Marketing in the Olympic Games - Impact on China's Economy - Dissertation Example

Marketing in the Olympic Games: Impact on China’s economy TABLE OF CONTENTS PG NO: 3 CHAPTER ONE: Introduction 4 1: Introduction 4 1.2: Research Question 6 1.3: Significance of this study 7 CHAPTER TWO: LITERATURE REVIEW 8 2.1. Introduction 8 2.2. Marketing Theories 10 2.3. Economic Aspects of the Games 11 2.4 Measuring the cost of the Games 13 2.4.1: Olympic Games in Sydney 16 2.4.2: Seoul and Atlanta Olympic Games 18 2.4.3. Athens Olympic Games 19 2.5. Benefits from Beijing Games 20 CHAPTER THREE: Methodology 25 3.1 Introduction 25 3.2. Research method 26 3.3: Limitations 28 CHAPTER FOUR: FINDINGS AND DISCUSSION 30 4.1. Introduction 30 4.2 Findings 31 4.3 Application of Marketing Models 37 4.4. Conclusions 43 BIBLIOGRAPHY 46 Abstract: Economic impact studies tend to project economic gains for a city that hosts the Olympic Games. However, these studies may be flawed in that they see costs as gains and ignore opportunity costs. One of the most significant advantages that an Olympic city has been touted as having is an increase in tourism, which is also the reason why there is so much marketing hype attached to the Games. However, other experts have refuted these economic studies and shown that Olympic studies may in fact be subjected to a detrimental effect. Beijing however has set out to promote itself as a city of innovation, technology and the promotion of the environment. The Olympic Games 2008 offers China a unique opportunity to showcase itself in the eyes of the world. There has been a positive impact on tourism in China in the past few years of preparation for the Games, and it appears likely that the city of Beijing and China may continue to enjoy the benefits of tourist activity even after the Games have been concluded. Applying the 7Ps marketing approach, Beijing has also been promoting itself in terms of the additional elements identified under this model in marketing of the Games. Chapter One: Introduction: 1.1: Introduction: In July of 2001, Beijing was awarded the hosting of the 2008 Olympic Games and the city erupted into celebrations, with 200,000 people jamming Tiananmen Square (BBC News, 2001). The Games are a world renowned sporting event held once every four years, as a result of which they are referred to as the Olympiad Games. However, the Games are not merely a sporting event; they also have a humanitarian purpose as defined in its goal to “place everywhere sport at the service of the harmonious development of mankind, with a view to encouraging the establishment of a peaceful society concerned with the preservation of human dignity.” (Bayliss et al, 2004:3-4). The Olympics aims to contribute towards the building of a better and more peaceful world and especially to inspire youth by encouraging athletes to compete in a spirit of fairness and cooperation without discrimination in a spirit of friendship. Since the decision to award Beijing the 2008 Olympics was also welcomed by its rival Taiwan, there is hope for the fostering of the Olympic spirit of fairness, friendship and peace among the two countries.(BBC Report, 2001) During its earlier years, there were fewer countries participating in the Games and usually one city came forward to host the Olympics. However, with the advent of television, there has been a significant change in sporting culture and with increasing participation in the Games coupled with increased media coverage, sporting events have become more and more spectacular, as they compete for the consumer dollar (Nauright, 2004). There are now more developing countries competing for the hosting of the Games and the process of bidding itself has become expensive, because each contending city is required to deposit a $100,000 application fee just for the privilege of bidding for the hosting of the Games.(Burton, 2003). For the 2010 Games out of the right cities which applied, the four that were short listed were required to submit an additional fee of $500,000 as a part of the selection procedure.( Wilson, 2002). The Olympic Games are an important event from the marketing point of view because “the revenue derived from television, sponsorship and fundraising help to provide the movement with its financial independence.” (Brown, 2000:74). Cities over the world compete for the privilege of hosting the games because it is believed that being the focus of the international community through the execution of such a major sporting event is likely to being tremendous economic gains to the city in question. Hosting the Games is also expected to bring in long term benefits, such as the productivity gained through the improved transport infrastructure and intangible benefits such as boosting a city’s reputation. (Bayliss et al, 2004). Since the Games are not a tangible product as such, but are equivalent to a service, the additional elements that must be taken into consideration is the people, processes and physical evidence involved in the marketing effort. However, “ the scale of the organization, facilities and infrastructure required for such a huge undertaking are such that the Games cannot but have substantial economic effects.” (University of Tasmania, 1999:2). The costs involved in hosting the Olympic Games has increased and citizens of countries whose Governments have bid and invested heavily in the hosting of the Olympic Games expect to gain some benefits in their lives and demand accountability, as also private investors who pour money into the Games.(Bayliss et al, 2004). The marketing and financing of the Games is a controversial subject and according to Perseus, “staging this mega event bears a financial risk for all hosts”(Perseus 2000:14) 1.2: Research Question: In view of the above, what is likely to be the economic impact of the Olympic Games in Beijing, especially where business and tourism are concerned? While there is rejoicing in the nation over the anticipated economic benefits that may accrue as a result of the Games, there are also concerns that have been raised, such as human rights questions since many poor Chinese will be forced to move to make way for Olympic constructions and the possibility for wide scale corruption by Government officials. (Hewitt, 2001). It has also raised questions about how a country like China can host such an expensive event when it still has 20 million people living below the poverty line. (Hewitt, 2001). However, the hypothesis upon which this research study is based is that the Games are likely to have a positive effect on China’s economy and allow China’s objective of advancing itself positively in the world view to be achieved. This research study proposes to assess the potential economic impact of the Olympic Games in China by undertaking an examination of past Olympic Games and the venues where they were conducted. This will help to identify some of the issues that China may be faced with, as it deals with the preparations for the holding of this mega event. It will also help to identify what is the potential for Beijing to benefit from increased tourist and business activity, on the basis of the history of earlier games and theories that have been advanced by experts on the economic impact of the Olympic Games. 