Industry Analysis
From 1992 to 1996, the rapid growth of Asian economies, and the increasing interests of tourists in Hong Kong catapulted the occupancy rates of hotel rooms to an incredible average of 85 percent. In 1995, Hong Kong welcomed a record-breaking 10 million visitors. Because of this, the Hotel Industry became an important contributor to Hong Kong’s economy. Two recurring problems have been plaguing Hong Kong. These are escalating operating costs and high labor turnover. High property prices in Hong Kong were translated into high development costs and expensive rents. Double-digit inflation rates caused rapid increases in wages. Hong Kong had become one of the most expensive places in the world to do business. High labor turnover had also been a persistent problem.
Industries according to Proctor (2000) have life cycles. Industries, like products progress through their life cycles and as they do so the nature of competition and consumer demand changes. The tourism industry is Hong Kong can be considered as a maturing industry. The tourism industry has experienced rapid growth in the last years. The competition is becoming more fierce as more and more competitors are aiming to attract the market. Price cutting, new forms of promotional activity, new additional services and other innovative strategies are being employed in order to gain sustainable competitive advantage.
The tourism and hospitality industry is considered as one of the biggest and most profitable industries in Hong Kong. Every year, the New York of Asia is visited by millions of tourists from all over the globe especially from neighboring countries in Asia. In the year 2007 alone, Hong Kong recoded 28.17 million of visitor arrivals. There was an increase of 11.6 per cent capered with the year 2006. Majority of the visitors to Hong Kong come from Europe, Australia and New Zealand and Mainland China. Mainland China is the major market in Hong Kong tourism. In 2007, there were recorded 15.49 million of visit arrivals. The tourism industry in Hong Kong is expected to continue to flourish as new tourist attractions were completed. Among these are Hong Kong Disneyland, A Symphony of Lights Phase II, Hong Kong Wetland Park and Ngong Ping 360. The Hong Kong Tourism Board is also active in its campaign to promote Hong Kong worldwide (Hong Kong Tourism 2008).
Tourist Statistics Data
Visitor Arrivals
Hong Kong is the most competitive tourism destination in Asia and ranked 6th in the world in 2007 according to the Travel and Tourism Competitiveness Index (TTCI). The ranking conducted by the World Economic Forum included 124 countries. Out of the 13 factors taken into consideration in determining the ranking of TTCI, Hong Kong ranked highest in ‘Policy Rules and Regulations’ as well as ‘Health and Hygiene’, while the city also ranked high in the areas of ‘Safety and Security’, ‘Air Transport Infrastructure’, ‘Ground Transport Infrastructure’ as well as ‘Human Capital’.
According to the HKTB, visitor arrivals grew by a remarkable 40 percent in 2004 from SARS impacted 2003, primarily due to a significant increase of mainland Chinese visitors (a 45 percent year-on-year growth). The number of visitors from elsewhere in Asia grew by 29 percent over the same period. Growth has also been marked from traditional long-haul markets such as Europe, North America, Australia and New Zealand which grew by 51 percent from 2003 to 2004.
The strong increase in the number of non-mainland Chinese visitors recorded in 2004 and 2005 partly reflect a strong international economy, but also a recovery in some of Asia’s key markets, as well as the popularity of Hong Kong as both a business and leisure destination. Mainland Chinese visitor arrival growth bounced back strongly in 2006. According to the HKTB, the number of Mainland Chinese visitors in 2006 totaled approximately 13.6 million, increasing 8 percent compared to 2005.
The number of non-mainland Chinese overnight business/meeting travelers, who represented 64 percent of all overnight business/meeting travelers in 2005, has increased by 14 percent from 2001 to 2005, while the number of vacation travelers from these countries increased by 17 percent over the same period. According to the HKTB, in 2005, business travelers accounted for approximately 37 percent of guests received by all hotels, while leisure travelers represented approximately 52 percent of the market.
