External environment analysis | Bed and breakfast business plan
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2. ANALYSIS OF THE EXTERNAL ENVIRONMENT, INDUSTRY, MARKET AND INTERNAL
2.1 EXTERNAL ENVIRONMENT ANALYSIS
The external environment analysis is conducted in order to identity the opportunities and threats with regards to Extravagant Luxury Bed & Breakfast. It covers key changes in the external environment and these pertain to: Political, Economic, Social, Technological and legislative changes taking place in South Africa that are within the context of the identified business opportunity and its nature.
2.1.1 POLITICAL CHANGES
Amongst the Legislation and Political changes that affect the Hospitality Industry is the Tourism White Paper, which levels the playing field in the industry and recognizes that tourism can play a major role in the economy of the country. Other changes include investment and tax incentives that have been given to businesses willing to invest in the industry. The government has arranged direct funding for tourism through agencies like Tourism Enterprise Partnership (TEP) and Industrial Development Corporation (IDC – focuses on competitive industries). Amongst the opportunities that political changes have brought are the Broad Based Black Economic Empowerment (BBBEE), Provincial Growth and Development Strategy, Women and Youth Empowerment and the Affirmative Procurement policy. While these changes have resulted in the empowerment of businesses and the general livelihood of people, an increased level of competition in the industry can be noted. Generally, the changes noted will be an opportunity for Extravagant Luxury Bed & Breakfast.
2.1.2 ECONOMIC CHANGES
The Hospitality Industry forms part of the services sector, which is currently one of the fastest growing sectors in the South African economy. The services sector has the highest contribution to the economy at National, Provincial and Local level. Over the past four (4) years, the Hospitality Industry was influenced positively by the low inflation and interest rates but the tide has now turned negative because of counter measures introduced by Government to curb over indebtedness amongst consumers. The current high rate of inflation as well as interest rates have reduced the amount of traveling by members of the public, which in turn has a negative influence on the demand for Hospitality services. Secondly, the high fuel prices over the past two (2) years have also had a negative influence on domestic travel resulting in lesser demand for Hospitality services. The current high food prices will have a negative impact on the profitability of the Hospitality Industry because of a reduction in the gross margins on food and beverage services. A weaker Rand could discourage South Africans from traveling abroad and hence boost local traveling as well as attract foreign tourists to South Africa. A strong Rand will encourage South Africans traveling abroad and discourage foreign tourists from visiting South Africa. Activities taking place in other sectors also influence the demand for Hospitality services positively. On the other hand, the National as well as the Provincial Government Departments have embarked on an aggressive campaign to balance development between rural and urban areas. The high interest and inflation rates have not affected Extravagant Luxury Bed and Breakfast adversely given the fact that most of the income for the Bed & Breakfast is generated mostly from corporate customers and a few from individual customers.