After several years of stagnation the polish economy began to recover in 2002, when real GDP rose by 1.4%. GDP growth rose to 3.7% in 2003, and is forecast to rise to 5.0% by the end of 2004, although unemployment will fall only slowly from a current level of approximately 18%. Inflation was 1.7% at the end of 2003 and is set to rise gradually but will remain within MPC’s (Monetary Policy Council) target range of 1.5%- 3.5% over the forecast period.
(Source: www.centreurope.org/poland/)
Poland is the largest of the East European countries which joined the EU in May 2004. And the membership is expected to have a very positive effect on tourism growth. The continued rise in the number of low-cost airlines flying to Warsaw will also result in further growth in international visitation and consequently the recovery of the Poland hotel market.
Poland has some very unusual natural attractions and developing sector of tourism services. Tourists can choose mountains, sandy beaches, and lovely lake districts or forests. There are 23 natural parks - All of them give an absolutely unique travel experience. Poland is a stable democracy with a truly fascinating history, great cultural heritage and several areas of outstanding natural beauty. Moreover Poland has very rich cultural texture as it is famous as a number of music festivals and religious events. Many Polish tourist sights have already gained a worldwide reputation and are an absolute must to see if you consider a journey to this area: Krakow, Warsaw, tri-city (Gdansk, Gdynia and Sopot), Częstochowa, Auschwitz, Zakopane ( winter sports) and Wieliczka (the oldest working mine of rock salt in the world). In addition, relatively developed tourism infrastructure, safe to visit, clean environment and institutional support as well as public awareness are also the important tourism strengths. (Source: www.auswaertiges-amt.de)
- Analysis of existing competition in polish market
According to the data of Ministry of Economy, Labour and Social Welfare in Poland, hotel industry contributes 32% to Tourism Characteristic Products Consumption which is ahead of other products. Therefore there is a big opportunity to develop business in this industry however existing competition must be considered.
Between 1993 and 1996 Poland enjoyed a healthy demand/supply balance. During these years supply increases were quickly followed by increases in demand, indicating high levels of unaccommodated demand and strong levels of demand growth, including some induced demand, generated by the new hotels entering the market. Between 1998 and 2001 there was a real reduction in accommodated demand and no additions to supply. The main reason for this decline in hotel demand during these years was the economic slowdown of the Polish, Russian and German economies. In 2002 there was a significant increase in new supply of approximately 12.5% (the Hyatt Hotel and the Radisson SAS hotel), and for the first time since 1997 there was a moderate increase in hotel demand, due mostly to induced demand. However, market wide occupancy continued to decline, to approximately 51%. In 2003 there was another significant increase in hotel supply, of approximately 16.5% (Westin Hotel, InterContinental, and Courtyard by Marriott at the airport) and hotel demand increased by 12%.
Take the capital Warsaw as an instance, the centre of Warsaw is quite large and it can be divided into 4 main parts: Historical areas, Downtown, Business districts and Airport. Tourist sights and business centres are distributed around all three of them. There are a number of hotels located in these areas such as: five-star RADISSON SAS, five-star GRAND HOTEL, four-star HOLIDAY INN, three-star EUROPEJSKI, three-star NOVOTEL AIRPORT etc. The adverse trading conditions experienced in Warsaw, mainly as a result of the new supply, have resulted in a price sensitive market; leading hotels in Warsaw have had to cut their rates, resulting in a significant decline (of approximately 15-20% compared to 2003) in average room rates achieved by four-star and five-star hotels in Warsaw.
Hotel supply in Warsaw has increased significantly in the last few years. In addition, there are several projects proposed which will further increase supply in the next few years. Hotels that opened during the course of 2003 and 2004 include the following.
- The 44-room boutique Hotel Rialto located on Wilcza Street opened in June 2003;
- The 361-room Westin Hotel located on Al. Jana Pawla II opened in July 2003;
- The 333-room, three-star Ibis Hotel Muranowska opened in August 2003;
- The 220-room, three-star Courtyard by Marriott opened at the airport in October 2003;
- The 406-room InterContinental Hotel opened in November 2003;
- The Envergure complex located at ul. Towarowa opened in March 2004. The complex includes a 144-room Kyriad hotel, a 126-room Première Classe hotel and a 194-room Campanile hotel;
- The 61-room boutique Hotel Le Regina located on Koscielna in close proximity to the Old Town opened in June 2004. The hotel is owned and managed by the Orco Property Group.
