Case Study †The Golden Rule and a Global Strategy

Since the attacks of family line 11th occurred in the linked States, in that location has been a level of social, environmental, and political fermentation. This unrest is non only among individuals, plainly to a fault among byplayes worldwide and quatern Seasons is not excluded from that list. to the highest degree of the scrutiny that is tangle is directed at countries and more(prenominal) specific tout ensembley groups of the heart and soul eastbound that pay heedmed to be involved with, or to be blamed for the disturbances of September 11th.The case submit clearly points out that political unrest between the Middle East and the United States could play a huge role in find the expansion and over all success of that argona (or lack at that place of). Unfavorable economic and political conditions in international markets, including civil unrest and governmental changes, could down the stairsmine consumer confidence and reduce the consumers purchasing power, there by reduce demand for leisure products like highlife hotels.In addition, boycotts resulting from political activism could reduce demand, turn restrictions on the ability to transfer earnings or capital across borders which may be imposed or expanded as a result of political and economic instability could impact put onability for quadruplet seasons. Without limiting the generality of the preceding sentences, the unfavorable business environment, the current dubious economic and political conditions and civil unrest and political activism in the Middle East, and the unstable situation in Iraq or the continuation or escalation of terrorist activities could adversely impact international business.Even with these economic and political factors to consider, socio-cultural factors similarly play a huge role in assessing risk for the development of a four-spot Seasons hotel in the Middle East. The four Seasons practices business in a European way ( world headquartered in Canada), w ith their primary focus cosmos guest service, node loyalty, and values that correspond to American and European culture. Middle eastern amicable values are vastly different, and may result in conflicts of service. For one, womanhood are considered to be in a visit separate classes, as compared to American and European beliefs.This would go against the hotels core competencies and beliefs for how their customer should be treated. microscopical things a good deal(prenominal) as having pets, or actualizeing poverty, all play a huge role in understanding the culture. The bottom line of this bring down is tolerance. Tolerance between our socio-cultural beliefs are vastly different, therefore could be speculative if you try to mix them for business primer coats. The case talks about how the perseverance is under the process of consolidation. Strategic alliances, mergers and acquisitions are a huge reason wherefore international investments in the Middle East may be less hi ting.In the case of quaternity Seasons, the article discusses how many acquisitions and mergers have interpreted place with Four Seasons since the 1970s and 1990s. An important one was the acquisition of regent international hotels. Not only did that expand them into Eastern markets, but it also lured an alliance with The Saudi Arabian Prince when he bought 25% of the fraternity for 167 one million million dollars. His understanding the culture and his deep pockets allowed them into a market that was otherwise a very risky proposition. As per the case write up, this reason is the reason for economic expansion and growth in the Middle East.The pros and larns of the luxury hotel department There are many benefits to being in the luxury hotel ingredient. The case study securely suggests that individuality is a key competitive emolument for this segment. What positively distinguishes a brand is the remarkable level of service offered, known as the fortunate rule. The golden r ule is to treat others as you would like to be treated (which in the Ritz Carlton, it means ladies and gentlemen serving ladies and gentlemen). This is typically not the case in lower level hotel segments, which stools a competitive advantage for these upper echelon hotels.Another key advantage that the case points out is the luxury segments ability to be averse or immune from economic downturns, such as the one that occurred on September 11th 2001. The effected population consists of the middle class. The movers and shakers of the world get out lock utilize the amenities of the luxury segment. Brand name recognition is some other huge advantage for this segment. This accounts for over 80% of their marketing efforts. According to the urban land institute property performance survey, the upscale luxury segment will significantly outperform the mid prices economy segment done mid 2002.(Even with a total market share of only 17. 6%).Another advantage was occurring in times of eco nomic distress. The cost associated with opening impudent hotels was astronomical, causing a very high barrier to entry for non-established brands in the middle market segment. This is a clear indicator of a strong luxury segment. Companies such as the Four Seasons have been moving into hotel management, which has a lower perceived risk and a lower cost of ownership. With all these advantages at hand, the case study suggests that now is the time that the luxury hotel segment should expand on all these factors.Although the advantages seem legitimate, there are causes for concern for the luxury hotel segment and it starts with competition with the lower hotel segments. The case discusses a downturn in business travelers and an upswing of leisure travelers by a considerable margin. The phone total for the luxury segment occurred when lower level hotels were cannibalizing their guests by tailoring work to match their needs instead of losing them to luxury hotels. Examples of this wo uld be Wyndham by request, which is a customer relationship management model.Another huge area of concern for luxury hotels is the change in technology and how that affects the capture of hot and repeat clientele. Its stated in the article that lower segment hotels have follow new-fangled technology changes quickly but the luxury segment was leaden to grasp it. This was a clear disadvantage to the luxury industry that relied heavy on bookings from agents, and telecommunications. In 2002, Four Seasons hired MICROS systems to consolidate all customer records and help them link the properties systems. The development of new luxury properties was sure to loath down drastically in an economic downturn.This made expansion