MIHM30 Analysis of Effect of Global Competitive Forces: Mandara Spa Case Study Assessment 1 Answer
Assessment title: Case Study using Competitive
In this report market expansion into Australia of an Indonesia based global spa management company, Mandara Spa has been discussed. Based on lucrativeness and potentiality for growth the market expansion has been justified in this report. The current growing trend of the Spa industry globally and Australia’s hospitality industry’s performance supports the expansion strategy.The report has also focused on the key elements of Porter's Five Forces in order to gain competitive advantages for holding a strong position in the market. It benefits the company to perform with alacrity and competency. Moreover, the report throws light in analyzing some marketing entry strategies for the company in order to make the business profitable.
In this report, the author will conduct a critical analysis of the effect of global competitive forces on a chosen hospitality business. In order to set or develop the context for this report, it is being assumed that this business organisation from the hospitality industry is seeking expansion into the Australian hospitality industry. The chosen organisation is an Indonesia based Spa service provider company named Mandara Spa. In this report, the author will discuss the justification to support the market expansion strategy of Mandara Spa and will also analyse the lucrativeness of the Australian market as well. As per the data, the global spa market size was $254.8 billion in 2007 (Tabacchi, 2010). So choosing this spa company will help to explore more development in this industry and based on these discussions’ recommendations will be made as well.
2.0 Overview of Mandara Spa within the Hospitality Industry
2.1 Business Profile
Founded in 1996, Mandara Spa is an Indonesia based global spa management company headquartered in Bali, Indonesia. The name Mandara has come from a Sanskrit legend which is about the quest for eternal youth. This ancient legend has been embraced by the company as their vision as the company aims to provide exotic and unique spa treatments to their customers and gain their satisfaction (Mandara Spa, 2020a). Mandara Spa specialises in spa management which means they do not own any business fronts but rather they provide spa services in hotels which is similar to the concept of outsourcing. Mandara Spa takes care of the designing to service providing and also provides the cost of operations, from the overall revenue a certain percentage is then shared with the hotel and rest is the revenue of Mandara Spa. Mandara Spa is currently operating in multiple global markets such as Malaysia, Japan, Thailand, United States as well as other locations or markets.
2.2 Industry Size
Since the initiation of Mandara Spa's journey as a spa management company, they have considered an expansion of their business in the hospitality industry as in 1998 Mandara Spa expanded to Malaysia. Such early global expansion of the company has allowed them to expand their presence in the hospitality industry and develop a unique brand image within their home country. According to a 2017 statistic, the global size of the spa industry was US$93.6 billion in 2017 and due to the increasing amount of preference for spa service among the customers, it is expected that by 2022 this industry will reach US$127.6 billion (Lock, 2019) (Refer to appendix 1). This, as a result, demonstrates the lucrativeness for this industry segment within the broader hospitality industry. Therefore, consideration for expansion of the market during this period will deem beneficial for the company.
2.3 Market Performance
Mandara's market performance is visible in the company's rapid expansion of the market as currently, they are operating in every continent except Oceania. Apart from Indonesia currently Mandara is operating in other markets such as the United States, Thailand, Hawaii, Japan, Malaysia and other locations (Mandara Spa, 2020b). Furthermore, because of their success in the spa industry the parent company Steiner Leisure Limited also got its listing in the NASDAQ share market.
3.0 Justification for Mandara Spa's Global Expansion into Australia
As Mandara Spa has its presence in crucial global markets such as the US, Japan, Malaysia and others, the company is intending to penetrate the Australian hospitality industry. As further growth in the global spa industry is projected as the industry is expected to be US$127.6 billion, an expansion during such growing time will benefit the company to establish its foothold in the Australian market. In the following section the rationale behind the decision to expand the business into Australia will be discussed by the author:
- Benefiting from the current growing nature of the spa industry: As the previous discussion has indicated that the spa industry is globally growing, a market expansion decision during such high tide will allow Mandara Spa to exploit this industry trend. Industry trend or the environment of the industry is important for new entrants as a growth opportunity in the market benefits the entrants with initial growth as well as also allows them to manage the competitive forces of the market successfully (Tran, 2019). Based on this argument, as a result, Mandara will also be exposed to such positive environment where the industry the company specialises in is growing and as a result, will enhance the feasibility of the investments into the Australian market.
- Lucrativeness of Australian Hospitality Industry: Data gathered from secondary research suggests that in terms of revenue hotels and resorts sector has gained significant presence within the broader hospitality industry of Australia as in 2018, this sector had gained AU$8.24 billion in revenue (Hinton, 2020) (Refer to Appendix 2 for the graph). This huge number, as a result, demonstrates the financial lucrativeness of this Australian hospitality industry. Therefore, the decision to enter this market is viable for Mandara Spa as there is scope for future growth for the company in Australia. Furthermore, as spa industry segment is also dependent on the tourism industry and also Mandara's service being hotel-based, the Australian market is also lucrative because globally in terms of international tourism receipts Australia is ranked 7th (Lock, 2020) (Refer to appendix 3 for the chart). Therefore, the decision to enter this market seems lucrative and feasible for Mandara Spa.
- Increased Target Customer base: Furthermore, expansion of the market to a developed market economy-based market such as Australia will also increase the target customer base of the company because of the disposable income aspect of the Australian customers. Hence, apart from the industry-based projection, the market-based projections also demonstrate the growth prospects for the company in Australia. Therefore, the availability of the new customer base is another justification, which supports this international expansion strategy.
