COOPETITION AMONGST HOTELS IN SOUTH AFRICA

A CASE STUDY OF COOPETITION AMONGST FIVE-STAR

HOTELS IN CAPE TOWN, SOUTH AFRICA

Kerrin Titmas

Research report presented in partial fulfilment

of the requirements for the degree of

Master of Business Administration

at the University of Stellenbosch

Supervisor: J Volschenk

Degree of confidentiality: A December 2012

ii

Declaration

By submitting this research report electronically, I, Kerrin Titmas, declare that the entirety of the

work contained therein is my own, original work, that I am the owner of the copyright thereof

(unless to the extent explicitly otherwise stated) and that I have not previously in its entirety or in

part submitted it for obtaining any qualification.

K Titmas October 2012

Copyright © 2012 Stellenbosch University All rights reserved

iii

Acknowledgements

My sincere gratitude goes to Jako Volschenk of the University of Stellenbosch Business School,

under whose supervision I compiled this research report. Without his guidance and patience, the

completion of this report would not have been possible. I acknowledge his passion for the

academic world and his desire to make a meaningful contribution to adult learning. His passion for

the topic coopetition certainly was very inspiring.

My appreciation goes to all those who gave willingly of their time to conduct interviews with me in

order to contribute to the of tourism and hospitality research. Lastly, thanks to all my friends who

teased me for taking 4 years to complete my research.

iv

Abstract

Coopetition is the simultaneous cooperation and competition amongst competitors (Gnyawali &

Madhaven, 2001); the objective being mutually beneficial results (Oxford, 2012). It is a fairly new

concept and has not widely been applied to the hospitality industry. Most of the research that exists

on this topic relates to destination marketing, cooperation or competition in tourism and hospitality;

very little looks at coopetition.

The current economic situation, and as its negative impact on the hospitality industry in South

Africa, has provided a need to explore how hotels are able to work together in order to retain their

position in the market as well as gain a competitive edge over one another and other markets.

The primary objective of the research report is to contribute to coopetition theory, specifically in the

hospitality industry. The study is based on research of the interaction between the network of five-

star hotels in Cape Town. It explores their relationships with one another and with other hotels in

South Africa.

The secondary objective is to answer a number of subordinate research questions which provide

insight into the factors that promote or hinder coopetition. It considers the reasons for coopetition,

the role of third parties in the relationship, the impact of geographic location on these relationships,

amongst other factors.

The results of the study have provided insights as to how factors internal and external to the

organisations impact their willingness to cooperate with their competitors. The study determines

reasons for coopetition, activities where it is present and shares the impact of the coopetitive

initiatives to date. It confirms some of the existing theory and highlights areas where there is scope

for future research.

Key words:

Competition

Coopetition

Destination marketing

Hospitality network

v

Table of contents

Declaration ii 

Acknowledgements iii 

Abstract iv 

List of tables x 

List of figures xi 

List of acronyms and abbreviations xii 

CHAPTER 1 ORIENTATION 1 

1.1  INTRODUCTION 1 

1.2  PROBLEM STATEMENT 1 

1.3  RESEARCH OBJECTIVES 1 

1.3.1  Primary Objective 2 

1.3.2  Secondary Objectives 2 

1.4  LITERATURE REVIEW 3 

1.4.1  Tourism and hospitality 3 

1.4.2  Coopetition 4 

1.4.3  Cooperation 5 

1.4.4  Competition 5 

1.4.5  Business networks 6 

1.4.6  Destination marketing 7 

1.5  CLARIFICATION OF KEY CONCEPTS 8 

1.5.1  Competitive advantage 8 

1.5.2  Market 8 

1.5.3  Market share 8 

1.5.4  Brand equity 8 

1.5.5  Hotel occupancy 8 

1.5.6  Economic recession 8 

1.5.7  Marketing 9 

1.5.8  Five-star hotel 9 

1.5.9  City of Cape Town 9 

1.6  IMPORTANCE / BENEFITS OF THE STUDY 9 

1.7   DELIMITATION OF THE STUDY 10 

1.8  RESEARCH DESIGN AND METHODOLOGY 10 

vi

1.8.1  Sampling 11 

1.8.2  Questionnaire design and data collection 11 

1.8.2.1  Questionnaire 11 

1.8.2.2  Data collection – Interviews 12 

1.8.3  Data analysis 12 

1.9  CHAPTER OUTLINE 13 

1.9.1  Chapter One – Introduction 13 

1.9.2  Chapter Two – Literature Review 13 

1.9.3  Chapter Three – Research methodology 13 

1.9.4  Chapter Four – Analysis and interpretation 13 

1.9.5  Chapter Five – Conclusion and recommendations 13 

1.10  NATURE AND FORM OF RESULTS 13 

1.11  CONCLUSION 14 

CHAPTER 2 LITERATURE REVIEW 15 

2.1  INTRODUCTION 15 

2.2  TOURISM AND HOSPITALITY 15 

2.2.1  Tourism 15 

2.2.2  Hospitality in South Africa 17 

2.3  COOPETITION 21 

2.3.1  Definition 21 

2.3.2  A form of cooperation or a discipline on its own? 21 

2.3.3  Coopetition as a vertical or horizontal relationship 22 

2.3.4  Types of coopetition 23 

2.3.5  Levels of coopetition 23 

2.3.6  Impacts of coopetition 27 

2.3.7  Balancing cooperation and competition 28 

2.3.8  The role of customers in coopetition 28 

2.3.9  The role of third party organizations in coopetition management 29 

2.3.10   Critical factors for coopetition to succeed 31 

2.3.10.1 Management commitment 31 

2.3.10.2 Leadership development of trust 32 

2.3.10.3 Long-term commitment 33 

2.3.11   Using game theory to explain coopetition 33 

2.3.12  Coopetition in tourism 34 

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2.4  COOPERATION 36 

2.4.1  More formal types of cooperation 36 

2.4.2  Cooperation amongst competing organisations 39 

2.4.3  Causes of conflict in inter-competitor cooperation 39 

2.4.4  Barriers to cooperation 40 

2.4.5  Formalising cooperative relationships between organisations 40 

2.5  COMPETITION 40 

2.5.1  Porters Five Forces Model of Competition 41 

2.5.2  Driving Forces 44 

2.6  BUSINESS NETWORKS 45 

2.6.1  The substance of business relationships 45 

2.6.2  Functions of business relationships 47 

2.6.3  Relationships between business networks 49 

2.6.4  Relationships between competitors in business networks 49 

2.6.5  Factors affecting relationships 49 

2.6.6  Impacts of change in business networks 50 

2.6.7  Networks in tourism marketing 50 

2.7  DESTINATION MARKETING 51 

2.7.1  Structuring a Destination Marketing Organisation 53 

2.7.2  Funding a DMO 54 

2.7.3  Key duties of a DMO 54 

2.8  SUMMARY 55 

CHAPTER 3 RESEARCH METHODOLOGY 56 

3.1  INTRODUCTION 56 

3.2  THE POPULATION AND SAMPLE 56 

3.2.1  The case selection 57 

3.3  THE QUESTIONNAIRE DESIGN 59 

3.4  DATA COLLECTION 59 

3.5  DATA ANALYSIS 61 

3.5.1  Checklist data 61 

3.5.2  Interview data 63 

3.5.3  Interpretation of the data 63 

3.5.4  Potential bias 63 

CHAPTER 4 FINDINGS 65 

4.1  INTRODUCTION 65 

viii

4.2  THE PROFILE OF RESPONDENTS 65 

4.3  ANSWERING THE RESEARCH QUESTIONS 65 

4.3.1.  RQ1: What is the nature of the relationships (both collaborative and competitive) between five star hotels in the City of Cape Town? 65 

4.3.2.  RQ2: What relationships (both collaborative and competitive) do these hotels have with hotels outside of the region? 68 

4.3.3.  RQ3: On what level do the hotels consider themselves to be competitors? 71 

4.3.4.  RQ4: What kinds of activities and initiatives do these hotels collaborate on? 72 

4.3.5.  RQ5: Why do these hotels collaborate with other competitor hotels? 73 

4.3.6.  RQ6: What has the impact been of the coopetition initiatives they have engaged in, both with one another and other hotels in South Africa? 73 

4.3.7  RQ7: What potential there is to expand on these relationships in order to benefit these hotels? 74 

4.3.8  RQ8: What factors contribute to the varied relationships between each of the hotels? 76 

4.3.9  RQ9: What role do third parties play in promoting coopetition amongst hotels in the region? 79 

4.3.10  RQ10: What factors hinder coopetition amongst the hotels in question? 80 

4.3.11  RQ11: What potential exists for future cooperative joint marketing initiatives? 80 

4.3.12  RQ12: What differences exist between the coopetition patterns practiced by hotels in similar regions, different regions and with similar product offerings? 81 

CHAPTER 5 SUMMARY, CONCLUSION AND RECOMMENDATIONS 83 

5.1  INTRODUCTION 83 

5.2  SUMMARY OF MAIN FINDINGS 83 

5.2.1  Network findings 83 

5.2.2  Factors affecting coopetition 85 

5.2.3  Reasons to coopete 86 

5.2.4  Benefits of coopetition initiatives 86 

5.3  RECOMMENDATIONS 86 

5.4  FURTHER RESEARCH 87 

REFERENCES 88 

APPENDIX A: HOTELS IN CITY OF CAPE TOWN 97 

APPENDIX B: CHECKLIST 98 

APPENDIX C: QUESTIONNAIRE 100 

APPENDIX D: INTERVIEW WITH GABY GRAMM – STEENBERG 101 

APPENDIX E: INTERVIEW WITH NEIL MARKOVITZ, NEWMARK HOTELS 112 

APPENDIX F: INTERVIEW WITH TONY ROMER-LEE, McGRATH COLLECTION 123 

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APPENDIX G: INTERVIEW WITH ANDREW ROSETTENSTEIN, CAPE GRACE 138 

APPENDIX H: INTERVIEW WITH BRETT DAVIDGE, 12 APPOSTLES 145 

APPENDIX I: CHECKLIST COMPLETED BY G.GRAMM 153 

APPENDIX J: CHECKLIST COMPLETED BY A.ROSETTENSTEIN 155 

APPENDIX K: CHECKLIST COMPLETED BY B. DAVIDGE 157 

APPENDIX L: CHECKLIST COMPLETED BY T.ROMER-LEE 159 

APPENDIX M: RESULTS TABLES 161 

x

List of tables

Table 1.1: Typology of inter-organisational relationships 3 

Table 2.1: Overview of past research on coopetition 22 

Table 2.2: Relationships between firms 23 

Table 2.3: Types of coopetition 23 

Table 2.4: Levels of coopetition 24 

Table 2.6: Impact of resource similarity 27 

Table 2.7: Coopetition in small and medium sized enterprise (SMEs) 35 

Table 2.8: A typology of governance structure 40 

Table 3.1: Identification of the competitor set 62 

Table 4.1: Respondent profile 65 

Table 5.1: Summary of coopetitive activities evident in the networks 85 

Table M.1: Comparison of competitor set by hotel size 161 

Table M.2: Comparison of competitor set by geographic location 162 

Table M.3: Comparison of competitive factors by competitor 163 

Table M.4: Comparison of competitive factors by sample hotel and as a ratio of their competitor set 164 

Table M.5: Comparison of competitive factors by sample hotel and as a ratio of their City Bowl and surrounds competitor set 165 

Table M.6: Comparison and ranking of key challenges faced by sample hotels 166 

xi

List of figures

Figure 1.1: Map of hotel locations 9 

Figure 2.1: Domestic and foreign visitors 2004 to 2015 16 

Figure 2.2: Accommodation occupancy rates (%) 2006 to 2015 17 

Figure 2.3: Number of hotel rooms (thousands) 2005 to 2010 18 

Figure 2.4: Hotels - Occupancy rates (%) 2006 to 2015 18 

Figure 2.5: Hotels –Summary of statistics 2006 to 2015 19 

Figure 2.6: Five-star hotels – Summary of statistics 2006 to 2015 20 

Figure 2.7: Total hotel room revenue by category 2010 20 

Figure 2.8: Proposed hierarchy of critical factors for coopetition to succeed 32 

Figure 2.9: Interplay of the three substance layers of business relationships 46 

Figure 2.10: Dyadic function of a business relationship 47 

Figure 2.11: Single actor function of a relationship 48 

Figure 2.12: Network function of a relationship 48 

Figure 3.1: Selection of Population 56 

Figure 3.2: Sizes of Hotels in Population 57 

Figure 3.3: Market of Hotels 57 

Figure 3.4: Geographic location of Hotels 58 

Figure 3.1: Demographics of sample relative to population demographics 59 

xii

List of acronyms and abbreviations

% Percent

etc. et cetera

FIFA Federated International Football Association

GDP Gross domestic product

GDS Global Distribution System

i.e. that is

LHW Leading Hotels of the World

LTO Local Tourism Organisation

NTA National Tourism Association

NTO National Tourism Organisation

PWC PricewaterhouseCoopers (firm of accountants)

R Rand – South African currency

REVPAR Revenue Per Available Room

RTO Regional Tourism Organisation

SA South Africa

SAGTA South African Golf Tourism Association

SATOUR South African Tourism Association

SME Small to Medium Enterprise

TGCSA Tourism Grading Council of Southern Africa

UNWTO United Nations World Tourism Organisation

1

CHAPTER 1

ORIENTATION

1.1 INTRODUCTION

There is limited research on coopetition theory available that examines the cooperative

relationships amongst competitors in the hospitality industry. Most of the research that is available

considers either the manner in which the hotels cooperate (Porter, 1998; Dyer & Singh, 1998;

Astley & Fombrun, 1983) or compete (Porter, 1980; Zairi, 1996; Ferrier, 2001; D’Aveni, 1994) with

one another, but not how they do both simultaneously.

Little research has considered how hotels that compete for a share of the same market are able to

benefit from cooperation with one another through both formal and informal alliances. With the

increasing number of hotels built globally over the past decade, the downturn in traditional markets

due to the economic recession and the oversupply of hotel accommodation in South Africa it is

important to explore ways in which hotels can work together in order to be sustainable, maintaining

their competitive advantage over one another and other regions.

The specific purpose of this study is to look at the relationships between a number of five-star

hotels in the City of Cape Town and the patterns of coopetition they currently practice. It is an

exploratory study, which compares the behaviour of hotels, and whether there are patterns

relevant to their size, market, geographic location, shareholding and product offering. The study

seeks to highlight similarities and differences in the manner in which they interact with other hotels.

The study further aims to identify how the hotel network currently operates, where the hotels

perceive benefit from their relationships and to explore future opportunities for competitor hotels to

cooperate. The study shall encompass a thorough review of existing literature as well as a series

of one-on-one interviews.

1.2 PROBLEM STATEMENT

The main aim of this study is to answer the following question:

What is the nature of the coopetition relationships between five-star hotels in South Africa and

what potential exists to expand these relationships for the benefit* of these hotels?

*For the purpose of this study, benefit means increase occupancies and/or revenues and/or profits

and/or brand equity.

1.3 RESEARCH OBJECTIVES

The primary research objective was identified prior to formulating the secondary objectives and

providing an overview of the related literature.

2

1.3.1 Primary Objective

This research report is intended to contribute to coopetition theory, specifically in the hospitality

industry. The study is based on research of the current interaction of five-star hotels in the City of

Cape Town with one another and with other hotels in South Africa.

The study was initiated in order to explore the patterns of coopetition that currently exist between

five-star hotels in South Africa. The sample hotels are all located in the City of Cape Town, share

the same broader market, and have similar or complimentary offerings. The study also explores

the relationships these hotels have with hotels outside of this region. It aims to explore the potential

for these hotels to expand their existing marketing networks. It explores whether these hotels use

their networks more for the benefit of their immediate geographic region or across a national

network.

The study explores six hotels, looking at the similarities or differences in patterns of behaviour

amongst them and (1) how they interact with one another i.e. other hotels in the City of Cape

Town, (2) other five-star hotels in South Africa and (3) hotels with an identical product offering or

facility i.e. golf course, winery, etc.

1.3.2 Secondary Objectives

The following subordinate research questions were formulated for this study:

RQ1. What is the nature of the relationships (both collaborative and competitive) between five-

star hotels in the City of Cape Town?

RQ2. What relationships (both collaborative and competitive) do these hotels have with hotels

outside of this region?

RQ3. On what level do the hotels in the study consider themselves competitors?

RQ4. In what kinds of activities and initiatives do these hotels collaborate?

RQ5. Why do these hotels collaborate with other competitor hotels?

RQ6. What has the impact been of the coopetition initiatives they have engaged in, both with

one another and other hotels in SA?

RQ7. What potential there is to expand on these relationships in order to benefit these hotels?

RQ8. What factors contribute to the varied relationships between each of the hotels?

RQ9. What role do third parties play in promoting coopetition amongst hotels in the region?

RQ10. What factors hinder coopetition amongst the hotels in question?

RQ11. What potential exists for future cooperative joint marketing initiatives?

RQ12. What differences exist between the coopetition patterns practiced by hotels in similar

regions, different regions and with similar product offerings?

3

Through the primary and secondary objectives of this research, the study shall bring to light areas,

which it recommends for further study in order to expand on the theory of coopetition in hospitality.

1.4 LITERATURE REVIEW

A thorough review of the literature is provided in Chapter 2, which addresses the questions raised

by the primary and secondary objectives of the study. The literature review first looks at tourism

and particularly the hospitality industry in South Africa in order to give context to the research study

and the need for hotels to cooperate. Next, it broadly outlines coopetition as a concept and then

explores the two components necessary for coopetition, namely cooperation and competition. In

order to provide a better understanding of the relationships that exist in business the literature

review explores business networks, focusing mainly on horizontal networks. It then goes into

specific detail of one particular coopetition relationship which functions across tourism networks

and has been researched in detail, namely destination marketing.

Table 1.1 provides illustrates the varied relationships which exist between organisations, showing

both their vertical and horizontal nature. This provides a good framework from which to explore the

literature.

Table 1.1:- Typology of inter-organisational relationships

Dir

ecti

on

of

Rel

atio

nsh

ip

Ver

tica

l

Arms length exchange Vertical multifaceted

relationships Alliances between buyers

and suppliers

Ho

rizo

nta

l

Traditional competitive markets

Horizontal multifaceted relationships

Alliances between non-competitors

Competition Coopetition Cooperation

Source: Dowling et al. 1996. p 156

1.4.1 Tourism and hospitality

Tourism is a common term, widely used in everyday language. The term often overlaps with the

concepts of holidays, travel, hospitality and leisure. Definitions of tourism are broad and vary

depending on the context. The Concise Oxford Dictionary (1976) defines tourism as “the provision

of things and services that attract tourists”. The United Nations World Tourism Organisation (WTO,

2011) identifies tourism as a key driver for socio-economic progress.

Over the decades, in South Africa and internationally, tourism has experienced continued growth

and has been one of the fastest growing economic sectors in the world. More recently a number of

new destinations have established themselves (WTO, 2011) creating greater competition for a

share of market. Globally the volume of tourism equals and in some instances surpassed that of

the export of oil, food products and automobiles. Tourism is one of the major players in the

4

international arena and is one of the main income sources for many countries (WTO, 2011),

including South Africa (South African Tourism, 2010).

Hospitality is defined by Business Dictionary (2011) as “hotels, motels, inns or such businesses

that provide transitional or short-term lodging, with or without food”. PWC released a study on the

South African hospitality industry (2011) which, following the economic downturn in 2009 and the

2010 FIFA World Cup, predicts how the hospitality industry in South Africa could develop from

2011 until 2015. The study outlines that the global recession affected economic activity and

translated into steep declines in both foreign and domestic travel. It confirms that R13.9billion was

spent on hospitality related activities during the 2010 FIFA World Cup, reflecting a rise in income

during that time, but that in 2011 the market returned to its pre World Cup declining trend. PWC

(2011) projected a fall of 7.1% in revenue in 2011.

The South African economy experienced a long-term growth phase from 1999 until 2008. Real

economic growth averaged at 4% per annum during this period, the longest upward cycle in

history. In 2004, domestic tourism and travel took off and between 2004 and 2006, the number of

visitors to and within South Africa almost doubled. Between 2006 and 2008, there was further

growth of around 9%. During the period, 2005 to 2010 there was a large amount of investment in

new product, and during the period 2005 to 2008, 1600 rooms were introduced to the market. A

further 9700 rooms were added between 2008 and 2010 (PWC, 2011). South Africa now faces an

oversupply of hotel rooms during a stage of economic downturn and low future growth potential.

1.4.2 Coopetition

Bengtsson and Kock (2000) define coopetition as “a dyadic and paradoxical relationship emerging

when two firms are cooperating in some activities, while competing with each other in the

remaining activities”. Brandenburger and Nalebuff (1996) define coopetition as “simultaneous

cooperation and competition”. Gnyawali and Madhaven (2001) were amongst those who

introduced the term.

Bengtsson and Kock (2000) argue that competition and cooperation amongst organisations can

co-exist simultaneously. In order for successful simultaneous cooperation and competition to take

place amongst competitors, certain codes of conduct or ground rules need to be in place. An

example of this is the seven-point code of conduct adopted by the parties studied in Grängsjö and

Gummeson’s study (2006). The parties engaged in the coopetition relationship entered into active

dialogue with one another, were efficient in making decisions and implementing them and treated

one another as equals, irrespective of size of their organization or financial contribution made.

They established a relationship of trust amongst the parties concerned, sharing information,

meeting regularly face to face and lastly having fun whilst engaging.

Coopetition is possible on a variety of levels in organisations and Koza and Lewin (1998) believe

that the proximity of an activity to its customer is relevant to the level of cooperation or competition

5

that occurs. They believe that companies compete in activities close to the customer and

cooperate in activities far from the customer. Proximity of the activity to the customer and trust

relationships are two important concepts, which come up repeatedly in coopetition theory (Putnam,

1993; Morgan & Hunt, 1994). Trust and shared values amongst the parties are as important as

the existence of competition is (Brandenburger & Nalebuff, 1996; Porter, 1998; Gummesson,

2002).

1.4.3 Cooperation

Cooperation is defined by the Shorter Oxford English Dictionary (2006) as the action of working

together for the same purpose or in the same task. It expands this definition as “the combination of

a number of individuals in an economic activity so that all may share in the benefits”. Cooperation

is a concept in direct paradox to competition and transpires when companies, divisions of

companies and functions within companies work together (Dyer & Singh, 1998). Cooperation

focuses on joint strategies for adding value to two or more businesses (Gnyawali & Madhaven,

2001). By cooperating companies strengthen their competitive advantage; forming strategic

alliances, networks and strategic ecosystems (Astley & Fombrun, 1983).

Cooperation describes the links, which bring organisations together, enhancing their ability to

compete in the market place (Lynch, 1990). According to Wang and Krakover (2008) there are four

types of cooperative relationships; namely affiliation, coordination, collaboration and strategic

networks. Another cooperative relationship encountered in the literature review is a strategic

alliance. Where marketing is specifically concerned Palmer (2002) recognised that cooperative

marketing groups are groups of independent businesses who recognise the value of developing a

market as a joint initiative as opposed to doing so alone.

Cooperation amongst companies in geographic proximity is a powerful factor which contributes to

the ability of a cluster of companies and each of the companies within the cluster to gain a

competitive advantage over other companies outside of the grouping (Porter, 1998).

1.4.4 Competition

The Shorter Oxford English Dictionary (2006) defines competition as “the act of competing or

contending with others for supremacy, a position or prize”. It expands on this to incorporate that

competition is “the striving for custom between rival traders in the same commodity” as well as the

“interaction between two or more parties that share a limited environmental resource”. Competition

is a term used commonly in strategic management and refers to inter-firm rivalry (Porter, 1980). In

an economic environment, it exists when two or more parties have a common objective and seek

to outperform one another. In economic terms, one refers to “positive sum”, “zero sum” and

“negative sum” competition. A positive sum competition is one in which all parties are better off,

zero sum is where one party is better off at the expense of the others and negative sum is where

all parties are worse off because of the competition (Wankel, 2009).

6

Any firm entering into competition seeks competitive advantage, which also lies at the heart of

competitive success (Porter, 1985). The literature surrounding competition focuses mainly on

strategies to add value or advantage one business over another (Gnyawali & Madhaven, 2001).

According to traditional views price was the most important competitive factor. Factors that did not

relate to price, like quality and innovation, were believed to play a role, but not be as effective as

the role played by price. In economic literature, the only form of cooperation recognised is price

coordination, yet in more recent literature on the private enterprise economy, it is recognised that

the individuals are independent, yet their activities are interrelated (Jorde & Teece, 1989).

Companies have in more recent years had to adopt aggressive or hypercompetitive behaviour in

order to survive in their relevant markets (D’Aveni, 1994).

As times change business are becoming more market driven in their competition strategies and

they are reorganising their businesses to focus completely on the customer. They are utilising

expertise and resources on their core competencies, designing their product to meet the

customer’s needs, improving the speed of their service delivery, establishing added value and

driving customer orientated innovation (Zairi, 1996).

1.4.5 Business networks

Grant and Baden-Fuller (2004) point out that one of the most important trends in the 25 years prior

to them publishing their work, was the increase in companies forming collaborative relationships or

networks. A network is a structure where threads relate a number of nodes to one another. In a

business network, one can view the nodes as the businesses and the threads as the relationships

that exist between them. Inside a business, the nodes can be the individual business units and the

threads the relationships that exist between each business unit (Hâkansson, 1987).

Hâkansson and Ford (2002) point out that a node directly relates to the existence of a thread and

that the content of the threads is because of investment by both of the counterparts i.e. the nodes

on either end of the thread. The greater the investment the more substantial the content of the

thread will be. The more that is invested in the threads, the stronger they become, but the stronger

they become the more restricting they become to the freedom of each node to change. Put more

simply, as businesses work more closely their relationships strengthen, yet as their relationships

strengthen they are more restricted by these relationships.

Strategic tourism networks are formalised structures that integrate the shared vision of all tourism

organizations involved in the network. They take a system orientation in destination marketing.

There are two types of networks in a destination, namely horizontal and vertical networks and the

structure of these varies depending on the kinds of organisations participating in them. Horizontal

networks are those involving organisations that provide similar services, such as the local

restaurant association, whereas vertical networks involve organisations offering different services

(Wang & Krakover, 2008).

7

A tourist destination is a place where a large number of businesses offer varying services to

tourists. Their co existence and relationships to one another and other stakeholders, form various

networks. Tourists are able to vary their product offering by choosing from different goods and

services provided by companies which are located in close proximity to one another, and the

companies involved ultimately compete for a share of wallet (Wang & Krakover, 2008).It is only

possible to practice destination marketing if both networks are in place (Grängsjö & Gummesson,

2006).

In a study one specific successful tourism network the members adhered to three basic principles,

namely showing enthusiasm, giving time and contributing financially to the network. It was further

found that they had to balance their collective interests versus their individual interests, as well as

cooperate and compete whilst following the seven-point code of conduct mentioned earlier.

Understanding the working relationships i.e. network amongst tourism businesses in a destination

is a critical prerequisite of many destination-marketing programmes (Terpstra & Simonin, 1993).

1.4.6 Destination marketing

Wahab et al. (cit. in Pike, 2004) provided the following definition of tourism destination marketing:

“the management process through which the National Tourist Organisations and/or tourist

enterprises identify their selected tourists, actual and potential, communicate with them to

ascertain and influence their wishes, needs, motivations, likes and dislikes, on local, regional,

national and international levels, and to formulate and adapt their tourist products accordingly in

view of achieving optimal tourist satisfaction thereby fulfilling their objectives”.

Tourism differs from manufactured goods industry in three ways. Firstly, the tourist is brought to

the product i.e. the destination. Secondly, the product is consumed simultaneously to it being

produced and thirdly the production of tourism involves a collective cooperative body as well as

individual business competitors within close proximity (Grängsjö & Gummesson, 2005). The

nature of the tourism entity’s participation in destination marketing can vary from a loosely

connected relationship to a more formal and integrated relationship. Informal affiliations require

loose linkages and merely require participants to express good faith and a similar interest (Bailey &

Koney, 2000) as opposed to formal joint ventures where parties work together closely on a project

(Ring & Van de Ven, 1994).

It seems that coopetition mentality occupies the tourism stakeholders’ mindsets when they

approach destination marketing. The cooperative behaviour and competitive approach adopted by

some of the tourism organisations in Wang and Krakover’s study (2008) is a good illustration of the

coopetition relationship. It clearly shows the hostile relationship on the one hand coupled with the

need to pool resources on the other hand in order to achieve a common goal. The leadership

within the destination marketing organisation and the community is vital to its success.

8

1.5 CLARIFICATION OF KEY CONCEPTS

After a brief introduction to the literature related to the topics discussed and explored in this study,

it is necessary to clarify the key concepts. The importance and benefits of the study is illustrated

thereafter.

1.5.1 Competitive advantage

The fundamental of any business strategy is the quest to improve the company’s financial

performance and strengthen its long-term competitive position. This provides the organisation with

an advantage over its competitors. When one company has a competitive advantage over

another, it has the ability to deliver above average financial results and profits and has a better

chance of sustainability. A company’s competitive advantage is sustainable when parts of its

strategy cause large numbers of buyers to prefer that company’s products or services over those

of a competitor for a long period of time (Hough, 2008).

1.5.2 Market

“An actual or nominal place where forces of demand and supply operate, and where buyers and

sellers interact (directly or through intermediaries) to trade goods, services, contacts or

instruments, for money or barter. Markets include mechanisms or means for (1) determining the

price of the traded item, (2) communicating the price information, (3) facilitating deals and

transactions, and (4) effecting distribution. The market for a particular item is made up of existing

and potential customers who need it and have the ability and the willingness to pay for it”

(Business Dictionary, 2011).

1.5.3 Market share

“A percentage of total sales volume in a market captured by a brand, product, or company”

(Business Dictionary, 2011).

1.5.4 Brand equity

Branding is the name, symbol or term used to identify a product. Brand equity is the value of a

brand’s overall strength in the market (Cannon, Perreault & McCarthy, 2008).

1.5.5 Hotel occupancy

“The rate of occupation or percentage occupation per month or year of the total capacity available

within a hotel during that same period” (Business Dictionary, 2011).

1.5.6 Economic recession

The terms recession and economic recession make reference to a global crisis, which began in

2007, the impact of which is still felt today. It is considered by many economists to be the worst

financial crisis since the 1930’s Great Depression (Reuters, 2012). It resulted in the collapse of a

9

number of large banks and financial institutions, bank bail-outs by national governments globally,

as well as downturns in stock markets around the world; resulting ultimately in recession.

1.5.7 Marketing

“Marketing is the performance of activities that seek to accomplish an organisation’s objectives by

anticipating customer or client need and directing a flow of need-satisfying goods and services

from producer to customer or client” (Cannon, Perreault & McCarthy, 2008). Marketing stresses

that the company’s efforts should focus on its customer’s satisfaction at a profit.

1.5.8 Five-star hotel

A five-star hotel is one that is graded with five stars, (or delivers the equivalent standards to the

graded hotels) by the Tourism Grading Council of Southern Africa. The grading criteria cover

service standards, facilities in the hotel and the level of amenities provided by the hotel. A five-star

grading is the highest grading available and is an indication of luxury amenities, high standards

and personalised service.

1.5.9 City of Cape Town

The area shaded below is the area defined as the City of Cape Town. The location of each of the

hotels in the study is plotted below and numbered accordingly.

Figure 1.1: Map of hotel locations

Source: Western Cape Government [online]

http://www.capegateway.gov.za/image/2003/capetown_e.gif , 2011.

1.6 IMPORTANCE / BENEFITS OF THE STUDY

Tourism has been labelled the fourth largest industry globally and has been the fastest growing

industry worldwide for some time (Roussot, 2005). The hotel industry and the tourism industry are

mutually inclusive. A healthy tourism industry is a necessity for a healthy hotel industry (Du Plessis,

LIST OF HOTELS IN SAMPLE

1 Cape Grace 2 Dock House 3 Queen Victoria 4 Steenberg 5 The Cellars Hohenort 6 12 Apostles 

1, 2, 8

6 4.5

10

1989). It is estimated that the hotel industry generates 75% of all tourism income globally (Bishop,

2005).

In South Africa accommodation is broken down into (1) hotels, (2) guest house and guest farms

and (3) caravans, camping sites and bush lodges. Although hotels accounted for just over 50% of

the available rooms in South Africa in 2010, they account for 75% of total spend. A number of new

hotels have opened since the economy began to weaken as developers and hoteliers had

committed to the inception of these projects prior to the economic downturn. In Johannesburg

capacity has risen by 30% in the past 3 years, in Cape Town by 20% in 2 years and in Durban by

35% in 3 years. This, coupled with the impact of the economic recession has led to average

occupancies falling from 70.3% to 53.1% in 2010 (PWC, 2011).

It is clear from these statistics that supply outweighs demand and therefore the logical conclusion

is that only the fittest shall survive. It is therefore imperative to explore possibilities for individual

hotels to retain some form of competitive advantage in order to sustain themselves and South

Africa’s position as a tourism destination.

1.7 DELIMITATION OF THE STUDY

The report is a contribution to co-operative marketing theory, specifically addressing how

competitors in the tourism sector develop strategies for joint marketing initiatives and developing

the tourist destinations of (1) the City of Cape Town and (2) South Africa. The proposed research

will focus exclusively on the South African hospitality industry, and more specifically five-star hotels

in the City of Cape Town. It will broadly compare how the hotels interact with one another and with

other hotels in the region and South Africa. It will focus predominantly on their marketing

interaction.

1.8 RESEARCH DESIGN AND METHODOLOGY

Thomas (2003) describes qualitative research as the method, which involves a researcher

describing kinds of characteristics of people and events without comparing the events in terms of

measurements or amounts. Quantitative methods focus attention on measurements and amounts

of the characteristics displayed by peoples or events in a study. For the purposes of this research,

a qualitative approach has been selected in order to facilitate a case study approach.

Thomas (2003) recommends that qualitative methods be utilised when studying the current status

of people and events where the researcher seeks to collect and interpret information about some

phenomenon without concern for quantities. A case study typically consists of a description of one

entity’s actions, explaining their behaviour. It can also take the form of a comparison when the

likeness and difference between two or more entities is analysed.

11

The biggest advantage of a case study is that it allows a researcher to reveal the manner in which

an array of factors has contributed to the unique situation that is in play where the entity or entities

are concerned. A limitation to the case study approach is that generalisations or principles drawn

from one case can be applied to other cases at the risk of error. Readers should not assume that

the results in one case study would be identical with that in another (Thomas, 2003).

1.8.1 Sampling

The qualitative study will make use of a form of non-probability sampling referred to as purposive

sampling. Purposive or judgemental sampling enables the researcher to select cases that will best

enable the researcher to answer the research questions and objectives (Saunders, Lewis &

Thornhill, 1997).

The study pertains to five-star hotels in South Africa. The reason for selecting this population of

hotels is due to the highly competitive nature of interaction in this sector at present. Since the FIFA

2010 World Cup there is an oversupply of hotels in South Africa and particularly in the City of Cape

Town (PWC, 2011). It is therefore of interest to assess what these hotels are doing; if and how

they are interacting with one another and other competitor hotels in order to strengthen their

position in the market.

Interviews shall be conducted with the business heads of the six hotels selected for purposes of

this research, all of which are located in the City of Cape Town and are five-star graded or

equivalent in standard. The study shall examine patterns in response based on the location of each

hotel, its proximity to the competitor hotels it cooperates with. It also examines whether or not they

are more likely to work with directly competing hotels or hotels that complement their offering.

1.8.2 Questionnaire design and data collection

1.8.2.1 Questionnaire

Thomas (2003) refers to four approaches to questions, namely loose-question, tight-question,

converging-question and response-guided approaches. The loose-question approach is used to

elicit interpretations of very general queries. A tight-question strategy is designed to discover a

respondent’s preferences among a limited number of options. The converging-question approach

is designed to incorporate advantages of both loose and tight methods. The interviewer first asks

broad, open-ended questions and then follows the response of the interviewee with additional

more focused questions. Lastly, the response-guided approach allows the interviewer to pose a

question and then based on the answer received to spontaneously create additional questions that

are logical extensions of the initial answer received.

The questionnaire will contain a combination of open questions in order to allow the participants to

be more descriptive (Saunders, Lewis & Thornhill, 1997). The majority of the questions are likely

to begin with the words “why”, “how” and “what” and shall be combined with probing questions in

order to drill down into more specific detail where information is specifically required (Saunders,

12

Lewis & Thornhill, 1997). The probing questions will focus more on the marketing interaction

between the hotels. Very little use of closed questions shall be made in order to ensure that

extensive answers are obtained.