1.3: Significance of this study: There is limited evidence available on the impact of the Olympic Games in terms of tourism and the economic benefits accruing to the host nation in this sector. The Sydney games in 2000 were the first to really seize upon the tourism aspect in marketing of the Games. This study therefore seeks to add to the pool of knowledge in this aspect, by drawing upon the views of experts in the literature review on the economic impact of the Olympic Games, in order to arrive at an assessment of how Beijing can ensure that it benefits from the positive examples of other Olympic cities and limits the negative effects as experienced by other cities. This study will then apply the findings of the literature review in performing an analysis of the likely impact of the Olympic Games upon Beijing. CHAPTER TWO LITERATURE REVIEW 2.1: Introduction: China is rapidly emerging as a potent political and economic force in the world. As pointed out by Professor Angang Hu (2007), China and India have double the population of the developed countries, with the combined share of GDP of these two countries equaling that of 29 European countries. China’s rise parallels that of the United States a century ago in terms of high economic growth rate and contribution to the world’s GDP and it is now a superpower in terms of world resource consumption growth. Paltiel, J.T. (2005) has examined the rise of China in terms of changes in the current international relations. He points out the conflicting views about China’s rise, with some viewing China as a force that will destabilize the international system while others view China’s interests and status quo as reflecting the status quo. China is adopting a policy of peaceful emergence as a platform of its foreign policy. The Olympic Games has special significance for China, especially in view of its past history of communism and human rights abuses (Hewitt, 2001) and will help to shift world attention away from its past history to promote a new role for itself as a world power comparable to the Western economies. China is attempting to shape a new role for itself in the world and has been presenting itself in a friendlier, more diplomatic form. Lampton (2007) suggests that instead of viewing China’s rise mainly in terms of its growing strength, there is a need to pay attention to its growth in the economic and intellectual domains. He suggests that the U.S. should focus on ways to improve cooperation and ally with China instead of entering into conflict. In conducting the Olympic Games to world standards, China will be able to demonstrate her capability as a significant world power that can serve as a powerful ally to the world’s most powerful nations. In fact, China has been making good progress on the preparations for the Games in the early years and the Olympic Committee has expressed its satisfaction and contentment with the manner in which China has been going ahead with the preparations, commending the Government for carrying out work well ahead of time (www.61.135.180.163). As Restall (2007) has pointed out, China’s economic and military clout has been expanding in recent years and it is fashioning a new political role for itself, especially in the Asian region where it seeks to displace the hegemony of the United States. A successful staging of the Olympic Games will help to alter the current perception of China as a human rights abuser which exists in the international arena and help it to consolidate the image it is trying to project of a diplomatic, capable nation that is achieving an important position on the world stage because it is the home to one fourth of the world’s population and is emerging as a military and economic power in its own right. The question that arises is whether the marketing of the Olympic Games in Beijing will achieve the desired results of promoting China as being on par with the developed countries of the world. 2.2: Marketing Theories: There are several marketing theories that may be considered in the context of the Olympic Games, the most important of which is the 7Ps Extended marketing Mix Model. While the traditional aspects of Price, Place, Product and Promotion are linked to the promotion of products in general, this will not be applicable in the context of the Olympic Games, because it is not a tangible product. The Olympic Games are a world class event that carry their own promotional hype, and it is in the organization of the event that the host city stands to benefit. The greater part of economic benefits for the host city are expected to accrue as a result of the promotion of the city over worldwide TV, thus providing it an opportunity to present itself before a world audience. Hence, the traditional 4Ps model cannot be effectively applied to the Olympic Games, rather other elements must be taken into consideration, which will be relevant in the context of the Games. The 7P Model applies in the case of services rather than tangible products and will be relevant in the context of the Games, which is not a tangible product as such. The 7Ps comprises three additional elements not found in the original 4Ps model, i.e, People, Process and Physical Evidence.(www.12manage.com). These three elements must be included in the marketing aspects, especially when non tangible services are being promoted. Therefore, the application of the 7P Model will also take into consideration such aspects like the people involved in the development of the services associated with the Games, the actually activities and processes being implemented as well as the physical evidence that exists to support the marketing efforts that are made. Another aspect that is important where marketing of an event is concerned is scenario planning. Scenario Planning is a marketing model whereby a future scenario is carefully crafted by taking into account existing ideas and precedents that may be available in order to arrive at intelligent decisions about what is feasible and possible. Scenario planning is not equivalent to forecasting, rather it is the consideration of all factors which could potentially impact upon a particular event and then making necessary adjustment or provision for them and arriving at an intelligent estimate of what may be feasible. Such projected estimates may not necessarily work out according to projections, however they will be reasonable projections taking into account the existing precedents. In the context of the Beijing Games therefore, it is necessary to examine how the 7Ps model is being applied in terms of the three elements that have been identified above. How are people being involved in the process of marketing of the Games? What are the processes that are being implemented in the organization and formulation of the Games which could contribute towards producing a favorable outcome? Lastly, what is the physical evidence that is available to substantiate the benefits of the marketing approach that has been adopted? However, in applying these aspects, it is first necessary to identify the potential future economic scenario that could result from the Beijing Games. 2.3: Economic aspects of the Games: The question of whether or not Beijing is likely to bring about economic benefits to the city is therefore of prime importance, because this is the crucial element which will determine whether the marketing of the Games as carried out through media campaigns and the improvements in infrastructure in the city are likely to prove beneficial. In assessing the potential scenario, existing precedents must be taken into account, and these include the experiences of previous cities that have hosted the Games and the economic results that have issued from them. The Olympic Games have been perceived as an event that brings economic benefits to its host city, which is one of the reasons why cities vie so eagerly to gain the hosting of the Games. The staging of the Olympics in Beijing is expected to bring business benefits for local enterprises. The success of Chinese athletes at past Olympic Games has been met with increased enthusiasm from the local population that gathers at bars and celebrates the victory of its athletes, thereby producing business benefits to bars as well as escalating sales of TV sets, electronic appliances and flags.(China Daily, 2004). With the increased influx that is likely to pack the capital of Beijing, business benefits to local enterprises may be expected to increase. China expects a tourist inflow of 500,000 to 600,000 visitors during the Olympic month. Investment in infrastructure is about 40% of the nation’s GDP of $2.4 trillion. Since China’s economy is a managed one, experts are of the opinion that the actual profit and loss ledger may never be known. However, while some state that the infrastructure is proposed to be used for other purposes than just the Games, others like Philip Levy accept the need for Beijing to update its infrastructure, contend that stadiums are not a priority.