After living in Ghana, a small developing nation in West Africa, for nearly a decade the factors supporting the necessity of “Fair Trade” are evident. Developing nations such as most in Africa, Asia, Central and South America where many hand-crafted items originate are starkly poor. Many of the artist who create a plethora of goods ranging from clothing, housewares, and accessories live on extremely low wages. Under the current modern business structure it is appropriate to obtain these goods for the lowest price possible for higher profit back in the West. However, given the fact that many of the producers do not have the educational background, business savvy, or bargaining power to demand higher wages most are offered low pay for their time and effort. Often, a producer’s pay is barely enough to provide adequate meals for one’s family.

Fair Trade is an attempt to reverse the process of exploitation within the global marketplace. Many producers in developing nations are unaware of their rights for fair and liveable wages. In developing nations, severe poverty has a profound effect on one’s outlook. Any employment, even one that is exploitative and unsustainable, is welcomed over the absence of any work to support oneself. Therefore, many people growing up in these communities feel powerless to complain about an employment opportunity. Yet, a function of Fair Trade requires buyers to educate producers about their rights to “fair pay”. This doesn’t open the gates for factory workers to demand salaries that can buy them the latest sports car or most expensive designer clothing. However, at the very least being able to purchase adequate nutritious food and basic over-the-counter medicine for a child with a minor illness should be a human right for everyone who works. Moreover, doesn’t it seem contradictory to purchase a product sold in the U.S. by an employee who is legally granted a minimum wage if the same product was initially produced by an underpaid exploited worker abroad?

Non-fair trade products have a lower currency price. Our nation has become accustomed to rock-bottom prices and extraordinary deals but at what price does this have on our concept of humanity? When cheaper products at your local Wal-Mart result in thousands of underpaid workers in a foreign land who do not earn enough to provide meals for their families, adequate medical care, and basic education for their dependents how can we assess the true cost of these purchases as inexpensive.

Shopping Fair Trade puts you in an active role in helping to mend the disparity between the developing world and our own. Paying workers in developing nations livable wages provides a more meaningful base for development as manufacturers and producers are able to provide basic necessities for the next generation. There is also a lasting impact of empowering Fair Trade producers in these communities to hold themselves and the products they make to higher standards which result in a better finished piece. If you’d like more information or have comments on the issue of Fair Trade please communicate them with our growing community.

There are literally hundreds of Vacation Rentals by Owner sites and it seems new ones are appearing every week. On the face of it, it may seem like making money from a “vacation rentals by owner” site is easy: all you have to do is get 1,000 owners to sign up, each paying $100 per year, and you can generate an annual income of $100k with almost no running costs, right?

Well, it’s not that simple. For a start, getting vacation rentals owners to pay for a listing on your site is not that easy, and secondly, if you expect to keep them, you will need to generate enquiries and bookings, which only come as a result of spending money, time and effort marketing your “vacation rental by owner” site.

Compare Owner Holiday Rentals (http://www.compareownerholidayrentals.com) recently decided to take an analytical look at the business of running a “Vacation Rental by Owner” site.

Some of you may be familiar with Michael Porter’s famous framework for analysing the attractiveness of an industry: based upon Porter’s model, you can predict how profitable a particular industry is likely to be in the long term. We have used this model to analyse the attractiveness of the business of running a “vacation rentals by owner” site.

Porter’s model says that there are 5 factors which influence the level of competitive rivalry, and hence the relative profitability, of an industry. These are:

1. The threat of entry by new competitors.

2. The intensity of rivalry among existing competitors.

3. Pressure from substitute products.

4. The bargaining power of buyers.

5. The bargaining power of suppliers.

These factors can either have a positive or negative effect on the long term profitability of an industry. Let’s take each of these in turn and see how they can be applied to the business of running a “Vacation Rentals by Owner” site.

1. The Threat of Entry by New Competitors: As already indicated, there are new competitors entering the “vacation rentals by owner” business on an almost weekly basis. The main reason for this is that the “barriers to entry” are so low: anyone with some IT skills can quickly build and publish a site, with the only cost being their time and some hosting charges. These low “barriers to entry” and the presence of so many new competitors are a negative for the profitability of the industry.