1.8.2.2 Data collection – Interviews

An interview is the most advantageous approach to obtain data, as the answers to the questions

can be quite complex due to their open-ended nature (Easterby-Smith et al., 2002; Healey, 1991;

Jankowicz, 2005). When planning an interview the researcher benefits from deciding on multiple

strategies to best fit the needs of the study (Saunders, Lewis & Thornhill, 1997). The interviews

shall be conducted face to face wherever possible, however where not possible telephonic

interviews shall be conducted. Prior to conducting the interviews permission shall be obtained to

audio-record the interviews. After the interviews, a typist shall be appointed to transcribe the audio-

recordings.

1.8.3 Data analysis

Once the recordings have been transcribed, a thorough analysis of the transcripts shall begin in

order to integrate the related data drawn from the different transcripts, identifying the key themes

and patterns for further analysis and exploration. The data shall be categorised in order to identify

the nature of the relationships between the sample hotels in order to reach conclusions to the

questions this study seeks to answer. A summary of the principal themes that emerge from the

interviews shall be obvious at this point (Saunders, Lewis & Thornhill, 1997). The study will also

compare their responses; in particular, how they are similar and different to one another (Thomas,

2003).

An important challenge in this data analysis process shall be to identify any bias that exists

amongst those interviewed as well as to discover the consistencies and inconsistencies that exist

in their opinions. The steps that shall be followed in the data analysis process are in short:

i) Transcribe the data and identify the major ideas.

ii) Define appropriate units of analysis.

iii) Categorise the data according to the relevant themes that emerge.

iv) Confirm the categories that have emerged.

v) Identify the themes and utilise theory in order to interpret these where necessary.

The data shall be categorised as follows in order to facilitate an analysis:

i) Geographical patterns relating to cooperative relationships.

ii) Types of cooperation practiced and the distance from the customer.

iii) Information relating to the markets where cooperation is most prevalent or most hindered.

iv) The types of marketing activities engaged in between parties.

v) Factors which promote or hinder cooperation.

13

1.9 CHAPTER OUTLINE

In the following section, the structure of the study and the contents of the different chapters is

outlined.

1.9.1 Chapter One – Introduction

Chapter One outlines the research problem and provides the reader with a background to the

research problem and the manner in which the research has been approached. It sketches a

background to the problem, the formal relationship between the hotels and explains briefly the

importance of the research.

1.9.2 Chapter Two – Literature Review

This chapter of the research report will comprise an in-depth literature review. The review, the

content of which is outlined earlier in this chapter, will introduce coopetition. It shall explore

cooperation and competition independently in order to provide a better understanding of how these

two principles can be utilised simultaneously by competitors. Additionally destination marketing, a

form of coopetition utilised in the tourism industry is explored in more detail.

1.9.3 Chapter Three – Research methodology

The primary research and the methodology and format of the questionnaires is discussed and

analysed. The sampling procedure is discussed together with the research into the design of the

questionnaire and the data collection and analysis methods. It will also include the testing of the

questionnaire, re-design and final distribution of the questionnaire.

1.9.4 Chapter Four – Analysis and interpretation

This chapter will contain an analysis of the data collected in order to ascertain what behaviour is

exhibited by the organisations in the sample. The data shall be grouped and sorted as deemed

appropriate in order to facilitate addressing the research question. This chapter can be regarded as

the core of the study as it requires a great deal of interpretation of the results, utilising the literature

review to ascertain how the results fit into the current theory and the expansion thereon.

1.9.5 Chapter Five – Conclusion and recommendations

The last chapter of the study provides a conclusion that is drawn from the data analysed in Chapter

Four. Recommendations are made for ways to further leverage the coopetition relationships that

exist amongst the hotels in South Africa. Shortcomings of the study are explained and

recommendations for future research are highlighted at this point.

1.10 NATURE AND FORM OF RESULTS

The results shall be presented in a written case study. Tables shall be utilised in order to present

summaries of certain of the data, particularly where comparison is required.

14

1.11 CONCLUSION

This chapter has provided an introduction to coopetition, the hospitality and tourism industries. It

provides context for the need to conduct the research. It clearly outlines the primary and secondary

research objectives and the questions that support these, providing a framework for possible

outcomes. It provides an outline of the process the research will follow as well as the methods

used as, laying the foundation for a review of the literature in more detail.

15

CHAPTER 2

LITERATURE REVIEW

2.1 INTRODUCTION

This chapter contains a summary of the literature reviewed in order to facilitate a better

understanding of the research problem and assist with the effective interpretation of the data

gathered.

2.2 TOURISM AND HOSPITALITY

Chapter One establishes that these two concepts are highly interlinked and therefore best explored

together as most of the literature around these topics overlaps or involves the other.

2.2.1 Tourism

Globally tourism contributes to five percent of economic activity. It contributes between six and

seven percent to employment worldwide (both direct and indirect employment). Between 1950 and

2010 international tourism arrivals has expanded at a rate of six comma two percent (6.2%) per

annum and the share of international tourism that is received by emerging and developing

countries has risen from thirty two percent in 1990 to fort seven percent in 2010. International

tourist arrivals grew by nearly seven percent in 2010. The United Nations World Tourism

Organisation forecasts a growth in international tourist arrivals of between four and five percent in

2011 (WTO, 2011).

As tourism grows internationally and new destinations and markets become evident it is

understood that competition will increase and South Africa will need to be on top of its game. In

South Africa, tourism contributed ten comma five percent (10.5%) to GDP in 2008 (South African

Tourism, 2010). It has grown at three times the world average and has created almost a million

jobs since the end of apartheid, overtaking gold exports as an earner of foreign currency (Media

Club South Africa, 2011). It plays a critical role in the country’s economy and is highly susceptible

to the impact of the Rand exchange rates. Whilst a strong currency reduces inflationary pressure

in the economy, it has adverse effects on tourism as it reduces the buying power of foreign visitors

(South African Tourism, 2010).

When looking at historic growth patterns it is important to take note that the FIFA World Cup has

distorted the stats of 2010, resulting in unnaturally high volumes of visitors. The number of foreign

visitors increased fifteen comma one percent (15.1%) in 2010 and there was an increase of

fourteen comma three percent (14.3%) in domestic visitors to 5.13 million. The overall number of

visitors rose by fourteen comma eight percent (14.8%) to 13.2 million in 2010. The number of

visitors is estimated to decline by eight comma seven percent (8.7%) in 2011, as there will be no

16

international attraction to South Africa in the 2011, which can compare with the impact of the 2010

FIFA World Cup (PWC, 2011).

It is predicted that post 2011 the improved economic climate will lead to stead gains in domestic

and foreign travel in South Africa. The number of foreign overnight visitors is projected to rise by

2.1 million between 2011 and 2015. That equates to six comma four percent (6.4%) compound

annual growth, taking the total to R9.6million visitors per annum. When comparing this to the 2010

figures it equates to three comma five percent (3.5%) compound annual growth (PWC, 2011).

On the domestic travel front, the number of visitors is expected to grow by three comma four

percent (3.4%) compounded annually between 2011 and 2015. This equates to an increase of

650 000 visitors. Compared to the 2010 figures growth is expected to decline to zero comma three

percent (0.3%) compounded annually, reaching 5.2 million visitors in 2015. Figure 2.1 below is a

representation of the actual visitor statistics to 2010 and the forecasted statistics to 2015.

Figure 2.1: Domestic and foreign visitors 2004 to 2015

Source: PricewaterhouseCoopers, 2011, 8

The total number of visitors in South Africa will increase to 14.8 million by 2015, a two comma

three percent (2.3%) compound annual increase for 2010, but a five comma three five percent

(5.35%) compounded annual growth from 2011. Growth in travel and tourism will have a positive

impact on the accommodation industry.

When considering tourism it is important to understand what the key drivers are of tourism

revenue. They are the number of foreign arrivals per annum, average spend per day and average

length of stay of tourists (South African Tourism, 2010). These drivers have an impact on the

accommodation sector of the tourism industry, which is also known as hospitality.

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2.2.2 Hospitality in South Africa

As outlined in Chapter One the hospitality industry is facing trying times after a very long period of

growth. It was given a “false boost” due to the FIFA World Cup in 2010 when spending on rooms

rose sixteen comma seven percent (16.7%) to R13.9 billion. Despite this the average occupancy

rate, which fell from fifty-three comma four percent (53.4%) in 2007 to forty-seven comma three

percent (47.3%) in 2009, only moved up to forty-seven comma eight percent (47.8%) in 2010 due

to the increased inventory of rooms available in the market. If one were to ignore the increase in

inventory of 8800 rooms between 2007 and 2010, the occupancy rate based on the 2007 available

rooms would be fifty-one comma nine percent (51.9%). Figure 2.2 below depicts the actual

occupancy rates and the projected trend until 2015, when occupancies are predicted to reach an

average of forty-eight comma five percent (48.5%).

It is necessary to add context to the rooms figure quoted above. These rooms equate to an

addition R3.5 million visitors per annum. Therefore even if the economy in South Africa had

continued to expand at a healthy rate it is safe to say that there would have been an oversupply of

hotel rooms (PWC, 2011).

Figure 2.2: Accommodation occupancy rates (%) 2006 to 2015

Source: PricewaterhouseCoopers, 2011, 9

18

Figure 2.3: Number of hotel rooms (thousands) 2005 to 2010

Source: PricewaterhouseCoopers, 2011, 6

In comparison to the above, looking only at hotels there is a prediction of a further increase of

seven comma one percent (7.1%) room availability in 2011, followed by a further increase of three

comma two percent (3.2%) in 2012. The significant decrease in occupancies in the past 2 years

has discouraged further plans to expand and it is predicted that between 2013 and 2015 a growth

of less than one percent (1%) in room availability will be seen. It is estimated that by 2015 there will

be approximately 66 000 hotel rooms available in South Africa, a compounded annual increase of

two comma three percent (2.3%) from 2010 (PWC, 2011). It is of interest to compare Figure 2.2

above which looks at accommodation as a whole versus Figure 2.4 below which looks at hotels

only.

Figure 2.4: Hotels - Occupancy rates (%) 2006 to 2015

Source: PricewaterhouseCoopers, 2011, 15

19

It was predicted that total hotel room revenue, as a result of the mix between occupancy and

average room rates, would drop ten comma two percent (10.2%) in 2011 to R9.3 billion and then

increase to R12.4 billion in 2015. This equates to a compounded growth of three comma eight

percent (3.8%) annually from 2010 and seven comma six percent (7.6%) from 2011 (PWC, 2011).

Figures 2.5 and 2.6, taken from the PWC report, show the historical and projected patterns in

hotels in general and then more specifically in the five-star hotel sector.

Five-star hotels comprised only five percent (5%) of the available hotel rooms and stay unit nights

in 2010, generating twelve percent (12%) of total hotel room revenue (see Figure 2.7). Available

hotel rooms in the five-star market increased by twenty nine percent (29%) in the past two years.

The average room rate was R2115 in 2010, which is more than twice the overall average. In 2011

five-star hotels were experiencing lower occupancy levels, leading to reduced average room rates,

stimulating demand. This is placing financial pressure on these hotels as there is still a need to

maintain the correct standards and levels of luxury. Five-star hotels generated the largest increase

in room revenues for the hotel categories in 2010, recording a thirty-two percent (32%) increase.

During the next five years, five-star hotel room revenues are expected to expand at three comma

nine percent (3.9%) compound annual rate from R1.3 billion in 2010 to R1.5 billion in 2015 (PWC,

2011).

Figure 2.5: Hotels –Summary of statistics 2006 to 2015

Source: PricewaterhouseCoopers, 2011, 16

20

Figure 2.6: Five-star hotels – Summary of statistics 2006 to 2015

Source: PricewaterhouseCoopers, 2011, 23

Figure 2.7: Total hotel room revenue by category 2010

Source: PricewaterhouseCoopers, 2011, 22

The outlook in tourism from 2011 to 2015 is optimistic, but will not reach growth figures such as

those obtained in the past 10 years. From 2011 GDP is forecasted to expand at two comma seven

percent (2.7%) compound growth per annum and the improvement in the economic climate is

forecasted to result in steady growth in both domestic and foreign visitors. The number of foreign

visitors is expected to increase by R2.1 million between 2011 and 2015, up to six comma four

percent (6.4%) on a compound annual basis. When comparing this to the World Cup inflated

figures of 2010 the growth for this period will average 3.5% compounded annually (PWC, 2011).

21

The growth in domestic visitors is also forecast to grow from 2011 to 2015 by 3.4% compounded

annually (a gain of 650,000 visitors) (PWC, 2011).

2.3 COOPETITION

The concept grows in popularity as more managers recognise that finding the right balance

between cooperation and competition can benefit their performance and the survival of their

organisations (Perlmutter & Heenan, 1986). An organisation is mostly involved in a variety of

relationships, ranging from competitive, cooperative to coopetitive and these relationships change

with time (Bengtsson & Kock, 2003).

2.3.1 Definition

Varying definitions of coopetition are found in the literature. These are listed chronologically below:

i) “Cooperative relationships amongst firms having converging strategic goals and diverging

competitive goals” (Hamel, Doz & Prahalad, 1989).

ii) “A relationship between two firms based on cooperation to develop a new product and create

value and the competition to get a share of the market and distribute the returns to the value

that has been created” (Brandenburger & Nalebuff, 1996).

iii) “Syncretic rent seeking behaviour that describes a firm’s strategic orientation to achieve a

dynamic balance between competitive and cooperative strategies” (Lado, Boyd & Hanlon,

1997).

iv) “A dyadic and paradoxical relationship emerging when two firms are cooperating in some

activities, while competing with each other in the remaining activities” (Bengtsson & Kock,

1999).

v) “When a firm is simultaneously involved in both cooperative and competitive interactions with

the same competitor at the same product area” (Bengtsson & Kock, 2000).

vi) “Simultaneous cooperative and competitive behaviour” (Gnyawali & Madhaven, 2001).

vii) “Firms interacting among each other on the basis of a partially convergent interest structure”

(Dagnino & Padula, 2007).

viii) “Simultaneous competition and cooperation between global rivals” (Luo, 2007).

ix) “Collaboration between business competitors, in the hope of mutually beneficial results”

(Oxford Dictionary, 2012).

Important to note is the common thread in all definitions, namely the presence of multiple

competing organisations and a need to work together for improved results i.e. competitive

advantage.

2.3.2 A form of cooperation or a discipline on its own?

There are two thoughts about coopetition. One school of thinking says that a large amount of the

literature around does not make use of this term; but that it is found when researching either

22

cooperation or competition. It states that it is at times only evident that coopetition is present in the

interaction between two firms when the cooperation is taking place amongst competitors.

Fjeldstad, et al (2004) states that coopetition could become part of the “competitive paradigm” if

cooperation between firms is considered “competitive manoeuvring”, both of which provide a

competitive advantage. This would mean that coopetition is another form of cooperation.

Concepts, which are relevant for cooperation, like trust, opportunism and commitment would be

crucial to coopetitive relationships (Yami, Castaldo, Dagnino & Le Roy, 2010).

The other school believes that coopetition is an entirely separate discipline. Dagnino and Rocco

(2009) stress that coopetition does not emerge from combining cooperation and competition. He

implies that cooperation and competition merge together to form a “new strategic interdependence

between firms” thereby creating value for each firm.

2.3.3 Coopetition as a vertical or horizontal relationship

Coopetition can be found both horizontally in relationships at the same level of the value chain or

between direct competitors; or vertically between suppliers and customers (Bengtsson & Kock,

2000). Table 2.1 summarises some of the literature available. This study focuses on relationships

between competing firms; therefore the literature review explores the horizontal relationships in

more detail.

Table 2.1: Overview of past research on coopetition

Typology of relationship

Objective

Nature/definition Antecedent Outcomes

Vertical relationship Lado, Boyd and Hanlon, 1997; Bengtsson and Kock, 2000; Luo, 2007

Gnyawali and Madhaven, 2001; Gnyawali and Park, 2008

Afuah, 2000; Bengtsson and Kock, 2000; Baldwin and Bengtsson, 2004; Oliver, 2004; Quintana-Garcia and Benavides-Velasco, 2004; Gnyawali, He and Madhaven, 2006; Luo, 2007; Luo, Rindfleisch and Tse, 2007; Ritala, Hallikas and Sissonen, 2008.

Horizontal relationship Hamel, Doz and Prahalad, 1989; Quintana-Garcia and Be Benavides-Velasco, 2004; Bonel and Rocco, 2007; Hokura, 2007.

Source: Yami, Castaldo, Dagnino & Le Roy, Edward Elgar, 2010: 43

Bengtsson and Kock (1999) state that firms can be in a variety of relationships with other firms.

These relationships will depend on their own strength as well as their need for external resources

(Table 2.2). They state that firms should take advantage of the benefits that arise from competition

23

as well as those arising from cooperation. In order to reap the benefits of both types of behaviour

the firm needs to adopt both competitive and cooperative behaviours, namely a coopetition

strategy (Yami, Castaldo, Dagnino & Le Roy, 2010). This contradicts a great deal of research

gathered around competition and cooperation, which imply that the two relationships are mutually

exclusive.

Table 2.2: Relationships between firms

Relative position in the industry

Strong Weak

Need for external resources

Strong Coopetition Cooperation

Weak Competition Coexistence

Source: Bengtsson & Kock, 1999

2.3.4 Types of coopetition

Dagnino and Padula (2002) suggest that there are multiple types of coopetition (Table 2.3) which

depend on the number of competing firms involved in the relationship. They differentiate between

dyadic coopetition and network coopetition. Within each, they further distinguish between simple

and complex forms of coopetition.

Table 2.3: Types of coopetition

Number of firms in the coopetition relationship

Two More than two

Number of activities in the value chain

One Simple dyadic coopetition Simple network coopetition

Multiple Complex dyadic coopetition Complex network coopetition

Source: Dagnino & Padula, 2002

2.3.5 Levels of coopetition

Coopetition research covers four levels of coopetition: individual, organizational, inter-

organizational and network (Yami, Castaldo, Dagnino & Le Roy, 2010). Table 2.4, extracted from

the book Coopetition summarises the research that exists on the four levels. Most relevant to this

study is the theory of inter-organisational and network coopetition relationships.

24

Table 2.4: Levels of coopetition

Coopetition level Drivers

(selected examples)

Process Outcome

(selected examples)

Individual

(for example, Fang, 2006; Hatcher and Ross, 1991; Lindskold, Betz and Walters, 1986; Loch, Galunic and Schneider, 2006; Tjosvold 1986; and Tjosvold and Sun, 2001)

Cultural traits Individual goals Individual morals

and values Personality

In cooperation, individuals strive to get others to be effective and to trust and rely on one another, which lead to shared perspectives and interests. In competition, individuals actively interfere with one another and lack of trust restricts information exchange. A dynamic balance between cooperation and competition is however possible.

Creativity Loyalty Productivity Stress

Organisation

(for example, Alper, Tjosvold and Law, 1998; Chen and Tjosvold, 2008; Loch, Galunic and Schneider, 2006; Tsai, 2002)

Department goals Organisational

values Task structures Team procedures

In cooperation, organizational systems communicate that goal attainment helps teams and departments be successful together, and systems are designed for interdependence and resource sharing. Competition facilitates processes aiming to withhold information and ideas between departments and subunits as pursuing own goals and to obstruct the goal process of others. Organizations must balance incentives to cooperate and to compete in order to ensure both communication and efficiency.

Market knowledge

Organizational coordination

Profits/losses Shared

knowledge and resources

Mutual interorganisational

(for example, Bengtsson and Kock, 2000; Boneland and Rocco, 2007; Das and Teng, 2000; Khanna, Gulati and Nohria, 1998; Levy, Loebbecke, and Powell, 2003)

Resource sharing and acquisition

Reducing the benefits of a competitor

(Changes in) structural conditions (for example, cost structure, competitive focus, advantages of scale)

Oriented towards cooperation, decision processes are accommodative and aim for mutual problem solving, where dyad members are attentive and responsive to the other’s interests. Competition involves less fair, more biased, and less honest behaviour, which makes dyadic members strive to fulfil own interests. A fruitful coopetitive relationship requires balanced power but may be difficult to sustain over long periods of time.

Building channels to foreign markets

Knowledge spill over

New markets, products and processes

Relationship maintenance

Network

(for example, Carayannis and Alexander, 2004; Dei Ottati, 1994; Gnyawali and Madhavan, 2001; Oshri and Weeber, 2006)

Advancing joint interests and pooling resources of common purposes

Networking structure and positions

Social, cultural and regulatory changes

Technological advances and complexity

When cooperating, dependence is based on trust. When competing, dependence is related to an actor’s network strength and position. Conflicts are few in cooperation but arise frequently in competition. There are also clear norms when cooperating. When competing, there are invisible norms and distance between actors. It is difficult to balance coopetition for all parties to reap the benefits, due to vast complexities.

Coordination Expand the total

market Innovation and

differentiation Integrated

strategies

Source: Yami, Castaldo, Dagnino & Le Roy, 2010: 23-25

25

2.3.5.1 Coopetition in inter-organisational relationships

Where cooperation takes place between competitors it rarely does so within the same area where

the cooperating firms compete (Gomes-Casseres, 1994). The main reason for coopetition is to

gain strategic advantage over competitors (Hamel, Doz and Prahalad, 1989). Multiple studies

focus on the relationships between two or more organisations, where all of the organisations in the

relationship are involved in cooperative and competitive relationships simultaneously. The literature

explores a number of theories. Bengtsson and Kock (1999, 2000) utilise industrial organisation and

industrial network theory. Cognitive theory (Thomas & Pollock, 1999), organisational learning

(Khanna, Gulati & Nohria, 1998) and alliance literature (De Rond & Bouchikhi, 2004) are also

explored.

Bengtsson & Kock (2000) claim that competition between firms, is a result of the structural

conditions in an industry. When there is a change in these conditions firms are more likely to work

together, examples are where there has been a change in regulations (Padula & Dagnino, 2007)

and as a result knowledge is shared. Another example is where market conditions require firms to

cooperate in order to take advantage of scale or volume (Mitchell, Dussauge & Garrette, 2002).

Some of the literature suggests that it is easier to achieve coopetition when the competing firms

who engage in the cooperative relationship are equal in size or status (Das & Teng, 2000) and

complementing resources. During the process it is essential that the trust relationship is

established and maintained (Zeng & Chen, 2003). Levy, Löbbecke and Powell (2003) suggest that

if knowledge sharing is managed it can alleviate some of the tension between the rivals.

The short duration of coopetition relationships can largely be attributed to the continuous change in

environment within which they exist as well as the level of cooperation or competition that exists

amongst the parties (Bönel & Rocco, 2007; Dagnino & Padula, 2007). Das and Teng (2000)

attribute the failure of certain coopetitive relationships to an inability to effectively deal with the

tensions that sometimes arise in such relationships.

There are both advantage and disadvantages to coopetitive relationships.

The advantages are:

i) Value creation (Bengtsson & Kock, 2000).

ii) Value sharing (Bengtsson & Kock, 2000).

iii) Increased innovation and creativity (Bengtsson & Kock, 1999).

iv) Achieving growth (Thomas & Pollock, 1999).

v) Remaining competitive (Thomas & Pollock, 1999).

The disadvantages:

i) The development of a trap (Bönel & Rocco, 2007).

ii) The ending of the coopetitive relationship (Bönel & Rocco, 2007).

26

iii) The negative impact of tension on individual employees in each firm (Bengtsson & Kock,

2001).

Bengtsson and Kock (1999) found that competitors tend to cooperate in activities, which are further

away from the customer, whilst they compete in activities close to the customer.

2.3.5.2 Coopetition in networks

As opposed to the simplicity of the coopetition amongst firms in the same industry as explored

above, coopetition exists in networks. The reason for exploring this in more detail is that this form

is often found in the tourism and hospitality industries. Coopetition in networks can appear in the

following forms:

i) Between districts or regions (Dei Ottati, 1994).

ii) Industries (Mariani, 2007).

iii) Research consortia (Carayannis & Alexander, 2004).

iv) Interest groups (Doucet, 2006).

v) Networks of firms (Chaudhri & Samson, 2000; Ims & Jakobsen, 2006).

As is the case with inter-organisational relationships, changes in the environment can cause firms

to engage in coopetitive relationships (Okura, 2007). Reasons for engaging in such relationships

across networks include:

i) The costs and nature of technological systems may lead to joint research and development

projects (Oshri & Weeber, 2006).

ii) The pooling of resources (Carayannis & Alexander, 2004).

iii) Advancing of joint interests (Mariani, 2007).

iv) Reducing the benefits or advantages of competitors by engaging in collusion (Ims &

Jakobsen, 2006; Gnyawali, He & Madhaven, 2006).

In networks, tension is also likely to arise between partners. It can arise because of a number of

factors such as asymmetry of resource input, size of partners or status of partners (Gnyawali &

Madhaven, 2001). There are both advantages and disadvantages to coopetitive relationships

across networks. Advantages include reduced costs (Okura, 2007) and improved innovation and

research and development (Dei Ottati, 1994). On a network level it is far more difficult to maintain

the balance of cooperation and competition in the relationship and thus difficult to ensure that all

involved gain benefits. Network relationships are generally more stable as it is more difficult for one

party to break away from the interdependencies that establish on a network level (Bengtsson,

Eriksson & Wincent, 2010).

Interesting to note is that in many instances it is the formation of a network that gives rise to

competition on a network level but that the individual parties within the network may not actually

compete (Brandenburger & Nalebuff, 1996). This is not the case when considering R&D consortia,

27

where each of the parties competes on an individual level and their levels of cooperation with one

another may vary. Bengtsson, Eriksson and Wincent (2010) conclude that at network level it is

likely that the coopetition occurs between two networks, regions or research consortia.

2.3.6 Impacts of coopetition

Cooperative relationships are unstable (Das & Teng, 2000), which by implication makes coopetitive

relationships unstable due to the existence of cooperation within them. It is therefore proposed

that coopetition strategies are not long lasting relationships with competitors and that these

relationships may change regularly in nature. Coopetition is an evolving relationship (Yami,

Castaldo, Dagnino & Le Roy, 2010), which is dynamic, and time dependent, delivering

unpredictable outcomes.

Yami, Castaldo, Dagnino & Le Roy (2010) propose that coopetition will lead to new complexity

within firms as its employees are forced to come to terms with the complexity of this relationship. It

is in contradiction to the behaviour that has traditionally been practiced, namely defeating the

competition. It shall therefore be necessary to establish management disciplines, which govern the

simultaneous competitive and cooperative behaviour.

2.3.6.1 The effect of coopetition on company behaviour

Galvagno and Garraffo (2010) proposed that a firm’s competitive behaviour towards a coopetitor is

likely to differ towards that of a competitor in terms of the timing, market scope, intensity and

aggressiveness of the competitive interaction. They state that a firm’s cooperative behaviour differs

when interacting with coopetitors, particularly where market and technology scope are concerned.

2.3.6.2 The effect of resource similarity on coopetitor behaviour

When resource similarity is high, firms are likely to engage in competitive coopetition (Galvagno &

Garraffo, 2010) as opposed to when resource similarity is low firms are likely to engage in

cooperative coopetition (Table 2.6).

Table 2.6: Impact of resource similarity

High market commonality

Cooperative competition

II

Competitive coopetition

I

Low market commonality

III

IV

Low resource similarity High resource similarity

Source: Adapted from Chen (1996) by Galvagno & Garraffo

(published in Yami, Castaldo, Dagnino & Le Roy, 2010, p 49)

28

2.3.6.3 Benefits of coopetition

Coopetition enables organisations to generate economic rents and achieve superior, long-term

performance through simultaneous cooperation and competition.

2.3.7 Balancing cooperation and competition

Hunt (1972, cited in Bengtsson and Kock, 2000) argues that competitors can be involved in both

cooperative and competitive relationships with each other simultaneously and can benefit from

both. Bengtsson and Kock (2000) state that when competitors cooperate the individuals within the

organization are only able to use competitive or cooperative logic at one time. They therefore

recommend that either the two parts are divided within the company or the one part that needs to

be controlled is regulated by a third party. Coopetitive relationships are complex because they

consist of two ‘diametrically different logics of interaction (Bengtsson & Kock, 2000). They go on to

say that the parties involved in such relationships are involved in hostility due to conflict on the one

hand whilst being involved in friendliness due to common interests on the other hand. These two

logics of interaction must be separated in order to make the coopetitive relationship possible.

All coopetitive relationships are complex as they are built around diametrical different logics of

interaction. The idea behind competition, one part of the coopetitive relationship, is built on the

assumption that individuals act to maximise their own self interest (cited from Hobbes, 1973 and

Smith, 1976). This is vastly different to cooperation which lives from working together to achieve

common goals. The cooperative relationship aims to achieve a win-win scenario vs. a competitive

relationship which aims for a win-lose scenario. It is important to find the right balance of

cooperation and competition in order for a coopetition relationship to work (Bengtsson & Kock,

2000)

2.3.8 The role of customers in coopetition

Depeyre and Dumez (2010) analyse the role that customers play in coopetition relationships. Their

findings show that customers create the structural conditions within a market, which lead coopeting

suppliers to work together in the first instance. They found that customers try and influence firms at

the behavioural level as well as in some instances are the reason that the alliances are created.

There are benefits for a customer from coopetition as the customer can assume that two firms

working together will learn from one another and be able to expand their respective capabilities.

Wang and Krakover (2008) argue that competing firms are more likely to cooperate when

relationships are more distant from customers. Bengtsson and Kock (2000) support this notion with

their findings that in three industries competitor relationships were competitive in activities close to

the customer and cooperative in nature where activities far from the customer were concerned.

They did however find that in some instances in those same organisations the cooperative and

competitive parts of their relationship were separated between different business units within each

organisation.

29

2.3.9 The role of third party organizations in coopetition management

Castaldo, Möllering, Gross and Zerbini (2010) explored engaging a third party outside of the dyad

in a coopetitive relationship in order to manage the relationship and deal with the dilemmas that

simultaneous cooperation and competition pose. The third party can range from government

agencies (Bailey, 1997; Baron, 1995, cited in Ma, 2004), neutral independent parties

(Brandenburger & Nalebuff, 1996; Hill, 1997) or influential local stakeholders (Doh, 2000). The

reason for involving an external stakeholder could be one or more of the following: the external

stakeholder is not in direct competitor (Moore, 1996, cited in Ma, 2004), the stakeholder is a non-

economic entity (Baron, 1995, cited in Ma, 2004) or the reason to engage the stakeholder are as a

results of a need for an informal relationship due to political, cultural or legislative reasons (Bailey,

1997; Kogut and Singh, 1988, cited in Ma 2004). Ma (2004) found that in some instances large

organisations could be disadvantaged by the involvement of a third party as government agencies

are often more sympathetic towards smaller and less advantaged firms.

The role of the third party would be to ensure that cooperation is not prevented by the entrenched

disciplines of competition between the role players as well as to generate some competition in

those relationships, which have become too cooperative to add value to both parties. In order to

present their findings they broke the interaction between competitors into stages or phases.

2.3.9.1 The agreement phase

Castaldo, Möllering, Gross and Zerbini (2010) believe this to be the most difficult phase. The

reason for this is that it in the initial engagement phase there has to be willingness for the parties to

open up and jointly manage certain of their core strategic objectives such as marketing, sales or

procurement (Cova & Salle, 2007). The concern is that while both parties may see the benefits,

they run the risk of incurring the following:

i) Exposing misaligned processes (Drupe 7 Grün, 2004; Grün & Shah, 2000, cited in Yami,

Castaldo, Dagnino 7 Le Roy, 2010, p149).

ii) Unbalanced outcomes and opportunistic behaviours on the part of the other party (Morgan,

Kaleka & Gooner, 2007; Zajak & Olsen, 1993, cited in Yami, Castaldo, Dagnino & Le Roy,

2010, p149).

Trust is a key component of any cooperative interaction (Ganesan, 1994; Morgan & Hunt, 1994,

cited in Yami, Castaldo, Dagnino & Le Roy, 2010, p150). Usually parties who wish to engage in a

coopetitive relationship have a certain amount of trust between them, which has been built at arm’s

length. When taking the relationship to the next level of closeness a different trust is required

(Lewicki, Tomlinson & Gillespie, 2006, cited in Yami, Castaldo, Dagnino & Le Roy, 2010, p150).

When trust is low at the arms length level, it is difficult to initiate the transformation of trust to one of

cooperation as a relational level. When issues are exposed during the agreement phase the trust

30

relationship can potentially be breeched and inhibit the parties collaborating (Castaldo, Möllering,

Gross & Zerbini 2010).

At times, a longstanding relationship can exist where there is an absence of distrust; however, this

is not the same as having a relationship of trust (Lewicki, McAllister & Bies, 1998, cited in Yami,

Castaldo, Dagnino & Le Roy, 2010, p150). Under such conditions where there is an absence of

trust a third party can intervene and bridge the trust gap. The third party acts as a mediator and

coordinates the activities of the two parties based on the trust that they have with the mediator

(Burt, 2000, cited in Yami, Castaldo, Dagnino & Le Roy, 2010, p151). Often parties prefer to work

with a third party they have worked with before (Lewicki and Bunker, 1996, cited in Yami, Castaldo,

Dagnino & Le Roy, 2010, p151). In a study conducted by Morgan and Hunt (1994, cited in Yami,

Castaldo, Dagnino & Le Roy, 2010, p151) a mediator assists the parties to overcome their initial

reluctance to collaborate, as it was expected by both parties to play the role of conflict manager.

2.3.9.2 The analytical phase

In the next step information sharing takes place. This enables the strategic analysis of the

information in order that the parties can determine how they are able to improve their existing

results. This is a critical stage as both parties are deemed to have market knowledge that is

considered sensitive by each party. In the analytical phase the coopetitive tension that exists

between cooperation and competition becomes tangible. The parties involved in the relationship

move from voicing their intentions to acting upon them and sharing information. Where there is

reluctance from either party to sharing information, the third party can bridge the gap between the

two parties Castaldo, Möllering, Gross and Zerbini (2010).

2.3.9.3 The strategic phase

During this phase there is a strong need for coordination between the parties in order to ensure

that they achieve their common interests (Zenor, 1994, cited in Yami, Castaldo, Dagnino & Le Roy,

2010, p155) considering the difference in their individual strategic goals (Dussart, 1998; Gruen &

Shah, 2000; Sa Vinhas & Anderson, 2005, cited in Yami, Castaldo, Dagnino & Le Roy, 2010,

p155). Castaldo, Möllering, Gross and Zerbini (2010) found that the third party brought the parties

together for strategic decision making, assisting them to analyse the options and to omit options

that would disadvantage any one party. The third party is able to act objectively when conducting

analyses of data and facts due to its impartiality in the process.

2.3.9.4 The implementation and review phase

During the implementation phase the third party plays a key role in ensuring that both parties

obtain the buy-in required from their own stakeholders for successful implementation Castaldo,

Möllering, Gross and Zerbini (published in Yami, Castaldo, Dagnino & Le Roy, 2010, p141). During

this phase it is important that the outcomes are reviewed objectively in order to ascertain whether

the parties have benefited from the coopetitive relations.

31

2.3.10 Critical factors for coopetition to succeed

Chin, Chan and Lam (2008) conducted a study on the factors, which made coopetition strategy

successful. They explored whether the hierarchy in Figure 2.8 was accurate. Their findings showed

the following to be the most crucial factors for the success of coopetition:

2.3.10.1 Management commitment

The level of management support of implementing coopetition. Without management support,

coopetition will not succeed. The way in which senior leaders create and sustain clear and visible

quality values, along with a management system, to guide an organisation’s coordinated activities

toward excellence (Ketchen 2004, cited in Chin, Cham & Lam, 2008). The vision, mission (Harland,

et al, 1999, cited in Chin, Cham & Lam, 2008), policy, strategy (Borders et al, 2001, cited in Chin,

Cham & Lam, 2008), and resource allocation (Bengtsson & Kock, 2000) must all be aligned in

order for coopetition to succeed (Chin, Cham & Lam, 2008). Organisational learning: this is key for

the strength of the relationship as it is the process of detection and correction of errors (Argyris &

Schon, 1978, cited in Chin, Cham & Lam, 2008). Organisational learning in a coopetition

relationship is critical and involves the willingness of both parties to acquire knowledge, distribute

information, interpret the information and rely on their organisational memory (Huber 1991, cited in

Chin, Cham & Lam, 2008).

32

Figure 2.8: Proposed hierarchy of critical factors for coopetition to succeed

Source: Chin, Chan & Lam (2008)

2.3.10.2 Leadership development of trust

Chin, Cham and Lam (2008) state that trust is an essential element for building a collaborative

relationship as it reduces conflict (Anderson & Narus, 1990, cited in Chin, Cham & Lam, 2008).

