Saxion University of Applied Science

December 15 International Business Plan 2011

Group E4 Floris Neuman (2426688) Project IBMS 6 Ivander Atmojo (2430243) Pham Thuy Duong (155031) Yao Deng (133810) Project IBMS6_ Business Plan Group E4

Contents Executive Summary

Thomas Cook Business Overview in Comparison with TUI – Thomas Cook’s biggest competitor ...... 5 I. Companies General Overview ...... 5 1. TUI Travel plc ...... 5 2. ThomasCook Group plc ...... 6 II. DEPEST Analysis (European Market) ...... 6 1. Demographic factors ...... 6 III. Companies Internal Analysis ...... 8 1. Business strategy ...... 8 2. Human Resource Management (HRM) ...... 9 2.2. Recruitment Diversity ...... 10 2.3. Diversity ...... 11 2.4. Health and Safety ...... 11 3. Sustainability strategy and management ...... 12 4. Financial Analysis ...... 14 IV. SWOT (European Market) ...... 17 V. Recommendations ...... 17 Thomas Cook Business Strategic Plan of Expanding to Chinese Market ...... 19 I. Chinese Tourism Market - Current status and Future Potential Developments ...... 19 1. PEST Analysis ...... 19 2. China Outbound Tourism ...... 20 II. Strategy Formulation for Thomas Cook to entry China ...... 21 1. Competitive Analysis - Thomas Cook operate in China Porter’s 5 forces ...... 21 2. Key external Factors ...... 22 3. Key internal Factors ...... 24 III. Strategy Analysis and Choice ...... 26 1. SWOT Matrix ...... 26 3. Cost of “Strategies” ...... 27 4. The Quantitative Strategic Planning Matrix (QSPM) ...... 29 IV. Strategy Implementations ...... 30 1. Finding Partnerships in China ...... 30 2. Human Resource Management ...... 31 3. Product Development ...... 31 4. Operation ...... 32 2

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5. Marketing ...... 32 6. Finance ...... 33 7. Legal Issues ...... 33 V. Expected Joint Venture Result ...... 34 Appendices

A. Appendixe1: References ...... 36 B. Appendix 2: Regulation on Travel Agencies in China ...... 38 C. Appendixe3: Cost Analysis ...... 43 D. Appendixes4: Personal work statement ...... 44

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This report is a Business plan for Thomas Cook to enter the Chinese Tour Operator Industry to Executivebecome an outbound tour Summaryoperator, to bring Chinese travelers to Europe, through a joint venture with Chinese Southern .

This report consists of two parts, the first part consisting of the analysis of Thomas Cook in Tour operator industry in the European market in the comparison with TUI. The analysis follows several key concepts the DEPEST, Business strategy, Human resource Management, Sustainable business and Ethics and the financial aspect.

The advantages come from strategy, Human Resource Management strategy and Recruiting and financial aspects. Their strategy advantage comes from a decentralized structure, where more is asked of the employees to make decisions with in their working team or by themselves, it has shown that the centralized and leader oriented way of TUI is less flexible especially when fast decisions should be made. Towards the strategic part we feel that Thomas Cook is better since it also works with owned hotels and other facilities that give an edge in costs since the profit is for Thomas Cook.

The financial aspect shows that Thomas Cook, profitability, and Operating ratio were better over the last 3 years. Especially the gross profit is higher for Thomas Cook and although after that the operating profit margin and Net profit margin are just higher due to lower costs.

Based on the conclusion of part one, we decided to continue with Thomas Cook to develop an International Business plan. The market we chose is China due to its rapid growth of economy and fast changing in quality of live. Moreover, due to the political and economic hurdles in the European fronts in the last year, and this may be only the beginning, China is a very lucrative market for Thomas Cook.

We believe that the our strategy to joint venture with China Southern is expected bring Thomas Cook out of the sluggish financial situation in the European Union. This strategy is expected to double Thomas Cook’s net profit margin, increase 40% current ratio, and established 6 Thomas Cook China outlets in 6 biggest cities in Mainland China by 2017. However, in order to realize this strategy Thomas Cook need to invest € 3.000.000 in consecutive years to cover the expenses for the first 3 to 4 years. An aggressive marketing campaign is to be implemented in order to gain brand recognition and to gain substantial market share in Chinese tour operator industry.

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Thomas Cook Business Overview in Comparison with TUI – Thomas Cook’sPART biggest I competitor

I. Companies General Overview TUI and ThomasCook are 2 leading companies in the global tour operating business. With operating activities around the world, TUI and ThomasCook are not only preforming as tour operators, but also own a fair share hotels and airlines (under different brands).

1. TUI Travel plc Together with TUI hotels & Resorts and Cruises, TUI Travel plc is daughter firm of TUI AG Corporation. Operating in over 180 countries, serving more than 30 million customers in over 27 source markets, obtaining £13,525 million revenue (2010), TUI is known as number 1 player in the travel industry.

