MKT 6061
Seminars on Current Business & Management Issues
EMBA 2006
Group Project:
"Where should Hong Kong Tourism be heading?
In view of the emergence of China and other Asian economies and their competition as tourist's destination cities,
how Hong Kong can realign its strategies
for the competition and the new opportunities”
Group 8
Andrew Law Lai-wah, Student ID04426080
Corinna Yuen Kwok-yee, Student ID04424670
Millicent Mak Lai-sim, Student ID04268740
Queenie Fung Shuk-fun, Student ID04267750
Thomas Tong Tung-ming, Student ID04269240
Virginia Wan Man-yun, Student ID04269400
Table of Contents
Acknowledgments
Executive Summary
Introduction
Background
Current Situation
1. Tourism Growth Factors and Changing Behaviours
2. Visitors Arrivals Trend
3. Current Strategy From Hong Kong Tourism Board
4. Tourism Current Trend
Analysis
Buhalis’ new 5Ss framwork
Left Circle Analysis
Recommendation
Conclusion
Exhibits
Exhibit 1 – Tourism Percentage Share of GDP
Exhibit 2 – Visitors Arrivals 1999 - 2005
Exhibit 3 – Detailed Tactics of HKTB’s 2006 Strategies
Exhibit 4 – Major Attractions and Spending Patterns
Exhibit 5.1 – SWOT Analysis
Exhibit 5.2 – Porter’s 5 Forces Analysis
Reference
1
Group 8 Project
Acknowledgments
We would like to thank Professor Andrew Chan for providing guidance and directions for the project, and whose strong connections with Hong Kong Tourism Board (HKTB) facilitated the successful collection of useful information, including a meeting with Ms Clara Chong, Executive Director of HKTB.
We are also particularly indebted to Ms Clare Chong, who afforded her valuable time out of her busy schedule. During the meeting, Clare gave us a lot of insights, i.e. what HKTB does in order to promote the tourist in Hong Kong to the Mainland China, Asia and other countries.
Executive Summary
Tourism is the act of travel for the purpose of recreation and business, and the provision of services for this act. A more comprehensive definition would be that tourism is a service industry, comprising a number of tangible and intangible components. The tangible elements include transport systems - air, rail, road, water and now, space; hospitality services - accommodation, foods and beverages, tours, souvenirs; and related services such as banking, insurance and safety and security. The intangible elements include: rest and relaxation, culture, escape, adventure, new and different experiences. (
We notice that the tourist industry is growing rapidly in recent years especially after the introduction of Individual Visit Scheme (IVS) to the Mainland China. We are not sure whether the current tourist infrastructure can sustain the coming growth. Thus, the purpose of this paper is to study the current situation of the tourist industry in Hong Kong including the tourist growth and its behavior, arrivals trends, the current strategy from Hong Kong Tourism Board and their current trend. Based on this information and using ‘Left Right Circle’ theory, we conducted an analysis so as to device the new needs of the visitors.
Based on the needs analysis, a series of actionable recommendations are provided so as to further promote the tourist industry in Hong Kong.
Introduction
Harold Vogel stated that “The urge to travel is universal” because people are born with innate and insatiable curiosity. (Vogel, 2001)
Michael Elliott also stated “The freedom to travel safely and cheaply is one of the great blessings of our time – something that immeasurably expands the range of human experience” (Michael Elliott, Time Magazine).
Based on the above, we have no doubts why number of visitors travel around to Hong Kong. In 2004, the total visitor arrivals reaching a record 21.18 million, a 40.4% increase on the previous year and 31.7% more than the previous all-time high set in 2002. (Annual Report 2004/05, Hong Kong Tourism Board). A total of 23.4 million visitors arrived Hong Kong in 2005.
The tourism industry accounts for 2.9% of Gross Domestic Products (GDP) among the below pillar economic sectors of Hong Kong in 2005.
Trade and logistics – 27.7% of GDP in terms of value added
Financial services – 12.2%
Professional services and other producer services – 10.6%
Despite the fact that the growth gave prominence to us, the world is changing at a faster pace than ever; we face severe competition among Asia Pacific region, i.e. Singapore, Taiwan, Korea, and Malaysia. Hence, the purpose of the paper is to realign the tourist strategies for the competition and to identify any new opportunities so as to compete with other Asia Pacific region.
