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Unformatted text preview: Small and Medium-Sized Enterprises in Tourism and Hospitality Table of Contents Preface List of Abbreviations List of Figures List of Tables Chapter 1: Introduction to Small and Medium-Sized Enterprises (SMEs) in Tourism and Hospitality 1.1. Introduction to Small and Medium Enterprises 1.1.1. Definition of SMEs 1.1.2. Characteristics of SMEs 1.1.3. The Contribution of Small and Medium Enterprises To An Economy 1.2. An Introduction to the Tourism and Hospitality Industry 1.2.1. Understanding Tourism 1.2.2. Understanding Hospitality 1.2.3. Small and Medium Tourism Enterprises (SMTEs) 1.2.4. Characteristics of the Tourism and Hospitality Sector 1.2.5. Economic, Social, and Environmental Benefits of the Tourism and Hospitality Sector References Chapter 2: Policies and Regulations for SME Growth 2.1. Introduction 2.2. Policy Environment 2.3. Access to Finance 2.4. Regulatory Environment 2.5. Trade Policy 2.6. Support Services for Enterprises 2.7. Business Policy 2.8. Government and Public Policy References Chapter 3: Factors Influencing Growth of Small and Medium in the Tourism and Hospitality Industry 3.1. Introduction 3.2. Environmental Factors 3.2.1. Economic Environment 3.2.2. Legal Environment 3.2.3. Political Environment 3.2.4. Social Environment 3.2.5. Physical Environment 3.3. Political Factors 3.4. Technological Factors 3.5. Legal Factors 3.5.1. Employees Laws 3.5.2. Consumer Laws 3.5.3. Environmental Laws 3.5.4. Tax Laws 3.5.5. Copyrights Laws 3.5.6. License Laws 3.5.7. Zoning Laws 3.6. Social Factors 3.7. Cultural Factors 3.8. Religious Factors 3.9. Economic Factors References Chapter 4: Challenges to Growth of SMEs in Tourism and Hospitality Industry 4.1. Introduction 4.2. External Business Environment 4.2.1. Access to Finance/Credit 4.2.2. Access to International Markets 4.2.3. Lack of International Marketing Standards and Proper Regulations 4.2.4. Government Regulations 4.2.5. Lack of Government Support 4.2.6. Tax Burden 4.2.7. Corruption 4.3. Internal Business Environment 4.3.1. Lack of Expertise 4.3.2. Lack of Managerial and Entrepreneurial Skills 4.3.3. Lack of Access to Technology 4.3.4. Lack of Innovation 4.3.5. Unfair Levels of Competition 4.4. Policies to Promote SMTEs Growth 4.4.1. Diversification of Financing Channels 4.4.2. Funding Tourism 4.4.2. Government Intervention Through Effective Policies 4.4.3. Consultation With Different Travel and Tourism Stakeholders 4.4.4. The Digitalization of Tourism 4.4.5. Simplifying Bureaucracy and Regulations 4.4.6. Diversification 4.4.7. Access to Markets 4.4.8. Globalization and Changing Markets 4.4.9. Sound Business Environment 4.4.10. Technology and Data Sharing 4.4.11. Fostering Innovation and Skill Development 4.4.12. An Effective Tax System 4.4.13. Improving Service Quality 4.4.14. Flawless Transport Facilitation 4.4.15. Overcoming Competitive Challenges References Chapter 5: Sustainable Developmental Needs for Growth of Small and Medium Tourism Enterprises 5.1. Introduction 5.2. Economic Transition of Regimes 5.3. Enhancement of Environmental Protection Policies 5.4. Competitiveness of Regional Destinations 5.5. Human Resource and Market Development 5.6. Access to Finances 5.7. Technology Sharing 5.8. Access to Markets 5.8.1. Protection of the Culture 5.9. Empowering Women to Start Businesses References Chapter 6: Business Strategies for SMEs in the Tourism and Hospitality Industry 6.1. Introduction 6.2. The Concept of Competitive Advantage Strategy 6.3. Sources of Competitive Advantage for SMEs in the Tourism Industry 6.3.1. Innovation and Technological Capability 6.3.2. Human Resources for Competitive Advantage 6.3.3. Organizational Structure for Competitive Advantage 6.3.4. Intellectual Property to Gain Competitive Advantage 6.3.5. People As a Source of Competition 6.4. Factors Affecting the Business Performance of SMEs 6.5. SWOT Analysis of SMEs in Tourism and Hospitality Industry 6.6. Strategies for Creating Competitive Advantage in SMEs in Tourism Industry 6.6.1. Porter’s Generic Competitive Strategies 6.7. Porter’s Five Forces Framework of Industry Analysis 6.7.1. The Threat of New Entrants to the Industry 6.7.2. Rivalry Among Existing Firms in the Industry 6.7.3. Bargaining Power of Buyers 6.7.4. Bargaining Power of Suppliers 6.7.5. Threat of Substitutes 6.8. Ansoff Growth Business Strategies 6.8.1. Market Penetration Strategy in the Tourism SMEs 6.8.2. Market Development Strategy in the Tourism SMEs 6.8.3. Product Development Eco-Tourism 6.8.4. Diversification 6.8.5. Types of Diversification 6.9. Conclusion References Chapter 7: The Future of SMEs in Tourism and Hospitality Industry 7.1. Introduction 7.2. Characteristics and Type of Market Structure in SMEs in the Tourism and Hospitality Sector 7.3. Trends and Expectations of SMEs in the Tourism and Hospitality Sector 7.3.1. Solo Travel 7.3.2. Bleisure Travel: A Millennial Tourism Trend 7.3.3. Artificial Intelligence (AI) 7.3.4. Eco-Travel 7.3.5. Local Travel 7.3.6. Road Trips 7.4. Marketing Strategy 7.5. Factors That Will Affect the Direction of SMEs in the Tourism Industry in the Future 7.5.1. Technological Factors 7.5.2. Environmental Factors 7.5.3. Economic Factors 7.5.4. Geopolitical Factors 7.6. Growth Opportunities for SMEs 7.7. Conclusion References Preface There is no doubt that SMEs play an important role in any sector of an economy. From the small kiosks to street-side vendors, grocery stores to the mom and pop stores in the neighborhood, familyowned workshops to eateries. One would argue that it is the SMEs that drive global economies not big business. Nowhere is the SME sector more critical than in the tourism and hospitality industry. The UNWTO reports that over 60% of jobs in this sector are held by women. SME’s make up over 70% of the total businesses in this industry. They lead in job creation and bring variety and innovation to the industry. It’s hard to imagine a world where all we had were the Hiltons, Hyatts, and JW Marriots of this world. Take a trip to Bali-the romance capital-, or Mauritius, the Bahamas, you name it, and you will get to enjoy SPA treatments, massages, shopping, guided tours, all these provided by small and mediumsized businesses. SMEs are responsible for over 80% of revenues generated in the world’s top destinations according to recent industry reports. This alone is reason enough for governments and other stakeholders to prioritize the development and strengthening of SMEs in all sectors. That said, SMEs have always faced challenges on many fronts, including access to capital, archaic or unfavorable policy and regulatory environments, skills and labor gaps and unfair competition from larger brands. These efforts are made to integrate this vital sector into the global value chain as globalization takes root. How can SMEs leverage on the current environment to become competitive in an industry that has been dominated by big business? How can these SMEs ensure growth and longevity in an environment that almost guarantees their failure? These and many other questions must be answered as the global economy cannot do without SMEs. This publication takes a deep dive into the SME sector in the tourism and hospitality industry. You will understand what an SME is and how they operate in this industry. How they fit into the whole hospitality and tourism value chain and what they mean for other entities in the industry, i.e., Government, large business and the community. We explore the challenges faced by tourism and hospitality SMEs, the opportunities, policies, regulations, future projections and everything among other issues of interest. List of Abbreviations AI Artificial Intelligence CGS Credit Guarantee Scheme GDP Gross Domestic Product IFC International Finance Corporation IT Information Technology SBU Strategic Business Unit Level SMEs Small and Medium-Sized Enterprises SMTEs Small and Medium Tourism Enterprises UNWTO United Nations World Tourism Organization List of Figures Figure 2.1: Destruction of beaches in the Philippines Figure 2.2: Overutilization of resources: Beaches Figure 2.3: Sustainable tourism Figure 4.1: Access to Finance Strategy for SMEs Figure 4.2:Combating bribery in the SME sector 2019 | ACCA Global Figure 5.1: SME relationships with other stakeholders Figure 5.2: Benefits of SMEs in tourism in the USA Figure 5.3: Marketing strategy template Figure 6.1: Porter’s generic competitive strategy (Porter, 1985) Figure 6.2: Ansoff matrix Figure 6.3: Market penetration List of Tables Table 1.1: Strategic advantages of SMTEs Table 1.2: Strategic disadvantages of SMTEs Table 1.3: Unique characteristics of tourism and hospitality