External Environment Analysis: Tools, Models & Tourism Impact

TAKEAWAYS

• External environment analysis helps tourism businesses identify opportunities (e.g., eco-tourism growth) and threats (e.g., political instability) using frameworks like PESTEL and Porter’s Five Forces.
• PESTEL (Political, Economic, Social, Technological, Environmental, Legal) scans macro-environmental trends affecting tourism (e.g., Nepal’s visa policies or rising fuel costs).
• Porter’s Five Forces assesses industry competition in tourism (e.g., how Pathao competes with taxi services or how Nabil Bank’s travel insurance products face substitutes).
• SWOT analysis combines internal (Strengths/Weaknesses) and external (Opportunities/Threats) factors to shape strategies (e.g., Himalayan Java’s focus on organic coffee tourism amid climate change).
• Scenario planning prepares tourism firms for uncertainties like COVID-19 disruptions or geopolitical crises (e.g., NTC’s contingency plans for road blockades).
• Stakeholder analysis ensures alignment with groups like government (NTA), investors (Chaudhary Group), and communities (local guides) in tourism projects.

1. Why External Environment Analysis Matters in Tourism

Tourism is highly sensitive to external changes—political unrest (e.g., Nepal’s 2015 earthquake), economic shifts (e.g., inflation reducing tourist spending), or technological disruptions (e.g., online booking via eSewa). Strategic managers use systematic tools to scan these factors and adapt.

2. The PESTEL Framework: Macro-Environmental Scanning

PESTEL analyzes six broad external categories affecting tourism. Each category has Nepal-specific examples:

WORKED EXAMPLE: NTC’s Infrastructure Challenge Nepal Tourism Corporation (NTC) faces political and economic threats from:

• Political: Frequent road blockades by protesting groups (e.g., Madhesi protests in 2021).
• Economic: High maintenance costs for ancient roads (e.g., Annapurna Circuit). Strategy: NTC uses PESTEL to:

1. Lobby for dedicated tourism funds in the national budget.
2. Partner with private operators (e.g., Daraz Logistics) for last-mile connectivity.
3. Offer discounts during off-peak seasons to offset revenue losses.

3. Porter’s Five Forces: Analyzing Industry Competition

Porter’s model evaluates five competitive forces shaping tourism profitability. For Nepal, key forces include:

graph TD
    A["Threat of New Entrants"] -->|"High"| "Low barriers to entry (e.g., homestays, local guides)"
    B["Bargaining Power of Suppliers"] -->|"Moderate"| "Dependence on foreign airlines (e.g., Nepal Airlines vs. foreign carriers)"
    C["Bargaining Power of Buyers"] -->|"High"| "Tourists compare prices on Daraz/Khalti; loyalty programs help"
    D["Threat of Substitutes"] -->|"Moderate"| "Virtual tours (YouTube) vs. physical travel"
    E["Rivalry Among Existing Competitors"] -->|"Intense"| "Hotels, trekking agencies, and online platforms (e.g., TripAdvisor) compete fiercely"

CASE STUDY: Pathao vs. Traditional Taxi Services

• Threat of New Entrants: Pathao’s app-based model lowered entry barriers for drivers.
• Rivalry: Traditional taxi unions (e.g., Kathmandu Taxi Association) resisted, leading to price wars.
• Buyer Power: Tourists now compare prices on Pathao vs. taxis, forcing traditional services to adopt digital payments (Khalti/eSewa).

WORKED EXAMPLE: Nabil Bank’s Travel Insurance Nabil Bank analyzed Porter’s forces to launch travel insurance products:

• Low rivalry: Few banks offered specialized tourism insurance in Nepal.
• High buyer power: Tourists demanded customizable plans (e.g., coverage for adventure sports).
• Result: Nabil Bank partnered with trekking agencies to bundle insurance with permits, reducing substitute options (e.g., buying insurance from foreign providers).

4. SWOT Analysis: Linking External (OT) to Internal (SW)

SWOT combines external opportunities/threats (OT) with internal strengths/weaknesses (SW). For tourism, this helps prioritize strategies.

• Strengths: UNESCO-listed site, cultural authenticity.
• Weaknesses: Limited digital marketing, high operational costs.
• Opportunities: Rise of "slow travel," government grants for heritage restoration.
• Threats: Competition from luxury hotels in Kathmandu, political instability.

WORKED EXAMPLE: Himalayan Java’s Coffee Tourism

5. Scenario Planning: Preparing for Uncertainty

Tourism is prone to black swan events (e.g., COVID-19, sudden border closures). Scenario planning creates contingency strategies.