This is supported by Castaldo and Dagnino (2009) who explore in detail the role of trust in inter-

organisational coopetitive dynamics. Trust relationships can be divided into two key elements:

i) Defining common goals: common goals are required (Mohamed et al 2004, cited in Chin,

Cham & Lam, 2008) in order to align the differing goals of each organisation.

ii) Adopting mutual organisational culture: different organisations have different culture and in

coopetition it is important that there is mutual respect, understanding, acceptance, integrity

and tolerance (Chin, Cham & Lam, 2008).

33

2.3.10.3 Long-term commitment

This is vital as without long-term commitment the parties will not be willing to maintain the

partnership which they have entered into. They may not develop a willingness to adopt one

another’s strengths and weaknesses (Zineldin 2004, cited in Chin, Cham & Lam, 2008).By

engaging in a long-term agreement they work together to achieve their strategic objectives

(Drucker, 1996, Chin, Cham & Lam, 2008). Periodic review is also necessary in order to maintain

the long-term partnership (Chen, 2003, cited in Chin, Cham & Lam, 2008).

2.3.11 Using game theory to explain coopetition

The literature differentiates between two types of game theory. Rule based game theory requires

interaction between players based on a specific set of “rules which take the form of a contract, loan

agreement, trade agreement, to name a few. The second type of game is a freewheeling game

where players interact without any external constraints. The business world today is a complex

mixture of both types of games (Brandenburger & Nalebuff, 1995).

For rule based games, game theory utilises the principle that to every action there is a reaction.

For freewheeling games the principle of not taking more away from the game than was brought to

the game is the underlying principle. The “primary insight” of game theory is the allocentrism, or the

focus on others, which requires players to put themselves in the heads of the other players in the

game. Brandenburger and Nalebuff (1995) believe that business strategy is all about shaping the

game you play and not just playing the game you find yourself engaged in.

In an economic environment (game) each role player (player’s) primary concerns is how to obtain

maximum benefit for itself by obtaining the greatest share of the market. In a game where two

players participate, each player has three choices: 1.to cooperate, 2. to compete and 3. to

withdraw from the game. Various configurations of a game are possible as one player may choose

to cooperate whilst one competes (unilateral cooperation (UC)) or one player may choose to defect

whilst the other competes (unilateral defection (UD)). The players could also elect to adopt a

mutual cooperation (MC) strategy or a mutual defection strategy (MD). When one assumes that the

players have no knowledge of each other’s history of interaction in similar games and that each

player may not communicate its strategy to another play before the game, the payoff structure at

equilibrium is denoted as: UD>MC>MD>UC (Luce & Raiffa, 1957; Rappaport & Chammah, 1965,

cited in Lado, Boyd & Hanlon, 1997) One can conclude from this that in a one-period, two-player

game, a competitive strategy is more beneficial than a cooperative strategy.

However in a repeated game strategy, players may derive greater benefit and higher economic

rents through MC than either through UD or MC (Axelrod, 1981, cited in Lado, Boyd & Hanlon,

1997). In such a game one player starts cooperating with his or her counterpart and responded

symmetrically to the strategic moves of the other player (i.e. cooperatively to cooperatively and

competitively to competitively). According to Axelrod (1981, cited in Lado, Boyd & Hanlon, 1997)

34

this is a far superior strategy, which he labels tit for tat, as it emphasizes niceness, clarity of

communication of the rules of the game and the consequences of a player’s moves, revenge in the

case of inappropriate defection by one player, and forgiveness for acts of opportunism.

Game theory can be used by organisations in order to follow win-lose, win-win and lose-lose

strategies. Win-win strategies have a number of advantages. There are new opportunities to be

explored, there is less resistance between parties due to there being no need for one player to give

in to another, no retaliation is required to moves made by one player by the other player and lastly

imitation of win-win moves is beneficial. Coopetition requires the quest for both win-win and win-

lose opportunities (Brandenburger & Nalebuff, 1995).

In game theory it is necessary to explore the interdependencies in the game by drawing a sketch

called a Value Net. In order to do this one must identify all elements or parts of the game, namely

(1) players, (2) added values, (3) rules, (4) tactics and (5) scope. Players are the customers,

suppliers, ‘complementors’ and ‘substitutors’. Added values are what each player brings to the

game. Rules add structure to the game. Tactics are the moves that each player uses to shape the

game, affecting the other player’s perception of the game. Scope describes the boundaries of the

game. Successful business strategies function by assessing the parts of a game and then

adjusting them in order to gain more value. Changing the game is not easy and coopetition is a

form of game change. Therefore it is relevant to note the following advice outlined by

Brandenburger and Nalebuff (1995) for changing a game:

i) Players should be careful not to just accept the game they find themselves in; they should

challenge the status quo.

ii) Don’t think that changing the game has to come at the expense of others.

iii) Don’t think that in order to change the game you must find something to do that others can’t

do, as your actions are likely to be imitated and imitation can be healthy.

iv) Ensure that you consider the entire game before making changes.

v) Think methodically about the game change and don’t be egocentric, be allocentric.

vi) Changing the game is an ongoing process; there is no end to the game of changing the

game.

2.3.12 Coopetition in tourism

In tourism, it is evident that firms compete on a local level whilst cooperating on a destination level

in order to outperform other destinations (Pesämaa & Hair, 2007, 2008 cited in Yami, Castaldo,

Dagnino & Le Roy, 2010, 166). In tourism the advantages of coopetitive relationships are derived

from sharing information (Belleflamme & Neysen, 2006) as well as from marketing at destination

level (Grängsjö, 2003) whilst competing. In a study of 339 SME’s of which some were in the

tourism sector, Eikebrokk and Olsen (2005, cited in Rowe & Pease, no date) found the coopetition

had a positive effect on e-business success. Most tourism entities in South Africa fall into the

35

category of small and medium enterprises and Table 2.7 summarizes behaviour by SMEs worth

noting.

Table 2.7: Coopetition in small and medium sized enterprise (SMEs)

Cu

sto

mer

Do

min

ance

Wea

k

Coordination

Synergy-weak

Leverage weak

Ambiguous attitude to knowledge sharing

Repositioning

Synergy – strong

Leverage – strong

Ambiguous attitude to knowledge sharing

Str

on

g

Synergy – weak

Leverage – weak

Ambiguous attitude to knowledge sharing

Efficiency

Synergy – strong

Leverage – weak

Positive attitude to knowledge sharing

Collaboration

Cost focus Value Added

Strategic Focus

Source: Levy, Löbbecke & Powell, 2003, 3

Coopetition in tourism often features elements of social, ethical and environmental issues,

particularly in nature based tourism (Cohen, 1984; Huybers & Bennett, 2003 cited in Yami,

Castaldo, Dagnino & Le Roy, 2010, 167). One challenge is to balance short-term financial aspects

like customer needs with the long-term interest of trying to preserve sustainable practices

(especially environmentally). Tourism businesses are in part in competition with one another and

in part interdependent (Pesamaa & Eriksson, 2010).

The coopetition relationship, of cooperating at destination level whilst competing at local level is

vital for the long-term success of tourism firms (Pesamaa & Eriksson, 2010). (Park & Folkman,

1997) propose that coopetition is best achieved by establishing common goals, which can be

coordinated from one point. Pesamaa and Eriksson (2010) state that having goals coordinated

from the same point may possibly increase the likelihood that the goals of both parties will be

achieved. It is less likely that without a hierarchical body the goals will be achieved. This results in

companies competing at a destination level in order to better compete against other networks of

companies based in other destinations. This means that companies who would normally compete

cooperate to achieve both temporary and lasting goals. Brandenburger and Nalebuff (1996) use

the analogy of baking a cake. They claim there is cooperation when baking the cake (the

destination) and then competition when dividing the cake (attracting the tourists when they arrive at

the destination).

Pesamaa and Eriksson (2010) explore game theory and how this affects coopetition in tourism.

They draw conclusions that there is low awareness in tourism of the interdependence of the

players in the game. Their findings indicate that there is therefore incentive to coordinate activities

at a network level, thereby sustaining the structure of local competition at another level. Their

analogy is that Game theory can be used to explain to players that their decisions have an impact

36

on one another and each other’s decisions. They also believe that the “negative results of the

game situation can in reality be more positive, both through punishing a third party and by an

infinite length of game”.

2.4 COOPERATION

The literature on cooperation looks at cooperation between partners across networks, where

cooperation takes place for example between buyers and sellers, as well as cooperation between

competitors (Bengtsson & Kock, 1999; Hu & Korneliussen, 1997). Some of the cooperative

relationships between firms are informal like in the case of affiliations and others, like collaboration

are more formal (Selin, 1993). Cooperation between vertical partners in a relationship is more easy

to understand as the relationships are built on a distribution of resources through the supply chain.

Cooperation between vertical partners is however often more informal and less visible as they

mostly result in social exchanges and not economic exchanges like in vertical relationships

(Bengtsson & Kock, 2000). The terms alliances, affiliations, joint ventures and collaboration all

imply some form of cooperative relationship between two or more parties is present.

2.4.1 More formal types of cooperation

For the purpose of this study the more formal cooperative relationships, which exist amongst

competitors is of interest and therefore the literature review focuses on these.

2.4.1.1 Collaboration

Wood and Gray (1991) defines collaboration as a process “when a group of autonomous

stakeholders of a problem domain engage in an interactive process, using shared rules, norms and

structure, to act or decide on issues related to that domain”. Collaboration is deemed a more

formal process than cooperation (Huxham, 1996, cited in Thomson and Perry, 2006). The rationale

for inter-firm collaboration will change over time and may be linked to factors external to the

organisation itself (Solesvik & Westhead, 2010). Inter firm collaboration is found to provide

competitive advantage, protect jobs, create jobs and create wealth. Solesvik and Westhead (2010)

found in their study that in order to increase inter-firm collaboration practitioners should provide

more information, education and training, combined with examples of best practice of collaborative

agreements. They recommend that experienced firms with a track record for collaboration mentor

firms with no experience in this field.

2.4.1.2 Strategic alliances

Another form of or term for cooperation used commonly in business. The literature on strategic

alliances focuses on the cooperative aspects of the relationship between two competing firms. It

refers to a more formal, structured relationship between organisations (Terpstra & Simonin, 1993).

Witt and Moutinho (1989) define a strategic alliance as the organisational arrangements and

operating policies through which separate organisations share administrative authority and form

37

social links through more open ended contractual arrangements as opposed to very specific, arm’s

length contracts. They go on to say that, the principle underlying a strategic alliance is that of how

to obtain resources through partnership. Drucker (2008) gives examples of successful alliances

where organizations have reinvented themselves and have formed necessary alliances with

competitors. One example cited is that of Merck pharmaceuticals who diversified from making

drugs into wholesaling pharmaceutical products of all kinds, many of which are made by their

competitors.

Drucker (2008, p 457) outlines the five reasons that organisations enter into alliances:

i) To obtain new technology.

ii) To achieve genuine synergy between separate and independent companies.

iii) To get access to people with know-how.

iv) To perform basic supply activities which are integrated into the other company’s operations.

v) To extend the organisation’s geographic reach.

The reasons outlined by Drucker above are confirmed by the literature review conducted by

Bengtsson and Kock (2000) where they cite extracts from David and Slocom, 1992; Mason, 1993;

Flanagan, 1993; Berg, 1982; Hamel, 1989; Doz, 1988; and Prahalad, 1987.

Solesvik and Westhead (2010) add that firms seeking long-term alliances selected partners with

large amounts of capital and financial stability who could survive a potential market downturn, or

who could use their resources for expansion in an upturn.

In a commercial study conducted by Anslinger and Jenk (2004) they outline six guidelines to use in

order to create a successful alliance:

i) Develop clear, common objectives and definitions of success.

ii) Ensure proper alliance forms, which must either have a strong structure with centralised

leadership or must provide clear rules for decision-making. If the alliance is intended to be a

long-term relationship, a separate entity is recommended.

iii) Determine appropriate governance model with clear decision making.

iv) Anticipate the most likely conflicts such as investments, major acquisitions and other

alliances and changes in the environment and table how to deal with these up front.

v) Establish clear metrics to track and measure success continually.

Over and above, Harrigan (1988) and Killing (1982) highlight the distribution of power to be of

utmost importance in the success of an alliance, whilst Mason (1993) puts equity in risk and

contribution on the list of important factors.

There are different forms of complex alliances, which are identified in Anslinger and Jenk’s study

(2004). Their descriptions and views:

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i) Invasive alliances share a significant amount of technology, personnel and strategy. In order

for them to be successful, they need a high level of senior management involvement,

detailed objectives and an alliance audit system should be in place.

ii) Multi-functional alliances encompass multiple spots on the value chain, bringing together

various functions in a business e.g. development and marketing. These alliances risk having

a silo mentality and should be run at a vice-president level in order to be effective.

iii) Multi-project alliances exist where multiple alliances exist within a company to reduce

transactional costs and give partners a first look at one another’s products or first right of

refusal. In these instances a governing body to oversee the project is vital.

iv) Coopetition is a form of alliance and is the cooperation amongst competitors. Development

costs, expertise and transaction costs can be shared and significantly reduced. A tight

governance structure shall avoid a failure to cooperate and keep the focus on the benefits of

cooperation.

v) Networks should be avoided whenever possible, as they are not high performing business

models. Neither the network design, nor governance, nor management can be leveraged. In

simple terms a network strains senior management so a separate organisation should be

established in order to manage the network with a clear mandate for a cooperative

organisation.

Drucker (2008) explains that management plays a vital role in any alliance. Tatoglu (2000)

supports this view. Drucker portrays throughout his book how important the communication by

management is, particularly when it comes to looking after the interests of the alliance. Sometimes

it becomes necessary for the management of the alliance to stand up to the management of their

parent company, in favour of the alliance.

Drucker (2008) says that alliances are difficult due to there being no “boss” in an alliance. An

alliance is a partnership and a partnership implies equals by definition, explains Drucker. He

believes that the secret to managing an alliance successfully is to treat it as though it were a

marketing relationship, whereby each party considers the other as a customer in the relationship.

In this manner each party is forced to ask itself what the goals are of the alliance partner and what

value they seek to receive from the relationship. Drucker (2008) believes that once these factors

are understood and accepted, the alliance will work.

Drucker (2008) further states that often alliances start off well and they achieve success, but then

the partners have different views as to what to do with the product of the success. He points out

that it is vital to play out al scenarios prior to engaging in the alliance in order that the parties have

agrees prior to the offset, what the eventual outcomes may be. Included in such discussions are

points like:

i) Is the alliance a separate independent entity or autonomous relationship?

ii) What happens to the profits made from an alliance?

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iii) Who owns the patents or products developed by the alliance?

Bengtsson and Kock (2000) point out that the most challenging part of an alliance is possibly how

the competitors within the alliance can resist from acting in conflict with each other in order to get

the alliance to work. They further state that rivalry and conflict are seen as a threat to alliances,

adversely affecting their performance.

2.4.1.3 Joint Ventures

A joint venture is a special class of strategic alliance which involves a high degree of commitment

by the parties involved. It commonly involves two parties who form an alliance which keeps them

completely independent and separate of one another. The parties form a separate corporate entity

through a complex agreement which covers the ownership split, contributions from each party,

purpose, objectives, termination clauses and other legal objectives which both parties must fill.

Research shows that joint ventures where the management team comes from one of the parent

companies as opposed to from both are more likely to succeed (Hough, 2008).

2.4.2 Cooperation amongst competing organisations

In some literature cooperation amongst competitors is argued to be advantageous, in that

organisations resources and capabilities are combined and used collectively in competition with

others. In other literature, such as economic theory it is argued to hamper competition and as a

result of this anti-trust law is deemed necessary in order to guarantee healthy competition

(Bengtsson & Kock, 2000).

2.4.3 Causes of conflict in inter-competitor cooperation

Inter-competitor cooperation is different from other forms of inter-firm cooperation as competitors

often find it difficult to find a balance between sharing of knowledge and resources on the one hand

whilst preserving their own competitive advantage on the other (Tidström, 2009). As a result these

relationships are generally quite suspicious in nature. Many competitors start to cooperate because

they are forced to do so by economic or legislative circumstances (Bengtsson & Kock, 1999).

Studies by Bengtsson and Kock (1999), Easton (1990) and Easton and Araujo (1992, cited in

Tidström, 2009) looking at inter-competitor cooperation all talk about the differing levels of conflict

or competition in those relationships.

Tidström (2009) found that conflict amongst organisations engaged in cooperation could be as a

result of a number of factors. Some are relational in nature, others organisational and some

conflict. The organisational causes for conflict are either normative or operational; whereas the

relational causes are strategic or normative. External factors that influence conflict are suppliers,

salesmen, customers and political role players or partners.

On an organisational level the most common causes form inter-organisational conflict are

competition for scarce resources, desire for autonomy, goal divergence and perceptual

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incongruities (e.g. Kochan, et al, 1975; Perry and Levine, 1976; Pondy, 1967; Rosenberg & Stern,

1971, cited in Tidström, 2009).

2.4.4 Barriers to cooperation

Three main types of barriers to partnering were identified in the literature review conducted by

Eriksson and Nilsson (2008) in their study. Through their literature review they were able to identify

three main types of barriers, namely cultural (regarding people and their attitudes), organisational

(regarding the structures and history of the organisations involved) and industrial (regarding

industry specifics) (Post & Altman, 1995; Childerhouse, et al, 2003, cited Eriksson & Nilsson,

2008).

2.4.5 Formalising cooperative relationships between organisations

There are various forms of governing transactions between two firms, which Ring and Van de Ven

(1992) explore in detail. Their study looks at the relationship between trust and risk between the

parties and the governance structure they make use of to formalise their relationship. It can be

summarised as follows:

Table 2.8: A typology of governance structure

Risk of the deal

low high

Low

Reliance on trust Markets Hierarchy

Among the parties

High Recurrent contract Relational contract

Source: Ring & Van de Ven, 1992, p490

Explained more clearly

i) Low risk, low reliance on trust transactions will be governed by markets, all other things

being equal.

ii) High risk, low reliance on trust transactions will be governed by hierarchies, all other things

being equal.

iii) Low risk, high reliance on trust transactions will be governed by recurrent contracts, all other

things being equal.

iv) High risk, high reliance on trust transactions will be governed by relational contracts, all other

things being equal.

2.5 COMPETITION

Competition is described as the direct rivalry which develops between two organizations due to the

dependency that structural conditions within the industry give rise to (Bengtsson & Kock, 2000). It

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is a forced relationship and results in a form of mutual dependence between the parties engaged in

the relationship (Burke, Genn-Bash & Haines, 1988). Competitors often try to avoid interaction

(Bengtsson, 1998). The literature around competition is found in economic theory, and describes

competition as different structures within an industry (Bengtsson & Kock, 2000) Industrial

organisation theory explains competition in great detail, and includes the dependency that exists

between firms in imperfect markets. It introduces the concept of strategic groups (Caves & Porter,

1977; Porter, 1979; Harrigan, 1985 & Thomas, Venkatraman, 1988, cited in Bengtsson & Kock,

2000). Hunt (1972, cited in Bengtsson & Kock, 2000) analyses competitive rivalry on an

intermediate level, between industry and firm levels, highlighting the differences that exist within an

industry.

Intense competition is described as being beneficial. It is said to stimulate innovation by placing

pressure on the parties that are involved in the relationship (D’Aveni, 1994). The tool most

commonly used to analyse the competitive pressures in a market as well as to assess the strength

and importance of each is Porters Five Forces Model of Competition. The model states that the

state of competition in an industry is because of a combination of five factors in the overall market.

2.5.1 Porters Five Forces Model of Competition

The first factor the model considers is that of the pressure that arises from companies actively

competing with rival firms for their share of the market. This is done by manoeuvring within the

market and competing for a share of market, increased sales and competitive advantage. The

second is the threat of new entrants in the market; which is effectively the introduction of new rivals

into the market. The third factor is the pressure that possible substitute products place on

companies. Supplier bargaining power and supplier-seller collaboration is the fourth factor that

affects competition and fifth is the pressures that arise from buyer bargaining power and seller-

buyer collaboration (Hough, 2008).

2.5.1.1 Jockeying amongst rival sellers

Hough (2008) states that “the strongest of the five competitive forces is nearly always the market

manoeuvring and jockeying for buyer patronage that goes on among rival sellers of a product or

service”. Competition increases when competing sellers actively launch fresh actions in order to

boost their market share and business performance. One obvious indication of active rivalry is

price competition; another is the introduction of next generation products. Other indications of

active rivalry are:

i) The evidence of a race for product differentiation.

ii) The frequency of promotions, advertising campaigns and rebates.

iii) Strong efforts to pursue stronger dealer networks and establish positions in foreign markets.

iv) A strong effort to develop unique expertise and capabilities.

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Competition strengthens as the number of competitors increases and as competitors become more

equal is size and competence. Competition is usually stronger in slow growing markets, whilst it is

weaker in fast-growing markets. In some industries, there are so many competitors that the impact

of one company’s actions is spread so thinly across all industry members and therefore

competition is usually weak in such environments. Similarly, it can also be weak when there are

less than five competitor firms in an industry. Competition increases when buyer demand declines

and sellers are in a position where they have excess capacity or inventory. This can be

aggravated when it is less costly for buyers to switch brands due to low switching costs. (Hough,

2008)

When the products of rival competitors are more standardised competition increases. In contrast

as the products of industry rivals becomes more strongly differentiated rivalry decreases.

Sometimes it can transpire that industry conditions tempt competitors to adopt a volume based

strategy, using price cuts in an attempt to drive volume (Hough, 2008).

When one or more competitors are unhappy with their market position they can be known to

launch aggressive attacks in order to improve their position at the expense of their rivals. “Rivalry

becomes more volatile and unpredictable as the diversity of competitors increases in terms of

vision, strategic intents, objectives, strategies, resources, and countries of origin” (Hough, 2008).

Rivalry increases when strong companies from outside of the industry acquire weak companies

from within the industry. They then launch strong attacks in order to transform their newly acquired

subsidiaries into major players in the market. It is common that a successful competitive strategy

employed by one company will intensify the competitive pressure on all other companies in the

industry to perform and develop effective strategies in response (Hough, 2008).

2.5.1.2 The threat of new entrants

The threat of new entrants into a market is a relevant factor in any market as there is the potential

that it will dilute the market share for other players in that market. The size of the threat is

dependent on the size of the pool of likely entry candidates as well as the resources that they have

available to them. The bigger the pool of entry candidates, the stronger the threat is to existing

players in the market that a new player will enter the market; and the bigger the threat is when they

have resources available to them. Often it is players who are within the industry that pose the

biggest threat when they decide to enter into a new market. They have expertise and experience

gained in other markets to survive the challenges that a new market or segment presents them

(Hough, 2008).

High entry barriers reduce the competitive threat of potential entry while low barriers of entry make

it more likely. Barriers to entry change as the market changes and along with this the risk of new

entrants likely changes. According to Hough (2008) the most common barriers to entry include:

i) The presence of economies of scale in production or other operational areas.

ii) Cost and resource disadvantages that are not related to the scale of the operation.

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iii) Strong brand preferences and high degrees of customer loyalty.

iv) High capital requirements i.e. the higher the capital outlay required to enter a new market,

the smaller the pool of potential entrants.

v) The level of difficulty to build a network of distributors or retailers.

vi) Restrictive regulatory policies.

vii) Tariffs and international trade restrictions.

viii) The tendency of existing players in industry to try and block newcomers’ entry into the

market.

2.5.1.3 Substitute products

Companies in one industry can come under pressure when buyers view a product in another

industry as a product that is a suitable substitute. Examples of this are the sugar industry that

competes with artificial sweeteners, and newspapers competing with television news. The strength

of this competition depends on three factors:

i) Whether substitutes are readily available and priced attractively.

ii) Whether buyers view substitutes as being comparable or better in quality and other important

or relevant characteristics.

iii) Whether the switching costs incurred by changing from one product to the other are high or

low.

As a rule, the lower the price of a substitute product, the higher its quality or performance, and the

lower the switching costs, the more substantial the competitive pressure is (Hough, 2008).

2.5.1.4 Supplier bargaining power and supplier-seller collaboration

When the major suppliers to an industry have considerable leverage in determining the terms and

conditions according to which they supply a product, they are in a position to exert pressure on

rival sellers. If an item is not readily available from another supplier at the relevant market price

then the supplier is in a position to exercise its bargaining power. It also has leveraging power

under the following conditions:

i) When a few large suppliers are the primary sources of particular items.

ii) When it is difficult or expensive for purchasers to procure their product from another supplier

or to switch to an alternate or substitute product.

iii) Whether certain required products are in short supply.

iv) Whether the supplier provides a differentiated product that enhances the quality and/or

performance of the end product.

v) Whether the supplier provides equipment or services that deliver valuable financial

efficiencies.

vi) Whether suppliers provide an item which is a large cost component of an industry’s product.

vii) Whether the industry members are major suppliers or customers.

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viii) Whether it make sense for industry members to in source the production of items or provision

of services which have been outsourced.

In multiple industries, sellers are forming relationships with suppliers. This is done in order to

reduce inventory and logistics costs, speed up the availability of next generation products, enhance

the quality of parts and components being supplied and reduce defect rates, and to effect costs

savings which can be shared between the supplier and the seller. When collaborative relationships

between a seller and a supplier are mutually beneficial, the level of bargaining power reduces

(Hough, 2008).

2.5.1.5 Buyer bargaining power and seller-buyer collaboration

Whether or not seller-buyer relationships pose as a strong competitive force depends on whether

some or many buyers are able to leverage their bargaining power in order to reduce their costs, as

well as on the importance of seller-buyer strategic partnerships in the industry. Buyers can gain a

degree of bargaining power under the following circumstances:

i) If buyer’s costs of switching to competing brands or substitutes is low.

ii) If the number of buyers is small or if a customer is particularly important to a seller.

iii) If buyer demand is weak and sellers are fighting to secure additional sales of their product.

iv) If buyers are well informed about the seller’s prices, products and costs.

v) If buyers pose a threat of integrating backwards into the business of the sellers.

vi) If buyers are prudent about whether and when they purchase a product.

Seller-buyer collaboration can cause pressure in business-to-business relationships. Many

collaborate on matters such as JIT (just in time) delivery, order processing and data sharing

(Hough, 2008).

2.5.2 Driving Forces

The driving forces in any market are the most powerful change agents because they have the

biggest impact and influence on altering competitive conditions. Many issues can impact an

industry powerfully enough to qualify as driving forces, but most of the driving forces in an industry

would fall into one of the following categories:

i) Emerging new internet capabilities and applications.

ii) Increasing globalization.

iii) Changes in an industry’s long-term growth rate.

iv) Changes in who buys a product and how they use it.

v) Product innovation.

vi) Technological change and manufacturing process innovation.

vii) Marketing innovation.

viii) Entry or exit of major firms.

ix) Diffusion of technical expertise across more companies or countries.

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x) Changes in cost and efficiency.

xi) Growing buyer preferences for differentiated products instead of a commodity product.

xii) Reductions in uncertainty and business risk.

xiii) Regulatory influences and government policy changes.

xiv) Changing societal concerns, attitudes, and lifestyles.

(Hough, 2008)

Traditionally not more than three to four forces of change are powerful enough to play a major role

in an industry at any given time (Hough, 2008, p 85). In order to ascertain the impact of a driver on

an industry one needs to ascertain the following about a driver:

i) Are the driving forces collectively acting to increase the demand for a product?

ii) Are the driving forces making the competition more or less intense?

iii) Are the driving forces contributing to lower or higher profitability in the industry?

(Hough, 2008)

2.6 BUSINESS NETWORKS

Hâkansson and Snehota (1995) explore relationships in markets as a concept. Business

relationships between two companies are viewed as both relationships which are built in isolation,

independently of the broader context, or as relationships which are part of a broader context. The

broader context is referred to as the network.

When one considers relationships to be part of a network, one does not only look at the

relationships between the parties, but also looks at what role the other parties in the network

played in the formation of a specific relationship (Hâkansson & Snehota, 1995). . In networks sub-

networks often form to connect the organisations.

2.6.1 The substance of business relationships

Hâkansson and Snehota (1995) analyse relationships within a business network on three different

layers. They claim that actors, activities and resources (Hâkansson, 1987) are the key factors in a

business network. In some relationships all three factors are present and in others only two are

required. The three layers are not independent; there is an interplay between each layer (Figure

2.9)

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Figure 2.9: Interplay of the three substance layers of business relationships

Source: Hâkansson & Snehota, 1995, 48

2.6.1.1 Activity links

Activities and resources are closely related and are of importance for cooperation and competition

on an activity level (Bengtsson, Hinttu & Kock, 2003). By focusing on activities rather than

organisations it is possible to incorporate a multitude of interactions between organisations,

illustrating that firms in a network compete in one activity and cooperate in another (Hâkansson &

Snehota, 1995). The manner in which they interact is referred to as their activity structure

(Hâkansson & Snehota, 1995) and this unique linking of activities can create a unique

performance. This unique performance can in turn have an impact on the entire network.

The relationships are perceived to connect to activities and not organisations. Richardson (1972)

uses the coordination of activities as a model to explain inter-organisational relationships and

divides activities into complementary activities (which constitute the phases of a production

process) and similar activities (constituted by activities that require similar capabilities and

resources).

2.6.1.2 Resource ties

Resources are an important aspect of the interactions amongst competitors and sometimes explain

why an activity is performed in cooperation or competition between two firms. An organisations

resources can vary: manpower, equipment, plant, knowledge, image and financial means can

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contribute to the sustainability of the organisation’s activities (Hâkansson & Snehota, 1995) The

combining of resources can create new resources or capabilities (Owusu, 2003, cited in

Bengtsson, Hintuu & Kock, 2003). The availability of resources can provide opportunities as well as

place constraints on the activities that can be undertaken by an organisation (Hâkansson and

Snehota, 1995). Resources can be categorised as homogenous and heterogeneous (Alchiam &

Demsetz, 1972).

2.6.1.3 Actor bonds

‘Actors’ is the third layer of a business network relationship. A relationship between two

organisations is similar to a relationship between two persons, and these bonds can affect the

manner in which they interpret situations (Hâkansson & Snehota, 1995). Bengtsson and Kock

(1996, 1999, 2000; Bengtsson, Hintuu & Kock, 2003) claim that organisations play different roles

depending on the available resources and activities that are being performed. They claim that

organisations as such are not the actors; but that the individuals or groups of individuals within

organisations are in fact the actors, performing different roles. The role of an actor can vary and at

times the roles of one actor can be quite multidimensional; varying according to the resource or

activity involved, as well as the horizontal or vertical nature of the relationship. The interactive

behaviour of either of the parties depends also on the relationships, which they are involved

(Hâkansson & Snehota, 1995)

2.6.2 Functions of business relationships

There are various functions for the relationships between different companies:

2.6.2.1 The dyad

A junction between two companies, where a business relationship develops as two companies

establish connections in the activity resource and actor layers (Figure 2.10). Collectively their

bonds form a team effect (Alchiam & Demsetz, 1972, cited in Hâkansson & Snehota, 1995).

Figure 2.10: Dyadic function of a business relationship

Source: Hâkansson & Snehota, 1995, 50

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2.6.2.2 The single actor function

The impact of each relationship that a company enters into affects the performance potential of

that company buy affecting its activity structure, the collection of resources it can use and the

organisational structure (Hâkansson & Snehota, 1995).

Figure 2.11: Single actor function of a relationship

Source: Hâkansson & Snehota, 1995, 51

2.6.2.3 The network function

As relationships are connected, any change in a relationship may affect other relationships and

therefore other organisations other than the two involved in the relationship (Hâkansson &

Snehota, 1995).

Figure 2.12: Network function of a relationship

Source: Hâkansson & Snehota, 1995, 53

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2.6.3 Relationships between business networks

Caves and Porter (1977) point out that competition within strategic groups is less intensive than

between the strategic groups. It therefore follows that this would be the case between networks;

resulting in parties within a network avoiding rivalry due to a desire to achieve collective objectives

and a better understanding of the mutual dependency that exists between the parties. Porter

(1979) suggests that organisational rivalry in networks increases as the strategic distance between

the organisations increases. Kwoka and Ravenscraft (1986) disagree, stating that inter-firm rivalry

can be intense even if the firms are very similar in their conduct. They also state that rivalry is often

very intense amongst firms that are equal in size, even though they are members of the same

strategic group.

2.6.4 Relationships between competitors in business networks

Various types of relationships exist between parties in a business network. This study shall focus

on the horizontal relationships only. One the one hand parties compete and on the other they

cooperate. They must compete for the network to be effective (Hammarkvist et al, 1982, cited in

Bengtsson & Kock, 1999). The relationships include mutuality and harmony; even if the parties do

not have a mutual interest to interact (Bengtsson & Kock, 1999). There are four types of

relationships within networks, namely coexistence, cooperation, competition and coopetition. As

the literature review focuses in detail on the latter three, we shall at this point detail coexistence.

In coexistence, the relationship between the parties in a network does not include any economic

exchange; it is merely an information and social exchange. There are no bonds present between

the parties and the competitors know each other but do not interact with each other. Power is

derived from one company’s dominant position over that of another, resulting in dependence of

smaller companies on the larger ones. There is distance between the competitors, which is

resultant from psychological factors. Trust is high but informal as one company depends on the

other not interfering with that company. Each competitor states its goals independently and no

rules of the game are discussed (Bengtsson & Kock, 1999).

Where cooperation is present in networks there are frequent exchanges between parties. In the

instance of competition an action-reaction pattern arises between the competitors in the network.

Coopetition includes both economic and non-economic exchanges. Cooperative power aligns to

value chain activities whereas on the competitive side of the relationship it is based on the actor’s

position and strength. When cooperating, the parties enter into a formal agreement, whilst at the

same time competing in strength and position within the network (Bengtsson & Kock, 1999).

2.6.5 Factors affecting relationships

The formation and nature of the relationships that form within a network will depend on a number

of factors, detailed in the scenarios below:

i) A firm with strong position and no need for external resources will focus on competition.

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ii) A firm that needs resources and is weaker than its competition will favour cooperation.

iii) A firm with a strong position which lacks resources will favour a coopetitive approach.

iv) A firm in a weak position in the network compared to its competitors who is not interested in

cooperation will try to establish a relationship based on coexistence.

(Bengtsson & Kock, 1999)

2.6.6 Impacts of change in business networks

Change in business networks can be caused by both exogenous and endogenous factors.

Exogenous factors such as changes in general economic conditions, social, technological and

cultural developments will create new basic conditions. Actors will adapt to these changes and will

initiate changes in their own relationships. Business relationships in a network should never be

perceived to be in equilibrium as there will be constant change (Hâkansson & Snehota, 1995).

Structural changes in business networks is continuous; thousands of small and large changes

occur each day

2.6.7 Networks in tourism marketing

In strategic networks, the emphasis is often on the importance of the network itself in successfully

marketing the destination. When this is the case the individual businesses or organizations only

become important in understanding how and why each organisation contributes to the overall

implementation of the destination marketing service (Wang & Krakover, 2008).

In Grängsjö and Gummeson’s study (2005) they explore the case study of a hotel group in Sweden

that successfully utilises a local horizontal network in order to take care of the common marketing

of the destination and to increase the number of guests nights as well as to provide further

education for their employees. In this study, the employees are encouraged to frequent one

another’s properties and to support each other’s establishments. Each individual hotel conducts its

individual marketing as well as common marketing. The hotels meet monthly and share information

regularly. Through their corroboration, the destination showed an increase in business versus the

overall trend in their country of a decrease.

There are various factors, which contribute to the success of a network. Strategic thinking is one of

them; whether an organisation’s leadership has a micro or macro strategic view. The micro view

considers only the firm itself whereas the macro view considers the region. The realisation that the

businesses in the destination are less in competition with one another than they are with other

regions must be prevalent in order to ensure that they focus on drawing people to the region.

Once the people are attracted to the region the competitive edge set in, but before that the view is

a collective one. The maturity of the destination marketing approach is vital in that the more mature

the approach, the more likely a cooperative mindset is, although competition will still exist (Wang &

Krakover, 2008).

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Government plays a very important role in Tourism. Elliot (1997) states that governments are “a

fact in tourism and in the modern world”. He believes that the tourism industry would not survive

without government. Government plays a role in tourism and destination management on a

national, state and local level.