2. The Intensity of Rivalry among Existing Competitors: Free trials, free listings, reduced prices: all of these are indications of the increasing level of rivalry among the existing sites. Many of the new “vacation rental by owner” sites offer the first 6 or 12 months free of charge. Although some of the established “vacation rental by owner” sites have tried to hold the line on pricing and special offers, the indications are that they are finding it hard to hold their market share. Again, the level of rivalry is a negative for the industry profitability.

3. Pressure from Substitute Products: By “substitute “products, we will restrict ourselves to other ways that vacation rentals owners can choose to market their properties. Hence, this includes newspaper / magazine advertising (a medium in declining usage), using rentals agencies (still highly used, particularly in Europe) and marketing via the Owner’s own website (which seems to be increasing, particularly with the advent of Google Ads). All the evidence suggests that more owners are using the internet for advertising their vacations rentals; even the rental agencies now heavily use “Vacation Rentals by Owner” sites for marketing their properties. Also, although there are exceptions, using the commercial “Vacation Rentals by Owner” sites is very much more effective than using a personal site. Hence, the pressure from substitutes is relatively low, the industry is growing and this is a positive for the industry profitability.

4. The Bargaining Power of Buyers: Largely because there are so many options, including free trials and special offers, buyers (owners) have a lot of power when deciding where to list their properties. Also, the cost of switching to a different “vacation rental by owner” site is relatively low. Most owner’s review their advertising on an annual basis, based upon the results (enquiries, bookings) that they have received. “Vacation rental by Owner” sites that fail to produce results are not able to persuade owners to renew. Many new sites that start off by offering free trials fail to turn these into paying customers because they have not been able to attract renters in sufficient numbers to generate rental bookings. Hence, the bargaining power of buyers (owners) is a negative for the industry profitability.

5. The Bargaining Power of Suppliers : In the context of running a “Vacation Rentals by Owner” site, the main services that site owners buy are “hosting” ( which is cheap and plentiful) and marketing/ advertising ( which is plentiful, but not that cheap). Since hosting is relatively unimportant, let’s focus on marketing/ advertising. As more and more “vacation rental by owner” sites come online, getting good results on search engines such as Google is getting harder and harder. Hence, “Vacation Rentals by Owner” sites are experiencing the need to invest more in targeted marketing and advertising in order to attract renters to their sites. This eats into margins and is affecting the profitability of the business. Hence, although previously neutral, the bargaining power of suppliers is increasingly a negative for the industry profitability.

So, with 4 out of 5 factors being negative, does that mean that this industry is so unattractive that it is impossible to make money running a “Vacation Rentals by Owner” site?

Not necessarily, although undoubtedly it is getting tougher. In particular, smaller “me-too” vacation rentals by owner sites are unlikely to be able to be profitable enough to stay around for the long term, although new ones will probably continue to enter the market, start off by offering extended free trials, stay in the market for a couple of years and then fold.

However, there are probably two ways you can build and maintain a profitable business in this industry.

Firstly, some large “vacation rental by owner” sites will achieve sufficient scale (possibly through acquisition) to use their size to generate competitive advantage. These sites will have the critical mass of owners and visitors to be economically viable. As evidenced by the recent acquisitions that the WVR Group have made, it’s likely that some of the better smaller “vacation rental by owner” sites will get absorbed into such larger entities. Currently, VRBO and the WVR Group, (which owns a1vacations, Greatrentals, Cyberrentals and Holiday-Rentals amongst others) are the two 800 pound gorillas in the industry. Expect further consolidation to happen in the coming years.

Just as there are reasons to get into global markets, and benefits from global markets, there are also risks involved in locating companies in certain countries. Each country may have its potentials; it also has its woes that are associated with doing business with major companies. Some of the rogue countries may have all the natural minerals but the risks involved in doing business in those countries exceed the benefits. Some of the risks in international business are:

(1) Strategic Risk
(2) Operational Risk
(3) Political Risk
(4) Country Risk
(5) Technological Risk
(6) Environmental Risk
(7) Economic Risk
(8) Financial Risk
(9) Terrorism Risk

Strategic Risk: The ability of a firm to make a strategic decision in order to respond to the forces that are a source of risk. These forces also impact the competiveness of a firm. Porter defines them as: threat of new entrants in the industry, threat of substitute goods and services, intensity of competition within the industry, bargaining power of suppliers, and bargaining power of consumers.

