Corporate Strategy – Case Analysis – China’s Interlaken

Group Members: Pavan Verma (pavan10p@iimk.edu.in), Rakesh Kumar Lenka

(rakesh3e@iimk.edu.in), Ranjit Jacob K (ranjit3e@iimk.edu.in), Senthil Kumar
Natesan (senthil3e@iimk.edu.in), Sridhar Gopalakrishnan (sridhar3e@iimk.edu.in)

Introduction

This case concerns Interlaken Village, a tourist resort in Shenzhen, China. The resort
is built as an exact replica of the Swiss village of Interlaken, the globally renowned
tourist destination. The resortIt started operations in 2007 and primarily caters to
two segments –the MICE industry, and to to the growing middle class in China as a
leisure and eco-tourism destination, and to the MICE industry. So far, the resort has
fallen short of expectations, averaging 2000 visitors/days against the expected
6000 visitors/day. With China’s tourism industry opening to international players,
Interlaken is facing increasing competition.

The key question raised in the case is whether Interlaken Village can sustain
competitive advantage by simply being a copy of Swiss Interlaken? Would the Swiss
features be enough to attract Chinese tourists? Would the novelty wear off over
time and potential visitors head to the real thing?

Industry Analysis

The tourism industry in China is fully endorsed by the Government, with the goal of
stimulating , which considers it a way to stimulate domestic spending. It, and has
grown rapidly in the last ten years due to the economic growth in China and
increase in disposable income. China is now the biggest domestic tourist market in
the world with US$80 billion revenues in 2006 from 1.4 billion travelers. The
domestic tourism industry is expected to grow at a healthy rate of 12% in the next 6
years. China is also the 4th most popular destination among foreign travelers and
earned US$34 billion revenues in 2006 from 125 million foreign travelers. The MICE
industry in China also has a growing MICE industry, and in 2006 is also growing, and
China had the largest number of MICE tourists in South-East Asia in 2006.

Given the above industry context, we feel that Interlaken Village operates in a
favorable market with high growth potential. However, the market has become
increasingly competitive, especially with the opening up of China’s tourism sector to
international players.

Company Analysis

Interlaken Village’s key uniqueness is its has 3 major strengths. First, it’s unique
concept of replicating a globally renowned tourist destination in China. Second, it is
part of the Government run builder OCT Group which has a strong financial position
as well as expertise in developing large Western-themed parks in China. Third, it is
located near the major urban centers of Shenzhen and Hong Kong which makes it
easily accessible to a large number of customers.

Let’s try to do a VRINE analysis on Interlaken Village’s capability of “offering an eco-

friendly, multi-dimensional leisure and recreation experience in a Swiss-like
setting”.OCT Group’s key capability is “the ability to create tourist attractions that
offer rich theme-based experiences to visitors”. This capability can be witnessed in
several of OCT Group’s properties including Interlaken Village and the Happy Valley
Amusement Parks. The capability is utilized in the context of Interlaken to provide
customers “an eco-friendly, multi-dimensional leisure and recreation experience in
a Swiss-like setting”.

Let us do a VRINE analysis on this capability of Interlaken Village and its parent
company OCT Group.

Value This capability adds value to customers as they can get a

luxurious stay in a Swiss-like setting close to home and at a
fraction of the cost of a trip to Switzerland. Furthermore, visitors
can participate in various leisure and recreational activities such
as visits to the theme parks, tea-making, golf, and spa.
Rarity This capability is rare, as is evident from the following two
facts.fact that First, there is no other resort in China built on a
similar concept and of similar scale to Interlaken. Second, from
among more than 2000 entertainment parks, OCT Group runs two
of the only three profitable ones.
Inimitability This capability is not easy to imitate. Firstly, to build a resort of
similar scale and facilities as Interlaken Village requires lot of
financial resources of the order of millions of US$. Moreover, the
return on investment may not be immediate, thus only firms with
financial stability and alternate sources of income would be able
to take up such an investment. Secondly, successfully building
and operating a large resort, especially a Western-themed one,
requires organizational and human resource expertise. OCT
Group’s experience of 15 years in successfully building and
operating its Western-themed amusement parks and luxury hotels
gives it expertise in the luxury, leisure, and MICE segments of the
hospitality industry. This is an intangible resource that is not easy
to imitate.
Non- The capability meets this criterion only partially. We note that
substitutability Ccustomers have several alternatealternate options such as
visiting the such as visiting the real Swiss Interlaken, or visiting
some other tourist attraction providing similar leisure and
recreational facilities. However, all these alternatives are rare and
inimitable themselves. Hence, we conclude that Interlaken Village
meets this criterion.part of China or South-East Asia, or visiting
some a different hotel in the Shenzhen area. However, none of
these substitutes completely replace the value proposition of
Interlaken Village. For example, visiting Swiss Interlaken would be
much more expensive, while visiting a regular 5-start hotel would
 not provide the Swiss-like setting and experience.
Exploitability This capability is exploitable, as is evident from the fact that OCT
East is already able to generate revenues from visitors to
Interlaken Village.

Based on the VRINE analysis, we conclude that Interlaken Village has a competitive
advantage. has at least a short-term competitive advantage.

However, we also believe that it can augment its To convert this into a sustainable
competitive advantage by incorporating the following additional elements to its
strategy., we recommend that Interlaken Village adopt the following strategies in
addition to its strategy of offering a “eco-friendly, multi-dimensional leisure and
recreation” experience targeted to the MICE industry, as well as luxury, leisure and
eco-tourism travelers, focused on the Shenzhen and Hong Kong regions.

1. Interlaken Village should try to build core competency in the area of

providing effective hospitality service. So far, Interlaken Village has done well
to create a physical replica of Swiss Interlaken. However, the story would be
complete only when Interlaken Village also provides hospitality service at par
with the renowned Swiss hospitality.

2. Interlaken Village should build capabilities in the area of offering a rich

cultural experience to visitors. For example, it can offer a Swiss shopping
experience by selling distinctively Swiss products such as watches,
chocolates, and cheese. It can also hold cultural festivals during peal tourist
seasons showcasing both Swiss and Chinese cultures.We believe it will not be
possible to successfully replicate the Swiss culture in China since the culture
of an area is the result of centuries of human inhabitation. Therefore, we
suggest that China’s Interlaken try to showcase the rich Chinese culture,
albeit in Swiss-like physical setting.

Conclusion

Based on our analysis, we have found that Interlaken Village in Shenzhen, China has
a short-term competitive advantage. We have made recommendations that will
augment its competitive advantage capabilities and allow it to build a sustainable
competitive advantage.