STRATEGIC ANALYSIS AND PLANNING (ST4S15-

V1)

TUTOR: JANELL KOMODROMOU

MARRIOT’S MERGER WITH STARWOOD HOTELS

ENROLMENT NUMBER: R1502D663368

DATE: 13 October 2016

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Introduction

Companies merge for several reasons. A merger is an amalgamation or consolidation of two or

more companies to form one company. Mergers could be as a result of the need for both

companies merging to diversify, gain competition, economies of scale, greater efficiency etc.

(Economieshelp, 2016). Mergers and Acquisition are strategy tools Organisations employs to

expand their frontiers. An organisation could decide to grow organically (i.e by nurturing itself

making use of internal resources available to it) or inorganically (i.e by joining forces through

mergers or through take overs through acquisitions). Mergers and Acquisitions depend on the

direction and scope of the organisation. Situations could also arise that could force a company

to accept mergers or acquisitions. Johnson et al (2011) described strategy as “the direction and

scope of an organisation over the long term, how well the organisation maximizes the

resources available to it in its changing environment in order to satisfy the needs markets

needs and fulfill stakeholder expectations”. When it comes to shaping strategy, these 3

questions are pertinent;

Where are we?

Where we should be

How we should get there

Marriot and Starwood Hotels are both leading brands in hospitality with presence in major

cities. The merger will fuse the life style brands and international foot prints of Starwood Hotels

with Marriot’s strong presence in luxury and personalized services there by offering guest lots

of opportunities. Guests will be having the best of both worlds. The Merger will make Marriot

and Starwood the world’s largest hotel company. The diagram credited to Ben Schlappig

illustrates the combined portfolio of Marriot and Starwood.

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This paper will be analyzing the merger between Marriot and Starwood Hotels using several

levels of strategy and frameworks.

Evaluation of Levels of Strategy

Corporate Strategy:

Marriot has been a leader in the hospitality industry since 1927; its corporate strategy has

helped it achieve this feat. The structure that defines the organisation is a reflection of the

status that is required of a global leader. However Marriot (before the merger) had less

international exposure with 76% of its properties in North America. Despites it core values, the

hotel chain was more appealing to mid-scale and upper-scale brands (Mattews, 2015).

The long term goal for Marriot was to be the Number 1 hospitality company in the world

(Marriot International, 2016). To do these, there was need to claim more market share

internationally, be more appealing to other segments of customers which include upper-upper

scale and upscale segments brands. The Core Values and structure of the company were

designed to support its long term goal. The hospitality business is all about service excellence

and providing comfort to people irrespective of their nationality or background. It is very

proper for Organisations to align their organizational strategy, structure with their long term

goals. An inconsistent long term goal with organisation strategy could spell doom for that

organisation, the organisation might not be able to withstand any impact from its environment,

market etc. Marriott’s core values which is centered on supporting and promoting employee

diversity, service excellence, putting people first, innovation, integrity and environmental

sustainability initiatives was selected to supports its long term goal of being the world leading

hospitality chain.

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Business Level Strategy

A business strategy is expected to provide support to the organization’s corporate strategy.

Despites its core values standing the test of time, Strategic Business Units (SBU) are focused on

performance as they represent different divisions, groups and are responsible for their own

profits and losses. Marriott regional (SBU) presences are the Americas being the most

profitable, Europe, Asia Pacific and Middle East and Africa. Each Business unit is responsible for

its expansion, competition, products management. The expansion of business units must be

within the confines of the corporate strategy. Marriot’s global target as at year end 2015 was to

reach 1 million rooms, $50 billion in real estate investment and provide additional 150,000

hotel jobs, achieving this wouldn’t have been possible without the Business units supporting

with their expansion plans. Several business units with its own plans, Asia Pacific portfolio is

expected to exceed 340 hotels in 19 countries by 2019 (Marriot International, 2015). Expansion

in Asia could be one of the reasons Marriott merged with Starwood. Starwood has large market

share in Asia especially in China where Marriot is hoping to increase its presence. Marriot

became the largest full service hotelier in Canada in 2015 after its acquired Delta Hotels and

Resorts Brand. It became the largest hotelier in Africa by acquiring Protea Hotels in 2014. It is

very obvious that Acquisition (inorganic growth) is part of the corporate strategy of Marriot for

expansion which the respective business units have taken advantage of depending on the

market environment they find themselves. Business unit are not only expected to support

expansion, but to promote business/community relationships and environmental sustainability.

