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Economic Sustainability & Destinations

Updated: Jan 19, 2021

Leakage & sustainability in destinations

Document created by: Maribel Esparcia Pérez, Founding Partner at ESHClub, and Thomas Müller, Founder at Rainmaker.

In recovering from the COVID19 pandemic, tourism stakeholders have a unique opportunity to consider tourism's role in supporting the achievement of the 2030 SDGs Agenda through technology and social development, environmental conservation, and good governance in leadership practices.

The importance of considering local communities in the investment plans and the destination management process is fundamental. To involve all stakeholders and have sustainable development strategies based on a holistic view of the territory. Promoting local creative industries and culture is of great importance to have a sustainable destination value proposition. The lack of attention to environmental, social, and governance issues presents us a challenge today, in upcoming months and years, as we recover from COVID19.

How can we address these aspects, prioritizing growth and economic development in a very complex tourism system?

Leakage and economic sustainability.

The income that destinations receive from their tourism economic activity in many countries is not as high as it should be. In many regions, what they receive is only a small fraction of the income from tourism and hospitality activities.

The consumer's behavior (tourists) can help to change this issue by minding where they spend their money, there are things that can be done to help to prevent economic leakage (for instance booking local, avoiding main OTA’s platforms, not choosing all inclusive-type of holidays with no or little interaction with local people and businesses). Tourists can help to maximize the economic potential from tourism for destination economic development, improve local communities' quality of life, and reduce economic leakage.

An example of how this factor affects a destination is the fact that some foreign-owned companies choose to employ workforce from overseas instead of people from local communities.

Impact of tourism on local communities

Especially in emerging and developing destinations, tourism is a key pillar for youth and women employment, decent workplaces, training, and education to create prosperity for the local communities.

However, in the last decade, the way tourism and its value chains dynamic has dramatically changed, and unfortunately, not for the better for destinations and their respective sustainable development.

But what is sustainability all about anyway when it comes to tourism? Unfortunately, and in most cases, the buzzwords like “Responsible Travel” or “Sustainable Travel, Tourism” are incorrectly limited to either the social or the environmental aspects. What has been neglected is the aspect of economic sustainability.

The economic sustainability of destinations, and their hospitality and tourism businesses, are the core foundation for any other sustainability aspect, be it social or environmental. Without economic sustainability, environmental and social sustainability is not viable, as there are no means, resources, and funds available.

What is the problem with the changes in Value Chains over the last decade?

In the past, it was easy for hospitality and tourism businesses to do business with a few local inbound tour operators (DMCs) selling their products to source market wholesale operators. However, with the digitalization of the traveler and once market-disrupting, now market-dominating platforms such as online travel agents, the world has become extremely complex for hospitality and tourism providers and entire destinations.

Since the sector has not innovated and digitized as quick as their customers have, travelers do not get what they desire from destinations and hospitality tourism providers. Traveler's mental model - dreaming, planning, booking, and sharing their experiences in a very convenient and seamless way, without knowing the impact it has on the destination and its hospitality and tourism businesses.

Most of the emerging, small, medium, and independent hospitality and tourism businesses, especially in developing regions, are not professionally trained hoteliers, not necessarly IT experts, digital geeks or marketers. They are overwhelmed with the growing complexity, the ever faster change of technology, and the many platforms and their different business models.

Simultaneously, due to consumer behavior and market changes, the DMCs do not provide the business they once did. In the meantime, they have become dependent on market-dominating online travel agents.

Not only do hospitality and tourism providers pay on average between 60% to 80% or more to the foreign platforms, but they also hand over the customer control, ownership and their brand name, but those platforms also use to market for themselves and their own business model. In fact, hospitality and tourism businesses have become henchmen for such platforms. Due to the leakage, it is not at all contributing to the destination's economic sustainability nor its local businesses and people development. It serves more to foreign shareholders.

How can Destinations and its Hospitality and Tourism Business resolve Problem, and what is a possible solution?

As mentioned, the entire hospitality and tourism sector, almost anywhere in the world, has more or less failed to innovate and digitize as their customers have long ago. The COVID19 pandemic has even boosted the digitization of travelers all over the world.

Corona Pandemic is a once in a lifetime opportunity for the global hospitality and tourism industry and destinations to take this time and pivot, innovate and digitize to get the traveler what they desire.

A destination network, an open platform, and an ecosystem that manages the supply side with all respective content and business transactions is a core initiative for a destination to start with. Combined with public-private partnerships and a freemium business model, it will help democratize technology that, otherwise, only large conglomerates could afford.

The democratization of technology and the inclusive and pervasive availability and, more importantly, affordability is key for any destination to reach critical mass and broad participation from all stakeholders.

How Destinations Take Back Control, Recover Sustainably, and Become More Resilient.

A destination ecosystem can reach a critical mass of at least 50% of the hospitality and tourism businesses in 6-9 months given a Tourism Authority and/or UNWTO endorsed digitization initiative.

This ecosystem enables the destination tourism structure to take back the entire control of their visibility, digital presence, reputation, marketing, and distribution.

Due to this wide enablement of an entire destination and its hospitality and tourism businesses, travelers finally get what they desire directly in the destination. Either from the respective hospitality and tourism provider, a local tour operator creating itineraries and packages, and the destinations portal integrating all the packages and providers to a one-stop-shop.

While consumers can now dream, plan and book digitally using websites, portals, and apps of a destination where all the content and transactions are entirely consistent, they are very likely to book directly in the destination in any of the three tiers.

As a result, more tourism spend can be for the destination, contributing to the destination in an economically sustainable way. It helps destinations speed up a more sustainable recovery from the global pandemic and become more resilient and less dependent on foreign platforms and value chains. Having more economic resources allows destinations to tackle social and environmental issues, especially in developing regions.

Community- Based Tourism

There is work to be done to develop globally recognized standards with qualitative indicators, as well as quantitative, to monitor and evaluate social sustainability, social and environmental justice, improving the well-being of marginalized, disadvantaged groups, eradicate racism, fund gender equity, social cohesion and ensure inclusion of locals.

For economic sustainability, business awareness, consumer behavior, and employment are essential (economic benefits, ownership of businesses by locals, financial support to SMEs, a framework for foreign investment, integrated planning). It is necessary to further public-private partnerships to strengthen the destination:

  • Economic benefits

  • Educational programs (technology, environmental, etc.).

  • Entrepreneurship enablement environment

  • Equal distribution of land

  • Local participation and involvement

  • Collaboration

  • Protecting the local identity and the sense of community

  • Interaction among stakeholders

  • Quality of life

  • Respect for local culture and traditions

  • Incorporating WEP

  • A shift in power balance through involvement and collaboration

These considerations are imperative to build back better and reset the inefficient practices in the tourism activity. Furthermore, it is indispensable that public entities view the strategic place that tourism activity has in economies despite the overall direct GDP representation.

The tourism activity must be qualitative, responsible, inclusive, and supportive of countries' development - as a catalyst for local economic and social development and biodiversity conservation.

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