Part 2, Unit 4 The external environment: PEST analysis Tourism Strategy Part 2, Unit 4 The external environment: PEST analysis

Part 2: Strategic Analysis Strategic analysis utilises techniques for situational analysis. This involves reporting on the current and future opportunities and threats and strengths and weaknesses facing the organisation. Opportunities and threats summarise the external environmental factors that a tourism organisation faces. The key elements of the external environment may be summarised as C-PEST factors which refer to the competitive political economic socio-cultural, and, technological environments. Of these, PEST factors are analysed in chapter 4, whilst the competitive environment is considered in chapter 5. Strengths and weaknesses analysis summarises the state of the internal resources of an organisation. Resource analysis is undertaken in chapter 6. All these factors are brought together in a comprehensive SWOT analysis at the end of chapter 6, thus concluding strategic analysis and part 2.

Reading Book Ch Tribe, J, (2010) Strategy for Tourism, Goodfellow Publishers, Oxford. 4 Capon, C. (2008) Understanding Strategic Management, Prentice Hall: Hemel Hempstead. 2 Tribe, J. (2005) The Economics of Recreation, Leisure and Tourism, Butterworth Heinemann, Oxford. 8, 9 Johnson, G., Scholes, K., and Whittington, R. (2008) Exploring Corporate Strategy, Prentice Hall: Hemel Hempstead.

Learning Outcomes After studying this chapter and related materials you should be able to understand: the political environment the economic environment the socio-cultural environment the technological environment and critically evaluate, explain and apply the above concepts.

Case Study 4: Tourism and the 2008 Economic Crisis 2008 can be added to the list of significant economic crises which include the Great Depression (1929-35) and the Asian Economic Crisis of 1997-8. By 2007 an unsustainable set of economic conditions were developing. Two quarters of falling output in 2008 confirmed the arrival of a recession in both the UK and the US. For tourism, the UNWTO predicted stagnation (0% growth) or even slight decline (-1% to -2%) throughout 2009. Amongst those most affected were the Americas and Europe as most of their source markets were affected by recession.

Case Study 4: Tourism and the 2008 Economic Crisis

The political environment Since tourism entities are affected by current and new government legislation, it is important to understand the location of political power, how political power may change in the future and the likely effects of this on policy (Burns & Novelli, 2009). The next slide distinguishes between policy objectives of typical democratic political parties of the left and of the right.

The political environment Left wing (e.g. Labour / Democrat parties) Right wing (e.g. Conservative / Republican parties) need to control the free market pro trade unions some state ownership of industry progressive taxation regulation of industry higher government spending and taxes reduce inequality of incomes provision of jobs a priority comprehensive welfare state poverty reduction and social mobility goals belief in supremacy of the free market anti trade unions private ownership of industry proportional taxation minimal state interference low taxes and government spending inequality of income as incentive control of state spending a priority minimal welfare state belief in self-help

Opportunities and threats in the changing political Competition policy Health and safety Transport and infrastructure Global carbon agreements and targets Taxation and spending plans Disability and access legislation Foreign policy Visa policy and home security Regulation and deregulation Regeneration plans Employment and training policy Travel advisories Minimum wages

Political Environment: Aftermath of Kenyan unrest 2008

The Economic Environment The economic environment (Tribe, 2005) affects different types of tourism entities in different ways. The success of an international tourism destination such as Mallorca, Spain, will be affected by economic fluctuations in those countries which supply the majority of its visitors (tourism generating countries), as well as its economic attractiveness compared to competitive resorts. Tour operators such as Kuoni (Switzerland ) and TUI (Germany/UK), face a number of economic environments. First, domestic economic environments affect the expenditure patterns of their clients. Second, the variety of different international economic environments in which their tourism product is located affects the supply of the tourism package. Providers of tourism services will find the international economic environment affects the demand for their services and the costs of supplying those services.

What are the key variables? The economic environment affects organizations in the leisure and tourism sector in two main ways. Changes in the economic environment can affect the demand for an organization’s products Changes may affect an organization’s costs. These are set out in the next sections Additionally background factors such as share and property prices may affect organizations.

The economic environment and demand Borrowing Employment Taxes Expectations Disposable Income Benefits Government Expenditure Household Consumption Savings Exports Demand Imports Investment Tourism Organisation

The economic environment and demand The key macroeconomic factors affecting demand for tourism industries are: household consumption export and import demand government expenditure investment

What determines the level of household consumption? Borrowing Employment Taxes Expectations Disposable Income Benefits Household Consumption Savings Imports

What determines the level of household consumption? real household’s disposable income employment benefits and taxes borrowing and savings expectations

Export and import demand Some household consumption is spent on imports. For the recreation, leisure and tourism sector this can be a significant amount. The demand for imports is affected by overseas costs, quality and uniqueness and the exchange rate. On the other hand some demand for the goods and services of domestic firms arises from overseas customers in the form of imports. The demand for exports is similarly affected by relative costs, quality and uniqueness, the exchange rate and the prosperity of overseas economies.

