Introduction
The Hearthouse Private Members Club is part of the Heart Restaurant & Bar Company that is hidden at the back of the attractive façade of the historic Old Stock Exchange in Munich. This company is situated in a central place that overlooks the Lenbachplatz. The building that houses this prestigious restaurant & bar is currently over 110 years old. It contains an interior section that is dynamically redesigned to incorporate modern concepts of architecture. The building is specifically designed to offer an urban and stylish location that is cosmopolitan and suitable for the function of housing a high-end restaurant and bar in Germany. The Hearthouse Private Members Club has about four rooms found on the first floor of the building, which are very exclusive for only the Club members. The rooms include a restaurant, nightclub, Separee and a cocktail bar. The Separee room is where events of show-cooking are always on offer. Business activities are carried out on the second floor of the building. This members' club has one social room and two conference rooms. It is normally open as from 11 am daily. Therefore, at the Hearthouse Private Members Club, members have the opportunity of socializing, network, enjoy quick snacks or even host their business meeting with clients.
The Hearthouse Private Members Club operates in the hotel and hospitality industry. This is a service industry, where customers are served with food, beverages, alcohol and accommodation. The hotel and hospitality industry in Germany is composed of many players currently. This implies that competition is very stiff hence the success of a company is based on the specific business strategies implemented. There are various benefits, which members of Hearthouse Club enjoy. One major benefit is the rich network and customized event programs that this Club offers its members. Furthermore, Hearthouse Members Club is in partnership with different membership houses across the world. The Munich members have the permission to access these membership houses and enjoy the same privileges that they enjoy in their house. The club intends to open branches internationally. This paper provides a feasibility analysis of this strategy to establish if it is worthwhile to the house in terms of profitability and benefits to its members.
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Threats and opportunities of going global
The company should decide to expand internationally because it is a good business strategy (Agarwal & Ramaswami, 1992). There are a lot of opportunities that a company meets when it expands to new international markets. Firstly, Heartthouse will be able to tap into the bright economic expectations across the world. The world is increasingly becoming quite productive. Analysts have projected that by the year 2025, the current GDP of the world will have increased by 30%. The most promising part of the world where exponential economic growth is expected in the foreseeable future is within the emerging economies. They are expected to contribute 70% of the GDP growth globally in the next ten years.
Hearthouse will also benefit from an increased market. Going Global gives the company more potential customers who can become members of the club. It is important to understand that the places targeted in the planned expansion are areas with very large populations and a rich as well as growing middle class (Davis, Desai & Francis, 2000). Zurich, Los Angeles, and Cape Town are towns that are renowned for attracting revelers across the world. Furthermore, tourism in these towns is always high throughout the year. If all these factors are added to the fact that the middle class in these towns is growing at a very high rate, then it becomes certain that Hearthouse will have a huge market for its services (Erramilli & Rao, 1993).
By expanding internationally, Hearthouse will have a great opportunity of increasing its external partnerships and enrich its network for the benefit of its current members. New resourceful personalities will be met in Cape Town, Los Angeles, and Zurich once this members club starts its operations in the new places that have a great international reputation. The current members will be able to meet new friends and business partners, which will make up a better development for them.
Going global will help Hearthouse to diversify its earnings. This will be an effective strategic move to ensure that the club has a diversified business portfolio where shocks in one country do not affect the overall performance of the company (Kelliher & Perrett, 2001). If political upheavals emerge and jeopardize businesses in Cape Town, the high earnings in Los Angeles can offset the loss.
More importantly, expanding to new international markets will enable the company to keep pace with its competitors and improve its competitive edge. With international business operations, the club will have cost efficiencies as a result of reduced salaries to employees and the economies of scale gained. This will mean improved profitability and overall business performance (Kim & Mauborgne, 2000). The gained high business performance will give the club a competitive advantage over its rival members' clubs.
When a company goes global with its business operations, it does not meet the business opportunities, but also significant threats. The first kind of threat that Hearthouse should expect is political instability. For instance, Cape Town is in South Africa, where currently there have been violent protests by students of public universities going on. There have also been protests by the gold miners, which turned quite violent. These situations normally cause political tension that affects businesses greatly. Secondly, another threat is that of high taxes being charged on the foreign companies. The tax system that Hearthouse is used to in Germany is not the same it will meet Los Angeles, Zurich or Cape Town. There are countries that charge very high tax rates on the foreign businesses in order to protect local firms from stiff international competition. In this case, the high tax rate imposed on the foreign company like Hearthouse Members' Club is meant to discourage its move to invest in that particular country. This would ensure that the local house clubs do not face the stiff competition from the foreign firms (Medlik & Ingram, 2000). There is also the issue of economic shocks like inflation and fluctuation of the exchange rate.
