One of the questions I get the most whenever I am at industry functions is my thoughts on industry consolidation. There are so many “what if” scenarios that could play out, and you could easily drive yourself crazy wondering what the potential ramifications could lead to for your respective programs, whether they be meetings/events or business-travel related.
At this juncture, it’s anyone’s guess as to what the latest rounds of consolidation will bear for the meetings/events or corporate travel industries. If you go back to what we’ve learned from travel management companies, airlines and other firms with their recent rounds of consolidation, there are several commonalities.
1. Economies of scale. In business classes, you learn about barriers to entry and economies of scale. The larger the scale of the company, the more barriers to entry they can put forth. Their large size also enables them to direct where the industry should go, regardless if that direction is beneficial for buyers or consumers or not. In this case, the combined companies have been able to make price increases without issues.
2. The “food chain” realities. The strategies and pricing options for companies that are in the middle of the competitive pack, as well as those at the bottom, are limited. If you are at the bottom of the food chain, you really only have discounting strategies to gain market share and pricing advantages. If you’re in the middle, you can either match the bottom tier or try to keep up and gain share from the largest players. Either way, the likelihood of having to consolidate, merge or sell to another buyer is always in the playbook for both of these food-chain levels; their business stability is in constant flux.
3. Only the strong survive. Like the song says, “Only the strong survive, the weak fall by the wayside.” The same applies in the business world; the strongest companies are able to weather turbulent financial times, but that doesn’t guarantee continued success if their business models don’t stay current or ahead of the marketplace trends. Think of how the former top 10 companies were mostly brick-and-mortar businesses that owned significant hard assets like real estate, warehouses and manufacturing buildings. The current top 10 are all technology companies with a different business model and have stayed current with shifting consumer preferences and trends. Their most valuable assets aren’t real estate but rather intellectual property!
So in summary, what does this all mean to you? It means consolidation trends are not going away. You have to learn to pay attention to the tea leaves and plan for adjustments in your work, processes, policies and supplier partnerships. Consolidation in a marketplace that’s based on supply and demand, like our industry, really means changes in pricing expectations and disruption of existing business models that will in turn affect corporate budgets. It could impact your supplier choices and existing business process and policies. It could impact your program financials, and models that are reliant on commissions are at risk if the top suppliers of the food chain reduce or eliminate commission levels and models.
The realities of our industry are that it will continue to change, evolve and consolidate. You should factor this into your business strategic planning and give it a permanent consideration in your annual and future planning exercise or risk being caught with policies, programs and processes that are no longer relevant. The time to have a contingency plan B and even C are more relevant than ever!
Kevin Iwamoto is senior consultant at GoldSpring Consulting. You can follow him on Twitter @KevinIwamoto.