Home > Assessing Country Attractiveness of Indonesia and Recommended Entry Mode: Hospitality Industry

Assessing Country Attractiveness of Indonesia and Recommended Entry Mode: Hospitality Industry

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Assessing Country Attractiveness of Indonesia and Recommended Entry Mode: Hospitality Industry
2014
CASE OF SHILLA HOTEL
TAESUNG PARK, JAYOUNG LEE, SHELLA STEPHANIE, YITIAN TAN
MONASH UNIVERSITY | TaeSung Park: diamondinmarketing@gmail.com

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Contents
Executive Summary ....................................................................................................... i 1. Introduction ........................................................................................................... 1 1.1. Company Overview ....................................................................................... 1 1.2. Core Competencies ........................................................................................ 1 1.3. Competitive Advantage .................................................................................. 2 2. Country Attractiveness ............................................................................................ 3 2.1. Market Opportunity........................................................................................ 3 2.1.1. Domestic segments - Income .................................................................. 3 2.1.2. Foreign segments .................................................................................. 4 2.2. Resource Opportunity ..................................................................................... 5 2.2.1. Policies ................................................................................................ 5 2.2.2. Transportation ...................................................................................... 5 2.2.3. Labour ................................................................................................. 6 2.2.4. Internet ................................................................................................ 6 2.3. Industry Opportunities – Porter��s five forces ..................................................... 7 2.3.1. Threat of New Entrant ........................................................................... 7 2.3.2. Competitive rivalry ............................................................................... 7 2.3.3. Bargaining Power of Buyer .................................................................... 8 2.3.4. Bargaining Power of Supplier................................................................. 8 2.3.5. Threat of Substitute ............................................................................... 8 2.4. Risk analysis ............................................................................................... 10 2.4.1. Political Risk ...................................................................................... 10 2.4.2. Economic Risk ................................................................................... 11 2.4.3. Competitive Risk ................................................................................ 12 2.4.4. Operational Risk ................................................................................. 14 3. SWOT analysis - concluding analysis for both internal and external .......................... 15 4. Recommendation .................................................................................................. 18 5. Conclusion .......................................................................................................... 19 Reference List ............................................................................................................ 20 Appendix 1 – (2.1. Market Opportunity). By World Bank & BPS. ................................... 27

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Executive Summary
Shilla hotel is a South Korean operator of five star luxury hotels and duty-free shops. The core competence of Shilla hotel is its ability to provide premium quality of hospitality with various services and facilities, thereby providing a value for money to the customers. In Indonesia, there is increasing income of domestic consumers, and demand for tourism from tourist. Bali was the most-visited cities among foreigners, and the cruise industry was found to take the biggest components of tourism. It is found that there is welcoming policies of Indonesian government with developing infrastructure and transportation. Regarding the analysis from Porter��s five forces, the overall hotel industry��s attractiveness in Indonesia is found to be low since each of these five forces are found to be strong, which would limit the company to raise prices and earn greater profits within their industry. However, since
the threat of entrance and substitute have found to be in moderate and low level, Shilla hotel could be competitive over other competitors in the market with their competitive advantages such as traditional beauty of Korean d��cor and the power of ��Hallyu��.
Three of the biggest threats foreign investors�� faces in Indonesia are corruption, bureaucratic inertia and inconsistent regulations. Indonesia economy is experiencing upward rising business cycle and this will be a good indication for Shilla Hotel to enter the Indonesia market based on current economic condition. However, since the competition among industry in Indonesia becomes tight, Shilla hotel may have to enforce the strong relationship with the government and pursue innovative competitive strategy. Also, operational risk that Shilla may face is found to be undeveloped infrastructure and transportation, poor electricity, expensive telecommunication and taxation. Finally, SWOT explains and summarizes the market assessment. It is recommended that: ➢ Enter Indonesia by Joint-Venture (with Kompas Gramedia Group) as a main, and strategic alliance (with Cruise Company) as an ancillary instrument; ➢ Enter Bali as a first region by the end of 2015 (before Christmas Season).