Mermaid Diagram: Scenario Planning for a Trekking Agency

mindmap
  root((Scenario Planning))
    Optimistic
      "High tourist arrivals (+30%)"
      "Invest in new routes (e.g., Kanchenjunga)"
    Most Likely
      "Stable growth (+10%)"
      "Focus on digital marketing (SEO, influencer collabs)"
    Pessimistic
      "Political crisis (-50% tourists)"
      "Offer refundable permits; partner with insurance providers"
    Extreme
      "Pandemic/natural disaster"
      "Pivot to virtual tours; cross-train staff for hospitality roles"

REAL-WORLD EXAMPLE: NEPSE’s Response to COVID-19

• Scenario 1 (Lockdown): Shifted to online shareholder meetings and digital reporting.
• Scenario 2 (Partial Reopening): Launched contactless trading via Khalti.
• Lesson: Tourism businesses should diversify revenue streams (e.g., selling digital experiences).

6. Stakeholder Analysis: Balancing Interests

Tourism involves diverse stakeholders (government, communities, investors). A power-interest grid helps prioritize engagement:

quadrantChart
    title Stakeholder Analysis for a Community Homestay Project
    quadrants
        High Power/High Interest: "Local Community (e.g., Tamang guides)" "Government (NTA, Ministry of Culture)"
        High Power/Low Interest: "Investors (e.g., Chaudhary Group)" "Foreign Tour Operators"
        Low Power/High Interest: "Tourists" "Local Schools (beneficiaries of tourism funds)"
        Low Power/Low Interest: "Competing Homestays" "Environmental NGOs (if not directly impacted)"

CASE STUDY: Chaudhary Group’s Pokhara International Airport

• High-Power Stakeholders: Government (NTC), investors (Chaudhary Group).
• High-Interest Stakeholders: Local communities (farmers displaced by construction).
• Strategy: Chaudhary Group compensated farmers with alternative livelihood training (e.g., homestay management) to gain social license.

In the Real World

1. eSewa’s Digital Permit System

   • Idea Used: Technological (PESTEL) + Scenario Planning
   • How: eSewa integrated online permits for trekking (e.g., Annapurna Conservation Area Permit), reducing corruption and wait times. During COVID-19, they pivoted to digital refunds for canceled bookings.

2. Daraz’s Logistics for Tourism Suppliers

   • Idea Used: Porter’s Five Forces (Bargaining Power of Suppliers)
   • How: Daraz’s last-mile delivery network helps small tourism suppliers (e.g., local trekking gear shops) compete with Kathmandu-based wholesalers. Suppliers gain better bargaining power over raw material costs.

3. NTC’s "Visit Nepal 2020" Campaign (Postponed Due to COVID-19)

   • Idea Used: PESTEL (Political/Legal Threats) + SWOT
   • How: NTC’s $10 visa fee waiver (Political) was an opportunity, but COVID-19 (External Threat) forced a shift to virtual campaigns (Technological). SWOT revealed:
     • Strength: Strong cultural appeal.
     • Weakness: Over-reliance on international tourists.
     • Strategy: Now promotes domestic tourism and medical tourism (e.g., Ayurveda in Pokhara).

Exam Tip

1. Define and Apply Frameworks Precisely

   • PESTEL: Always link factors to Nepal-specific examples (e.g., "Nepal’s open-skies policy under PESTEL’s Political factor").
   • Porter’s Five Forces: Use tourism industry examples (e.g., "How Pathao’s entry increased rivalry among transport services").

2. Integrate SWOT with Real Companies

   • Examiners love case-based answers. Example:

     *"Himalayan Java’s SWOT reveals that its organic certification (S) can leverage the global trend of sustainable tourism (O), but climate change (T) threatens coffee yields, requiring partnerships with NTA for grants (S)."*

3. Use Diagrams in Answers

   • Draw simple PESTEL tables or Porter’s Five Forces mindmaps in the exam to visualize analysis. Even if not graded separately, it shows structured thinking.

4. Link to Nepal’s Tourism Sector

   • Always tie answers to NTC, NTA, or private players (e.g., Daraz, Chaudhary Group). Example:

     "NTC’s high dependence on foreign airlines (Supplier Power in Porter’s model) makes it vulnerable to fuel price hikes, hence its strategy to promote domestic flights via Buddha Air."

5. Scenario Planning is High-Value

   • Questions may ask: "How would you advise a trekking agency to prepare for political instability?"
   • Answer Structure:
     1. Identify scenarios (e.g., road blockades, visa bans).
     2. Propose contingency strategies (e.g., "Offer refundable permits; train guides in digital marketing").
     3. Use a real example (e.g., "Like NTC’s 2021 plan to reroute trekkers via alternative passes").

Final Visual: Strategic Decision-Making Flowchart

flowchart TD
    A["Identify External Factors\n(PESTEL)"]
    B["Assess Competition\n(Porter’s Five Forces)"]
    C["Combine with Internal Analysis\n(SWOT)"]
    D["Develop Scenarios\n(Optimistic/Pessimistic)"]
    E["Engage Stakeholders\n(Power-Interest Grid)"]
    F["Implement Strategy\n(e.g., NTC’s digital permits)"]
    A --> B --> C --> D --> E --> F