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Banyan Tree Hotel & ResortsEsther Yeh | Jasmine Tan | Josephine Hau | Lo Chuan Jian | Melanie Chew | Merlisa Pung | Pearlica Chan
Presentation Outline
• Company Overview
• Internal Analysis: Resources, Capabilities & Core Competencies
• External Analysis: PESTLE, Porter’s 5 Forces
• Competitors Analysis
• Current Performance
• Recommendations
Company Overview
Company Overview
• Listed on SGX since 2006
• Developer, owner and manager of spas and resorts
• 2 brands
• Banyan Tree
• Angsana
CompanyOverview
InternalAnalysis
ExternalAnalysis
Competitors Analysis
Current Performance Recommendations
Company Overview
• 3 revenue sources
CompanyOverview
InternalAnalysis
ExternalAnalysis
Competitors Analysis
Current Performance Recommendations
9%
29%
62%
Hotel investmentsFee-based businessesProperty sales
Source: Banyan Tree Annual Report 2010
What are Banyan Tree’s strengths?
Resources, Capabilities & Core Competencies
InternalAnalysis
ExternalAnalysis
Competitors Analysis
Current Performance RecommendationsCompany
Overview
Resources Capabilities Core Competencies
• Experienced & multi-disciplinary management team
• Well-trained & innovative workforce
• Trusted brand
• Excellent reputation
• Effective brand management
• Constant innovation
• “Create holiday destinations”
• Deliver top-notch service
• Commitment to sustainable development
• Ability to leverage on strong brand equity in delivering superior customer experience
• Leads to customer loyalty & satisfactionSustainable Competitive Advantage
Business-Level Strategy
InternalAnalysis
ExternalAnalysis
Competitors Analysis
Current Performance RecommendationsCompany
Overview
Overall Low-Cost Provider Strategy
Broad Differentiation Strategy
Focused Differentiation Strategy
Focused Low-Cost Strategy
Best-Cost Provider Strategy
A Broad Cross-Section of Buyers
A Narrow Buyer Segment (or Market Niche)
Lower Cost Differentiation
Mar
ket T
arge
t
Type of Competitive Advantage Being Pursued
Focused Differentiation Strategy
Where is Banyan Tree headed towards?
Expansion into China: Rationale
• Diversification
• Avoid tying the Banyan Tree fortunes to volatile Thailand market
• Leverage on tremendous growth projected for China’s domestic travel sector
• Revenue from existing resorts in China doubled from 2008 to 2010
Competitors Analysis
Current Performance RecommendationsInternal
AnalysisCompany Overview
ExternalAnalysis
Expansion into China: Strategy
• Established China hospitality fund to use for expansion
• Total funds: S$214 million
• Aim to plant 19 “Banyan Trees” in China by 2015
• Locate its resorts in second-tier and third-tier cities
Competitors Analysis
Current Performance RecommendationsInternal
AnalysisCompany Overview
ExternalAnalysis
Low costs of operations
Ability to charge premium price
High profit
What are macroeconomic factors in China that Banyan Tree are exposed to?