The business units are guided by the global corporate strategy despite their peculiarities and

that of the market environment they find themselves.

Bowman’s Clock

The competitive position of Marriot/Starwood acquisition is undisputed. It is the world’s

leading hotelier bringing together the best of both Marriott and Starwood into a single offering.

Customers will have access to lifestyle, luxury and personalized services irrespective of the

segments of customers – be it corporate or individual, upper scale or mid-scale etc. Marriot

employed a differentiation strategy. The loyalty programs of both Marriott and Starwood will

provide high value proposition for customers as well as its combined services. The combined

services/loyalty programs will serve as the unique value proposition for its customers

irrespective of their race or religion, segments. The unique proposition which is expected of a

global leader is appeal to all segments of customers. Customers will have best of both worlds.

Evaluation of Key Stakeholders

Project Management Institute (PMI) - Project Management Body of Knowledge (PMBOK)

described a stakeholder as an individual, group or organisation who affects or is impacted by

the outcome of an activity or decision. Stakeholders’ determines the extent an organisation

will go with respect to its strategy. To achieve your set goals and objectives, it would be proper

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for an organisation to identify and classify their stakeholders. It took Marriot 88 years (1927 –

2015) to be the world’s leading hotelier; lots of consistent effort must have been put in place in

line with the corporate strategy achieve the top spot. The Board and Executive Management

wouldn’t have done this alone without properly engaging their stakeholders who affects or are

affected by Marriott business plans and operations. Marriot issues a report on stakeholder

engagement and policy advocacy from time to time. The reporting depicts the strategic

importance of stakeholders in driving business success. We will classify Marriot’s stakeholders

into Internal, Market and External and identify each the stakeholders under its segment.

Internal stakeholders are stakeholders that are responsible in ensuring the hotel is operational

and renders services upon request. They manage the day to day affairs of the hotel and ensure

resources are evenly distributed to satisfy customers’ needs. Market stakeholders are key

factors to profitability and market share- Marriot has both global and regional markets to deal

with. Marriot has no control over its external stakeholders. Its external stakeholders are

external and important factors that could make or mar the hotel businesses, different

environment has its peculiarities and Marriot must engage them to succeed.

INTERNAL

1. Hotel Owners and Franchises of the over 30 Marriott leading brands

2. Suppliers – (Sanitary suppliers, Food items, Furniture etc)

3. Contractors – (Tax consultants, Legal consultants, Heating, Ventilation and Air

conditioning (HVAC) Experts etc.)

4. Associates (Veterans, Partners such as sister companies in the travel industry etc)

5. Employees ( first point of contact and service assistants at the hotel)

6. Shareholders (Investors)

MARKET

1. Customers

2. Competition

3. Economy (Global and Regional)

EXTERNAL

1. Industry Organisations

2. Non-Governmental Organisations (NGOs)

3. Governments

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4. Travel industry

5. Tourism Industry

6. Host communities

7. World Economic Forum

8. Immigration

9. Sustainability experts

10. Labour and Legal frameworks/regulations

Please see appendix 1 for the stakeholder map

It is part of the management responsibilities of Marriot to continually engage its stakeholders. It

engages it stakeholders through surveys, forums and maintaining a public policy agenda. This

has further driven service excellence through, addressed social and environmental issues such

as human rights, racial abuses and discrimination, immigration reforms etc. Marriot efficient

engagement of its stakeholders has helped gain market share, improve relations with its host

communities and governments. The acquisition of Starwood was not completed until the

Chinese government approved it.

