Strategic Position of the UK Tourism Industry - Essay Example

Strategic position of the UK tourism industry Executive Summary The United Kingdom is the 7th biggest tourist destination in the world. In 2011, the total number of visitors to UK was 29.2 million. The worth of the overall tourism industry of UK is more than 114 billion pounds. However, in 2012, the industry declined by 7 per cent facing the recession period. There was also a decline in the jobs related to tourism between the periods of 2008-2011. The strategic position of the tourism industry of UK is analyzed through the marketing model of Porter’s five forces and SWOT analysis. There is a need to look on to emerging markets in the tourism industry so that the growth and revenues keep on continuing. The UK tourism industry is facing tough competition from other tourist destinations in Europe, such as France, Italy, Spain and Germany. Due to decline in the valuable US market, the industry is facing the slowdown. The increasing number of Chinese tourists over past few years and the high average spending capacity of these visitors present China as potential emerging market for UK tourism. While competitive tourist destinations are already capturing Chinese visitors, UK tourism industry needs to take some urgent steps including promotion of UK as a favorable tourist destination along-with government taking suitable measures related to visa and tax policies. The report presents the strategic position of the UK tourism industry, strategic option and strategic recommendations for boosting growth and revenues. Contents Executive Summary 1 Methodology 3 Strategic Position of UK tourism industry 3 Porter’s five forces model 3 Analysis of business risk and opportunities through SWOT analysis 4 Evaluation of findings and key issues 5 Key Issues 7 Strategic option 7 Marketing strategies 8 Strategic Recommendations 9 References 11 Methodology The information regarding the strategic position of UK tourism industry and strategic option suitable for it are collected from secondary sources on internet including newspaper articles, articles from websites, such as Visit Britain, tourism society, etc. Other authentic sources of secondary information have also been searched to take the strategic audit. In order to do the strategic audit, suitable marketing models are used. The report has focused on the tourism industry as a whole and complies with the guidelines of the national tourism agency of Britain i.e. Visit Britain. Strategic Position of UK tourism industry Porter’s five forces model Threat of new entrants: The threat of new entrants into the tourism industry of UK is quite high. Earlier, there were only a handful of low cost carriers in the airline sector of the tourism industry. However, today there are a significant number of low cost carriers that are presenting competition to well-established low cost carrier services of Ryan Air and Easy Jet (The Travel and Tourism Industry 2012). Considering the emergence of new destinations for tourists on the global tourism map, the threat of new entrants is high. Governments of several countries and specifically the third world countries, such as Sri Lanka, India, etc. are seeing tourism as the major source to give boost to their economy. However, factors such as product differentiation and capital investment limit the new entrants to some extent as the unique selling proposition cannot be built in few years, while the UK tourism industry has already strong recognition and USP considering the world tourism map (Investing in Success 2012). Competitive rivalry: The intensity of the competition is quite high. In the period of 2010-20111, over 900 million tourists travelled to almost 150 countries in the world (Introduction to Britain’s Tourism 2012). In Europe itself, the UK tourism industry has to compete with other well established destinations in France, Italy, Turkey, Spain, Czech Republic, Portugal, etc. The first four destinations in Europe were France, Spain and Italy and Germany in 2011.Therefore, the competition rivalry is high (Tourism industry declined by 7 per cent during recession 2012). Threat of substitutes: The threat of the substitute destination is low. Even in the economic recession time, the Europeans tend to travel within the region due to which the substitute threat is quite low. However, considering the overall tourism industry of the world, UK ranks 135th out of the 139 countries in terms of price competitiveness due to which the tourism industry face the threat of substitute destinations that have less taxation (UK Tourism Statistics 2012 2012). The UK is the one of three European Union countries that charges full VAT rate from tourists on meals, accommodation and attractions. Moreover, the government funding has been reduced by 25% from 2001 to 2010, whereas other competitive tourist places, such as Australia, Spain, France, Ireland and Germany have shown considerable increase in the government