Economic Analysis of Cambodia’s Hotel Industry

Economic Analysis of Cambodia’s Hotel Industry Executive Summary Cambodia is a perfect destination for any hotel investors willing to establish a strong presence in the South Eastern region of Asia. The country’s recovery path since the end of civil war has particularly been phenomenal, with the existing government structures at the moment being solid. The country’s overall infrastructure is currently undergoing refurbishment to enable it attract more investors. The political situation in the country is stable, with the King being the overall leader while parliament is strong enough to check on the monarch’s power. Over the last few years after the end of civil turmoil, the country has been registering positive economic growth with agriculture and tourism being some of the sectors that have been performing exemplarily well.

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2 Economic Analysis of Cambodia’s Hotel Industry

Introduction This paper seeks to give a detailed economic analysis of both the micro and macroeconomic business environment of Cambodia’s hotel industry. Cambodia has shown marked improvement in terms of economic growth over the past decade following the end of civil war in the country. The constitution officially established the country as a monarchy combined together with a parliamentary system of government. The transition to market economy that has been taking place in Cambodia has gradually seen investor confidence grow, with the country joining the ASEAN group of countries, the WTO, as well as the numerous accessions to international conventions.

Macro-environmental Analysis Political analysis Cambodia is a monarchy headed by King Norodom Sihamoni since 2004. The King’s powers are checked by the parliament which is headed by a Prime Minister. The country is a member state to several regional and global bodies, including the Association of Southeast Asian Nations, abbreviated as ASEAN. The regional body includes Malaysia, Singapore, Indonesia, Philippines, and Thailand which are some of the leading economic lights in Southern Asia. This move was meant to enhance investor confidence through corporation in both the economic and social fields (International Monetary Fund, 2003).

Environmental analysis Cambodia is heavily dependent on Agriculture as the main economic stay, with majority of her people engaging in farming activities as their main occupation. Forestry also plays a significant role in the country’s economy. The government has attempted to put in place mechanisms that ensure protection of environment to further enhance growth. In

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particular, the tourism industry which mainly benefits from the natural environment has benefited from the government’s move on protection.

Socio-cultural analysis Cambodia is made up mixed ethnic populations, with the Khmer being the majority with a total of 90 per cent of the entire population. Other minor ethnic groups include the Vietnamese with a 5 per cent population size, the Chinese with 1 per cent of the total population, while 4 per cent of the population being made of other smaller ethnic groups. The official language used in communication is Khmer and is used in government offices as well as in institutions of learning. The dominant religion is Theravada Buddhism whose original roots are traced in India. As such, the general way of life in the country is communal.

Technological analysis The overall country infrastructure remains fairly developed, with road networks, air transport and rail transport being active throughout the country. The country has established big port termini to facilitate water transport and movement of cargos both within the country, as well as for international business purposes. Some of the ports are equipped with modern infrastructure and technology, including Phnom Penh, and Kampong Saom. The country’s internet penetration and interconnectivity is relatively low, with only 78,500 people in the country having access in 2009 (CIA, 2012).

Legal analysis The legal system is headed by the Supreme Council of Magistracy which was entrenched into the constitution in 1997. Other organs of the judiciary include the Supreme Court together with the lower courts which work together to exercise judicial authority throughout the country.

Industry Analysis: Porter’s Five Forces Barriers to entry

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There exist barriers to entry which have resulted mainly as a result of economies of scale. International hotel companies have invested heavily in the industry, with such notable brands like Sheraton and Hotel Intercontinental having their presence in the country.

However, the government has ratified economic policies that are meant to eliminate taxation to the investors so as to increase their interest.

Threats of substitutes Substitution threats are also high as players in the industry enjoy the existing low switching costs. Buyers are also more inclined to substitution as competition in the market is increased. Most buyers are seeking for the best quality that gives them value for their money.

There also exists trade-offs for price performance of substitutes which further enhances chances of substitution in the industry.

Buyer power The power of buyers is strong as there are still comparatively limited revellers in the Cambodian market. Equally, the buyers also have the choice to switch producers whenever they find conditions being less favourable to their tastes. During high tourism seasons, the number of buyers also increases significantly, making their total purchases quite important. In other words, demand often surpasses the supply during peak seasons making buyers more powerful in the process.

Supplier power The industry’s suppliers are powerful as they are relatively few in number. For the hotel owners, the supplier switching-costs are also too exorbitant, a fact that forces them to stick with the same supplier. The suppliers are also capable of integrating forwards, and thus provide competition to the main players by entering into retail business.

Rivalry degree

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The industry is experiencing high levels of rivalry as the rate of growth is at a higher rate. There are existing high incentives for buyers as the level of industry differentiation remains comparatively lower. There is equally a higher industry concentration ratio owing to the increasing willingness by investors to venture into the industry.

Conclusion Cambodia has successfully managed to rebuild her economy following years of civil war that reduced investor confidence in the 1980’s and 1990’s. The government has sought to speed up the recovery process by agreeing to join regional and global bodies. One such body is the Association Southern Eastern Nations, ASEAN which brings together other economically developed countries like Singapore, Malaysia, Thailand, and Indonesia.

Cambodia follows a monarchy system of governance although the parliament strongly checks the powers of the King. The country’s population is multi-racial, comprising of Europeans, Africans, and Indians. Although the infrastructure is not well developed, the country has embarked on a process to ensure the transport system is well elaborate, as well as improving communication.

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2 References

CIA, 2012. Cambodia. Retrieved from https://www.cia.gov/library/publications/the-worldfactbook/geos/cb.html International Monetary Fund, (2003). Cambodia: Selected issues and statistical appendix.

Washington D.C.: International Monetary Fund