Evaluation of Main External Factors

Marriot is a global company that is affected by key factors such as Political, Economic, Socio-

cultural and Technology. It operates in over 100 countries across the 5 habitable continents.

The environment in which Marriot thrives has to be properly analyzed or understood by the

Top Management in other to succeed. Its environment could be a source of threat or

opportunities. The diversity and inclusion policy of its staff is an added advantage to ensuring

Marriot engages its environment properly. Each region or country Marriott operates has its

peculiarity which it must deal with, some present threat while some present opportunity.

Marriot has been looking to gain traction in Asia. China presents lots of opportunities to the

hotel chain. It is one of the world’s leading travel markets with a large population size. It has a

large middle class market which is still growing with increased discretionary income; this class

has an expanding desire for travel (McNew. S, 2016). The Acquisition of Starwood was a right

step in the right direction. Starwood has a strong presence in China and the acquisition despite

delayed approval from the Chinese government was a clear strategy for Marriot to penetrate

the Chinese market.

POLITICAL, ECONOMY, SOCIO-CULTURAL AND TECHNOLGY (PEST) ANALYSIS

PEST analysis will further assist to assess the nature of the environment in which Marriot

operates, competitive forces, key drivers etc.

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POLITICAL

Marriot operates in over 100 countries, what this depicts is that the world largest hotel chain

has over 100 Government to deal with. These countries are peculiar as not all of them run the

same style of Government. Below are the key political factors that affect Marriot;

Terrorism/Conflicts: Despite the huge expansion of Marriot in Asia and other developing

countries, the rate of terrorism has increased tremendously especially in the Middle

East. This has caused scare to business travellers as well as domestic travellers. Conflicts

in some parts of Africa and Latin America are factors that affect hospitality business.

Labour Laws: The diverse nature and inclusion policy of Marriot enables it to adapt its

labour force to comply with the labour laws and regulations of its host region, country

or community. Every region/country i.e Strategic Business Units are expected to be

profitable and thus need to interact appropriately with its environment. Marriot invest

in his labour force ensuring they are equipped with the requisite knowledge to serve

their host regions/countries bearing in mind the jurisdiction they operate. Every

responsible government will always want to protect its people to avoid exploitation by

foreign investors.

Trade Restrictions/Bilateral Relations: Marriot is based in America and ought to be

guided by the trade agreements that exist between the United States of America and

other countries they operate in. The deal got approval from European Union and

Canada; it was later approved by China after several setbacks. Bilateral Relations

between the United States is also a key driver to Marriot business. I don’t expect

Marriot to expand or invest in North Korea. North Korea relations with the United States

have gone sour. Marriot only should interest in investing in Iran in 2014 (ISNA, 2014).

Foreign investors stayed away from investing in Iran as a result of the sanctions meted

out to them by the United States of America and other western nations when they were

suspected to be building Nuclear weapons.

Political Stability: The Political stability of a region or country enhances confidence and

trust. Investors will plan their investments without uncertainty.

Legislation: Different countries with different legislation that suits it structure. Most

African countries don’t support Lesbian, Gay, Bisexual and Transgender (LGBT) persons

and have enacted laws to discourage or negate such persons including Organisations

that supports them, Marriot has presence in Nigeria and supports these persons but will

remain neutral so as to avoid backlash with the Nigerian government or people.

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ECONOMY

The key economic factors that affect Marriot are elucidated below;

Inflation: This is an occurrence where prices of goods and services increases thereby reducing

the purchase value of money (Economic Times, 2016). In Venezuela, the government where

unable to curb inflation and has made the country’s currency unstable. Most tourists will rather

pay in dollars than pay with their bank cards and hotels are only allowed to keep 40% of

proceeds in Dollars and sell the rest to the government at official market rate. Marriot is also

limiting its investment in Venezuela; it has removed 3 properties from its earnings numbers.