Government expenditure Tourism organizations which are sensitive to changes in government expenditure are those which depend upon government for their income. Examples of these include arts organisations including museums and Visit Britain The level and detail of government expenditure tend to reflect two things. the state of government finance the political party in power.

Investment Some organizations do not supply goods and services to consumers, but specialize in supplying capital goods to other firms. For example, the aircraft manufacturer Airbus, selling to airlines and tour operators, finds demand for its products is sensitive to the level of investment in the economy

The economic environment and costs Interest Rates Exchange Rate R,L & T Organization Inflation Rate Indirect Taxes

The economic environment and costs The key macroeconomic factors affecting costs of recreation, leisure and tourism goods and services are: interest rates inflation the exchange rate indirect taxes

Destinations

Opportunities and Threats in the Economic Environment Low interest rates High interest rates Low unemployment High unemployment High consumer expenditure Low consumer expenditure Low oil and other commodity prices High oil and other commodity prices Low Taxes High Taxes Favorable exchange rate Unfavorable exchange rate Stable prices Inflation Optimistic expectations Pessimistic Expectations

The Economic Environment for an airline Variable Comments Opportunity Threat Interest Rates Employment Exchange Rate Taxes Economic Growth

The sociocultural environment Factors in the socio-cultural environment of tourism entities include the size and structure of the population lifestyles and inter-cultural differences other factors (including attitudes and values about travel, availability of paid leave and unemployment) tourist motivations

The technological environment The technological environment offers both opportunities and threats: Opportunities may be found in cheaper provision, or improvements in goods and services, in better marketing or easier distribution. However technology may result in an organisation's product or service becoming obsolete, or subject to new forms of competition. The technological environment may be divided into Information Communication Technology and other technology.

Information Communication Technology ICT relevant to tourism encompasses information search, purchase of services, post travel engagement and networking. It includes information and reservation systems for airlines, hotels and attractions, timetables for transport systems, search engines (e.g. Google) online travel services (e.g. Expedia, Orbitz, Lastminute.com, Opodo, Travelocity and edreams), destination management systems (e.g. visitbritain.com), networking and web 2.0 portals (e.g. tripadvisor.com) and price comparison sites (e.g. travelsupermarket.com).

Other Technology Other areas where technologies have had a significant impact on tourism include: Construction techniques - allowing faster erection of buildings. Bridge technology – extending access and cutting journey times. Materials – lighter and more durable materials. Glass – especially with better insulation properties. Fuels – e.g. biofuels. Energy – especially alternative sources of energy such as wind and solar power. Security scanning – which enables quicker and more accurate passenger checking at airports.

Scenarios: Tourism 2023

Tourism 2023 Four scenarios from the Future Foundation 1. boom and burst A booming UK economy and high disposable incomes have fuelled a growth in travel worldwide. 2. divided disquiet A toxic combination of devastating climate change impacts, violent wars over scarce resources and social unrest has created an unstable and fearful world. 3. price and privilege A dramatically high oil price has made travel punitively expensive. 4. carbon clampdown The Government has introduced tradable carbon quotas for all UK households http://www.forumforthefuture.org/files/Tourism_2023_full_report_web_version.pdf additional copy

Review of Key Terms Political analysis: The effects of government policy and laws. Economic analysis: Understanding what economic factors will affect tourism entities and how these economic factors are changing. Consumers' expenditure: The amount of money consumers actually spend. Exchange rates: The value of a country's currency in terms of other currencies. Interest rates - The cost of borrowing. Expectations: The way people feel about future economic prospects (optimistic or pessimistic). Socio-cultural analysis: Understanding changes in population size and structure as well as changes in consumer tastes, preferences and broader cultural shifts. Technological analysis: Analysing changes in science and technology to understand how these will impact on tourism entities. ICT: Information and Communication Technology

Discussion Questions Explain how changes in government or government policy might affect a named tourism entity. Evaluate the economic environment for a named destination Explain how changes in exchange rates consumers' expenditure taxation, and interest rates may affect the business of a named airline. What other economic factors might be relevant to your analysis? What opportunities and threats are destinations facing from changes in ICT? Provide a PEST analysis for the provider of a major theme park, distinguishing between opportunities and threats.

Case Study 1 Visit the UK Treasury website (or type “Economic Forecasts” into Google for other countries http://www.hm-treasury.gov.uk/economic_data_and_tools/forecast_for_the_uk_economy/data_forecasts_index.cfm What are the economic opportunities and threats for tourism organisations operating in the UK market?

Case Study 2 My Travel The following link is to a My Travel presentation in 2006 http://miranda.hemscott.com/ir/mt/pdf/investorday_presentation.pdf The whole presentation gives interesting insights – but slides 40 – 53 is particularly useful for understanding My Travel’s internet strategy

Case Study 3: BAA The following link shows in picture form some of the key issues facing BAA in 2006/2007 http://www.baa.com/annualreview07/year_in_pictures/ Organise these into PEST factors and discuss their impacts on BAA and its possible responses

Part 2, Unit 4 The external environment: PEST analysis The End Tourism Strategy Part 2, Unit 4 The external environment: PEST analysis The End