Competing against established private members clubs
In Munich, Hearthouse was the first members club to be opened. It has successfully attracted high-profile members like Usain Bolt and other renowned footballers across Europe. Therefore, Hearthouse Members Club has a huge competitive edge over its rivals in Germany because of its experience and attraction to high-end personalities. It is the leading members club in Germany. However, Hearthouse is not at the top of the competition globally. It started early this year while there are established private members clubs across the world with a lot of experience and a very wide market base. Moreover, these more established private members clubs have a very large following of high-end devoted members. Hearthouse needs to improve significantly, in order to compete effectively on the international stage. By expanding into the global scene, Hearthouse Members Club will be able to catch up with the pace of competition set by the other existing established and large private members clubs. Particularly, Los Angeles may present the toughest competition challenge to Hearthouse club because it has major and famous private members clubs already established. Getting the customers of these established private members clubs may prove to be a very tough task for Hearthouse Members Club.
While expanding to the international scene, Hearthouse will face established and experienced private members clubs in competition for the small available market of the high-end clients. It, therefore, must have effective ways of competing against these big private members clubs with a view of winning their market to become a global leader. The members' clubs industry is one where a lot of capital is needed to provide the best services to the clients. This big established private members clubs normally have the resources and experience to overcome the pressure of resources needed for quality services. To effectively compete against the established clubs, Hearthouse has to cut its niche in terms of the services offered. A lot of the existing established members' clubs specialize in the provision of a given line of services. Some of the renowned established members' clubs include Soho House, which Hearthouse will meet in Los Angeles. There is also The Jonathan Members Club, which is the most popular in Los Angeles. Many other clubs do exist, and they specialize in a given line of services. Hearthouse should offer all the services under one roof. This will allow it attract many clients who value self-contained businesses. They will not have to engage in the hustle and bustle of searching for some services elsewhere because they are not offered at the club.
Most of the established private members' clubs are properly designed to make them quite attractive. Moreover, the furniture and fittings used are luxurious. It is vital to note the fact that most members clubs normally target the high-end clients to be their members (Ogbonna & Harris, 2002). Wealthy and powerful people like to associate with things that are valuable and very dear. To compete with the existing established private members clubs effectively, Hearthouse will have to ensure it develops good designs of its facilities and fit in luxurious and attractive furniture as well as other fittings. It should be a place where members will love to spend their time at, whenever they are free. Hearthouse should not spend too economically to the point of having sub-standard and cheap facilities because such a condition can make potential members to shun this club.
Cost cutting is also another significant way through which the company will be able to effectively compete with its rivals (Parsa et al., 2005). Through cost cutting, the company will be able to set up fairly favorable prices for its services. By setting lower prices than the ones offered by the established members' clubs like Soho House, the Hearthouse Members Club will be able to keep pace with competition at the international level.
The strategic choices for the company
When entering the international scene for business, a company must have effective entry strategies that can make it successful enough. A lot of companies fail after a few years of international expansion because of lack of effective entry strategies into the international market. Hearthouse Members Club has an already established basis on which it can build its branches in Los Angeles, Cape Town and Zurich. It has been reported that Hearthouse has established rich networks and partnerships with other external players in the industry outside Germany. This means it has been able to experience business at the global level within the members' clubs industry. Therefore, setting up effective strategies for business success in the new markets will not be quite a difficult task.
Designs
It is very important to note the fact that a members club is only attractive to possible members if it has quality and ostentatious designs (Phillips & Louvieris, 2005). It is vital to note the tastes and preferences of the rich people. They like attractive and best quality things. Therefore, one strategic option that Hearthouse has, in this case, is coming up special designs for both the building and the inner details. The designing has to be unique from other existing ones so that people can easily like to associate with it once established (Peters & Buhalis, 2004). Soho House has been able to grow exponentially and become one the leading members' club companies across the world because of its special and expensive designs. Soho realized that the wealthy people and business people like going into hotels and restaurants that are prestigious. Another common class of people who like frequenting members' clubs is the politicians. Politicians strike their political deals and decisions in conferences as well as meeting held in these members' clubs. Therefore, the designing style employed by Hearthouse must be one that is unique and expensive in order to appeal to this class of possible clients.
