Strategic Alliances in the Hospitality

Strategic Alliances in the Hospitality Sector

The proposed study will be guided by the following research question: "How can strategic alliances provide a competitive advantage, improved performance and profitability for companies competing in the hospitality sector today?" To this end, the theoretical perspective that will be used to answer this guiding research question and structure the problem situation involved is discussed further below.

Theoretical Perspective for Shedding Light on the Topic and Structuring the Problem Situation.

In an increasingly globalized marketplace, companies competing in industries of all types have sought strategic alliances that will provide them with a competitive advantage. For example, according to Wohlstetter, Smith and Malloy (2005), "Strategic alliances have emerged during the past several decades as a popular problem solving tool. Based on the benefits of collective action, strategic alliances are groups of organizations voluntarily working together to solve problems that are too large for any one organization to solve on its own" (p. 419). Thoughtfully implemented and administered, such strategic alliances can represent a win-win alternative for many organizations, but there remains a significant gap in the relevant literature concerning best industry practices for these purposes. As Culpan (2002) points out, there remains a paucity of relevant and timely studies concerning the theoretical perspectives that are used to evaluate the appropriateness of fit and selection of strategic partners in the globalized marketplace.

While there has been some on-point studies concerning how strategic alliances can be used in general to provide synergistic outcomes, additional research in this area is needed to help inform and illuminate the salient factors that are involved. In this regard, Culpan emphasizes that, "Although some literature has already been developed to address different dimensions of strategic alliances, further refinement is needed to understand and manage strategic alliances between firms in different industries" (2002, p. 2). Notwithstanding this gap in the body of knowledge, recent trends indicate that strategic alliances are proliferating in industries of all types around the world. In this regard, Wahab and Cooper report that there has been an increase in the type and levels of strategic alliances over the past two decades.

One of the primary reasons for this increasing proliferation of strategic alliances in general and within the hospital sector in particular is the synergistic beneficial effect they can have on all strategic partners. For instance, Wahab and Cooper (2001) also note that strategic alliances provide their members with specific types of so-called "rents." Such rents are exclusive to the strategic alliance framework because they are generated based solely from the strategic relationship and would not be generated by either member otherwise.

Even major corporations that enjoy vast resources and in-house expertise, though, are unable to realize the benefits that can accrue to such strategic alliances, and there is a need for cooperation between like-minded corporate leaders to forge partnerships with other companies in ways that are mutually advantageous. In this regard, Wahab and Cooper (2001) emphasize that cooperating with a strategic partner to achieve organizational goals can help each member achieve a competitive advantage that is directly associated with the relationship and which neither member could achieve absent the other.

As discussed further below, strategic alliances can be forged between companies competing in unrelated industries, or even between competitors in the same industry, but the primary focus in establishing viable strategic alliances is on mutually advantageous cooperation. As Wahab and Cooper conclude, "Alliances generate competitive advantages only as they move away from the attributes of market relationships. Such a proposition implies a move toward cooperation between firms (or other stakeholders) (Wahab & Cooper, 2001, p. 187). These trends in forging strategic alliances in recent years are largely in response to the increasingly fierce competition in the hospitality sector that has demanded new approaches to doing business.

Indeed, over the past three decades or so, the hospitality sector has experienced an increase in the level of competition causing a number of American companies to seek additional opportunities in the globalized marketplace (Jafari, 2000). This internationalization of companies in general and those competing in the hospitality sector in particular has been accompanied by the need for growth strategies that can help them become more agile in response to changes in consumer demand. For instance, Jafari also notes that, "Many [companies competing in the hospitality sector] compete at a global level in hopes to gain a greater market share and increased profits. There are several generic corporate growth strategies that tourism firms embark upon in order to gain both a competitive and sustainable advantage over its fierce competitors" (2000, p. 113).

Interestingly, strategic alliances are being forged by countries as well as private sector companies in ways that can be mutually beneficial for the hospitality sector as well. According to Laws, Faulkner and Moscardo (1998), such regional trading networks can help create an environment that is especially conducive to trade in general and the promotion of travel and tourism in particular by forging closer relationships in terms of cultural, political and economic ties.

By and large, though, the main focus in the strategic alliance literature remains on how companies can achieve synergism by creating partnerships with other companies, whether they are in the supply chain or in related industries in ways that can provide all stakeholders with some type of additional benefit that could not otherwise be attained. According to Wahab and Cooper (2001), these trends have also been fueled by the same forces that are driving globalization. For instance, Wahab and Cooper (2001) note that even small companies competing in the hospitality sector are increasingly able to compete with their larger counterparts due in large part to innovation in telecommunications and transportation.