Background
According to the World Tourism Organisation (UNWTO), a United Nation’s specialised agency, Hong Kong made a spectacular entrance into top ten tourism destinations. Despite the 6.2% decline in visitors number during the SARS outbreak in 2003, a series of promotional efforts and the mainland government’s introduction of Individual Visit Scheme (IVS), Hong Kong’s tourism industry picked up and ranked seventh in the world subsequent to a 40% increase in arrivals in 2004.
The UNWTO also forecast that China will be the world’s largest inbound tourist market by 2020, and that Hong Kong will be No. 5 in its own right with more than 56 million visitors.
The total numbers of visitors reached a record high at 21.81 million in 2004. Inbound tourism expenditure rose to HKD91.85 billion.
The main top five source markets of visitor arrivals to Hong Kong in 2004 are as below:
Ranking in 2004 / Markets / No of Arrivals / Share of Total (%)1 / Mainland China * / 12,245,862 / 56.1%
2 / Taiwan / 2,074,795 / 9.5%
3 / Japan / 1,126,250 / 5.2%
4 / USA / 1,051,696 / 4.8%
5 / South Korea / 539.190 / 2.5%
As a result of the progressive extension of IVS, 4.26 million, or 34.8% of the total Mainland arrivals travelled to Hong Kong under IVS.
Source: Hong Kong Industry Performance 2004 Highlights
Current Situation
Hong Kong is one of most international cities in the world, and is arguably the most international city in Asia, as we pride ourselves as “the Asia World City”. Tourism is one of four pillar industries supporting the Hong Kong economic growth; it is important to have both the short-term and long-term strategy right to ensure we capture the maximum growth benefits from the industry.
1. Tourism Growth Factors and Changing Behaviours
Amrik Singh, in his paper Asia Tourism Industry: Current Trends and Future Outlook, explains that tourism growth in Asia Pacific results from various factors—economicgrowth improved population income level, which in turn instigated improvement in working condition and demand of leisure time. Improvements in economic condition also brought about political stability and reduce travel restrictions. The globalisation, open architecture, and blue ocean strategy also have accelerated the liberalisation of air transport and caused improvement in technology leading to the reduction of travelling cost.
According to the UNWTO, these recent phenomena have fuelled the long-term increase trends of arrivals. In 2005, there were 808 million arrivals worldwide, representing a 5.5% growth. The prospect for 2006, though smaller than that of 2005, is somewhat above the long-term average annual growth rate of 4.1% (UNWTO News1/2006).
Among the worldwide growth trend, Asia-Pacific and Middle East have had the highest growth, at 7.0% and 8.8% per annum respectively since 2000, in which Asia Pacific has a much larger growth base than Middle East.
Full Year / Avg / Share2000 / 2001 / 2002 / 2003 / 2004 / 2005 / 2000-2005 / 2000 / 2005
(Million) / (Change %) / (%)
World / 689.2 / 688.5 / 708.9 / 696.6 / 766.0 / 808.3 / 3.2 / 100 / 100
Europe / 396.2 / 395.8 / 407.4 / 408.6 / 425.6 / 443.9 / 2.3 / 57.5 / 54.9
Asia-Pacific / 111.4 / 116.6 / 126.1 / 114.2 / 145.4 / 156.2 / 7.0 / 16.2 / 19.3
Americas / 128.2 / 122.2 / 116.7 / 113.1 / 125.8 / 133.1 / 0.8 / 18.6 / 16.5
Africa / 28.2 / 28.9 / 29.5 / 30.7 / 33.3 / 36.7 / 5.4 / 4.1 / 4.5
Middle East / 25.2 / 25.0 / 29.2 / 30.0 / 35.9 / 38.4 / 8.8 / 3.7 / 4.8
Source: UNWTO News 1/2006
Liberalisation, coupled with technological developments such as more fuel-efficient aircrafts (Singh), has had significant, positive impact on the travel industry in Asia Pacific and will continue to do so in the next decade.
Tourism’s contribution to the overall Gross Domestic Products (GDP) of Hong Kong, however, has been moderate for both inbound and outbound tourism, at 2.9% comparing to over 50% share by the entire four-pillar industries. The economic and employment contributions from inbound tourism are difficult to measure, as the activities comprise a range of economic activities straddling different industries, e.g. retail, restaurants, transport, hotel and personal services. To estimate this, the Organisation for Economic Cooperation and Development (OECD) recommends the compilation of tourism ratios for selected tourism-related economic activities to allocate value added and employment of these economic activities to inbound tourism (Hong Kong Monthly Digest of Statistics, December 2003). Exhibit 1 indicates a 20% to 50% growth in the related industries including hotels, restaurants, transport services and the like from 2000 to 2004.