WTO (1979) refers to the term national tourism administration (NTA) as “the body that has

authority over tourism at a national level”. The term STO or state tourism office is “the organisation

with the overall responsibility for marketing a state, province or territory”. The regional tourism

office RTO “is the organisation responsible for marketing a concentrated tourism area as a tourism

destination”. Examples of this in South Africa are SA Tourism which is supervised by National

Government, Cape Town Tourism which is overseen by Western Cape, and smaller regional

organisations like Franschhoek Tourism which fall under their local governing body, Stellenbosch

Municipality.

Pike (2008: location 1017) states that although many entrepreneurs have been successful in

stimulating cooperative destination promotions, they have rarely been effective without government

intervention. Many examples are sighted of government intervention which has contributed

positively to the success of tourism in the form of security, stimulation of increased affluence and

leisure time and infrastructure development. Pike (2008: location 1254) shares research from Bull

(1995) where experience warns that the intervention of government in tourism can sometimes have

negative impacts. It can distort markets and allocate resources to projects, which ordinarily would

not survive. When government changes its focus, these markets collapse due to the unsustainable

tourism model. Bull (1995) also argues that sometimes governments unintentionally subsidise

international tourists through their strategies (Pike, 2008: location 1267).

2.7 DESTINATION MARKETING

Most tourism activity takes place in destinations and therefore destinations have emerged as a

primary unit of analysis by the World Trade Organisation (Pike, 2008: location 105). A destination

is a geographical space where groups of tourism resources exist (Pike, 2008: location 376).

Destinations create demand by attracting people for a temporary stay. They may take the form of a

continent, country, state, province, village or resort (Pike, 2008: location 382).

WTO (2002) offers the following definition for a tourism destination: “A local tourism destination is a

physical space in which a visitor spends at least one overnight. It includes tourism products such

as support services and attractions and tourism resources within one days return travel time. It has

physical and administrative boundaries defining its management, and images and perceptions

defining its market competitiveness. Local destinations incorporate various stakeholders, often

including a host community, and can nest and network to form larger destinations”.

Destination marketers sell places (Pike, 2008). Recognition by tourism destinations or communities

of a need to work together in a more organised manner, fostering a “cooperate to compete

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approach” (Pike, 2008: location 492) to achieve competitiveness over other destinations has led to

the increased number of DMO’s. The first DMOs emerged in the 19th century (Pike, 2008: location

496). Based on his research Pike (2008: location 573) proposes that due to the multidimensional

nature of destination competitiveness, that it is unlikely that a destination could ever sustain itself

and its competitiveness without effective organisation.

The most common forms of relationships found in the tourism sector are those of an informal

nature whereby either an alliance through the existence of a tourism organization or a marketing

alliance is formed informally or using a local destination marketing organisation (Prideaux &

Cooper, 2002; Wang & Fesenmaier, 2007; Wang & Xiang, 2007). It distributes customers to a

service production site (Grängsjö & Gummesson, 2005). Many destination marketing organisations

take the form of public-private partnerships where government work together with the private

sector, utilising government funds and private sector expertise (Pike, 2008: location 1017).

Grängsjö and Gummesson (2005) describe in detail the three kinds of balancing acts, which they

uncovered amongst parties who participated in destination marketing initiatives. The balancing

between the collective and the individual; the feeling that they had a common objective had

inspired a spontaneous cooperation between the hotel managers and the local government. They

decided to work together in order to increase the number of visitors to the destination in order to

enhance the revenue of their individual hotels. They gained the support of local government. It

was evident in the study that the members prioritised activities that lead to the fulfilment of both the

collective and the individual goals. The second balancing act was that between cooperation and

competition. The individual hotels compete through their specific offering and yet they are shown

to cooperate for the good of the destination. The third balancing act is that of intention and action

where the hotels in the group achieved successful results by acting on their intentions (Grängsjö &

Gummesson, 2005).

Wang and Krakover (2008) ascertained that tourism businesses who were involved in coopetition

were involved on the one hand in a competitive relationship due to conflicting interests and on the

other hand cooperation due to common interests. Their study further revealed that the participants

in their study focused more on the cooperative relationships than they did on the competitive ones

where destination marketing was concerned.

Wang and Krakover (2008) further confirmed that the cooperative relationships of destination

marketing exist at different levels with different forms. They range from loose arrangements to

formal relationships. In a table adapted from Watkins and Bell (2002), Wang and Krakover (2008)

illustrate that destination marketing has four stages of maturity. In its very low state of maturity the

participating organisations practice something one would term affiliation, where they support one

another through an exchange of information.

In the second step of maturity they talk about the use of coordination whereby individual

businesses pursue their goals through coordinating activities with other businesses (otherwise

53

known as coopetition). In this phase the business’s own self interest is aligned to that of the

others. In phase 3 of maturity they refer to collaboration, which is the term used to describe the

securing of long-term business advantage through developing joint strategies toward shared

purposes. In phase 4, a highly mature form of destination marketing strategic networks are formed,

striving to achieve long-term shared vision and strategy for the destination at large. Phases 3 and

4 are also known as cooperation.

In their study Wang and Krakover (2008) confirm that affiliation is the most informal of linkages and

therefore the most easily used. It reflects an initial level of trust and it is found that such

relationships are best maintained on a person-to-person basis rather than an organisation-to-

organisation basis. Coordination on the other hand allows autonomous tourism organisations to

align their activities to support events or services by implementing common tasks. The integration

of staff or activities is minimal and tied to the accomplishment of specific tasks. Policies and

procedures are kept informal at this stage. Typical examples of coordinative relationships in

destinations are fairs and events. Other such activities may include two tourism organisations

sharing information about programmes and activities.

In a collaborative relationship, tourism organisations need to go beyond coordinating their

operations around a specific event or goal, they may need to develop a joint strategy. This is the

stage of destination marketing at which each party wants to not only help themselves, but also

wants to see their partners succeed to. At this point a tourism organisation would develop a formal

plan for working together on a regular basis (Wang & Krakover, 2008).

The dominance of either cooperation or competition amongst tourism stakeholders in a destination

is affected by the fact that the individual partners have differing norms and values, which affects

their sense of community feeling. It further influences their relationships with stakeholders, the

business models they adopt and their strategic thinking (Wang & Krakover, 2008).

Destination Marketing Organisations (DMOs) are concerned with the sale of a destination.

Research contributions to destination marketing (Ashworth & Goodal, 1995), the promotion of

places (Ashworth & Voogd, 1990; Gold & Ward, 1994) and destination branding (Morgan, Pritchard

& Pride, 2004) have been made over time. A large amount of information about destination

marketing has been published in academic tourism journals. It explores their roles, structures and

the manner in which they position a destination.

2.7.1 Structuring a Destination Marketing Organisation

Pike (2008: location 133) debates how a DMO should be structured; whether they should be fast

moving entrepreneurial style organisations or more consultative and conservative. Some take the

form of being public sector organisations and others are a public and private sector partnership.

54

2.7.2 Funding a DMO

DMOs traditionally generate revenue and fund their activities from accommodation taxes levied to

their members, taxes paid by businesses in the region, member subscriptions paid by members of

the DMO, commercial activities like events, fairs and markets, cooperative campaigns and

government grants (Pike, 2008: location 927).

Most of the funding is received from members or member initiatives. This revenue is highly reliant

upon the perceived value of joining the DMO. The value of joining the DMO will depend on the

potential member’s ability to pay membership dues, their belief about tourism and destination

marketing, the level of perceived importance about the costs and benefits of membership (Pike,

2008: location 969).

2.7.3 Key duties of a DMO

Destination marketing organisations carry a number of important responsibilities. Their key roles

include:

2.7.3.1 Developing marketing plans

Developing detailed plans to market the region, developing the means of implementing, monitoring

and reviewing these plans and strategies.

2.7.3.2 Marketing the region

Marketing the region internationally to potential visitors and tourists, including promoting and

coordinating the development of parks, holiday resorts, scenic reserves and recreational, business

and tourist facilities and activities.

2.7.3.3 Events and conventions

Establishing, maintaining and marketing the region as a premier venue for events and conventions.

In addition to this creating events, which market the destination and everything it has to offer.

2.7.3.4 Visitor information services

Operating visitor information and entertainment services to ensure visitors and tourists are

welcomed and given information and assistance.

2.7.3.5 Reservation services

Providing a reservation service for accommodation, travel and tour services within the region.

2.7.3.6 Information on resources

Researching, publishing, and disseminating information on the resources of the region in order to

encourage and promote the development, coordination and marketing of commercial, industrial,

communication, transportation, recreational and educational interests, services and facilities

conducive to tourism.

55

2.7.3.7 Coordinating marketing

Coordinating joint venture marketing campaigns with the private sector and publicly funded

regional tourism organisations in order to raise the profile of the region and to contribute to its

sustainable tourism growth.

2.7.3.8 Statistical information

Researching and recording statistical information on tourism and monitoring visitor numbers in

order to provide forecasts of visitor numbers and visitor research information for the region.

(Pike, 2008: location 1313)

2.8 SUMMARY

This chapter has provided a thorough overview of the literature covering cooperation theory and

related topics. It gives insights into coopetition, behaviour between organisations, network

structures and destination marketing. This form a sound base in order to ensure that this research

report may make a valuable contribution to coopetition theory.

56

CHAPTER 3

RESEARCH METHODOLOGY

3.1 INTRODUCTION

This research made use of qualitative research methods and is a case study of six hotels in Cape

Town and their behaviour and interactions with one another and other hotels in South Africa. This

method was chosen due to the exploratory nature of the study (Yin, 1989)

3.2 THE POPULATION AND SAMPLE

The sample population was selected using purposive or judgemental sampling (Saunders, Lewis &

Thornhill, 1997). This is also known as theoretical sampling (Eisenhardt, 1989). Due to the writer

having an in-depth knowledge of the tourism industry in South Africa and Cape Town, and the

challenges that currently face them, a group of five-star hotels in Cape Town were selected as the

population. These hotels face the challenge of a large oversupply of inventory and decreased

occupancies.

Five-star luxury hotels are the biggest contributors to the SA economy (PWC, 2011) and therefore

their sustainability is of importance to the country as they are a large provider of employment.

There are a number of hotels in Cape Town, which call themselves five-star but they are not

officially graded. They can be identified through their affiliation to Relais and Châteaux, Leading

Hotels of the World, Virtuoso and other global luxury hotel brands, who represent the highest

international standards in luxury travel. This study focuses on hotels in these groupings as well as

officially graded hotels.

Figure 3.1: Selection of Population

57

3.2.1 The case selection

The initial case selection was done according to an analysis of the hotels by looking at their

characteristics and attempting to make a selection based on various characteristics such as size,

ownership, etc. The sample slection was not random, but reflected the selection of a specific case

in order to identify polar types (Eisenhardt, 1989).

Initially the population was analysed in detail (Appendix A) in order to select the sample. The

hotels were divided according to two criteria: size and geographic location. The size criteria used

were small (1-40 bedrooms), medium (41 to 140 bedrooms) and large (141 and more bedrooms).

They were categorised into three greater regions within the City of Cape Town: those in the City

Bowl & surrounds, the Atlantic Seaboard, and lastly the more suburban areas of Cape Town, which

the study termed Remote.

The total population consists of twenty-six hotels and the Figures 3.2 to 3.4 below reflect the

demographics of the population:

Figure 3.2: Sizes of Hotels in Population

Figure 3.3: Market of Hotels

58

Figure 3.4: Geographic location of Hotels

Eighty one percent (81%) of hotels in the City of Cape Town focus their core strategy on the leisure

traveller. Also eighty one percent (81%) of hotels in the City of Cape Town fall in the small and

medium categories in size. There is only one hotel in the large hotel category that is a leisure hotel.

Of the overall population fifty four percent (54%) are located within the City Bowl and surrounds,

which includes the Waterfront and Green Point. Nineteen percent (19%) are located on the Atlantic

Seaboard and twenty seven percent (27%) are in Remote locations..

This method of statistical analysis did not prove to be successful due to an unwillingness to

cooperate on the part of the management of some of the hotels selected in the initial statistical

analysis. The writer therefore elected to contact hoteliers within the population with which the writer

has a better relationship and was therefore guaranteed of cooperation. This provided the

opportunity for a case study which facilitated the collection of a great deal of data (Bengtsson and

Kock, 2000) and an opportunity to extend the theory due to the quality of the data collected

(Eisenhardt, 1998).

Figure 3.1 represents the demographics of the case sample selected as a proportion of the total

population. This sample is by no means an accurate representation of the overall population of five

star hotels in the City of Cape Town as the case was selected purely based on personal

relationships.

59

Figure 3.1: Demographics of sample relative to population demographics

3.3 THE QUESTIONNAIRE DESIGN

The research makes use of two styles of questionnaire. The majority of the data was collected by

using a combination of loose and tight questions (Thomas, 2003). The interview flow was prepared

prior to the interviews in order to ensure that the researcher would cover all questions laid out in

Chapter 1. By asking broad, open ended questions the researcher was able to gather large

amounts of data which assisted the researcher to better understand the exact circumstances that

candidate and its business are faced with (Saunders, Lewis & Thornhill, 1997). Where the

researcher required more specific information after posing the broad questions, the interviewer was

able to pose more focused questions (Saunders, Lewis & Thornhill, 1997).

In order to assist the researcher to better understand the competitor set of the candidates as well

as the challenges they face a short tick questionnaire was compiled. This was a self-administered

questionnaire (Saunders, Lewis & Thornhill, 1997) which was sent to all candidates prior to

interviewing each. This questionnaire required candidates to select their main competitors from a

list of five-star hotels in the City of Cape Town. It further required them to identify specific areas in

which they believed to compete with each of the hotels identified. These criteria include price,

product, brand, market and cost factors, covering a broad spectrum of competitor dynamics. This

questionnaire also required candidates to identify what the 5 biggest challenges were that their

organisation faced and to rate them from 1 to 5 with 1 being the most challenging.

3.4 DATA COLLECTION

Data was collected by using a combination of qualitative interviews and quantitative

questionnaires. Using a combination of methods provides researchers with synergistic results; the

combination assists researchers to validate qualitative results with the quantitative results and

bolster findings (Jick, 1979). Mintzberg (1979) states “We uncover all kinds of relationships in our

hard data, but it is only through the use of this soft data that we are able to explain them”.

Interviews were conducted with five senior incumbents in six hotels. In three instances the

interviews were conducted with the executive management of the hotels and in two instances with

60

their second in command. Some of the interviews were conducted in person and others were

conducted using Skype technology. All interviews were recorded and due to the time consuming

nature of transcription (Saunders, Lewis and Thornhill, 1997)a typist was appointed to transcribe

the interviews for analysis.

Prior to the interviews being conducted all participants were sent a short introduction to the study

and to the concept of coopetition in order to prepare themselves. They were also sent the tick-style

questionnaire which one candidate did not complete, one candidate completed and returned prior

to the interview and three candidates completed and communicated the results of during the

interview. The one candidate who did not complete the questionnaire is a representative for two of

the hotels in the sample. The tick questionnaire was very helpful and assisted the researcher to

better understand the competitor sets of the hotels, and assisted in enabling a more equitable

comparison of the hotels in the sample.

During the interviews the researcher fluctuated between general, open questions and more

specific, probing questions (Saunders, Lewis and Thornhill, 1997). By sending the questionnaires

to the candidates prior to the interviews four were well prepared and had a clear understanding of

the subject coopetition as well as the line of questioning. Each candidate had ample time to

consider the attributes of their competitor set and the tick questionnaire is believed to have

assisted with the duration of the interviews as the majority of thinking was done prior to the

interview. The candidates therefore had ample time to consider and formulate opinions. All except

for one candidate seem well prepared. Interesting to note was that the candidate who was ill

prepared holds the most junior role within his organisation of all candidates interviewed.

The researcher found no difference in the quality of the information received in the Skype

interviews versus that received in personal interviews. The differentiation of quality seemed to stem

more from seniority of roles. The more senior candidates appear to have a clearer understanding

of the overall strategic landscape and a broader overview of their operation. Over and above the

hotels in the sample, attempts were made to interview additional candidates from other hotels in

the population. These attempts were unsuccessful due to the unavailability or unwillingness of the

prospective individuals to participate in the study.

The researcher noted that due to an in-depth knowledge of the industry and good relationships

with the parties interviewed, the interviews were difficult to focus and therefore they often

digressed onto topics of interest. Some of the questions designed for the interview, were also not

posed in that form as much of the information was gathered through informal conversation due to

the interviewer’s knowledge of each candidate’s business. This could cause bias in the study as at

times only selective information may have been gathered.

61

3.5 DATA ANALYSIS

Two methods of data analysis were adopted as the data from the checklists was treated differently

to the data collected in the interviews.

3.5.1 Checklist data

All checklists received were correlated into one excel spreadsheet and then analysed into separate

tables in order to ascertain if patterns exist in the data. The data was arranged as listed below in

chronological order of analysis:

i) Elimination of hotels from the competitor set: analysis of the results in order to eliminate

hotels that do not form part of the competitor set.

ii) Analysis of results for patterns relating to size of hotels: by correlating the data in a table it

was possible to identify patterns that exist between hotels of similar size.

iii) Analysis of results for patterns relating to geographic location of hotels: by correlating the

data in a table it was possible to identify patterns that exist between hotels of similar size.

iv) Analysis of key competitive factors: correlation of the data in order to ascertain the most

important areas the sample hotels compete with other hotels in.

v) Analysis if key challenges: correlation of the data in order to ascertain the main challenges

hotels face, and to further ascertain if there are patterns relative to their size, location or

shareholding.

The analysis of the data was done using simple Excel spreadsheets and making us of the following

formulas in Excel:

i) SUM in order to add the results of cells.

ii) IF in order to see if conditions were met in the data. This assisted in adding up the number of

times and condition was met.

iii) Linking of spreadsheets was used in order to add the data from each of the individual

questionnaires and obtain a consolidated result.

iv) Simple arithmetic was utilised in order to calculate ratios in some of the results received in

order to facilitate comparison.

(Important Note: Neil Markovitz from Newmark Hotels (Dock House and Queen Victoria) did not

complete the checklist. The data inputted was obtained using improvisation during the interview

conducted with him, where questions were posed in order to gather the information needed).

By collating the results of the competitors in the sample table it was possible to remove a number

of hotels in the population of five-star hotels in the City of Cape Town from the competitor set of the

sample, reducing the direct competitor set in the study to fifteen of the twenty six hotels in the

population (Table 3.1).

62

Table 3.1: Identification of the competitor set

COMPETITOR HOTELS

SAMPLE HOTELS

Cap

e G

race

Doc

k H

ous

e

Que

en V

icto

ria H

otel

Ste

enbe

rg H

otel

The

Cel

lars

Hoh

enor

t

The

Tw

elve

Apo

stle

s H

otel

Atlantic View

Camps Bay Retreat

Cape Grace X X

Cape Royale

Colona Castle

Coral International / Hilton

Dock House

Ellerman House

Greenways Hotel

Hout Bay Manor

O on Kloof

One & Only Cape Town X X

Queen Victoria Hotel

Radisson Blu Hotel Waterfront X X

Romney Park Luxury suits

Steenberg Hotel

Taj Hotel

The Alphen Hotel

The Andros Boutique Hotel

The Bay Hotel

The Cellars Hohenort

The Mount Nelson

The Table Bay Hotel X X

The Twelve Apostles Hotel

The Westin X X

KEY

QUESTIONAIRE

X INTERVIEW INFO

63

3.5.2 Interview data

The interview transcriptions were analysed by placing each interview in a separate Appendix and

numbering each line of the interview in order to facilitate ease of reference (Saunders, Lewis

&Thornhill, 1997).

Appendix D: Ms. Gaby Gramm Steenberg Hotel

Appendix E: Mr. Neil Markovitz Newmark Hotels

Appendix F: Mr. Tony Romer-Lee McGrath Collection

Appendix G: Mr. Andrew Rosettenstein Cape Grace

Appendix H: Mr. Brett Davidge Twelve Apostles

By marking the interviews with the research question numbers that were relevant the information

was sorted, then copied and pasted in a Word document in order to group it according to the

relevant research question it answered. Once the research question groupings were created, the

information was further analysed and grouped in order to identify core themes that emerged in the

interviews (Saunders, Lewis &Thornhill, 1997).

During the analysis of the data, comparisons of the responses was drawn (Eisenhardt, 1989) and it

was noted that the responses received from the more senior incumbents, namely Gaby Gramm,

Tony Romer-Lee and Neil Markovitz was far superior in quality to that received from the other two

candidates. The aforementioned were strategic in focus and considered the broader impact of

decisions made. They all have approximately 10 years additional experience over the more junior

candidates. Brett Davidge and Andrew Rosettenstein seemed more operational in their focus. This

could however be as a result of their own personal views in Andrew’s case, and their shareholder

sentiment in both cases.

From the analysed data conclusions were reached and the research questions answered. Whilst

answering the questions the key themes emerged more concretely as did possibility for future

research and possible improvements to the research.

3.5.3 Interpretation of the data

The information obtained in the literature review was instrumental in the analysis of the data as it

provided a framework for analysis (Yin, 2009). The data was first analysed looking for well

researched trends, such as distance from customer and involvement of a third party, and then it

was analysed in order to assess if any additional information on new trends was evident. One that

appeared to emerge was the hierarchy of coopetition networks.

3.5.4 Potential bias

Reliability of interviews is of concern as bias can creep in due to the lack of standardisation of

interviews. In addition to this the relationship between the interviewer and the candidate can create

64

bias in that the data collected in one instance may be different to the data collected for example by

another interviewer (Saunders, Lewis &Thornhill, 1997).

The researcher believes that the data collected was affected by the nature of most of the

relationships she has with the candidates interviewed. A lot of information was not shared that is

common knowledge amongst the candidates and is knowledge, which the researcher has obtained

through informal interaction with the candidates over 15 years in the industry. This makes analysis

of the data quite reliant on the researcher’s own knowledge of the dynamics in the industry and

within each hotel. This could in some instances cause potential bias in the interpretation of the

data.

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CHAPTER 4

FINDINGS

4.1 INTRODUCTION

After a thorough analysis of the data collected a number of patterns and trends were identified. The

answers to the secondary research questions are detailed below in order to facilitate answering the

primary research objective in Chapter Five.

4.2 THE PROFILE OF RESPONDENTS

The respondents from each hotel are:

Table 4.1: Respondent profile

Hotel Name Position Seniority

Cape Grace Andrew Rosettenstein Operations Manager Employed Manager

Cellars Hohenort Tony Romer-Lee CEO McGrath Collection Employed Executive

Dock House Neil Markovitz CEO Newmark Hotels Equity Partner

Queen Victoria Hotel Neil Markovitz CEO Newmark Hotels Equity Partner

Steenberg Hotel Gaby Gramm General Manager Employed Executive

Twelve Apostles Brett Davidge Hotel Manager Employed Manager

Note: The study makes the distinction between an employed manager and an employed executive.

The managers report into a more senior executive manager who ultimately reports to the

organisation’s board or shareholders. The executives report directly to the board or shareholders.

Tony Romer-Lee and Neil Markovitz both hold CEO roles and oversee a multitude of properties.

They make reference to their other hotels during their interviews, providing insight into sentiment

from other regions.

4.3 ANSWERING THE RESEARCH QUESTIONS

The research questions have been answered providing extracts from the interviews which

substantiate the answers given.

4.3.1. RQ1: What is the nature of the relationships (both collaborative and competitive)

between five star hotels in the City of Cape Town?

The relationship between five-star hotels in the City of Cape Town is horizontal and mostly highly

competitive in nature. There is little collaboration; and most evidence of collaboration is facilitated

by a third party. The effectiveness of some of the third parties is in question as they are not seen to

be very effective. There is little cooperation amongst the hotels within the sample and the

66

competitors they identified; however there is no cooperation between the sample hotels and those

five-star hotels that were excluded from their competitor set.

4.3.1.1 Competitive relationships within the City of Cape Town

From the results of the checklist, tabled in Appendix M, it is evident that the five-star hotels in Cape

Town compete actively with one another. There was no correlation found in their competitive

relationship relative to their size, denoted in Table M.1 (Appendix M) by S (small), M (medium), L

(large). Their geographic location and proximity, denoted in Table M.2 (Appendix M) by CB (City

Bowl and surrounds), AS (Atlantic Seaboard) and R (Remote) appears to have a greater impact on

their competitive relationship. Tony Romer-Lee however, made reference to the relevance of size

in his interview (Appendix F, line 120).

All hotels in the City Bowl and surrounds compete in the majority with other hotels in the City Bowl

and surrounds. They do not perceive the hotels in the Rural and Atlantic Seaboard regions to be

their direct competition. The hotels in the Atlantic Seaboard and Rural areas have more of a

tendency to compete with hotels in their immediate surroundings and are focused on the threat that

the City Bowl and surrounds, particularly Waterfront hotels have on their livelihood. Dock House

and Queen Victoria recorded one hundred percent (100%) of their competition to be in the City

Bowl and surrounds, the Cape Grace seventy-five percent (75%), the Cellars Hohenort recorded

sixty-four percent (64%), Steenberg sixty-seven percent (67%) and Twelve Apostles fifty-six

percent (56%) of their competitors to be in the City Bowl and surrounds (Appendix M, Table M.5).

Gaby Gramm (Appendix D, line 106) and Tony Romer-Lee (Appendix F, lines 10,120) confirmed

that proximity in location and similarity of product offering, were the biggest competitive factors

which posed a threat to them. They each identified the other as being their single biggest

competitor. Their next biggest competitor as a region is the City Bowl and surrounds, and this

region is the biggest competitor of the Twelve Apostles (Appendix M, Table M.5).

Gaby Gramm expressed very little desire to work with product in the City of Cape Town and

intimated that all hotels felt like this about one another due to wanting as much of the market for

oneself as was possible (Appendix D, line 130). Andrew Rosettenstein also expressed little desire

to cooperate, saying that it may dilute the competitive edge of the Cape Grace (Appendix G, lines

141-144). There is a feeling that cooperating with one particular competitor may in fact restrict

one’s own ability to generate business (Appendix D, line 133, Appendix G, lines 96-100). Brett

Davidge stated that he believed that organisations should not cooperate on matters which were

strategic in nature (Appendix H, line 15).

4.3.1.2 Cooperative relationships within the City of Cape Town

There are various types of cooperative relationships in place between the hotels in the City of

Cape Town. One of these examples is with hotels that do not form part of the five-star population

67

(i) and the others are all examples from the competitor set and can therefore be deemed examples

of coopetition (ii) – (vi).

i) Alliances with four-star hotels:

Both of the Newmark hotels as well as Steenberg hotel have active collaborative

relationships with hotels which are four-star graded. The Queen Victoria and Dock House

utilise the facilities of the four-star hotels in the Newmark Group in order to broaden their

product offering and offer their clients a unique resort-style experience. This collaboration

with four-star entities enables them to compete with the One and Only, who is a major five-

star competitor on the Waterfront (Appendix E, lines 27-32).

Steenberg’s relationship is with the four-star Vineyard Hotel and is environmental in nature. It

is an informal relationship and involves sharing of expertise which the Vineyard Hotel has in-

house (Appendix D, lines 63-77). This is done with the intent to gain advantage over other

competitors in the five-star arena and supports Hamel, Doz and Prahalad (1989).

The Newmark relationships are close to the client and by utilising the theory (Bengtsson and

Kock, 1999; to interpret the reason for this, it is proposed that this is due to the trust

relationship that comes from being part of the same hotel group. The Steenberg relationship

is on an initiative which is not close to the client, but is an attempt to share resources. It

arose as a result of shared philosophies amongst the management of the hotels.

ii) Information sharing through third parties:

Queen Victoria and Dock House, under Newmark Hotels, are members of STR-

Benchmarking; an online service facilitating information sharing of rate, occupancies and

REVPAR. The Cape Grace, Table Bay, One and Only, Westin and Radisson are also

participants (Appendix E, lines 6-8, 17, 107). This collective information sharing enables the

hotels who participate to better compete with one another on rate (Appendix E, lines 16-18),

supporting Hamel, Doz and Prahad’s (1989) notion that coopetition is ultimately to gain

strategic advantage.

iii) Formal relationships under a management/ownership umbrella:

The hotels in the Newmark Group are not all owned by the group. Therefore one can

conclude that there is evidence of coopetition within the group. The Queen Victoria and Dock

House participate in collaboration facilitated by the Newmark Head Office with whom they

have a strong trust relationship and a common goal (Appendix E). It is an example of

coopetition within a network of companies which is a sub-network of the greater network of

the City of Cape Town competitor set. It supports Caves and Porter’s (1977) theory that

competition within strategic groups is less intensive than between strategic groups, as one

sees that the hotels cooperate amongst one another in the Newmark network, but compete

with the City of Cape Town network.

iv) Formal relationships under a luxury hospitality representation umbrella:

68

Tony Romer-Lee (Appendix F, lines 346-353) spoke of the cooperative relationships which

exist between the member hotels of the Relais and Châteaux marketing umbrella. This

included sales initiatives, marketing initiatives, staff swapping, staff training and procurement

initiatives. These are examples of coopetition within the Relais and Chateaux network and

there is evidence of coopetition close to the customer between hotels in the network who are

not in close proximity to one another, alternately the coopetition is in activities like

procurement which do not threaten the client relationship. Worth noting is that these activities

are initiated by the hotels themselves as a result of the brand affiliation they share, and not

by the management of the luxury hospitality representation organisation.

v) Formal relationships through a DMO:

The current destination marketing organisations representing South Africa and Cape Town

were mentioned by Gaby Gramm (Appendix D, line 185) and Neil Markovitz (Appendix E,

lines 252-254, 271-273, 293-294). There is merely evidence that these organisations are in

place and acknowledged to have a role to play. However when analysing the data against

the DMO theory (Wang and Krakover, 2008) it appears that the destination marketing

network is an immature one as there is really only evidence of the existence of affiliations to

these organisations, but no real coopetition or cooperation with them or through them on the

part of the hotels. Government’s involvement in the DMO is evident and supports Pike (2008)

in the view that the intervention of government in tourism can at times have negative

impacts. This is seen through the bureaucratic management style in place.

vi) Loose relationships in order to supplement one’s own offering and knowledge:

Both Gaby Gramm and Neil Markovitz mentioned alliances with hotels in order to supplement

one’s own offering. Gaby Gramm mentioned clients from Waterfront hotels visiting Steenberg

for meals and wine tasting (Appendix D, line 201) and Neil Markovitz mentioned sending

clients to surrounding hotels which offered game and Winelands experiences, which his

hotels do not offer (Appendix E, lines 67-76). Brett Davidge told of loose cooperation with

hotels in the City of Cape Town which were product or process related and not strategic in

nature (Appendix H, lines 16-17, 77). These are all examples of coopetition in order to gain

strategic advantage over competitors.

4.3.2. RQ2: What relationships (both collaborative and competitive) do these hotels have

with hotels outside of the region?

Four of the hotels have formal, equity based relationships with hotels outside of the region due to

their shareholding (Appendix E, line 67; Appendix H, lines 82-84; Appendix F, lines 360-361).

These hotels are the Twelve Apostles which is part of the Red Carnation group of hotels. They

own a property in Durban called the Oyster Box Hotel and a lodge in Clanwilliam called

Bushmanskloof. The Queen Victoria and Dock House are affiliated with hotels outside of the City

of Cape Town through their association with Newmark Hotels. The Cellars Hohenort is part of a

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privately owned hotel collection called the McGrath Collection, which comprises the Cellars

Hohenort, The Marine Hotel in Hermanus and The Plettenberg Hotel in Plettenberg Bay. The

Cellars and Red Carnation relationships are equity based in that they own all of the hotels in their

portfolios.

Three of the hotels are paying members of large international luxury hospitality representation

organisations. The Cellars Hohenort is a member of the Relais and Châteaux, a French based

company which specialise in the marketing of boutique style luxury hotels. The Twelve Apostles

and Cape Grace are members of the Leading Hotels of the World (LHW), a USA based company

that specialises in marketing larger, city and resort-style hotels. Each of these organisations has a

strict set of standards which the hotels must achieve in order to remain members. Interesting to

note is that Cape Grace never mentioned LHW in the interview, yet Cellars Hohenort leverage this

channel actively. These organisations play a role in coordinating the network of hotels and

encouraging the hotels to form alliances which strengthen the brand of the umbrella company as

well as the position of the individual company.

4.3.2.1 Competitive relationships outside the City of Cape Town

There is a strong perception amongst all parties that they are not in competition with other regions

in South Africa, but that they compete more within the City of Cape Town (Appendix D, lines 103-

109; Appendix H, line 73); however they did include hotels in the greater Cape Town area, like

Stellenbosch and Franschhoek Winelands in their competitor set. The biggest competitors outside

of the City of Cape Town were linked to activities, which were similar to those offered by the hotel;

examples used are wine tasting, gourmet activities and golf.

Interesting to note was that Gaby Gramm and Neil Markovitz spoke more of specific regions like

Franschhoek when referring to the competition outside of the City of Cape Town (Appendix D, lines

113-118; Appendix E, line 68). Tony Romer-Lee made reference to specific hotels, one of which is

a member of Relais & Châteaux (Appendix F, lines 255-258). Andrew Rosettenstein considered

Singita, a game lodge in the Kruger region to be the biggest single competitor to the Cape Grace

due to them sharing a strong presence in Cape Grace’s largest market, the USA (Appendix G, line

73). The Newmark hotels do not perceive themselves to be in competition with hotels outside of

the City of Cape Town, but more to have taken on a big responsibility for assisting hotels outside of

Cape Town to market themselves (Appendix E, lines 6-8, 64-66).

4.3.2.2 Cooperative relationships outside the City of Cape Town

In order to facilitate the comparison of relationships outside of the City of Cape Town to those

within the region the study utilises the same headings although not all are utilised:

i) Alliances with four-star hotels:

Not applicable.

ii) Information sharing through third parties:

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Not applicable

iii) Formal relationships under a management/ownership umbrella:

Neil Markovitz indicated that they have strong cooperative relationships between the hotels

within their portfolio that lie outside of the City of Cape Town. He stated that over and above

this they are “quite insular within the group” (Appendix E, lines 144-145). He stated that when

building the portfolio they are careful to select product that adds synergy to the group,

ensuring that the offering is not already within the group (Appendix E, lines 182-196). This

strategy of portfolio selection supports the notion by Gomes-Casseres (1999) that hotels are

more likely to cooperate in areas where they do not compete.

Brett Davidge stated that the hotels owned by his shareholders, both local and international

worked very well together on a number of initiatives (Appendix H, lines 88-98) like staff

training, staff resource sharing and marketing. Tony Romer-Lee utilises similar economies of

scale as a result of joint marketing the three hotels in his collection (Appendix F). These are

an example of management/ownership’s impact on coopetition, where the hotels within the

portfolios compete with one another on length or stay and a share of market, but cooperate

with one another in order to ensure their collective success.

iv) Formal relationships under a luxury hospitality representation umbrella:

Tony Romer-Lee (appendix F, lines 346-353) spoke of cooperative relationships with other

Relais and Châteaux hotels outside of the City of Cape Town. These involve staff swapping

and training initiatives, as well as marketing and sales (Appendix F, lines 362-364) initiatives.

He also mentioned the opportunity that these representation organisations offer hotels, like

the reduced costs of participating on the GDS platform (Appendix F, lines 367-371), which is

a global distribution system for marketing and booking hotels internationally. The costs of

belonging to the GDS as an individual property can be quite prohibitive hence this being an

added benefit of such a collaborative initiative.

Tony Romer-Lee mentioned the ability to work with these representation organisations in

order to create packages for clients which are made up of a combination of hotels within the

umbrella (Appendix F, line 370). This often makes booking more attractive to clients and

enables the client to attain preferred pricing, thus potentially driving volume for the hotels

concerned.

Twelve Apostles and their sister hotel the Oyster Box are members of the Leading Hotels of

the World in order to leverage the brand affiliation to other hotels (Appendix H, line 141), yet

they do not take advantage of collective marketing initiatives offered by the umbrella

company (Appendix H, line 157).Whilst Cape Grace shares in the Leading Hotels of the

World, this was not mentioned. Instead they have formed a marketing alliance with an

individual hotel, Tswalu, which has a complementary offering to theirs. Tswalu is a member

of Relais & Châteaux. Jointly these hotels share independent marketing representation in

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the USA and United Kingdom, as well as advertise packages on their websites (Appendix G,

lines 65-70).