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1. Introduction 1.1.Company Overview Shilla hotel is a South Korean operator of five star luxury hotels and duty-free shops (Astudillo & Cha, 2012). Bu-Jin Lee is the current general manager and CEO of The Shilla. Shilla hotel started operations in March 1979 at the direction of Lee Byung-chull, founder of the Samsung Group (The Shilla, n.d.). It has been expanding into the commissioned management of fitness facilities as well as into the restaurant business. Vision of Shilla hotel is ��premium lifestyle leading company��. Shilla hotel maintains elegance and a tradition of winning guests�� hearts with the aim of becoming ��the best hospitality company��. Shilla hotel promises to be a globally prestigious hospitality company that offers the best value for money by making creative innovations and continuously taking on challenges. They have hotels located in Seoul, Jeju, and Suzhou, China. It should be noted that Shilla hotel has only one international subsidiary in China, which reflects the weakness in market share regarding global scale. The Shilla hotel was selected as one of the top 500 hotels in the world by Travel & Leisure in 2008 (The Shilla, n.d.). Furthermore, Shilla hotel has been selected as the best hotel in Korea by NCSI (National Customer Satisfaction Index) and ranked No.1 in duty free sector by KCSI (Korea Customer Satisfaction Index) (Min, Min & Chung, 2002; The Shilla, n.d.). 1.2.Core Competencies According to Prahalad and Hamel (1990, p. 79), a core competency is defined as ��an area of specialized expertise that is the result of harmonizing complex streams of technology and work activity��. Followed by Prahalad and Hamel��s (1990) study, core competencies include special qualities that they exemplify excellence and provide competitive advantage, which is difficult to imitate by competitors and is extendable to new markets. The core competence of Shilla hotel is its ability to provide premium quality of hospitality with various services and facilities, thereby providing a value for money to the customers (Astudillo & Cha, 2012). This core competence of premium quality can be attributed to its heavy investment in human resource training and continuous innovation regarding customers�� tastes (The Shilla, n.d.). Improve in quality excellence is the cornerstone of the long term stability strategy that the company pursues.

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1.3.Competitive Advantage ��A competitive advantage is an advantage gained over competitors by offering customers greater value, either through lower prices or by providing additional benefits and service that justify similar, or possibly higher, prices�� (Ehmke, 2011, p. 5). Shilla hotel��s competitive advantage is based on the strong branding as a premium luxury hotel by providing best facilities with services from hospitality to restaurant and first class duty-free shop which are considered as distinctive competencies that is hard to imitate (Min, Min & Chung, 2002). For facilities and services, they offer in-room Jacuzzis, palatial decor from private dinners to personal butlers, fitness center and Shilla duty-free shop (Astudillo & Cha, 2012). Furthermore, it is said that the d��cor of hotel possess the Korean traditional beauty that gives exotic experience to foreign customers, which are hardly found from other hotels such as Seoul Hilton, Westin Chosun, Shilla, Grand Hyatt, Hotel Lotte, Radisson Plaza, Swiss Grand Hotel, Renaissance, Lotte World, Sheraton Walker Hill, Ritz Carlton and Inter-Continental (Yun, 2000). With the competitive advantages that Shilla hotel possesses has given itself a sustainable brand name and a market leader position as a differentiator in hotel industry in Korea.

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2. Country Attractiveness In an increasingly competitive environment, multinational companies (MNCs) continue to expand and move into new and unfamiliar territories, either to take advantage of lower operating costs, a cheaper workforce, and access to untapped natural resources or what is perceived as a potentially large market. (Quer, Claver & Andreu, 2007). Indonesia, like many other developing countries, besides presenting attractive opportunities such as potential market, resource, industry, also presents a variety of potential risks such as economic risks, political risks, competitive risks and operational risks to which investors may be exposed and vulnerable. Assessment of market and managing risk is one of the primary objectives of firms operating internationally (Ghoshal, 1987), because those will have significant implications for a firm's decisions regarding the structures and locations of its cost and revenue streams (Miller, 1992). 2.1.Market Opportunity 2.1.1. Domestic segments - Income Researches in the past argued that the income is the single most important factor that determines the demand of tourism industry (Crouch, 1994). Gross Domestic Production (GDP) of Indonesia recorded 868,345,645,449US$ as of 2013 which ranked at 16 in the world (World Bank, 2014). Its growth rate has been also continuously positive over the years that had been maintained around 5 to 6% (World Bank, 2014). Furthermore, Jakarta was found to be the wealthiest province in 2011 according to BPS (2011). One may analyze the market by segmentation of income. The income held by highest 20% of the population was found to be 45.98% of total, and followed by 10.71% of that of second 20% (World Bank, 2014). This may imply that the distribution of income in Indonesia is biased to affluent which shows the typical income structure of emerging economy (Paukert, 1973). Fortunately, Sauran (1978) suggested that unequal distribution income in emerging economy results in increasing demand of tourism industry. From the data, it is known that upper 20% of population, which is Shilla��s potential target segment as a five-star hotel, possess around 46% of national income. To illustrate further for practicality of potential customers, it is calculated that;