2. Visitors Arrivals Trend
Visitor arrivals in Hong Kong peaked in 1996 at 12.97 million as visitors came to witness the colonial Hong Kong before its handover to China. Subsequently visitor arrivals in 1997 and 1998 waned, added to it was the Asian financial crisis; total arrivals dropped to 11.27 million and 10.16 million respectively.
Visitors arrivals stabilised and regain momentum since 1999, then the outbreak of Severe Acute Respiratory Syndrome (SARS) in 2003 dwindled the arrivals from 16.56 million in 2002 to 15.54 million in 2003. It is interesting to note that visitor arrivals increase for 2004 was 40%; however, the composition of visitors changed due to the introduction of Individual Visit Scheme (IVS) by the Hong Kong SAR Government with Beijing’s blessing since mid 2003. Although the growth was ubiquitous from all regions (except Taiwan), the share of visitor arrivals from Mainland China has changed the dynamics of tourism industry in Hong Kong completely.
According to Clara Chong, Executive Director of HKTB, the source of visitors from IVS will expand from current 30 cities to 38 cities in 2006, mostly in Pearl River Delta, Yangtze River Delta, and Bohai Rim regions. See Exhibit 2 for details.
3. Current Strategy From Hong Kong Tourism Board
Since the recovery from the economic downturn, Hong Kong tourism has picked up quite rapidly. The introduction of Individual Visit Scheme (IVS) in mid 2003 boosted the mainland tourist arrivals from 30% in pre-IVS to 54.5% in 2003. In 2005, total arrivals has grown 7.2% to 23.4 million arrivals; the overnight visitors’ average length of stay has been maintained at 3.7 nights while the total expenditure associated to inbound tourism has grown to $105.66 billion from $92.62billion in 2004. The overall satisfaction from visitors has improved by 0.3% to 8.3%.
While the Hong Kong Tourism Board is working closely with hoteliers and developers and the Tourism Commission on the hotel supply, the town planning and land sales rest with the Planning Department and Lands Department respectively, with Housing, Planning and Lands Bureau as the policy bureau. Tourism Commission is the government counterpart for input / feedback to their planning counterpart when appropriate.
Here are HKTB’s strategies:
Strengthen partnership and enhance trade and consumer activities to ensure Hong Kong remains the primary destination among Mainland travellers
Maintain a balanced portfolio of visitors from different geographical market, i.e. long- and short-haul markets, by positioning Hong Kong as an international city and broadening its appeal beyond shopping and dining through infrastructural projects and increase diversification of experience
Make HK the ultimate choice for conventions, exhibitions and business meetings, and to encourage business travellers to stay longer in HK and better still, to bring their families and friends
Emphasize high quality high yield arrivals (business and family) and high potential markets (South Korea, Philippines and Thailand)
Together with the new promotional initiatives and events to be staged, the outlook for 2006 is expecting to be positive with total arrivals hitting 27 million and associated total expenditure* $114.7 billion (Tourism Commission). See Exhibit 3 for detailed tactics of 2006 strategies.
(*The Tourism Expenditure Associated to Inbound Tourism comprises two main components:
Destination Consumption Expenditure and Passenger International Transportation Expenditure.
Destination Consumption Expenditure is the sum of payments made by all inbound visitors and travellers for goods and services that they consume in Hong Kong. It includes expenditure of six main categories of visitors, who are overnight visitors, same-day in-town visitors, cruise passengers, transit/transfer passengers, servicemen and aircrew members.
Passenger International Transportation Expenditure represents the receipts of Hong Kong based carriers for the cross-boundary transportation of non-resident visitors by air, sea or land.)
4. Tourism Current Trend
Since the tourism revival in 2004, visitor arrivals and associated expenditure have grown rapidly. UNWTO forecast that China would be the world’s largest inbound tourist market by 2020 and that Hong Kong alone will be No. 5 with more than 56 million visitors. In order to materialise this expectation, HKTB has researched for statistics for the study of major attractions and spending patterns among visitors. (See Exhibit 4)
HKTB also identified the following trends:
Travellers are increasingly looking for experience, a desire to carry out a particular activity rather than going to a destination for the sake of the destination
More demand on authentic experiences of local culture and closeness to nature, especially among the older age groups
Consumers are increasingly unpredictable. They may combine five-star deluxe accommodation with a no-frills flight, or have fast-food snacks one day and a slap-up meal the next.