Issues Affecting the Hotel Industry from 1997
The Hong Kong hotel industry is considered as one of the most prolific in the world. Tourism and hospitality in Hong Kong continues to grow and visitor arrival continues to increase. However, like most hotel industries around the world, Hong Kong’s is affected by different challenges and issues. Among these are the following:
1. Labor and Skills Shortage
The problem of attracting and retaining qualified workers, once an issue only in an isolated number of markets, is increasingly becoming a global challenge. Despite the fact the as many as 46 providers, from the government sub-vented to the commercially established, offering various tourism or hospitality related training programmes, the market still severely lacks practical and specialized training programmes aiming at the operative level to produce the right manpower supply for the industry. The future manpower demand for the hotel industry would inevitably increase. The hotel industry is a labor intensive industry which depends highly on frontline staff to deliver service that has earned Hong Kong a world reputation as a great tourist destination. The future success of the Hotel Industry in Hong Kong relies very much on the availability of well-trained and qualified operative staff who actually deliver the service. The future supply of new hotel rooms, tourist guesthouse, service apartments as well as hostels would surely elevate the demand for skillful experienced staff. Furthermore, with the rapid development of the tourism industry within the region, such as Macau and the Pearl River Delta, a sufficient supply of well-trained workforce is instrumental to ensure the future success of the Hotel Industry in Hong Kong.
2. Construction Costs (and other costs)
All construction costs and the costs for furnishings, fixtures and equipment continue to rise. Among the factors that contribute to the increase of construction costs is the cost of fuel used for transporting both raw and finished goods. With the continued increase in the number of hotels in development, construction cost will have a big impact. Rising costs will affect the budget for new development or renovation projects. Most small contractors will also be affected as they may be unable to offer guaranteed maximum construction contracts, because they may not have the purchasing power to secure materials at favorable or fixed prices. Even the larger contractors are likely to hedge their contract quotes with provisions that shift the risk of increasing materials costs to developer. This will affect every aspect of a construction project, particularly the scheduling of sub-contractors and deliveries of materials.
Fuel costs affect tourists arrivals. Arrivals from long-haul markets in Hong Kong decreased in 2007 because of high fuel costs and the rapid deterioration in global economic conditions.
3. Changing Demographics and the Impact of Travel Trends
The impact of changing demographics on travel trends is so far reaching no sector in travel, tourism and hospitality remains unaffected. Whether the subject is the gradual retirement of baby boomers, rampant globalization and its impact on business travel, or the increased demand for experiential travel, the dramatic worldwide shift in demographics poses both challenges and opportunities. These recent and ongoing changes in the demographic environment hold major implications for the hospitality industry in particular. With regard to product and service offering, hoteliers need to begin a strategy that addresses multi-generational needs, wants, and desires. Hoteliers must offer design and amenities that cater to the special needs of aging consumers, as well as young travelers, who have high expectations in regard to design and technology. Because of these changes, the traditional practice of brand standardization is no longer applicable.
4. Asian Financial Crisis
The Asian Financial Crisis in 1997, brought indirect consequences to the significant drop in visitor arrivals. Before the Asian Financial Crisis, majority of tourists who visited Hong Kong came from South and Southeast Asia and North Asia, the economic downturns in these regions had inevitably resulted in leas number of people being able to wanting to spend money on traveling. Depreciation of currency in countries such as Thailand, South Korea, Indonesia, and Singapore made their hoods and services relatively cheaper than what Hong Kong was offering. In Hong Kong, on the other hand, goods and services became more expensive. Therefore, instead of having more tourists coming to Hong Kong, more Hong Kong citizens made trips to the abovementioned countries.
5. Disease Outbreaks
One of the most feared scenarios of the hotel industry in Hong Kong is another disease outbreak that will have tremendous impacts on the industry. Perhaps one of the most remembered outbreak in Hong Kong is the Severe Respiratory Syndrome (SARS) epidemic. The World Health Organization (WHO) imposes a travel advisory against non-essential travel to Hong Kong and parts of China from April to June 2003, because of then unknown lethal virus causing SARS. Visitor arrivals in Hong Kong dropped by 57.9 percent in the three months, compared to the same period the year before, and the hotel industry suffered an unprecedented low occupancy of 17 percent in May. The epidemic crippled the tourism and hospitality industry in Hong Kong.
Rough estimates indicate that since March 2003 the travel and tourism business lost at least one third of its activities in the locations directly affected by SARS. Included in these locations was Hong Kong. Tourist arrivals to Hong Kong, China, slumped by some 30 percent in the last week of March 2003, and 30 percent of flights from there were cancelled in March and April. The occupancy rate at some of the deluxe hotels in Hong Kong was down to 14 percent. In general, the hotel occupancy in Hong Kong, China, dropped to single-digit rates.
6. Increased Accessibility
In order to make Hong Kong more accessible to tourists, especially those coming from mainland China, a range of policies and measures were introduced in 2002. In January 2002, the quota of the Hong Kong Tour Group Scheme for mainland tourists was abolished. Travel agencies organizing tours from mainland China to Hong Kong has also increased in number. Tourists from about 170 countries are allowed to visit Hong Kong visa free for seven days to 180 days. In 2003, the Individual Visit Scheme (IVS) was introduced and included major cities in China such as Beijing, Shanghai, and Tianjian. Because of the IVS the number of tourists that traveled from China to Hong Kong has increased significantly.