Quality of Service and Positioning
To compete outside Germany effectively, Hearthouse must be able to focus on ensuring the service provided at the club is of high quality (Tihanyi et al., 2005). Another important thing to consider is the positioning of the facility in the city where it plans to operate. It is very important to decide on the right market to target. In this case, the club has to target the high-end people. As it attracts the new members outside Germany, Hearthouse must listen to them and find the quality of services that they demand so that they are not disappointed. Notably, a lot of members in clubs leave them because of not getting the quality of service they want. Therefore, Hearthouse should seek to establish the quality taste and preference of the customers in Zurich, Los Angeles, and Cape Town and provide them accordingly. This is the only way Hearthouse will manage to compete internationally and succeed.
Positioning is also very vital in this industry. Hearthouse must ensure it secures locations that are central to the cities where it operates. This will ensure easy and fast accessibility of the facility by the members. Moreover, it is vital to note that the facility has to be at a place where there is some level of cool atmosphere with less noise from the hustle and bustle of the town (Woods, 1989).
Events
To effectively compete outside Germany, Hearthouse must have regular events organized at the club. The events have to be high-profile ones, where the company members can come and interact with new resourceful business as well as political personalities (Tihanyi et al., 2005). The core purpose of members who join the membership clubs is always is always to network and create connections with resourceful people around the world. Providing plenty of these opportunities will attract a lot of customers for the club hence Hearthouse will effectively compete outside Germany.
Conclusion
The purpose of this paper was to analyze the proposed strategy of expanding the operation of Hearthouse Membership Club to other cities outside Germany. The analysis has shown that the strategy is a good one and Hearthouse should process with its plans to expand internationally. Despite the fact that expanding internationally may present significant threats to the company, the benefits of going global are too many to be foregone. Expanding to cities like Los Angeles, Zurich and Cape Town offers Hearthouse a chance to keep pace with international competitors. In these cities, the company will face stiff competition from established private membership clubs like Soho and The Jonathan. The competition will help it learn new strategies for growing in this industry and become a market leader. Moreover, by going international, the company will have expanded its market base significantly. Expansion of the market base of the company is a good step forward in terms of growth. It will have an increased number of members in the new cities hence its profits will surge significantly. It is also vital to mention the fact that going global offers Heathouse the chance to diversify its business portfolio. With income earned from Munich, Zurich, Los Angeles and Cape Town, the company will have secured its income streams from unexpected shocks. The business world is faced with a lot of shocks that may make a company to make losses. However, with a diversified portfolio, the loss made in one region is offset by the high profits realized in another area. The company will also benefit from the increased economies of scale once it goes global.
In this paper, a number of possible threats were mentioned, of which, Hearthouse must be careful as it expands to new cities outside Germany. The first one is political instability, which affects businesses greatly. A country such as South Africa is always embroiled in political instability that affects businesses. There is also the issue of economic shocks in some countries. For instance, inflation normally affects the value of money. The fluctuations in the exchange rate also have the possibility of affecting the value of money. Such economic shocks do have adverse effects on the performance of the company. Novertheless, Hearthouse should consider opening branches in Los Angeles, Zurich and Cape Town because as shown in the appendices of the PESTEL analysis of these urban centers, they are viable places to do business.
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Appendices
Appendix 1: PESTLE analysis of Zurich City
Political factors:
Zurich is located in Switzerland hence the PESTLE analysis of this city is highly based on the country at large. There is an expansion of the Zurich international airport hence the company can easily benefit from the many travelers who will be visiting the country. The occupancy of hotels and clubs started growing exponentially in Zurich around 2001, benefiting from this market growth. Furthermore, Swissair acquired many small European airlines. Both of the business, leisure traveler and airline crews was increasing rapidly thereby it increased the demand for accommodation. Simultaneously, Zurich became a well-developed city by the high investment of facilities and infrastructure from the Swiss government.
The Swiss political system is characterized by a high degree of decentralization, with much authority delegated to the 26 states or cantons. This loose federal structure reflects the evolution of the Swiss state since the middle ages and is shaped in part by Switzerland's high degree of linguistic fragmentation. Frequent referendums concerning major or contentious political questions are the key elements of Switzerland's unique and well-established tradition of "direct democracy." The Swiss system is recognized for its political stability. Since the system of governance is based on consensus, none of the parties can vehemently pursue a single agenda, and diverse ideologies are therefore combined in the process of policymaking. In the October 2011 elections, the right-wing SVP lost some of its political ground to the Green Liberals and the BDP. With the country rooted in a consensus-based political system, having multiple centers of influence in the political scene will support political stability.
