Economics of Sustainable Tourism - Literature review Example

INTRODUCTION TO TOURISM Insert Name Course Code: Instructor: Patsy Morgan Date of Submission: Introduction Hunziker and Krapf (1942) conceptually defined tourism as the summation of relations and phenomenon experiences derived from foreign travel to destinations whereby individuals do not have permanent residence or earning activity (Brau & Lanza 2008, p4). The traditional tourism industry has evolved over time and this has demanded a re-definition of tourism to suit modern tourism practices. As a result, the technical definition of tourism focuses more on visitation to less familiar places rather than leisure travels. This seeks to include business travellers that are an emerging category of tourism product consumers. The 1963 United Nations Conference on Travel and Tourism held in Rome defined the term ‘visitor’ as any individual travelling to a foreign destination that is not their residence for leisure, business and/or recreation (Piotrowski, Arezki & Cherif 2009, p7). Essentially, the tourism industry is driven by consumer satisfaction that is achieved by developing tourism products that are consumer-centred. This requires that nations study their main tourism attraction and identify the clients they attract in order develop products that meet their needs. Tourists enhance capital inflow within an economy resulting to improved balance of payments hence improved economic performance. This paper seeks to identify the characteristics of the tourism industry that makes it an important element of economic development. The tourism industry comprises of 5 main sectors namely the attraction, accommodation, transport, travel organiser and destination organisation sectors. These 5 sectors have distinctive characteristics that enable the tourism industry to contribute towards economic development. Cerina et al (2010, pp13) state that the tourism industry faces minimum barriers of entry and exit due to the diverse nature of tourism products. Tourism products have distinct meanings depending on whether the individual view the products from a supplier’s viewpoint or that of the visitor. For example, the hotel room to the hotelkeeper is a product while for the visitor; the hotel room is a supply. Therefore, the tourist’s consumption is what comprises of the tourist product that is an amalgamation of his activities at the destination and the utilisation of services that enable the tourist achieve consumer satisfaction. Several tourism components such as attractions, accessibility and intangible tourism elements complement each other to derive consumer satisfaction through activity experience (Bahar & Kozak 2008, p61). Due to the various components making up the tourism product, individuals and organisations, multi-nationals (MNCs) and small-medium enterprises (SMEs) have equal opportunities to engage in the tourism industry and scale their operations depending on their capacity. This increases the flow of foreign currency within the economy hence an increase in the foreign exchange reserves. These reserves enable the economy to fully participate in international trade while ensuring adequate flow of foreign currency within the economy. As a result, the participation in international trade stimulates the production of goods and services within the economy as manufacturers increase their production capacities due to the increased market share for their products. Therefore, the development of tourism products in the tourism industry spurs economic growth as it encourages foreign exchange and capital flow within the economy. Secondly, tourism products are highly perishable and therefore the application of price differentiation encourages domestic consumption that is a basic element of the Gross Domestic Product model (Lanza, Markandya & Pigliaru 2005, p78). Due to perishability in the tourism industry, supply of tourism products in highly inelastic especially due to the underlying tourism seasons. For example, a hotel with 100 rooms will strive to make sure they are fully booked each day. However, due to the seasonal element of tourism, the hotel may not be booked to capacity on certain days and the hotel rooms cannot be saved as stock for sale on the next day. The perishability of tourism products is exhibited in the above example since un-booked hotel rooms reflect totally lost revenue. Therefore, production capacity of tourism products that remains unsold can never be recovered. To try and correct this, suppliers of tourism products apply price differentiation and yield management in an effort to manage capacity in a profitable approach. Sharma (2005, pp55) notes that the application of price differentiation is made possible by the various classifications of tourism such as domestic and business tourism among others. Through price differentiation, participants in the tourism industry are able to encourage domestic tourism that requires the consumption of the tourism products. Through consumption, participants in the tourism industry are able to increase their revenues thereby increasing