Sustainable Competitive Advantage in the Hotel Industry and Impact of Innovations on Occupancy rate – A Managerial Perspective. Thesis Submitted to the Padmashree Dr. D. Y .Patil University, Department of Business Management In partial fulfillment of the requirements for the award of the Degree of DOCTOR OF PHILOSOPHY in BUSINESS MANAGEMENT Submitted by Krishna K. Shetty Enrollment No. DYPPHD07- 066100026 Research Guide Dr. R. GOPAL DIRECTOR, DEAN & HEAD OF DEPARTMENT PADMASHREE DR. D.Y. PATIL UNIVERSITY, DEPARTMENT OF BUSINESS MANAGEMENT, Sector 4, Plot No. 10, CBD Belapur, Navi Mumbai – 400 614 June 2010 1 Sustainable Competitive Advantage in the Hotel Industry and Impact of Innovations on Occupancy rate – A Managerial Perspective. 2 DECLARATION I hereby declare that the thesis entitled “Sustainable Competitive Advantage in the Hotel Industry and Impact of Innovations on Occupancy rate – A Managerial Perspective.” submitted for the Award of Doctor of Philosophy in Business Management at the Padmashree Dr. D.Y. Patil University Department of Business Management is my original work and the thesis has not formed the basis for the award of any degree, associate ship, fellowship or any other similar titles. Place: Date: Signature of Guide Signature of Head of Dept. Signature of student 3 CERTIFICATE This is to certify that the thesis entitled “Sustainable Competitive Advantage in the Hotel Industry and Impact of Innovations on Occupancy rate – A Managerial Perspective.” submitted by Mr. Krishna K. Shetty is a bonafide research work for the award of the Doctor of Philosophy in Business Management at the Padmashree Dr. D. Y. Patil University Department of Business Management in partial fulfillment of the requirements for the award of the Degree of Doctor of Philosophy in Business Management and that the thesis has not formed the basis for the award previously of any degree, diploma, associate ship, fellowship or any other similar title of any University or Institution. Also certified that the thesis represents an independent work on the part of the candidate. Place: Date: Signature of the Head of the department Signature of the Guide 4 ACKNOWLEDGEMENT In the first place, I am indebted to the Padmashree Dr. D.Y. Patil University Department of Business Management, which has accepted me for Doctorate program and provided me with an excellent opportunity to carry out the present research project. I am highly grateful to Dr. R. Gopal, my guide, the Director, Dean and Head of the Department of Business Management, who has been a source of constant support, inspiration and encouragement. Without his valuable guidance and mentoring this research would not have been possible. I am grateful to my family and friends for being supportive throughout this period of four years when I have been pursuing my Ph.D. Place: Date: Signature of the student 5 CONTENTS CHAPTER -TITLE PAGE NO. NO. Preliminary Cover Page 1 Title 2 Declaration 3 Certificate 4 Acknowledgement 5 List of Tables 8 List of Figures 9 List of Abbreviations 10 Executive Summary 11 - 14 Chapter -1 Introduction 15 - 22 Chapter -2 Review of the Literature 23 – 39 2.1 Literature Review 23 2.2 Research Gap 38 Chapter -3 Objective of Research 40 – 45 3.1 Research Problem 40 3.2 Statement of Research Objectives 41 3.3 Hypotheses 42 3.4 Importance of Research 45 Chapter -4 Research Methodology 46 – 49 Chapter -5 Hospitality and Hotel Industry – An overview 50 – 78 5.1 Introduction 50 5.2 History of Hotels and Motels 53 5.3 Hotels in Modern Times 56 5.4 Motels and its features 59 5.5 Advent of Hotel Chains 63 5.6 Origin of Food Service Industry 64 5.7 Types of Hotels 64 5.8 Hotel Organization 69 Chapter -6 Hotel Industry – The Global Scenario 79 – 91 Chapter -7 Hotel Industry in India and Thailand 92 – 150 7.1 Hotel Industry in India 92 7.2 Hotel Industry in Thailand 134 Chapter -8 Sustainable Competitive Advantage and Innovations in 151 – 201 the Hotel Industry 6 Chapter -9 Data Analysis and Major Findings 202 - 235 9.1 Data Analysis 202 9.2 Major Findings 227 Chapter - Recommendations and Suggestions 236 – 241 10 Chapter - Conclusion 242 – 245 11 Appendices 246 – 314 Appendix I – Bibliography 246 Appendix II - Questionnaire used for survey 251 Appendix III- SPSS Outputs 261 7 LIST OF TABLES Sr. Table No. Table Name Page No. No. 1. Table 4.1 Overall Sampling 48 3. Table 6.1 Worldwide hotel ranking 2007 82 4. Table 6.2 Top 20 hotel brands worldwide 82 5. Table 7.1. The supply demand gap in premium hotels segment (Avg.10 major 102 cities) 6. Table 7.2. Thailand tourism growth rate. 139 7. Table 7.3. Thailand tourism receipts 140 8. Table 7.4 Thailand hotels grading points 147 8 LIST OF FIGURES Sr. Figure No. Figure Name Page No. No. 1. Figure 5.1. Large Independent Hotel Structure 71 2. Figure 5.14. Small Hotel Structure 77 3. Figure 6.1. Worldwide Real GDP Growth – 2003 to 2007 79 4. Figure 6.2 Rev PAR Change by Region May YTD 80 5. Figure 6.3 Most key global cites are also seeing substantial rate growth 80 6. Figure 6.4 European Supply & Demand Monthly Change 81 7. Figure 6.5 U.S. Supply & Demand Monthly Change 81 8. Figure 6.6 The growth rate of the hotel supply at corporate chains 83 worldwide from 2001 to 2006 9. Figure 6.7 Hotel Occupancy Rates – Major World Cities. 