Jerald S.

Cruz
H141

External Operating Environment

1. Explain the concept of Economies of Scale, and how it affects the Tourism and Hospitality
Industry.
Economies of scale occur when a firm’s costs decrease due to large masses of
production or improved manufacturing efficiencies. They can result from a variety of
changes, such as a reduction in the cost of goods used, new capital infrastructure
investments or improvements on a business-specific level. Macroeconomic variables are
typically outside of a company’s control and can cause improvements in economies of
scale or adversely diseconomies of scale. These types of variables are often managed
through corporate hedging strategies to reduce the risk of higher costs.
In microeconomics, economies of scale are the cost advantages that enterprises obtain due
to their scale of operation (typically measured by amount of output produced), with cost
per unit of output decreasing with increasing scale. (In economics, "economies" is
synonym to cost savings and "scale" is synonymous with quantity or the scale of
production). In the hospitality industry economies of scale can originate from different
sources. For example, economies of scale can result from the ability to share marketing
and sales infrastructure for increasing capacity. Economies of scale in the hospitality
industry can also result from the utilization of central management teams, acquisition of
raw materials, and production and labor utilization. As noted by Israeli and Uriely (2000),
the ability to achieve economies of scale is one of the primary factors behind the formation
of large corporations in the hospitality industry.

2. State the different sides that corresponds to the Political Environment. Cite the specific
examples that relate to the Tourism and Hospitality Industry
The impact of politics upon the hospitality and tourism sector is dramatic. Almost
unlimited are the ways in which governments influence the delivery of hospitality and
tourism products, whether through regulation of commerce, business and real estate
development initiatives, cultural and historic preservation strategies, and taxation policies.
Governments may also be involved in spending public funds on the promotion of
attractions that are privately owned and operated. Legislators establish accommodation
taxes to fund these marketing initiatives, and bureaucrats pick winners and losers by
selecting the specific tourism assets and destinations they will promote. Business success
is directly affected by political decisions that influence the environments – economic,
ecological, and social – under which hospitality and tourism functions. This raises the issue
of whether the sector and its interests are well represented in the halls of government.
3. How does the Sociocultural Environment affect the Tourism and Hospitality Industry.
The socio-cultural impacts of conventional tourism described here, are the
effects on host communities of direct and indirect relations with tourists and of interaction
with the tourism industry. For a variety of reasons, host communities often are the weaker
party in interactions with their guests and service providers. The impacts arise when
tourism brings about changes in value systems and behaviour, thereby threatening
indigenous identity. Furthermore, changes often occur in community structure, family
relationships, collective traditional life styles, ceremonies and morality. Because tourism
involves movement of people to different geographical locations and establishment of
social relations between people who would otherwise not meet, cultural clashes can take
place as a result of differences in cultures, ethnic and religious groups, values, lifestyles,
languages and levels of prosperity. The attitude of local residents towards tourism
development may unfold through the stages of euphoria, where visitors are very welcome,
through apathy, irritation and potentially antagonism when anti-tourist attitudes begin to
grow among local people.