offer is wedding party + 1 room night for those who book wedding party at the hotels. With this kind of package, Viet Nam Trade Union hotel in Hanoi has more advantage than the other 3 because guests can choose to spend the night at any hotel in the chain in Hạ Long, Đồ Sơn, Sa Pa, or Hà Nội. This is a great choice for a honey moon.
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It can be said that, the 3 competing hotel and Viet Nam Trade Union hotel in Hanoi do not have any strong strategies to develop their products. Moreover, with the characteristics of the hotel industry it is very hard to develop a product which is totally different from competitors.
b. Price:
In terms of price strategy, the rack rate (or published room price) of the 3 competing hotels are more or less the same ranging from 25 to 150 usd/room/night depending on each type of room. All of the 3 hotels have the similar strategy of offering discount to Tour operator or in low season with the percentage of discount ranging from 10% to 40% of the rack rate. Among the 3 hotels, Hòa Bình hotel has the most flexible price strategy because they have started to apply the Revenue Management or Yield Management system to monitor the pricing process. The other two hotels just apply the discount basing on the contract signed with the tour operators. In price strategy, Hòa Bình hotel is considered the strongest competitor to Viet Nam Trade Union hotel in Hanoi.
c. Place:
The 3 hotels have relatively poor distribution strategies and base mostly on selling room and service through tour operators and travel agencies as a part of the tour operators products. The distribution is also based on the direct sales staff. In general, among the 3 hotels Hòa Bình hotel has the best distribution strategies as this hotel make the most of the information technology and follow the trend of selling on-line which is very popular now in the industry. Hòa Bình hotel has its own web site which is attractively designed and provides good source of information as well as other convenient room booking engine. This is a good and effective room distribution channel. In addition, the hotel also sells rooms through on-line booking web site like asiahotel.net.
Kim Liên also has it web site but this one is not well taken care of.
Information in the web is poor and not updated. Module for room booking just goes