The tourism sector is a rather complex sector with multiple linkages to the rest of the economy. In order to fully exploit this potential, the sector needs careful management of the inter-linkages with other parts of the economy.
Tourism is one of the world’s largest economic sectors, driving socio-economic development and job creation. Prior to the pandemic, the 2019 annual research of the World Travel & Tourism Council (WTTC) reveals that the sector accounted for 10.3% of global GDP (US$9.2 trillion) and 330 million people were employed by the sector. Moreover, the benefits of the sector spread far beyond its direct impacts in terms of GDP and employment; there are also indirect benefits through supply chain linkages to other sectors as well as its induced impacts. Multiplier effects can be achieved by intensively dovetailing tourism with neighboring sectors such as agriculture or crafts, thus boosting the local economy. This also contributes to creating more jobs and income.
Therefore, understanding the basis of the tourism value chain is essential for the destination management organization to manage the tourism policies, developments and activities well as well as optimize the value generated from tourism. Basically, the more money tourists spend, and the more money stays in the region, the more value is added for the destination.
However, value-added is not just a target for economic activity, it can also be understood as an environmental and sociocultural target. Thus, the value chain concept is a valuable aid to understanding the many-tiered structures and processes of service delivery in the tourism sector and finding suitable entry points for specific interventions.
What is the tourism value chain?
“Value chain” is a familiar term in economics to describe the process in which each activity uses resources, creates value, and is connected to other activities. Regarding tourism, the value chain is the sequence of primary and support activities which are strategically fundamental for the performance of the tourism sector.
Tourism value chain activities refer to a series of interrelated activities which create values that are experienced by tourists during their trip. In the tourism value chain, it requires all players to work together in adding value for delivering products and services to tourists called “customer-centricity” or customer experience value chain. Tourist experience in the value chain details the steps that tourists decide when going on vacation until they return back from the journey. The interdependence feature of tourism industry players makes them heavily reliant on each other; sharing and appreciating the long-term interests and environment and estimating the unexpected events. Value chain activities, hence, are a discrete building block of competitive advantage.
Tourism value chain in destination
Linked processes such as product development, sales and destination operations and services are the key primary activities of the tourism value chain. On the other hand, support activities which may not be related to core tourism businesses but have a high impact on the value of tourism. Infrastructure, transport and utilities are obvious inputs into the tourism industry, as well as the local construction and furniture industry can also act as suppliers to the tourism industry. This is also the case for local agriculture, fishing and food processing. Also the handicraft, jewelry, textiles and cosmetics sectors can take advantage of tourism.
Overall, primary activities are most of the value for the customers are created. The support activities are those that are undertaken by the individuals and groups engaged in doing primary activities. Therefore, value chain analysis will provide the latest and real scenario of the tourism economy and its pro-poor linkages in a specific tourism destination and a generic framework to optimize both the behavior of cost as well as the existing and potential sources to exploit.
How value chain to help promote tourism value-added
Thus defined, a value chain is a management tool that helps us understand and specifically design complex processes and structures. Thereby, we can optimally exploit backward linkages so that tourism can contribute to diversification through the development of other parts of the economy.
Using the value chain approach entails more than just describing activities that add value, though. Instead, it involves the systematic structuring of the value creation process, its analysis and assessment from a specific perspective and the identification of projects and measures that contribute to pre-defined objectives.
There are two fundamental strategies for promoting tourism value added:
- increasing the value of components in the value chain
- adding more components in the value chain
In a simple way, we can consider between raise the prices for the available services or create more services for spending.
While both strategies open up a broad range of options for development cooperation interventions, finding the right leverage to help achieve individual project objectives is far from easy. This is partly because the tourism sector is highly complex, offering myriad different services and exhibiting linkages with neighboring sectors of the economy.
As a policymaker, using the value chain concept as a macro-management tool will help you get an overview, thereby identifying relevant value chain actors, expenditure patterns and environmental impacts at a destination level. From there, the destination management organization can make timely adjustments and interventions that add value to not only the tourism industry but also other related economic sectors.
On the other hand, a tourism business can take advantage of the value chain by mapping and visualizing all of its value chain partners to have an overall picture. From there, they can better understand the factors affecting the business and use the relationship with suppliers or the ability to influence guests to drive positive changes.
In summary, defining and building a value chain model for the tourism industry is not an easy thing. It is required close coordination of both management levels and related businesses. However, grasping the important links in the chain will play a big role in optimizing management resources as well as increasing socio-economic value. Especially when the tourism industry has been greatly affected by the epidemic since last year, this is the time when we need to put our efforts in the right place more than ever to adapt and operate in the new normal. Therefore, not only management levels but also enterprises themselves also need to re-evaluate the overview of the market in order to find potential points to help increase value, and at the same time limit and interfere with links that are no longer suitable.