Environmental analysis of MGM Resorts International's competitive position

Business Studies

Environmental Analysis of MGM Resorts International

Remote Environment

Operating Environment

Industry Environment

Competitive Position

Organizational Structure

MGM Resorts International is a global leader in the hospitality in gaming industry, principally through gaming resorts. The company is listed on the New York Stock Exchange, and has two reporting segments, the first is the Wholly Owned Domestic Resorts which deals with the U.S. resorts owning and operating 15 different resorts in the United States, located in Nevada, Michigan and Mississippi. Flagship hotels include several Las Vegas hotels and casinos including The MGM Grand, The Mirage, Bellagio and Mandalay Bay. The second reporting segment is MGM China, with the company only a 51% of MGM China Holdings Ltd. which owns and operates the resort and Casino at MGM Macau. The company also has interests in other properties, including 50% investments in operations in Nevada and Illinois. The organization has a vision which states that the company seeks to "be the recognized global leader in entertainment and hospitality" (MGM, 2013)

The company operates a highly competitive environment, and has a number of internal and external challenges. In order to appreciate the position of the organization, and environmental analysis looking at the internal and external environment may be considered.

2.

SWOT Analysis

A SWOT analysis provides a good starting point for an analysis, with the strengths and weaknesses looking at the internal aspects of the organization, and the opportunities and threats looking outwards (Lynch, 2011). This framework provides a good overview of an organization (Lynch, 2011).

MGM benefits from a number of strengths. One of the major strengths is the high level of brand recognition; MGM is a well-known brand name and have associated with the hospitality and gaming industry, especially with the renowned Las Vegas strip hotels named in the introduction. The organization's brand reputation and Association of the high standards associated with the brand is a source of competitive advantage. The company is well-placed with a significant amount of valuable property assets. The organization may also be argued as having strengthened weathered revenue is generated, and while the organization is Memphis gaming activities, more than 50% come from other activities including the provision of hotel rooms, meals and entertainment. This provides a degree of diversification which can be beneficial, especially during difficult trading positions.

The financial position of the organization may be seen as a potential weakness, although there is a high level of revenue, for two out of the last three years the company has suffered a significant loss, with net profit after taxes of -$1,768 million (MGM, 2013). This reflects another major underlying weakness; the financial structure with a high level of indebtedness, with a leverage ratio of 6.02 compared to the industry average of 3.47 and a debt to equity ratio of 3.1 compared to the industry average of 1.55 (MSN Money, 2013). The firm has undergone some capital restructuring to reduce the overall cost of debt, but the debt is a major burden, while the firm made an operating profit the interest payments account for a great deal of the loss, with interest payments of $1,116 million in 2012 (MGM, 2012). The organization needs to make continual investment in the resorts to maintain the brand value and reputation as well as support the quality resort experience, this also places a pressure of the financial structure in which a weakness when the firm is seeking to reduce the debt burden. Another weakness may be the productivity of employees, when measures as the revenue per employees, this is below the industry average, as $157,288.897 for MGM compared to the average of $179,241.49 (MSN Money, 2013)

The organization has a number of opportunities. There are current plans for expansion, in place, with the building of MGM Coati due to open in 2016, the partnership with Fairview Cadillac to build a resort in Ontario and the winning of voter approval that may facilitate the development of a resort in Maryland (MGM, 2013). There is also the potential for a development at Springfield, Mass, with the firm currently awaiting the decision of the Gaming Commission (Ring, 2013). This indicates the potential for expansion, both domestically and internationally, a potential that us heavily supported by the string brand name. There is also the potential for diversification as the rules and regulation on online gaming are being relaxed in some stated (Seeking Alpha, 2013).

Main external threats can be seen in the competitive environment, with fierce competition. However with a heavy debt burden and a need to increase revenue, the current economic climate with the slow recovery may be seen as posing a risk, especially if there is a downturn, which may place negative pressures on the firm. The firm operates in an industry that is highly regulated; there is always the potential for increased regulation or taxes, which may also posse a threat.

3.

Remote Environment

The PEST framework is a useful tool to examine the remote environment, looking at the political, economic, socio-cultural and technological influences that are present. From a political perspective there are a number of sources of regulation, such as the Nevada Gaming Control Act, which controls how the firm can behave in the undertaking of gaming activities in Nevada. Similar legislation exists in many areas, even in Macau. This legislation can change and adapted, often as a result of political influences and moves.

The firm is highly sensitive to economic conditions, as the services are discretionary spending items, purchased from disposable income. As a result many gaming and hospitality firms in the U.S. suffered when the global recession of 2008 took effect. However, it is worth noting that in Asia, many of the gaming resorts continued to do very well, with revenues and profits growing (Hitt et al., 2013).