Unit 19 Hospitality And Provision In TT Assignment

P 2.1 Analyze the implications of integration to the hospitality industry

In this section, we will introspect on the two types of integration that are widely accepted. They are: horizontal integration and vertical integration. It entails about the consequences it may bring in, and also suggests the ways to analyze the implications.

Vertical integration: This is the kind of integration when the firm directly starts taking up its downstream or upstream process. Suppose, there is a firm which deal in providing with manufacturing process, starts taking up the process of logistics as well, this is known as vertical integration. Same happens in the case of hospitality industry , when a hotel group starts manufacturing products like towels, soaps for the hotel, itself. This definitely reduces the costs of production.

It can lead to the following:

• Attain monopoly in market
• Reduce costs
• Coordination process gets better

However, it has its disadvantages too. They are:

• Flexibility gets lessened down.
• Internal issues may arise.
• In the time of recession, shrinking may occur.

Horizontal integration: This refers to expanding the services of a company, but at the same level i.e. opening more hotels, expanding to other countries, merging with other brands. Once horizontal integration takes place, this brings in the following opportunities:

• Less competition
• Costs get down
• Reach gets higher

But, it has some drawbacks too. They are:

• A new product in the market by the same company may not prove to be beneficial.
• May erase the value of the new product.

P 2.2 Discuss how integration has affected a hospitality business

The process of integration is extremely vital in the field of hospitality. It is very common in today’s era, when companies expanding themselves or evolving out into new brands. Such things have turned out to be advantageous, although some drawbacks or lagging could be found as well. It might be for commercial terms, but such a variation is bringing gains for both, the guest and the host.  This is a huge step taken by the companies in the contemporary world in order to provide better hospitality to the customers. (Svensson and Svaeri, 2009).

Now, let’s take a look at the impacts that may be contagious to the hospitality industry. These are:

• Organization size: a major company can hold monopoly in the market by taking up a smaller company; whereas, the smaller companies have no choice.
• The size do an independent venture declining: with vertical integration, a company might exercise its control over any sector of the business, be it manufacturing, or logistics. This hampers the role of independent businesses. This affects the SMES ns the suppliers as well.
• The hold over sub-sectors:This refers to the extension of a company’s control over other sectors as well. For eg. Reliance has done so in the recent past acquiring control over petrochemicals and textile materials. The Bulgari Hotel in London has ensured a royal stay for the visitors with a chopper service available for them.
• Standardized format of services offered to the clients: Standardization is a crucial criterion for everyone in this world. It brings in a sense of transparency in understanding and communication. With the two forms of integrations, the services are impacted upon. It brings in many issues of economical and geographical misunderstandings (Okumus and Altinay, 2010). This can be brought out through this: say a small company gets purchased by a large firm and it transforms its products according to its own standard, it might prove to be unrealistic. The products may prove to be of unreasonable cost.

New forms of ownership and operation:

Such a process of integration has affected the market to a drastic extent and new contract forms have evolved out. The concept of franchise has come out with new stakes in share taking up the hold. However, it has brought advantage to big firms like Marriott Hotel , or Bulgari Hotel. They can act in their comforted way to impress an image of goodwill in the minds of the customers (Chang and Hsu, 2010). There also cases when smaller companies have attained fame by merging up with comparatively larger companies (Ritz-Carlton and Marriott). Following is an essential in such kinds of agreement:

Management Contract: In this, the owner of a company has to be legally agreed upon, while merging or selling the property to another company. It implies that the new owner has the right to run or manage the property under a certain fixed amount.

Following are the management companies that are considered to be at the peak:

• Marriott International
• IHG
• Starwood Hotels
• Hilton Hotels
• ACCOR

There is a certain amount t of rent, known as lease, paid by the owner of a company to the former owner of the company. The amount varies from regions to regions. These are basically the earnings from food, banquet halls, beverages etc. There is an agreement done between the owner of the franchise and the owner of the same brand. This is known as Franchise Agreement. It gives the tag of being a part of the brand chain to the franchise. Through certain deals or leases, the owner of the franchise gets some stakes in the brand company (Racherla, 2009).