These are important considerations for the hospitality sector where the vast majority of actors are SMEs. In this regard, Wahab and Cooper note that SMEs represents the most important component of the hospitality sector at present and these enterprises typically lack the in-house resources they need to launch and sustain global marketing campaigns on their own; by forging strategic alliances with partners that can share resources, though, these SMEs stand to benefit in a number of ways. This point is also made by Morrison who likewise reports that, "The rapid increase in the number of international strategic alliances is recognized as one of the most significant recent management trends. In particular, they may affect firms' cost structures, and provide access to important strategic resources. In this respect, strategic alliances are potentially important strategic options for the non-dominant small hotel firm" (p. 25).

The significance of strategic alliances in the hospitality sector is especially pronounced with respect to SMEs because these firms account for fully three-quarters of operations (Morrison, 1999, p. 25). By way of defining the sector, Lucas reports that, "The term hospitality industry serves as an overarching label for businesses whose primary purpose is to offer food, beverage and accommodation for sale on a commercial basis. The main activities or sub-sectors in the International Standard Industrial Classification of all Economic Activities (ISIC) Division 55 (Hotels and restaurants) are hotels, restaurants, bars (including pubs and clubs) and (contract) catering" (2003, p. 3).

Although every strategic alliance will be unique in some fashion, there are some commonalities involved in these relationships that can help provide a useful definition. For example, Sims (2002) reports that, "Strategic alliances are multifaceted targeted partnerships between synergistic organizations aiming at cooperatively sharing at lower risk and potentially increasing rewards for both. Sharing goals through strategic alliances can lead to effective commitment of resources and development of new creative options through sharing of ideas" (2002, p. 210). Before jumping into a strategic alliance, firms must take into account a number of factors that can spell the difference between success and failure of these initiatives. These factors will inevitably vary from company to company, but here again there are some commonalities involved that can serve as basic guidelines. In this regard, Sims (2002) reports that it is vitally important to analyze the potential relationship before taking steps to formalize a strategic alliance to ensure that partners contribute to the achievement of mutual and individual corporate goals.

Other factors that may require evaluation include how the strategic alliance will function and what attributes each of the alliance partners will be expected to contribute. According to Sims, "Related issues include pooling expertise to explore opportunity, increasing capacity for organizational skills / learning, adding value to products, or enhancing financial strength. These issues are not orthogonal and represent overlapping considerations" (2002, p. 210). Although the general purpose of any type of strategic alliance is to provide mutual benefits for all of the actors that are involved, there are a number of different specific purposes for which these partnerships are being established. Such context-specific considerations are also an important factor in for companies competing in the hospitality sector. For example, Sims (2002) reports that strategic alliances can be created that draw on the respective core competencies of each partner that facilitate the growth of the members' companies by improving market access and developing new distribution networks.

While companies of all types and sizes stand to benefit from strategic alliances, the relevant literature indicates that companies competing in the hospitality industry are particularly well situated to gain a competitive advantage in this way. In this regard, Rahatullah and Raeside report that, "The strategic alliance literature reveals that resources alone can not bring competitive advantage, but complementary resources can contribute to the strategic fit of partners in the alliance (2009, p. 36). In some cases, strategic alliances may be established in the hospitality sector in unexpected ways. For instance, Jayawardena (2002) cites the example of strategic partnerships being formed between institutions of higher education and the hospitality industry to ensure that the coursework being delivered is congruent with the needs of the sector. According to Jayawardena (2002), institutions of higher education should ensure that their curricular offerings remain relevant and tied to the needs of the industry and help prepare their graduates for the type of competitive environment that is in place. In order to remain current and relevant, institutions of higher education must constantly evaluate what the driving forces are in the hospitality sector and formulate curricular offerings that match these needs. In this regard, Jayawardena notes that, "Tourism education and training institutes can do this by forming strategic alliances and 'smart partnerships' with the industry that they serve and conducting continuous industry-driven needs assessments. In this way, both academia and industry can ensure that the products coming out of the institutions will be well prepared for the industry" (2002, p. 150).