Operational Risk: This is caused by the assets and financial capital that aid in the day-to-day business operations. The breakdown of machineries, supply and demand of the resources and products, shortfall of the goods and services, lack of perfect logistic and inventory will lead to inefficiency of production. By controlling costs, unnecessary waste will be reduced, and the process improvement may enhance the lead-time, reduce variance and contribute to efficiency in globalization.

Political Risk: The political actions and instability may make it difficult for companies to operate efficiently in these countries due to negative publicity and impact created by individuals in the top government. A firm cannot effectively operate to its full capacity in order to maximize profit in such an unstable country’s political turbulence. A new and hostile government may replace the friendly one, and hence expropriate foreign assets.

Country Risk: The culture or the instability of a country may create risks that may make it difficult for multinational companies to operate safely, effectively, and efficiently. Some of the country risks come from the governments’ policies, economic conditions, security factors, and political conditions. Solving one of these problems without all of the problems (aggregate) together will not be enough in mitigating the country risk.

Technological Risk: Lack of security in electronic transactions, the cost of developing new technology, and the fact that these new technology may fail, and when all of these are coupled with the outdated existing technology, the result may create a dangerous effect in doing business in the international arena.

Environmental Risk: Air, water, and environmental pollution may affect the health of the citizens, and lead to public outcry of the citizens. These problems may also lead to damaging the reputation of the companies that do business in that area.

Economic Risk: This comes from the inability of a country to meet its financial obligations. The changing of foreign-investment or/and domestic fiscal or monetary policies. The effect of exchange-rate and interest rate make it difficult to conduct international business.

Financial Risk: This area is affected by the currency exchange rate, government flexibility in allowing the firms to repatriate profits or funds outside the country. The devaluation and inflation will also impact the firm’s ability to operate at an efficient capacity and still be stable. Most countries make it difficult for foreign firms to repatriate funds thus forcing these firms to invest its funds at a less optimal level. Sometimes, firms’ assets are confiscated and that contributes to financial losses.

Terrorism Risk: These are attacks that may stem from lack of hope; confidence; differences in culture and religious philosophy, and/or merely hate of companies by citizens of host countries. It leads to potential hostile attitudes, sabotage of foreign companies and/or kidnapping of the employers and employees. Such frustrating situations make it difficult to operate in these countries.

The industry analysis section of a business plan is sometimes overlooked by entrepreneurs focused on the specifics of their business. However, this section offers an important opportunity for the business owner to step back and relate their planned business to the larger market it operates within. This is a chance to look at the attractiveness of the industry as it relates to new firms starting out, cost and revenue drivers which will be key determinants of the business’s financial situations, and trends and projections of where the industry as a whole is headed in the future.

Industry Attractiveness

Industry attractiveness was famously broken down by Michael Porter using his “Five Forces” framework. Porter believed that the attractiveness of an industry, or potential profitability of a business in that industry, is to a large part determined by five forces: the bargaining power of suppliers, the bargaining power of customers, the threat of substitutes, the threat of new entrants into the industry, and the intensity of competitor rivalry. Ideally, these five forces are low, allowing a company in the industry to thrive. However, knowing the specifics of these five forces gives a company the chance to devise a successful strategy even when some of these forces are high.

Cost and Revenue Drivers

By knowing the key costs and revenue streams of a company in the industry, readers of your business plan are set to understand how you will compare to the industry at large. They would like to see you either follow industry norms or be clear about how and why you break from them, if you choose to do so. Not every business has to create entirely new revenue streams and you can be more successful in achieving funding if your plan instead shows how you will grab market share through methods similar to industry norms.

Trends and Projections

Finally, examining research and reports on trends and projections for the industry you are in allows readers to understand how you will take advantage of or defend your company from these future forces. You should be clear that you understand your business will be dealing with the market situation one, five, and ten years in the future and not the exact market situation at the time of the plan’s writing. Don’t ignore powerful trends which you don’t feel are in your business plan’s favor. Potential funders will eventually hear about these and wonder why you did not present this information in your plan in the first place.