(Bozzo, 2007). While some experts believe that the Games are a significant opportunity for China to attract a higher proportion of investment than it already does, others also believe that the current volume of China’s foreign investment has nothing to do with the Olympics and will not be impacted much by the Games, because it has been evolving on its own special path based on factors other than the Games. (Bozzo, 2007) Some of the specific negative consequences of staging the Olympics, which have formed the substance of the arguments offered by opponents, has been suggested by Preuss(2000) as follows: (a) Money spent on the Olympics could have been diverted into areas more beneficial to the Community, such as health and education (b) The host city runs the risk of sinking too deeply into debt; for example in the case of the Montreal games, the cities losses in terms of unpaid bills was about $1million (Burton, 2003) (c) Job opportunities created by the hosting of the Olympic Games are only temporary and disappear once the Games have been concluded (d) The Olympics may bring benefits only for prosperous citizens but cause damage to the poor by displacement and diversion of benefits (e) There is a rise in the cost of living that occurs in the host city, which does not go down after the Olympics are over. 2.4: Measuring the cost of the Olympic Games: Cities around the world are anxious to be the hosts to the Olympic games due to the belief that the high profile nature of the event will bring in economic gains. Short et al have illustrated this with a typical statement: “The promise of worldwide exposure and economic gain has made hosting these major and regularly scheduled sporting affairs a lucrative goal for aspiring cities around the world.” (Short, 2000:30) The underlying premise for economic gain is the belief that by hosting such a major international event, the host city will receive the benefits of additional visitors who in turn, will spend large amounts of money and improve tourism and inflow of funds into the country. The holding of a mega sporting event like the Olympic games places the host city on the top of the list of travel destinations for international tourists who travel to the host city to watch the Games. Apart from this, the host city also has the opportunity to showcase itself as a potential tourist destination to the audiences across the world.(Ich Keun, 2002). Every city that hosts the Olympic Games views it as an opportunity to showcase itself, and since they reach a worldwide audience, they “offer perhaps the best stage upon which a city can make a claim to global status.”(Short et al, 2000:320). It is also inferred that the cost of constructing stadiums results in the generation of large scale employment for local labor and suppliers of building and construction materials. The underlying idea behind economic benefits is the notion that when the Games are held, there is an injection of money into the economy, which keeps on circulating within the economy to create a multiplier effect. (Owens, 2005:3). Moreover, it is also believed that the economic benefits to the city will accrue, not only duration of the Games but even afterwards. However, several studies that have been conducted after major sporting events have been conducted have not been able to demonstrate such economic gains. Coates and Humphreys examined several studies dealing with the aftermath of sporting events and they have concluded that “building new sports facilities and attracting new professional sports teams did not raise income per capita or total employment in any U.S. city”.(Coates and Humphreys, 2003:6). In the case of Atlanta, it was estimated that the State of Georgia created over 20,000 jobs during the Olympics; however it has been estimated that a new job adds fifty cents of economic benefit to the economy for every dollar of wages; as a result, job creation alone cannot be the basis upon which the huge expenses made for the Olympic Games can be justified.(Persky, 2004:1) In yet another study that was conducted by Porter on the impact of the Super Bowl on local economies, his finding was that there was “no measurable impact on spending associated with the event. The projected spending and spillover benefits of regional impact models never materialize.” (Porter, 1999:61). Porter has also shown that an increase in tourism does not necessarily result in economic gains to local businesses; he argues that it merely pushes up the prices of hotel occupancy rates on a temporary basis that deflates after the Games, rather than allowing for enhanced capacity and a sustained advantage to the tourism industry. Owens(2005) points out that economic impact studies that project healthy economic benefits from such mega events like the Olympic Games are flawed in that they treat costs such as that involved in construction of stadiums and revamping of infrastructure as benefits rather than costs, they ignore opportunity costs, use gross spending on the Games as a measure instead of measures the net changes or the difference between total costs and total gains, as well as through the use of over large multipliers (Owens, 2005:3). In the specific context of building stadiums and thereby providing jobs to the local workforce, Noll and Zimbalist have pointed out that such public investment in effect crowds out private investment which might have otherwise existed; as far as the unemployed are concerned, the same effect of compensation of local labor could be achieved if the Government gave away the money to the workers as “unemployment insurance” – in effect, hiring half the workers to “dig a hole and the other half to fill it up.”(Noll and Zimbalist, 1997: 61-62). In the case of the Beijing Games, there are also concerns that the generation of billions of dollars for Olympics related construction projects will only enter into the pockets of corrupt officials and create losses for taxpayers.(BBC News, 2001). As Burton (2003) points out, there is a high level of expense involved with the hosting of the Olympic Games with huge tabs for hotel bills for the IOC, chauffeur driven cars, Olympic family benefits, apart from very expensive opening, closing and medal ceremonies, which suggests that the pomp and pageantry is an expensive extravaganza and a money making enterprise rather than a statement for peace and the furtherance of humanitarian goals. 2.4.1: Olympic Games in Sydney: The Olympic Games in Sydney in 2000 cost $3.2 billion dollars, however there was no economic gain; rather the net result was that the country just broke even.(Burton, 2003: 41). It must also be noted that the expenses incurred was reported to be $2.7 billion dollars and the Australian Premier reported a net deficit in the Treasury of $1.5 billion in 2000 (Harris 2000); however by the year 2002, the IOC representative suggested that Australia’s operating expenses had in fact been only $2.015, which produced an end result of a break even. (Burton, 2003:41). Two years after the Olympic Games in Sydney were concluded in Sydney in 2000, the Auditor General noted in a report to parliament in which he pointed out that there was no single and simple answer to the cost of what the Olympic Games had cost; however there were two important issues that could be identified and these were (a) how such costs were to be measured and (b) the scope of the items that should be included in those costs. (Report to Australia’s Parliament:3). The Sydney Olympics was one of the first to conduct research into the tourism offshoots and potential of the Olympic Games. The Games were conducted in 2000, however five years prior to this, “the ATC management decided that a dedicated business unit to focus on the Olympics was required” as a result of which a strategic plan would have to be devised to fuel the necessary efforts to achieve projected goals.