Other strategic alliances within the hospitality sector are more intuitive and apparent. For example, according to Chathoth (2004), there has been an enormous amount of growth of strategic alliances within the hospitality industry using air carrier alliances, which have increased unprecedented levels in recent years. This authority adds that these strategic alliances have special import for the hospitality sector since they contribute to the travel and tourism industry in ways that directly contribute to their customer base (Chathoth, 2004). A number of such strategic alliances have been forged in the hospitality sector with different airlines (Wahab & Cooper, 2001). In many cases, the win-win aspects of hospitality sector strategic alliances with airlines can extend to consumers as well. For example, Chathoth notes that with respect to air carriers, "A major shift in airline firm's operating philosophy resulted, as firms sought a more economically efficient form of flight operations through the introduction of airline alliances with partnering firms, aimed at providing frequent flier programs to their customers at the outset. Customers benefited from such alliances, as they were able to use their frequent flier miles on any of the partnering firm's flights" (2004, p. 173).

While it may be intuitive and apparent that strategic alliances between organizations competing in the hospitality sector are mutually beneficial if there are no direct conflicts of interest involved, this is not always the case and even direct competitors stand to benefit from strategic alliances. With respect to the former type of arrangement, Laws et al. note that, "Destinations are complex groupings of primary attractions and secondary services, and it is increasingly recognized that their sustainability depends on forming effective and long-lasting relationships or alliances with suppliers and other organisations which contribute to clients' experiences" (1998, p. 79). With respect to the latter type of arrangement, though, Laws and his associates also point out that, "An industry can be analyzed by the contribution of its members to the value chain, the management philosophy becomes one of collaboration, even between organisations which compete within the market" (1998, p. 79).

Strategic alliances have already been established to better coordinate services between so-called "eco-tourism" destinations and spa towns and beach resorts (Wahab & Cooper, 2001). By collaborating in mutually advantageous ways, these hospitality sector enterprises stand to benefit in numerous ways, including:

A. Preventing under-pricing and unfair price competition;

B. Sharing resources to mount more effective promotional campaigns;

C. Forcing tour operators to enter longer-term fairer agreements with destination suppliers;

D. Preventing tour operators playing one destination off against another for short-term gain; and,

E. Sharing market intelligence and examples of good practice in destination marketing and management (Wahab & Cooper, 2001, p. 180).

One of the main prerequisites to becoming truly effective partners in a strategic alliance in any industry, though, is adequate information technology infrastructure and expertise. In the Age of Information, more and more companies are relying on e-commerce platforms to develop such strategic relationships with other companies. Unfortunately, many companies -- particularly smaller enterprises -- may not be adequately prepared to launch and maintain a strategic alliance because of a lack of this information technology prerequisite. Companies competing in the hospitality sector, though, are sluggish to prepare for and taken action with respect to their Internet presence at their peril (Sims, 2002).

Fortunately, though, the solution to this lack of it expertise and infrastructure is relatively easy to overcome given top-level management direction, commitment and oversight (Sims, 2002). In fact, across the board, Innovations in technology have fundamentally affected how strategic alliances are forged in the hospitality sector. Companies competing in the hospitality industry have achieved significant success by creating so-called "e-marketplaces" which are private e-commerce industry-focused business-to-portal platforms that exploit the competitive advantages of all alliance partners through enhanced purchasing power and reduced logistical management costs (Sims, 2002). Time and again, such platforms have proven their effectiveness in taking advantage of the potential value-added aspects of strategic alliances (Sims, 2002).

Besides improving access to markets, a number of e-marketplaces have also integrated strategic alliances to facilitate their operations in the following ways:

A. Outsourcing non-core processes;

B. Partnering to enable technical integration to the marketplace (on-boarding); and/or,

C. Aligning with other e-marketplaces to offer complementary product offerings (Sims, 2002, p. 210).

Although there are benefits to be gained through each of these approaches, Sims suggests that the approach that carries the least risk is to outsource non-core processes. In this fashion, companies competing in the hospitality sector can devote more time to income-generating activities and concentrating on their core competencies and such arrangements can also constitute a strategic alliance. For example, according to Sims, "Transaction-heavy functions such as payroll processing and credit verification are commonly outsourced. on-boarding companies to the marketplace often requires partnering with a technology firm or consultancy to ensure rapid integration" (2002, p. 210). Strategic alliances that incorporate e-marketplaces can provide a number of valuable outcomes for the actors involved as well as their customers irrespective of the type of industry that is involved (Sims, 2002). What is important to note is that each such strategic alliance is capable of adding value and providing a competitive advantage for the actors that are involved by helping the partners focus the allocation of resources on core value propositions (Sims, 2002).