(Source: www.staypoland.com/index)
Hotels that are currently under construction or planned in the next few years include the following.
- The 206-room, four-star Polonia Hotel located on Al. Jerozolimskie is due to open at the beginning of 2005. The hotel has been closed for several years for an extensive refurbishment. The hotel is owned and will be operated by Syrenna Hotels;
- A 229-room hotel planned at the Blue City shopping centre on Bateryje Street. It is rumoured that this hotel will be a mid-market Barceló Hotel;
- A 320-room Hilton Hotel located on Grzybowska is expected to open in mid 2007. However, construction work on this development has currently stopped.
(Source: www.staypoland.com/index.aspx)
4. An analysis of who your customers might be in the market of your choice
To analyse the prospective market in Poland for a large UK hotel chain Kotler (1999) suggests we must first segment the market. Market segmentation is done in four parts.
- Geographical segmentation
- Socio Economic segmentation
- Demographic segmentation
- Life stage segmentation
Geographical segmentation
- Local Markets
- Domestic Markets
- International Markets
Local Market
According to the Institute of Tourism, in 2002 43% of people living in rural areas participated in domestic tourism with 55% of people living in small and medium sized towns and 62% of big city dwellers participated in domestic tourism. This shows at least a 40% localised market for domestic tourism.
Domestic Market
With a population of 39 million people, Poland has a huge potential market for domestic tourism. According to the Institute of Tourism, Polish domestic tourism is shaped by the following factors:
- Age
- Education
- Place of residence
- Financial status
- Employment status
The Institute of Tourism states that the groups most likely to participate in domestic tourism are:
- 15 – 24 year olds
- University educated professionals
- Residents of towns and cities
- White collar workers
International Market
The World Trade Organisation (WTO) and Euromonitor state that international tourist receipts for Eastern Europe were $31224 million in 2003, 6.3% of the total international market compared to Western Europe with $234583 million and 47% of the total market. International tourist receipts for Poland alone were $4307 million and forecasts by the WTO estimate international tourist receipts to grow to $15150 million in 2008 a growth of 13.5% in five years. This growth takes into consideration Poland accession into Europe. According to the Global Market Information Database (GMID) Poland has 10.2 million international arrivals each year compared to 40.2 million in the US and 20.4 million in the UK.
If a global hotel chain were to invest in Poland there is a sufficient existing international market to pose demand.
Socio Economic Segmentation
Income
Income facilitates expenditure; however it can not determine expenditure. According to the CIA World Fact Book, GDP per capita in Poland was $7200 in 2002 compared to the UK with a GDP per capita of $27700. Standards of living are low and in comparison with the UK disposable income is significantly lower. Consumer expenditure in Hotels and Catering in Poland in 2002 was $3511.7 million, a growth of 4.5% between 1998 and 2002.
Education
The Institute of Tourism states that between 1999 and 2002, twice as many people with a higher education background travelled than those with an elementary education.
Population by Educational Attainment 1990-2000
Source: Euromonitor estimates based on trade publications and industry sources
Note: Data refer to population aged 15+
In Poland 90.7% of the population are only educated up to secondary level with only 9.3% of the population educated to University level. However this figure has grown in the last ten years at a rate of 31.35%.
Demographic Segmentation
Gender
According to the CIA world fact book this is the age and gender distribution in Poland.
- 0-14 years: 17.1% (male 3,388,247; female 3,216,085)
- 15-64 years: 70% (male 13,454,820; female 13,591,814)
- 65 years and over: 12.9% (male 1,896,940; female 3,078,443)
There are more females than males in both the 15 – 64 age range and 65 and over age range therefore the market for tourism in Poland is mostly dominated by females especially in the 65 and over age range, this is due to male casualties of world war two.
Age
Two age groups hold the biggest share in Polish population. The first group are those aged between 40 and 54 years who were the children of post-war baby boom. The second group were born in the late early 80’s when there was an increase in the birth rates. This demographic increase was a result of economic situation and state of war that affected Poland in 1981.