(Chalip 2000:188). The efforts put into the development of tourism by the Australian Government has been projected as a model for other host Olympic countries and cities and the Director of Marketing of the International Olympic Committee expressed the view that “no other national tourist office has taken advantage of hosting the Games to the same level.” (Brown 2000:88). Australia viewed the Olympics as a significant opportunity to boost tourist traffic into the country, not only before and during the period of the Games but also after the sporting event. The country developed a comprehensive strategic plan which included a great deal of publicity and advertising, provision of information and collaboration with the tourist industry, so the ultimate objective was to add depth and dimension to “brand Australia” (Chalip 2000:188). The prevailing international view of Australia as a land whose primary attractions were its beaches and the range of its animals was sought to be changed during the promotional efforts expended during the Olympic Games, to provide a more comprehensive and attractive image of Australia as a tourist destination. However, as Burton points out, the sum of $400 ,million spent on Sydney’s Olympic Stadium would have been very attractive before the Games were held but once the Games are over, the lack of cost-effective use to which the stadium can be put results in it turning into a “white elephant of mammoth proportions.” (Burton, 2003:40). Furthermore, in the case of Sydney, there was an amount of $91 million overage which was incurred in terms of financial cost, which was not projected when the bid was won, and neither was the additional sum of $15.3 million which the taxpayers of Sydney had to bear when Sydney’s Olympic Park had to be redeveloped. Additionally, according to Graham Matthews, a former economic forecaster at the Australian Federal Treasury, while there was undoubtedly a sense of pride and joy among Australians in hosting an international event of such stature in the country, it is hard to “determine that there has been a positive, lasting impact on tourism from having that brief burst of exposure. There may be some productivity impact but its hard to see how it could be statistically significant.” (Mitchell, 2000) 2.4.2: Seoul and Atlanta Olympic Games There were several boycotts that were stage during the period that Seoul bid for and won the right to host the Olympic Games up to the time they were successfully completed.(Burton, 2003). This highlights the need or future host cities to carefully consider the need to satisfy local citizenry in bidding for and organizing the Games. The Atlanta Summer Olympic Games held in 1996 is often touted as a shining example of the benefits accruing to a host city and state after the holding of a mega sporting event. However, the reality is that while the Games cost a sum of $1.7 billion dollars, the city just broke even and was not able to make a profit from the holding of the event. (Burton, 2003:41). One study showed that there had been a slight rise in employment that resulted from the Olympic Games. The city of Atlanta and the State of Georgia spent a sum of “$1.58 billion to create 24,742 full or part time jobs which averages out to $63,680 per job created” (Baade and Matheson, 2002:28-29). However, at best the city probably was able to net about 10 million dollars from the event after all the bills were paid off, which does not represent any kind of positive economic gain.(Fisher, 2002) A problem that was faced during the Atlanta Games was the bomb blasts which occurred and have focused the attention of future host cities to the need for security at the Olympic venues. 2.4.3: Athens Olympic Games: The budget for the Athens Olympics was 2.4 billion U.S. dollars.(Special report, 2007c). However, the notable aspect of the Athens Games was the consistent reporting by the Press that the city was not up to date with its preparations and constructions for the Games, which in a sense amount to a negative publicity rather than the kind of positive publicity the city would have solicited when placing the bid.(Burton, 2003). Greece is thought to have spent around 12 billion dollars, but although the Games ran significantly over the budget that had been allocated for the purpose, it produced a 13% increase in tourism.(Bozzo, 2007) 2.5: Benefits from Beijing Games: In view of the above, is it likely that Beijing will benefit from the Olympic Games? China’s bid to secure the hosting of the Olympic Games appears to be conditioned by the factors which have been identified by Toohey and Veal (2000), which is the desire to promote nationalistic pride and enhance national image in the international community, thereby promoting tourism and goodwill for the country and the opportunity to boost up the economy through urban development and the building up of a sports infrastructure. Ick Keun (2004) points out the advantages of a mega sporting event – it generates economic benefits for the host nation through an explosion in tourism and tourist interest that could even continue after the Games, it provides an opportunity for the host nation to reinforce a favorable image in the world and as an desirable international tourist destination, with increased opportunities to promote not only tourism but also business opportunities in international markets. Rick Burton explores whether bidding for the Olympic games makes strong marketing sense for a city to stimulate its own regional growth or is it in accordance with furthering the goals of the Olympic Movement? (Burton, 2003) With the venue of the Olympic Games 2008 being fixed with Beijing as a host city, China is likely to enjoy a boom in tourism. The Chinese National Tourism Administration sees great potential for the tourism industry as the Games draw closer.(Ruggia, 2005). The tourist inflow into China set new records in 2004, registering a jump of 50%, with earnings from the U.S. market touching $27.5 billion for the Chinese tourism industry. Between 2004 and 2005, inflow of tourist traffic into China rose to 103.2, an increase of 10.3% from the previous year.(Yu and Smith, 2007). According to a Government official from Beijing, the fact that Beijing has been selected as the venue for the Olympic Games has boosted the development of human rights in the country and the lives of the common people is being improved to a great extent during the process of preparation for the Games.(Special report, 2007a) According to Liu Jingman, the Vice Major of Beijing, there has been a great deal of effort made to include people from all walks of life in the Olympic preparation process, such as designing of the emblem, mascot and the venues. He also stated that since the 2001 when Beijing had been awarded the Games and preparations had begun, 600,000 new jobs were being created each year, while tourist arrivals into the country for the year 2006 was 3,9 million visitors which was a full one million more than the previous year. (Special report, 2007b). According to the Vice Mayor of Beijing, the preparation for the Games had also yielded additional economic benefits in the form of a rise in per capita income in China to 6300 U.S. dollars and an average increase in Gross Domestic Product over the past five years of 12.1% with the GDP for the year 2006 being 102.7 billion U.S. dollars. This appears to indicate a trend which reflects economic benefits being gained by China and the city of Beijing through an increase in tourism and the creation of jobs which is benefiting the people of the local economy of Beijing. As Preuss(2000) points out, the staging of the Olympics results in an outpouring of funds into the community because of the sponsors and broadcasters, which is a direct result of the hosting of the Games and would never have been secured otherwise. It also appears likely that the staging of the Olympics has been the factor that has created the incentive for the city of Beijing to approve