- Further Improvement of Brand Identity: Mandara Spa already has an international brand identity because of their presence in crucial markets such as the US, Japan and Malaysia. However, they lack presence in the Oceania continent as they have a presence in every other continent. Therefore, the establishment of their business in Australia will allow them to identify themselves as truly global spa Management Company, hence an improvement of brand identity.
4.0 Analysis of the Australian Market
Mandara Spa is the fastest and largest growing luxury hotel of Indonesia that provides its consumers with excellent service including spa (Mandaraspa. 2020). The company tends to expand its business to Australia. Therefore, the company needs to understand the market of Australia in order to gain a competitive advantage to run its business effectively in Australia. In this respect, Porter's Five Forces model has been selected to provide knowledge and relevant information to the Mandara Spa Company.
Porter’s Five Forces
Porter's Five Forces model is a framework that helps to gain a competitive advantage in order to run the business with effectiveness (Lewis, 2017). The model comprises of five components, respectively industry rivalry, bargaining power of suppliers, bargaining power of buyers, threats of new entrants and threats of substitutes.
Industry Rivalry (high): This element of this model throws the importance of the rivalrywithin the market. It helps the company to address the position of its competitors. In this respect, this element also intensifies the competitive rivalry. In Australia, there are a number of spa companies that have been emerging for a longer period of time, respectively, Natural Palm Day Spa, Hervey Bay Massage and Day Spa and so on (Firmansyah and Amer, 2016). In this respect, when the Mandara Spa Company tends to expand its business in the Australian Market, the company will face a hurdle competition with its rivals.
Bargaining power of buyers (high): The buyers or purchasers play a great role when a company expands in a new market. In this respect, the Mandara Spa Company needs to understand the requirements and needs of Australian customers. The women of Australia are very amateur in their respect for health and beauty. Therefore, they tend to spend more money on body spa and also a hair spa. Their demands are very superior with 76 % (Perrott and Hughes, 2016). So if they did not get proper value, they can change it to another company. In this respect, the Mandara Spa Company will need to know the demands of the buyers in order to enlarge the customer engagement. It will help the company to diminish the bargaining power of buyers.
Bargaining power of suppliers (moderate): Suppliers play a great role in the emerging nature of the company. When the company has more suppliers, the bargaining power is low. On the contrary, when the company has fewer suppliers, the bargaining power is high. It has been ascertained that the bargaining power of suppliers is high in the Australian market due to product differentiation (Firmansyah and Amer, 2016). As the company is new in the market so they would find difficulties in settling with the suppliers so the threat is moderate here. In this respect, Mandara Spa Company needs to appoint more Australian suppliers and as a result, the suppliers will not switch off from this company.
Threats of new entrants (low): Australia has a number of spa companies in its market. As a result, the Mandara Spa Company has fear in order to compete with the entrants. In this respect, the company needs to assess the weaknesses of the entrants in order to run the business effectively. Hotels, resorts of Australia have also offered their consumers with the facilities of spa and body massage (Perrott and Hughes, 2016). Still, the company has brand value and product quality is high so it would be difficult for the new company to create a threat for the Mandara Spa. Therefore, the threat from these new entrants is not so viable for the Mandara Spa Company.
Threats of substitutes (moderate): The growth of new entrants and competitors of Spa Companies in Australia can pave the path more difficult for the Mandara Spa Company in expanding its business. The products of the spa are varied from each other in respect to its brand name. This speciality has created great attention for the customers. Therefore, substitutes like Pure Fiji, Natural Spa products can threat the business of Mandara Spa Company in Australia (Firmansyah and Amer, 2016). It can make the way abstruse for the company.
For the expansion of the business in Australia, the Mandara Spa Company needs to apply such market entry strategies in future. These effective strategies will help the company to deal in with effectiveness.
- Direct Exporting: Direct Exporting is a marketing strategy through which the company directly sells its products in the market (Campos-García et al., 2020). After setting up in Australia, the Mandara Spa Company will need to turn itself into the agents or distributors in order to stay at the market with proficiency. This strategy will enhance the interests of the company to trade with more sincerity and professionalism.
- Licensing: Licensing can be an effective and successful market entry strategy (Hattori and Tanaka, 2018). Through this strategy, the company will make a sophisticated arrangement by transferring the rights of using a product of another firm. If the buyer of the license possesses a market share with enormity in Australia, the Mandara Spa Company will successfully run its business with this market strategy.
- Joint Ventures: One of the strong and sophisticated market entry strategies that also states the market position of the company is the joint ventures (Song, 2020). This strategy, joint ventures is related to the partnership of two companies in order to create a new third company in the same market. Therefore, the Mandara Spa Company will be able to create a new company with the partnership of another Australian Company. In this respect, two companies will equally face profits as well as risks. Therefore, this market entry strategy can benefit the Mandara Spa Company in expanding its business with efficiency.
- In order to improve the market position, Mandara Spa needs to analyses the competitors first by using the SWOT analysis which could help them to understand the strength and weakness of the competitors. Also understanding the strategy of the competitors will help Mandara Spa to make their strategy viable.
- Also, the company should have to demonstrate the clear value proposition of the product and services they are offering. It will help them to create an effective strategy in the market and also ensure the competitive advantages in the Australian market which could improve their market positioning.
Therefore, the report has provided extensive knowledge regarding the essentiality of the competitive advantage and market entry strategies. The competitive advantages help the company to gain more competencies in order to compete with the competitors effectively. Besides this, the company becomes powerful and focuses on making the business profitable. The company can make new changes in its procedures in order to enhance its productivity in the new market. In this respect, the recommended marketing strategies will also be beneficial and influential for the company in order to remain strong and undefeated in the market.