1.1 terrorism to inadequate development of tourist facilities (Mburugu

1.1 Background of the Study

The global
hospitality industry is one of the fastest growing and most competitive as more
people are increasingly spending their time away from home on work related
assignments and leisure. Travel and tourism is also a major driver of
competitiveness of the hospitality industry as hotels strive to meet the
demands of not only the citizens but also of the international community. Tourism is a powerful
vehicle for economic growth and job creation all over the world, for example,
statistics from the World Travel and
Tourism Council (2015) indicate that Travel and Tourism generated US$7.6
trillion (10% of global GDP) and 277 million jobs -1 in 11 jobs- for the global
economy in 2014. Additionally, travel and tourism have been growing at a faster
rate than both the wider economy and other significant sectors such as
automotive, financial services and health care in recent years. The World Travel and Tourism Council (2011)
estimated that 3.8 million jobs (including 2.4 million indirect jobs) could be
created by the tourism industry in Sub-Saharan Africa (SSA) over the next 10
years. Therefore, some of the
greatest opportunities for hotels will derive from their ability to
strategically participate in this global marketplace while sustainably
increasing their competitiveness by growing financially and structurally to be
able to achieve their objectives.

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In Kenya, which boasts palm-fringed beaches and safari trails, tourism is
a well established sector contributing significantly to the country’s Gross
Domestic Product, foreign exchange and employment. However, a tourist market
slump has forced hotels to shut, cut job numbers and sent the shilling to
3-1/2-year lows. The country, in particular, has been hard
hit losing over 25% of its international tourist arrivals in since 2014 (Kenya
Tourist Board, 2016), the reasons behind this range from global terrorism to
inadequate development of tourist facilities (Mburugu & Rotich, 2015).

 

1.1.1
Global Performance of the Hospitality Industry

The impact of
international travelers visiting the United States on the US lodging industry
is significant; for example, in 2013, one – fifth of tourist receipts were from
international visitors (AHLA, 2014). In 2013, 25.1 million international
travelers visiting the United States stayed in a hotel/motel. Of this cohort,
it was generally found that the purpose of travel was for leisure/recreation/
holiday (64%) or business/convention (14%). Their hotel stay was also different
from the U.S. residents with the average length of stay as 9.7 nights and the
average party size as 1.7 travelers. In Western Europe, the number of luxury
hotels increased 9% in 2011.

However, in the
same period, the Italian travel and tourism industry experienced a downturn in
performance, losing competitiveness in respect to its direct competitors
despite the WTO (2007), ranking Italy in 5th place as a destination in terms of
tourist arrivals, accounting for 4.5% of world tourism flow, but is 173rd out
of 176 in terms of mid-term growth rates (WTTC, 2007).

 

In September
2013, Forbes Travel Guide Star Awards reported that there were increases of 9%
and 16.8% for five and four-star hotels in just 6 months. Essentially, one new
luxury hotel was being built per week. In Latvia, accommodation enterprises
grew by over 10% from 681 in 2008 to 765 in 2012, the number of bed places also
increased from 29 591 in 2008 to 36 901 in 2012. According to Timetric (2013),
despite the Asia economic slowdowns, the number of luxury hotels in the Asia
Pacific region increased 18% in 2010 and 11% in 2011. However, in Jordan,
hotels occupancy rates decreased in Dead Sea area during the past to 42%
compared to 55 % during the same month of 2012. Such decline can be attributed
to a decline in the number of tourists and high cost of hotel accommodation as
a result of high cost of energy, which led to a decline in Jordan
competitiveness compared with other countries

                           

The researchers
on luxury hotel demand have mostly analyzed loyalty, behavior, energy,
environment, service quality, leadership, and information technology in the
world. In Ghana, Narteh et al., (2013) suggested six relations hip marketing
techniques for hotel managers to develop customer loyalty in luxury hotels in
Ghana whereas in China, Chen and Peng (2014) examined consumer behavior in
luxury hotels. Ryan and Stewart (2009) reported the relationship between
ecotourism and luxury hotels in Dubai whereas Mohsin and Lockyer (2010)
reported the influence of service quality in luxury hotels in India. Then in
2014, Colmenar, Vale, Borge, and Requena (2014) reported solar thermal systems
for a luxury hotel in Brazil. Patiar and Mia (2009) researched leadership style
in luxury hotels in Austria whereas Karadag and Dumanoglu (2009) analyzed
productivity based on competency of information technology in luxury hotels in
Turkey, and Okumus, Sariisik and Naipaul (2010) studied the role of women
influencing luxury hotels.

