Part 2, Unit 4 The external

environment: PEST

analysis

Tourism Strategy

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 ChTribe, 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.

2

Learning Outcomes

After studying this chapter and related materials you should be able to understand:the political environmentthe economic environmentthe socio-cultural environmentthe 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 environmentSince 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.

Borrowing Employment Taxes

Expectations Disposable

Income

Benefits

Government

Expenditure

Household

Consumption

Savings

Exports Demand Imports

Investment Tourism Organisation

The economic environment and demand

The economic environment and demandThe key macroeconomic factors affecting

demand for tourism industries are:household consumptionexport and import demandgovernment expenditureinvestment

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

employmentbenefits and taxesborrowing 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 financethe political party in power.

InvestmentSome 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

Inflation Rate

R,L & T Organization

Indirect Taxes

The economic environment and costs

The key macroeconomic factors affecting costs of recreation, leisure and tourism goods and services are:interest ratesinflationthe exchange rateindirect taxes

Destinations

EconomyZ

EconomyY

Economyx

Destination

Opportunities and Threats in the Economic EnvironmentOpportunities Threats

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 airlineVariable Comments Opportunit

yThreat

Interest RatesEmploymentExchange RateTaxesEconomicGrowth

The sociocultural environmentFactors in the socio-cultural

environment of tourism entities include the size and structure of the populationlifestyles and inter-cultural differencesother factors (including attitudes and

values about travel, availability of paid leave and unemployment)

tourist motivations

The technological environmentThe 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.

InformationCommunication 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 burstA booming UK economy and high disposable incomes have fuelled a growth in travel worldwide. 2. divided disquietA 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 privilegeA dramatically high oil price has made travel punitively expensive. 4. carbon clampdownThe 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

1. Explain how changes in government or government policy might affect a named tourism entity.

2. Evaluate the economic environment for a named destination

3. Explain how changes in exchange rates consumers' expenditure taxation, and interest ratesmay affect the business of a named airline. What other economic factors might be relevant to your analysis?

4. What opportunities and threats are destinations facing from changes in ICT?

5. 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 countrieshttp://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 TravelThe 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