Race
Poland is split into 4 racial categories. 97.6% Polish, 1.3% German, 0.6% Ukrainian and 0.5% Byelorussian. Race determines culture ethnicity determines specific demands. For example the market for Halal foods in the UK determined by the 1.6 million Muslims living in the UK.
Life Stage Segmentation
- Marital status
- Family status
Population by Marital Status 1990-2000
'000s
Source: Euromonitor estimates based on trade publications and industry sources
Number of Households by Type 1990-2000
Source: Euromonitor estimates based on trade publications and industry sources
On analysis of this data we can see that divorces are on the increase in Poland with 44.58% growth in the last 10 years, marriages are decreasing with 45.75% decline in the last 10 years. The biggest Family status trends are that of the single person and childless couples. The figures for couples without children have grown 37.56% in the last ten years.
This is a positive impact on the Short break industry in Poland with more flexibility and independence of couples.
The current hospitality industry in Poland
According to Euromonitor, a growing number of investors in the hotel sector in Poland proves that the travel accommodation market has a lot of potential. The product base is diverse with strong appeal to the western markets interested in cultural and activity tourism.
Budget airlines such as Bmi Baby and Easy Jet now fly to Poland from European regional airports thus increasing the demand for Hotel Accommodation in major cities such as Warsaw and Krakow.
The travel accommodation revenues in Poland have grown by 28.7% from 1998 - 2003 to $78 million.
5. The risks and uncertainties that are involved through entry to the market.
Buckley and Ghauri (1999) define risk as the proportion of cases in a subjective joint probability distribution that fall below a subjectively defined expected minimum.
They define uncertainty as the degree of confidence in the correctness of the estimated subjective probability distribution, the less confidence the higher the uncertainty.
The main issues which need to be investigated in analysis of the risks involved through entry into Poland are:
- Political Risks
- Legal and legislative issues
- High interest rates
- Inflation rates
- External debt
- Trade balance
- Unemployment
- GDP
- Exchange rates
- The informal economy
- Decline in Polish hotel occupancy rates
Political risks and legal and legislative issues
Tayeb (2000) states that the principal political risks in entrance to a foreign market are the system of government, foreign capital controls, industrial regulation, history of civil unrest and diplomatic tensions. As Poland has now completed its accession into Europe these factors of risk are greatly reduced as Poland has now acquiesced to legislative powers of the EU.
High interest rates
As interest rates are high in Poland consumers will be more likely to save their money rather than spending it leading to a downturn in the economy. However Europe will eventually take over the control of interest rates stabilising the economy.
Inflation rates
Part of the terms of Poland entering the EU was the stabilization of inflation. According to the OECD world economic outlook (1994) the inflation rates in Poland exploded to 586% during the transition to the market economy.
Inflation is now at 8.4% compared to 1.4% in the UK (CIA World fact book 2003)
External Debt
Poland has an external debt of $44 billion, accumulated through the transition to the market economy and the privatisation of state owned companies. The external debt accounts for 10% of the GDP of Poland and this is only the interest on the debt that is being repaid. The debt is owed to the World Bank and other global financial institutions.
Trade Balance
Since the collapse of the Russian COMECON, Poland’s major trading partner, Poland has quite a substantial negative trade balance. $27.8 billion in exports and $40.8 billion in imports. Poland has to find new markets for its products and start to rebuild the economy following the Russian market collapse. As the exchange rate is so high and the currency weak, imports are more expensive from the UK and EU12 and exports to those countries are worth less thus increasing trade deficit of -$13 billion.
Unemployment
Poland has unemployment rates of 19.1% as indicated by the UK office of national statistics. This high rate of unemployment is partly due to the mass privatisation of state owned industry and decline of exports in agriculture. This means the domestic market have less money to spend. However it does mean that there is a vast pool of skilled labour, 15.3 million people, with relatively low labour costs. This will reduce the fixed costs of any business investing in Poland.
Gross Domestic Product (GDP)
GDP purchasing power parity (PPP) $276.5 Billion
GDP real growth $3.8%
GDP per capita PPP $7200
(CIA World fact book 2003)
These figures show that the standards of living and disposable income in Poland is significantly lower than that of its EU12 neighbours. 23.8% of Poles live below the poverty line. However the growth figure of 3.8% shows increased prosperity since the implementation of the market economy.
