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Major Strategic Risks That Can Influence the Hospitality Industry


The hospitality industry can be very lucrative when set in an environment that will attract potential tourists and encourage them to return to enjoy their experience once again. However, companies belonging to it are subjected to a plethora of risks that are endemic to the hospitality industry. Therefore, by analyzing the specified risks and studying innovative solutions to counteract them, one will be able to improve the performance of organizations across the entire hospitality industry, boosting economic growth.

The hospitality industry has seen a rather sharp rise with the developments in transportation, infrastructure, technology, and cross-cultural communication. For instance, in 2019, companies operating in the tourist industry grossed a total of $550 billion (Global hotel study 2019, 2019). The specified number was expected to grow, yet the unprecedented events transpiring in 2020 and affecting global economy and travelling massively have led to a devastating drop in the industry performance. According to the STR report, due to the quarantine and the cessation of international flights caused by the rapid onset of the COVID-9 pandemic, the performance of the hospitality industry has shrunk (Global hotel study 2019, 2019). Moreover, in light of the economic issues and restrictions, the hospitality industry is likely to suffer further complications.

Risk Identification and Assessment

The introduction of digital technology into the hospitality industry has provided multiple opportunities, such as the chance for customers to book their orders online, rate the services, select additional options, and communicate with the staff. However, the rise in the use of IT tools has also opened the door to a flood of digital risks, namely, the increased threat to the security of customers’ private data (Singh and Singh, 2020). Therefore, cyberattacks can be considered one of the foundational risks that the industry has been facing recently.

The COVID-19 pandemic is yet another massive concern that organizations I the hospitality sector must address in order to continue functioning successfully. Due to the introduction of the quarantine measures, the number of customers in the hospitality industry has been dropping, along with the frequency of its service use (Chebli and Said, 2020). As a result, the hospitality sector has ben suffering major financial losses, with some SMEs having to count their losses and exit the market.

The third most important risk that companies in the hospitality industry have been facing is the probability of a cross-cultural conflict caused by a basic misunderstanding. Despite the presence of multiple similarities between languages, differences in semantics may entail drastic misconceptions (Khan, 2018). Moreover, the incongruences in cultural perceptions and traditions may also cause conflicts to arise.

The lack of competent staff members is another risk that the hospitality industry is presently facing, and which is likely to become even more unmanageable in the nearest future. Despite the increase in demand for knowledgeable and experienced employees sin the hospitality industry, their rate are declining, which can be explained by the absence of prospects for professional development (Tokarz-Kocik, 2018). Indeed, given the lack of options for progressing from a staff member to a manager in the hospitality industry context, as well as comparatively low salaries, the drop in the range of staff members willing to invest time and effort into building the appropriate skills set is understandable. In turn, the absence of qualified staff suggests that the hospitality industry will be subjected to the risk of losing customers and facing a drop in income.

The introduction of new legal standards that may complicate the provision of services in the hospitality industry is another point of concern. The described risks may limit the range of opportunities for foreign customers to use the services of companies offering hospitality services abroad (Kibisu et al., 2017). As a result, the level of international cooperation will drop, causing the industry to shrink. Therefore, new regulations that allow managing relationships in the global business setting must be made with regard to the limits that they may set for international cooperation and the performance of key transactions.

Finally, the vulnerability of the hospitality industry to geopolitical shocks warrants close attention as the possible source of multiple risks for the industry. According to a 2019 study, the specified characteristic of companies in the hospitality industry implies that its organizations should be more reserved in their cash holding policies (Demir et al., 2019). The presence of geopolitical risk is another concern that companies in the hospitality industry are to be wary of when approaching the task of increasing their company’s competitive advantage and attracting new buyers.

To determine the extent to which each of the risks outlined above affects the hospitality industry, a risk matrix has been produced. In the chart below, the extent of risk was assessed based on its perceived impact for the industry multiplied by the likelihood of its occurrence (Ahmad, 2016). Thus, the key threats that the industry is presently facing and will have to address in the future have been quantified.

Figure 1. Risk Matrix for the Hospitality Industry.

0 – Acceptable 1 – Tolerable 2 – Unacceptable 3 – Intolerable
Likelihood 0 – Improbable
1 – Possible Geopolitical risks (1);
New regulations (1)
2 – Probable Lack of competent staff members (2) Cross-cultural misunderstandings (4) Security issues (6);
COVID-19 threats (6)

The chart above indicates that the drop in the number of customers caused by the increase in the scale of pandemic is currently at the top of the risk chart. Indeed, according to the available reports, the threat of failing to develop an adequate response to the coronavirus threat will lead to an even greater death toll, with the following restriction on interpersonal contacts, which may eventually jeopardize the very existence of the hospitality industry.

Risk Responses

In order to provide a proportionate response to the risks outlined above, one will need to consider the areas from which the described that come. The presence of a massive public health issue, to which COVID-19 belongs, represents the greatest threat to the hospitality industry (Aggarwal et al., 2020). Presently, companies working in this domain will have to rely on waiting for the appropriate response from healthcare organizations and the development of a vaccine that will reduce the risks to the point where international quarantine will no longer be required (Chebli and Said, 2020). However, the presence of a major public health concern does not suggest that organizations in the hospitality issue should remain inactive when managing the relevant risks. For instance, to counteract the risk of losing customers, the hospitality industry should provide an opportunity for better health safety measures, such as enhanced sanitization of the premises and key equipment.