their operations. Increased investments within the industry directly results from the consumption of tourism products by various classes of tourists. Additionally, increased investments will attract foreign direct investments from foreign investors hence increasing the invisible importation and exportation of products and services. The tourism industry is based on service delivery as a key component of tourism products; a component that allows economies to uniquely develop their industries in an effort to make them a preferred destination over and above other tourism destination (Massey & Univ. of Southern California 2008, pp119). As noted earlier, tourism services are intangible and are therefore considered as invisible exports and imports. Tourism services posses the inseparability characteristic whereby production and consumption are undertaken at the source of the producer. Consequently, personnel working in the tourism establishments become the inseparable aspect of the tourism services mainly due to their contact with the consumer. Unlike other products and service whose performance can be enforced through consumer protection laws, the success of tourism products and services depends on the attitude of the staff. Legal enforcements will provide the framework but will not assist in ensuring efficient and satisfying service delivery. Heterogeneous performance of tourism products largely depends on the staff attitude and is related to the inseparability characteristic (Swarbrooke & Horner 2007, p57). As a result, training institutions for the hospitality industry are able to impart their students with adequate skills that improve the quality of service delivery within the industry. Additionally, majority of the population is equipped with skilled labour and are therefore able to derive income from employment. This reduces the unemployment rate which is an indicator of economic performance that reflects the living standards of the population. On the other hand, the economy is able to export its skilled labour whereby remittances made into the economy increase the foreign exchange reserve. The tourism industry highlights major infrastructural deficiencies that governments and public-private alliances are able to intervene in order to reduce or eliminate the deficiencies. Sharma (2004) states that developed infrastructures spur economic development as it facilitates the smooth flow of trade activities especially products and services (pp102). Seasonality is a primary characteristic of the tourism industry whereby the demand for tourism products are characterised by unequal temporary distribution. Additionally, these tourism seasons vary in terms of duration and from region to region. A major explanation for these seasons is the prevailing climate among other factors such as political stability. Notable, there exists a direct relationship between perishability and seasonality whereby the two elements are positively correlated. Arising from seasonality are a number of unpleasant factors that include under-utilised tourism infrastructure such as beach equipment, high operational expenditures that face the public sector and welfare problems due to unemployment during low-peak periods. Infrastructure such as transport and communications are important tools of trade as they enhance the efficiency of business processes hence achieving consumer satisfaction. The public sector in collaboration with private tourism participants can seek to provide funds for infrastructural developments in their regions. Due to the ease of conducting business in these areas, an increasing number of commercial enterprises will be witnessed in these areas as investors prefer them as opposed to other regions. Tourism enterprises in these areas experienced growth due to the large number of business meetings taking place at their establishments. On the other hand, economic drivers such as employment and production will contribute immensely to the economic development within the region that can be replicated in other regions and sectors within the economy. Economies around the globe constantly seek to improve their economic development by boosting economic performance through the key economic sectors that indicate growth. Tourism is a constant growth industry with vast unexploited resources that have the potential to contribute towards economic development. The World Tourism Organisation states that the tourism sector around the globe has constantly grown between the rates of 4 and 5 per cent for the period 1960-2005 (Stabler, Sinclair & Papatheodorou 2010, p79). This characteristic is unique to the tourism industry since very few economic sectors report constant growth over years. Swarbrooke and Horner explain that the growth experienced in the tourism sector is attributed to the income-elasticity nature of the tourism industry (2007, p143). Therefore, the demand of tourism products is highly sensitive to changes in individual or corporate incomes. Individuals earning high incomes have higher disposable incomes and these enables them to afford leisure activities that