and finance building projects such a stadiums and development of the city’s infrastructure that would never have been taken up otherwise for political reasons, but the same improvements in infrastructure are likely to boost the value of Beijing as a tourist and business centre during preparation for and after the Games. However, Beijing has been selected only because it has a basic level of infrastructure already developed, as well as operational budgets that will be able to sustain further development, as Preuss (2000) notes, this is the reason why the likelihood of the IOC selecting cities in undeveloped or threshold countries is much lower. It must also be noted however, that hosting the Olympic Games involves considerable expense by the host city, where projecting the pomp and splendor of the event is an even more expensive proposition than the cost of the sporting events themselves. Foy has mentioned the doubts expressed by the Olympic Chief of the Salt Lake City Games, Mitt Romney who was doubtful whether cities in the United States should even bid for the hosting of the Olympic Games, and questioned: “Is it worth it or not? My own position is that the Games make sense, not as a money making enterprise, but as a statement for peace.” (Foy, 2000:7D). According to Ludwig and Karabestos (1999), four aspects must be taken into consideration when measuring the marketing costs of the games as compared to the values to be derived from them. These four aspects are: opportunities in hospitality, sales, media coverage and lastly, image and public perception. (Ludwig and Karabestos, 1999:11). However, it is important to not merely identify these opportunities but also set distinct and definite objectives to be achieved which are quantifiable, so that the differences between serving the local community and serving the Olympic Movement are clearly identified. There is also an interaction between the various elements and in assessing the economic potential of hosting the Games, Brown (2000) suggests that organizing committees in the host city must ask themselves what business they are in, while also recognizing at the same time that there is a “new dynamic in terms of the increasingly important relationship among Olympic organizing committees, destination marketing organizations, sponsors and the media.”(Brown, 2000:88). According to Qwens (2005) a host city must take care not to rely on economic impact studies which are calculated on a wrong basis and reflect huge economic gains through the presentation of costs as benefits and by ignoring opportunity costs. In the case of Beijing, it is significant to note that Beijing has recently revised the budget for the Olympic Games upwards from 1.6 to 2 billion U.S. dollars. Factors that have been cited to explain this increase include the appreciation of the Yuan and the need for the implementation of more rigorous security standards. (Special Report, 2007c). Furthermore, the Mayor also stated that this budget would be revised upward further in accordance with the needs identified. It has been estimated that the Olympics would cost the city of Beijing a sum of 30 billion dollars since it would need to construct about 17 to 37 Olympic venues from scratch. (Cameron, 2002). Preuss(2000) also notes that the selection of a city as a venue for the Olympics can also generate other problems, which are not beneficial to local citizens, such as increased taxation, the inconveniences associated with construction, a rise in retail prices for services available in the city and a displacement of the lower socio economic groups. Other aspects that Beijing will have to take into consideration during the 2008 Olympics is the need to protect the city from terrorist attacks or bomb blasts such as that which occurred during the Atlanta Olympics. Additionally, the city has to take pains to ensure that boycotts of the kind that were staged during the Seoul Olympics also do not erupt during the Games and that the local population finds that the event has been one that has brought gains into their lives. According to Chappelet(2001), there is a long period that ensues from the period of winning a bid to the actual staging of the Games, during which period fluctuations in exchange rates may be a threat or an opportunity. In the case of Beijing, the appreciation of the Yuan has already caused an escalation of the budget as detailed earlier, thereby posing a threat to the economic implications of the Games. Beijing will have to take pains to ensure that it is not placed in the same position as Montreal, which cost $2.4 billion with more than $1 billion being paid as interest charges, of which the citizens are still owed about 425 million as of the present day, when more than twenty years have passed since the event was held.(Wickens, 1996). The literature review therefore highlights the fact that most cities that have hosted the Olympic Games have not have successfully emerged in the black from an economic standpoint. CHAPTER THREE METHODOLOGY 3.1: Introduction: According to Saunders et al, defining the aims and objectives of the research study is important to generate evidence of the “the researcher’s clear sense of purpose and direction.” (Saunders, 2003:25). This research study has set out to examine the impact of the Olympic Games in China in an economic sense. Since this is primarily reflected through an improvement in tourism and its related economic benefits, the focus of this study will be to assess the impact of hosting of the 2008 Olympic Games in Beijing in terms of its impact on the tourism sector although the overall effect on its economy is also a part of the path that will provide the answers to this question. Saunders, Lewis and Thornhill also state that: “….your research philosophy depends on the way that you think about the development of knowledge.” (Saunders, Lewis and Thornhill, 2003:83). The literature review, as presented above, has provided quite a lot of knowledge about the economic impact of the Olympic Games in other cities that have previously hosted the Olympic Games. In this study, the research philosophy that I have chosen is positivism, according to which the major thrust of the study is the collection of secondary data which is used as the basis upon which conclusions are reached in the study. It must be pointed out that primary data collection through a survey or questionnaire method does not lend itself well to this study, neither does a quantitative approach. This is mostly due to the scope of the research subject, since the topic understudy is the economic impact of the Olympic games of 2008, which requires a wide range of informative sources rather than the views of a limited sample of the population. As a result, the collection and analysis of secondary data sources as available through books, news reports, websites and library sources appears best suited to answer the research question in this study and to test the hypothesis as to whether the Games are indeed producing a positive effect on the economy. 