funding (The UK Tourist Statistics 2010). Bargaining power of buyers: The bargaining power of buyers is high. For the tourism industry, the main buyers are tour operators. The hoteliers complain that if the required price is not given to the tour operators, they can identify new tourist destinations that have low costs and compete with the existing competitors as well (Visitor Economy Facts 2012). Bargaining power of suppliers: The bargaining power of supplier is low. This is because the country enjoys excellent global connectivity and more than 100 countries had direct air connection to UK in 2011. The three quarters of the overall inbound visitors of the country reached the destination by air (UK Tourism Statistics 2012 2012). Due to well established global connectivity, the bargaining power of suppliers for the industry i.e. airline operators is not high. From the overall analysis of the Porter’s five forces model, it can be evaluated that the tourism industry of UK is facing stiff competition from established tourist destinations as well as emerging tourist destinations of South and South East Asia. Analysis of business risk and opportunities through SWOT analysis Strengths: Well established global connection through air for more than 100 countries. Stands at third position in terms of most visited tourist destination in Europe in 2011. Increasing trend of ‘staycation’ in recent years as more UK residents are deciding to spend their holiday in UK rather than going abroad so as to minimize holiday costs (Travel and Tourism in the United Kingdom 2012). Weaknesses: In terms of international competitiveness, UK stands at 135th position out of 139 countries according to the World Economic Forum study for 2011 (Inbound Tourism 2012). Full VAT rate on restaurant meals, accommodation and attractions (State of the Nation 2012). Air Passenger Duty increased by 750% over the period of last 5 years (UK Tourism Spend Reaches Record £125bn 2012). Opportunities: Emerging markets of Asia including China, Russia and India present good opportunities to the UK tourism industry (UK tourist industry eyes emerging markets 2010). Relaxation of visa policy for Chinese visitors presents good opportunity as China is important in terms of growth market for tourism (Nicholls 2012). 2012 Olympics helped in giving once in a lifetime boost to tourism (Britain Tourism Strategy 2012). Opportunity lies in presenting innovative offerings to the high spending tourists from various countries including China. Threats: Smooth visa procedures in competitive tourist destinations such as Germany, France, etc. for overseas growing markets for tourism including India and China. Emerging tourist destinations on the global tourism map such as that of Sri Lanka, Madagascar, Cuba, etc. offering competitive package to tourists in the period of global recession. Competitive tourist destinations present low cost tourism packages to consumers attracting them to visit these places. Low rate of taxation and low air passenger duties offered by rival tourist destinations present threat to UK tourism industry (UK Tourism Statistics 2012 2012). Evaluation of findings and key issues The key findings about the strategic position of the UK tourism industry through the application of two marketing models- Porter’s five forces and SWOT analysis are as follows: The excellent global connectivity of UK helps the economy to grow as those who come to visit the place by air tend to spend more in their every visit than those who come by other means of transport. It presents good opportunity to the industry to lure these tourists as in 2011, almost three quarters of total inbound visitors in UK reached the destination by air (UK Tourism Statistics 2012 2012). There is a 3% increase in the volume of inbound tourists in 2011. However, the country ranked 7th in 2011 in the international tourism earnings league and is behind France, USA, China, Spain, Italy and Turkey (Inbound Tourism 2012). It slipped down from its earlier 6th position in 2010 as Turkey occupied the 6th position in 2011 pushing the UK tourism down to 7th position. Out of the total percent of global arrivals, UK has the share of 3% in 2011 which has not changed from the previous year (Moutinho 2011). Olympics and Paralympics 2012 have given boost to the tourism industry. Apart from the visitors from nearby countries including France, Norway and Sweden (Tourism Affairs 2011). The US market for the UK tourism industry has seen a decline in 2011 because of the economic slowdown the US market is facing (VisitBritain October 2012). Owing to the decline in number of tourists from valuable markets such as that of US make it necessary for the industry to look at the emerging markets of developing world such as that of China (Growth from China on the Agenda 2012). By 2014, it is predicted that there will be 90% jump for the total number of visitors from China as number of visitors would increase by almost 100000 (Chinese