1.1.2 Performance of the Hospitality Industry in
Africa

Focusing on tourist facilities, it has
been observed that international tourism demand for Kenya lags behind other African countries
like Egypt, Morocco, Tunisia and South Africa. Furthermore, the number of
tourist arrivals to Kenya from different world regions does not increase
constantly but have experienced cyclical fluctuations over the years. Moreover,
the Kenya tourism product offered is becoming increasingly noncompetitive (Nyariki,
2013). There is
need therefore, for Kenyan tourist-based businesses to offer demand driven
tourism products that ensure visitors come to Kenya and stay longer. However,
despite the challenges being experienced in the sector, some well established
hotel chains are thriving and it is important for other players to understand
how they sustain their growth strategies in order to remain competitive in the
global market and attract more clients. 

1.1.3 Performance
of Hotel Chains in
Kenya

Hotel business in Kenya dates back to
pre-independence days (Njenga, 2011). Over the years the hotel industry in the
country has undergone great transition and evolving considerably to impress
generation after generation of visitors with different expectations by
adjusting their levels of standards of service, luxurious style, hospitality
and comfort. This has resulted therefore to the present close relationship of
hotel and tourism industries. Consequently, the government has positioned
tourism and by extension the hotel business as one of the leading sectors that
will enable the achievement of the Vision 2030 Goals. Kenya hopes to be among
the top ten long-haul tourist destinations in the world offering a high-end,
diverse and distinctive visitor experience that few of her competitors can
offer. Among the specific goals is to increase the number of international
visitors, increase hotel beds from 40,000 to at least 65,000, combined with an
emphasis on a high quality service (Government of Kenya, Vision 2030). This
shows that the government as a stakeholder recognizes and places emphasis on
hotel growth.

 

Hotels in Kenya are grouped into different
categories based on the quality of services offered. These categories are Five
Star Deluxe, Five stars, Four Star, Three Star Two star, one star and Budget
Hotels to suit all types of travelers. Most of these hotels are located in
major towns across the country and in some of the best and popular tourist
(Muriithi, 2017). A number of these have also become hotel chains. The country
is home to over ten hotel chains in with international traveler and tourist
capabilities. These include Hotel Kempinski, Orion Hotels, Sopa Lodges,
Heritage Hotels, Sentrim Hotels and Lodges, Sun Africa Hotels, Sentido Hotels
and Resorts, Mada Hotels, Sarova Hotels, Jacaranda Hotels, Fairmont Hotels,
Serena Hotels and Tsogo Sun Hotels among others.

 

Other hotel chains such as the Marriot and
Ritz are also eying the country with a plan to have several resorts in the
country. These hotels offer superior comfort in luxurious surroundings and
highly personalized services. They are characterized with executive rooms,
conference rooms, night club bars, fully equipped fitness clubs, swimming
pools, shopping villages, outside catering and grounds for outdoor activities.
However, with all these hotels offering highly competitive products and some having
their presence only in the country, it would be interesting to know how they
remain competitive to the point of achieving sustainable growth (Muriithi,
2011).

 

Hotel chains are an interesting phenomenon
in the field of hospitality, simply because they have several very specific
characteristic features (Ivanova, 2015). On the one hand, they operate through
a big number of outlets, often
in various countries, which makes them part of multinational corporations. On the
other hand, since they operate in the field
of services and more particular – in hospitality, they feature the typical elements of the hotel product which is not similar to
any other product in the sphere of business and services (Harrington &
Ottenbacher, 2011).

 

The latter are tangible and inseparable,
they combine production and consumption, require the compulsory participation
of the consumer. That is why they have difficulties in reproducing themselves with absolute precision and it is almost
impossible to maintain an ever-lasting
quality in producing them. The hotel product includes a set of material
elements and services, at the same time it is always interrelated with a specific location and client’s involvement
in the production process. Unlike most servicing industries (consultation
services, tour operating services, insurance), hospitality requires a considerable initial capital which is
also characteristic of other sectors of the servicing sphere (chains in the
leisure-time industry, retail chains and so on) (Holverson & Revaz, 2006).
All these characteristics lead to more differences in the process of
internationalization of hotel chains.

