Analysis of the Structural Attractiveness of the Hotel Industry in Kenya Using Porter’s Modified Model

Abstract

Industry attractiveness is the high potential profitability of an industry that is measured through the long-term return on the capital invested as determined by the five forces of competition (Porter, 1980). Industry attractiveness depends on the combined strength of industry forces. Porter (1979) argues that, industry competition is determined by five industry forces which determine its attractiveness and form the basic industry characteristics. The forces are supplier bargaining power, customer bargaining power, threat of new entry, threat of substitute products and competitors rivalry. Wheeler and Hunger (1990) included a sixth force; that is other stakeholders. Palvia et al (1990) added government and logistics while Aosa (1997) added power play. McFarlan (1984) added information technology (IT) while Grant (2008) added complements. All the above industry forces form Porters modified model. The aim of the study was to determine how attractive the hotel industry in Kenya is using Porters modified model. To achieve this objective, the study adopted a descriptive research design. Questionnaires were e-mailed to hotel General Managers or Managers in charge of corporate strategy of the sampled hotels. Where such positions were nonexistent, Managers in charge of marketing were targeted. Descriptive statistics were used to analyze collected data. The research findings show that Porters modified forces are at play in the hotel industry but at different levels. The forces with the strongest effect on profitability were found to be customer bargaining power, threat of substitute products and competitors rivalry. Forces with average effect are threat of entry, stakeholders, IT, complements, government and logistics though infrastructure was found to be having a strong effect on hotel profitability. Bargaining power of suppliers and power play were found to be weak. The findings agree with the existing theory that, industry attractiveness depends on the combined strength of the industry forces at play. The study findings have made it possible to understand the attractiveness of the hotel industry in Kenya and the strength of the different forces that are at play in the industry. The management of Kenyan hotels and the government will benefit from these findings in policy formulation. It’s recommended that the government gives special attention to improvement of tourist arrivals in the country as well as the infrastructure so as to boost the hotel industry growth. However, the study was on hotels registered with Kenya Association of Hotelkeepers and Caterers (KAHC) only. Not all hotels are members of KAHC hence further research is needed that covers all the hotels in Kenya. The overall conclusion is that the hotel industry in Kenya is not attractive either for new entry or further investment by existing hotels.