Company Vision & Mission

Competitive Advantages

TUI group treat sustainable development as much important as economic goals. Their annual report shows us the ecological and social activity is a significant part of TUI corporate culture. As the result, TUI group will be listed as an industry leader in the Dow Jones Sustainability world index and receives top marks for its climate strategy.1

1 Dow Jones Sustainability World . (2011, September 08). TUI Group. Retrieved from http://www.tui- group.com/en/media/press_releases/archiv/2011/20110908_djsi

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Another competitive advantage of TUI group is TUI built a mature supply chain. For instance, TUI’s services cover the holiday plans, tickets, or hotels; customer will get everything they need from TUI group. And TUI group will be the one and the only one take care of customers’ holiday.

2. ThomasCook Group plc ThomasCook Group plc is well known travel firm, which is known with the reputed history. After the successful merger with MyTravel Group plc in 2007, ThomasCook is also a leading player in the market, with sales of £8.9 billion and 22.5 million customers over 21 coutries.

Company Vision & Mission

Competitive Advantages

Thomas Cook has long history and got sufficient experience about tourism and travel business. Moreover, Thomas Cook has successful entrepreneurial idea which is making travel simple, easy and a pleasure with dynamic portfolio of marketing leading travel brand in 21 markets. In addition, the novel management theory and efficient operation mode is also another competitive advantage.

II. DEPEST Analysis (European Market)

1. Demographic factors The global recession and uncertain economic environment have had an effect on consumer travel spending habits in 2009/10, however, for most consumers holidays continue to be of considerable importance and a planned annual expense.

Consumers are more discerning in their choice of holidays, looking for a greater variety of products and destinations, flexibility of duration and value for money. The economic insecurity and uncertainty also make last minute booking and travel insurances more preferable. The result is a trend for last minute, online bargaining hunting by customers that further squeezes the slim margins of tradition holiday companies.

Consumers increasingly turned online to research and book their holiday. Social media and customer travel review sites gained in popularity and prominence and are a key influencer on the consumer’s

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Project IBMS6_ Business Plan Group E4 decision making process. Changing lifestyles, globalization and new technology have a habit of destroying consumer backs by historic brands.

2. Economic factors

The economic uncertainty continued into 2011 from the 2008 crisis with concerns that there would be a double-dip recession and ongoing volatility in fuel prices and currency. Despite this, as 2010 progressed there has been recovery. GDP growth has taken place in most major operating markets with at 2.2% and the UK at 1.6%2. However, the levels of growth have not been enough to offset the global recessionary environment of 2008 and 2009. Unemployment has continued to rise with German and UK rates at 7.6% and 7.8% respectively 2.

The economic outlook for 2012 remains uncertain with different markets at different points of the beginning phase of the European crisis. The losing value of the Euro (€) may lead to the decrease in European customer consuming power.

3. Political factors

Travel and tourism are heavily regulated industries. Tour operators, especially the multinational ones, should be aware of the impacts caused by political factors on their operating activities. Recently there following issues have assumed particular importance

 Air passenger rights - the European institutions having focused heavily on this issue during the year.  Aviation Taxation.  Financial protection of air passengers continues to be an issue, particularly in the UK.  Extension of the scope of the European Package Travel Directive, EC Treaty.  Political crisis in European Union, especially in Geek, Spain and Italia.

4. Ecological and Social factors

Travel and tourism are responsible for around 5% of global carbon dioxide emissions3 and increasingly national and international carbon legislation is coming into force. Since environment is becoming high concern of the society, green travel now is popular trends of travellers. Sustainability is embraced as a business issue on which the future health of the tourism industry depends. This fact challenge tour operators to create travel experiences special by providing holidays that cause minimal environmental impact, respect the culture and people of destinations and offer real economic benefit to local communities.

5. Technological factors

The age of travel brochures and pamphlets is quickly fading, giving way to electronic promotions. With high internet penetration rates, the technological advancements of Internet make e-commerce the new development trend of the travel industry.

2 (2010, June). Trading Economics. Retrieved September 2011, from http://www.tradingeconomics.com/

3 United Nations World Tourism Organisation (UNWTO), United Nations Environment Programme (UNEP) and World Meteorological Organization (WMO) (October 2007) Climate Change and Tourism: Responding to Global Challenges. Madrid. 7

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III. Companies Internal Analysis

1. Business strategy

TUI Travel plc.

Be consistent with the vision of the company “Making travel experience special.” TUI follows the differentiation business strategy, which has been set to generate first class image for the company.

