Characteristics of new market

Saudi Arabia is a middle eastern country with a population of 34.81 million people with an economic growth  rate of 2.8% and a forecast of 4% in 2022. The average household disposable income per capita in Saudi Arabia is $17500. The mining of oil is the primary economic activity in Saudi Arabia that accounts for 42% of the country’s GDP. As such, there is a considerable rate of consumer spending spanning to an amount of 300 billion US dollars in 2019. The tourism industry has experienced extensive growth in the country. As an attempt to reduce Saudi Arabia’s reliance on fossil fuel for its economy, the government has invested highly in enhancing the nation’s tourism sector. A majority of the tourist activities in Saudi Arabia is based on religious pilgrimage. Nevertheless, there is considerable growth in leisure tourism in the country. The industry, in 2019, generated 25 billion in revenue. Therefore Saudi Arabia is a notable tourist destination that may support Accor’s expansion intentions.

Investment incentive

Part of Saudi Arabia’s long-term economic strategies is to increase the rate of foreign investment. The government of Saudi Arabia has prioritized hospitality and tourism among other industries in enhancing their attractiveness to foreign investors. The incentives include lenient laws that support foreign cultures. As an Islamic nation, Saudi Arabia follows the Sharia Laws; a stringent law system that governs the livelihood of Muslims. While the Sharia Laws are important legal and social policies for the Islamic faith, they often discourage foreign investments in the country. Enhancing leniency of the Sharia laws for foreigners is an effective attempt to improve foreign investment. Other similar incentives include financial aid, permanent residency permits and the Saudi Industrial Investment Fund. The country, as observed, has demonstrated intentions to diversify its economy to reduce its reliance on oil production. The promotion of foreign investment is therefore an innovative venture to promote other sectors in the nation’s economy. Such incentives present Saudi Arabia as a supportive and innovative investment destination, a factor that supports Accor’s initiatives to expand to the region.

Justification

Saudi Arabia is a high income and developing nation. The country is the second largest tourist destination in the middle east region. Its prominence as a religious destination for Muslims, due to the annual pilgrimage to Mecca, illustrates Saudi Arabia’s potential as a tourist destination. Leisure tourism is additionally a growing industry in the region due to the infrastructure, landscape and ancient architecture available in the region. As observed, the government has intentions of promoting the tourist and hospitality industry in an attempt to diversify its economy. Therefore, the government incentives to improve foreign investment are supportive to Accor’s intention to expand to the region. Accor should therefore expand to Riyadh,  Saudi Arabia’s capital due to the ease of foreign investment and availability of sufficient market for its services. Additionally, Riyadh would expose tourists to a variety of attraction sites as the city hosts the Masmack fortress, Riyadh zoo and king Abdullah park among other destinations. The architecture of the city is also another incentive for tourists to visit Riyadh. Thus, establishing its operations in the capital would be a strategic venture for Accor as it maximizes the company’s market reach in the region.

Competitive set

There is a considerable rate of competition for hospitality services in Saudi Arabia. As observed, the capital has various tourist attraction sites that sustains the tourism industry in the region. There is therefore a need for a competitive advantage for the company to maximize its potential in the market.  Accor company is categorized as a five star hotel and resort that dominates the hospitality industry in Europe and the international market. Company therefore has substantial financial resources to sustain its expansion initiatives in Saudi Arabia. Some of the companies potential competitors in Riyadh include Goot resort, Durrat Al Riyadh resort, and Dorat Najd resort. While there is a considerable Rate of competition in the hospitality industry in Riyadh, the dominant companies face challenges in regards to the constant technology changes and innovation incorporated in the operations of the industry. In recent years technology has become a fundamental asset in the hospitality industry that aims to enhance the experience of the consumers while engaging with the companies. Therefore there is a need to stay up to date with technology trends within the hospitality industry.

Market Risks

Data protection has become a major concern in the hospitality industry due to the susceptibility of consumers information to third party access. Hospitality companies have access to a range of consumer information varying from their identity, credit card information and other similar sensitive information that can be used for fraud and identity theft. Marriott international company and its 2018 data crisis is reliable example of how hospitality companies may be affected by cyber crime. The company faced a major hacking incident in 2018 that exposed approximately 500 million customer data. Such incidents implicate the consumers’ perception of Hospitality companies thereby reducing the size of market in the industry. There is therefore a need for enhanced data protection policies for Accor Company during its expansion to Saudi Arabia. The data protection policy would be effective in preserving consumer information while enhancing the brand of the company illustrating how Accor is focused on protecting the consumers. Such initiatives would vastly increase the company’s market reach in the Riyadh market. Thus there is a need for effective interventions to prevent security breach in the company’s operation in the new market.

Consumer travelling behaviour is a major consideration in the hospitality industry.  In the global tourism industry, there is a constant change in consumer preferences and trends for tourist destinations. The fluctuation implicates the tourism sector within a nation Retrospectively affecting the hospitality market due to reduced rates of tourists visiting the country and staying at the facilities. Additionally consumer behavior while utilizing the services provided by the hospitality company is a major consideration as it may implicate the brand of the company. Lawsuits and damages are common occurrences in the industry depending on the services provided with the facility. For example, poor catering services may cause the guests to develop ailments like food poisoning. The guests may also damage the property thereby requiring the company to conduct repairs that may be expensive. There is therefore various consumer risks in the hospitality industry that may affect the operations of the company within the new market.

The local laws of Saudi Arabia may discourage consumers from visiting the region. As illustrated Saudi Arabia is governed by the Sharia laws that preserve the cultural heritage of the Islamic people. The laws however, contains policies that may infringe the rights of Western civilization. For example women are expected to cover their heads while in public. The country also has a ban on alcohol and other similar substances. The observed policies discourage foreigners from visiting the region thereby affecting the operations of hospitality companies in the country. For hospitality companies potential guests of different genders should prove that they are married before sharing a room. additionally the LGBT+ community face discrimination and oppression from the local government  thereby  discouraging their visits  to the country.  With such considerations the Sharia laws of Saudi Arabia has a negative impact in the hospitality industry as they discourage foreigners from visiting the country due to the stringent policies that may affect their visit.

Another major market risk in the hospitality industry is insufficient marketing initiatives. Marketing is the cornerstone of modern business operations that aims to promote the rate of engagement with consumers. The hospitality industry experiences stiff competition in the international market that implicates the performance of a single company within the industry. There are numerous brands providing hospitality services that have a notable reputation retrospectively an enhanced hold on the market. The considerable rate of competition in the hospitality industry requires improved marketing strategies that would affirm a company’s position in the market. Accor company as observed is the leading hospitality company in Europe. The company’s reputation of providing quality services to consumers has provided it with a considerable hold on the market. However the company does not have much presence in the Middle East. Local hospitality institutions in Saudi Arabia are highly valued over foreign facilities. The local institutions provide quality services that are appreciated by the market. Therefore it will become difficult for the company to compete with the local facilities over the market for tourists.