pack their suitcases at Bicester 2012). The small contribution of the visitors from emerging nations such as Russia, China, India and Brazil to the UK tourism industry during the Olympic boost indicates the rising potential of these markets for the country (Britain Tourism Strategy 2012). Policy related issues present some problems for the UK tourism industry in terms of fighting the global competition. UK charges the full rate of VAT for accommodation in tourism. In Europe, UK has the highest rate of VAT. The Air Passenger Duty has also increased significantly (The Big Question: Why is Britain's tourism industry ailing, and what can be done to improve it 2009). The visa procedures and policies also present threat to the UK tourism industry. France and Germany attracted eight and six times more visitors than UK respectively in 2011 from the emerging markets of India and China; the main reason remaining tough visa processes and high air passenger duties (Move to ease visa rules for Chinese tourists 2012). Competitive tourist destinations are attracting comparatively large number of tourists from emerging markets, such as that of China, which presents a threat to the UK tourism industry if it does not take steps to woo potential tourists from these emerging markets (Britain needs China's tourists – why isn't it getting them 2012). UK residents are cutting down their holiday costs and prefer to incline towards the trend of ‘daycation’, in which they do not plan for long holiday tour. Instead, they prefer short day breaks in routine. This situation compels the UK tourism industry to look for some strong strategic options so as to boost the growth of the industry (International Travel Trade 2012). Key Issues There two key issues pertaining to the UK tourism industry. Firstly, the policies and procedures related to the visa and taxation are comparatively less favourable to tourists that led them to opt for other emerging tourist destinations (Travel and Tourism in the United Kingdom 2012). Due this trend, the UK tourism industry has to fight not only with the existing giant competitors, but with the emerging tourist destinations as well. Secondly, the visitors from the valuable markets such as USA, Poland and South Africa have decreased in value over the period of last five years due to which the industry has to eye on emerging markets so that the growth of the industry can be ensured (The UK Tourist Statistics 2010). Strategic option Considering the findings of the strategic position of the UK tourism industry, the strategic option available for the UK tourism industry is bringing in more tourism from emerging markets, such as that from China. It comes under the strategic option of market development. In market development, new markets are sought for the existing products. As the UK tourism industry needs growth and more number of tourist visits, market development through bringing in more visits from China is the suitable strategic option (UK tourist industry eyes emerging markets 2010). Due to some of the recent trends and steps seen in the UK tourism industry, bringing in more tourism from China is a suitable strategic option. Britain has already relaxed visa policies for Chinese visitors so that people from this country look to UK as the place to visit and also do business (Nicholls 2012). The reason for focusing on visitors from China is the significant increase in the number of visits from China in comparison to the 2010 numbers. In 2011, 149000 visits were made from China to UK registering a significant rise of about 35% from the previous year. Moreover, Chinese visitors spend more than any other visitors in UK which is 3 times more than the expenditure of other visitors in UK (Retailers aim to woo China's big spenders 2012). However, there are some issues that need to be addressed so that visits from China could be increased and they should be promoted to spend more and more during their tour to UK. There are very few brands of UK that have profile in China. While competitors such as France and Germany have their brands known in the Chinese territory, UK has only one brand i.e. Burberry which is known to Chinese visitors (Retail bosses change to Chinese tourist law 2012). The SMART objectives for market development over next three years are as follows: To treble the visit of Chinese people to UK for the next three years from 149000 in 2011 to 500000 in 2015. To make the accommodation and hotel sector of tourism industry more attractive and comfortable for Chinese visitors. To increase the number of direct flights from China to UK over the period of three years so as to effectively use the strength of the industry in possessing global connectivity by air. Marketing strategies In order to direct Chinese visits to UK, following strategies can be used: 1st Year: Offering tailored services by the UK hotel industry such as translation of websites and signage into Mandarin, employing full time Chinese speakers