These are all examples which support the literature that hotels will work together in order to

ensure that they gain strategic advantage over their competitors. Some do so by saving

costs, others by gaining more brand exposure and others by sharing resources.

v) Formal relationships through a DMO:

The current destination marketing organisations representing South Africa were mentioned

by Gaby Gramm (Appendix D, lines 185) and Neil Markovitz (Appendix E, lines 252-254,

271-273, 293-294). The sample hotels utilise these channels but do not rely heavily on them

due to the belief that the bodies are ineffective. One can see that there is an absence of trust

and an absence of shared goals and objectives which have possibly led to the deterioration

of the coopetition relationships.

vi) Loose relationships in order to supplement one’s own offering and knowledge:

Steenberg has an informal relationship with Golf Resorts, which is an international

organisation specialising in golf accommodation. This affiliation permits members of the Golf

Resorts preferred rates at Steenberg and vice versa (Appendix D, line 221) Internationally

Steenberg has a number of loose affiliations with hotels which can assist them to profile their

own brand amongst clients internationally. These are short term arrangements which assist

Steenberg to compete more effectively in the international market (Appendix D, line 226).

Neil Markovitz referred to an informal alliance which one of his hotels had in the past (prior to

the inception of Newmark) where he worked with a property on the Garden Route in order to

exchange staff as a form of staff training. (Appendix E, line 225) He indicated that this and

other informal alliances he had entered into in the past had been successful. He has also

created a separate entity that feeds day experiences to hotels outside of City of Cape Town

(Appendix E, lines 74-76) with the intent to offer his clients experiences that they are unable

to have at his own hotels.

Gaby Gramm expressed a willingness to work with hotels outside of the Western Cape or in

the greater Western Cape; however alluded to these being loose, information sharing

initiatives (Appendix D, lines 253, 260).

4.3.3. RQ3: On what level do the hotels consider themselves to be competitors?

Price and location were the only two competitive factors which were marked on the checklist by all

of the hotels in the competitor set. Over and above this the key competitive factors are

accommodation offering, F&B (food and beverage) offering, leisure offering, service levels, brand

equity, reputation, share of key markets and share of existing markets (Appendix M, Table M.5).

The interviews with the candidates confirmed the importance of location as a competitive factor as

it was mentioned repeatedly by Gaby Gramm (Appendix D, lines 103, 128, 199, 248), Tony Romer-

Lee (Appendix F, lines 15,21), Neil Markovitz (Appendix E, lines 24-30), Andrew Rosettenstein

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(Appendix G, line 50) and Brett Davidge (Appendix H, line 241). Price and product were mentioned

by Neil Markovitz and Andrew Rosettenstein repeatedly (Appendix E, lines 9, 12; Appendix G, line

48, 50, 53); and Tony Romer-Lee and Andrew Rosettenstein made reference to competition with

specific hotels in specific markets (Appendix F, lines 125, 166; Appendix G, line 73).

It is evident from the research that hotels cooperate with information sharing on price, but that with

location they are highly competitive, utilising this as a unique attribute with which they gain

competitive advantage over one another. They will at times however supplement their own lack of

attributes by associating themselves with a competitor in order to offer the services another

location may offer.

4.3.4. RQ4: What kinds of activities and initiatives do these hotels collaborate on?

The following activities were highlighted during discussion around collaboration:

4.3.4.1 Environmental issues:

i) Through the exchange of knowledge on best practice and past experience (Appendix D, line

66).

4.3.4.2 Procurement:

i) Through a non-affiliated (informal) group of hotels purchasing goods that would ordinarily be

available in bulk and therefore supersede their demand (Appendix D, line 308).

ii) Through the central procurement by head office of food, beverage, furniture and fittings

(Appendix E, lines 151-172; Appendix F, line 362; Appendix H, lines 88, 161).

iii) Through the procurement initiatives where hotels can benefit from the collective use of their

‘umbrella brand’ (Appendix F, line 355).

4.3.4.3 Referrals amongst competitors

i) For day outings they refer clients staying in their hotels to other hotels in order to supplement

activities (Appendix D, line 201).

4.3.4.4 Marketing and sales

i) Through formal relationships under a management umbrella (Appendix E, lines 67-72,

Appendix H, line 88), which in some instances enables a form of price collusion (Appendix E,

line 87) as well as joint sales and marketing initiatives and shared costs (Appendix F, lines

362-364; Appendix H, line 161).

ii) Through informal relationships across regions (Appendix E, line 230).

iii) Through informal relationships within luxury hospitality representation organisations

(Appendix F, line 363; Appendix H, line 77).

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iv) Through formal initiatives arranged by luxury hospitality representation organisations in order

to grow awareness of their umbrella brand or individual property brands (Appendix F, line

366; Appendix G, lines 87-90).

v) Through sharing marketing resources and costs (Appendix G, lines 68, 87-90; Appendix H,

lines 119-122).

4.3.4.5 Management

vi) By appointing a management company to bring expertise applied in their own hotels into

partner hotels where they have no equity but impart knowledge and expertise in order to

benefit a competitor and their own interests (Appendix E, line 88).

4.3.4.6 Staff training

i) Through sharing of staff amongst hotels in order to spread expertise and knowledge. This is

done both locally and internationally and benefits hotels by improving their service levels and

as a result their product (Appendix H, line s88-92).

4.3.5. RQ5: Why do these hotels collaborate with other competitor hotels?

There are a variety of reasons that hotels collaborate with their competition:

i) To gain expert knowledge (Appendix D, lines 66-74).

ii) To save costs (Appendix D, line 66; Appendix E, lines 127-138; Appendix F, line 362;

Appendix G, line 68).

iii) To share resources (Appendix E, lines 127-138; Appendix G, lines 68, Appendix H, lines 89).

iv) To share scarce resources (Appendix D, line 66, Appendix H, line 89).

v) To maximise revenue (Appendix E, lines 188-196, Appendix H, line 119).

vi) To expand their offering and thereby practice customer retention (Appendix E, lines 188-

196).

vii) To improve product quality (Appendix E, lines 151-172; Appendix H, line 21).

viii) To improve service levels and standards (Appendix E, lines 151-172; Appendix H, line 21).

ix) To up skill staff (Appendix H, line 92).

4.3.6. RQ6: What has the impact been of the coopetition initiatives they have engaged in,

both with one another and other hotels in South Africa?

The response to this question looks purely at the impacts which are relevant to answering the

primary research objective. The primary research objective has been divided into four key areas

based on the definition of ‘benefit’ as outlined in Chapter One.

4.3.6.1 Increased occupancies

Through cooperation and sharing of information the hotels are able to obtain a better

understanding of the market. In doing so they are able to position themselves properly within the

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market (Appendix E, lines 16-17) and thereby increase their occupancies by being price relevant to

the market.

4.3.6.2 Increased revenues

By being correctly priced, as mentioned above, there is the potential to increase revenues by

shifting one’s strategy in order to meet the market’s needs (Appendix E, lines 16-17). It assists

them with driving revenue at the right price and thereby improving cash flow (Appendix E, lines

121-126). Newmark utilised the sharing of information in order to shift their market from a

predominantly internationally focused market, to a more domestically focused market, which

enabled them to combat the decrease in revenue caused by the recession (Appendix E, lines 201-

203).

4.3.6.3 Increased profits

Through the acquisition of expert knowledge at no cost Steenberg were able to avoid the expense

of engaging an environmental consultant (Appendix D, lines 66-74), thereby reducing their

expenses. Twelve Apostles is able to reduce its personnel expenditure through staff training,

thereby attaining good staff retention (Appendix H, lines 88-98).

4.3.6.4 Increased brand equity

Through the acquisition of expert knowledge Steenberg was able to implement environmental

practices within the business which are considered to be good corporate governance. By

marketing and publicising the implementation of these initiatives they are able to increase the

awareness of their brand (Appendix D, lines 66-74). The Cape Grace is able to better market itself

by sharing some of its more prohibitive marketing expenses with a partner hotel who is not in direct

competition (Appendix G, line 69). By working together with the other Red Carnation hotels the

Twelve Apostles is able to strengthen the brand (Appendix H, lines 159). By marketing themselves

with other members of a marketing umbrella the Cape Grace, Twelve Apostles and Cellars

Hohenort are all able to benefit from the association of their organisation’s brand with the top

hotels and hotel organisation in the world (Appendix H, lines 140-141; Appendix F, lines 362-364).

4.3.7 RQ7: What potential there is to expand on these relationships in order to benefit

these hotels?

These hotels could expand their relationships with one another and other hotels and reap benefits

as follows:

4.3.7.1 Informal alliances to package Cape Town hotels with other regions

Gaby Gramm expressed willingness to work with hotels in the greater Western Cape in order to

package Steenberg with them as there is perceived to be no risk of loss of revenue from these

relationships (Appendix D, line 129). Other hotels, as we have seen from the research already

doing this successfully.

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4.3.7.2 Joint marketing of Cape Town

Through collective marketing initiatives cost saving can be achieved. Should the region market

‘luxury Cape Town’ as a collective they may be able to share costs of entertainment, trade fairs,

etc. (Appendix D, line 61). However it must be pointed out that due to the poor trust relationship

that exists in the City of Cape Town, these initiatives are more likely to work in alliances formed

across the South African Tourism network. Neil Markowitz already successfully utilises cross

marketing across the national network (Appendix E, line 229)

4.3.7.3 Informal cross selling alliances

There is opportunity to form informal alliances whereby each forms informal relationships with

competitors in order to supplement their own offering. For example The Cellars Hohenort could

have an informal relationship with Steenberg and utilise them as a preferred wine farm and golf

course, and in return Steenberg could send clients to dine in the restaurants at the Cellar

Hohenort. This would ultimately strengthen the image of Cape Town as a luxury brand and region,

perhaps enabling it to better compete against regions like Franschhoek.

4.3.7.4 Shared international marketing representation

Across the South African Tourism network, there is opportunity by sharing international marketing

representation and costs between hotels. By forming both formal and informal alliances, hotels can

agree to market one another, or to share the costs of personnel and overheads in certain regions

in order to enable this. This would ensure that they continue to have presence in all markets but

would reduce their costs. Cape Grace already has a relationship of this nature (Appendix G, line

68). There is potential for the McGrath Collection to formalise a relationship with a Game Lodge as

a Game Lodge would benefit hugely from the economies of scale of the McGrath Collection

infrastructure. Part of this could also involve engaging someone to assist a collection of hotels to

plan and orchestrate annual road shows in shared markets (Appendix D, line 136).

4.3.7.5 Form alliances in order to reduce personnel overheads

Gaby Gramm expressed interest to work together with hotels in other regions and outside of the

country in order to swap staff according to seasonality, thus reducing ones overheads (Appendix

D, lines 79, 89). This is already being done between hotels who form parts of chains (Appendix E,

line 227; Appendix H, lines 51-53), but there is room for free standing hotels to engage in formal

relationships of this nature. There is a particular willingness expressed to engage globally in such

exchanges (Appendix D, line 80).

4.3.7.6 DMO activation

There is potential for the competitors in the City of Cape Town to either unite to form a front against

the DMOs in South Africa in order to place pressure on them to become more effective with

penetrating new markets, attracting business to Cape Town and educating suppliers on markets

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and other relevant information. Or there is potential for the competitors to engage a neutral party in

order to form a new body which markets luxury tourism in Cape Town (Appendix D, lines 35-39;

Appendix E, lines 331-348; Appendix F, lines 468-475; Appendix G, lines 153-156).

The DMOs can also be proactive in order to improve their own reputations by communicating their

strategy better, explaining their role to all partners in order that they are more united and by

educating themselves (and communicating this information to partners) on new market potential.

4.3.7.7 Share expert resources

Overheads can be reduced by sharing expert resources or key expertise (Appendix D, line 66).

This could be done by either up-weighting one of the existing bodies through all parties in the

population agreeing to take on active membership, or by forming a new body. Through collective

initiatives e.g. the City of Cape Town deciding to go green, such organisation could facilitate

obtaining expert resources and information to not only assist the hotels, but to also better profile

themselves as organisation and to gain brand equity for the region. This would enable the region to

better compete with other regions and would make the hotels more sustainable financially, and in

the example cited environmentally.

4.3.7.8 Collective procurement

Many of the standards that these competitors aim to achieve are determined by the organisations

that they associate themselves with. There is therefore scope to engage independent persons who

are able to better negotiate procurement deals for either Relais & Chateaux hotels, for example, or

for luxury hotels in the City of Cape Town (Appendix H, lines 57-59). This would enable the hotels

to be more competitive. It would also add benefit to individuals joining an organisation such as

Relais and Chateaux and may encourage more hotels in broader South Africa to join the group,

strengthening the region and placing a more dominant focus on the region for the Relais and

Chateaux management and marketing teams.

The other alternative is to create a procurement alliance amongst the hotels in order to negotiate

price on items like water, coke, etc. This would assist the hotels with their own overheads, but

would also allow Cape Town as a region to become more price-competitive globally and assist it in

fighting the international perception that currently exists, that it has become very expensive in

recent years and is therefore no longer internationally competitive.

4.3.8 RQ8: What factors contribute to the varied relationships between each of the

hotels?

There are eight key factors, which this study found to affect the relationships between the parties in

the sample.

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4.3.8.1 Trust

The lack of trust present between the hotels in the City of Cape Town was emphasised by Gaby

Gramm (Appendix D, lines 52, 55, 57, 145, 252) and Andrew Rosettenstein (Appendix G, lines

141, 152). Neil Markovitz also referred to having excluded hotels from cooperative relationships

due to dishonest conduct in the past (Appendix E, line 115). This results in each hotel focusing

solely on its own interests and not on those of the region. The lack of trust has hindered

cooperation in the past due to some of the chain hotels being concerned about price fixing and

collusion on the part of their management and the other hoteliers in the region and therefore

cooperation in the form of information sharing was ended (Appendix E, lines 113-114).

4.3.8.2 Economic climate

In some instances the recession and current economic climate has led to a more competitive spirit

amongst the hotels in the City of Cape Town (Appendix D, lines 260-263). There is a lack of

business and the managers of these hotels are under pressure to perform (Appendix D, line 53;

Appendix E, lines 127-138). Due to the fact that there is an oversupply of rooms in the market

(Appendix E, lines 52-56) and a lack of business available (Appendix D, line 53) and survival of

their own businesses is crucial (Appendix E, lines 120-122), management is more guarded of their

strategy (Appendix D, lines 294-302). One property claimed that they were as competitive now as

they were prior to the recession (Appendix G, line G223). This therefore does not support the

notion by Padula and Dagnino (2007) that, when there are changes in industry conditions firms are

more likely to work together.

4.3.8.3 Management

Good interpersonal relationships amongst the management of the competitors contributes to a

desire to collaborate with them (Appendix D, line 70), as does a desire to maintain and retain the

relationships over a period of time (Appendix D, line 146).

4.3.8.4 Shared goals and objectives

The presence of common goals, shared interests and like-mindedness are factors, which

contribute to the desire of management to participate in cooperative relationships. (Appendix D,

lines 52, 71).

4.3.8.5 Third party roles

A strong desire exists for the parties to work together through a third party, yet there is no

collaboration due to the belief that the DMOs in South Africa and particularly Cape Town are not

very competent (Appendix D, line 66). It is believed that they are blinded by political agendas, not

of a personal nature, but governmental in nature, which adversely affects their ability to perform the

tasks at hand (Appendix D, line 216).

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It is also believed that the third party organisations are too big and too broad in their focus

(Appendix F, lines 443-444) and that their role has not effectively been communicated to some of

the member organisations in the region. As a result their attention is not properly focused and they

spend more time managing partner hotels than marketing the destination, exploring new markets

and maintaining existing markets (Appendix D, line 216).

The overall ineffectiveness of the DMOs leads most of the hotels to disengage and to go off on

their own initiatives. This currently leads to a competitive spirit, but in the future may well lead them

to get to a point of frustration whereby they agree to cooperate.

4.3.8.6 Effective communication

Good communication is essential to build the relationships required for cooperation (Appendix D,

line 341).

4.3.8.7 Shareholding

The hotels within the Newmark, Red Carnation and McGrath portfolios do not stand as much to

benefit from cost saving and shared marketing initiatives as free standing hotels like Steenberg

and the Cape Grace do. One can therefore assume that the shareholding of an organisation would

impact its willingness and readiness to partake in collaborative relationships outside of the chain.

Shareholding can also impact the decision of whom to partner with, as is illustrated in Appendix F

(lines 93, 119-122) where it is obvious that the management and shareholding are not aligned in

their opinions as to who the best partner for the business is.

4.3.8.8 Existing affiliations and cooperative relationships

In Appendix F (line 182) Tony Romer-Lee refers to the inability to cooperate effectively with the

Relais and Châteaux lodge, Bushmanskloof, due to its affiliation through ownership to the Twelve

Apostles hotel. However it is evident from Appendix F (line 364) that there is a strong likelihood to

cooperate with hotels in the same marketing portfolio and therefore one must assume that the

purely competitive relationship with Bushmanskloof is as a result of the affiliation to the Twelve

Apostles.

Brett Davidge also tells how relationships with their owners other companies prevent them from

working with other Tour Operators (Appendix H, lines 88, 119-122). Andrew Rosettenstein shares

an unwillingness to partner with Singita for fear of losing support from other partners (Appendix G,

lines 95-100).

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4.3.9 RQ9: What role do third parties play in promoting coopetition amongst hotels in the

region?

Third parties have the potential to both positively and negatively affect the coopetition relationship

in the City of Cape Town.

4.3.9.1 Destination Marketing Organisations - DMOs

The parties show a strong leaning towards a desire to work together with the third parties

(Appendix D, lines 41, 43) that exist in the region in order to explore new markets. However, the

sample hotels expressed a lack of faith in the competency levels of the existing bodies (Appendix

D, lines 149, 161. 165, 166). Cape Town Routes Unlimited is believed to be ineffective (Appendix

E, lines 252-254, 271-273, 293-294) and the strength of the DMOs is believed to be diluted as they

continue to lose strong resources as a result of the political undercurrent and motives that

dominate the organisations (Appendix E, line 261). The sentiment is that the system has been

turned upside down and instead of the DMOs assisting the hotels to gain knowledge about

markets, the DMOs rely on the hotels for their knowledge (Appendix D, lines 185-190; Appendix E,

line 277).

It is evident that the strength of a good DMO such as the one present in Franschhoek can enable

an entire region to compete with another region (Appendix D, lines 362, 341). The strength of

Franschhoek over regions like Stellenbosch and Paarl is evident (Appendix E, line 68) and

attributed to the manner in which their DMO operates (Appendix D, line 362).

It is our conclusion that the DMOs play no role in the collaboration between hotels in the City of

Cape Town. We propose that they may even contribute to the competitive spirit in the region as

each property fights for its own survival.

4.3.9.2 Global hospitality marketing organisations

Global marketing organisations appear to play a positive role in the coopetition relationships

amongst hotels in the region. The example of Ellerman House and Cellars Hohenort is evident

(Appendix F, line 362). Interesting to note is that this relationship is a procurement relationship.

The relationships which exist and that pertain to customers and share of market tend to take place

with hotels outside of the City of Cape Town (Appendix F, line 364). Some of these relationships

appear to exist informally amongst partner hotels within the alliance and other relationships tend to

be more formal and are initiated by the marketing organisations. Attendance of trade fairs

(Appendix H, line 157) and joint packaging (Appendix G, 89) are two examples of where the

marketing organisations have actively played a role.

There is a perception though that some of these marketing organisations have not done their

homework properly and have too many hotels within too small a region. The City of Cape Town

and Plettenberg Bay are two examples cited. Therefore, the marketing organisations have

contributed to the competitive nature of the relationship between the hotels as they now perceive

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themselves to be fighting for a part of an even smaller more niche pie. (Appendix F, line 412). In

South Africa there is also a sense that Relais and Châteaux is dominated by the McGrath

Collection and Leading Hotels of the World by the Saxon, as their management plays an active

role in the administration of these bodies for the region. This leaves their independence in

question (Appendix D, lines 171-172)

4.3.9.3 Industry federations and organisations

Industry federations have played a successful role in coopetition in the past (Appendix D, line 209)

and continue to play a positive role through providing opportunities for hoteliers to network and

share ideas (Appendix H, lines 171-178). Many informal networking opportunities exist (Appendix

H, lines 171-178) and an opportunity is presented to form relationships which could lead to

potential cooperation and therefore coopetition in the future. There is currently a tendency however

to use these organisations for menial information sharing as opposed to strategic, market initiatives

(Appendix D, lines 209-213) due to a lack of trust in their ability (Appendix D, line 212). By

specialising their knowledge and becoming more focused they would be able to add more value to

the network.

4.3.10 RQ10: What factors hinder coopetition amongst the hotels in question?

i) Geographic location of potential partner hotels (Appendix D, line 14; Appendix G, line 68).

ii) Fear of losing bed nights to partner hotels i.e. fear of loss of market share (Appendix D, 75).

iii) Fear of losing revenue due to specific affiliations (Appendix G, line 95-98).

iv) A desire to keep one’s strategy secret (Appendix D, line 267; Appendix G, lines 141-142).

v) Survival instinct, also termed as an aggressive competition strategy (Appendix D, line 268).

vi) Shareholder sentiment (Appendix F, line 182; Appendix H, line 93)

vii) South Africa’s political horizon and agendas which impact tourism (Appendix F, lines 450-

452)

viii) Misaligned goals between hotels and DMO’s (Appendix F, line 481)

ix) Too many third party organisations to choose from (Appendix H, line 173)

4.3.11 RQ11: What potential exists for future cooperative joint marketing initiatives?

4.3.11.1 DMO coordinated activities

Great potential exists for future cooperation in order to market the City of Cape Town as a sought

after destination and to increase occupancies for all parties in the region (Appendix D, line 19).

Most sample hotels are frustrated with the current DMOs and would welcome a change with open

arms.

i) Implementation of an aggressive sales strategy to attract congresses: The belief is that the

existing DMOs could up skill and focus more in order to bring congresses to Cape Town,

which would bring large numbers (Appendix D, line 22). This would benefit the City Centre

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and surround and overflow from such events would spill over to benefit the Rural located

hotels.

ii) New market penetration: There is an expressed willingness to work together with a well

managed and competent body with adequate budgets in order to penetrate new markets

(Appendix D, line 35; Appendix E, Appendix F). This is particularly supported by individual

hotels like Cape Grace and Steenberg who have limited budgets.

iii) Government engagement: Through its political structure a government run DMO should be

able to engage and influence the decisions made by other government departments, like for

example the dates for the mining Indaba, and can shift them in order to better utilise off-peak

times (Appendix D, line 326).

iv) DMOs could be incentivised on the business that they bring to the region (Appendix D, line

192)

Imperative is that the organisation should be run like a commercial entity and not a political

organisation (Appendix F, line 461).

4.3.11.2 Formation of a new independent body to market the City of Cape Town

The formation of a private body to market luxury tourism in the City of Cape Town (Appendix D,

line 194; Appendix E, lines 331-348) was a popular notion in the sample. The body should be a

commercial entity, run by private enterprise, and should be incentivised on its performance

(Appendix D, line 192; Appendix H, line 191).

4.3.11.3 Cross regional relationships

There seems to be more leaning towards forming relationships across regions of South Africa in

order to create informal marketing relationships (Appendix D, line 14, Appendix G, line 68-70).

There is perceived to be less risk of losing a share of one’s own market, but ability exists to grow

this instead through affiliation with strong brands in other regions.

4.3.11.4 Broader information sharing

The potential exists for all five-star hotels within the City of Cape Town to register on the STR. This

would assist them in maintaining a competitive edge over one another and four star competitors

within the City of Cape Town, as well as assist them to position Cape Town relative to other

tourism destinations globally, thus being more competitive (particularly when bidding for large

conventions).

4.3.12 RQ12: What differences exist between the coopetition patterns practiced by hotels

in similar regions, different regions and with similar product offerings?

4.3.12.1 Similar regions

There is a huge reluctance to cooperate amongst hotels in the same geographic vicinity. They

have a highly competitive relationship, unless they are part of the same management group.

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4.3.12.2 Different regions

There is a high willingness to cooperate with hotels in different regions. This is evident from the

willingness to work with hotels in Kruger, on the Garden Route and up the West Coast.

4.3.12.3 Similar product offering

The hotels in the sample are threatened by product with similar product offering. This is evident

from the statements made by Steenberg and Cellars Hohenort about the threat of the Winelands,

as well as the example cited about the competitiveness of the Mount Nelson with the Cellars due to

the similarity in product offering.

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CHAPTER 5

SUMMARY, CONCLUSION AND RECOMMENDATIONS

5.1 INTRODUCTION

It is evident from the literature reviewed and the interviews conducted that the problem hotels in

the City of Cape Town face are rather dire. With the oversupply of accommodation in the region,

global competition, coupled with reduced spending as a result of the recession, it is imperative that

these hotels act in order to be sustainable. Using a selected sample of six hotels, this case study

explores the relationship between the population of five-star hotels in the City of Cape in order to

ascertain what patterns of coopetition currently exist within the network of hotels, and what

potential exists to expand these relationships in order to improve their strategic advantage over

one another and other regions in order to become more sustainable.

5.2 SUMMARY OF MAIN FINDINGS

There is evidence of coopetition practiced by the sample hotels selected. There are a variety of

factors which influence their desire to cooperate or compete with another hotel. Some of the

factors are internal to the organisation and others are within the market and economy. There are a

number of reasons that the hotels cooperate with their competition and certain activities are more

likely to result in cooperation than others. The impact of coopetition practiced to date have been

increase revenues, increased occupancies, increased brand equity and increased cost. All of these

benefits make a coopetition strategy worth exploring further.

5.2.1 Network findings

There appears to be a web of networks in place in the City of Cape Town and some hotels

participate in any number of networks at the same time. The networks identified were:

i) The City of Cape Town hotel network - horizontal.

ii) The South African hotel network - horizontal.

iii) The City of Cape Town tourism network - vertical.

iv) The network of hotels in specific management structures - horizontal.

v) The network of hotels in a specific brand marketing affiliations - horizontal.

There is evidence of coopetition on all three levels within these various networks. Coopetition

appears to take place through resource ties on the local level and through activity links on a

national level. Activity links are evident between hotels that collaborate on specific actions such as

marketing and sales initiatives. Most of these bonds exist with hotels which are outside of the

geographic region and have a complementary offering in their property such as game viewing

84

experiences. Resource ties are evident between hotels in the City of Cape Town as they share

information, procurement resources and scarce resources.

It is evident that the nature of relationships in certain networks can impact upon the relationships in

other networks. There appears to be a hierarchy of importance placed on the networks by the

management of each organisation. It is evident that the management/equity networks hold the

strongest weight in the hierarchy of networks and that, decisions made in these networks impact

the willingness of actors to cooperate or participate in other networks. This is evident in four of the

sample hotels. There is little evidence of relationships between the various networks, the

relationships exist more at an actor level due to relationships which exist between individual hotels

management.

The destination marketing network appears dysfunctional when compared to the duties of a DMO

laid out in the literature review. There is little sign of effective fulfilment of duties like obtaining

events and conventions, reservations service, information resources and coordinating marketing.

Many of the hotels in the sample appear jaded with the system and therefore coexist with the

network. There are no signs of active engagement and this is largely as a result of a lack of trust in

the governance and competence of these bodies. The role of government in the DMOs is

perceived to be negative and there is evidence of the same symptoms identified by Bull (in Pike,

2008) where government appears to be allocating resources to projects that would not ordinarily

survive, therefore distorting the tourism model. The risk is that when these funds deplete an

unsustainable tourism model will remain. There is also evidence of tension caused by the smaller

role players in the Cape Town tourism network, confirming Gnyawali and Madhaven’s (2011)

findings that tension arises due to asymmetry of resource input, size of partners and status of

partners.

This said, it is important to note that the hotels in the region are willing to cooperate with a third

party in order to make Cape Town a more competitive region and destination and in order to

increase their own economic rents. There is a willingness to engage with an independent body that

can coordinate activities which are mutually beneficial to the hotels. Of particular interest are sales

and marketing activities, which are close to the client. However the region sees a need to work

together on marketing in order to ensure their collective success.

85

Table 5.1: Summary of coopetitive activities evident in the networks

Coopetition activities away from customer

Coopetition activities close to customer

Regional Network Information sharing i.e. stats

Resource sharing i.e. environmental expertise

Procurement

National Network Staff swapping

Staff training

Management alliances

International sales trips

Joint packaging i.e. sales

Branding

5.2.2 Factors affecting coopetition

The factors that affect the willingness of hotels in the sample to cooperate with their competition

can be divided into two categories, namely those factors inside the organisation and those external

to the organisation.

5.2.2.1 Internal factors

The management and ownership play a key role. Their outlook on coopetition is vital and there is

no chance of success without their engagement. They play a key role in building trust relationships,

and as we know without trust relationships coopetition is not possible.

The absence of clear organisational goals and objectives and the ability to build the relationships

necessary to found out about and align to the objectives and goals of other organisations is

essential. Without this the foundation cannot be laid for coopetition.

Communication skills amongst the leadership is key to building relationships, communicating goals

and objectives and maintaining the goals and objectives.

Shareholding and management structure play a key role. A hotel that is owned or managed as part

of a chain is less likely to form coopetition relationships outside of that chain.

5.2.2.2 External factors

Geographic proximity seems to be the major factor affecting the willingness to partake in

coopetition. The closer the hotels are together, the less willing they are to engage in cooperation

with one another. We put this down to the fact that most of the hotels have no faith in the DMOs

and are therefore not actively engaged in the network. They are therefore reliant upon their own

competitive strategies for advancement.

The economic climate is a factor which in this instance has negatively contributed to the

coopetition relationship as it has heightened the mistrust between the parties and elevated their

competitive strategic approach.

86

The role that a third party plays can both positively and negatively affect the relationship. The

incompetence of the DMOs has negatively impacted the relationships and no cooperation is

evident amongst the competition. However the role of third party affiliations to competent

international marketing companies has promoted coopetition.

5.2.3 Reasons to coopete

All of the reasons to cooperate with competitors have one common objective, namely to gain

competitive advantage in the market. Sharing knowledge, resources, cost saving, maximising

revenue, customer retention, improved product quality, improved service and up skilled staff are all

elements of a successful competition strategy. All of these reasons were cited by players in the

sample.

5.2.4 Benefits of coopetition initiatives

Hotels in the sample have seen benefits from cooperating with their competition. An increase in

occupancies, increased revenues, increased profit and increased brand equity were the key

benefits attained.

5.3 RECOMMENDATIONS

It is our recommendation that hotels engage in coopetitive relationships in order to strengthen their

competitive position. We believe that they should actively seek to do so through the use of a third

party as we do not believe that they will achieve significant success through individual initiatives.

Their primary focus at present is on sustaining their position in the market and this will not be

achieved through informal alliances.

We recommend that the hotels in the City of Cape Town engage in the following actions:

i) Actively take a stance against Cape Town Tourism as the City of Cape Town DMO and place

pressure on them to improve their service delivery. Unless this happens the hotels will be

reliant upon the broader SA Tourism network for their survival, which will result in a

shortening of stays within Cape Town and ultimately affect the position of the region against

other regions.

ii) Explore the option of creating a luxury tourism representation body which represents the

luxury offerings within tourism in the City of Cape Town. This body should be a vertical

network, which does not only represent hotels.

iii) Should (i) and (ii) not be options the hotels are able to consider due to the absence of the

trust relationship, we recommend that they actively utilise the marketing networks that they

are currently involved with and engage the management of these bodies to take a more

active role in the promotion of South Africa. It is our recommendation that these hotels

consider forming formal marketing and representation alliances within these bodies in order

to minimise their individual overheads.

87

5.4 FURTHER RESEARCH

An interesting topic to research further is our finding relating to the hierarchy of the networks within

the City of Cape Town. Of interest would be to conduct a study which looks in more detail at the

hierarchy of the networks and the impact of each of the networks on a hotel’s willingness to

cooperate. This study was conducted on a sample of six hotels and we would recommend that the

entire population be explored in order to get the full picture of the coopetition relationships within

and between the networks.

It would be beneficial to conduct a longitudinal study of the sample of hotels which shows how the

coopetition relationships develop and change over time dependent on a hotel’s associations with

other networks, changes in management and changes in equity. This would provide a better

understanding of the attributes that lead these organisation to deviate from a coopetition strategy

which has been beneficial at some point in its past.

88

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APPENDIX A:

HOTELS IN CITY OF CAPE TOWN

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APPENDIX B:

CHECKLIST

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APPENDIX C:

QUESTIONNAIRE

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APPENDIX D:

INTERVIEW WITH GABY GRAMM – STEENBERG

CONDUCTED ON 12 APRIL 2012 VIA SKYPE

STARTS: 13h30

KT: Thanks for your time. Please state your name and organization that you work for as well

as your position within the company?

GG: Gaby Gramm, General Manager of Steenberg Hotel, Cape Town

KT: Your company is privately owned, correct?

GG: Yes

KT: Before the meeting, I sent you a checklist regarding the biggest challenges and

opportunities that your company faces. I will be referring to some of those items in the

questionnaire throughout the interview.

GG: Ok

KT: Do you believe the opportunity exists for hotels to work together on some of the issues

that you identified on your list? You identified things like decreased occupancy levels,

increased competition, retaining market share in existing markets, new market penetration

and increased costs.

GG: Yes I do - within limits and depending on the location of the hotels.

KT: Can you elaborate a little on each of those? Can we start with decreased occupancy

levels? How do you think working together with other hotels can benefit you and increase

your occupancy levels?

GG: I don’t think it is just hotels working together I think we need to work together to make

Cape Town a more sought after destination. In order to increase occupancy levels you

need to work with authorities to ensure that you get more arrivals into Cape Town. There

are more beds to fill therefore we need to increase demand for bed nights. We need to

work together to sell the destination. For example, congress work: if you sell a congress to

Cape Town that will sell 10 000 bed nights. If we can achieve getting people into Cape

Town to attend a huge convention that will iron out a lot of the problems we face. But now

you have too much demand, increased inventory in the City. I think that we are all

suffering from the same problem: decreased occupancy because of the recession and

high inventory levels.

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KT: In your questionnaire, you refer to the link between increased competition, decreased

occupancy levels and obviously trying to maintain part of your existing market share.

Those things are all very interlinked.

GG: Completely interlinked.

KT: With regards to new market penetration, if you look at penetrating new markets - how can

you do that most effectively with cooperation with other hotels?

[Break in transmission – technical problem – interview continued telephonically]

GG: …South African Tourism who already have representation there and really should work in

that market to get us going on a road show together. That is what I would do - I would go

into the new markets but before investing any money into it at all, or going on sales calls

or whatever I will want to see the market and do the road show because it will be cost

effective for me to see what is going on out there.

KT: What is interesting to me is that of the three or four issues that we have already discussed

in all of them you refer to the use of or the involvement of a third party in the relationships.

GG: I think that when you talk about cooperation and coopetition you need to go bigger. That

is, you need an umbrella holding who will do that for you who. Who will facilitate that for

us, sort relevance and initiate activity and contact.

KT: In terms of the competency of those types of organizations, there are obviously very

important factors to consider like the strength of those organizations, what their standing

is, etc. How do you rate those organisations, on what do you judge them?

GG: SATOUR for example?

KT: Yes

GG: I would look at people who have existing knowledge in the specific market. I think in

coopetition you talk of exchange of knowledge and therefore it is more that than anything

else that’s important. We all have a common interest. We are not going to share clients or

let room nights go but we want to share knowledge. You then share on the next levels,

which will be authorities, which have done a lot of research on it. Use that knowledge I

mean I am not going to go into the Cape Grace and ask what is their experience of India?

They may say ‘I guess we did a thing there five years ago…’ and it either worked or it

didn’t. That’s not helpful. There is knowledge out there, one just has to use it.

KT: Coming back to your original questionnaire with regards to increase in costs, are there

ways (other than the marketing issues which you have touched on where there is cost

saving from travelling together, benefits of shared costs with trade fares, collective hosted

dinners and those type of initiatives) of working with other hotels that you could use to

potentially decrease your costs?

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GG: Yes. You could train together. When it comes to normal overheads, you could share a lot

together, use interpersonal relations and the interpersonal resources available - you could

even outsource these resources to each other. For example what we are doing with the

Vineyard Hotel now. They are very good with eco, green initiatives and the environment.

That is knowledge I don’t have. But I want to be doing something for Steenberg so I will

go to them saying ‘I know you have this eco manager can I use him? Can I use his

knowledge?’ What is he going to lose? He offered his eco manager to me for free

because I know him so that is where my interpersonal relationship comes in. We have a

shared interest and are like-minded. He could have said to me ‘I give it to you at a cost’. If

that had happened it will still be cheaper than starting the whole thing yourself - so there

basically, you have shared costs wherever you have a common interest and that creates

value of course - ecologically and environmentally, we are in the same area. You can do a

lot of common knowledge sharing that will not directly take room nights away from us.

Obviously, our problem is that we have a decreased demand, yet we all want to fill our

hotels. I think if you have demand increase you will find more coopetition.