Disposable income: Disposable income is a portion of ones earnings that is available for leisure.

This is a function of how productive a countries economy is. China has a large middle class

market with increase income. The middle class market is still growing and this makes up of

Marriot’s major guests. Marriot is continually and aggressively expanding its investment in

China to take full advantage of its teeming middle class market (McNew, S. 2016).

Economic Growth: Marriot most promising regions regardless of the political risk still remains

Latin America and Africa. These are regions with fast economic growth rate. Marriot despite

being the largest hotelier in Africa after acquiring Protea Hotels still intends to add 40 more

properties across African 13 countries by 2020 meanwhile it has about 35 projects underway in

Latin America. The emerging Latin America and Africa is also appealing to other hoteliers who

have begun plans of expansion. This will saturate the market and drive prices downwards there

by increasing competition.

Exchange Rate: Presently in Nigeria, there is scarcity of Foreign Exchange (FX) which is as a

result of the low oil prices. Nigeria earns about 90% of its revenue from crude oil exportation

and the global oil market is faced with lots of challenges which have brought the oil prices

down. Foreign Investors like Marriott are unable to repatriate their earnings to their native

countries and also unable to import the items they require like furniture, sea foods etc. due to

scarcity of FX. This has further increased the cost of importation, interest and inflation rate etc.

SOCIO -CULTURAL

Life Style Changes: Marriot’s acquisition of Starwood has now balanced its portfolio of services

it renders. The Marriot brand can now address customers who desire luxury, life style, upper

upper-scale to Mid-scale. Irrespective of the changes in consumer levels, the Marriot brand will

satisfy the customer’s desire.

Demographics: The emerging middle class population in China and other emerging markets in

Africa and Latin America is an indication for Marriot’s aggressive and increased investment in

those regions. These regions have a youthful population who are willing to work.

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Marriot with its work force policy on diversity and inclusion is willing to adapt to social and

cultural trends of its host communities.

TECHNOLOGICAL

This involves the use of electronics and computers to render excellent services to customers.

The hotel has a robust hotel reservation system. It is also seeking better ways of service

excellence through research and development etc.

COMPETITIVE POSITION ANALYSIS

To analyze the competitive advantage of Marriot hotel chain, it will be required we use Porter’s

five forces of competitive position. Porter’s five forces will further evaluate the strategic

position of Marriot. The fives forces are elucidated below;

1. Threat of New Entry: A profitable industry will always attract new entrants. Marriot has

been profitable, it earnings hit 12 billion US Dollars in 2012 which has been as a results

of its consistent effort in staying true to the value and objectives it was set to achieve.

Considering the large size and global foot prints of Marriot, they have rooms that will

suit every customer segment irrespective of religion, race and background. The Marriot

brand is one to associate with not because of its size but because of the comprehensive

reward programs it runs to reward its loyal customers. Customer will always want to

patronize Marriot except it is not available in their choice location which is rare. It will

take a while before any hotel matches its size or level of service excellence. However,

the market is still not saturated and can still take new entrants probably not at global

level but at regional and country level.

2. Competitive Rivalry: Marriot is the largest hotel chain in the world with over 1million

rooms; next to it is Hilton Worldwide holdings with 737,922 rooms. Marriot has

additional 373,000 rooms in the pipeline. This is a clear demonstration that Marriot was

to lead globally. There are lots of competitors especially at the regional and country

level. www.airnb.com is gaining popularity in Europe; it is a hospitality company that

runs a business model similar to Uber. It affords owners to leave their homes to play

host to guests who will rather prefer private residences to hotels. These residences are

cheaper than hotels but won’t offer personalize services such has room services etc. as

we see in hotels. Price is key factor when customers are considering services providers

to choose. Marriot has a balanced portfolio which addresses every cadre of customers.

3. Bargaining Power of Buyers: Customer has increased buying power when they are

presented with varieties. Marriot has been able to lock in customers with its loyalty

program. The program is to reward the loyalty of its customers and appeal to them to

always return for Marriot services.

