Determinants of Diversification Strategies in Star-Rated Hotels: Evidence from Coastal Kenya

The choice of diversification strategy is critical for the long-term sustainability of hotel firms. Hospitality and tourism industry especially the hotel sector should emphasize diversification strategies to motivate and develop resilience to counter the organizational and environmental forces especially at the backdrop of post-COVID- 19 business operation recovery that is characterized by low sales volume and profitability level. Several studies have explored the relationship between diversification and performance in the hotel sector. However, few studies have shown evidence of research of this nature. This therefore, creates a gap for this study. This study aimed to examine factors determining the choice of diversification strategies among star-rated hotels in the Kenyan coast. This study adopted an explanatory research design as it provides detailed data. The target population for this study was 36 hotels. A stratified random sampling technique was used to select the hotels. Purposive sampling was used to select Strategic managers. In-depth interviews were carried out to a certain factor determining the choice of diversification strategy among star-rated hotels. Data was collected through interview schedules. The study applied inductive analysis, identifying thematic areas from qualitative data collected from key informants through interviews. 29 interviews were successfully conducted representing an interview response rate of 80.6%. The result shows that growth, risk reduction, profitability and market attractiveness, organization culture and government policy were the main determinants of the choice of diversification strategy among star-rated hotels in the Kenyan coast. Additionally, factors such as management capabilities, brand identity, defensive diversification and offensive diversification were also noted. Due to the massive and unique economic and non-economic risk hotel business faces, diversification, strategy remains a critical in the hotel business today. Therefore, diversification decisions should align with a firm's strategic capabilities and market environment to achieve the organization’s desired outcomes.