3.2: Research Method: A qualitative rather than a quantitative approach was selected for this study, mostly due to constraints in time, as well as the impracticality of working with colossal amounts of financial data. In addressing the hypothesis of the Games having a positive impact on China’s economy, a quantitative approach would have necessitated the collection of vast amounts of financial data, not only on the tourism industry but also on China’s GDP and detailed information on how the financial picture has been changing month by month, taking into account all of the factors bringing about such a change. Therefore a qualitative approach was selected, since it allows the researcher to carefully examine a wide collection of secondary data sources to address the hypothesis, where most of the authors have already carried out some economic analyses to arrive at their conclusions. This also allows the researcher to integrate data with the theory examined in the literature review in order to arrive at a balanced analysis. This study proposes the hypothesis – The Olympic games of 2008 will have a positive impact upon the economy. Most research studies utilize this deductive approach in scientific research. The deductive approach means that a hypothesis is proposed at the beginning of the study and this is tested through the process of qualitative or quantitative analysis. The research hypothesis of this study is that the Olympic Games will have a positive impact upon China’s economy and the available data on Olympic theory as collected through the literature review will be tested on a qualitative basis. “Your research strategy will be a general plan of how you will go about answering the research questions you have set.” (Saunders, Lewis and Thornhill, 2003:90). The study contains a clear objective, which is to examine the economic impact of the Olympic Games 2008, especially in reference to the tourism industry. The first step in this approach has been to examine the economic aspects of the Olympic Games as outlined by Olympic theory. This is presented side by side with China’s objectives and goals in seeking the hosting of the Olympic Games in 2008. Such secondary data sources are the backbone of this research effort and form the major data source that is subjected to analysis. In this study, the data that is collected is primarily focused upon the present scenario in China, however China’s unique historical aspects have also been taken into consideration and the previous impact of the Games in other countries in earlier years provides a more balanced framework of information upon which to draw conclusions. In addition to the Olympic theory that has been derived from the literature review above, additional sources on China are also discussed below, in testing the hypothesis proposed in this study to see whether the Games are indeed likely to have a positive effect on China’s economy. While a good research effort is based upon a strong framework of theory and qualitative data is the main method used in this research, quantitative data is also provided, in terms of increase in China’s tourist inflows, etc. The addition of this quantitative data adds to and enhances the research view. . “It is quite usual for a single study to combine quantitative and qualitative methods and to use primary and secondary data.” (Saunders, Lewis and Thornhill, 2003:99). William Trochim (2001) also points out that every study has a qualitative as well as a quantitative element to it, since even a numerical response may involve several shades of meaning and even purely verbal responses can be counted. Therefore, it is the approach adopted by the researcher and the nature of the conclusions that are sought to be drawn which will dictate the choice of method. In this instance, while the Olympic theories provide the general background upon which inferences can be drawn, it is the specific figures relating to China’s economy, especially in the tourism area which allows the researcher to arrive at a meaningful conclusion on the impact of the Games. 3.3: Limitations: It must be noted that the absence of primary research through an empirical study using a limited sample, is a limitation in this research study. However, this weakness is addressed by choosing cross sectional as the time horizon in this research. According to Saunders et al (2003) every possible method that may be selected is likely to have some unique strengths and weaknesses, however multi methods can help to reduce and/or limit the weakness. Another limitation in this study is that forecasting analyses have not been applied to large scale figures in order to more accurately predict the economic outcome of the Olympic Games. However, due to the paucity of time and inaccessibility of large amounts of financial data, this is a necessary limitation in this study. It was not possible for the researcher to glean accurate information on actual expenses incurred thus far on the Olympic Games, in order to compare and contrast this with the projected and actual figures on the tourism intake into the country. One reason for this is the fact that Chinese authorities have been unwilling to disclose such figures and therefore the actual expenses are likely to remain obscured. However, an effort has been made to arrive at a conclusion that would be as reasonable as possible. CHAPTER FOUR FINDINGS AND DISCUSSION: 4.1: Introduction: The major findings from the literature review appear to suggest that cities that have hosted the Olympic Games in the past have not been able to show a profit from the Games. In the words of Baade and Metheson, “the evidence suggests that the economic impact of the Olympics is transitory, one time changes rather than a steady-state change.” (Baade and Matheson, 2002: 28). Tibott points out that not much attention was paid to the evaluation of the economic impact of the Olympic Games until the financial catastrophe that resulted out of the Montreal games, which has left the city with a legacy of deficit funding rather than any economic benefits (Tibott, 2001:33). In general, the Olympics have not resulted in huge profits for most cities and any profits at best, have been nominal. In the case of Sydney, Tibbot (2003) points out that Olympic tourist traffic into Sydney resulted in a sharp decline in normal tourist traffic into neighboring areas like Queensland, therefore it actually depressed tourism in these areas In assessing the economic impact of the 2004 Olympics games in Athens, (Cohre, 2007), it has shown that the buoyancy in the housing market that was experienced in Greece cannot be attributed to the Games, but rather to inherent factors within the Greek housing market. Many people suspected of being drug users, etc were forcefully evicted from their homes, in order that the city not receive a bad name with all the world publicity that would be trained on it, thereby interfering with the housing rights of these citizens. However, the Games also produced a positive impact in that the transport infrastructure was improved and the planting of trees beautified the city, constituting long term benefits which the city still enjoys. 4.2: Findings: In the case of Beijing, Owen(2005) states that based upon the objective and the scope of the Beijing Olympics, it appears to fall into that category of Olympic cities which have brought about a stimulating transformation of the entire built environment, such as that which occurred in Tokyo in 1964 and Montreal in 1976. (Owen, 2005:12). When viewed in conjunction with Chinese ambitions to gain a leading spot among the world’s most developed nations and accumulate power for itself on the political front, it appears that the transformational power of the Olympic Games is being harnessed in order to further Chinese ambitions. Beijing aims to place itself in the position of the world’s top tier cities. Currently, three of the first tier cities in Asia are Hong Kong, Singapore and Tokyo. According to Derudder et al (2003), Beijing currently qualifies as a second tier city that is on par with other world cities like Washington, Cairo and Hamburg. However, through the complete revamping of infrastructure that is currently in process at Beijing, the city may well transform itself into a first tier city with facilities that could easily elevate it to the status of a first tier city. Some studies have pointed out that the construction of new stadiums may be welcomed during the actual time period leading up to and during the Games, however once the events are completed, they become equivalent to white elephants (Burton, 2003:40). Beijing has allocated substantial amounts for the construction of new Olympic venues and stadiums. Out of the 37 facilities that have been listed to be used for Olympic events, sixteen of them are being newly constructed and others are being upgrades, which also involves substantial costs. Total amounts projected to be spent on the addition and upgradation of infrastructure for the Olympic Games is an amount of 2061.60 billion US dollars, of which the investments on venues and non sports related infrastructure will be only 14.257 billion US dollars. (Owen, 2005:12). Therefore, it is evident that a major portion of the expenses that are to be made will be in constructing stadiums and venues for holding Olympic events. The question that arises in this context is, how useful is this likely to be in terms of Beijing’s future economic potential? Before the Olympic constructions began, the distribution of sports venues in Beijing was quite uneven with 37.8% of the sports venues being distributed within the eight districts of the downtown area, while all the other counties and suburbs accounted for 62.6%.