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Average Annual Income of upper 20% =(GDP [2013] x 0.46) / (Total population [2013] x 0.2) = (868,345,645,449 x 0.46) / (249,865,631 x 0.2) = 7,993 US$ It theoretically means that every individuals in upper 20% of income class earns about 7,993US$ per year, which is comparably not affluent enough just in figure as it is similar to ��average income�� of Brazil (ILO, 2013). Therefore, the market is needed to be segmented more precisely in terms of income for better marketing performances. In addition, although the gulf between rich and poor is getting smaller over the periods in Indonesia, income inequality can lead to increase in political instability (Alesina & Perotti, 1996; OECD, 2011) which may be harmful for the company. 2.1.2. Foreign segments Shilla hotel��s potential market includes domestic customer as well as foreign visitors in Indonesia. The number of tourist coming into Indonesia has been increasing over a decade. Comparing to 5.3millions of foreign visitors in 2004, 8.4millions of visitor have come in 2012 which increased by 63% (World Bank, 2014). The increasing figure implies the potentiality and actual growth in tourism industry of Indonesia. In 2013, the Singaporean was the biggest number of foreign visitor arrivals to Indonesia as 1.6millions, followed by 1.4millions of Malaysians, and 997thousands of Australians (BPS, 2014). Furthermore, BPS (2013) reported that the most-visited city by foreigners were found to be Den Pasar to where the famous islands such as Bali and Lombok are adjacent, followed by Jakarta which is the capital city. By seasonality, BPS (2013) also reported that Ramadan was found to be low season period whereas Christmas was high season period. Nonetheless, some researchers (O��Hagan & Harrison, 1984) further argue that a large number of factors affect demand for hotel industry that they are too small to detect, but are as important as price, income, such as consumer confidence, and influence of friends and families. Therefore,

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in order for Shilla hotel to understand the market thoroughly, should more factors need to be analyzed as well. 2.2.Resource Opportunity 2.2.1. Policies Tourism investment, both from domestic and foreign direct investment, in Indonesia grew by more than 210% from 2011 to 2012 (BKPM, 2013). The Indonesian government has been instrumental in streamlining investment procedures and promoting investment opportunities and potential of Indonesia, resulting in a favourable investment environment (HVS, 2013). For example, Indonesia��s Ministry of Tourism and Creative Economy has spearheaded a new initiative to focus on 16 key tourism markets, which includes 2 places of Jakarta, 1 of Sumartra, 2 of Java, 3 of Bali, 3 of Nusa Tenggara, 1 of Kalimantan, 3 of Sulawesi and 1 of Papua until 2014 (Ministry of Tourism and Creative Economy, 2012). These destinations will be developed to maximize the growth of tourism, and to attract tourists coming to Indonesia while Ministry of Tourism and Creative Economy may also provide various government supporting activities to the tourism industry such as advertising activities (HVS, 2013). 2.2.2. Transportation Indonesia has transportation system with 139 airports, railways with 8,529 km and water ways covering 21,579 km and major ports are Banjarmasin, Belawan, and so on (Hook & Replogle, 1996). As part of the government��s MP3EI initiative, a total of 24 new airports will be opened by 2015 (HVS, 2013). In 2013, 12 new airports spread across the archipelago will begin operations, with the majority of the new projects to be located in eastern Indonesia, and several existing airports will be upgraded later this year, including the expansion of the Soekarno-Hatta International Airport in Jakarta and the construction of a new terminal at Ngurah Rai International Airport in Bali which will be able to handle 25 million passengers per annum (HVS, 2013). Furthermore, the government is now developing 15 harbours as cruise ports (HVS, 2013). In fact, cruise sector is becoming one of the major contributions of tourism industry and