TUI is developing a portfolio of exclusive products that no competitor can easily match or replicate and which is tailored to include additional services and facilities that customers want on their holiday. The strategy is proven it’s effectively and profitability, which not only improves the competitive power of TUI by distinguishing from the market, also give higher profit margins. When delivering more added-value, unique experience with their content products, TUI gain customer’s higher satisfaction levels - drive repeat bookings and customer retention, build up highly trusted brands represent excellent value for money.

The differentiation business strategy is fostered by the heavy assert model of the company. TUI has ownerships in every part of the travel industry value chain. The heavy asserts are financed with heavy investment thank to the generous financial capacity of the company. It not yet mentioned the fact the TUI travel plc is the division of the giant corporation TUI AG. In the other words, TUI has strong fundamental base to penetrate the market.

In contrast, facing the down turn phase of the world economic, it is the heavy assert of TUI the things create extreme difficulties, and reduce their profitability. The required maintaining and operating costs of asserts now become serious pressure for TUI. Moreover, while keeping most of the supporting activities, such as marketing, finance, HRM, in-house can give the company better control in overall activities, it drive the fixed costs of TUI going remarkable high, decrease the profit margin of the firm.

ThomasCook Group plc.

ThomasCook develops low cost business strategy which emphasize not only on the quality of the products, also on the cost effectiveness. In order to achieve that, ThomasCook maximizes the value of the mainstream business through cost efficiencies, light assert business model and through increasing the proportion of higher value product such as all-inclusive board basis, four and five star properties, and medium haul destinations.

The company is working constantly on improve product mix, whilst reducing costs, thus driving an improvement in margin. In the year 2010, ThomasCook made good progress in managing their accommodation and aviation costs despite the non- stop climbing of oil price. Accommodation and non-fuel aviation costs are £2.9bn and £2.5bn respectively4, so a relatively modest saving can have a big impact on Thomas Cook’s performance. With the same objective of cutting the operating costs, ThomasCook chose to outsource all the business supporting activities. In 2007, ThomasCook signed a

4 ThomasCook PLC Annual Report & Accounts 2010. (2011). ThomasCook PLC. Retrieved May 2011, from http://www.thomascookgroup.com/investors 8

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£192m outsourcing deal with provider Accenture5. The contract covers human resources services, finance, accounting, and technology infrastructure management.

Thomas Cook is trying to develop dynamic travel packages which allow consumers to customaries their own travel plan with the support from the tour agents, or even via the website of Thomas Cook. Together with the out sourcing strategy, it sets for Thomas Cook a low cost flexibility business model, can satisfy exact they want and the need of consumers.

Seeing the sharp grow of online booking trend, Thomas Cook, they invest to develop in our e- commerce capabilities to strengthen position as an online travel agent, make them one of the best online retailers of the world.

Though the core business of Thomas Cook is tour operating, they also are putting efforts in developing new strategic business unit (SBU) – financial service related to traveling. Financial services such as travel cheque, travel insurance, or credit card are proven as highly profitable, as well as, light invest required contents. Moreover, financial services can generate higher margin level for the company.

However, our group also sees there are problems in Thomas Cook strategy. In general, there is not much change dramatically in company business strategies. Thomas Cook is still sticking for its traditional business model of buying hotel rooms and aircraft seats in advance, and selling them back as package via travel agents and booking website, which is out of date and cannot be proactive with the change of the market.

2. Human Resource Management (HRM)

Tour operator industry success depends on many factors, but human resources are the most crucial aspect of operations. Thomas Cook and TUI Travel implement different strategies to manage their employees, different visions, and different mission on how to approach their goals.

5 Client Success_ThomasCook. (n.d.). Accenture. Retrieved October 2011, from http://www.accenture.com/us- en/outsourcing/Pages/outsourcing.aspx?tab=4 9

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2.1. Company Culture / Strategy

 TUI Travel approach with their strategy of Human Resources,

 Thomas Cook

ThomasCook has “PROUD” as their company culture, vision, and mission.

The main difference between them is that Thomas Cook appeared to be more decentralized compared to TUI Travel PLC. This shows in their sites that Thomas Cook shows more towards employee demands and critics that Thomas Cook has a special program called “VOICE” which is a forum to address and improve work qualities. TUI Travel also implemented a program called “BLUE VOICE” but only on Nordic countries. TUI Travel appeared more centralized and leader oriented that they focused on management and more performance, which does not show very well in terms of financial performance.

2.2. Recruitment Diversity

Both consider human resource is the most valuable asset of the company, TUI and ThomasCook, however, have different way to approach their future colleges. As mentioned earlier in this report, TUI tends to keep all of the activities in house for better control, so they have themself an HRM to take care of administrating personnel.

ThomasCook, conversely, outsources HRM to save costs. They corporate with Accenture - a global management consulting, technology services and outsourcing company, to create an outsourcing Centre, which helping ThomasCook to performance all activities involved HRM. This outsourcing relationship enhances their margin makes a significant contribution to the profitability and continues to create further competitive advantage.

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