A dense network of international agreements under a bilateral approach marks Switzerland's policy toward Europe. However, the chances of EU membership shortly are still remote, with the SVP continuing to vehemently oppose EU membership and the adoption of EU law. The growing discrimination against Muslims and the straining of bilateral ties with several countries due to the country's strong banking secrecy laws are expected to cause instability on the international front.
The country has greatly improved its performance on governance. Switzerland's governance indicators are good, with the country being in the 99.5 percentile on the voice and accountability parameter in 2010. This parameter measures the extent to which citizens of a particular country can participate in selecting their government, along with freedom of expression, freedom of association, and the availability of free media. Switzerland has preserved its traditions of direct democracy, where citizens are involved in the framing of important legislation. The country also performs well in terms of regulatory quality and the implementation of the rule of law.
Economic factors:
Switzerland is considered one of the world's most competitive economies, with a real GDP of around $300bn in 2011. The economy has long been hailed as a success, considering its stable growth and prosperity. Despite a global economic slowdown, the country managed to maintain real GDP growth of 3.6% in 2007. Its economic performance is supported by a well-developed banking sector, capital market, and infrastructure. According to the World Economic Forum's Global Competitiveness Report 2011–12, the country was ranked first for its strong technology and innovation infrastructure and labor market efficiency. The current account surplus is growing, which is a positive for the economy. Inflation is also expected to remain under 0.5% up to 2017.
Social factors
In the country with the population of 7 million, it is quite hard to fulfill all the departments that needed in the bar and restaurant. Thus, the hotel had to look for foreign labors which cost them a little more. But the locals are somehow more flexible than international labors. On the other hands, a few conservative hoteliers complained about the high ratio of foreigners. No matter Zurich is a trendy place, it can't create such ideal destination as another city because of its size.
Technology
Owing to the different peak-period demands and also in order to provide optimal comfort for guests, they decided to invest money in technology innovation such as self-check-in system, which guests would have an opportunity for self-check-in as well as check in and out of the hotel at the airport terminal. Moreover, there would be nine meeting rooms with the possibility of being transformed, larger 30-person conference room by using a foldable-wall technology.
Legal factors
According to the corporate tax rate in Switzerland was around 20% which is a high tax rate. The profit of golden arch hotel can be affected.
Environmental factors
Switzerland has been at the forefront of environmental legislation, with an environmental charter part of its constitution. The country ranked first in the 2012 EPI published by the Yale and Columbia universities in the US, with a score of 76.7 in a range from zero to 100.
Appendix 2: PESTLE analysis of Los Angeles City
Political factors
A primary political concern at the forefront of tourism and foreign direct investment in Los Angeles is the strict visa rules. Even if Los Angeles seems like an attractive location for foreign tourists, it may take too long and cost too much to get a visa. In 2011, The U.S. Travel Association worked to persuade the government to ease visa rules to order to gain more travelers. From this sparked the Visa Waiver Program, where citizens of a country in the program are not required to obtain a visa to travel in the United States for trips less than 90 days. The United States is very cautious about loosening visa rules due to immigration and the threat of terrorism.
Economic factors
The average daily room rate for LA County in 2013 was $171.54 (LAEDC). The number of hotels in Los Angeles stayed steady from 2011-2013 with 2,022 hotels. In 2011 and 2012, more than 70% of the beds in these hotels were occupied. Domestic tourist arrivals were also at a high in 2013 reaching 22,412,300. The International tourist arrivals was at its highest in 2013 reaching 6,541,800. As of 2011, Los Angeles is an $827 billion economy, with business services contributing the most, 35%, to the city's gross domestic product (GDP). Commerce activities contribute the second largest amount to the GDP with 27% and are the most prominent characteristic of the Los Angeles economy. Compared to other major metropolitan cities in the United States, such as New York and Chicago, commerce activities in LA contribute a higher share of the GDP (Los Angeles City Review). Commerce contributes 22% of the GDP in New York and 20% of the GDP in Chicago. Commerce also employs the most people in any industry. Los Angeles's establishment as the entertainment capital of the world and its ports has led to these high numbers in commerce. The clustering of industries, such as entertainment, logistics, healthcare and biotechnology, and the city's world-class infrastructure gives Los Angeles an advantage in productivity.