1.1.4 Growth of Hotel Chains

 

Growth is a dynamic process showing that
businesses are not static. Perks (2002), defines growth as the process of
improving some measures of an enterprise success. Business growth can be
achieved either by boosting the top line or revenue of the business with
greater product sales or service income or by increasing the bottom line or
profitability of the operation by minimizing costs of an organization. The
strategic decisions taken by the owner or manager should fit between strategy,
structure and processes which are more favorable to the performance. Business
growth can be attained through, Organic growth which is by means of opening
branches or new lines of business or non-organic growth which involves merging
with another firm or buying another business through acquisition. Barriers to
growth are everywhere. Lack of preconditions for growth means that many actions
the company undertakes will fail.

 

Rothenbuecher, Handschuh and Kickenweiz
(2007) to achieve growth targets companies can pursue strategies for pursuing
attractive customer segments, shifting sales resources to areas with the
greatest market potential, penetrating new regional markets, expanding and
professionalizing partnerships, stopping price erosion, exploiting
opportunities within existing product portfolios, boosting cross-selling and
aligning processes to meet customer needs more effectively. The core of every
market-driven growth strategy should be to develop a unique value propositions
tailored to meet customer-specific requirements. Unless products or services
are customized to meet customers’ needs, up to 25 percent of a company’s growth
potential could remain untapped. Determining and articulating the
“value” of a new product or technology and what people (or
industries) will pay for it is the largest hurdle in meeting customers’ needs
and creating solid profits.

 

Firm growth is
related to economic expansion due to processes taking place within the firm
(Penrose, 1959). The more firms grow the more resources they can access, thus
firm growth is considered as a path dependent process. The resource-based view
considers a firm’s own set of resources and capabilities as the driver of
growth and states that a firm predicts the growth strategies based on its
resources and competencies. Strong and successful growth is possible in any
industry, in any region, at any time. It’s important for companies to have a
framework for distinguishing good from bad growth in generating revenue growth.
Good growth not only increases revenues but improves profits, is sustainable
over time, and does not use unacceptable levels of capital. It is also
primarily organic-internally generated-and based on differentiated products and
services that fill new or unmet needs while creating value for customers
(Charan, 2004).

 

1.1.5 Generic Strategies and Firm Growth

In any
business, there are factors which determine the level of competitiveness that
the business must be aware of or possess in order to secure its place in the
marketplace. According to Porter (1982), the competitive situation of a
specific industrial sector depends on five fundamental competitive forces,
namely: the threat of new entry by potential competitors; the threat of
substitute products or services; clients’ bargaining power; suppliers’
bargaining power, and; rivalry among the current competitors. These factors can
if, left unmitigated, limit the growth prospects of the firm. Cunill (2006),
however, explains that business managers have discovered many different ways of
ensuring their businesses remain competitive and, on an individual level, the
best strategy is a unique formula that reflects the company’s specific
circumstances. However, on a wider level, three internally consistent generic
strategies can be identified and analyzed. These can be used singly or in
combination to create a long-term secure position and distinguish the firm from
rivals operating in the same sector. These strategies are cost leadership
strategy, differentiation strategy, and focus or market niche strategy. The
growth strategies are embedded in these generic strategies.

 

The cost leadership strategy allows a firm
to achieve a stronger position than its rivals, because the firm’s low
operating costs allow the firm’s executives to reduce prices while maintaining
profit until their closest rival’s profit margins vanish (Shi et al., 2008).
Due to the firm’s wider operating cost margins, even if its competitors were to
force a price increase, the company would still have a cost advantage. If
company owners wish to achieve a cost advantage by reducing their total costs,
an activity analysis can be very effective. It highlights activity-generated
costs, activity components, and links between activities and chains of
suppliers or clients that can be modified in order to contribute toward a
decrease in costs.