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infrastructure. Catering the tourists by accessing exotic islands of Indonesia, which has world��s largest archipelago, it is expected that 203,000 of tourist will arrive in Indonesia via cruise at the end of 2014 according to Ministry of Tourism and Creative Economy (Prasiddha, 2014). Shilla hotel may capture the additional opportunity of developing business even in Cruise business in the future. 2.2.3. Labour As Indonesia is the fourth most populous nation in the world, it has one of the largest labor forces in the world (OECD, 2012). Wages in Indonesia brings attractive opportunity for the firm. In 2014, minimum wage in Jakarta is the highest among the provinces as IDR 2.4million (equivalent to 230US$), and that of Den Pasar, in where Bali is located, is IDR 1.5million (equivalent to 140US$) per month (Wage Indicator, 2014). This may enable Shilla hotel to achieve cost reduction, thus yielding larger customer value. 2.2.4. Internet Internet in hospitality industry can be effective for organizational integration, consumer interaction, rapid reservation, and even achieving competitive advantages (Horvat, Markovic, Katavic, & Mikrut, 2001). As of 2013, the total numbers of internet users in Indonesia was 74.6million which is accountable almost for 30% of total population (Enricko, 2013). Precisely, among the internet users as of 2012, 33% of them were found to complete until tertiary education, and 53.3% of them were found to be employed. In addition, 66% of internet users were in high-paid jobs including trading, service and consultant and education industry. Not surprisingly, 84.9% of them were either white-collar or entrepreneurs (APJII, 2012). It is drawn from the facts that the demographic profile of internet users are fit to the target market of Shilla Hotel in terms of income. Therefore, it may be foreseeable that the potential market has adequate level of adoption of internet that Shilla hotel could possibly interact with them via internet for activities such as getting inquiries and feedback, reservation and confirmation.

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2.3.Industry Opportunities – Porter��s five forces The hotel industry is considered to be requiring high capital and labor intensive. The major costs for operating the business include labor, supplies and marketing. The Poter��s five forces will be used as the micro economic indicator in the Indonesia hotel industry market, particularly luxurious boutique hotels. ��Porter��s five forces of competition include three sources of ��horizontal�� competition: competition from substitutes, competition from entrants, and competition from established rivals; and two sources of ��vertical�� competition: the power of suppliers and power of buyers�� (Varghese, 2012, p. 5). 2.3.1. Threat of New Entrant Threat of new entrant is found to be at moderate level, although there are high increase in investment for tourism sector in Indonesia (HVS, 2013). Entering hotel industry itself requires high financial resources with several considerations such as registering hotel which often requires government connection in Indonesia (Olsen & Roper, 1998). However, hotel industry itself is a service provider that there are no production process includes in the value chain which implies hotel industry operation mostly require only few portion of technological advance (Law & Jogaratnam, 2005). It indicates that there would be no technological burden to enter the hotel industry, unlikely to other production based industry. Thus, if the costs and government connection for opening a new hotel are not a problem for the new entrants, it will be relatively easy for them to start operating in the industry. 2.3.2. Competitive rivalry Hotel industry in Indonesia is found to be engaged in fierce competition. Since Shilla hotel is a luxury hotel, its main competitors are represented by five stars lodging hotels where offer equally attractive product as the one Shilla hotel is offering. Competitive rivalry in hotel industry is found to be high as there are existing 61 five star hotels in Indonesia (Five Star Alliance, n.d.), which are positioned earlier in the market and kept on increasing their room supplies to cater the customers (HVS, 2013). Since Shilla hotel has many competitors, which have similar position in the market, competitiveness would be considered high.

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2.3.3. Bargaining Power of Buyer Power of buyer is considered high as hotel industry is generally considered as a service provider than producing tangible goods (Olsen & Roper, 1998). Despite increasing GDP growth rates and tourists from foreign countries (World Bank, 2014; HVS, 2013), the main target segment of Shilla hotel would be the few wealthy people who expects the best quality from hotel (Astudillo & Cha, 2012). Furthermore, It should be noted that Indonesia��s individuals in upper 20% of income class earns about 7,993US$ per year, which implies domestic consumers are hardly targeted as segment (World Bank, 2014). Hence, major target, foreign tourists would have strong bargaining power over 61 hotels as there are no specific switching cost would occur in hotel industry. 2.3.4. Bargaining Power of Supplier Bargaining power of supplier for hotel industry, particularly luxury hotel, in Indonesia is found to be high. Since Shilla hotel is a luxury five stat hotel, expensive furniture and branded products are required in order to differentiate them from other competitors (Dunning & McQueen, 1982). Furthermore, the restaurant would also require rare and expensive food and beverage brands to be supplied. To cater these basic requirements for operation, Shilla hotel needs to have contract with these luxury product suppliers, which are generally relatively fewer than local product suppliers. Therefore, Shilla hotel has to deal with few existing suppliers in Indonesia. According to Porter��s five forces model, if enterprise has few supplier choices, the suppliers possess more power over enterprise (Grundy, 2006). Followed by few options of supplier choice for Shilla hotel, switching cost for supplier would be increased as well. 2.3.5. Threat of Substitute Threat of substitute is found to be in low level that there are not many substitute existing for luxury hotels (Olsen & Roper, 1998). Luxury resorts and private houses for rent would be the possible substitute but both of them are not able to cater whole customer needs that luxury hotel provides, such as luxury restaurants and duty-free shopping mall. However, the low switching cost for consumers would be arise as a factor that may threat hotel industry. If there