(Dan, 2007). As a result, there was an uneven distribution of sports venues, however new sports venues that are being built in Beijing as well as the upgrading of existing sports venues is mainly located in the eight downtown districts of Beijing. This has two advantages. On the one hand, the demand for sporting events in the downtown area used to outstrip the supply earlier, therefore with the construction of the new sports venues and the revamping of existing facilities, it appears likely that the downtown stadiums can well meet the demand for sporting events and these stadiums may be well utilized even in the post Olympic period. It also appears that the current unevenness in the distribution of sporting venues may be ameliorated to some extent (Dan, 2007). However, the same is not the case for those stadiums that have been constructed in the suburban, outlying areas beyond the Fourth Ring road. It is very likely that these stadiums would remain under utilized or hardly utilized, because it is difficult for common people to get to those venues due to the lack of availability of public transportation, and the lack of consumption capacity (Dan, 2007).While the stadiums will no doubt be the subject of tourist interest during the period to and leading up to the Games, there is an equally likely possibility that they will degenerate to the status of white elephants once the Games are over, as in Sydney, and will no longer hold tourist interest. In order to continue to utilize the stadiums that have been constructed effectively, Beijing will have to continue to host international sporting events on a large scale in order to ensure optimum usage of the stadium infrastructure that has been generated. This does not appear to be predictable with any guarantee of accuracy; although authorities in Beijing have stated that these venues will be utilized aggressively for sporting and cultural activities on a grand scale. According to Xu Xi, the Deputy Director of the Finance Bureau of Beijing, the city would invest RMB 500 million yuan into guiding funds for the development of the cultural industry and RMB 500 million yuan for the development of the sports industry, which will help to fuel growth in these areas even after the Olympic Games have been concluded (Dan, 2007). For example, it is proposed to hold sports events such as the China Open, China Snooker Open, Beijing International marathon, Tour of Beijing International Cycling Race, etc and for cultural events, several exhibitions and conferences are being proposed. (Dan 2007). The question of how successful this initiative will only be evident a few years after the Games have been concluded, however it appears likely that the construction expenses on the stadiums built in the downtown area may help in meeting the demand which outstripped supply earlier, but those built in the suburbs may be a net loss. While they construction of the stadiums will undoubtedly improve employment prospects for the local population in the short term while the construction work is going on, the employment will be only temporary and the stadiums will be under utilized in the long run, and is therefore unlikely to produce substantial long term benefits in terms of employment. However, if the Government’s initiative is successful and these venues are used to host more sporting and cultural international events, then there will also be a corresponding benefit to tourism which will continue on and off during the year, for the duration of those events. However, on an overall basis it appears that there may be positive benefits that will accrue to Beijing form the existence of the stadiums in terms of organization of more sporting and cultural events to pull in more visitors and improve the state of China’s tourist industry. Another aspect that needs to be considered is the question of social justice. Beijing is home to millions of poor people, many of whom are being displaced in order to make way for the Olympic infrastructure. In all probability once the Games are concluded, the huge stadiums and hotels will stand around practically empty most of the time, not justifying the enormous amount of funds that have been poured into raising it. It may be argued that the money used for the building of such Olympic infrastructure which is unusable to an optimum level in the long term, could well have been diverted into social programs for the upliftment of the poor where they are likely to have been of greater benefit. The justification offered for spending such vast sums of money on Olympic infrastructure is that they will improve tourism and thereby bring benefits to the local economy. However in reality, many of the local poor have been displaced and the premise of future business opportunity entering into Beijing to an extent sufficient to cater to the needs of all the poor people, is speculative at best. China has been emerging as a military and economic power in the last decade (Restall, 2007), however this is not due to the Olympics, but rather due to its cheap and highly skilled labor force and the policy of the Chinese Government to allow foreign investment into the country. Therefore the purported economic benefits to Beijing which will arise due to the Olympic infrastructure are by no means a guarantee. Beijing has about 458 hotels with 84,812 rooms in Beijing, so that the problem of tourist accommodation is unlikely to pose a problem, and it is projected that the number of hotels will increase to 800 hotels with about 130,000 rooms. (Owens 2005:15). However, while it may be assumed that there will be sufficient tourist traffic generated during the Olympic season to ensure full hotel occupancy, it appears likely that building up the number of hotels to almost double their existing number may not justify the expense if Beijing is unable to continue to generate the kind of heavy tourist traffic it is likely to enjoy during the Olympic season. It must also be noted that the literature review as cited above has shown a significant increase in tourism that has been generated due to the choice of Beijing as the venue for the Olympics. However, such an increase in tourism is the result of the Olympics and is by no means guaranteed to continue after the Olympics are over. In specific relation to tourism, the argument that Porter has advanced about hotel occupancy essentially remaining the same with the only notable result of the Games being an escalation in those hotel revenues is supported by the experience of Utah, where room occupancy rates nearly doubled during the Games, but no increase in hotel occupancy was produced. (State of Utah, 2000:17). This suggests that the occupancy generated during non-Olympic times may actually be being displaced entirely in the existing hotels due to the Olympic Games, rather than supplementing and augmenting it. To support this view, Owen cites the case of Atlanta, which had been reporting steadily increasing attendance rates at conventions, however during the duration of the Olympics in 1995-96, there was a ten percent drop in attendance. Similarly, hotel occupancy rates also declined from 72.9% to 68%, inspite of the belief that the Olympics would boost hotel occupancy rates. (Owen, 2005:7). Therefore, there was in fact, a decline in local business as opposed to the gains that were projected, so that those vendors who leased vending space for the Olympics sued the city of Atlanta, because they claimed that they were misled about the potential business prospects.