a harder proposition. It would cost luxury hotels nearly 375,000 dollars per room to expand with a new building as opposed to the 48,900 dollars per room for middle market hotels. due to this drastic cost difference, luxury hotels had to rely on developing there e xisting assets which is very difficult to the case studies point. Hotel Management VS genuinely-estate Ownership In order to discuss why the Four Seasons became a management company, we essential first understand how it was accomplished. In 1974, cost overruns nearly led the company into bankruptcy.As a result, the company began shifting to its current, management-only business model and eliminate cost associated with buying land and buildings and instead begin earning dinero through managing them. The recent economic downturns such as the September 11th disaster obligate the company to sell its shares to majority stockholders such as the Saudi Arabian Prince who bought 176 million dollars in shares. After that point, Four Seasons got into the market of managing properties as they acquired hotels such as Regent and many others.This is when Four Seasons started to manager their properties. It operates them on behalf of real estate owners and developers. The contracts between Four Seasons and property owners typically permits the company to accede in the design of the property and run it with nearly total accountant over every aspect of the operation. Four Seasons generally earns 3 per centum of the gross income and approximately 5 percent of profits from the properties it operates, and the property owners are required to additionally contribute money for chain-wide sales, marketing and reservations systems.Four Seasons hotels have big staffs than competing chains, therefore they create separate reserve accounts to cover upkeep costs. age profit margins are relatively low, the reputation of the brand and the value of the hotel for sale as well as loan collateral generate developer interest. Lets image at some figures from the table on page 29 to understand why they chose to be a management company. From 1998 to 2000, ownership trading operations produced a positive income of 9,000, 8,000 and 13,000.Although the numbers are positive, they are a minusc ule number in comparison to the profits of the management operations, which were 79,000, 89,000 and 125,000 for those course of instructions. If we look ahead to the years 2001 and 2002, you will notice that the ownership operations actually yielded a bolshy for both years of (10,000) and (19,000). These numbers are in congruence with the pass judgment economic downturn that occurred at that time that affected all hotels. This is why Four Seasons made the move to managing hotels.If we pull up the management operations profit figures, we notice that for year 2001 they earned 95,000 and in 2002 they earned 82,000. Although its less then the years prior, we can clearly see the difference in profits, even with a management fees and royalties earned of 3 to 5 %. Average revenue streams and the interpretation of net earnings and hard currency from operations Average revenue per property Worldwide $52,173 x 365 = $19,143,145 United States $67,808 x 365 = $24,749,920 Europe/Middle eas t $44,572 x 365 = $16,268,780 Net income 1999 $86,4792001 $86,486 2002 $21,231 coin apply in operations 1999 $106,787 2001 $75,510 2002 $41,673 Calculation of difference between the pull measures Year 1999 ($20,308) Year 2001 $10,976 Year 2002 ($20,532) In the year 1999, Four Seasons showed a positive growth in their net earnings statement coming in around 86,000. The issue here is that the cash used in operations exceeded the amount that was profit, leaving a negative number. The same applies for year 2002. However, in 2001, it shows that the net profits were still higher than cashed used in operations.This pattern does not directly correlate to overall business decline, but just a difference in how the money is being received throughout Four Seasons. Operating cash flow is the lifeblood of a company and the most important barometer that investors have. Although many investors gravitate toward net income, in operation(p) cash flow is a better metric of a companys financial he alth for two main reasons. First, cash flow is harder to manipulate under GAAP than net income. Second, cash is king and a company that does not generate cash over the long term is on its deathbed.Calculations of profit margins, ROA, and roe and the 5 year trend 1998-2002 Year 1998 1999 2000 2001 2002 Net derive Margin 28. 02% 31. 16% 29. 66% 28. 53% 7. 46% ROA 12. 79% 10. 39% 10. 47% 8. 82% 2. 19% ROE 12. 79% 10. 39% 10. 47% 8. 82% 2. 19% From the above calculations, we can make some educate inferences as to the direction that the company is headed. We can see that the Net profits are steady and then take a severe plunge. This is plausibly due the September 11th occurrence (which also leads to consumer shock and uncertainty). Nonetheless, its frightening to see your margins fall that low.On the flip side, we can see that the ROA and the ROE are identical. First of all this means the Four Seasons did a spacious job managing their debt to equity. Research indicates that if your ROA equals the ROE, then your company has no debt. This was accomplished when Four Seasons decided to become private again and sell its shares to rich investors. This also was a testament to their willingness to change amid a vastly adapting service industry. They had to create a niche in the management field and shy away from the real estate norm.The direction that the company will head in the next 5 years will also involve much of what they already did, and that is adapt to change. The calculations and all the research through this case study suggests that its getting harder and harder to attain the same cash flows by doing the same activity. A new plan will have to change the way Four seasons captures new business, and secures its returning business for more profits than ever before. The platform is consumer technology platforms. With time, the luxury consumer will become happier, but also more discerning.Customization on a customer-by-customer basis will be important. Creating a digital experience on the web will heavily increase traffic. Most important of all points will be the age of social media networking. Companies like facebook are starting to pop up in this 5 year trend forecast, and being the front runner in this technology will create a digital media universe at the their disposal. The mobile revolution is also on the horizon in this forecast, so having your company watchful for this will undoubtedly help your profits, ROA, and ROE.