PESTLE Analysis:Political
• Politically-stable
• Single party leadership via the Chinese Communist Party
• Satisfaction with party due to extraordinary economic growth
Competitors Analysis
Current Performance RecommendationsInternal
AnalysisCompany Overview
ExternalAnalysis
PESTLE Analysis:Economic
• World’s fastest growing economy with average GDP growth of 10.5% from 2003 to 2012
Competitors Analysis
Current Performance RecommendationsInternal
AnalysisCompany Overview
ExternalAnalysis
-10
-5
0
5
10
15
2003 2006 2009 2012
% re
al c
hang
e in
GDP
China India Germany Japan USA
Source: EIU Market Indicators & Foecasts
PESTLE Analysis:Economic
Competitors Analysis
Current Performance RecommendationsInternal
AnalysisCompany Overview
ExternalAnalysis
Source: DataMonitor
02468
10121416
2006 2007 2008 2009 20100
10203040506070
China hotels & motels industry value: $billion, 2006-2010% Growth $ billion
PESTLE Analysis:Social
Competitors Analysis
Current Performance RecommendationsInternal
AnalysisCompany Overview
ExternalAnalysis
Source: BCG Wealth Market Sizing Database 2008
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
858740
635542
465391
292230199173147
Number of millionaire households in China: 2002-2012 (in thousands)
Total millionaire HH AuM (US
$Tn)0.45 0.55 0.64 0.76 1.01 1.44 1.79 2.16 2.63 3.20 3.87
Average AuM per millionaire HH (US$ Mn)
3.08 3.18 3.25 3.30 3.47 3.68 3.84 3.98 4.14 4.32 4.51
PESTLE Analysis:Technological
• World’s second-largest expressway network
• Projected to own 820,000km of expressway in next decade
• Invested US$70billion on new airports & expanded existing airports‘ capacity
Competitors Analysis
Current Performance RecommendationsInternal
AnalysisCompany Overview
ExternalAnalysis
PESTLE Analysis:Environmental
• 41 UNESCO World Heritage sites
• Banyan Tree has received government approval to open resorts in several sites
• E.g. Mt. Huangshan, Jiuzhaigou valley & Lijiang old town
Competitors Analysis
Current Performance RecommendationsInternal
AnalysisCompany Overview
ExternalAnalysis
PESTLE Analysis:Legal
• Government imposes bureaucratic red tape
• Causes delay
• Foreign firms own right to use but not own land
• Must maintain good guanxi with the government
Competitors Analysis
Current Performance RecommendationsInternal
AnalysisCompany Overview
ExternalAnalysis
PESTLE Analysis:Conclusion
• Extremely lucrative market for players in luxury hotels and resorts industry
• Economic outlook highly positive
• Potential in domestic tourism
• Concerns
• Bureaucratic red tape
• Lack of law enforcement against counterfeits
Competitors Analysis
Current Performance RecommendationsInternal
AnalysisCompany Overview
ExternalAnalysis
Is the luxury hotels & resorts industry in China lucrative?
Industry Analysis: Porter’s 5 Forces
• Luxury hotels and resorts in China are generally lucrative
Competitors Analysis
Current Performance RecommendationsInternal
AnalysisCompany Overview
ExternalAnalysis
Bargaining power of suppliers
Bargaining power of buyers
Threat of new
entrants
Threat of substitute products
Rivalry among
existing firms
• Government: Medium
• Construction firms: Low
• Private investors: Medium
• Employees: High
Medium
• Variety of choices of luxury hotels & resorts in China
• Low switching costs
Very High
• High barriers to entryLow
• Low to middle-end hotel and resorts industry
Low
• Many established luxury players in the industry
High
How is the competition in the luxury hotels & resorts industry in China?
Competitor Analysis
Competitor Analysis
Current Performance RecommendationsInternal
AnalysisCompany Overview
ExternalAnalysis
CompaniesCompaniesCompaniesCompaniesCompaniesCompaniesCompaniesCompaniesCompaniesCompanies
Critical Capabilities Weight Banyan
TreeBanyan
TreeAman
ResortsAman
ResortsAccor GroupAccor Group
InterContinental Group
InterContinental Group StarwoodStarwood
Raw Score
Weighted Score
Raw Score
Weighted Score
Raw Score
Weighted Score
Raw Score
Weighted Score
Raw Score
Weighted Score
Brand Management 50% 6.5 3.25 5 2.5 7 3.5 7.5 3.75 7 3.5
Innovation 10% 7 0.7 5 0.5 6.5 0.65 7 0.7 7 0.7
Quality service 25% 8.5 2.125 7 1.75 7.5 1.875 8 2.0 8 2.0
Sustainable development 15% 8.0 1.2 5 0.75 8 1.2 8 1.2 6 0.9
100% 7.275 5.5 7.225 7.65 7.1
Competitor Analysis
• Accor Group & Aman Resorts
• Offer similar resort concepts
• Neither has a strong foothold in market
Competitor Analysis
Current Performance RecommendationsInternal
AnalysisCompany Overview
ExternalAnalysis
• InterContinental Group & Starwood
• Major players
• Mostly dealing with hotels & business travellers
• Different target market segments
Banyan Tree has potential to become dominant player
How is Banyan Tree currently performing in China?