Political
The Basic Law establishes unique arrangements for the government and political development of Hong Kong. It promises to preserve Hong Kong’s way of life and capitalist system for fifty years and to give the territory a high degree of autonomy consistent with the ‘one country, two systems’ principle. It provides for independent executive, legislative and judicial powers. The only policy areas over which Beijing exercises direct control are foreign affairs and defense. Hong Kong has considerable autonomy in international relations, particularly in the economic sphere.
The government of Hong Kong remains committed to its integration with Mainland China. Through the closer economic partnership arrangements with China, particularly in the flow of people and resources, Hong Kong is able to build a strong relationship with China. The government continues to pursue developments in the travel and tourism industry.
Economic
One major economic decision of Hong Kong and China is to cooperate with each other through the Closer Economic Partnership Arrangement (CEPA). CEPA covers three broad areas – trade in goods, trade in services and trade in investment facilitation. Under CEPA, Hong Kong’s domestic exports to China will be tariff free. Manufactured products from Hong Kong will also be shipped to China tariff free (Ramsay 2003). Part of the CEPA is the agreement between China and Hong Kong to cooperate in tourism. In order to further promote the development of the tourism industry of Hong Kong, the government of China allows residents in Guangdong Province to visit Hong Kong individually. Hong Kong and China are also cooperating to strengthen their tourism promotion. Hong Kong and China are also seeking to raise the service standards of their tourism industries. Hong Kong is a major international and regional financial center and considered as one the most liberalized economies of the world. It is the world’s 11th largest trading economy, a major international banking center and the base for the regions most important corporate headquarters. It is a major provider of service to China and the East Asian region. Hong Kong’s economic prospects now depend almost entirely on its link with China and its role as a trading and services center for the People’s Republic of China and as a financial center for the southern China region.
The sub-prime loan crisis in the United States has triggered off substantial disturbance to the capital financial markets globally and there could be risk for further deterioration in the global economy in the near future. However, the rapid social changes taking place in Mainland China, with large numbers of new travelers entering the market, the rising disposable incomes as well as the underlying strength of the Mainland China economy are providing a firm support for a flexible tourism travel in market in the region and continuing strong hotel demand in Hong Kong.
While the economies of Hong Kong and the Mainland continue to be string and are relatively shielded from the current instability in the global credit markets and the slow-down of the world economy, growth rates for hotel room and demand in Hong Kong are expected to be moderate compared with the record high RevPAR growth rates seen in the past couple of years.
Social
The prime source of tourists visiting Hong Kong comes from Mainland China. The increasing middle-class in China has positive impact on Hong Kong’s tourism and hotel industries.
Strong economic growth, rising disposable income and rapid urbanization have reshaped the mentality of Mainland consumers. Economic prosperity encourages Mainland consumers to spend more and trade up to higher-price and better quality products and services. With increasing spending power, Chinese consumers are eager to improve their overall quality of life. The burgeoning middle class, in particular, is a major force fuelling consumption structure upgrade.
Technological
The rapid development and wide adoption of digital technology in Hong Kong has lead to great changes in the hospitality and tourism industry. Because of the advancements in technology, physical distance has lesser effect on tourists. Telecommunications and transportation become more efficient and less expensive. Distance is bridged even further using the Internet. Technology allows tourists to book hotel accommodations and air tickets online. Electronic brochures are now widely used in the promotion of trade fairs and travel products. Hospitality management systems have evolved into sophisticated, well integrated, multi-discipline tools capable of helping properties of all types and sizes attract more guests, generate more revenue and reach much-improved levels of efficiency. Years of development in expanding the capabilities of individual systems, together with improvements in both interface technology and vendor cooperation, have produced far more comprehensive and better-integrated systems that can now cover virtually all areas of even a complex property or a multi-property chain.
References
A Statistical Review of Hong Kong Tourism (2005). Hong Kong Tourism Board.
Hong Kong Tourism (2008). Hong Kong Tourism Board. Retrieved May 21, 2009, from
http://www.gov.hk/en/about/abouthk/factsheets/docs/tourism.pdf
Proctor, T. (2000). Strategic Marketing: An Introduction. London: Routledge.
Ramsay, R. (2003). Hong Kong Bouncing Back. Business Asia, 11(10), 11.
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