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is entrance of new substitute which could cater the needs of wealthy consumers�� demands, the threat of substitute would increase significantly. 2.3.6. Overall hotel industry��s attractiveness in Indonesia Regarding the analysis from Porter��s five forces, the overall hotel industry��s attractiveness in Indonesia is found to be low since each of these five forces are found to be strong, which would limit the company to raise prices and earn greater profits within their industry (Grundy, 2006).
However, since the threat of entrance and substitute have found to be in moderate and low level, Shilla hotel could be competitive over other competitors in the market with their competitive advantages such as traditional beauty of Korean d��cor and the power of ��hallyu�� (Korean wave: popular Korean culture and celebrities abroad) as there are no Korean hotel company in Indonesia (Oh, 2009). Kim and Jung (2014) and many other researchers (Kang & Kim, 2014; Oh, 2009; Yang, 2012) assert that ��Hallyu�� could be the strong competitive advantage to stand out from its competitors in South East Asia, particularly, Indonesia market.

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2.4.Risk analysis 2.4.1. Political Risk According to Political and Economic Risk Consultancy Ltd (2011), three of the biggest threats foreign investors�� faces in Indonesia are corruption, bureaucratic inertia and inconsistent regulations. Based on Transparency International (2013) data, Indonesia is ranked 114th out of 177th for the Corruption Perceptions Index (CPI). Kurniawan (2012) reported that Corruption Eradication Commission (KPK) of Indonesia released a statement for the total loss from corruption from 2004 to 2011, which was estimated to be around Rp. 39.3 trillion (US$ 3.4 billion), and this could educate up to 69 million kids in Indonesia. This is a serious issue as corruption often comes to light as a solution whenever an individual is exposed to a pressured environment. The idea of corruption has somehow been embedded in Indonesia��s culture, which could frustrate investments and harm the investment climate. On the other hand, the policy inconsistency in Indonesia poses as a major concern for investors in Indonesia (Asia Monitor, 2014). In the case of tax policy, although the system seems to be favourable to foreign investors, there are some hidden obstacles. Indonesia��s tax burden is often seen as burdensome and rigid, where some of the rules are open to interpretation due to its nature of non-binding wording. The tax office also has a reputation for being collection-driven and practicing inconsistent treatment (Koesmoeljana, 2014). Moreover, Indonesia��s weak facilities such as underprovided healthcare may pose as a threat and add to expatriates�� complications for life of personnel in Indonesia (USAID, 2013). There are also security threats which involves terrorism and crimes against individuals and property, which is rated high in Indonesia (Political and Economic Risk Consultancy Ltd, 2011). Additionally, foreign direct investment is considered exploitive by some indigenous groups in Indonesia. As Indonesia is a democratic country, demonstrations and lobbying often happens during good times to prevent foreign ownership and bad times, where these groups put off foreign companies to exit Indonesia with their capital (Priyambada, 2014). Therefore, Indonesia is rated to have high political risk due to its social and political instability (AMB, 2014; Marsh, 2013).