to welcome and interact with guests in hotels; offering of Chinese breakfast, front desk staff fluent in speaking Chinese language, presenting the welcome letter written in Chinese language for guests, etc. (Britain needs China's tourists – why isn't it getting them 2012) Launch of campaign of seven months for advertising in National Geographic, Yahoo and Time Out so as to attract Chinese visitors (Cashing in on the Chinese Tourist 2009). Partnership with airline companies including British Airways to come up with tourist packages encouraging Chinese visitors (Chinese tourists can help UK out of recession, says British tourist board 2012). Launch of online Apps such as Android in mandarin so that Chinese visitors can easily locate large stores and important places in the city (Retailers aim to woo China's big spenders 2012). As Chinese people like to shop, opening of shopping facilities in hotels itself can give boost to revenues and would be comfortable for Chinese guests as well. 2nd year: Offering of more customized plans by hotel industry including telecast of Chinese TV programs, etc. Launch of joint projects by tourism promoting agency of UK i.e. Visit Britain and business promoting agency i.e. UK Trade and Investment, to promote Chinese people to make visits and do business in UK (Chinese tourists can help UK out of recession, says British tourist board 2012). Work with the airline companies to increase direct flights from UK to China and vice versa (UK's initiative targets tourists from China 2012). Launch of PR campaigns and promotion of UK as a favourable tourist destination by showing advertisements in Chinese channels with inclusion of interviews of Chinese people sharing their experience of UK trip (Moutinho 2011). 3rd year Increase in number of flights covering more and more cities outside Shanghai and Beijing in China to have direct flights to more cities in UK, and establishment of terminals that could take the Chinese payment Card of choice (Warrell and Thompson 2012). Further promotion of the campaign through offering of tourism packages that are competitive with other competitive destinations’ packages (UK must do more to attract Chinese tourists, says report 2011). Increase in the airport capacity so that they can handle the visitors’ traffic more effectively and efficiently (Warrell and Thompson 2012). Strategic Recommendations Without taking proper actions on easing visa requirements and reducing tax barriers, the strategic option of Chinese market development cannot be made successful. Therefore, strategic recommendations for the UK tourism industry are: Firstly, a considerable reduction in the VAT rate is desirable. A reduction of 5% in the VAT rate for accommodation, meals and attractions for visitors can make UK competitive in global tourism industry with creation of more jobs and subsequent increase in revenues (UK Tourism Statistics 2012 2012). Secondly, visa requirements and related procedures should be made less complex (Nicholls 2012). High passenger duties should also be reduced. Making the process of applying for UK visa parallel to the process of obtaining the visa for the Schengen area is recommended (Move to ease visa rules for Chinese tourists 2012). Thirdly, appropriate training should be given to UK travel agents in China so that they can provide better assistance to Chinese customers. Furthermore, bringing in improvement in online application processes by translating the application form into the language Chinese know is also recommended. As Chinese visitors feel comfortable and at ease while communicating in their own language, and they are high spending people, the retailing companies in UK should take immediate steps to cater to needs and requirements of Chinese visitors by hiring staff that can speak Chinese language fluently and should focus on marketing their stores and products through Chinese language specifically meant for visitors from China (Cashing in on the Chinese Tourist 2009). Fourthly, as other competitive places, such as Germany and France are already attracting more Chinese visitors in comparison to UK, the UK tourism industry should focus on promoting its cultural heritage and magnificence of its historical monuments as these two things pertaining to UK attract Chinese visitors, so they should be made the theme of the promotion and marketing of UK as a business visits and holiday visits destination for Chinese market (Travel and Tourism in the United Kingdom 2012). References Britain needs China's tourists – why isn't it getting them. 2012. [Online]. Available at: http://www.guardian.co.uk/commentisfree/2012/aug/18/britain-needs-china-tourists [Accessed on: 05 January 2013]. Britain Tourism Strategy. 2012. [Online]. Available at: http://www.visitbritain.org/britaintourismindustry/britaintourismstrategy/index.aspx [Accessed on: 05 January 2013]. Cashing in on the Chinese Tourist. 2009. [Online]. 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