Current Performance in China:Quantitative
Competitors Analysis
Current Performance RecommendationsInternal
AnalysisCompany Overview
ExternalAnalysis
2008
• Revenue from China’s operations doubled 2010
Future
• Future increase in revenue
• Contributions to Banyan Tree’s revenue increased from 8% to 18%
Current Performance in China:Qualitative
• Unacceptable for Banyan Tree
• Ideal should be <10%
• Affect brand equity
• China resorts yet to meet high-quality standards expected
Competitors Analysis
Current Performance RecommendationsInternal
AnalysisCompany Overview
ExternalAnalysis
23%
77%
China Positive reviewsNegative reviews
Total no. of reviews: 319
9%
91%
Thailand
Total no. of reviews: 644
16%
13%
28%
34%
9%
Transportation difficultiesLow quality of foodPoor customer servicePoor maintainanceBoredom
Source:
Are Banyan Tree’s expansion plans able to meet investors’ expectations?
Forecasted Financial Performance:Capital
Competitors Analysis
Current Performance RecommendationsInternal
AnalysisCompany Overview
ExternalAnalysis
Fund Name The Banyan Tree China Hospitality Fund
Type Private Equity Fund
Size S$214 million (RMB 1.07 billion)
Investors Chinese domestic HNWI & Banyan Tree
Time Frame 6 years (2011-2016)
Forecasted Financial Performance:Benchmark
• 6% return over 6 years
• 4% return over 10 years
• 1/3 share of its yearly profits
Competitors Analysis
Current Performance RecommendationsInternal
AnalysisCompany Overview
ExternalAnalysis
Forecasted Financial Performance:Assumptions
• 4 Banyan Tree & 2 Angsana resorts operating in China in 2010
• Assume Banyan Tree contribute 67% of revenue
• Assume operating profit margin is 9.84% (average from past 3 years)
Competitors Analysis
Current Performance RecommendationsInternal
AnalysisCompany Overview
ExternalAnalysis
China hotel revenueChina hotel revenue
2010 ($‘000)
Total hotel investment revenue in 2010 189,327
Percentage contributed by China resorts* 18%
Total revenue contribution by China resorts 34,079
Percentage contributed by Banyan Tree brand resorts only 67%
Total revenue contribution by China Banyan Tree brand resorts 22,833
Total number of China Banyan Tree brand resorts 4
Contribution per China Banyan Tree brand resort 5,708
*Percentage obtained from annual report 2010*Percentage obtained from annual report 2010
Forecasted Financial Performance:Assumptions
• Assume total number of resorts opening in 2015 is 19 (Banyan Tree website)
• Assume China corporate tax remains unchanged at 25%
Competitors Analysis
Current Performance RecommendationsInternal
AnalysisCompany Overview
ExternalAnalysis
Total number of China resortsTotal number of China resorts
Current 4
Additional resorts in 2011 2
Additional resorts in 2012 3
Additional resorts in 2013 5
Additional resorts in 2014 4
Additional resorts in 2015 1
Total no. of China resorts 19
Forecasted Financial Performance ($‘000)
Competitors Analysis
Current Performance RecommendationsInternal
AnalysisCompany Overview
ExternalAnalysis
2010 2011 2012 2013 2014 2015 2016 Total4 resorts in 2010 (existing resorts) 22,833 25,733 29,001 32,684 36,835 41,513 46,785 212,5492 resorts in 2011 0 5,708 12,886 14,500 16,342 18,417 20,756 88,5903 resorts in 2012 0 0 8,562 19,299 21,750 24,513 27,636 101,7515 resorts in 2013 0 0 0 14,271 32,166 36,251 40,855 123,5424 resorts in 2014 0 0 0 0 11,416 25,733 29,001 66,1501 resort in 2015 0 0 0 0 0 2,854 6,433 9,287Total revenue from hotels 31,441 50,429 80,754 118,509 146,280 171,455 601,869
Operating profit before tax (9.84%) 3,094 4,962 7,946 11,661 14,689 16,871 59,224Tax (25%) 773 1,241 1,987 2,915 3,672 4,218 14,806Operating profit after tax (A) 2,320 3,722 5,960 8,746 11,017 12,653 44,418
Required return (B) 7,576 7,576 7,576 7,576 7,576 7,576 45,454Additional return required (A-B) -5,255 -3,854 -1,616 1,170 3,441 5,078 -1,036
Total returns from investments will fall short of investors’ expectations by $1,036,00
Summary of Evaluations
• Hotels & resorts industry is generally lucrative in China