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In 2014, the government revealed the negative investment list that restricts FDI, which reflects new players who want to come in to Indonesia for a new venture faces a little bit more complicated procedure and limited operation (BKPM, 2014). The government barred new foreign investment in hotel industry by limiting the percentage of foreign-ownership to 49% (BKPM, 2014). 2.4.2. Economic Risk The Indonesian economy has recorded high growth rate over the past decades and the government expects the continuous growth rate to achieve over 5.8% with GDP forecast to expand by 6-6.4% (Oxford Business Group, 2014). Indonesia experienced an exponential GDP growth over the years and achieved the total amount of $878.04 billion. This strong pace of growth has seen Indonesia become an increasingly important part of the global economy (Elias &Noone, 2011). The inflation rate in Indonesia has a sudden increase from 5.9% to 8.61% in July 2013 and still remains at a high rate of 7.25% in April 2014 (Trading Economics, 2014). Factors that contributed to inflation included currency depreciation, a reduction in government subsidies, a jump in food (Oxford Business Group, 2014). The same studies also indicate that despite the higher fuel and food costs, private consumption continued to grow, increasing 5.5% year-on- year in the third quarter of 2013, a significant driving force for the economy, with household spending accounting for around 55% of all expenditure. The Central Bank, Bank Indonesia (BI) react to the inflationary pressure by raising its benchmark reference rate several times reaching 7.5% in November to prevent value of Rupiah to fall (Indonesia-investment, 2014). The increase of interest rates could slow down the consumer spending. However, consumer confidence was highest in the Asia Pacific and Indonesia was the most upbeat market globally for a fifth straight quarter (Fenton, 2013). As long as consumer confidence and spending remain resilient, Indonesia��s retail and services should continue to perform well in 2014 (Oxford Business Group, 2014). Indonesia economy is experiencing upward rising business cycle and this will be a good indication for Shilla Hotel to enter the Indonesia market based on current economic condition.

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2.4.3. Competitive Risk According to the World Economic Forum (WEF) (2013), competitiveness of Indonesia��s Tourist Industry has grown significantly in the past three years to its present position of 70 in 2013 from its former position at 74 in 2011. Competition among companies particularly in tourism and the creative economy will rise significantly and tighten (Global Business Guide, 2013). The direct competitors of Shilla Hotel will be Shangri-la, The Royal Pita Maha, and Viceroy Bali, whereas the indirect yet successful competitors will be Legian Paradiso Hotel, Best Western Hotel Kuta and Febris Hotel. The growth in tourism is a great opportunities for MNCs, including Shilla hotel to expand their business in hospitality area at Indonesia. However, firms must also be aware of competitive risk analysis that concerned with minimizing a relative measure of firm performance (Al-Binalii, 1999). Various types of accommodation offered by competitors strive to supply in attempts to meet the intensifying market demand and the rise of budget hotels in Indonesia, which offer a quality service with a much more affordable price can be a threat for other hotels (Rasyanti, Kuo, Yu & Masruroh, 2013). However, hoteliers can observe price changes in the industry and often charge competitive commission rates in comparison with other distribution options, whilst enabling flexible pricing and capacity alterations in order to adjust supply to demand fluctuations (Buhalis, 2013). Next, industrial relations are also a competitive risk that Shilla Hotel must take into account. Industrial relations are more than simply an area of organizational management, and should be viewed not just in terms of simple organizational work regulations but also in a broader social, political and economic context (Rahayu & Sumarto, 2003). Industrial relations are integrated with, and not separated from the political and economic environment. Research shows that only 23% of hoteliers are regularly contacted by the Department of Tourism for statistical information and government will support and take action according to the results (Timothy, 1999). As such, Shilla hotel might want to have a good relation with the local government in order to get support and run their business smoothly. According to Porter (1985), firms that can perform an activity more innovatively than its competitors thus gain competitive advantage. In order to gain greater market share and win

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custom or face closure in a fiercely competitive market, many hoteliers are innovating in terms of services and facilities (Osman, 2013). Despite the aggressive competition among players in the hospitality industry, new players continue their expansion in the country��s major cities (Osman, 2013).