KT: Are there any relations that you have with the global hotels in terms of seasonal work or

northern hemisphere properties for cost saving on staffing or anything like that?

GG: Ja, it’s very good - it’s seasonal. No, we don’t, but it’s a good idea. If you would be

internationally based it would work well. I suppose it’s a very good question to ask the 12

Apostles who have hotels in England. I would certainly look at if we had properties

available to us, which would do this sort of thing.

KT: We do that with golf staff with academy staff they work 6 months as a golf coach

somewhere else and then 6 months with us - I think that works nicely.

GG: That’s very good - share resources and address increased cost in off-season.

KT: Exactly - our industry is highly seasonal, specifically.

GG: I would want to get rid of some of my staff in winter send them somewhere - if one could.

It is easy to send them to game reserves as they have different high seasons. There are

good game reserves in Southern Africa, which could work well with Cape Town properties

because we all have different seasons.

KT: If you look at Steenberg’s direct competitors - Do you perceive yourself to compete more

with other hotels in the city of Cape Town or with those in South Africa? Are you

competing in a South African market or a Cape Town market?

GG: No, I think location. If people want to Cape Town it is destination driven, I don’t think I am

in competition to Saxon - because you know whether you are going to go to JHB or stay in

CPT. But when you stay in Cape Town, you ask yourself where in CT am I going to stay -

Camps Bay, City Bowl or am I happy to be out in Tokai?

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KT: When you sent through the checklist, you marked a couple of hotels you compete with. If

you look at the list and you had to choose your four main competitors.

GG: I would exclude the Westin, Table Bay and 12 Apostles.

KT: Is that because they are bigger hotels?

GG: No it’s because that’s what I hear from the market. People tell me where they are going.

They tell me they are going to One and Only because of the very strong marketing, they

are also going to Ellerman Hotel because they like that type of hotel - it’s very similar but

in the city. And then of course The Cape Grace is popular. The Cellars is our complete,

direct competition being the nearest five-star hotel in the area. This is really when people

are very niche, they want to go to a five-star hotel in Constantia - then I completely

compete with them and their offering

KT : If you had to choose four competitors outside the city of Cape Town, and when I say Cape

Town I mean they greater Cape Town Metropolitan area - if you look at going onto the

Winelands. Who would your main competitors be?

GG: Probably Franschhoek area - when it comes to Winelands. A client says ‘am I going to be

in the Constantia Winelands in the city or am I going to go to the real Winelands?’. Wine is

a really special interest. It depends on the interest in wine and food…Franschhoek or

Stellenbosch. If you look at the golf interest, they would go to Arabella or Somerset West

to Erinvale. Also for meetings and conferences we don’t want to go to Constantia lets go

to Stellenbosch or, that way as an alternative

KT: How big are your meeting and conferencing facilities - what size groups do you cater for?

GG: Very small, we can do 25-50 for day conferencing. But we do more and more small ones

really often .You may have a conference here for a week for 10 people.

KT: Is that is more at director level?

GG: Yes – executive meetings.

KT: You mentioned that one of the companies that you collaborate with was the Vineyard

Hotel but that was more on the environmental side of things. Are there any hotels that you

collaborate with from a marketing perspective? Do you do joint accommodation packaging

programs or sales trips together or road shows or anything like that?

GG: Not packages as such. I would not package with for example, the Cape Grace directly.

Why? I would gladly want to with other greater-Western Cape properties but I think we are

at the stage when people are trying to get the whole chunk for themselves. And then you

leave it up to inbound operators who can do two nights at Ellerman House then come out

here and they can package and sell the itineraries. I think we are all very careful with this,

I think you are limiting yourself if you package with say Cape Grace, but what if I have a

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client that wants to go to the Mount Nelson or Ellerman, I might lose the business if I

package with the wrong partner.

So packaging, not so much - road shows yes, but again only if facilitated by someone. So

you arrive at the road show and there you have to sell it and we work together there with

everyone so that whole umbrella facilitation is very important. You need a mutual body. If

you had a really effective Cape Town tourism body for marketing that would go out and

say we want to go on a road show or saying that we want to get a huge convention into

cape town with say 10,000 beds, are you on board, can you give me 100 nights in May, I

think we will all cooperate. We might even do it when it comes to our competition and

probably even charging the same rate, maybe - but you need a facilitator. But if I go to

Mount Nelson or Cape Grace and say ‘Are you happy to charge R1500 in June’ it will

raise suspicion. We need to be on guard, we need to fill our hotels so we are very careful

when dealing with one another. We also don’t want to burn the bridges with other

properties. I think as an independent facilitator you don’t have that problem.

KT: What is your opinion of the existing tourism bodies in CT and the effectiveness thereof?

GG: They are far too big and they are out of touch. They have to please their clients. To be

very fair to them - you see I am a member of Cape Town Tourism - I pay R5000 every

year but the Donkey Hotel in Durbanville also falls under Cape Town and they also have

to pay R5000. The difference is that for them this is very often their only marketing

expense - so they rely on it like you cannot believe. So these people put the pressure on

CT Tourism. “You must sell Durbanville as much as Cape Town!” I saw it when I had a

meeting with two CT Tourism representatives who represent CT in the UK and America.

They said it is so difficult for them because it is great to say that Steenberg is the best

property outside of Cape Town, but they can’t say that and they can’t choose particular

properties because they have to please about 1500 members.

KT: That is a lot

GG: It’s very difficult. But where you come out is when you sell the destination. CT Tourism

seem to not be competitive in getting big conventions here. Look I know it is a money

issue because convention organizers buy packages so they will say ‘it can’t cost me more

that R30000 for delegates to come’ and that is why the European convention destinations

are so competitive because they are the centre of the world. It’s easy to get there. So

what can CT Tourism do? They are not very effective - they are on a shoestring budget

and I don’t think you can rely on them.

KT: Why have you never joined a global marketing organization –for example a Relais and

Châteaux or Leading Hotels of the World or one of those?

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GG: Because I think in Africa they are not strong enough to do for you what they can do for

you in Europe, the States or Asia. If I look at Relais and Châteaux, I am not going to get in

there because they are our direct competitors. Cellars Hohenort is a controlling element of

Relais Châteaux. But then I look at what that really gives you - their hotel is empty. I think

the costs at 24 rooms are not worth it. You have to ask yourself are doing it for your ego

or to get revenue out of it? We always find that the Leading Hotel or the Leading Small

Hotels is a lot of money. I don’t have enough inventory to warrant that. I really believe I

would rather spend that money elsewhere to fill my hotel and be in direct control of my

marketing and the way I want to position myself. If I were in running, a hotel in London or

Paris it would be very different. I think in Africa it is these organizations are just not strong,

enough to give you room nights. Relais Châteaux is French and France based. It is and

always has been French. They have ventured into Europe a bit and onto other continents

but what are they going to give you? 2-3% increase in revenue? That is not going to cover

my costs.

KT: Do the bodies like CT Tourism encourage you to work together and to collaborate or do

you find that they deal with you like one-on-one operations?

GG: They did deal with us to get our knowledge. I feel that a lot. They want to get knowledge

from us that we have. They are admin people - they get paid a salary, they have to justify

themselves and their existence. They are like a government department - I found them

very rigid and governmental - they don’t work on commission so they don’t really have to

bring people into Cape Town. So they just phone me once a month or send an email like

they are ticking off a box.

KT: So they are more bureaucratic.

GG: We need a private body that can really get this going that has a financial and has a vested

interest in its survival. We need someone who just covers the five-star properties in Cape

Town. That covers the luxury market in Cape Town.

KT: In other words a for profit organization with a collective interest at heart?

GG: Absolutely, the collective interest is there and we have a partial interest at least not for

everything but to create value. What is the value to bring business into CT? I would be

very happy to partake in that. I won’t be the first one to take advantage of it - I am not

going to see the benefit from it immediately because these people are still going to stay in

the Waterfront and I am just going to get the overflow. But I know it will be helpful to

market Cape Town and have these people out there and hope they are going to go wine

tasting hope they are going to come have a meal. Obviously, what is very interesting is

the really big conventions, which spread out to the whole CT Metropolitan area.

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KT: If you go back to the environmental issue that you touched on earlier. Bodies like

FEDHASA; do they play any role in developing you and encouraging you to work together

and to, for example, collectively work on a environmental initiative or labour broking issue

and collectively take a stance against government or an environmental body in order to

gain either recognition or benefits for you.

GG: Yes, FEDHASA has - remember the liquor law issue in CT - they were very good at

pulling that together - I think they are good to be really fair. I am a member, I pay my fees,

but more so, I can play in the golf day every year. But to be honest I am really not taking

advantage of it. Why? Probably I do not really believe in their ability. But with a labour

issue, sure - I would pick up the phone and ask them about a labour issue? Absolutely - I

use their knowledge. I think they are trying- I think they could be a body that could

definitely help. If they get together with SA tourism and you have a whole thing covering it

– Ja, they would. I mean it is a bit political I think, but we could definitely do more with it I

think. It makes sense because this is our body.

KT: Are there any hotels locally or internationally that you cooperate with to strengthen your

brand?

GG: Yes, with Golf Resorts we have some mutual agreements internationally. Where you

exchange rate and benefits for each other’s members - so more on the golf side.

KT: And if you went overseas or for example wanted to do a function or an event in another

area, is there I brand that you would want to affiliate yourself with?

GG: Oh ja it would be very luxury - definitely ja. Luxury brands. If I go overseas, we make sure

we do something with the top hotels but a particular brand? No. Not really – it depends

what city you are in. I would look at the flavour of the month, because you attract attention

because you are already dealing with a spoilt market. The luxury agents are very difficult

they always have to come up with what is the latest. If I was in New York, I would choose

Mandarin Oriental and not the Plaza because it is the flavour of the month. Its hip and

happening. You choose something that you want to portray yourself in terms of property.

We have no alliances, we are not Relais and Châteaux so I don’t have to go to a Relais

andChâteaux property. But I must say that people internationally are very cooperative

because you don’t see yourself as competition. I am very happy to help a hotel who wants

to sell hotel rooms into the Bahamans. I will help them as much as a I can and I would

give them a good deal, so there is no competitive spirit.

KT: So that is more like of kind of colleague?

GG: Ja that is a colleague. That is pretty much to work on one of your variables to increase

costs you try help people to cover their costs.

KT: And spread their marketing budget as far as they can?

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GG: Exactly

KT: On the technological side of things, specifically of you look at things like e-marketing. Are

there a) any properties that you would collaborate with or that you would ride on in order

to strengthen your own e-marketing like Twitter or Facebook strategies? And are there

any companies that you would work together with in terms of sharing their experience on

the e-marketing side of things - website design, technology use - those types of issues.

GG: Ja, we look a lot of this. Are you talking about properties?

KT: Yes

GG: I look at good websites - e.g. Cape Grace, I will find who help them with IT or what PR

agency they are using. But I will not phone them directly. I will not phone Mike at the Taj to

ask him who is doing his social media.

KT: Why wouldn’t you?

GG: You don’t want to come across that you starting to copy someone. I think we are not in an

open environment. I wouldn’t mind phoning George Cohen from the Saxon to ask him for

something though.

KT: So you are more likely to phone someone with the same issues outside of your region?

GG: I am phoning you to get advise on who you are using and then I am going to steal room

nights from you, that is why I am hesitant and have to be honest not a lot of people would

phone me for this.

KT: Only Fancourt? (laugh)

GG: Yes, because we are not in direct competition - you wouldn’t phone Oubaai to ask would

you? You can be as friendly as you want to be but it reveals what you are up to- your

strategy. I think it is very sad but I think it’s the result of the pie getting less and less

because there is so much out there.

KT: My next question that you touched on briefly now, was the factors that have hindered

attempts at cooperation the past – mistrust, lack of desire to expose you own strategy,

wanting not to share room nights…

GG: Ja, you don’t want to expose your strategy where someone can bite you in the back. It can

be very flattering when you are being copied, but it’s dangerous.

KT: So you would be more likely work with properties that are outside of your region or

someone with whom you have a close trust relationship and you know the information you

are sharing - like Lex from the Vineyard is trusted.

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GG: I think also the way you communicate is important. Are you on the same level? Are you

open? Do you have an interpersonal relationship and how do you go about doing things?

So you talk to those who are like-minded.

KT: Do think that companies that choose not to collaborate (e.g. if the Cellars chooses not to

collaborate with hotels in CT because they are focusing on hotels in their group)will see

long-term implications that are negative? What will be the consequences for these

organizations?

GG: Isolation - I think the Cellars is a really good example to use - because they missed the

plot a bit because they have been sitting on their rates. I think they are too far to focused

on saying that we have three hotels and we want to keep everything in a little circuit. Look

at Liz Biden from the Royal Portfolio for example she is much more open in her marketing

approach. She shares information. I am not sure if she is making a financial success of it

but at least they have a better image of themselves. I would rather talk to her than Liz

McGrath – Liz McGrath has a reputation for being very unhelpful.

KT: I think they as a chain appear to have a strategy to be competing across South Africa as

opposed to Liz Biden who competes with the hotels in her region as well as offers the

opportunity for you to travel through SA - it’s a different approach.

GG: Yes a different approach - but I think it works better but I don’t know how it is affecting her

occupancies, but at least she has a good image. The image of Cellars is that it is dead.

KT: If you look at the situation pre-recession and now in the recession – as we are still in a

recession environment - would you say that you would be more likely to be in collaborative

mode now or prior to the recession?

GG: I think when we all do well we are more prepared to cooperate. I am more generous to

cooperate when I am doing well, than when I am already struggling and know there is so

much competition out there. I tend to be more guarded and protective. But it has to do

with trust again - if people are communicating in a different way and are not likeminded

then I also don’t collaborate. I think you need to work on the relationship. When we are

doing well we are generous when we are not doing well we are more about our strategy

and make sure we don’t reveal too much until the last moment. If I appoint an American

sales rep, I will not tell anyone until the last moment so that I can retain my competitive

edge in a market.

KT: And if you look at your F&B offering…crockery, cutlery, linen…with being an individual

hotel are there organizations that you try to work with where you could partner in terms of

bringing equipment into the country? You mentioned the Saxon earlier, will you ever pick

up the phone and tell George that you found some incredible linen and that if you buy in

20000 pieces; you can get it for X rand, ascertaining if he will be interested?

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GG: Wine purchases yes - you know like you go to the Nederburg Auction together. We do that

quite a bit in our F&B department. I think that’s really good Kerrin, when it comes to cost

cutting. If you talk about coopetition, it probably talks more to cutting costs - because you

are not losing anything as is the case with strategy, because you all have the same costs.

But when it comes to increasing revenues as such, I think that is where you could do

much more. Depends who you speak to - again you need to speak to likeminded people, I

want to buy this are you happy - we using the same standards and same resources - I

think much more cooperation when it comes to sharing of costs. But then don’t make a lot

of noise about it.

KT: So that can keep charging the same prices you are charging?

GG: Speak to likeminded people in the industry. I am not someone who networks a lot with

other GMs but I have been doing it so long, it is not my purpose or just not something I do

a lot. I do but I choose the people who are like-minded I can pick up the phone to Horst

Frehse at 12Apostles and ask him all of this - but it is not generic practice. We do it but

not with all the hotels on the list, you sent me. That will not survive, occasionally I speak to

12 Apostles and package little things (helicopters) but that is not the solution. It needs to

be bigger - we need bloody room nights? How can we have Africa mining in February?

KT: It should be winter.

GG: Yes but someone on government needs the authority to do this - we all have a shared

interest. It is probably because these mining people want to be here in summer and not

winter.

KT: The amazing thing that comes out over and over to me is the role that politics plays in

tourism. We just dealt with a major thing with Volvo and it is frightening. The politicians are

not thinking of SA as a destination they are looking at whether it’s an ANC or DA majority

region. And I think the Western Cape and the City of Cape Town is probably penalized as

a result of that as well. Central government or department of mining doesn’t actual care

what happens in the Western Cape it is just a case of get on with it and sort your stuff out.

GG: It has always been your private sector has been very successful - it has always had more

influence.

KT: Why do you think for example that in an area like Franschhoek, where you have a person

like Susan Huxter, who went ahead and drove the tourism process to develop

Franschhoek it worked? Why do you think that worked better than something that would

be spearheaded by an independent party?

GG: Interpersonal relationships, good communication. It started off very small, small

community. We always ask ourselves, why can’t it work for Constantia? Why can’t we be

as successful as Franschhoek. But we have been successful and now we are not doing

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so well. They started from scratch. When your hotel burnt down you pulled together … but

I think, it might be a bit different now that everyone is suffering a lot more.

KT: I know there has been a lot of mistrust when I speak to the guys in the Franschhoek

region and there is generally that perception that ‘oh look there is another journalist

coming in I wonder where they are going to stay’? And you do get those elements of

mistrust coming into it and it is more now that Franschhoek has become bigger and the

pie has to be split amongst a lot more people - it is very similar to your Belville example

you mentioned earlier. It’s like Anura who also belongs to Franschhoek at the end of the

Klapmuts Valley.

GG: Yes and they pay the same money. I don’t want people staying in Klapmuts - why are they

not staying in Franschhoek main road. I pay my R5000 and expect nothing but these

smaller guys expect a lot more because it is often their only marketing tool. Fighting this

big body here. I think if you privatize something like CT Tourism, it will be much better.

KT: Where it is run for profit?

GG: Ja, where people have to deliver on performance.

KT: I suppose Franschhoek Tourism, although it in non profit, it is almost a private body in that

all of its directors are captains of industry and they have got to run all those events at a

profit to funds for tourism marketing.

GG: Whatever they do its working. Even today- If you look at their occupancies, they are still

as good - so definitely major competition for us outside of Cape Town. And why, because

their tourism body is doing very well.

KT: A professional marketer runs their tourism body. That comes back your statement earlier

about the competency levels of the tourism staff.

GG: They outsource and then bring in specialists - 6 months ago this Australian guy - he put

the Kiwi campaign on and they brought him in to consult to CT Tourism and they made a

lot of noise about it. I mean if I bring a hotel consultant in - I am never going to tell anyone.

KT: It is a bit embarrassing.

GG: It shows even more incompetence.

ENDS 14h45

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APPENDIX E:

INTERVIEW WITH NEIL MARKOVITZ, NEWMARK HOTELS

CONDUCTED ON 8 MAY 2012 at NEWMARK HOTELS, CAPE TOWN

STARTS: 09h30

KT: I sent you a checklist did you have a chance to look at it?

NM: I looked at it but didn’t have a chance to complete it.

KT: I just want to know which hotels you consider your direct competitors, when looking at

your five-star properties. I am not too fazed about four-star as this is a five-star study.

Who is your direct competition in Cape Town?

NM: Let me answer that by saying that we use STR benchmarking (STRglobal.com)–where we

choose our competitor set online. We believe we compete with the Cape Grace, Table

Bay, One and Only, The Westin and The Radisson.

KT: And when you compete with them do you believe you compete more on rate or product?

As a five-star product is your focus more on competing in terms if the product you deliver

or the rate you offer?

NM: I think it is both - if you look at properties like the Westin, they are really not behaving in

the five-star market in terms of rate but they are selling themselves as a five-star property.

So, when you look at the Westin online, where a lot of our businesses have really

changed dramatically because of the way we position ourselves online, I think we play in

the five-star rate. We have certain parameters that we will play in but we also won’t drop

to below our competitor set, so to speak. So we monitor their behaviour on line and they

monitor ours. But to a certain extent there has to be a certain amount of rate behaviour

and I think that is what the customer is seeing. He is saying “I am looking a five star hotel

within the Waterfront and if Newmark is at R5k per night and the Westin at R2,5k” then I

have a problem. I do believe that because the properties have been given the five-star

grading it does hold a bit of credibility to the guest, to the purchaser. So if he sees the five-

star selling at R2,5k then he invariably might take it.

KT: If you look at location, it is obviously a big thing that you compete in. You are pulling

people into a location. Once they are here do you focus on your internet infrastructure,

your rooms offering, your F&B your bathrooms? What is your draw card?

NM: We like to think of ourselves as a resort within the Waterfront. So when you look at our

three properties in the Waterfront we set it up so there are fibre optic connections to all

three properties. So any guest staying at any one of our properties can use any of the

facilities merely by signing for the use of it. We’re kind of categorized as a resort so that

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they can be at the pool at Dock House, they can be at the bar at the V&A or having

breakfast at Dash. So that’s kind of how we position it.

Obviously, from a Wi-Fi experience you cannot get away with inferior Wi-Fi in today’s

market.

KT: Do you charge for it?

NM: No, we don’t charge for it. We spent a lot of time and a lot of money getting that right.

Guests have been able to gain access, understanding that different devices are going to

be harder. Working on scenarios where, and a lot of these Wi-Fi systems don’t allow for it,

is when you have two people in the room and three devices - how do you connect three

devices from one room? Those of the kinds of things we have had to work through.

Wi-Fi is very important as is F&B. Gone are the days where you just believe F&B is a loss

leader and you are just going to make money out of the rooms. Our F&B outlets have to

justify their existence they cannot just sit there and lie down and pretend they are a

subsidized entity. They have to fight for their own existence. So much so that the F&B

managers and the chefs come before us in a finance review meeting so we look at their

departments separately on how they behave regardless of how rooms division has done.

So, F&B, Wi-Fi and obviously our style of management in terms of how we manage - still

very much like a mine-host style of management, so it is quite personalized, yet is has

grown so dramatically.

KT: You have obviously made brilliant relationships with your STO’s through the years, being

one of the first to open in Cape Town, which must have made a big difference amongst

the competition?

NM: It does, but a lot of people have fought us on rate a lot of the new entrants in the area are

fighting on rate. So it is not always easy to hold onto business. But we are very confident

in our product and proud of our product. So people might leave us to go experience

something else, but I think our locations here in the Waterfront are exceptional in terms of

access to the Waterfront.

KT: With most of the quality product that I talk to, the One and Only comes up often. The guys

are saying that One and Only tried to go and price cut them but what happened is that 90

percent of the clientele come back because it is a different product to what they are used.

They say it’s maybe going to take five percent of your business but not all of it because

you are a unique product.

If you look outside of Cape Town area - who do you compete with there? Do you see

yourself as competing outside of Cape Town in South Africa?

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NM: I think that Cape Town as a brand is the hook into the Western Cape. I think it is a brand

and as a result of that, us Cape Town hoteliers have had to take on the responsibility of

selling other destinations through our brand. For example, somebody stays for two days at

V&A and they are looking at having a West Coast experience, we would push them

towards Paternoster. I don’t believe that the Stellenbosch’s, (okay maybe Franschhoek is

the exception), Paarl, West Coast for that matter… I think they sell themselves through

Cape Town and that is why we are, we especially at Newmark, are pushing this whole

alliance type offering. They are going to come to Cape Town first then they are going to

experience the Winelands. For us there is a tremendous opportunity to sell the Winelands

experience, Paternoster experience, hiking or helicopter trips to Asara and various other

wine farms. Sell it through the brand. What we have done is set up a business called

Marvel Tours, so we cater to that. It is a separate business to the hotel business but we

have a fleet of vehicles, so we try connecting people up to those other experiences.

KT: Obviously Newmark is trying to be seen to be independent in terms of being an

organization that arranges corroboration between properties and hotels. Is there any

mistrust that you have to deal with amongst the other properties that would perceive you

trying to fill your hotels first? Is that a big challenge you have to face?

NM: The way we structure our set up here - there is such a level of transparency that if I have

to take the Waterfront - it is a different animal. People say we want to be in Waterfront or

we want to be in Bantry Bay. And then we have our four or five-star properties, there is no

conflict because we are not competing - you know the V&A is not going to compete with

La Splendida or Ambassador on rate. They are different worlds.

What we have always been conscious of is making sure that the hotels within the portfolio

are not fighting within themselves for rate. Because I think then that does become a

conflict. Obviously, the idea is really to grow the management side of it but we are also not

afraid to buy equity into more properties. I think there is value out there. I think there is

huge opportunity out there at the moment, we are looking at certain properties and not

only in the Western Cape, but in Johannesburg and in Durban as well. Something we are

also looking at adding to the portfolio is a Game Reserve experience as well.

KT: Especially in terms of the American market and also the Eastern markets - we see it with

India and China as well - game and golf are big. Golf is a huge attraction in China but out

of India it’s game that’s the hook. But you can put them into one of those Garden Route

Game lodges and they are loving it.

NM: That is the behaviour, with almost a shift I think. If you look at how many people we send

to Aquila for a day trip. It just blows my mind how many we do every month whether they

are staying in a five or three-star hotel. I think people today are so time-focused, they just

want to tick the box and they want to say “I have seen the lion and now I want to get back

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to the Waterfront or the City”. We often laugh at these glorified zoos but they do serve a

purpose for a certain type of tourist.

KT: We find as well that we put a lot of business into Gondwana.

NM: I was amazed at the numbers that go through Aquila.

KT: Outside of your portfolio, do you have any corroborative relationships with any of the other

hotels, sharing of information?

NM: We do. I think sharing of information has become a little more serious. I remember when I

was chairman of FEDHASA and there were about 40 hotels within Cape Town, prior to

STR or any benchmarking survey out there. We had about 30 to 40 hotels and the GMs

used to get together every month and we used to share information and there were group

hotels there as well. We used to share statistics, live occupancies, REVPAR, average

room rates, that type of stuff. We used to do that. Some of the groups were concerned

that there might be some kind of collusion in terms of price fixing, so we stopped it - but

back then that was really the only way of understanding what your competitors were

doing. And we always knew some guys always cheated, included VAT or didn’t include

VAT. A lot of ego was involved. But we worked them out and just adjusted accordingly.

It was a little boys club of guys getting together to understand what each were doing, but I

think since STR we don’t need that any more. I think it is a fantastic service - we look at

that every day, we almost look at that as a guiding light. We have a revenue manager

here and she just manages revenue and for me this industry has a shelf life. A room has a

shelf life - it is a perishable item - whatever you don’t sell, today you can’t make up

tomorrow. It is all very well to say that but it is very difficult to drive that into your

organization, drive them into that mindset so that they see it that way. I am in that space, I

am in that world. Rate is important to me but I am not a listed company, I don’t have

millions behind me, sometimes turnover is what you have to create.

KT: Cash flow.

NM: Yes, it is all about cash flow. And so that is why the revenue management side of our

business is so important. That is why we sit around the table every Tuesday morning and

we analyse revenue for an hour. We analyse and understand. We also look at our

competitor set. Where were we last week? So it doesn’t go a whole month before we

analyse it - it happens weekly. We can identify the issues and deal with them immediately.

And it is so instant because what is happening is, as you know, we sell rooms while we

are sleeping and we need to take advantage of that.

Interestingly enough what we have done now is we have made it the responsibility of night

audit to process our on line bookings - because they don’t have much to do. So it is a

great way that reservations gets to work in the morning, and the bookings from the night

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before are done so they don’t have to start processing - its already done so that they can

hit the ground running. But it is amazing how quickly, through the various OTA’s (Online

Travel Agents), that you can pick up business - it can change in a month and what is

interesting, we were finding, what we were picking up is that if we have our forecasting

turnover and occupancies for the month we were picking up 10 percent for the month

within that month.

KT: With the hotels in the region, do you have any relationships in terms of environment or

staff initiatives or do you use your labour pool within your own hotels?

NM: I think we are quite good inside our little world but I don’t think we are as good as we

should be with other hotels in that area.

KT: It makes sense because you have economies of scale yourself and I am sure

procurement wise you can certainly use it to your advantage.

NM From a procurement point of view, we have a very strict set of criteria, in terms of

procurement.

KT: Do you have a centralized procurement office for the hotels?

NM: No. We do but it comes out of head office. What we do is when it comes to procurement

of liquor or food there is a three monthly supplier’s ‘bosberaad’ type of thing. Invariably

what happens, everyday you get someone who wants to sell you orange juice - you can’t

keep taking that on board, so what you say to anyone who wants to sell you orange juice

is: “our next meeting is on x-date, so you can present your orange juice, your price, your

product, your quality”. Then they present their company and their infrastructure. Then

between the hotels in the group, the chefs will then decide. But the key is that we will have

one orange juice supplier, not five - we are going to have two butchers and not eight.

Gone are the days where the chef needs a particular cut from a particular butcher - they

can be part of the decision but we are signing cheques for two butchers - you got to keep

those economies of scale. The same applies for TV, furniture, paint, carpets.

That is why some of the smaller hotels like La Splendida, that was standing on its own,

can buy in on that whole procurement thing. And people can become more productive; a

chef doesn’t have to spend hours on the phone bargaining down 6 cents on a jar of

pickles. Here it is done for him - he was part of the decision, but it’s done so he can go

and worry about what is happening in the hotel today. We also looked at growing this

aspect outside of our company because we saw the benefit of this when we built this hotel

and we set up a little procurement desk and we had someone really managing the

process tightly. It was with proper procurement and the time to analyse these things and

go through it because it is very time consuming and invariably, in the small hotels, we see

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the GM’s doing it and that person doesn’t have that kind of time - they need to run a hotel.

Yes, there is opportunity there.

KT: We also centralized our procurement - particularly across the golf courses with having

three golf courses - previously the head of each golf division was doing its own thing and

we are saving a fortune on all our costs just from central procurement. Each guy had their

own uniform supplier, own petrol supplier, etc. They were buying petrol from different

garages and getting it delivered.

NM: Amazing.

KT: When you say you are looking at expanding Newmark into areas like Durban,

Johannesburg, etc. What are the criteria that you look at when considering hotels? Is it

tourist destinations or corporate pull or South African business destinations you consider?

NM: You know what we look at - we look at adding properties that help us so that there is a

synergy within the group. That way I can sell within the group and that is quite important to

us. There is no use having properties that don’t add value, and by the way you can sell

three, four and five-star properties within the same group. When we look at properties in

Durban, we wouldn’t take on a 500-room Westin-type product but we would look at a 150-

bed, so the synergy of our portfolio remains consistent.

We think that our customer base here in Cape Town that travels to Johannesburg will stay

with us in Johannesburg. Like we are getting our Johannesburg based guys staying with

us in Cape Town we think the guys would. So because of our database and our strategy

of how we contact our customers and stay in touch with our customers, we realized how

many of our customers staying with us in Cape Town are going to Johannesburg every

week. Then, when you have built up that type of loyalty, they are also going to go on

holiday so they are also go to look for a game lodge or reserve experience and then you

may incentivize them to stay within the group. But we don’t have aspirations of having

hundred of hotels. We don’t want a map of South Africa with pins in it.

KT: Not like the Protea?

NM: No, it’s not what we want to do. It’s really got to make financial sense for us and to add

synergy to the group - those would be the prerequisites.

KT: Your market, is it more South African or more international, or an even split?

NM: At the V&A Hotel 80% used to be international but over the last 3 to 4 years we had a

shift. One had to become a lot more domestically focused. You can’t just sit there waiting

for the planes to come it.

KT: Have you done that successfully? That shift?

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NM: Yes but we have had to compromise. Because by going domestic you are going to not

achieve the same rate - so there will be a dilution in rate, but that is why I am saying to

you, when three years ago, where we were doing well we had wonderful sales and

marketing budgets and strategies. And they are well if the world is happy but if the world is

not happy, you have to turn it around. As the saying goes, you have to fish where the fish

are. You can’t just throw your lines in the water and hope those same people are going to

swim by and bite. We have turned it around, we have become very domestically focused

but we still do the overseas shows. We go to China in June and South Korea and North

American road show in September, Indaba and trips to the UK. So we have tried to say

maybe we will be more successful outside of the traditional shows; rather go on sales trips

as opposed to exhibitions.

KT: We have also started doing that about two years ago - keep one or two key shows like

Indaba. If you don’t go to Indaba they think you have closed. And then focus on literally

either bringing the market to us - because that is the problem with the East, particularly.

Many of them don’t even know about South Africa, so educate them not on George but on

South Africa. Bring them in. Phone up a hotel in Cape Town say you are bringing down a

group can they stay with you we are paying for flight costs you entertain them and actually

educate them on the destination - at risk, yes, but them you have 10 people that are

ambassadors to the country in a new market and that is ultimately what we are trying to

do.

NM: Yes. You see there is also massive opportunity of forming alliances. So if Fancourt has

alliances in Cape Town - I remember in the old days the Fancourt and the Ambassador

used to do a lot of staff training in Cape Town and we had these alliances. And these

things work - I have seen them work. So when Lena is sitting in North Korea and they are

talking about golf she says you know what we have this relationships or alliance with

Fancourt - this is what is looks like, this is who you should contact. I remember when I

was involved with Cape Town Routes Unlimited - I used to play a lot of golf back then and

I had a passion for courses on the Garden Route and I did this study if looking at them at

how independent they were a setting themselves out and how they projected themselves

to the market. If I was coming to the Garden Route, I would definitely want to play

Fancourt but I would also want to play Simola, Oubaai or Pinnacle Point. For Fancourt to

maybe naively think to get everyone there…. But if they had to they had this aligned

strategy - it is all in the numbers. I have always felt that it has been tough in the Garden

Route because we fight against ourselves.

KT: We battle with it and it is one of the mind-sets. Because the perception is that you are the

‘big boys’ so you want the business - but we are saying it doesn’t matter where they stay -

if they stay with you they are going to play with us, if they stay with us they are going to

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play with you. It doesn’t matter; let’s just get them in here. If they come back a second

time and they switch to a different property - that’s ok, that’s about our product and how

strong are game is there - but get them into the region first. But dealing with the mindset

and being the ‘big boy’ where the perception is immediately one of mistrust… what is their

agenda? I am sure you find that as well with being one of the biggest hotels in the area.

NM: It is a mindset when you go a tradeshow and sit down with a new client the first thing you

do is talk about South Africa and then talk about Cape Town and then you talk about your

product. You don’t launch off into the V&A or the Ambassador. It is not difficult to talk

about South Africa or Cape Town. And that is why I found it particularly frustrating with the

golf courses because golf tourism per se is still - there is still so much potential in golf

tourism and I blame, to a certain extent, the marketing organizations. I think Cape Town

Routes Unlimited have done very little in that space and South African Tourism have done

absolutely nothing.

KT: Well last year was the first time ever they put money in marketing golf. We formed SAGTA

South African Golf Tourism Association - we actually drove it ourselves with the guys from

Arabella before they were taken over. Getting South African Tourism to form SAGTA, we

managed to get a whole R3 mil out of SA Tourism. But for the first time ever, which is

actually pathetic when you consider what countries like Spain, Portugal, etc. spend on golf

tourism.

NM: Use see the perception from SA Tourism is that it’s a white sport or an elitist sport - and

that didn’t fit into their criteria - it wasn’t on their radar. But I think that is changing. I still

think that the regional tourism players have a role to play and I think what has happened

and because they have been so pathetic and leaderless like a ship without a rudder,

bobbing along. We as organizations have had to start to doing a hell of a lot more

destination marketing as a result of the poor performance of our regional organisations.

And when you look at the amount of money that is spent funding these regional

organisations it is absolutely mind blowing how it just gets squandered. So I have been

quite vocal about that I feel quite strongly about that. Because when you have five or six

properties going out there (ok you have a little bit more if you are going out there as an

independent), we are going to countries now where we should be riding on the back of

Cape Town Routes Unlimited or SA Tourism so that they give us an introduction, and we

ride on the back of it.

KT: They are riding on the back of us. Every time one of them has a meeting with one of us,

we get the feeling they are trying to find out who we are dealing with and what contacts

we have made so that they can then go piggy back them for the guesthouses.

NM: It is the complete opposite of what should be happening.

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KT: It is true.

NM: I am a bit jaded by it all so that I am leaving the fight up to other people. It becomes a bit

of a political football. That gets booted around.

KT: What is your view of this consolidation that has just happened now with the tourism bodies

in Cape Town?

NM: I think it is positive. There are some good people there that haven’t been able to do good

work because for the structure. If you get the structure right, the good people will flow to

the top and the good people will do what the good people do which is to lead, follow the

strategy, to achieve, they will be accountable, they will move away from this defensive

stance that they have taken. But they achieve nothing - I mean I have often said to Kelvin

Gilfillan ‘What do you do every day? What do you do when you get to the office? What

does your organization do?’ So I am very passionate about hopefully getting that right and

I thought the DA had a fantastic opportunity to get it right because they controlled the city

and the province – whereas when we lived in a world where the province was controlled

by the ANC and the city controlled by the DA and they would never agree on anything -

they now have the perfect opportunity to get it right. But they haven’t they have lost the

plot.

