Economic Forces And Effects Of Globalization In Tourism Industry - Essay Example

Economic forces and effects of globalization in tourism industry Introduction There exists no one agreed definition of the tourism industry. Tourism refers to travel for predominant leisure, recreational purposes, or provision of services in support of this industry. The major factor in the tourism industry is the “tourist,” who by some is defined as a person, or people who travel, and stay in places outside their usual areas of residence for a period of more than twenty-four hours. The tourism industry comprises of the different types of facilities and services offered to tourists within a destination, or country for those “tourists.” For example, air transportation, hotels, and accommodation, restaurants, bars, cafes just to mention a few all of which are used in boosting the level of tourism within a country or destination. Therefore, the international tourism involves movements across borders for at least one stay in the foreign country for different purposes. These include business, leisure, visiting friends and relatives, international conferences, or seminars, and other purposes. This report deals with short-term movement of international tourists across borders for the reasons mentioned herein. The international tourism industry is worth an estimate of $856 billion in 2011, representing a growth of 1.7% per year over the past five years. However, the growth shadows a strong declined of 3.6% experienced in 2009 as the global economy succumbed to recession leading to a sharp fall in tourism in international tourism numbers. A steady growth of 4.4% in 2011 to 980 million, up from 939 million in 2010 is a reflection of dwindling economic recovery, natural disasters in Japan, and radical political changes in the North Africa and the Middle East (UNWTO World Tourism Barometer 2012). In contrast to previous years, higher growth was experienced in developed economies (+5.0%) than in emerging ones (+3.8%), largely due to strong results in Europe, and instability in North Africa and Middle East. The tourism industry generates significant economic benefits to both host countries and home countries of tourists. One of the major motives for promoting tourism in a region is the expected economic benefits. It is imperative that this applies especially to developing countries. This massive economic development resulting from tourism has both positive and negative consequences. Economic forces and effects of globalization play a significant role in shaping trends in the tourism industry. Economic forces refer to factors such as nature of the economic system in a country, demographic changes, employment, fiscal and monetary policies, rate of inflation, and interest rates which determines the state of the competitive environment in which a firm or industry operates. These factors affect the outcomes of a firm’s marketing activities, by determining the strength and volume of demand for its products and services. For example, increase in employment rates in a destination results into increased demand products and services. Globalization is the process of development toward an increasingly integrated global economy and characterized by free low of capital, free trade, and the tapping of cheap labor from foreign markets. Globalization also entails improvement of labor standards and practices resulting into quality services within the tourism and hospitality industry. With the ever increasing trend toward open and free economies, hospitality organizations such as Hilton Hotels has been able to gain from globalization that has created less trade regulations allowing the hotel to open and operate more chains globally. In addition, Hilton can acquire its supplies from all over the world without incurring more expenses resulting from trade barriers. Globalization has spread the materialistic culture common with the Westernized world and implementing values previously associated with the western culture. This has enabled the hotel chain to benefit economically from its chains established in developing economies such as Kenya. The increased movement of tourist due to reduced travel barriers has enabled Hilton hotel to receive constant flow of visitors from all over the world. The current economic slowdown as greatly affected demand for hotel accommodation and services. This is because a large majority of business travelers is affected by economic landscape in a given period. Customers for the hotel industry include both business travelers and tourists. Tourism travelers are grouped into low-medium income and high-income travelers. Those in low income are highly affected by economic slowdowns are less likely travel during hard economic times. The Hilton Hotel focuses on the high-income group and business travelers. Those in the high income are less affected by economic factors and continue to demand hotel services. On the hand, demand from low-income earners is affected by airfares. The recent increase in oil prices resulted in increased airfares, which consequently resulted into reduced number of low-income tourists who have relatively fixed budget to spend on airfares and holidays. Hilton Hotel has devised strategies to respond to the changes in the economic environment in the industry. To start with, the hotel chain has devised a strategy to stimulate tourist spending. The organization is positioning itself as economy friendly in response to the needs of its customers during these tentative times. The firm has lowered its rates throughout the entire year and lowered group rates for visitors. In addition to these, the hotel has also introduced generous service bundles in order to make its services look more affordable. Economic forces and effects of globalization in tourism industry The tourism industry is facing challenging circumstances in its bid to sustain growth of the industry. The economic forces influencing the industry include increasing oil prices, uncertainties in both global and national economies, and the effect of unfavorable exchange rates. The exchange rates play a pivotal role in international tourism and trade. Different exchange rates regimes employed internationally have significant impacts on tourism. Sugiyarto et al. (2007) discuses the exchange rates regime statistically in the industry and concludes that a more fixity in the arrangements of exchange rate generates a positive impact on tourism. Considering the situation of Euro in decreasing the gap with Sterling Pound, it is evident that this may affect the outbound tourism from the UK to other European Union Nations significantly. The adverse impact of this may affect the tourism agents. In some parts of the world such as Australia, high interest rates, profoundly affect domestic tourism. This is because most families struggle to pay credit cards, mortgages, and other loans at high interest rates. This reduces the disposable income of the people significantly. This not only affect domestic tourism but also international tourism. On the other hand, high interest rates can make a domestic market receive a high level of tourism development resulting from international entrepreneurs seeking better interest rates. Conversely, lowering interest rates stimulates the economy through giving cash to stimulate demand. This brings benefits to inbound and domestic tourism. The decreasing interest rates can make a destination unattractive for investors. Instead, they