Table of Contents
1. Scale and Productivity
- Productivity of a lodging establishment is highly sensitive to supply volume, meaning the competitive environment. Compared to Japan, the consumption of lodging products per population in Korea is 82%, while the supply is 130%. Compared to Indonesia, the consumption of lodging products per population in Korea is 814% , while the supply is 602%.
- The impact of supply is amplified if the supply is concentrated in limited areas. This explains the gap in productivity that cannot be explained only by supply and demand dynamics. It is like the situation where you cannot find a lodging establishment for your need out of so many establishments out there.
2. Effect of Economies of Scale
- Lodging Market: Volatility can be offset at the market level if the market is big enough, meaning that demand is larger than supply, and the makret is divided into multiple submarkets. However, the suppliers do not have any control over the market, other than a choice to be in the market or not. Also, even when available, the choice is applicable only to decisions for new supply.
- Lodging Establishment: If the establishment itself is large, it can respond to the market volatility by diversifying demand groups according to the seasonality of the market. However, the capability to respond to the short-term seasonality does not mean it can respond to the long-term cyclicality in the same way. Moreover, it will be further limited by regulations or a liquidity crunch in the capital market.
3. Securing Economies of Scale
4. Consulting Process
- Market Diagnosis: Diagnose the market trends in the size, competitive dynamics, and volatility patterns by region and type, where the subject establishment belongs, and identify risk factors with priorities.
- Positioning Diagnosis: Run a SWOT analysis of the establishment and evaluate its positioning in the competitive market to derive an optimal value chain to response to the identified risk factors.
- Workout Strategies: Evaluate portfolios of the owner and the operator, diagnose suitability to the optimal value chain, analyze lodging market volatility with scenarios and establish an optimal strategy.
- Workout Execution: After client reporting and consultation of the established strategy, execute the approved strategy through operating structure optimization, financial structure optimization, and overall workout, in order.
- Operating Structure Optimization: Implement measures to improve cash flows, including opportunities for revenue increase and expense decreae, as well as replacing the operator or amending the operating contract, etc.
- Financial Structure Optimization: Implement measures to improve long-term financial soundness, including rebalancing capital expenditure and working capital reserves, refinancing or asset liquidations.
- Overall Workout: If the the optimal value chain is not achievable only through optimizing operating or financial structure, implement comprehensive improvement measures, including reorganizing the portfolio, repositioning or repurposing the asset, etc.