Exchange rates
Volatile exchange rates can be difficult for businesses to carry out transactions from one economy to another.
1 EUR = 4.3072 PLN (Polish Zloty)
1 GBP = 6.2278 PLN
(HIFX Plc. ECB 2004)
The Zloty is very weak against the UK and EU12, its main trading partners. This escalates the negative trade balance in Poland.
The informal economy
Formerly labelled the “Black Market” the informal economy is a phenomenal problem in Poland and other CEE economies. The informal economy is a culture of bypassing official mechanisms, thus deals are not recorded officially. This could count for up to 40 or 50% of GDP. This leads to higher taxes and inflation to counterbalance the effects.
Decline in Polish hotel occupancy rates
According to the World Trade Organisation and Euromonitor, Hotel occupancy rates have declined since 1998 from 43.4% to 35.3% in 2003. Quite a significant fall. This could be a risky factor for any hospitality business merging into the polish economy.
Recommendations
Central and Eastern European countries especially Poland, where hospitality and tourism have been consistently growing in the past ten years, with international tourist receipts outpacing tourist arrivals have every reason to be optimistic about their future. There are 7 obvious tourism strengths of Poland:
• Rich and varied natural and man-made tourism resources and attractions;
• Living folk traditions and hospitality
• Relatively developed tourism infrastructure
• Poland lies in the heart of Europe, the world’s premier tourism region. Therefore it is very close to major European outbound markets, both from the West and the East.
• Poland enjoys a positive image throughout the world as tourist-friendly destinations.
• Last but not least, tourism in these countries enjoys institutional support and the local public is aware of tourism benefits.
The competition is becoming much stiffer therefore we must be prepared to become more competitive by know exactly what the consumers want rather than need as well as offering better and broader service at reasonable price etc.
According to Peter Cullen (1997) there are five basic principals for survival in the economic environment.
- The product must be right for the market
- Structure of production is appropriate
- Timing is correct
- Staff must have the appropriate mix of skills and abilities
- Management style and structure is appropriate
On analysis of the CEE economy, the Polish economy, the competition in the market, the consumers in the market and the risks to entry. I think we have proved that despite the risks, all of the above criteria have been satisfied and a large UK hotel chain will thrive in Poland.
Lehman Brothers Global Investment Bank developed a methodology for assessing the risk in Global Emerging Markets (GEM’s), the Damocles Report. By assessment and analysis of 10 specific objective factors.
- Foreign reserves and imports
- Foreign reserves / short term external debt
- External debt as a % of GDP
- Short term external debt as a % of GDP
- Current account as a % of GDP
- Broad money / foreign reserves
- Domestic / Private credit as a % of GDP
- Real short term interest rate
- Stock market index
- Real trade weighted exchange rate
Poland was rated out of the 17 GEM’s; Argentina, Brazil, China, Hong Kong, Hungary, Indonesia, Malaysia, Mexico, South Korea, The Philippines, Poland, Russia, Singapore, Taiwan, Thailand, Turkey and South Africa.
In the second quarter of 2004 Poland was rated against the other GEM’s and had the top score denoting the least risk involved in investment into the country.
The large UK hotel chain should firstly invest in Warsaw, the capital of Poland. This is the main business centre and where budget airlines fly to from regional airports throughout Europe. Once the company has established itself in Warsaw it could invest in other cities in Poland such as Krakow. This could also lead to expansion in other CEE countries.
References
Statistics of World Travel and Tourism Council
World Travel and Tourism Council for CEE
CIA World Fact Book
Budget flights to Poland
Budget flights to Poland
Exchange rates
Domacles Report
Labour market trends by Bishop
Buckley, P.J. and Ghauri, P.N. (1999) The internationalization of the firm. London : Academic Press
Cullen, P. (1997) Economics for hospitality management. London : Chapman and Hall
Kotler, P. (1999) Kotler on marketing, how to create win and dominate markets. New york : Free Press
Tayeb, M. (2000) International business theories, policies and practices. London; New York : Pearson Education
Global Market Information Database
- Euromonitor
- World Trade Organisation
Aimey Davidson & Grace Wang
