Tourism Strategy
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Part 2, Unit 4
The external
environment:

PEST analysis

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
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

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
Ch
Tribe, 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 environment
 the economic environment
 the socio-cultural environment
 the 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 environment
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
Left wing
(e.g. Labour / Democrat 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
Right wing
(e.g. Conservative / Republican
parties)
*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.
The economic
environment and demand
Borrowing
Employment
Taxes
Expectations
Disposable
Benefits
Income
Government
Household
Expenditure
Consumption
Exports
Investment
Demand
Tourism Organisation
Savings
Imports
The economic environment
and demand
The key macroeconomic factors affecting
demand for tourism industries are:
 household consumption
 export and import demand
 government expenditure
 investment
What determines the level of
household consumption?
Borrowing
Employment
Taxes
Expectations
Disposable
Benefits
Income
Household
Savings
Consumption
Imports
What determines the level of
household consumption?
real household’s disposable income
employment
benefits and taxes
borrowing 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 finance
 the political party in power.
Investment
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
economy
The economic environment
and costs
Interest
Rates
Exchange
Rate
R,L & T
Organization
Inflation
Rate
Indirect
Taxes
The economic environment
and costs
The key macroeconomic factors affecting costs
of recreation, leisure and tourism goods and
services are:
 interest rates
 inflation
 the exchange rate
 indirect taxes
Destinations
Economy
x
Destination
Economy
Z
Economy
Y
Opportunities and Threats in
the Economic Environment
Opportunities
Threats
Low interest rates
High interest rates
Low unemployment
High unemployment
High consumer expenditure
Low consumer expenditure
Low oil and other commodity
prices
Low Taxes
High oil and other commodity
prices
High Taxes
Favorable exchange rate
Unfavorable exchange rate
Stable prices
Inflation
Optimistic expectations
Pessimistic Expectations
The Economic Environment
for an airline
Variable
Interest Rates
Employment
Exchange Rate
Taxes
Economic
Growth
Comments
Opportunity
Threat
The sociocultural
environment
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 motivations
The technological
environment
The 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.
Information
Communication 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 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
 http://www.forumforthefuture.org/files/Tourism_2023_full_report_web_versio
n.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
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
exchange rates
consumers' expenditure
taxation, and
interest rates
may 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
countries
http://www.hmtreasury.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 Travel
The 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_i
n_pictures/
 Organise these into PEST factors
and discuss their impacts on BAA
and its possible responses
Tourism Strategy


Part 2, Unit 4
The external
environment:

PEST analysis

The End