For instance, Sims (2002) cites the case of major hotel chains and sports-related industries that have used business-to-portal opportunities to improve their profitability and add value to their supply chain management. According to Sims (2002), e-marketplaces are a type of business-to-portal (B2P) e-commerce; e-marketplaces can be used by strategic alliance members to facilitate their own interactions as well as identifying potential new members that can contribute to the synergistic relationship. To date, some good examples of how such B2P e-marketplaces have been used in the hospitality industry include Marriott's alliance with Hilton, Hyatt and Club Car of America (Sims, 2002). The benefits that accrue to the use of B2P e-marketplaces include reduced trading costs, easier purchasing functions and a consolidated venue for selling goods; in some instances, these venues charge for each separate transaction while others generate revenues by assessing a subscription fee; in yet other manifestations, a combination of these approaches is used (Sims, 2002).

There are four primary e-marketplace models that are currently being used for these purposes as described below:

A. Catalog: The catalog form aggregates products or services from multiple points to provide low-cost distribution for sellers and one-stop shopping for buyers.

B. Auction: Auctions are a venue for sale of onetime items such as excess inventory.

C. Exchange: Exchanges provide a channel for the sale of commodities.

D. Community. A community focuses on a specific subset of buyers/sellers to provide content of particular interest to match the interests of particular groups of specialists to increase their involvement and leverage knowledge and improve products (Sims, 2002, p. 6).

Taken together, it is clear that strategic alliances represent one of the best ways for companies competing in the hospitality sector to gain a competitive advantage and remain sufficiently agile to respond to changes in the marketplace, but to achieve these desirable goals requires identifying appropriate strategic partners. As noted throughout, such strategic partners can be found in apparent places, but in unexpected areas as well, limited only by the imagination, creativity and wherewithal of the leadership team.

The time is ripe, though, to pursue such strategic alliances and first movers will stand to benefit in substantive ways. As Yu and Smith emphasize, "Opportunities for new ventures and partnerships beckon in every corner of the hospitality industry. Companies that can strategically identify a market and find a partner will reap the benefits of an increasingly vibrant travel and tourism industry" (2005, p. 11). Even as the forces that are driving globalization are making the need for strategic alliances more important than ever, identifying appropriate partners may involve looking closer to home. In this regard, Klimley notes that many companies competing in the increasingly globalized hospitality industry are searching for strategic alliance partners on a more localized basis. In sum, then, the research was consistent in showing that strategic alliances can provide companies competing in the hospitality sector with a wide range of benefits, but the process requires a thoughtful analysis of which companies are appropriate for such alliances and how these alliances can best achieve organizational goals.

These are important considerations for countries in which the travel and tourism industry has been suffering, with Cyprus representing just such an example. According to Tyrrell, "Tourism in Cyprus has been on a downward spiral in recent years where mass tourism has been replacing special interest, cultural and heritage tourism of the past" (2009, para. 1). The fierce competition for the summer-sun market has placed Cyprus at a competitive disadvantage with many of its neighbors, making the need for strategic alliances that can help develop the types of globalized and regionalized marketing campaigns that are required a good first step towards reinvigorating the hospitality sector (Sharpley & Forster, 2003). Moreover, ethnic rivalries and ongoing controversy between Greece and Turkey over the Republic of Cyprus (which covers the southern part of the island -- see map in Figure 1 below) and the self-declared Turkish Republic of Northern Cyprus (Dana & Dana, 2000), as well as inordinately high inflation rates and a stagnated standard of living have been nagging problems in recent years (Gani, 2004).

Figure 1. Political Map of Cyprus

Source: CIA World Factbook, 2011 at https://www.cia.gov/library/publications/the-world-factbook/geos/cy.html

In response to the need for a reinvigorated travel and tourism industry, a strategic alliance between Arizona State University, Clark University, KPMG Cyprus and the Cyprus International Institute of Management is collaborating with the Cyprus tourism industry to help it achieve its sustainability goals. This strategic alliance is formulating new approaches to positioning the Cypriot hospitality sector by focusing on the region's culture and history rather than its beach and sun opportunities because these are no longer cost efficient tourist draws (Tyrrell, 2009). This type of strategic alliance is also characterized by its use of tertiary educational resources to achieve its organizational goals.

Fortunately for this strategic alliance and other like-minded enterprises, Cyprus has much to offer besides its beachfront, but the strategic alliance wants to ensure that refocusing the country's travel and tourism industry on its cultural resources is accomplished in sustainable ways that allow for long-term growth. To this end, the strategic alliance develop a set of guidelines termed the Triple Bottom Line that are being used by members to ensure that the steps they take in promoting their industry is accomplished according to best industry practices. This Cyprian strategic alliance also reflects the essential elements of such alliances described above, including drawing on the core competencies of each member to satisfy core value propositions and add value wherever possible.