Free Independent Travel (FIT) continues to shape the future of travel product distribution towards user-friendly Web sites allowing for direct bookings and dynamic packaging.
Analysis
To have a better analysis of the current situation, it is better we start with the customers needs using the Left Circle Theory. On top of this, we also use Buhalis’ new 5Ss tourism framework to understand the macro development of the tourism industry.
Buhalis’ new 5Ss framework
In the article by Dimitrios Buhalis, he explains the dynamic trend of tourism phenomenon and the demand of the new tourist and consumer, and provides a framework of analysis (Wahab and Cooper 69-92). The trend in a developed country is that every worker is expecting a four weeks holiday annually, and they will budget it to do so. By 2010, globally there will be 964 millions of trips aboard, excluding day trips requiring 8 billion nights staying aboard spending US$ 922 billion in 1995 US$ term (HK$7,173 billion), and the growth of South East Asia will almost double in 15 years between 1995 and 2010 from 3.5% to 6.9% of the total world’s share. These tourists are becoming more experienced, and technology are revolutionising the way tourists would like to use their time during holidays. People are more experienced through this information age; they would like to live their holidays rather than just spent it. They are more aware of the impact of ecology andenvironmental concern; the globalisation has flatten the world to become more multi-cultural, and the tourist of modern and post modernity would look for edu- and enter-tainment to use their leisure time for personal development as well. Buhalis argues that the traditional tourism products will no longer be adequate for the recreation of the new affluent generation of tourists emerging, who would look for a more individualised product and a complete experience for the visit. The tourism demand trends are going through a transformation from the 4Ss framework for seaside tourism (Seas-sun-Sand-Sex) and the 4Ss framework for urban tourism (Sightseeing-Shopping-Shows-Short breaks) to the 5-S’s framework model, namely sophistication-specialisation-segmentation-satisfaction-seduction.
Dynamic tourism demand trends
In a nutshell, the previous 4s model are more product-oriented, focusing more on the right circle, on the “what ”. However, moving forward, we should focus on the left circle, identifying their wants and needs. In the process, segmentation and specialisation are required. It is no longer a “mass tourism approach” but one to gives rise to niche tourism, catering to their special needs.
According to latest trends, customers prefer the following types of niche tourism[1]
CULTURAL / ENVIRONMENTAL / RURAL / URBAN / OTHERS
Heritage
Tribal
Religious
Educational
Genealogy
Research / Nature and wildlife
Ecotourism
Adventure
Alpine
Geotourism
Coastal / Farm/barns
Camping
Wine/gastronomy
Sport
Festivals and events
Arts and Crafts / Business
Conference
Exhibition
Sport
Gallery
Art / Photographic
Small cruise
Volunteer
Dark
Youth
Transport
With the world becomes flatter and flatter and travel barriers fewer and fewer, the world visitors become more and more widely exposed or spoiled and more demanding, an approach focusing on customer experience management is the key to success. There are more sophistication and satisfaction in the experience economy.
As it is quoted, “Goods are commoditized, services are customized, and experience, and only experience could be individualized”; and as Chris Ryan puts, “The tourism “product” is not the tourist destination, but it is about experiences of that place and what happens there”[2]. More and more customers are looking for uniqueness, from mall design to product design; and from retail experience to e-experience. Individuals are also looking for intimate, subjective and emotional experiences. Sofar mass tourism with packaged and standardized-leisure services at fixed prices targeted at mass clientele are popular but are lacking in differentiation in individual experience. The tourism market could no longer be considered as a homogeneous one, and should start to apply the niche approach. And that requires a knowledge process involving producers researching, identifying and targeting specific audiences and maintaining a relationship with them in the face of competition[3]. The development of niche products is essential in order to capture new and more profitable markets, either by creating a new customer base or by addressing key issues of the existing base. To develop niche tourism, we need to take a customer-focused approach. We could look at what specialty activities tourists are seeking in order to have a satisfactory holiday experience.
Left Circle Analysis
We will concentrate on a few levels of the left-circle theory to identify current and future needs of the tourist industry. In addition we have conducted a brief analysis using OTSW (SWOT) and Porter’s 5 forces model for better understanding of the situation. (See Exhibits 5.1 & 5.2)