Part 2, Unit 4 The external environment: PEST analysis. Tourism Strategy. 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.
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The external environment:
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
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.Part 2: Strategic Analysis
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.Learning Outcomes
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
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
Competition policy 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).
Health and safety
Transport and infrastructure
Global carbon agreements and targets
Taxation and spending plans
Disability and access legislation
Visa policy and home security
Regulation and deregulation
Employment and training policy
Minimum wagesOpportunities and threats in the changing political
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.The Economic Environment
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.What are the key variables?
The key macroeconomic factors affecting demand for tourism industries are:
export and import demand
investmentThe economic environment and demand
real household’s disposable income industries are:
benefits and taxes
borrowing and savings
expectationsWhat determines the level of household consumption?
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.Export and import demand
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.Government expenditure
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 economyInvestment
R,L & T Organization
The key macroeconomic factors affecting costs of recreation, leisure and tourism goods and services are:
the exchange rate
indirect taxesThe economic environment and costs
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 motivationsThe sociocultural environment
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.The technological environment
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).InformationCommunication 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.Other Technology
Four scenarios from the Future Foundation on tourism include:
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
additional copyTourism 2023
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 TechnologyReview of Key Terms
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
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.Discussion Questions
Visit the UK Treasury website (or type “Economic Forecasts” into Google for other countries
What are the economic opportunities and threats for tourism organisations operating in the UK market?Case Study 1
The following link is to a My Travel presentation in 2006 Forecasts” into Google for other countries
The whole presentation gives interesting insights – but slides 40 – 53 is particularly useful for understanding My Travel’s internet strategyCase Study 2 My Travel
The following link shows in picture form some of the key issues facing BAA in 2006/2007
Organise these into PEST factors and discuss their impacts on BAA and its possible responsesCase Study 3: BAA
Part 2, Unit 4 issues facing BAA in 2006/2007
The external environment: