Analyzing Thailands Tourism Industry
Abstract
In the present context of an increasingly globalized world, and the nature of the tourism industry, it is worthwhile to note if Porter’s Diamond framework still provides answers to the changing competitiveness of Thailand’s tourism and identifies success factors and factors detrimental to its competitiveness. A revised version of the Diamond framework has been proposed for the given context of tourism industry and Thailand state. This paper tries to analyze Thailand’s Tourism industry using this revised form of Porter’s Diamond Framework, identifying the various sources of competitiveness or the lack of it thereof. It attempts to identify key areas for improvement based on the above analysis and suggests solutions for the same.
Keywords: Competitiveness, Thailand, Tourism, Diamond Model, Revised framework
Introduction
For any country tourism impacts not only revenues but employment and economic development as well. For Thailand, this is even more so. It is therefore important for Thailand’s tourism industry to be competitive not just in ASEAN region but globally. Subsequent to the success of Visit Thailand Year in 1987, Thailand, a small country in the Asia Pacific region became the biggest growth story in the region with a growth rate of 7 %. Subsequently its economy (GDP) grew at an astounding 10.9 %, 13.2 % and 10 % respectively in the next three years – i.e. an average of 11.7 % from 1998 – 1990, about the best in the world. However, it did not maintain that growth subsequently, and its tourism industry faced many adversities. This paper will analyze the recent developments in the tourism industry to help understand the reasons for the same in today’s context.
Today when not only individuals, products, firms compete against each other but industries and nations themselves strive to outdo the competition, it becomes imperative to understand what it takes to beat the completion and stay competitive i.e. to acquires a good understanding of the determining factors of competitive growth. This paper proposes to do such an analysis for the tourism industry of Thailand.
It also, argues a case for revising the Porter’s Diamond Model framework for the given context.
Porter’s Diamond Model Framework
Besides traditional resource advantages like land, location, labour, natural resources and size of population Porter (1990) argued that grouping or ‘clusters’ of interconnected firms and stakeholders like institutions, suppliers and related industries provide ‘competitive advantage’ which are not inherited and which can be acquired. To get a better understanding of the determinants for such attainment of competitive advantage, Porter (1990, 1998) provided the famous diamond framework (Fig. 1). This framework helped in the analysis of not only industries but also nations.
The four vertices of the diamond indicated four groups of determinants. These were: factor conditions (also called ‘input’ conditions), demand conditions, related and supporting industries; and firm strategy, structure and rivalry. These were the basic determinants.
There were however two external or additional factors – chance; and government.
All these factors were not isolated but interconnected. Thus, demand and factors conditions were connected. So were the factors: related and supporting industries; and firm strategy, structure and rivalry.
The national factors of production like natural resources, infrastructure and skilled labour are the key factor conditions. The nature of domestic demand for product and services chiefly define the demand conditions. The presence (or absence) of suppliers, related industries which are themselves competitive (internationally) form the related and supporting industries vertex. The domestic rivalry between the firms and the conditions that govern their formation, organization and management form the last vertex of the diamond in the framework.
The framework is useful in identifying not only the sources of competitive advantage but also identifies key problem areas to be addressed. Oz (2006) illustrated this when identifying the sources of competitive advantage of Turkish construction companies in international markets. The success factors like dynamic domestic market, variables favourable to entrepreneurship, and intense domestic rivalry pressures effects were brought to fore along with the trouble causing areas like government induced hindrances, difficulties in financing and weak consulting and design engineering capabilities positioning of Turkey in the international arena. However, there are limitations to this framework and many researchers have combined this with other form of analysis like Rugman and Verbeke (1993) used SWOT for comparison, citing flaws like difficulty in making it operational i.e. of putting it in practice. It is noteworthy that this framework is been applicable to services as given by Lee and Spisto (2007).
The case for the Endogenous Role of Government and Chance
Apart from the limitation attributed to the diamond framework above, another flaw in it is that it does not include government as one of the basic factors but only considers it as an external factor despite the fact that it greatly affects all the other basic factors. To compensate for this Wickham (2005) re-conceptualized the framework for the Australian context. It had government as an integral basic factor at the centre of the framework, depicted as government surrounded by all the other factors as vertices of a hexagon with the chance factor in incomplete (dotted) lines giving it a separate identity as an external factor alone.
He also suggested that the role of chance be considered in with new attention when applied to a regional economic model like that of the Porter’s Diamond.
Fig. 1: Determinants of Competitive Advantage: Porter’s Diamond Model Framework
Factor Conditions
Chance
Firm Strategy, Structure & Rivalry
Related & Supporting Industries
Government
Demand Conditions
The importance of government policy initiatives to promote and develop the industry can be seen for the tourism context in Prideaux (1996), who on examining growth trends of Taiwanese inbound tourism to Australia, studied the factors responsible for this and listed them as better air connectivity, promotions and organization of Taiwan’s travel industry. Suggestion was also made that repeat visitations would be greatly beneficial and to achieve better tourism prospects with Taiwan steps like forging links with operators in Taiwan, increasing frequency and connectivity of airlines, cultural education including language training, and customization of products to suit Taiwanese tastes should be undertaken. The importance of the study lies in the fact that it provides a model for Thailand to replicate with neighbouring ASEAN nations. It provides inputs as to what it should do to target a lucrative, individual nation like China. Clearly government policies and trade agreements with regional nations play a great role in determining the relative competitiveness of Thailand as a tourist destination.
The role of government and chance here, for the Thailand tourism industry plays a crucial role given the recent history of Thailand – it was the epicenter of the Asian financial crisis of 1997; it faced the Indian Ocean earthquake followed by Tsunami on 26th December 2004; it dealt with global recession post September 11, 2001 attacks, the financial downturn of 2008, SARS (and H1N1 Flu phenomena) and more recently domestic political chaos. These seem to have impacted tourism severely. This builds the case of chance being a critical determinant in the diamond model – leading to the assumption that it should definitely be regarded as an endogenous factor and not just one having an exogenous role in the whole framework.
Pine, Chan and Leung (1996) have outlined the impact of the Asian economic downturn and stated that the economic downturn which affected adversely the tourism industry has led to slowing or halting of many projects in the hospitality arena. It noted that intra-regional tourism had grown due to the region’s strong economic growth. They further expect the tourism to be adversely affected (based on limited data); intra-regional tourism was expected to decline but increase from Europe and Americas in the light of the recent currency devaluations. Zhang (2005) has reported after analyzing industry data that China’s outbound tourism got distributed as a result of the Tsunami. The South East Asian and South Asian nations lost out on many Chinese tourists to hitherto new choice of destinations. The perception of the region was one of high risk and this eventually led to loss in tourist numbers and revenue. The new destinations garnering attention even saw escalation in prices. Travel insurance was more sought as a result of the tsunami phenomena. Also, Ichinosawa (2006) provides highlights as to how Tsunami stigmatized Phuket as a tourist destination. Leiper and Hing (1998) studied unrelated four events in 1997-98 in the Asian context and the impact on the tourism industries of the respective nations. The events included huge forest fires in Sumatra and Kalimantan, Chinese takeover of Hong Kong, the triggering of Asian Economic Crisis with currency collapse in Thailand and social and economic unrest in Indonesia; and political and economic crises in Cambodia. These they inferred resulted in decline in international as well as domestic tourism. Thus, chance was a major factor here.
Malhotra and Venkatesh (2009) have explored how vital it is to have contingency plans for crises and provide guidelines to proactively design a crisis management plan; even to take care when things go really bad. They compared Hong Kong’s strategy and Thailand’s response to the Tsunami and the SARS outbreak. Based on such deliberations they advise having fluid structures and policies with regards to the organizational design, so as to effectively and timely deal with uncertainties of various kinds. They name various kinds of crisis, along with all their stages and depending upon the readiness of the affected entity (nation etc) determines the gap that needs to be filled in terms of crisis management. This they argue is the responsibility of the hospitality and tourism industry. The role of the government in formulating beneficial policies then becomes crucial given the above chance factor is so influential in the tourism industry. Thus, roles of chance and government are said to be critical in relation to the tourism industry. The influence chance has over government policies (and even governments themselves) implies that chance is way too important and thus should be regarded as intrusive, internal factor integrated with the whole framework of the diamond model. Clearly, for the case of a highly specific industry like tourism and a country where the government (directly or indirectly) holds more than half of its net capital stock (Phongsathorn, 2001), the government cannot be left out as just an exogenous factor. It is too important to be dealt as an influence. Thus, government should be thought of as an endogenous factor in the model. Also, government today has more a role of a collaborator than just an influencer or policy maker.
Considering that the diamond framework has not been applied to services as it has been to manufacturing industries, and also less work is done specifically on the tourism industry using the model, the role of the external factors need to be seen in new light. Besides, tourism itself is such an industry which in the case of nations like Thailand may incorporate the whole country as the operating area. More recently, Pettus and Helms (2008) have included government in an endogenous role in the diamond model framework, while analyzing the case of Argentina.
Though, Porter (1990) has opined that chance events are outside the control of the industry, nevertheless its effect can be negated. Also, prudent investment and preparation can actually prevent the occurrences of man-made disasters and reduce the probability of many untoward incidents. Besides, the operationalization of chance even outside the diamond as an external factor is also very difficult.
It is noteworthy also that chance even affects the government and its role. In the scenario of much globalized world where two countries are not isolated anymore and the events in one country affects the other in a more significant way than ever before the model requires an upgrading. Thus, a case has been made for the exogenous factors – Government and Chance to be treated as endogenous. Therefore, in effect the diamond model gives way to the proposed model (fig.2).
Fig. 2: The Proposed Revised Porter’s Diamond Model Framework
Factor Conditions
Government
Related & Supporting Industries
Firm Strategy, Structure & Rivalry
Chance
Demand Conditions
Research Methodology
The study identifies the key variables that act as constituents to the various determinants of competitiveness of the tourism industry of Thailand. It also looks into the role played by Chance and the Government in altering the industry’s competitiveness. For this, unforeseen events and government policies and their impacts were studied and extensive literature reviewed to achieve the above stated objectives. A couple of telephonic interviews with Thai people were conducted to probe into specific areas and to corroborate findings. Thus, primarily the analysis is qualitative in nature.
Discussion and Analysis
Factor Conditions
Factor conditions like infrastructure have been in the government’s eye along with the human resources. However, it is perchance that the multi-million dollar airports that were to be a gateway to Thailand and its scenic beauty was the centre of anti-establishment protests and subsequently two airports were then shut down.
Thailand’s natural resources like beautiful beaches definitely provide a competitive edge. This factor condition is also one of the key variables for the tourism industry. Its spicy food, hospitality and exotic culture are inherent attractions.
The significant external markets for the tourism industry are widely spread across the world and include major European countries, the U.S. and now even China.
Thailand’s ideological commitment to liberalization and open economy has had major impacts on the industry dynamics especially over the long run. Knowledge resources also have grown. Capital resources which were an area for concern has been dealt well in recent times and policy measures for financial markets has made it more sound and less prone to international volatility in comparison to earlier years.
Location is definitely an important issue here. Singapore and Taiwan are so important for global businesses because of their strategic location. Quality and quantity of highly skilled work force for the industry is also a huge concern. Serious policy initiatives are to be taken by the state in this regard. Recommendations include the continued development of various transport related infrastructure and maintaining and enhancing a skilled labour pool.
The Tourism Authority of Thailand Travel Industry Portal provides online training for the industry personnel.
Another facilitator for easy travel is a rail link from Suvarnabhumi International Airport to Bangkok by means of a sky train. This initiative reduces the travel time to 15 min and is greatly appreciated by travelers. [1]
There is growth in the road linkages. The newly formed North South Economic Corridor links Thailand to other Asian countries by means of a twelve hundred km R3A road highway which links Thailand with Laos to China emerging from Chiang Rai in Thailand was developed successfully in 2009. Thailand is becoming known for its status as a definitive hub for regional aviation. It has strong aviation linkages and airlines presence. Now, many countries have more flights from Thailand than most others in the whole of Asia. There are weekly 131 direct by around 13 airlines connecting Middle East Asia. Thailand is served by over seven hundred flights per by charter, scheduled and low-cost airlines from all over the world. Thai Airways has also launched new routes to Abu Dhabhi and Jeddah form Bangkok. Tehran-Bangkok link has been proposed. Similarly, rival Emirates Airlines have inducted Airbus-380 aircrafts for its Bangkok route to provide daily service from the city of Dubai. [2]
Human Resources: Labour Force Statistics 2009 (Source: NSO)
Total population is 66.72 million of which persons who are aged below 15 are 14.15 million, and persons aged 15 years old and over 52.57 million. Total labor force (Available for work) 37.53 million. Persons not in labor force (Not available for work) are 15.04 million. Thus, employed persons are 36.50 million, unemployed persons are 0.78 million. Of these seasonally inactive are 0.25 million. Household workers are 4.93 million, students are 4.41 million, and others are 5.70 million.
Fig. 3: Comparison of number of employed persons between Quarter 1 of 2008 and 2009 by Industry
Unit: Million Persons
(Source: Labor Force Survey 2009, NSO)
The physical and natural beauty of the beaches and islands of Thailand are the greatest attraction for tourists. Thailand’s most popular beaches and island destinations include along the Andaman Coast: Phuket, Mu Ko Similan Marine National Park, Mu Ko Surin Marine National Park, Ao Phang-nga National Park, Krabi, Phi Phi Islands, Mu Ko Lanta Marine National Park, Tarutao Marine National Park; along the Gulf of Thailand: Cha-am (Hua Hin), Ko Samui, Ko Pha-ngan, Mu Ko Ang Thong Marine National Park, Ko Tao and along the Eastern section: Pattaya, Rayong & Ko Samet and Ko Chang Marine National Park.
The National Telecommunications Commission Act of Oct 2004 along with the earlier Telecommunications Business Act 2001 has done a lot to setup the competitive environment for telecommunications industry. The formation of the Universal Service Fund by CAT (Communications Authority of Thailand) and TOT (Telecommunications Organization of Thailand) has provided impetus to the development of the industry. This has been instrumental for the growth of the tourism industry of Thailand.
Car (rentals), train, bus; taxi services are available for transportation. A host of other offerings are available for inland transportation which includes motorcycle taxis, Tuk-Tuks, tricycles, bicycles and Song Thaeo or the very popular pick-up trucks. Charter, scheduled and low-cost airlines make up the air travel avenues; cruises, boat, etc provide water transportation facilities. Railways provide access to a large network of destinations in Thailand, providing economical and efficient transportation.
Firm Strategy, Rivalry
Corruption and bureaucratic hurdles created by the government is another deterrent to it reaching its competitively superior position. Anti-trust policies of the Government are few and far between. There is a lot to be desired on this front from the Thai government. A recently enacted anti-competitive law had a monumental flaw in it as it did not apply to state-owned enterprises (that enjoyed monopoly). Environmental regulations are being looked into by the state.
To be competitive on the global platform requires efficiently producing goods and services of value more than that provided by other competing nations. It is important for Thailand to do so for the tourism industry to make a mark for itself on the global platform especially when its productivity levels are low.
Firms should lay emphasis on retention of and attracting intellectual capital. Within the industry as well as across the industry technology should be shared.
The Trade Competition Act 1999 and thereby the Trade Competition Board helps provide fair trade. The General Agreement on Trades in Services (GATS) furthers this cause. However, the anti-trust policies are not very effective as these are biased in favour of the government. Also, the players pay a high price for the illegal or unethical practices of rivals. The governmental officials prove a bane as there is rampant corruption and cases of corporate cronyism provide hinder fair competition between the players. The rivalry is also relatively less intense than it could be to get more value for the consumers for the services offered. The local base of the competition makes the rivalry worthwhile. Employer and labour relations are adequately cooperative to discourage any untoward strikes or major hurdles in provision of productive output.
There is adequate decentralization of various corporate activities and delegation of responsibility and authority is a prevalent phenomenon. However, the corporate boards leave more to be desired in terms of efficacy.
The cry for greater privatization is justified as it would certainly help in making the industry more competitive. Greater role of the private sector would ensure better management and corporate governance practices, reducing the business related corruption highly prevalent today. This process could be expedited by better corporate control activities, maintaining ethical business standards, sharing management know how, devising incentive based compensation systems, applying performance based appraisal systems, and having collaborative partnerships with local players with an understanding that practices to be in the right spirit, having joint investments, etc. Considering the significant role of the government in this industry, Private public partnerships (PPP) could effectively achieve the requisite competitiveness for being one of the best globally.
No doubt that if this is implemented properly over time then the incident revelations from CNN’s survey of global travel and tourism that Thailand was the best on the basis of value for money amongst all countries in the Asia Pacific region would not be an isolated event but among a series of similar results.
‘Turtle Conservation Plan’ in Mai Khao area which involved beach and reef cleaning also is a PPP initiative for environmental considerations.
Interestingly, many hotels in Thailand have raised the quality standards in terms of environment friendliness by going smoke-free i.e. promoting anti-smoking measures.
Thai Airways and Nok Air have decided to cooperate to boost up domestic traffic over specific routes like Bangkok to Phitsanulok, Bangkok to Ratchathani and Chiang Mai to Mae Hong Son
Already Thai Airways is part of the Star Alliance – the world’s first major global airline alliance which aids its network operations.
Demand Conditions
The internal demand though grown is limited by the population size and disposable incomes. Reductions in prices have encouraged local demand in recent years. However, Thailand may not be able to charge the premium it did during the hey-days. And any further price increase will discourage domestic demand. However, the internal demand for Thailand’s tourism industry offerings has been seen to grow in recent years.
Advantage for Thailand exists in the offerings in terms of varied services and a competitive value proposition vis-a-vis other countries. Also, the active tendency of the local tourists to readily accept the latest offerings offered by the tourism industry makes the demand.
A few regulatory standards for tourism based trade and environment are exacting in nature. Even the intellectual property rights and safety standards for online transactions are less than desirable providing less encouragement for innovation and stimulation of demand.
However, not only does the internal demand conditions condition the industry to become competitive globally it provides an avenue for experimentation and more importantly provides revenues when global tourist inflows ebbs below expected levels. Increasing internal demand could then easily be used as a hedge for fluctuations in collections from international tourists especially during the off seasons.
Specialized market segments for specialized services and distinctive benefit segmentation provides impetus to the internal demand and subsequently to the external demand. In this regard providing incentives for innovation and aiding multinational corporations should be the policies pursued by the industry.
There are various activities that a visitor or tourist can undertake for pleasure. Thailand offers a wide array of such offerings which include shopping, golf, adventure treks, hill tribe visit, special cooking and food, elephant rides, special festivals and celebrations, spa, spiritual and religious insights and learning (especially Buddhism), meditation, water sports, etc.
Water sports include diving, sailing, yachting, cruising, canoeing and kayaking, swimming and snorkeling, fishing, windsurfing, rock climbing and bouldering, jet skiing and wakeboarding. Medical-tourism and business events also form an integral part of the range of offerings.
Many indigenous events attract visitors from within and outside the country thereby stimulating demand. Some key events that happened from time to time in Thailand are the Luang Phor Thuad and Sunflower Field Festival dealing with the first blossoming of sunflower at a distinguished temple and paying tribute to Luang Phor Thuad, Chinese New Year Fair where prayers are offered the Chinese way, and there are opera shows and a food festival for vegetarians, Chinese Lantern Festival where a competition for lanterns and its decoration is held, World Wetland Day involving environmental related activities and awareness, bird watching and games, Eco-tourism and Kasalong Flower Festival involving bonfire and camping activities, showcasing of rare species of wild flowers and visiting caves, Thailand International Kite Festival that showcases traditional kites from different regions, kite flying competitions, etc; Thai Sky Festival involving a show of Skydiving by skydivers from many countries, Traditional Gold Leaf Covering Ceremony at Kuiburi Temple involving prayers and religious rites and as the name suggests gold leaf covering, Blooming Lotus Festival providing a tour of the Lotus Pond and trekking, Hua Hin Jazz Festival where Jazz concerts are performed, Hua Hin Regatta involving a race of sailors, Hua Hin (Cha-am) Golf Festival involving golfing contests, Hua Hin Vintage Car Rally which involves parading vintage cars.
Many sports events, trade events and festivals had been planned for attracting visitors to Thailand in 2009. Important among these were the 1st World Comedy Film Festival, Thailand Grand Sale 2009, Thailand Tourism Festival (TTF) 2009, LPGA Thailand 2009 (Golf), The 2009 King’s Cup Elephant Polo Tournament, 1st Asian Martial Arts Games, Loi Kratong, Candle Festival, Songkran Festival and the 14th ASEAN Summit. New attractions like Sirindhorn Museum and Phu Kum Khao Dinosaur Excavation site, Chiang Mai Zoo Aquarium, Dragon Descendants Museum, etc have come up.
It is interesting to note that Thailand was voted as the best sailing venue in Asia in a poll conducted by Top of The Gulf Regatta. Also, Phuket King’s Cup Regatta was the winner for best regatta in Asia. Thailand was also voted as the ‘Asian Spa Capital’ for 2009 by AsiaSpa magazine. Also, Thailand won the Destiantion Spa of the year for Six Senses Destination Spa in Phuket.
The major destinations chosen by tourists are (by region):
Central Thailand: Ayutthaya, Bangkok, Hua Hin, Kanchanaburi, Cha-Am, Chachoengsao, Lampun, Nonthaburi, Petchburi, Phetchaburi, Prachuab Khiri Khan, Pranburi, Samut Songkhram, Saraburi.
Southern Thailand: Koh Lanta Island, Koh Phi Phi Island, Koh Samui Island, Krabi, Phang Nga, Phuket, Trang, Chumphon, Hat Yai, Khao Lak, Koh Phangan Island, Koh Tao Island, Nakhon Si Thammarat, Ranong, Suratthani.
Eastern Thailand: Koh Chang Island, Koh Samed Island, Pattaya, Chanthaburi, Chonburi, Koh Kood Island, Rayong, Trat.
Northern Thailand: Chiang Mai, Chiang Rai, Mae Hong Son, Sukhothai, Lampang, Phetchabun, Phitsanulok, Tak.
North-East Thailand: Nakhonratchasima, Khon Kaen, Loei, Nong Khai, Ubonratchathani, Udonthani.
Latest foreign technology is available to it and this should be made good use of by the industry players and the government. Use of ICT (info-communications and technology) in hotels and other areas is a step in the right direction.
The following of the Star Rating methodology for hotel standards by Thailand’s premier hotels was a step in achieving quality and recognition.
To the advantage of Thailand is the level of orientation of the tourists coming to Thailand and the internal tourists as well). These are more or less favourable for the state and should be capitalized upon. ‘Thailand Travel Mart’ was a large showcase for travel and events held in June in Bangkok. Such events promote the internal demand significantly.
Inadequate reliance on experts and professionals for managing the business and related aspects of the industry, poor managerial innovation, low level research and development activities for the tourism industry, provides a hindrance for Thailand to emerge competitive against other players compromising the very nature of its competitive advantage. The extents to which it brands its industry though much better now and steadily improving over the years even in quality, leaves more to be desired in this front. Basing compensation on incentives is another recommendation for the industry. Training staff, at various levels is required to put together a skilled workforce and efficient labour pool for the industry.
Related and Supporting Industries
The tourism industry is well connected and ‘linked’ with industries like the transportation and hospitality. Specialty services and has also provided impetus to the industry. However, the stigma of child prostitution and Aids epidemic is still a major concern for the government of Thailand.
Labour productivity of Thailand is also not competitive at all. The revenues per tourist to Thailand are less than many competitors in the region. Also, these have not gone up over the years. Understandably, this was due to the chance factor but nevertheless, it seems to compromise the competitiveness of the industry even further.
The importance of the framework applied here is that it helps identify sources of competitive advantage. One specific area of interest is the formation of clusters. Domestic rivalry and geographic concentration enhance competitiveness of Thailand’s tourism industry. The six factors depicted in fig. 2 help the framework act as system. Scalability, magnification and upgrading help provide linkages and networks. These thus help in forming clusters which provide competitive advantage.
Efforts should be made to build special business relationships with the various players. Partnerships and alliances between and across the industry could help get the maximum value to the consumer inevitably making Thailand more competitive and the formation of clusters more evident, thereby benefitting the industry greatly. Provision of incentives to encourage; and subsidies to support the entrepreneurial talent in the industry’s core and related areas could benefit the industry in many ways including the adoption of innovative tools, techniques and methods and e