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4. Supplier Power: Marriot has about 30 brands and so many suppliers who supply all sorts

of materials such as sanitary items, bed sheets, food ingredients etc. Marriot has a

control process to ensure quality and standards. Standard procurement and supply

chain procedures are followed to ensure no supply holds them to ransom. They could

have about 5 suppliers who supplies only sanitary items and when there is a Request for

Quotation, the suppliers will provide competitive prices.

5. Threat Substitution: Cost of doing business in increasing especially in Nigeria.

Insufficient power supply is a bane faced by most companies. They run power

generators almost every day and this is a huge cost item on the balance sheet of these

companies. For a hotel like Marriot to remain profitable in Nigeria, the prices of rooms

might be fixed to be proportional to the cost incurred. The economic downturn in

Nigeria has also limited the disposable income available to customers so they will seek

alternatives to high brands like Marriot not minding the premium services they will

forfeit. Most important is for the customers to get a suitable accommodation at

affordable prices for a night or more.

Conclusion

Marriot didn’t become the world largest hotel chain overnight. It became the number 1 hotel

chain after series of effort in staying true to the value, goals and objectives it was set for. It has

been consistent in its efforts over the years.

APPENDIX 1

LEVEL OF INTENT

Low High

MINIMAL EFFORT

Sustainability experts

World Economic Forum

Non-Governmental Organisations (NGOs)

KEEP INFORMED

Travel industry

Tourism Industry

Industry Organisations

KEEP SATISFIED

Employees ( first point of contact and service assistants at the hotel)

Shareholders (Investors)

Labour and Legal frameworks/regulations

Host communities

Immigration

KEY PLAYERS

Customers

Competition

Economy (Global and Regional)

Associates (Veterans, Partners such as sister companies in the travel industry etc)

Hotel Owners and Franchises of the

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Governments

over 30 Marriott leading brands

Suppliers – (Sanitary suppliers, Food items, Furniture etc)

Contractors – (Tax consultants, Legal consultants, Heating, Ventilation and Air conditioning (HVAC) Experts etc.)

High

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REFERENCES 1. Economieshelp.org (2016) Available at:

http://www.economicshelp.org/microessays/competition/benefits-mergers/ (Accessed:

07 October 2016)

2. Schlappig, B. (2015) ‘Marriott-Starwood Takeover, Implications’, Marriott-Starwood Takeover, Implications, 16 November. Available at: http://onemileatatime.boardingarea.com/2015/11/16/Marriott-starwood-takeover-implications/ (Accessed: 12 October 2016)

3. The Economic Times (2016) Available at:

http://economictimes.indiatimes.com/definition/inflation (Accessed: 06 October 2016)

4. McNew, S. (2016) ‘Why China is so Important for Marriott International and Hilton

Worldwide’ , Why China is so Important for Marriott International and Hilton

Worldwide, Available at: http://www.fool.com/investing/2016/10/12/china-is-still-

Marriott-and-hiltons-most-important.aspx (Accessed : 12 October 2016)

5. ISNA (2016) ‘US Willing to Build Hotels in Iran’ US Willing to Build Hotels in Iran’

Available at: http://theiranproject.com/blog/2014/02/22/us-willing-to-build-hotels-in-

iran/ (Accessed: 10 October 2016)

6. The Jamaica Observer (2016) ‘US-Wary Venezuela Opens Up to Tourist Dollars’, News

section of The Jamaica Observer, 11 September [Online]. Available at:

http://www.jamaicaobserver.com/NEWS/US-wary-Venezuela-opens-up-to-tourist-

dollars (Accessed: 08 October 2016)

7. Marriot International (2015) ‘Marriot Hopes to Reach One Million Rooms Open or in

Development in 2015’, News Center, 20 January 2015 *Online+. Available at:

http://news.marriott.com/2015/01/marriott-expects-to-reach-one-million-rooms-open-

or-in-development-in-2015/ (Accessed: 08 October 2016)