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2.4.4. Operational Risk The condition of infrastructure in Indonesia can be a constraint to business. Indonesia has a relatively low level of infrastructure service coverage. The poor condition of infrastructure in Indonesia has a negative impact on productivity and provides a disincentive for investment, inhibiting economic growth. Insufficient and inefficient infrastructure and services are key sources of high cost in the manufacturing sector, further constraining the nation��s products from successfully competing in the world market (Senada, 2013). According to Senada (2013), though it is developing nowadays, the quantity and quality of transportation infrastructure and services are low, with negative impacts on safety, mobility, accessibility, affordability, and integrated intermodal and networking services. Improving the quantity and quality of transportation infrastructure will require significant investment, much of which will have to come from private investors because government spending in this area remains limited (OECD, 2011). Moreover, the supply of electricity in Indonesia is not meeting the high, and growing, demand. The existing supply is 24 GW, with captive power of only 15 GW. This fulfills about 60 percent of demand, which has been increasing by 8 to 10 percent per year (Senada, 2013). Another key issue is the imbalanced distribution of electricity among regions. Java Island is almost fully on the grid, but regions outside Java experience frequent electricity crises and bring the national connectivity average down to 56 percent. Government capacity to increase the power supply is limited, and the contribution of private investment has been low in this area as well (DifferGroup, 2012). Besides that, taxes as the government major revenues will have an impact on firm��s operation. The Indonesian taxation system has been steadily increased in the last five years that currently, the tax rate is among the highest in South East Asia region (Deloitte, 2013). Based on the survey conducted by International Finance Corporation (IFC), they found that the biggest obstacles to enterprise growth, the relative importance of various constraints to increasing employment and productivity, and the effects of a country��s investment climate on its international competitiveness is the tax rate and tax administration (SENADA, 2013). Hence, hotel Shilla must take into account of the tax policies in Indonesia.

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3. SWOT analysis - concluding analysis for both internal and external STRENGTHS • Strong brand image in Korea as luxury boutique hotel • Mother company Samsung has strong capital • High qualified service with facilities • Continuous Innovation to meet the consumers�� needs • Traditional beauty of Korean Hotel d��cor may possess as a competitive advantage in Indonesia WEAKNESSES • Lack of marketing power in international market • Target segments are narrowed down to only rich customers • As a differentiator, hotel Shilla possesses weak attractiveness OPPORTUNITIES • Large demand of both domestic and foreign consumers • Welcoming government upon FDI • Government encourages competitiveness in tourism industry • Attractive minimum wages • Possible extra market opportunity from the cruise industry • Highest foreign arrivals is in Bali • May capture extra market from the growing cruise business • Adequate internet usage rate of target market THREATS • High market competitiveness • High level of corruption and bureaucratic inefficiency • Underdeveloped healthcare • Poor taxation system • Political instability (demonstrations and lobbying) • Low quality of transportation infrastructure and services • Insufficient electricity supply Figure 1. SWOT analysis of Shill Hotel in Indonesian market. Followed by the five step strategic planning theory from Streib (1992), strategic decision making to enter the new market should be done based on the internal and external analysis, which inform the strength, weakness, opportunities and threats. For internal analysis, by analyzing unique skills and capabilities of the company would allow the company to figure out the strength and weakness, which possibly give them a chance to take advantage of strength and modify the weakness (Barney, 1986). Furthermore, for external analysis by analyzing the external environment macro-environment with the country��s politic, economic and micro environment with competitiveness would allow the company to eliminate or grab another chance from possible threats and let them a chance to grab the opportunities from the market (Streib, 1992).

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Strength As summarized in Figure 1, Shilla hotel possesses strength within the company itself that can be advantages for them in entering Indonesia. Firstly, Shilla hotel has a strong brand image as a luxury hotel in South Korea with strong capital backup from mother company Samsung. It would affect positively in Indonesia with the trend of Hallyu (Korean wave). Moreover, with the strong capital, Shilla hotel continuously commit investment to innovation and staff straining to provide high quality facilities and service to meet with customer��s needs, which led them to be differentiate from other competitors. Weakness Weakness of hotel Shilla is found to be has lack of marketing power in international market, since hotel Shilla is considered as a new player in the international market. Furthermore, followed by hotel Shilla��s differentiation strategy as luxury boutique hotel, the hotel Shilla does not really possess the different attractiveness compared to competitors and moreover, the target market is only narrowed down to the wealthy people who can afford the service of Shilla hotel. Opportunity Opportunities that Shilla hotel could grab is mainly increasing demand from both domestic and foreign consumers. Particularly, Indonesia government welcomes FDI by joint venture with local companies, which possibly help Shilla hotel to establish their company better in the target market. Moreover, there is an opportunity for cost advantages regarding cheap labor cost. This attractive minimum wage existing in Bali, which also has the highest foreign arrivals among other provinces in Indonesia, via increasing numbers of cruises, therefore becoming an opportunistic region for Shilla hotel to enter. Threat There found to be some threats that are exposed and may be vulnerable to Shilla hotel. Such factors include the bureaucratic inefficiency and high level of corruption as a political risk, which implies the needs of having strategic alliance with the company who possess connection with government. The poor taxation system would also create stress for Shilla hotel, therefore it is advisable to seek local expertise in helping Shilla hotel to manage the tax issues. Furthermore, there are currently 61 five star lodging hotels operating in Indonesia, which considered as high competitiveness in the market. Moreover, Indonesia��s healthcare are still