KT: We’ve just had the most remarkable experience, I don’t know if you saw it but earlier in

the year, we had the Volvo tournament? Last year when they come out to explore SA as a

venue because they had to move it out of Bahrain last year. They came to us and

government came to then us and they said that is fine we are happy we will come on

board and they gave them a verbal agreement. And by December, they still did not have

the funding from government so we had to sit around the table ourselves, Volvo,

ourselves and IMG and say this is the budget; what can we cut so that we can make this

thing happen in January? So we didn’t sit with egg on our faces without government. We

went that route. We took a bath on it, so did all the parties - we were completely

transparent about our budget and made it happen. When we made it happen we said let

us get government involved in it and we made sure that the right players were there at the

event. Form a SA Tourism perspective, ministry perspective, sport and tourism, etc. We

stayed out of it because we were aware that last year what happened is government had

come back to them saying we will fund it only of it is if an ANC region otherwise we are

not interested in funding it. That is the only way you are going to get money out of the

minister of sport although there had already been a commitment from SA Tourism. Volvo

and IMG have played very open cards with is. And we said that from a negotiations

perspective it is better that you negotiate from your commercial perspective as Volvo as

an entity instead of us as a little whitest elitist business in George - we don’t really have a

leg to stand on. Two weeks ago, the guys from Volvo and IMG flew out to meet with the

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guys from government and the minister and they didn’t pitch for the meeting. That

tournament was viewed, by 200 million people globally that are looking at South Africa. If

you leverage the TV rights, and IMG owns the TV company that produce the golf so you

can negotiate what you want in there, a feature on SA at five min intervals - but the

minister and all the departments don’t have the foresight to think of that and all the are

asking for is R10 mil and that is not a lot of money, in the greater scheme of things.

NM: So what is happening this year?

KT: We are still busy negotiating for next year - but they actually can’t get their act together

and come to the table. We are elevating it and getting Alan Winde and seeing if there is

anything, he can do from that side. I am going to get Jabu Mabuza involved in

Johannesburg because he is at least connected with the ministers. He is however saying

to me that at the end of the day people who have no control over the budget are making

the promises. They just don’t get our industry. It’s all about their ego. We need to get

some commercial brains into these places.

If you look at CT Tourism do you think that if we had to get an independent body formed -

completely independent of government - that is what Franschhoek did - do you think….

NM: That was the whole Lewinski debate. Setting up a section 21 and letting the industry drive

the process and I must say I was talked giving government a chance at the time because

we would have all these industry leaders on the boards so industry would steer it but I

don’t think we have been successful and I don’t think we will be successful. Because it is

just not commercial enough in its mind-set as you say - like when you tell me about your

golf story and there are hundreds of these stories. You need an organization that

understands the commercial side of it and that decisions need to be made so you need

take bureaucracy out of it and have an organization that can react. Cheryl would have

been that person but we were coerced into going the government route, which in

retrospect I think we made a big mistake. I was part of that; I thought that if we had

industry experts and the right- guys on the board it would make a difference. But you

know what happens is that we all get punch-drunk eventually because you just take so

many body blows and you just get fatigued. You would sit in a board meeting for five or 6

hours and it’s just this political play and everything is politics and bureaucracy. You would

have one or two minister representatives who just came for the sandwiches and you can’t

make a decision so eventually what happened is that the calibre of the people that were

sitting on the boards just got worse and worse and the guys sitting on these boards said I

just can’t anymore I need to run my business. Industry became jaded and punch drunk.

KT: Do you think in Cape Town - there are two ways that it could go- there is either going to

be more organisations like your own that are going to be formed and in way will take on a

more market destination role where you will end up with 10, 15, 20, 30 properties in a

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country or it is going to end of where a section 21 company will be formed with an

independent person we all know and respect and that we are all willing to support and

contribute towards. Which do you think is likely to work better?

NM: I would definitely support a 21 and having industry buy in and we control our own destiny

as a destination. I really do not see government doing that effectively, I just can’t - let

alone national.

KT: Do you think government will get involved in funding there? Do you think they would

release…

NM: I think there are complications in terms of the Public Management Finance Act, that I don’t

think allows them put to money into section 21 - we looked into all of this back then.

There were problems there, if it was a section 21 and industry controlled it, industry would

have to fund it. Whether it’s feasible or not… but having gone the other route before I

would be more than happy to entertain the idea of a section 21 - we have do something

we cannot just sit there and hope that the sun is going to come up tomorrow. We need to

be a lot more proactive.

KT: Good, thanks, that’s me - thank you so much for your time.

ENDS 10h30

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APPENDIX F:

INTERVIEW WITH TONY ROMER-LEE, McGRATH COLLECTION

CONDUCTED ON 8 MAY 2012 at CELLARS HOHENHORT, CAPE TOWN

STARTS: 11h00

KT Thanks for filling in the questionnaire. You have obviously gone quite broad in terms of

competitors – I think you ticked off 13. If you had to narrow it down to five who would you

choose? Which do you lose sleep over at night?

TRL: Firstly, certainly Cape Grace. I would probably take Dock House out because it is

marginal. Ellerman House is a competitor. They are also Relais & Châteaux and they are

right in the same space as we are, in that field. Whilst we work well with them, they are a

competitor. One & Only I put because of some of the strategic worldwide relationships and

because I know them inside out. And they have for example Airtours worldwide and

historically we have a had a very strong relationship here. That is just one example, there

are others. So they have come in also as a new player in town they make a lot of noise. In

that form whereas Cape Grace is more about their reputation, service, location, which to

be honest I think is less than a factor at the One and Only, of course it helps with them in

the Waterfront – they are resort. It could be in Camps Bay or Muizenbenberg or

somewhere.

KT: Compared to Cape Grace it doesn’t have the personality.

TRL: It doesn’t have the same personality. It doesn’t have the connection to the Waterfront that

Cape Grace has. So the real feeling of being not just in Cape Town but in the Waterfront –

I think Cape Grace is the only place that gets that feeling. The Dock Houses and the

Commodores are in the Waterfront but they are sort of kitch and the Queen Victoria isn’t

even on the list.

KT: I have just come from Neil. It is actually interesting what they have done in terms of their

strategy. They are trying to market themselves as a resort. All three properties are part of

the resort. Which is interesting because they are basically saying to people you are living

in the Waterfront and you can sign your bill off here, there or anywhere, within the resort.

Which is how they are competing against the One and Only.

TRL: Which is clever. I think in a way what they are doing is trying to cross what someone can

go have a meal in one of the other properties. His biggest challenge is the whole food

perception, from an outsider’s point of view, he’s got that restaurant. And it is a nice space

and I know François Du Plessis does all his work, he did the One Waterfront restaurant for

us and the Signal. He is a good guy but he has a very specific identity which appeals to

some and maybe not to others. But it is a good concept. The facilities might be lacking. He

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Is probably trying to use the Waterfront as his facility. Interesting though – I wouldn’t of

thought he could do that.

KT: Me either

TRL: But it does make sense. The Cape Grace is about the best, they are there a strong

competitor because you feel like it is where you are. Which I think is very strong about the

Cellars and all the hotels. This property is very reflective of Cape Town - the buildings, the

location, food the food offerings, it’s very strong of Cape Town and that is one of our major

selling points. That is how I see Cape Grace they are very strong in the US market – you

would have identified that as a competitor. I personally have a lot of relationships in the

US so I am constantly up against Cape Grace. Look it makes my job a lot easier, present

completely different prospects, you either say you like that or you like this – it’s not that I

am trying to be that – we are very different.

KT: Its Nappa vs New York or San Francisco.Cape Grace is San Fran and yours is Nappa

Valley

TRL: It’s about talking about it and rather than trying to position yourself close to something

else, position it differently. I think that historically what I think a lot of people have done

and said was ‘look we are 15 minutes from the Waterfront’. That should be a secondary

thing – we will take you there if that is where you want to go there. Tick it off done, and

then refocus on this. Because it is such a different environment. Anyone who wants to be

in the Waterfront and they end up here, they are not going to be happy. There is no point

trying to present yourself as something that is close to it.

KT: Exactly, because you are not going to have the hustle and the bustle and people in and

out and people watching, and all of that. Never… no matter how hard you try.

TRL: So that is them.

KT: Radisson – I was a bit surprised

TRL: Radisson I put because there is a price issue with Radisson. And what I didn’t tick here is

in some of the key markets, particularly in the British market, they have got an advantage

because again they use their location and they leverage price. And again they have

scored big success in the UK. So that is why. Food, product: not really. Because they are

a decent four to five-star. They clobbered the Commodore and the Portswoodand those

kinds of hotels. I know because when it came about I heard a lot about that from the guys

at the Commodore.

KT: That was always a property that I have said I would like to get my hands on and do a bit of

renovation.

TRL: Where?

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KT: The Radisson – it is “the” venue in Cape Town.

TRL: Yes I am sure one of the big players will come in one day. You know where that

warehouse is near Grand, there is a temporary building there that is a venue. That sight

you can bet your bottom dollar that a Four Seasons or someone like that will make a bid

for it. If they haven’t already. They are here so often.

KT: They are.

TRL: I see they are now in Tanzania. They have moved into Safari.

KT: Yes, I believe The Taj was the first to step away from their Eastorientated markets. Four

Seasons has become predominately Eastern oriented in their management over the past

years too.

TRL: Well that area is now saturated so there is a natural progression this to this side. And they

have been on a massive growth path for the last few years. Since their founder sold out.

KT: Isadore Sharpe?

TRL: Yes, he sold out. Made his millions, and since then they have obviously been on a big

growth path.

KT: Were you at ILTM last year?

TRL: No

KT: Well, he was there and he did a lecture which I attend which was absolutely fascinating. It

was one of those things where you question leadership. You think to yourself how did he

get that off the ground? Here is like this grey architect and he pulled a rabbit out of a hat.

From what was it a Formula 1 style property?

TRL: It’s an amazing formula – the consistency… I stayed at a place in a Seychelles and if they

can get it right there. And look the easy part is to build the hotel, but to get the Seychellois

people to love working for you. I saw it at Banyan Tree and Des Roches, which is a South

African company. They battle to get it right.

KT: Did you work in the Seychelles?

TRL: No I went on honeymoon there last year because Danielle is in the game. And the service

there was not brilliant. Four Seasons is it is actually better. Because it is more pronounced

there than it is anywhere else. Purely because they trade on the fact they are so efficient

and there this and that. They are standard driven. I think there less than a differential like

in America at a Four Seasons to a Ritz Carlton… but the further away they go. But they

also had 150 non Seychellois people working there and I think 250 Seychellois.

KT: Was there a huge difference in terms of their hierarchy? Were their management mainly

imported?

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TRL: Mostly yes. I think they are very sensitive to make sure there are Seychellois at all the

levels. But no, it’s experience. It’s obviously a lot of chefs, and maitred’s.In the restaurant

where it is skills levels where it is difficult to get. When I saw that, I thought well ok they

come and they pour a lot of money in here. They do a deal which no-one has been able to

do. I mean Michael Pownell probably got the closest to doing a deal where he was able to

employ. I don’t know. I mean the One and Only came in and got it all wrong. In terms of

bringing overseas people in - they came in then the left and left a huge vacuum. No skills.

The Four Seasons have clearly got it right. This I think was a three year old property.

Maybe two years old. So it was just at the time where things are starting to settle.

KT: Where is becomes critical for handover

TRL: Yes they have gone through the worse. And now it should be where they are running at

100%. But we have digressed. That was the Radisson.

TRL: Steenberg is probably our closest competitor in terms of location.

KT: And similarity.

TRL: Yes, they have a golf course so it also has its differences. But they have a very good food

offering. They have a similar size to us.

KT: How many rooms do you have?

TRL: 50. I think they have 30 or so. I know they are pretty well established in the UK and they

have worked the American market very hard and with good success. So yes there are a

lot of areas there that they would naturally be our closest competitor.

Mount Nelson – the British market being our biggest market. You have to call them a

competitor. From the old days there was of course the Mount Nelson, which had been

there forever. There was the old President in Sea Point. When I first started working here

in 1990 that was when The Bay had just opened and had started to revolutionize things

and turned service on its head, taking away the formality. Then you had one or two in

town, I think Heerengraght was still around, but it was coming to an end. So you had the

Cellars, The Mount Nelson, The Bay and then the President. Peninsula had just opened

but it was a time share concept, so it was a different concept. The Mount Nelson was

always the Cellars first major competitor. And Mrs. McGrath set the Cellars up as a

country house hotel, very much in the English style. So it was compatible in terms of style.

And in many ways it still is – Garden, décor, that sort of heritage.

KT: And even the way you have modernized. It’s similar but still different. I love what you have

done. It looks lovely.

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TRL: Yeah it is nice. It’s natural and easy on the eye. I think Mount Nelson is a little flamboyant.

Graham Vine I don’t think he is working with them now but was then was given a lot of

freedom..

KT: He was give carte blanche.

TRL: Yes, and a bigger cheque book. I think much bigger than what Mrs. M gave her designers.

KT: I suppose it helps to have The Orient Express bank account in the background.

TRL: Yes. Mrs. M would love that. From that point of view it is a serious competitor.

TRL: The Table Bay perhaps less so, but it is in terms of brand and new markets. Table Bay is

the forerunner of new markets – Chinese, Indian market they have been out there

because of the gambling with Sun International and also just Sun International presence.

Both of those brands are glamour brands. And the Russians love it too. A lot of the

markets are new money. Even Africa is quite new money. We have to let the glamour

boys take on those markets there, let them establish them and then let people like us tap

into them.

KT: The danger there is that always on the new markets. The moment you go out and attract

them actively. You end of getting the nouveau rich and the riff raff of those markets and

you end up offending your existing markets. Whereas, the other option is as the markets

establish themselves you slowly let in the upper echelon of those markets, but it is going

to be a slower process.

TRL: You can’t be a pioneer in those markets because of the people that are in their markets.

Not because of us but because of them. The One and Only has to be a pioneer in those

markets – because I mean the Russians love that. The African love it. Bling, bling. They

come in and they have money to spend. Of course the appeal is that they have got money

to spend. They will take the penthouse for R50k to R60k a night. We are just not in that

game. So we must not get stars in our eyes thinking we are. Veronique did some work in

Asia. She went to the ILTM Asia three times. She also argues that you get a good cross

section of exposure coming from Asia by going to those shows. So perhaps less so than

the Table Bay but they are there and are also pioneering. They have also a price issue.

They do knock us on price. Especially from the US, some of the group market, although

they have lost it to the One and Only. When I was there we were instrumental in moving it

from Table Bay but we had throw rate away to get it. But we were able to do it. We moved

a lot of business from them.

The Taj, probably again it is a new product, a strong brand in the market – so it is going to

appeal to the people. Less so to the British but to the Americans certainly and the price is

ridiculous. You can get such a deal. And it is a Leading Hotel. Taj, Table Bay, One& Only,

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Cape Grace, that’s four and 12 Apostles… all Leading Hotels and all in the luxury market.

Because they are in CT or in the leisure market, unlike you where you are on your own.

KT: We compete with ourselves.

TRL: And you work with all of them to get the business to come down to you.

KT: And then 12A?

TRL: 12A is very strong in the UK because of its ownership. They are South African but they

live in the UK. They also have 3 or 4 hotels in the UK and they are strong in the UK. They

have offices there.

KT: Good presence.

TRL: Yes, they can do good deals with Bushman’s Kloof, their sister property, another Relais

&Châteaux, so it would take an opportunity away from us to work with Bushmans as they

would deal with 12A. Rhodes it is potential in that regard. And it is a sea facing location

out of town. So they are going to be competing for the kind of guests that we would be

competing for because they are out of town. They are on the main road outside so it is not

quiet, but it is a see facing property, mountain backdrop – it’s a great location.

KT: Moving on to your challenges – I saw they were REVPAR, increased costs, increased

competition, new market penetration and shortage of capital for improvements. I liked your

comment there about being an older property because we suffer from the same.

TRL: It’s an endless list and we have to prioritize it. Look we don’t talk big numbers here in the

hotel. Yes, when you add it all up it is big but when you look at each one, it’s not. I mean

we had to re-cable all our televisions. 20 years of cabling so the picture was all frosty. I

mean you can’t operate like that.

KT: But it is something that clients don’t actively see you doing. I mean when you recover

softs, they see you spending money. But if you do re-cabling or fix your sewerage system,

people say you haven’t spent money this year, what’s going on? That’s a frustration we

have as well. It’s a balancing that.

TRL: The problem is that if it is not done, then you have a problem. In fact, this summer we

definitely had a problem with our TV’s, quality of the signal. And it went right to the top of

the list let’s get on top of it and get it done asap. Before anyone gets any ideas about fluffy

this and that. We have got an annual problem to replace TV’s. The problem is we don’t

rent, we buy. She buys everything. And that compounds this because you can’t lease

anything, you can’t factor it in. Look in the longer run it it’s probably better, because you

don’t have to finance anything. But in the short term you can do less because you have to

spend more on each thing.

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KT: But the switching costs are higher. I feel your pain. I have shareholders who say I have

got the cash, but then you phone them and say can I get R40 mil instead of R20 mil and

they say have you lost your mind?

TRL: Exactly. We are also an asset rich business. And in the recession it has been tough. But

we struggle with cash flow because she has three properties that she doesn’t owe a cent

on, plus, plus, plus…

KT: But you can’t leverage it - short of selling it – which you can’t do.

TRL: What we borrow compared to what the properties are worth – it is ridiculous. When I look

at what the One and Only borrowed. Or even Cape Grace what they borrowed to build the

place. We have an established business with an asset that is fully paid off yet we can’t get

another cent out of the banks, so it is very frustrating. We are having to restrict travel

because we want to redo our website. I mean we have a website that is 5-6 years old, it is

obsolete. There is so much you can’t do, but we have to do, it has got to be done. We are

doing it now. We pulled some of the emerging market travel anyway. But it is hurting the

US – I mean I want to go to US. This year we are getting people to come and see us,

because we went there last year. That’s how long it takes. It is a long term strategy in the

US. Never think it is a short term strategy. So it is hurting but we have to. We didn’t go to

Germany last year so we are going this year. We went to the UK, because you think

crikey you have to look after your busiest market.

KT: You can’t give them the feeling that you are abandoning them because its declining.

TRL: So when you say improvements, yes it is improvements, because improvements is driving

the fact that we can’t get away with. Whether it is the website… or what else are we

doing? Oh yes, repainting the Plettenberg, that is a huge chunk of our capex for the year.

So it is just stuff like that that we have to do. I mean we painted the roof of the Cellars

when I got here because we had the Relais Congress. People come here and they are

like wow this place looks fantastic.

KT: It does look good, when you walk in, it has a fresh appeal.

TRL: Exactly fresh is the right word. Because it is a 20 year old property, and it looks fresh.

KT: I used to work here, in this restaurant. When it was yellow and blue.

TRL: When?

KT: When I was studying, I used to work as a waiter three nights a week as a casual. Werner

and Inge were here at the time. She was in front office and he was restaurant.

TRL: When was that?

KT: Must’ve been mid 90’s.

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TRL: So that’s that. Increased costs.. yeah.

KT: That is one we all battle with.

TRL: New market penetration. I put it here, but probably on reflection I would put it as the last

one. But you know those new markets are exciting. South America. Wherever it is. If you

look at SA Tourism they say their number are up from 70 000 to 90 000 Indians. That is lot

of people if you think the UK is at 400 000 - That is a significant chunk of people coming

in. Especially since so many UK people are staying with friends or on a golf course.

KT: Ours as well. I always say to our staff when they say our UK or German market is so big. I

say to them remember whoever owns a house at Fancourt who doesn’t have permanent

residency are seen as a tourist in the stats of our government. I mean our shareholders

are marked as tourists. They come to SA 8 times a year, and they are being marked as

tourists.

KT: When you marked off Le Quartier and Delaire as competitors. Is it because they are in the

winelands?

TRL: Yes I put them on for a reason and that is to widen the net. Because whilst you might think

yes someone might come to a Cape Town hotel - which we inevitably are –they might

spend4 nights in a place and travel because it just wastes so much timewhen they move

and it is 45 minutes away. Why move somewhere that is 45 minutes away?

KT: Yes it doesn’t make sense.

TRL: That is one reason the other reason, it is that the appeal is very similar to the appeal of

here. So when someone is choosing a holiday. They say they will say ‘I will stay at the

Cape Grace in the city and then I will go and stay at a winelands property’. Which means

we are cut out of the loop potentially. They should put us down because the same could

happen to them. It is really where the guest wants to stay.

KT: Or what their interests are because that is a gourmet interest as well.

TRL: Those are both gourmet interests, as are we. Relais& Châteaux, Le Quartier, I am sure

potentially will be knocking on our door. It is an ideal for a Relais property. Even if they are

not they are still very much in the same mode.

KT: And if you had to go wider than the winelands? Do you think you lose business potentially

even though they might not be a direct competitor in terms of their exact offering. Do you

lose business to Durban, Johannesburg or the Garden Route? Ok so you have got your

other properties, but if you look Cape Town specifically. Do you think Cape Town loses

business to anywhere else as a region?

TRL: I don’t think Cape Town looses much business. I think it is strong so unless people are

travelling for a specific reason, like golf or nature. Some people who are.. if I look at

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business.. take the older British market but not the fossil British market – because they

can’t be too far away and they don’t want to travel. Take my dad’s friends, they must be

60-70 they still drive, they are still strong. Often they would fly to Cape Town and go

straight to Hermanus. They don’t want to come to Cape Town it’s too much of a hack, it is

not what it was. They have been here a couple of times. They don’t want to go up the

mountain again. We find the pure tourists, and those people who are less cultural driven.

Because there is not alot of culture in the Garden Route. It’s great for nature, great for

activities, great for food and golf. All of those things. That is where the American will come

back to Cape Town because of the cultural things. They will come back and do the

township they will come back and see something they have seen before. So the depth of

Cape Town has to offer isn’t the same for the Brit who just wants the sunshine and good

food and then whatever else he wants to do – whatever, golf, sunshine. For beach they

don’t need to come here like the American market do. I think the American market will

take over from the UK in the next two or three years as the biggest supplier to SA.

KT: Do you think to SA or just particularly Cape Town and bush. Do you think they will get

adventurous?

TRL: I think so yes, they have always been adventurous. They don’t like to drive. But there’s

also a new breed of Americans. The baby boomer doesn’t like to drive. But the baby

boomer is moving on. It is more established than what it was. What it was that classic 4-5

couples traveling together. It’s now moving into a lot more honeymooners and adventure

tourists and a lot more generational travel, who will go to wherever they want. Cape Town

and the bush – they don’t have much time and that is the biggest drawback for our hotels

at the coast – is that they don’t have time. So we share that…

KT: Plight. And it is a plight.

TRL: And it is a plight. But you just plugging away at them. They are never going to be huge

market but they are significant.

KT: Why don’t you close for winter?

TRL: Well I suggested it this year.

KT: I mean keep it closed for three months. Like Plett certainly? We can’t because of our

home owner element, otherwise I would.

TRL: Well I wouldn’t close this but I actually put it on the table, between you and I. But Mrs. M is

not as profit driven as a normal business. She has her own motivations. But they have

financed themselves. She obviously put the initial investment in, from the initial investment

which were of course the Plettenberg and the Cellars, they have financed themselves

completely. Yes she is running at some debt now. Because she has to, but it is not a

crisis. She is in her high eighties, she has her passions like food, gardening décor and a

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few other things and that is what she wants to do. This is her life. Yes, she wants to make

money, but it’s okay if it finances itself. But it’s not going to be a cold business, maximizing

profit.

KT: I think your challenges and mine are pretty similar.

TRL: You have got to balance that. I am sure you are on incentives, like I am. And you try very

hard and then you get ‘ooh I don’t like that’ - And you are like ‘ok, let’s take a deep

breath’.I have had to accept a few of those things. Look at the end of the day she kind of

said well.. look we had a massive improvement from end February 2011 to this last

February - I mean it was massive. So she did sort of say thanks. But it was nothing what

it could be. I know it could do a lot better. But she doesn’t want to because of where the

businesses are positioned and where she wants them to stay. And you know what that’s

her business. So I can respect that. Her issues with her family and things that’s another

issue.

KT: Are they going to get involved with it?

TRL: I am sure they would at some point. Her son is a director and he thinks very differently so

in a way it is quite good. Because you are kind of preparing. Look so it’s not like it’s not

real life. It’s because the businesses are self-financing. They are self-contained so they

are fine, they are ok. But they could be a lot better. Like I am opening for families in

October – all the hotels - and they are dragging kicking and screaming, but she knows she

has to do it and it is the one thing I am sticking to.

KT: And you have enough space.

TRL: And you know she has great grand children which are between three and eight.

KT: And can’t come here.

TRL: Can’t come here but also wouldn’t want to. I think she is just getting used to having the

children around her again. So it has kind of come up. I think she is also just

accommodating me because she knows we need to open up. Our business ain’t what is

was it ain’t ever going to be what it was. It’s not going to be these people who come here

for two weeks and eat breakfast and lunch in the restaurants and sit by the pool. So we

have to change, we have to adapt. I mean the Mont Nelson has done that and its been

good for them.

KT: We have also done it.

TRL: Ja exactly. It is really an important thing to do. So that was those two. Interesting.

KT: If you look at your competitors. I think you mentioned Ellermen and that you work quite

well together.

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TRL: Yes, through Relais.

KT: Well that is what I was going to ask you. How did those relationships come into existance?

Are they predominately marketing relationships or do you have other alliances in terms of

staffing or environmental issues or your social responsibilities?

TRL: Look through Relais it is mainly marketing. A little bit of staff swopping. For example, we

would potentially send someone up to the bush. Also Relais outside of South Africa. You

know overseas. We are sending chefs all over the place this year. So there are great

advantages there. There is a little bit of purchasing which is coming in.

KT: Is that your branded items?

TRL: Yes branded stuff mainly. And then a few other things but it is not very easy to do

because we are all very small. And so much of it is regional anyway. You know the

regionally office in the Eastern Cape doesn’t talk to Western Cape, when you want buy

wine for example. You have got two different entities. And weall pretty much do our own

thing anyway, I mean you don’t get a massive break there, but you do get a little.

KT: I am sure you are able to better leverage that anyway because of your three properties.

So it’s probably not interesting to you as it would be for an Ellerman house.

TRL: It is there because of the branded stuff and Nick drives that.But I you are going to do joint

sales overseas. It reduces the cost drastically. So we do that. Whether it is Susan we

have done some stuff with them and Camp Jabulani. And then there is obviously the let’s

do joint stuff together – this, that, another, other. Which is more about getting a piece of

news stuff out to somebody instead for traction. And then its joint but it is just leveraging

the brand. But it is so subjective. Londolozi is a bit of a dirty word at the moment because

of its scandal with that are doing. But the opportunities are there so it gives you a base to

work, and obviously the platform that Leading gives you in terms of exposure on the GDS

and through the Saxons or whatever it is . Relais is really trying to push itineraries out but

they need to get better at it to make it work, but they are really pushing to drive sales

KT: Off the record, you have worked with both – which is the better run organization. Relais or

Leading?

TRL: Good question.

KT: We are Leading.

TRL: I mainly worked with Paul Makmanas, Marshal Colder and Joe Op who were the three

people who were the marketing product and overall guys. And obviously in the early

2000’s where things were very good all around. I thought Leading were very professional

in most of their stuff. I mean all of these organizations are ridiculously political so I would

hate to work for any of them, wherever you go to conference, wherever they are. They are

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more interested in each other than you. You have to get over that and then you need to

work it accordingly. I think Leading gives you the better opportunities to do that. They

used to have their marketing days, I am not sure if they still do, where you can see all the

different regional reps they bring all their sponsors and suppliers and they have this

fantastic thing. Relais doesn’t do that, you have to really push to get any exposure to

them. It is much harder to manage those sales reps around the world than it is with

Leading.

KT: It’s interesting. It is a lot of money out of your marketing budget every year and one is

always questioning it.

TRL: The thing is with Leading, they have always been a lot more corporate because their

clients have always been a lot more corporate. Which means they have been driven a lot

harder to generate more revenue for you, Relais has never been.

KT: Relais has been an ego stamp for many years for many owners

TRL: It’s been all about recognition. It's also about your character, the place and the owner. It is

the owner who wants to be a member of Relais.

KT: As opposed to the GM who wants to be with Leading?

TRL: The manager doesn’t want to be a member of Relais. However I don’t think our properties

would be compatible with Leading hotels.

KT: No

TRL: The only one that could be, but it would need a bit of work, would be the Marine. You

would probably lose a restaurant or two, turn it into a conference center. Do some

upgrading of the rooms and actually you might have a case for a Leading Hotel there?

Good for you to have a link down there. And it would give us exposure to another

organization. So if I wasn’t going to do anything I would probably look at that and also you

have 5 properties in Cape Town hotels who have got such a strong presence here.

KT: Huge

TRL: We’re far enough away then to do it. Plettenberg can only be a Relais or nothing. And

here could only be Relais because for the food offering, grande chef and with too many

Leading hotels here how- forget it.

KT: There are too many. That is where I think Relais is a bit better. That is how I perceive it, I

perceive them to be better at managing how many properties there are in a region.

TRL: Mind you, The Plettenberg, Hunters, Kurland and Tsala – there were four properties. in

fact the Plettenberg should’ve been the only one with Relais status. Hunters, no.

KT: If you look at Hunters Ian needs to invest huge cash.

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TRL: He hasn’t no. But the fact it’s that by then the damage was already done. He is 10km

away and it is small destination. The only reason he wanted it is because The Plettenberg

had it.

KT: And the only reason Kurland got in was because of Ian as well.

TRL: Ok Kurland is a little further away. Hunters does have the family owned management and

the quality. It’s got that. Kurland is well known, it’s a beautiful place but it doesn’t have the

charm. Charles Lotter did actually put a lot into it.

KT: Yes if he stayed there it would have been better.

TRL: I just don’t think it has the same vibe as a Relais. In fact it is probably on the fringes of

Relais. So I think to be honest that just takes away from Relais. If it was me I would make

the call for the Plettenberg tomorrow and pull it because there are three properties there.

But Mrs. M, it was her first one, it was the first Relais so she thinks completely differently,

she doesn’t think commercially - so she would never pull it. So we will have to see.

It is quite interesting. That is what I would do. Watch this space. I will let you know.

KT: A lot of my questions have already been touched on in our discussions so I don’t want to

waste your time.

TRL: I love these discussions; it kind of puts you in a different space.

KT: A strategic space where you should actually be spending a lot of your time.

TRL: It has already been of value to me

KT: In terms of the independent bodies – your SATOURS, your SA Tourism, Cape Town

Routes Unlimited – all these bodies’ that exist to market this beautiful city of Cape Town.

What are your views on these and why the failed why they succeed what they should or

shouldn’t be doing for you?

TRL: The problem is that Cape Town and the Kruger are the two jewels of SA Tourism – they

are two most prominent destinations And funny enough because Cape Town is a city

we’ve got x million people living here, so you have got all these people living here who

think. Whereas in Kruger no one lives there so it just happens. And also the political

landscape here is 50% of the reason why the marketing here is so spread out it is

completely, what is the word – it’s everyone doing their own thing. And everyone is ticking

to change it - it just never seems to succeed. It is not unified. You have got Cape Town

Routes Unlimited, which is now called Wesgrow, but Wesgrow is promoting business, so it

is largely from an agricultural base. Not only agriculture but predominately. And then you

got this EDP (Economic Development Partnership) or whatever that is, and everybody

wants to have a go at it. And unfortunately because we have this system of national,

provincial and local government, you are always going to have this conflict. Because it s

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run by the government you are going to have people working for those organizations who

want more power and more resources, so they are always going to be fighting for it. It is a

great shame that SA tourism relies on, I mean all of its funding comes from the

government, except for what the tourism levy provides. And essentially that is like a tax.

They get all their money from the government except some of it which is raised by the

tourists who are staying here, who are paying for us to market, which just doesn’t make

sense. And you either in it or you’re not.

The one thing that is happening on a national level is that tourism council is getting a bit

more bite and a lot of say because business have been unhappy with some of the

tourism. So that has improved and they have appointed a guy who’s from business and

not from a political background – the new head of SA Tourism. So I think from my point of

view there is definitely potential to improve. I think with Cape Town Tourism they are

capable people and they have honed in on a whole new area. I always think the danger in

marketing your own destination is that you get tired of it. You get tired of Table Mountain

and this and that. But that is what every first timer does, they go up to Cape Point, Table

Mountain, they go to Seal Island, they go to the Winelands and to the Waterfront, so you

can’t neglect that in your marketing strategy. We are still a new and emerging destination

to so many people.

So it is difficult, but is suppose they don’t have the money to do everything, so they have

gone the new track now. The focus of ‘I need a holiday in Cape Town which very much

focusing on the urban side of Cape Town’. As long as SA Tourism takes care of the

typical Cape Town issues then that could work because it would mean than you are

focusing on something else and you are not saying the same thing. Theoretically you

would be reaching out to more people. And think Cape Town also reaches out to a lot of

domestic customers. Because Cape Town has an urban culture which is prevalent in tiny

pockets in Johannesburg. Its creative, it’s arty.

KT: And it is safer.

TRL: Is café culture and it is great quality. So I suppose there is credibility in that. But you have

to as a business – the harder you work those entities, the more you get out of it.

KT: That was my next question, do you engage it actively? Have you got to the stage where

you said you know I am tired of banging my head, so you get on with it?

TRL: We don’t have the resources to do that so we have to bang our heads a little. Veronique

has been doing it for a long time so she has got good relationships. One of the positives of

travelling is that she interacts with the people from SA Tourism and SAA around the world.

And it is amazing how much of a relationship can be formed where you are not in the

same country. You get somewhere you just can’t get elsewhere.

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KT: It’s amazing how when you leave you become proudly South African the moment you get

on a plane.

TRL: You become friends. You are also thrown into an environment where you don’t have a

home to go to. So you go out for a drink or dinner because you are stuck in a hotel

together in Sao Polo - and that is where the opportunity comes from. She has done

particularly well with SA tourism and a little bit with SAA, I have supplemented a bit. And

then you get in the program and they include you in this thing they are running. And then

you get some value out of it because you are getting some in this national marketing

campaign. Also because they are politically driven in the Western Cape, I mean the

pressure to market some kraal in Limpopo and somewhere else in the North West, is

huge.

KT: Huge.

TRL: Which is detrimental for the Western Cape and it is very frustrating.

TRL: So that’s that, we done?

END 11h55

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APPENDIX G:

INTERVIEW WITH ANDREW ROSETTENSTEIN, CAPE GRACE

CONDUCTED ON 16 MAY 2012 on SKYPE

STARTS: 11h00

KT: What are the five biggest challenges that the Cape Grace is currently facing? Just to give

you some ideas of what they could be: decreased occupancy, low average room rate, low

REVPAR, increased competition, increase in costs, shortage of capital for improvements

etc. those kind of things. What are you five biggest challenges?

AR: I think being in the city, definitely I think that the number of other five-star properties is

always going to be a challenge for us - that’s one. Also, every single booking that comes

through is at a negotiated rate. So trying to increase REVPAR is always going to be a

challenge. Once you start offering specials then the trade automatically starts thinking that

you have offered specials in the past and you can do it again – so increasing REVPAR is

definitely a challenge for us. I would say that our biggest problem is that our business mix

is American. 60% of our business is American or maybe a little but less than that so we

need to spread our markets. We need to try recruit market share in Africa and the East.

So our challenge is to spread our market base.

KT: One more

AR: To maintain a strong workforce is another big challenge. It doesn’t help having only a

great property only; you need a good workforce to go with it. So staff retention is another

challenge.

KT: Who are your main competitors in the Cape Town area– I mean who are you losing sleep

over at night.

AR: Funny enough the main competitor for us would be the One and Only, the Table Bay, the

12 Apostles, Mount Nelson… and that is it.

KT: Does Ellerman House – do you compete with them or not really?

AR: No, not really.

KT: If you look at the One and Only, where do you compete most with them? Is it price,

product, F&B, service, technology, brand, their reputation? What is it about them that

make them a threat to you?

AR: Obviously, their database and their marketing structure is 10 times bigger than ours.

Remember that every single one of our competitors is one hotel in a chain or a group

where Cape Grace is a stand-alone, one-man hotel. We have one owner, one property in

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SA. And we pay for all our expense; our HR, our marketing, sales, accounts, all our

operational expenses come out of the Cape Grace. I mean all these other properties

around us can split their fees between 5 or 6 or 10 or 20 other properties. And that is a

massive challenge for us. You can actually apply that to the first questions – our sales and

marketing costs are astronomical.

KT: Where do you think their product is potentially superior to yours? Why would someone go

there and not to you? Are they more affordable, are they newer, are they better?

AR: Are you specifically referring to the One and Only?