are pursued through international or domestic tourism. This factor contributes to seasonality whereby individuals save their monies with the expectation of engaging in leisure activities during selected periods within the year. Additionally, price elasticity within the tourism industry is important as it provides a response mechanism to the income elasticity. Price elasticity refers to the response in demand of tourism products arising from a change in the prices (Bahar & Kozak 2008, p89). During peak tourism periods, the price of tourism products skyrocket and this results into an increase of complementary products hence boosting production. Therefore, as the world economy continues to improve, the tourism sector continues to face constant growth hence contributing more towards economic development through increased tourism activity. Lastly, the contribution of the tourism sector towards economic development is as a result of high involvement of economic drivers mainly the SMEs. SMEs involved in the tourism sector have little operations but have a huge impact in the delivery of tourism products. Due to the growth potential of the industry, more and more SMEs join the industry annually hence increasing the number of products available to the visitors. SMEs contribute immensely towards economic growth whereby majority of the revenues earned by these enterprises remain within the local communities through the local money circulation cycle. With this cycle, the SMEs purchase and procure services locally hence contributing positively to the local economic growth. Secondly, SMEs are economic vehicles for job creation and hence increasing skilled labour within the region hence increased production. Lastly, SMEs do not possess the commercial rationale that is dominant in big organisations and hence tend to focus on quality customer service (Brau & Lanza 2008, p153). Eventually, the local economic growth achieved through the SMEs is summed up and reflected as economic development. Conclusion The various definitions of tourism notwithstanding, there are 2 basic dimensions to the definition of tourism i.e. travel and stay. Travel has 3 sub-dimensions namely; distance, origin and mode of transport whereas stay has 3 sub-dimensions namely; duration, purpose and accommodation. A combination of the 2 dimensions and the 6 sub-dimensions results into various types of tourism namely domestic, inbound, outbound, internal, national and international tourism. All these types of tourism require the consumption of tourism products and hence the increase in production capacity as tourism providers seeks to meet the demand for the products. Underlying tourism are 4 major concepts namely; free-time, leisure, recreation and travel. The four major concepts are interdependent and combine to form a great component of the demand side for tourism products. The tourism industry is able to deliver economic development as it has the potential to increase consumption and attract investment from locals and foreigners. These two elements for part of the basic gross domestic product model since they both increase production capacity to meet the increased demand for tourism products. Additionally, the tourism industry has the capability of achieving major economic indicators such as reduced unemployment rates since it is a growth industry. Being a growth industry, tourism is able to attract a high number of large and small scale investors that contribute towards the development of tourism products. Notably, the tourism industry is labour intensive and the labour requirement boosts levels of skilled labour within the economy as individuals seek to participate in the industry. Increased skilled labour explains the increase in the number of SMEs seeking to provide tourism products. Owing to these characteristics of the tourism industry, the industry is able to contribute towards economic development compared to any other industry. Bibliography Bahar, O & Kozak, M. Tourism Economics: Concepts & Practices. Nova Science Pub, Detroit, 2008. Brau, R and Lanza, A. Tourism & Sustainable Econ. Dvlpmt: Macroeconomic Models & Empirical Mthds. Edgar Elgar Pub., Michigan, 2008. Cerina, F, Markandya, A & McAleer, M. Economics of Sustainable Tourism. Taylor & Francis, New Jersey, 2010. Lanza, A, Markandya, A & Pigliaru, F. The Econ. of Tourism & Sustainable Dvlpmnt. E Elgar, Michigan, 2005. Massey, EF & Univ. of Southern California. Social Entrepreneurship & Urban Tourism as Economic Dvlpmnt: Best Practices from Long Beach, California. ProQuest, California, 2008. Piotrowski, J, Arezki, R &Cherif, R. Tourism Specialisation & Economic Dvlpmnt: Evidence frm the UNESCO World Heritage List. International Monetary Fund, Washington, 2009. Sharma, K. Tourism & Economic Dvlpmnt. Sarup & Sons, New Delhi, 2004. Sharma, K. Tourism & Economic Dvlpmnt. Sarup & Sons, New Delhi, 2005. Stabler, M, Sinclair, MT & Papatheodorou, A. The Econ. of Tourism, 2nd Ed. Melbourne, Taylor Francis, 2010. Swarbrooke, J & Horner, S. Consumer Behaviour in Tourism, 2nd Ed. Butterworth- Heinemann, Birmingham, 2007. Read More