(Lubbock Avalanche Journal). It appears that there could be a similar fall out in the case of Beijing as well, so that the projected gains to the Beijing locals do not materialize, especially in view of concerns about corruption that have been voiced by some citizens.(Hewitt, 2001). According to Goldman, Sachs and Corporation, annual income from Chinese tourism could increase about 18% for each year during the course of preparation for the Olympics.(Peoples Daily, 2001). Statistics available from Beijing tourism indicate that each year since 2001, there has been an increase of 7% in the number of tourists who have begun to visit Beijing and the number of overseas tourists has reached 4 million persons in 2006. It is also estimated that the current increase in tourism will be sustained even after the Olympics are over due to the improved environmental levels as well as its status as a Olympic city. (Dan 2007). Moreover, with Beijing being chosen as the site of the Olympics, it appears likely that the half a million visitors who come to China for the Games will also make an effort to visit other Chinese cities during their stay there, which could provide an added boost to tourism throughout the country as a whole. The Games will provide a spur to China’s tourism industry because almost nine out of the ten people who will visit Beijing may also be expected to visit other cities in China if their time permits. According to the Pacific Asia Travel Association President, Peter de Jong, all the markets in the region near to Beijing stand to gain from tourist traffic generated in Beijing during the Olympic Games.(www.china.org.cn). Surveys conducted on the travel intentions of 5000 people from ten different world markets has revealed that China is one of the “five most popular destinations for those planning to visit Asia”. While the Olympics Games ranks as the top reason for wanting to visit China, several respondents also find it a good place to shop, this further enhances its tourist prospects. 4.3: Application of Marketing Models: The 4 Ps Marketing Model ascribes four tools that are used to generate optimal response from the market through the blending of the tools in an appropriate way. These four elements are (a) product – whether the product in question meets the needs of the customers and the identification of the characteristics it needs to possess to do so (b) Price – setting the price of the product such that it will lure consumers into purchasing the product (c) Place – making the product available at the right place at the right time when demand exists and (d) Promotion – educating and informing consumers about the product through effective marketing and advertising. The traditional marketing mix model however, is applicable in the case of tangible products and there is a high level of dissatisfaction with this model as revealed in a survey of marketing academics, who have recommended the 7Ps marketing mix model devised by Booms and Bitner, since it applies to services industries and knowledge intensive environments (Rafiq and Ahmed, 1995). This model adds three additional elements to the traditional four existing elements in the traditional marketing mix model. These three additional elements are (a) people: for instance, employees, knowledge workers, management and consumers may add value to a product or service (b) process – the processes and the flow of activities involved in the consumption of the service is also another aspect of marketing strategy and (c) physical evidence, which relates to the environment in which service is delivered as well as the ability in delivery. The efficacy of the marketing strategy will be defined by the kind of tangible goods that help in the performance of the service and the intangible element comprises the experience of existing customers, as well as the ability of the business or service to provide satisfaction to existing customers. The marketing of the Olympic Games involves the marketing of a service and an event rather than a tangible product, therefore the 7Ps model is more applicable in this context. In terms of marketing the Games in Beijing, normal everyday people have been drawn into the process, for example in designing the emblems or in Chinese cabdrivers learning to speak in English or improvements in tourism which involves people – and has helped to generate a favorable impression about the Games, both within China and in the world. It must be noted that the marketing of the Beijing Games has been very skillfully done. While the reality is that thousands of poor people are being displaced from their homes in Beijing in order to make room for the construction of new stadia, the glitzy promotion for the games that is being carried out through media and news reports appears to suggest that human rights are actually being promoted through the Games, by allowing Beijing to develop economically so that it can provide a better standard of living for its people. Statements from Chinese officials state that the Beijing Games is contributing to an improvement in human rights in Beijing, which has enhanced the image of the Games in the eye of the world audience, quite unlike the unfavorable publicity that was generated about Athens for example.. The processes component of the 7P’s model may also be noted in the marketing of the Beijing Games – for example, the Beijing Games has emphasized its eco-focus and the Games have been promoted from the perspective of their promoting eco-friendly alternatives, such as using eco-fuels in Beijing buses. The marketing for the Games has been dovetailed into China’s longer term goals in the world. China has been trying to change its image from that of a Communist state into one that is emerging as the leader among the Asian nations and for this purpose, it needs to reveal its capability for diplomacy and a more peaceful and supportive role for its neighbors. The Beijing Games provides a prestigious forum for Beijing to demonstrate its efficiency and fitness to be ranked among the developed countries of the world, as an economic and diplomatic power, thereby promoting its image among its Asian neighbors who are viewing it on par with the United States. The building of the stadiums and the revamping of the city of Beijing, with the structural improvements and construction that is being carried out all over the city, is an example of the physical evidence that is a part of the marketing. China’s plans to continue to hold sporting and cultural events in the various stadiums coupled with the new eco-friendly buses, improved roads and transport system and enhanced facilities all demonstrate that China is now an appropriate venue for foreign businesses to function efficiently and generate profits. In this way, the city is marketing itself using the platform of the Olympic Games to promote itself among investors long after the Games are over. While the 4Ps model would not necessarily apply in this case because the Games are not a tangible product that is being marketed, but a compendium of services that will provide the background for the Olympic Games to be held, the application of the 7Ps model shows that the three additional components are being implemented, especially through the radical new eco-slant of the Beijing Games. The fact that the necessary building of infrastructure and preparation for the Games is proceeding well on time also enhances China’s stature among the world country, raising it from the status of a developing country into one among the developed countries, because it is able to handle the financial investments needed for this venture, while also carrying them out with efficiency. This illustrates China’s rise to world standards, able to be ranked as one among the developed nations. The application of the 7Ps model to the marketing of the Olymp Read More