Social factors
Los Angeles is heavily populated and vast, consisting of five counties: Los Angeles, Riverside, Ventura, Orange, and San Bernardino. It was found that "if the Los Angeles five-county areas were a state, it would surpass all states in total population size with the exception of California, Texas, New York, and Florida" (LAINC). The people are also very culturally diverse. Los Angeles is home to people from more than 140 countries, speaking 224 different languages (LAINC). According to the United States Census in 2012, Los Angeles County's top four ethnicities are 71.6% white alone, 48.2% Hispanic or Latino, 27.3% White alone (not Hispanic or Latino), and 14.5% Asian alone. This diversity may help visitors from other cultures feel more welcomed and accepted in Los Angeles.
Technology
In November 2013, the Los Angeles City Council approved a request for proposals to bring free Wi-Fi to the entire city. The hope for this initiative is to "stimulate economic growth and ‘bridge the digital divide'" (Linthicum). The estimated cost for basic Wi-Fi is between $60 million and $100 million. To install a faster operating system involving fiber-optic cables, the project could cost around $5 billion. Currently, only a few cities in the country provide fiberoptic internet, some of which are Austin and Kansas City. This would set Los Angeles apart as a competitive, technological-based city, hopefully attracting more tourists to the area. On the other hand, such a large sum of money could be used to fund other projects, and Los Angeles can save billions by only installing basic Wi-Fi.
Legal
Federal corporate income tax is imposed at graduated rates. The lower rate brackets apply to lower rates of income when compared to higher tax brackets that coincide with higher rates of taxable income. All taxable income is subject to tax at 34%or 35% where taxable income exceeds $335,000.
Environment
The challenge of moving towards sustainability in Los Angeles County is daunting since it is the most populous county in the nation and consists of 88 individual cities. Pollution in this city is very high.
Appendix 3: PESTLE analysis of Cape Town
Political factors
Based on the recent political situation in South Africa there are certain challenges ahead. There have been notable transformations in the country after the apartheid period such as programs to develop necessary social services, wide spreading the right to use improved chances in education and business. However, the process of transformation of South Africa is long and requires the persistent dedication of the leaders and people.
Economic factors
Even though the South African economy is in many areas highly developed, the nature of apartheid caused the country's international isolation until the 1990s that has left major disadvantages. The economy is on a course of change as the government attempts to manage the inequities of apartheid, encourage growth, and create employment opportunities. Nowadays business in the country is becoming more integrated internationally, and foreign investments have increased. However, the economic inconsistency among population groups is projected to continue for many years, making it a main concern for the government.
Today, economic recovery is on track. The fiscal position remains challenging, the forecasts for 2011 include sizable but manageable deficit. The government expects these shortfalls to gradually narrow due to a rebound in growth and slowdown in expenditure growth. International investors remain cautious of emerging markets due to events in Europe (Greece), and South Africa could fall out of favor should perceptions shift. So far, unemployment remains stuck at 25%, with employment gains only being registered in the public sector. The recovery is expected to remain on course, and private sector demand should gradually gain force, thus replacing government as a growth driver. A stronger recovery will likely only take hold in 2012.
Social factors
Today there are 49,109,107 people living in the country. More or less half of the population lives in urban areas, and many live in rural areas with insufficient housing. In both rural and urban centers, a lot of people do not have access to water supply and sanitation, electricity, and other services. Due to the fact that population is more mobile today and there are more employment opportunities in the urban areas, the immigration among the citizens is growing rapidly. Poverty is the highest among the Black population, reaching over 60%. There have been several reforms in the education sector, and now all inhabitants have access to education, however, still around 13.6% of the population is illiterate.
Technology
In South Africa there are 150 internet providers, thus there is internet access is everywhere. South Africa has 19 different airports, three international, seven domestic and nine are military. The existence of these facilities makes traveling easy, fast and cheap for people. South Africa's major ports and harbors are Cape Town, Durban, East London, Mossel Bay, Port Elizabeth, Richards Bay and Saldanha Bay.
Legal factors
There are strict laws on the maintenance of good sanitation while doing trade in the city of Cape Town. Overall, South Africa does not have restrictive laws on trade.
Environmental factors
The main problem in Cape Town currently is the limited supply of drinking water for usage. The available water is scarce hence the city council rations its supply.