As for the cross-cultural miscommunications, the hospitality industry needs to introduce cultural sensitivity training as a mandatory course for every staff member. Thus, misconceptions will arise significantly less frequently, causing lesser issues. The culture-related concern and, particularly, the threat of a misunderstanding that may escalate to a conflict can be resolved by providing staff members with cultural sensitivity training and the courses that will provide them with key cultural knowledge (Yumatov et al., 2017). As a result, the issue of cross-cultural conflicts and the related misunderstandings will be avoided. Moreover, introducing the company and its members to the cultures of people to whom it will cater will allow the firm to avoid making embarrassing blunders such as the use of words that may change their meaning when spoken in the language of the target culture.

Finally, the issue of security as the foundational challenge that the hospitality industry will need to recognize as a legitimate concern will also have to be addressed as a major source of concern. For this purpose, companies will have to hire IT experts, who will be able to ensure the needed level of security for the organization and its customers (Sopa et al., 2020). Data encryption before its transfer should become a common practice in hospitality organizations to prevent the instances in which data leakage may occur.


As a result of the ongoing problem with the increase in the extent and scale of the coronavirus pandemic, the tourism industry needs to be vary of the risks associated with the massive drop in the number of customers and the cancellation of multiple flights. For this reason, the hospitality industry will have to develop an elaborate risk management strategy that will allow companies to focus on the provision of services in the context of their domestic markets, while using innovative technology to provide online services to customers abroad. The proposed change will require investments in the R&D processes, as well as the redesign of the existing supply chains both across the industry an on company-specific levels.

Furthermore, the hospitality industry must address the drop in the availability and number of competent staff members, as well as the new regulations and the changes in customer demands. The latter will pose a particularly difficult challenge since hospitality companies will have to adjust to these requirements in the context of economic recession observed presently, which is why financial risks are going to rise exponentially. Overall, the hospitality industry is likely to suffer multiple risk, which can be managed by introducing effective forecasting tools.

Reference List

Aggarwal, P., Singh, M., Kumar, K. and Bansal, A. (2020) ‘Socio-Medical and Hospitality Impacts of SARS-Cov-2 in the Indian Context’, International Journal of Advanced Science and Technology, 29(11), pp. 2163-2173.

Ahmad, U. (2016) ‘Application of multiple criteria decision making techniques in tourism and hospitality industry: a systematic review’, Transformations in Business & Economics, 15(1), p. 37.

Chebli, A. and Said, F. B. (2020) ‘The impact of COVID-19 on tourist consumption behaviour: a perspective article’, Journal of Tourism Management Research, 7(2), pp. 196-207.

Demir, E., Díez-Esteban, J. M. and García-Gómez, C. D. (2019) ‘The impact of geopolitical risks on cash holdings of hospitality companies: evidence from emerging countries’, Journal of Hospitality and Tourism Management, 39, pp. 166-174.

Global hotel study 2019 (2019). Web.

Khan, M. Y. H. (2018) ‘Cross cultural leadership and the hospitality industry: a leadership style towards success in organizational goals in France’, Hospitality & Tourism Management International Journal, 1(4), pp. 20-25.

Kibisu, M. C., & Awino, Z. B. (2017) ‘The moderating effect of innovation on the relationship between enterprise risk management strategies and performance of Christian hospitality sector in Kenya – an empirical overview’, International Journal of Business and Management, 12(12), p. 212.

Singh, V. and Singh, A. (2020) ‘Chapter information technology in tourism & hospitality industry: a brief study’, Hospitality and Tourism Industry, 48, pp. 1-8.

Sopa, A., Asbari, M., Purwanto, A., Santoso, P. B., Mustofa, D. H., Maesaroh, S. and Primahendra, R. (2020) ‘Hard skills versus soft skills: which are more important for Indonesian employees innovation capability’, International Journal of Control and Automation, 13(2), pp. 156-175.

Tokarz-Kocik, A. (2018) ‘Motivation as a source of human resource risk in hospitality enterprises’, Theoretical approach. Journal of Economic and Social Development, 5(2), pp. 44-53.

Yumatov, K. V., Kiriyanova, L. G., Yakimova, N. S., Zaitseva, N. A., Larionova, A. A. and Korsunova, N. M. (2017) ‘Problem-based learning methods for training staff for tourism and hospitality clusters’, Eurasian Journal of Analytical Chemistry, 12(5b), pp. 803-812.

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StudyKraken. "Major Strategic Risks That Can Influence the Hospitality Industry." December 23, 2022.


StudyKraken. 2022. "Major Strategic Risks That Can Influence the Hospitality Industry." December 23, 2022.


StudyKraken. (2022) 'Major Strategic Risks That Can Influence the Hospitality Industry'. 23 December.

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