will make the destination attractive to the international market. With most part of Europe and America struggling to recover from global recession, interest rates have considerably gone down there by stimulating growth of international tourism. The reduced interest rates acts as stimulant to international tourism. This is evident from the 4.4% growth in international tourism arrivals in 2011 following the 2008 global recession. People increasingly travel following the recession. The data from the World Trade & Travel Council, revealed that the worldwide gross domestic product would to rise by 2% this year, compared to initial forecast of 0.5%. However, this sudden growth is expected to decline in the following years due to dwindling economic recovery process. Figures from UNWTO confirm the progressive recovery of the industry following the impressive increase in international tourist arrivals. Globalization as a term is broadly used. The extent of meaning ascribed to it seems to be rather escalating rather than diminishing over time, taking on political, cultural, and economic aspects. One significant factor that suggests trends toward globalization is the lowering or elimination of international trade barriers that enhance the free flow of goods, services, and capital between nations. Tourism industry is bound to operate more efficiently without government interventions or imposed quotas, tariffs and duties. Thus, mobility of capital and labor increases resulting to production gains as the number of tourist facilities and services made available to tourists increase due to product and service specialization. Foreign investment increases, while liberalization of capital market lowers the cost of capital allowing firms to borrow at lower rates and create more job opportunities through direct foreign investment. This in turn results in an increase into more disposable income stimulating demand for tourism products and services. Tourism is not only considered as the world’s largest economy, it also involves the biggest flow of people across national boundaries. Therefore, tourism is a key agent of change, viewed as an expression of globalization. With advantages originating from media coverage – television shows, travel documentaries, video series, magazine and newspaper publicity, tourism is integrated. It is noteworthy that tourism is a global industry, which has realized the greatest success from exportation of culture (Jones 301). Globalization has significantly boosted the industry but it has inevitably limited the success of individual countries. Globalization has resulted into a shift of economic power away from national control towards supra-natural organizations such as the European Union (EU), World Tourism Organization (WTO), World Trade Organization (WTO), and the United Nations (UN). The development of such trade organizations provides the world business with unlimited opportunities, which has evidently boosted the tourism ventures such as airlines, travel agents, travel research and consulting, technologies, resorts and hotels among others (Jones 314). Tourism firms have fewer barriers to enter new international markets and take over other companies. Consenting to this as an opportunity, (Sugiyarto et al 687) points the threat to tourism as resulting from globalization such as increased competition, and maintaining service quality among others. Low barriers to entry into the international tourism industry will lead to tough competition (Jones 43). Another important factor in the tourism industry is the dependence of aviation charges on oil prices. According a business confidence survey conducted by International Air Transportation Association (IATA), unit costs are still keeping airlines margin under pressure. The fuel cost for 2011 was relatively stable but remains 30% higher than the previous year. In addition, the expected increases in unit cost are significantly higher than yields. Even though a number of economic commentators are hinting that the financial situation in considerable economies is similar to that in late 2008, with the Eurozone debt crisis, airlines do not expect a similar fall in demand. International tourist arrivals continue to grow despite the present economic conditions. It has been a question whether globalization is beneficial to tourism, and this has been largely due to globalization policies. Such policies are often examined without considering their interactions with key economy especially tourism. Globalization has resulted into reduced tariffs leading increased tourism growth. A research conducted by (Jones 212) to examine the effects of globalization via traffic reductions as a standalone policy in conjunction with tourism growth revealed that growth of tourism amplifies the positive effects of globalization and minimizes its negative impacts. Globalization results to the demand for highly skilled labor, generating ‘world-class quality. This has immensely benefited the tourism industry by enhancing the quality and services offered by the industry. This has led to the realization that cheap labor has long-term negative impacts on profitability of business establishments since it is costly and unproductive. On the other hand, seeking for high0skilled labor leaves the local population jobless since their skills do not match the international quality standards. Globalization in combination with competitive recruitment environment and government legislations has led to the emergence of new personnel policies. This implies that such a process is influencing the operations of human resource departments. This has led to the increasing need for awareness among operation personnel on skill shortage, global demographics, wage rates, training needs and supply, as well as variations of national policies on occupational standards, health and safety, discrimination and workers’ rights, and dismissal. Globalization on the other hand has prompted a range of innovative training approaches and strategies to complement these trends. Conclusion Economic forces and globalization effects in the tourism are equally beneficial for the development of the industry. Economic forces such as the 2008 global recession appreciably affected the industry and led to decline in number of tourist arrivals in destinations around the world. The predominant debt crisis in the European region has an impact in growth of the tourism industry. Economic integration has served to promote the development of tourism facilities to international standards due to increased foreign direct investment. On the other hand, globalization has had an impact that is more positive on the tourism industry as compared to negative impacts. The new trend has resulted into high quality services that can meet international standards. Globalization has enhanced human capital contributing to quality products and services in the tourism industry. Works Cited Jones, Gareth and George, Jennifer. Contemporary Management 6th edition. Boston, MA: McGraw – Hill, 2009. Jones, George. Contemporary Management, 6th ed. McGraw – Hill International Edition, 2009 Sugiyarto, Guntur, Blake Adam, and Sinclair M. Thea. “Tourism and globalization: Economic Impact in Indonesia.” Annals Of Tourism Research [serial online]. July 2003;30(3):683-697. Available from: Hospitality & Tourism Complete, Ipswich, MA. Accessed March 31, 2012. UNWTO World Tourism Barometer 2012. mkt.unwto.org/en/barometer .Accessed March 31, 2012. Read More