86 10. Figure 7.1 Sectoral Growth Rates at Factor Cost by Industry – India (03-09) 93 11. Figure 7.2 Domestic tourist visits to India 111 12. Figure 7.3 FTA in India over the past four years 112 13. Figure 7.4 Passengers carried by domestic airlines 112 14. Figure 7.5 Growth of Room Supply – India (1998/99-2013/14) 119 15. Figure 7.6 Thailand tourist arrivals 2007 -09 139 16. Figure 8.1 A Model of Competitive advantage 169 9 List of Abbreviations GDP = Gross Domestic Product WTTC = World Travel and Tourism Council TSA = Tourism Satellite Accounting UNWTO = UN World Tourism Organisation SCA = Sustainable Competitive Advantage F & B = Food and Beverages RevPAR =Revenue Per Available Room IRCTC = Indian Railway Catering and Tourism Corporation ITDC = Indian Tourism Development Corporation FDI = Foreign Direct Investment RBI = Reserve Bank of India FTA = Foreign Tourist Arrivals FEE = Foreign Exchange Earnings 10 EXECUTIVE SUMMARY India's tourism and hospitality industry has emerged as one of the key industries of the service sector driving the country's economy. The Hotel and Restaurant Industry forms a major chunk of the hospitality sector. The share of contribution of activities of trade, hotel and restaurant business rose from 8-9 per cent to 14-15 per cent over a period of five decades till 2010. By 2010, India will see an estimated 10 million foreign visitors and thereby a demand for approximately 100,000 rooms. And with the continuing surge in tourist inflow, this sector is likely to offer tremendous opportunity for investors. Sources estimate, demand is going to exceed supply by at least 100% over the next 2 years. With demand- supply disparity, 'Hotel India' room rates are most likely to rise 25% annually and occupancy to rise by 80%, over the next two years. The hotel industry has to be prepared for this tremendous potential and have to take the necessary steps to meet and maintain this surge in demand. In light of the importance of the Hotel Industry to the economy, it becomes extremely important to study the drivers for success in this sector. Thus a study of factors of sustainable competitive advantage in the hotel industry become most relevant. Innovation is a word that has been talked about in most sectors of the economy especially in sectors like pharmaceutical and biotechnology. However, is this factor as important in the services sector, more 11 specifically, the hotel industry, or is it being given more importance than is due in because of its relative importance in other sectors. Is innovation a part of the factors of sustainable competitive advantage in the hotel industry and if so what is its effect on the occupancy rates in the hotels? It is considered fit to study all these factors from the perspective of the management of the hotels as these are the people who are aware of the real pulse of this important industry. The objectives of this study were to study the various factors for sustainable competitive advantage in the hotel industry with specific reference to innovations. To study the impact of implementing sustainable competitive advantage with specific reference to innovations on the Occupancy Rate of the hotels. To study the perspective of the management in regard to the factors of sustainable competitive advantage across various categories of hotels, destinations, geographical areas and according to the designation of the managers themselves. This study has sought to identify the factors for success and sustainable competitive advantage in the hotel industry which is a very important component of our economy. An endeavor has been made to study the impact of these factors on the occupancy rates of hotels especially with reference to innovations in various categories. The managers of the hotels are the ones who are in the best position of judging all these questions since they are the important link between the hotel ownership/management and the end customer. The management of hotels have to be aware of the 12 various factors for sustainable competitive advantage as they have a strong positive and direct impact on the occupancy of hotels. The research seeks to study and analyze these aspects from the perspective of the management of the hotels and come up with recommendations.