KT: Yes

AR: I think One and Only… the reason why people would go there rather than here. I think the

brand is well known around the world. So it much easier to sell One and Only vs. Cape

Grace – although most of the people that go there would probably prefer Cape Grace. The

One and Only brand is lot stronger and globally recognised.

KT: And the Table Bay – why would people go there instead of come to you?

AR: I agree with you – it will probably be price that would make them go to Table Bay.

KT: And 12 Apostles? Why would someone go there?

AR: Probably price. Look our biggest competitive advantage is our location. And I don’t know

why people would rather go to 12A – maybe they think it is closer to the sea? It is but it is

not closer to any swimming beaches, than we are. Why would they go there? Maybe

because it seems like it is more secluded and private, maybe they think it is a more resort

type feel. They think that Cape Grace is quite close to the city and they see it as a city

hotel, but it is not.

KT: And the Mount Nelson? Why would people go there? Do you think it is brand and

reputation as well?

AR: I think brand recognition as well - it is a well-established brand. I think the gardens might

be an advantage for some of the English. Also it’s really well known and it has a good

location. I think people would go there because their prices are definitely lower than ours.

KT: If you had to think of opportunities to work together on any of the issues that you have

identified on the list. With regards to your average room rate challenges or your REVPAR

challenges, do you think there is opportunity to work together with other hotels to solve

those issues or do you think those are things that you just have to deal with on your own?

AR: Ja, look we have seen it in the past - hotels would team up. Like Ellerman House and

Londolozi. Those are very real scenarios these days. Before people could do it alone, but

marketing is getting expensive. We are already doing that at the moment – I mean our

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sales and marketing mangers based in the UK and US they are not only doing Mickles

properties anymore they are doing Tswalu –sharing marketing costs is something that

would help with REVPAR.

KT: Do you believe say your American clients that are coming to you; is there a destination in

SA that you are competing with more than you actually competing with Cape Town?

AR: I would say that our single biggest competitor is Singita. And this purely from when I talk

to our guests. That is who I would say is our biggest competitor outside of CT. I mean I

don’t have calculated figures that I can give you. Most of clients coming into SA will do

Singita, Cape Town and then they will do Botswana that is sort of the normal itinerary that

we have coming into Cape Grace.

KT: The reason they are going to Singita is the bush. It is just the bush offering that is pulling

them in there, as opposed to the city offering, which you offer. They are two completely

separate experiences, correct?

AR: Yeah, the bush experience is nowhere near linked to any experience that you could have

in the city like Cape Town– I think it is just the bush that is luring them to the Singita for

example.

KT: When you work together with Singita, have you worked together on any other things that

you would work together with the e.g. staff sharing or staff training or any of those other

initiatives that you mentioned earlier of your challenges.

AR: Just to clarify – we don’t actually work with Singita. Ellerman House would have worked

with Singita in the past I know Londolozi would have as well. We have worked with Tswalu

– we have a package you will see on our website and that is Melanie in the US and Elle in

the UK they market both Tswalu and the Cape Grace – so there is an element of sharing

there.

KT: Why don’t you work with Singita? If for example there is such a…. well, as an outside I

see a potential for synergy. What is stopping you from working with them - is there a

relationship problem there?

AR: No, I don’t think so. What would happen if we went with Singita? What would happen to

Londolozi, with Wilderness? We would probably be seen to be putting all our eggs into

one basket. I think the Wilderness relationship will suffer, so would the And Beyond

relationship. We would be seen to be teaming up with one property where we must

remember we get a lot of business through Wilderness and And Beyond. I think that is

probably the reason we have not gone Singita and had packages or anything like that.

KT: I actually saw that the last time I stayed there. You have Wilderness brochures in your

rooms. Have you got quite a strong tie with them?

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AR: When was that? I can’t remember seeing that in the past.

KT: No, it was recent; when last did I stay there? Last year?

AR: For the horse races.

KT: Ja.

AR: A Wilderness brochure in our rooms?

KT: Ja, maybe it was a mistake, maybe someone left it in your rooms. Maybe it was one of

your American guests’ magazines. But it is good advertising. In fact, I remember saying

got myself I must ask Nigel about that.

AR: No, I don’t recall putting brochures of them into our rooms. We probably get about R8 mil

worth of business for the year from them. It’s obviously a very close relationship. But to

the best of my knowledge, I don’t know of any Wilderness brochures going in to the

rooms.

KT: If you look at other hotels, and maybe it is better to look at this now when you are starting

to distance yourself from the property mentally. Where Cape Grace hasn’t potentially

worked together with its comes in the past and if you look at it very objectively where do

you think hotels like the Mount Nelson and 12 Apostles or Table Bay could actually assist

you in going forward. Let’s say if you have to step up as a consultant to Cape Grace

tomorrow, would you turn around tomorrow and say look guys you need to start working

together to market the Waterfront better or you need to start looking at opportunities to

leverage procurement or staff training or staff sharing. Do you think there is anything of

you had to give management a set of advice on working together that you would give

them?

AR: Our competitors?

KT: Ja, if you could say to the Cape Grace Management. Guys I think you should be working

with the Mount Nelson to see what they have done to tap environmental issues. And I

think you need to work with them on it instead of doing it on your own. Stop trying to work

on it in silos. Are there missed opportunities out there that you are not tapping because of

your current approach?

AR: I think there is a lot that could be done. We very much operate in a silo here at the hotel.

Everything is pretty secretive. There is no sharing of information. Yes the GM’s have a

meal together every month or so but I think it is just to go have a couple of beers. I don’t

believe there is sharing of information, certainly not in the manner that you have just

mentioned - green environmental issues, staff sharing or procurement, or anything like

that. I don’t know what it is amongst the other hotels. Does Table Bay do any more than

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the One and only in terms of how they approach the Mount Nelson for such information? I

don’t know that there is a lot of collaboration amongst the hotels in the city.

KT: If you were the GM of the Cape Grace, would you try and change that or do you think it

would be dangerous to you because it might disadvantage you?

AR: I don’t know how much I would want to share information. I think what we do is the reason

for our success. If I were GM of the hotel, would I start sharing the information? I don’t

know, probably not a huge amount, perhaps portions of it. Maybe environmental issues,

maybe that side. I don't know if I would share too much.

KT: It’s a tough one hey? I know we kind of think of it at times. It’s like marketing – I know a lot

of people think let’s do shared marketing. But then you always run the risk – I mean

whose contacts are they – have I lost my contacts?

AR: I don’t know if we would do that. If you had to ask the same question to somebody in the

laundry business - the dry cleaning specialist in Cape Town- would they share information

on the procurement of their chemicals or their whatever... they would be opening

themselves up to trade secrets and competitive advantages. If I owned Cape Grace,

would I want that info shared with someone else? I don’t know. Maybe some. Maybe day-

to-day operational stuff. But if I think of marketing that if, we all had to get together and

market Cape Town as a destination that would be a good idea. But that is SA Tourism’s

job or Cape Town Tourism’s job. I wouldn’t imagine that the hotels would get together and

do something towards that.

KT: How do you think they are doing their job? Do you think they are doing a good job?

AR: Who Cape Town Tourism or SA Tourism?

KT: Cape Town Tourism

AR: I think the new initiatives are good. I went to the last AGM and the launch of the new

branding strategy. It was bold. Have you seen it?

KT: No, I am a bit, out of touch with what is happening in Cape Town.

AR: You should go on to their website and have look at the video they did, the brand strategist

who were given the job of creating the marketing for SA or Cape Town Tourism were told

you can’t use picture of Table mountain that view of Table Mountain from

Bloubgergstrand. You can use vineyards or beaches – anything that Cape Town is known

for they were not allowed to use in the branding strategy video. And they created this

vibrant, lively portrayal of life in the city – the art and the culture, and the boats and the

marine wildlife, music and the heritage and the routes and what there is to explore, and

the locals and the people. It was amazing. Definitely go have a look at it.

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KT: I will definitely do that. It sounds interesting. The traditional Table Mountain thing you get a

bit tired of seeing it. I mean we do certainly as South Africans.

AR: We have all seen it there is nothing fancy about it anymore and everybody around the

world knows what Table Mountain looks like - so I guess we are wasting valuable

marketing time.

KT: Andrew, one last question then I am out of your hair for the day. If organisations don’t

work together in the future - you mentioned if people don’t work together in the marketing,

I am assuming that one of the disadvantages is that you are going to continue to have

high marketing costs. But if organisations don’t work together in the future are there

disadvantages that could come out of that? And particularly in hospitality – I will tell you

why; in my research I have done a lot of looking at things like the pharmaceutical industry,

they have been very clever – in that each one of them has taken on a focus each one has

developed a core competence. So one of them has said look we are going to focus on

drug development and the other one say we will focus more on equipment and then the

other one says we will focus on distributions channels. And then together they actually

work together where they form alliances. Where one of them has the laboratory and does

all of the homework. So prior to them going out and developing the drug they decide

whose drug is this is going to be and how it is going to be distributed. So they do all the

groundwork before the time and then they go out there and say this is our new product.

So if for example hotels decided to work together on staff training. There could be benefits

where let’s say all the hotels in the waterfront do joint staff training sessions. Because

most of them, particularly the leading hotels because we all aspire to the same standard

and then the differentials are our attention to detail, but our standard are pretty much the

same. So if we don’t change our mind-set and we don’t start working together do you think

it will disadvantage us or do you think we can just carry on as we are?

AR: Shew, interesting question. I don’t know. I battle to see how a hotel like Cape Grace can

maintain its marketing expenses. For example if the Four Seasons had to come along

tomorrow and wanted to come and purchase Cape Grace, would I as the owner go with

it? Probably, because it has a bigger marketing device. But in terms of sharing those

expenses, wouldn’t you become the same, wouldn’t there be too many similarities and the

property differentiations will become too similar. Give me the core of the question again.

KT: If you don’t start to collaborate or work together in the long-term do you think there are

any negative consequences that would come out of it? You have mentioned obviously that

certain of your costs you couldn’t sustain but over and above that do you think that

anything other than cost would impact on us. Would the destination of Cape Town fall

apart if we didn’t work together– I mean it is a ludicrous example, but is there anything

where you think it could be to our detriment?

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AR: It is a good suggestion that you gave there. If we didn’t all make Cape Town become a

very successful city? The fact that the ICC is doubling in size and there is another 9 new

hotels coming into the Waterfront area. I think that is a significant factor that we are all

working together towards a goal making Cape Town a serious global destination. And I

think the design awards that Cape Town got for 2013 that is another significant milestone

that the city is working together towards bettering itself and sustaining business coming

into the city, in the future. I think if we didn’t all work hard to make Cape Town, Cape

Town then Cape Town would suffer. It is unique because of the variety of offering it has.

That comes from the design world, the hotel, the luxury, the travel and leisure

opportunities that are here - I think it crosses a huge scope of activities and business

sector.

KT: Just another question, I know I said the last one was the last one, but just out of interest

sake. Do you find that since we have come into the recession that the hotels have

become more secretive and less willing to share information or do you think it has pulled

people close together?

AR: I don’t see us being closer to any of the other properties this year to five years ago.

KT: So no difference, no change?

AR: No, not that I am aware of.

ENDS 11H35

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APPENDIX H:

INTERVIEW WITH BRETT DAVIDGE, 12 APPOSTLES

CONDUCTED ON 18 MAY 2012 on SKYPE

STARTS: 16h00

KT: Thanks so much for your time. I really appreciate it. Unfortunately, I have to harass you

guys otherwise, I don’t get my degree. So I appreciate it. I sent you a checklist; did you

have a chance to have a look at it?

BD: Yes I did.

KT: Who did you identify as your biggest competitors?

BD: Our biggest ones: Cape Grace, Ellerman House, One and Only, Mount Nelson,

Steenberg, Table Bay and The Taj. There are a couple of smaller ones that we also

compete with, but when you break it down to detail, but those are the biggest ones

KT: I am not going to go into too much detail. I am going to ask you to scan and send that to

me so I don’t have to waste your time on asking you all the questions on exactly how you

compete with each of the problems. If I can ask you in terms of areas that you have

identified as where you compete with them - are there any of those areas that if you look

at them and think if you had to pull together you could actually overcome some of the

issues by working together with some of your competitors.

BD: I think probably quite a few of them. If you look at the strategic things, you should keep

that to yourself, but anything like accommodations, F&B, service levels, those things we

can all learn from. This was something we were very open about it Scotland and I am still

very open about it. My wife came to stay with me, and picked up a thing that we do on

here. I’ll take that, which is great. We will put that in place. And to me I think we should all

do that. Because it just me I think ok well if Taj and us are doing that now we have got to

do something different. From an industry point of view we all have to move up one notch

to compete on a different level. And experience each other properties as much as

possible.

KT: If you look on that sheet as well, I asked what are the five biggest challenges that your

organisation currently faces. What were there?

BD: I sort of combined a few. Number one, I put increased competitions and increase market

share in existing market. Two increased cost: petrol prices that sort of thing. Three, I

combined decreased occupancy and reduced average rate because I think those are

pretty interlinked. Reduced marketing budgets, was the second to last and lastly shortage

of skill personnel.

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KT: It is interesting – I think sometimes I think I live in lala-land because I think it is only us on

the Garden Route that suffer with personnel shortages and I was even interested that the

guys at the Waterfront also mentioned that in theirs. And I was thinking, in the Waterfront,

short on personnel, how the hell does that happen? It’s refreshing for me to hear that

everyone else suffers with the same challenges.

BD: I think it is something that we have got to live through and something that we have to try

and get out of. I was sitting at my desk the other day. The lady is hugely upset. She

wanted a baked cheesecake, she was adamant. And when it came out it look like fridge

cheesecakes. Now our fridge cheesecake is actually baked. But the staff doesn’t

understand that a baked cheesecake looks a certain way and a fridge cheesecake looks a

certain way – irrespective of how it is made. It is irrelevant to that customer. I think where I

see it most is probably when you are communicating with guests in those typical

complaint scenarios where you are getting basic grammar wrong or basic tone wrong in

letters. We have got to work hard to change.

KT: On those five things, do you think that there is anything there where you can actually work

together with your competitor? You spoke quite a bit about staffing. Are there ways where

you could do staff sharing or collective training? Are there things that you would consider

doing to overcome those challenges or do you think that those are things that you need to

be working on yourself in order not to give away your competitive edge? What is your

view?

BD: There are two there that I would pick on the shortage of skilled staff very much across all

the competitors we can all gain something from. If we took a staff member from here and

we said here you go Fancourt take one of our receptionists for a week and you send us

one of yours we can all again by that and they can gain by that. And same with our

competitors here, whether it is a spa therapist or whoever it may be. To me you can very

much learn from each other there. And the other one is increased cost. I think our

suppliers will gladly put on 10% every year and say this is our annual increase but if we

were more open and discussed these things out in the open more we could potentially

have a better bargaining position on keeping out costs down.

KT: If you look at your competitive set – I asked you specifically to look at specifically at the

Western Cape and Cape Town it itself - But if you look at 12 Apostles, do you think you

competing on a national level do you think for example you mentioned George earlier – do

you think you compare with the Saxon at all or not?

BD: Yes, I think we have to. Like yourselves, we are all competing for a small segment of the

market and probably beyond these boundaries as well especially when it comes to

conferences and corporate things - we are call competing on that level, but I think we

need to be open about what our strengths are and be accepting of those strengths. But

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also what your strengths are. There is business that Fancourt would secure or the Saxon

would secure that we would not secure, that we would not and vice versa.

KT: Who are your four main competitors? If you think about it – it doesn’t just have to be

property, you can make it a region as well. It would be interesting to know at what level

you perceive yourselves to be competing.

BD: Let me think about that one. So above Cape Town? Let me think through that one a little

bit?

KT: Okay, no problem. Are there any of your competitors that you currently work together

with?

BD: Taj we do, and that is probably quite informal.

KT: Is that more information sharing?

BD: I wouldn’t say information sharing; l but we have a sort of surfer banter. Where I won’t tell

Theresa what is going on or I will play golf with Michael and there will be things that we

won’t share but I think that we have already mentioned what we do share.

KT: If you look at your organisation and yours specifically interests me because you are

privately owned but you are also part of a chain. So you are your own chain in essence.

Do you think that you are part of a chain contributes to the fact that you pretty much work

amongst yourselves and don’t really venture outside of that to work with some of your

competitors. Do you think it makes you sort of stay together as a group or does each hotel

in the group operate completely independently?

BD: I would say we probably work quite close together. Probably share where we say less with

our local competitors, we will share amongst the hotels even down to staff. So from a

staffing side we have people coming over here for a three-month period. Probably less so

going over the UK. We will go over on a shorter terms and put people into the hotels there

and have them work and experience that. So we get more skill from the side of thing. And

if we are honest with ourselves, the owners are quite protective of that. You know when

they lose a staff member to another property like when we lost quite a number when Clive

left to the One and Only. They think of all the money and the effort they put in to that staff

member and now they just given them to the One and Only. They probably more inclined

to try to keep it within the company. Which personally I think you are always going to lose

people to other organisations, you must get upset about it - it is the nature of the industry.

KT: Do you think – and now that you are, going off you could probably be a bit more objective

– if you look at the approach of a Sun International, which is this big corporate listed

company, and then you look at an organisation that is owner run. Do you think there is a

different attitude there towards competition? I see with our owners, there is certainly a lot

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more pride and ‘it is mine’ than there is perhaps on the corporate side. And therefore the

management might approach it differently. Whereas if you are in a corporate you are

doing everything just to achieve bottom line?

BD: Yes I think very much so. With you and very much with us it is not all about bottom line it

is about the people and the business. And I am sure, as you know that comes with its own

challenges. But I would like to happen going to Southern Sun- it encourages a bit more

diversity and people thinking ok how are we going to achieve the bottom line? Maybe that

would encourage communicating with the organisation to see what they are doing better.

If we are not measured on it, you are not really encouraged to challenge it, are you?

KT: Ja, no not really.

BD: You are sitting there thinking if I don’t hit the bottom line I am not getting my bonus at the

end of the year. And away you could that is to go to your competitors see that they are

doing and try learn something from them, see what their markets are looking like then it is

going help you.

KT: Do you have any joint marketing relationships with any other organisation other than

within the group – do you go to fares together or do packages with?

BD: Not hugely, Kerrin. We have got a lot of companies within the group so it is not just Red

Carnations. You have got Thompson, Pentravel (I am just looking at my list) a lot of these

US agents like Lineworld, African Travel and the whole of the Trafolga Portfolio. That’s all

part of the Tolman group. We will use all of those marketing opportunities.

KT: Now the penny drops. That makes a lot of sense, because I was wondering why you

haven’t been seen to collaborate with any of the other hotels as opposed to so many of us

who are like desperate to get a relationship going with another game lodge or something

that is going to enhance or product.

KT: Why is only one of your hotels a member of Relais & Châteaux?

BD: i.e. Bushmans Kloof?

KT: Ja

BD: I think that is probably historic really. It has been Relais for a long time. I know if Horst had

his way… he is very keen on Relais. But we are obviously Leading and Oyster Box is now

as well.

KT: How do you find Leading? Does it work for you?

BD: Sometimes you see the bookings coming through, sometimes you don’t.

KT: It’s difficult to measure, hey?

149

BD: Difficult to measure, yes - and sometimes you look at the cost of the booking coming

through. Going to the Southern Sun now this is the first hotel that I will be working for that

is not Leading. And I have always sort of said I would work for a Leading property

because of that distinction. Personally I think it is a great organisation. But I think quite a

few hotels, and we find this in Eagles as well, it is a marketing organisation that got your

name out there, rather than put bookings through the door. I don’t know if you spoke to

the Leading guys while they were down. But they are changing the way they bill us. What

do they call it? Instead of paying $30 or $4o per booking, you have to respond in Leaders

Club members. So if you get 210 room nights through Leading you have got to give

them210 Leaders Club members otherwise you have to pay transactional fees. That is an

interesting concept that they have brought it.

KT: They are obviously trying to grow their brand

BD: And I suppose, I don’t know if you remember previously, they very much wanted us to put

all our good customers and make them Leader’s Club members. So we said we take all

our best customers, make them Leaders Club members and now if have to pay

transactional fees for that same booking? Which I think they have probably they have

learnt from. They are doing without the transactional fees, so it makes it a bit more

attractive.

KT: That sounds interesting. I have not yet had that feedback from indaba. Carl comes to the

property on Tuesday when I will get the whole run down – so it is nice to get the inside

edge from you.

BD: Were you on the Leading stand?

KT: Yes.

BD: We had our own one again.

KT: Ja, you had your own one last year as well.

BD: They paid so much money for us. It was just Horst and Nicole that went up for indaba this

year. We had quite a few of the family members out there and a few of our US

representatives as well.

KT: Interesting.

If you go back to cooperation amongst properties - you spoke about Sun International and

how you would hope to work together with other properties in the future in the hope of

improving your bottom line and sustainability. Do you think that third parties in our market

actually play a role in those kind of relationships – guys like Fedhasa, SATOUR - those

types of organisations? Or do you think that it is something that we as property owners

play more of a role in?

150

BD: I think they do have a role. I think there is probably too may platforms if you want my

personal opinion. Look at all of them: Fedhasa, Skull is another one, there are so many of

them you don’t know which one to choose. But I do think it could be a platform to get the

various hotel operators together in one room. I was at this breakfast this morning and

there were a couple of hoteliers there. With the Fedhasa events, you have got all of most

of the hoteliers there and you could strike up conversations there. And if you build trusting

relationship there, if you don’t trust the organisation that you co-opt information with then

you are not going to do that.

KT: Exactly. If you look at the organisations that are out there - if you say there are so many of

them. Sharing of information, trust is one thing, but what other things would make you

select for example if whether you wanted to work together with SATOUR, Cape Town

Routes Unlimited vs. another organisation? How do you judge their competencies?

BD: I suppose by the company that they keep.

KT: Generally looking at which other hotels are members?

BD: Looking at which other hotels are there. To be fair I have been to a couple of the SACTA

ones but I think the Fedhasa ones I find the most useful. If you look at the Skull one, I

don’t know if you know it, those are good from a relationship point of view but it is a whole

lot of people getting together for a lunch or dinner. And building those relationships.

KT: Would you say if I had to propose that there were less marketing organisations in CT that

would they be more efficient and effective, would you agree?

BD: Yes, I probably would.

KT: I had that discussion with one of the other people I interviewed. If we could get a body

together, that had a commercial brain with the funding of government, that it would be

ideal.

BD: I mean we had that in the UK as well, I was a member if AICR at the time which like a

rooms division organisation there was the Master Holding and St. Julian Scholar which all

formed under the Institute of Hospitality and they are all good with people who are trying

to keep that network going. The one that I have actually kept is the Institute of Hospitality.

KT: Why?

BD: Good information on their website. Good people that belong to it. It is Philip Rossieter,

Peter Aletra was very involved and so it Patrick, so it is a good organisation.

KT: Ok. Brett, if you look at your own career and you also look at other hotels, if hotels don’t

start working together more, what do you think could become some of the detriments of a

non-collaboration?

151

BD: I think just slow growth. You compete on the wrong level you don’t actually grow. Whilst

we are all competing amongst Cape Town or Western Cape or SA we are also competing

with London, the States, Far East, and Dubai. And they are all getting better and if we are

just competing with ourselves then we are not getting better than them.

KT: That is true. If you look at the time now during the recession do you find that your

colleagues got more close chested or do you think they were more willing to share info

during difficult times?

BD: I think we probably all did get a bit close chested, not sharing info. Especially on the

strategic front and what their rates were and who was offering what?

KT: It is interesting to see that how people do that and yet it is probably a time where one

should be holding together and be pushing Cape Town as the place to go, if someone is

going on holiday, they have got to go to Cape Town.

BD: If we get dome of it and you get some of it and The Taj, then great. I think the other thing

we need to watch for. Coming to SA it is the first time I have actually seen it. If you look at

all the agencies out there that you are, doing business with – I am talking about third

parties here. We give them our rates and do they play us off each other and you start

question. I suppose this is where Leading is quite nice. You know they are a big

organisation. I have often found that we have STO rates and people are getting a

ridiculous rate with us, and the amount of business they our through really great but they

were almost a backyard travel agents – they ran an office from their garage, and I would

almost say that there are lots of these and you wonder from a big hotel perspective if we

need to partner with big organisations. If a little organisation wants to have a relationship

with us – that is fine – but don’t give them the best deal. It’s not volume. And if people are

pushing volume through your business then they deserve a better rate.

KT: It’s very interesting actually, how the agents try to hold a gun to your head. And as you

say, play you off. We get it a lot with the Hyatt. With them being new and sort of desperate

and we are saying guys that is not Fancourt. And that rubs the agents up the wrong way

because they want to book you but they can’t because they have said you that they could

get it better elsewhere. But eventually they come back to us and saying well your product

is different –ja, we would prefer to be with you.

BD: I think that is what is comes down to. You need to stick to what you are good at and you

know the Taj is going to be good at something and we are going to be good at something

else. If you start to get different people playing off rate on you, you end up undermining

and eroding the rate across the board.

KT: When you say you are good at one and the Taj at something else; what would you say are

your core competencies at the 12 A?

152

BD: Location is brilliant for us – to me that is our one thing that we have got the sets us apart.

KT: How do you sell yourself – as a city hotel, as a resort by the beach – what do you actually

push when you sell it?

BD: A resort – I would like to say our biggest drawback is that we are actually away from the

city. But actually we need to stop thinking about that as a drawback – it’s our biggest

advantage. Stop chasing a market that wants to be in the city – because that is not our

market. And somebody who wants to be slightly out - that is more our market. But with the

Taj, that is somebody who wants to be in the city centre in the buzz of things or in the

waterfront…

KT: It is funny that you say that because Tony Romer-Lee also said that about the Cellars;

coming from Waterfront properties, I spent the first few months telling people we are only

10 minutes from the Waterfront, and then he suddenly realised that the people that are

considering our property, don’t care how far we are from the Waterfront. So don’t mention

it, say we are in the wine country - that is what we are and what we want to be. It is funny

how we all try to be all things for all people.

BD: It is.

KT: Brett, I don’t have anything else. You helped me put together some information. If I do

have anything else, I am going to take the liberty of dropping you an email and say I forgot

to ask you this or that, so I hope you dint mind?

BD: Perfect and I will fax this back to you.

ENDS 16h45

153

APPENDIX I:

CHECKLIST COMPLETED BY G.GRAMM

154

155

APPENDIX J:

CHECKLIST COMPLETED BY A.ROSETTENSTEIN

156

157

APPENDIX K:

CHECKLIST COMPLETED BY B. DAVIDGE

158

159

APPENDIX L:

CHECKLIST COMPLETED BY T.ROMER-LEE

160

161

APPENDIX M:

RESULTS TABLES

Table M.1: Comparison of competitor set by hotel size

COMPETITOR HOTELS

SAMPLE HOTELS

SIZ

E O

F C

OM

PE

TIT

OR

Cap

e G

race

Do

ck H

ou

se

Qu

een

Vic

tori

a H

ote

l

Ste

enb

erg

Ho

tel

Th

e C

ella

rs H

oh

eno

rt

Th

e T

wel

ve A

po

stle

s H

ote

l

SIZE OF HOTEL M S S S M M

Atlantic View S

Camps Bay Retreat S

Cape Grace M 1 1

Dock House S

Ellerman House S 1

One & Only Cape Town M 1 1 1

Radisson Blu Hotel Waterfront L

Steenberg Hotel S

Taj Hotel L

The Bay Hotel M 1

The Cellars Hohenort M

The Mount Nelson L

The Table Bay Hotel L

The Twelve Apostles Hotel M 1

The Westin L

1 0 0 2 3 2

162

Table M.2: Comparison of competitor set by geographic location

COMPETITOR HOTELS

SAMPLE HOTELS

LO

CA

TIO

N O

F C

OM

PE

TIT

OR

Cap

e G

race

Do

ck H

ou

se

Qu

een

Vic

tori

a H

ote

l

Ste

enb

erg

Ho

tel

Th

e C

ella

rs H

oh

eno

rt

Th

e T

wel

ve A

po

stle

s H

ote

l & S

pa

LOCATION OF HOTEL CB CB CB R R AS

Atlantic View AS 1

Camps Bay Retreat AS 1

Cape Grace CB 1 1

Dock House CB

Ellerman House CB

One & Only Cape Town CB 1 1 1

Radisson Blu Hotel Waterfront CB 1 1

Steenberg Hotel R 1

Taj Hotel CB

The Bay Hotel AS

The Cellars Hohenort R 1

The Mount Nelson CB 1

The Table Bay Hotel CB 1 1 1

The Twelve Apostles Hotel AS

The Westin CB 1 1

3 5 5 1 1 2

163

Table M.3: Comparison of competitive factors by competitor

HOTEL MARKETING AFFIILATION CHAIN HOTEL

COMPETITIVE FACTORS

Pri

ce

New

Pro

du

ct

Acc

om

od

atio

n

F&

B O

ffer

ing

Lei

sure

Off

erin

g

Ser

vice

Lev

els

Tec

hn

olo

gy

ST

O R

elat

ion

ship

s

Lo

cati

on

Bra

nd

Rep

uta

tio

n

Sh

ares

Key

Mar

kets

Sh

ares

New

Mar

kets

Sw

itch

ing

Co

sts

Atlantic View 1 1 1 1 1

Camps Bay Retreat Village & Life 1 1 1 1 1

Cape Grace Leading Hotels Meikles Hotels 2 3 1 1 3 3 3 3 3 3 2

Dock House Newmark 1 1 1

Ellerman House Relais & Châteaux 1 3 1 3 1 1 2 2 2 3 1

One & Only Cape Town Leading Hotels One & Only 1 2 3 2 3 1 2 3 4 2 2 3

Queen Victoria Hotel Newmark

Radisson Blu Hotel Radisson 1 1

Steenberg Hotel 1 2 2 2 2 2 1 2 2

Taj Hotel Leading Hotels Taj 3 2 3 1 1 1 1 1 3 1 2 3

The Bay Hotel Village & Life 1 1

The Cellars Hohenort Relais & Châteaux McGrath Coll. 1 1 1 1 1 1 1

The Mount Nelson Orient Express 3 3 2 2 2 3 3 3 4 3 2

The Table Bay Hotel Leading Hotels Sun International 4 1 1 1 1 2 2 2 1 3 3

The Twelve Apostles Hotel Leading Hotels Red Carnation 2 2 2 2 2 2 2 2 2 2 1

The Westin Westin 1 1

SUM 21 4 23 12 13 17 2 15 22 20 17 25 20 0

164

Table M.4: Comparison of competitive factors by sample hotel and as a ratio of their competitor set

HOTEL SIZ

E O

F H

OT

EL

LO

CA

TIO

N O

F H

OT

EL

NU

MB

ER

OF

CO

MP

ET

ITO

RS

COMPETITIVE FACTORS

Pri

ce

New

Pro

du

ct

Acc

om

od

atio

n

F&

B O

ffer

ing

Lei

sure

Off

erin

g

Ser

vice

Lev

els

Tec

hn

olo

gy

ST

O R

elat

ion

ship

s

Lo

cati

on

Bra

nd

Rep

uta

tio

n

Sh

ares

Key

Mar

kets

Sh

ares

New

Mar

kets

Sw

itch

ing

Co

sts

Cape Grace S CB 4 3 2 2 2

percentage 75% 3 75% 0 0 0 0 0 0 0 50% 50% 50% 0 0 0

Dock House S CB 5 5 5 5 5 5 5 5 5 5

percentage 100% 5 100% 0% 100% 100% 100% 100% 100% 0% 100% 0% 0% 100% 100% 0%

Queen Victoria Hotel M CB 5 5 5 5 5 5 5 5 5 5

percentage 100% 5 100% 0% 100% 100% 100% 100% 100% 0% 100% 0% 0% 100% 100% 0%

Steenberg Hotel S R 9 3 2 7 3 2 3 6 6 6 5 7 7

percentage 11% 1 33% 22% 78% 33% 22% 33% 0% 67% 67% 67% 56% 78% 78% 0%

The Cellars Hohenort S R 11 10 2 7 4 5 5 2 4 7 7 4 9 4

percentage 9% 1 91% 18% 64% 36% 45% 45% 18% 36% 64% 64% 36% 82% 36% 0%

The Twelve Apostles Hotel M AS 9 5 9 6 6 9 5 7 5 6 9 9

percentage 22% 2 56% 0% 100% 67% 67% 100% 0% 56% 78% 56% 67% 100% 100% 0%

165

Table M.5: Comparison of competitive factors by sample hotel and as a ratio of their City Bowl and surrounds competitor set

HOTEL SIZ

E O

F H

OT

EL

LO

CA

TIO

N O

F H

OT

EL

NU

MB

ER

OF

CO

MP

ET

ITO

RS

in C

B

COMPETITIVE FACTORS

Pri

ce

New

Pro

du

ct

Acc

om

mo

dat

ion

F&

B O

ffer

ing

Lei

sure

Off

erin

g

Ser

vice

Lev

els

Tec

hn

olo

gy

ST

O R

elat

ion

ship

s

Lo

cati

on

Bra

nd

Rep

uta

tio

n

Sh

ares

Key

Mar

kets

Sh

ares

New

Mar

kets

Sw

itch

ing

Co

sts

Cape Grace S CB 4 3 2 2 2

percentage City Bowl 75% 3 100% 0 0 0 0 0 0 0 67% 67% 67% 0 0 0

Dock House S CB 5 5 5 5 5 5 5 5 5 5

percentage City Bowl 100% 5 100% 0% 100% 100% 100% 100% 100% 0% 100% 0% 0% 100% 100% 0%

Queen Victoria Hotel M CB 5 5 5 5 5 5 5 5 5 5

percentage City Bowl 100% 5 100% 0% 100% 100% 100% 100% 100% 0% 100% 0% 0% 100% 100% 0%

Steenberg Hotel S R 9 3 2 4 3 1 1 0 3 5 4 2 3 5

percentage City Bowl 67% 6 50% 33% 67% 50% 17% 17% 0% 50% 83% 67% 33% 50% 83% 0%

The Cellars Hohenort S R 11 6 2 4 2 2 2 1 2 4 5 2 5 3

percentage City Bowl 64% 7 86% 29% 57% 29% 29% 29% 14% 29% 57% 71% 29% 71% 43% 0%

The Twelve Apostles Hotel M AS 9 5 5 5 5 5 5 4 5 5 5 5

percentage City Bowl 56% 5 100% 0% 100% 100% 100% 100% 0% 100% 80% 100% 100% 100% 100% 0%

166

Table M.6: Comparison and ranking of key challenges faced by sample hotels

HOTEL

DEMOGRAPHICS KEY CHALLENGES

SIZ

E O

F H

OT

EL

LO

CA

TIO

N O

F H

OT

EL

NU

MB

ER

OF

CO

MP

ET

ITO

RS

in C

B

OW

NE

RS

HIP

MA

RK

ET

ING

AF

FIL

IAT

ION

MA

NA

GE

ME

NT

CO

/ C

HA

IN

Dec

reas

ed o

ccu

pan

cy

Lo

w A

vera

ge

Ro

om

Rat

e

Lo

w R

EV

PA

R

Incr

ease

d C

om

pet

itio

n

Ret

ain

ing

mar

ket

shar

e -

exis

tin

g

mar

kets

New

mar

ket

pen

etra

tio

n

Incr

ease

d c

ost

s

Sh

ort

age

of

cap

ital

fo

r im

pro

vem

ent

Hea

lth

& S

afet

y co

mp

lian

ce

En

viro

nm

enta

l Iss

ues

Leg

isla

tive

co

mp

lian

ce

Sh

ort

age

of

skill

ed p

erso

nn

el

Lac

k o

f fu

nd

s fo

r tr

ain

ing

Lab

ou

r le

gis

lati

on

co

mp

lian

ce

Red

uce

d m

arke

tin

g b

ud

get

s

Mar

keti

ng

co

sts

are

pro

hib

itiv

e

60%

of

bu

sin

ess

fro

m o

ne

mar

ket

Cape Grace S CB 4 Company LH Meikles

2 1

5

3 4

percentage City Bowl 75% 3

Dock House S CB 5 Founder Newmark 2

1 3 4

5

percentage City Bowl 100% 5

Queen Victoria Hotel M CB 5 Founder Newmark 2

1 3 4

5

percentage City Bowl 100% 5

Steenberg Hotel S R 9 Founder 3

2 1 4 5

percentage City Bowl 67% 6

The Cellars Hohenort S R 11 Founder RC McGrath

1 3

4 2 5

percentage City Bowl 64% 7 Collection

The Twelve Apostles Hotel M AS 9 Founder LH Red 3 3

1 1

2

5

4

percentage City Bowl 56% 5 Carnation