services Table 6.1: SWOT analysis in small and medium-sized tourism enterprises Chapter 1: Introduction to Small and Medium-Sized Enterprises (SMEs) in Tourism and Hospitality This chapter provides a detailed overview of small and medium-sized enterprises (SMEs). It provides an understanding of SMEs by exploring the various definitions attached to the concept of SMEs in broad terms. There is a huge difference between SMEs and large enterprises. It is worth noting that an SME is not a scaled-down version of a large firm. A look at the dominant characteristics of SMEs shows that they have different characteristics from large enterprises which makes them distinct. SMEs undoubtedly make huge contributions to an economy, as discussed below. Further, the chapter pays attention to the tourism and hospitality industry. The scope of tourism and hospitality is wide and includes a variety of activities. In that regard, this section only pays attention to tourism and hospitality activities that fall under the Small and Medium Tourism Enterprises (SMTEs). The contribution of SMTEs to the national economies is also widely explored. 1.1. Introduction to Small and Medium Enterprises 1.1.1. Definition of SMEs The abbreviation SME stands for Small to Medium Enterprise. The majority of the firms existing today started as SMEs. SMEs hold significance in the provision of goods and services in society. They help meet the demands of goods and services which cannot be met by big companies on their own. A study of SMEs reveals that there is no universal or common definition of SMEs. The definition varies across various countries, industries, and according to business size and products. For example, in the United States, SMEs are businesses with less than 500 employees, while small businesses are those with less than 100 employees. Meanwhile, in Germany, SMEs have a maximum of 250 employees. The situation is different in Belgium as a business with less than 100 employees is considered an SME (Katua, 2014). Below are some of the common definitions of SMEs: – The US SME Definition: In the US, the definition of an SME varies by industry. For example, in the manufacturing industry, an SME is an enterprise that has 500 employees or less. Meanwhile, in the wholesale trade, there have to be 100 employees or less. In the mining industry, an enterprise with up to 1,500 employees is still considered an SME. – The Canadian SME Definition: In Canada, the term SME refers to a business with less than 500 employees but if the number of employees exceeds 500, it is considered a large business. According to Industry Canada, a small business has fewer than 100 employees, that is, if the business is goods-producing. In the service-based business, the employee count is 50. A business with more numbers than these but fewer than 500 employees are categorized as a medium-sized business. – The European Union Definition: The most prevalent and universally accepted definition of SME is by the European Union. The European Union system takes into consideration the number of employees, business turnover, and balance sheet. A business with fewer than 250 employees is classified as a medium-sized business. However, a business with a headcount of fewer than 50 employees is categorized as small. A look at developing countries reveals a different scenario. A business with more than 100 employees is considered as large, yet a small business has one to five employees. The most prevalent definitions of SMEs mainly focus on the number of employees, size, revenue, and assets. Nonetheless, the recently agreed definition defines SMEs as a business with less than 250 employees. 1.1.2. Characteristics of SMEs SMEs exhibit certain characteristics that distinguish them from large enterprises. These characteristics do, sometimes, vary across different countries. SMEs record lower revenues and profitability than larger businesses. This also depends on the business type. The maximum revenue for an SME is designated at 21.5 million annually for service businesses like those in the tourism and hospitality industry. However, lower revenues do not necessarily denote lower profitability. These enterprises are known to employ a lower number of employees than larger businesses. Small teams or individuals manage the SMEs. This is quite distinct from large businesses that