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underdeveloped and this can add to complications for expatriates from Shilla hotel living in Indonesia. It is necessary to guarantee the health services for the employees of Shilla hotel, which would incur extra cost. Overall discussion of SWOT From the analysis above, it is found to have some visible weaknesses and threats for Shilla hotel to enter Indonesia, which suggests to have Joint-Venture with local company to handle. Furthermore, the opportunities and strengths that Shilla hotel possess are found to be strong enough to penetrate in the Indonesia market successfully.

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4. Recommendation From the analysis above, Shilla Hotel is recommended to: ➢ Enter Indonesia by Joint-Venture (with Kompas Gramedia Group) as a main, and strategic alliance (with Cruise Company) as an ancillary instrument. ➢ Enter Bali as a first region by the end of 2015 (before Christmas Season).

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5. Conclusion
Based on the detailed analysis and thorough deliberation on the country Indonesia and industry competitiveness, it can be concluded that Shilla hotel to enter Indonesia��s hotel industry seemed to have positive aspects since there found to be demand from local residents and foreign tourists and favorable conditions derived from the government and local residents such as FDI and hallyu (Korean wave). Also Bali was found to have attractive labour cost, with the largest numbers of foreign arrivals. Furthermore, the cruise industry is becoming the largest transportation that rides the foreign arrivals. However, as the government restrict the hotel industry investment to certain percentages, Shilla hotel needs to find the right local partner to have strategic alliance for operation. Detailed analysis on the existing local companies including small medium enterprises (SMEs) and business conditions in Indonesia suggest to have a joint venture with government linked company (GLC) or conglomerate that has connection with the government for more smooth operation. Thus, for recommendation 49% of ownership for Shilla hotel and 51% for Kompas Gramedia Group, which is the conglomerate with significant marketing power, will be signed as the first contract condition. Furthermore, to mine the potential opportunity from the region, it is recommended to have strategic alliance with cruise company.

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Reference List
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Appendix 1 – (2.1. Market Opportunity). By World Bank & BPS.
Series Name 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 GDP (current US$)
256836883304.55 285868610016.59 364570525997.05 432216737774.86 510244548959.97 539579955780.06 709190823319.75 845931645338.70 876719347689.16 868345645449.30
GDP growth (annual %) 5.03 5.69 5.50 6.35 6.01 4.63 6.22 6.49 6.26 5.78 Population (Total) 221293797.00 224480901.00 227709821.00 230972808.00 234243489.00 237486894.00 240676485.00 243801639.00 246864191.00 249865631.00 Life expectancy at birth, total (years) 68.55 68.85 69.15 69.42 69.69 69.93 70.17 70.39 70.61 .. International tourism, number of arrivals (people) 532\1000.00 5002000.00 4871000.00 5506000.00 6234000.00 6324000.00 7003000.00 7650000.00 8044000.00 .. Income share held by highest 20% .. 42.76 .. .. 42.64 .. 43.65 45.98 .. .. Income share held by second 20% .. 12.03 .. .. 11.87 .. 11.33 10.71 .. .. Income share held by third 20% .. 15.83 .. .. 15.87 .. 15.57 14.85 .. .. Income share held by fourth 20% .. 21.04 .. .. 21.51 .. 21.82 21.18 .. .. Income share held by lowest 20% .. 8.34 .. .. 8.11 .. 7.63 7.27 .. .. Singapore 1 644 717 1 417 803 1 401 804 1 352 412 1 397 056 1 272 862 1 373 126 1 505 588 1 565 478 1 634 149 Malaysia 622 541 591 358 769 988 891 353 1 117 454 1 179 366 1 277 476 1 302 237 1 335 531 1 430 989 Australia 406 389 391 862 226 981 314 432 450 178 584 437 771 792 931 109 961 595 997 984 China 50 856 112 164 147 245 230 476 337 082 395 013 469 365 574 179 686 779 807 429

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