Business development essays – Madoff- Should it Branch Out in Kenya?

The following report presents a holistic view of Kenya and explores the possibilities of expanding hotel chain there. Different aspects including political, social, legal, economic and environment have been discussed in relation to hotel and tourism industry.

Establishing a hotel and running it successfully for long term requires the complete strategic analysis. Different economic factors including demand-supply conditions, government support etc. play an important role in decision making.

I have used different resources including journals and articles to present this report and hope that it will enable the management to understand the complete dynamics in the country.

In the end, the management of the hotel has been recommended with some points that may prove helpful in decision making.

Madoff, a hotel operating in Australia, is on expansion spree. Having opened branches in different countries, it now looks to move to South Africa. No doubt, there are many options as the continent has good tourism opportunities; it plans to start with Kenya.

As a Business Development Manager, I have been given the task to do a complete analysis of the country including risks and opportunities of starting the business there.

Following points will discuss about the external environment that may be relevant to hotel industry. Based on it, recommendation will be made to the management of the hotel.

 Kenya, officially called the republic of Kenya, is situated in East Africa. It is named after Mount Kenya, the second highest mountain of Africa. Having a population of around 45 millions (Rcbowen, 2012), the country is known for its economic growth in the region. Agriculture is the major sector and the country is a net exporter of fresh flowers, coffee and tea.

 Tourism is one of the dominant sectors of the country. After 1980s, it has become the main earner of FOREX. A large number of tourists from UK and Germany throng its scenic beaches and national parks.

In 2006, this sector generated around 800 million dollar (N.N.Gatimu, 2008) exhibiting massive growth compared to the previous year.

Let’s now move to a detailed analysis of the country’s political, economical, social, legal and other factors and their impact on hotel industry.

 Kenya, a close ally of US, has transited from one party to multi-party system. The country’s political situation is somewhat instable though there is much let-up after 2008. Till 2007, it was one of the most stable countries in Africa that acted as the hub of international meetings. First spur of violence was witnessed during the elections of 2007 (Oded, n.d.). Fears got ripe that this country will break apart on tribal lines and witness prolonged unrest. Though that didn’t happen, the young democracy, weak governmental institutions and ethnic instability acted as the major reasons of unrest.

 Experts view that violence in elections, terrorism, indiscriminate attacks in Nairobi may prove a blow to country’s peace and tourism as well. General elections are due in March 2013 and increased level of noise may de-stabilize the political condition causing loss of visitors to the country.

In addition, tourism industry is also expected to get hit from the Eurozone dept problems. As stated, countries from West Europe including France, Spain, Germany, Italy etc, account for around 30 percent of tourists in Kenya (Tario, 2012).

Amidst this backdrop, establishing a hotel there may prove risky. The hotel industry is especially dependent on numbers of tourists for revenue and growth; fall in tourism is most likely to put a negative effect. However, boosting up the security measures, properly taking care of guests and other measures can be adopted to mitigate political instability to an extent.

 Economic factors play the lead role in any industry. Major economic parameters needing consideration are demand-supply equations, consumption capacity of people, taste and preference of customers etc.

Establishing a hotel in Kenya doesn’t mean that only tourists from other countries will be the customers. No doubt, they will be the prime targets and a major source of revenue; domestic people can’t be neglected.

Thus, the size of middle class opting to stay in hotels, reasons for their stay, tastes and preferences, their disposable income and spending habits need to be overviewed. Let’s have a brief discussion on important factors.

 “Kenya’s growing middle class” was the article published in The New Zealand Herald( (Howdan, 2012). It clearly says that Kenya is coming at par with rest of the world. The large crowd drawn by the first KFC in the country is a testimony to that.

It not only shows the rising status of middle-income group but also the transition of the country from “hungry to obesity-ridden people”.

Africa boasts of larger middle class compared to India and has more towns and cities habituating over a million people compared to China. As per the World Bank, Kenya is much better-off in terms of income levels and consumption capacity compared to its immediate neighbors.

 Human resource is the key to the growth of Industries. Hospitality also needs trained and pleasing staff to welcome the guests and cater to their requirements.

There is no dearth of unemployed people in the country and unemployment is one of the major problems. With a bit of training, these people can serve as a productive resource to the hotel.

 As discussed, tourism is one of the major earners of  Forex in the country and the government also plans  to boost tourism and hospitality in coming years. “Africa needs five-star hotel investments to raise tourism profile”, was the article in a leading national daily few days back (Africa Tourism, 2011) .

The meeting of Africa Hotel Investment Forum is going to be held in Nairobi in 2012 and offers a good chance for existing hotel owners and future planners to explore new possibilities. Many big names in hotel industry including Rezidor and Hilton have already announced their expansion plans.

As per Kenyan Tourism Minister Dan Mwazo, this international conference has garnered tremendous support from political parties and social groups  and will be a big attraction for business leaders in hospitality sector .

 Economy of the country is market-based and the government follows liberalization in external trade. Economic prospects are more positive compared to other economies in the continent and around 5-6 percent GDP growth is expected (Ellis, 2007).

Transportation, construction, tourism are some major sectors contributing to GDP growth. Large chunk of English speaking people, comparatively high computer literacy among the youth are a plus.

The government is investment friendly but regulates foreign investments. Well developed physical and social infrastructure captures attentions from investors across the globe.

Kenya is structured on the basis of race and class. There are different ethnic groups and ethnic wars are also witnessed time-to-time. The major problem disturbing the social strata is: income disparities in the country.

Rich are getting richer and the poor are becoming poorer (Ellis, 2007). Other social problems include substandard houses in the cities, high poverty levels and high level of unemployment.

In addition, high prevalence of diseases like malaria and HIV-AIDS are also a serious matter of concern.

 Till now, conventional tourism was prevalent in the country but because of different issues including damage to rich flora and fauna, demand of land for other uses … sustainability of tourism sector was threatened.

The new tourism policy emphasizes involvement of local people in maintaining resources for tourism. Sustainable eco-tourism development is the buzzword for the hospitality and tourism industry.

The fall out of this policy means getting land approval for establishing hotel may be tougher than before, but there should not be any problem if all norms are properly followed and regulations are taken care of.

In addition, Kenya has complete legal framework for hotels and restaurants regarding their registration, regulation, government aid and other major related factors. Abiding by the legal framework is very necessary to avoid penalties.

 “Go Green” is a new concept driving the globe these days. Kenya is no exception. The country is already rich in scenic beauty and flora and fauna. The hotel which takes care of environment, obviously, will be on cards for tourists. For example, using sun energy, organic and bio products and other resources that don’t contribute to global warming is a welcome idea.

 After having a holistic view of different external factors that can impact the establishment of a hotel, it is clear that the idea has both: risks and opportunities.

Major risks are:

• instable political conditions
• approaching general elections and violence expected thereof
• social tensions stem from ethnic composition
• high unemployment rates
• high poverty levels
• Eurodebt zone impacting number of tourists in the country

Major opportunities include:

• Rising government support to tourism
• Good economic growth
• Availability of semi-skilled workforce
• High urbanization
• Rising middle class
• International conference to be held in Nairobi in 2012

Thus, there are both: risks as well as opportunities. It’s up to the management how it counters these risks and exploits opportunities to fulfill the expansion dreams of Madoff.

In my personal opinion, establishing a hotel in Kenya doesn’t pose any harm. Political and social risks can be mitigated to an extent by adopting better security measures. Moreover, there are golden chances of faster and sustainable growth as the tourism sector is thriving in the country and enjoys government support.

Summing up, Kenya’s economical and political conditions are much better compared to other countries in African continent. The management can definitely start the business there and expect good returns.

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