• Competition in this niche market is not strong
• Quality of resorts compromised in midst of expansion plans
• Current expansion plans is insufficient to meet investors’ expectations
Competitors Analysis
Current Performance RecommendationsInternal
AnalysisCompany Overview
ExternalAnalysis
Recommendations for the next three years
Recommendation 1:Open 2 Additional Resorts
• Resorts should be located in rural areas with rich local cultures & good supporting infrastructure
• 3 possible locations
• Hunan province
• Henan province
• Guizhou
Competitors Analysis
Current Performance RecommendationsInternal
AnalysisCompany Overview
ExternalAnalysis
Rationale• To generate
sufficient profits to meet investors’ expectations
Implementation Benefits
• Excess returns of $335,000
• Excess profits could be used to make up any shortfall in Banyan Tree’s Angsana brand resorts in China
Recommendation 2:Increase Quality of Resorts
• Conduct regular internal audits
• Tighten quality management policy using stricter goals & KPIs
• Increase training & implement continuous training programmes
• Review current level of human resources & employ more workers if required
• Improve quality of food
Competitors Analysis
Current Performance RecommendationsInternal
AnalysisCompany Overview
ExternalAnalysis
Rationale• Quality of
Banyan Tree resorts in China has been compromised
Implementation Benefits• Allow Banyan
Tree to continue expanding in China
• Maintain brand equity
Recommendation 3:Open Banyan Tree Management Academy in China
Competitors Analysis
Current Performance RecommendationsInternal
AnalysisCompany Overview
ExternalAnalysis
Rationale• To support Banyan Tree’s
aggressive growth in China
• Need for differentiated training for Chinese employees
Benefits• Opportunity to build a highly-
trained and dedicated workforce in China
• Opportunity to increase knowledge capital
Recommendation 4:Establish Good Guanxi with Investors
• Allow investors to establish a sense of ownership towards Banyan Tree’s projects
• Golden loyalty cards
Competitors Analysis
Current Performance RecommendationsInternal
AnalysisCompany Overview
ExternalAnalysis
Rationale• Investors play
a crucial role in providing funds for Banyan Tree’s expansion
Implementation Benefits• Boost
investors’ confidence
• Increase access to funds in future
Recommendation 5:Establish Good Guanxi with Municipal Governments
Competitors Analysis
Current Performance RecommendationsInternal
AnalysisCompany Overview
ExternalAnalysis
Rationale• Government co-operation is
essential
Benefits• Increase access to business
opportunities & information
• Reduce risk of compulsory acquisition by government
• Increase stability & certainty of business in China
Conclusion
Overall Estimated Financial Impact
2010 2011 2012 2013 2014 2015 2016 Total4 resorts in 2010 (existing resorts) 22,833 25,733 29,001 32,684 36,835 41,513 46,785 212,5492 resorts in 2011 0 5,708 12,886 14,500 16,342 18,417 20,756 88,5903 resorts in 2012 0 0 8,562 19,299 21,750 24,513 27,636 101,7515 resorts in 2013 0 0 0 14,271 32,166 36,251 40,855 123,5424 resorts in 2014 0 0 0 0 11,416 25,733 29,001 66,1501 resort in 2015 0 0 0 0 0 2,854 6,433 9,287
2 additional resorts in 2015 0 0 0 0 0 5,708 12,866 18,575
Total revenue from hotels 31,441 50,429 80,754 118,509 154,988 184,322 620,443
Operating profit before tax (9.84%) 3,094 4,962 7,946 11,661 15,251 18,137 61,052Tax (25%) 773 1,241 1,987 2,915 3,813 4,534 15,263
Operating profit after tax (A) 2,320 3,722 5,960 8,746 11,438 13,603 45,789
Required return (B) 7,576 7,576 7,576 7,576 7,576 7,576 45,454
Additional return required (A-B) -5,255 -3,854 -1,616 1,170 3,863 6,027 335
Conclusion
• Recommendations
• Open 2 new resorts in 2015
• Improve quality of resorts in China
• Open another Banyan Tree Management Academy in China
• Establish & maintain strong guanxi with investors & municipal governments
• Potential for Banyan Tree to become market leader in its premium segment in China
Question & Answer