 

Differentiation
enables firms to achieve competitive advantage over their rivals because of the
perceived uniqueness of their products and services (Acquaah &
Yasai-Ardekani, 2006). Porter (1980) stated that, competitive strategies deal
with the development of attributes that characterize a company and
differentiate the value it creates and offers in comparison to its competitors.
Pearce and Robinson (2005) aver that differentiation strategies are based on
providing buyers with something that is different or unique, that makes the
company’s strategic positioning,
product or service distinct from that of its rivals. Superior value is created
because the product is of higher quality, is technically superior in some way,
comes with superior service, or has a special appeal in some perceived way. In
effect, differentiation builds competitive advantage by making customers more
loyal – and less price-sensitive-to a given firm’s product/service. Additionally, consumers
are less likely to search for other alternative products once they are
satisfied (Hernant, Mikael & Thomas, 2007).

 

A
niche market is the subset of
the market on which a specific
product is focused. The market niche
defines as the product features aimed at satisfying specific market needs, as well as the price
range, production quality and the demographics that is intended to impact. It is
also a small market segment
(Choudhary, 2014). The niche market is essentially a focused market. Niche
marketing is an approach which has been applied successfully by several
companies around the world. Niche marketing seems an appropriate method to be employed
in a changing business environment. It also seems appropriate, with the
unification of the present markets and future enlargement towards the creation
of a common market (Akbar, Bin-Omar, & Wadood, 2017), as well as further
globalization of other markets and an increase in competition among companies
active in these markets. Due to this intensification of competition a shake-out
may take place in these markets leaving only the strongest.

 

Diversification
is one of the four main growth strategies defined by Igor Ansoff’s
Product/Market matrix (Ansoff, 1959): Ansoff pointed out that a diversification
strategy stands apart from the other three strategies. Whereas, the first three
strategies are usually pursued with the same technical, financial, and merchandising
resources used for the original product line, the diversification usually
requires a company to acquire new skills and knowledge in product development
as well as new insights into market behavior simultaneously. This not only
requires the acquisition of new skills and knowledge, but also requires the
company to acquire new resources including new technologies and new facilities,
which exposes the organization to higher levels of risk. Expansion
of the existing product line with related products is one such method adopted
by many businesses.

 

1.2 Statement of the Problem

In Kenya,
developments in the tourism industry and particularly the hotel sector have not
augured well for the country’s economic agenda. 
For instance, the number of visitors to the country fell by 25 percent
in the first five months of 2015. The country which was once popular for its
sandy beaches and safari tours lost a quarter of its visitors in the first five
months of 2015 – 284,313 down from 381,278 in 2014, according to Kenya Tourism
Board (2016) figures. This followed a fall of 4.3 per cent in the previous
year-2014. However, not all is lost as statistics also indicate that there has
been a steady rise in domestic tourism (Kenya National Bureau of Statistics,
2016) contributes to the sector substantially. In addition, there is tremendous
urgency for hotel operators to further improve their organizational performance
due to the global competition and as investors see the country has strong
growth potential service industry sector (Ruzita & Parnell, 2008). Already
some have established hotel chains. Nevertheless, it has not yet been
established how these hotels have been able to grow under such circumstances
and in particular the strategies they have put in place to ensure the growth is
indeed sustainable.

 

Shareholders,
managers and employees are increasingly striving for sustainable profitable
growth often without success. Sustaining company growth requires a strategy for
increasing revenue without sacrificing earnings or customer satisfaction. Faced
with the challenge of competition, increased stakeholder expectations and the
need to survive and succeed in the marketplace, the need to pursue growth is
inevitable. Well-crafted strategies will fail if not properly executed. Having
a sound strategy is only part of the success equation. Putting the strategy
into real execution is a whole different matter and is widely considered to be
the hardest challenge. Many top executives and their companies fail to plan the
execution of strategy due to poor prioritization or ill crafted strategies
(Mascarenhas et al, 2002).

 

Various scholars
have carried out research on the growth strategies within Kenyan and regional
organization context. Some of these include Mungai (2010) who studied growth
strategies applied by the Institute of Advanced Technology, Kenya; Oketa (2011)
who examined growth challenges faced by local seed companies in Uganda, and;
Mwangi (2011) who sought to establish factors affecting growth of MSE’s funded
by micro finance institutions in Thika Town, Kenya. However, generic strategies
as identified by Porter (1985) and Ansoff have (1957) not been examined so far
for their impact on the growth of hotel chains in the country. Therefore, much
is yet to be known regarding the application of these strategies by the
management of the hotel chains to achieve growth. The present study, therefore,
sought to establish the influence of these strategies in achieving
growth of hotel chains in Kenya.