employ more people depending on the business type. Given their relatively small size, SMEs are organized around sole proprietorship, partnership, or limited companies. This enhances the degree of management by company owners. It also reduces the hassles of business registration. SMEs also serve a much smaller area when compared to large businesses. They may have sales outlets in other countries or states but not as many as you would find from a big brand, say BestBuy. Many of these small and medium-sized businesses operate from few, if not single, offices and service outlets. Some of these businesses are even run from homes without any company facilities. Furthermore, SMEs are financed by a single individual or a small group of individuals. They are also managed by the owner(s) in a quite personalized manner and tend to lack or avoid a formalized management structure. 1.1.3. The Contribution of Small and Medium Enterprises To An Economy SMEs are the backbone of any economy. They play a significant role in GDP growth, economic development, and foundation enterprises. For instance, in developing countries, SMEs are the unsung heroes that stabilize national economies by buffering the shocks that come with the boom and bust of economic cycles. SMEs are a major part of industrial economies, and their development and growth is important. One area that SMEs play a pivotal role is the provision of employment. They act as a platform for technological innovation, creativity, and development of new products hence stimulating national incomes, entrepreneurial opportunities, and social stability. According to the International Finance Corporation (IFC), a positive correlation exists between the general income of a country and the number of SMEs measured on a unit. Furthermore, The Economic Co-operation and Development (OECD) stipulates that SMEs are accountable for 52 percent of private-sector employment (Fjose, Grunfeld & Green, 2010). As world economies recover from the financial crisis of 2008–2009, economies will need to create employment opportunities. In this regard, the presence and growth of SMEs is a significant policy agenda due to their immense contributions to job creation. It goes without saying that at least SMEs account for 55 to 80 percent of total employment in countries like Japan, the USA, and Japan. It is estimated that 23 million SMEs in the USA have employed 50 percent of the workforce subsequently generating half of the country’s GDP. Muragia (2008) opines that SMEs in the USA are responsible for job creation, generating competition among existing businesses, promoting the production of new goods because of improved innovation and technology advancement, and improving product quality. In the European Union, SMEs are regarded as huge contributors to employment. At least one million new SMEs are set up in the EU, which solves the issue of unemployment among masses. They offer 66 percent of total employment opportunities. Additionally, SMEs boost entrepreneurship and competition, therefore, providing external benefits such as efficiency, productivity, and innovation. They are principal vehicles of continuous supply of ideas, new products, skills, and technological innovations. With high adaptability and turnover, SMEs are the vehicles that resolve regional and sector imbalances in an economy. They render the economy more competitive and flexible. However, regardless of the major contribution SMEs make to world economies, their potential remains highly untapped, and so are their benefits to society. This can be pegged on reasons such as institutional, legal, cultural and societal hindrances. In most countries that depend highly on exports, the role of SMEs is a critical factor for this endeavor. SMEs play a pivotal role in the development of exports and to ease the balance of payments. They help access foreign markets, given that they enhance product diversity and at a relatively lower cost. Besides, they contribute to regional development. Given their flexibility, SMEs are able to spread geographically across regions. SMEs are instrumental in promoting social and political stability. By providing employment, they enhance the incomes of citizens, subsequently resulting in high standards of living and satisfaction, which helps improve the social and political stability of society. SMEs also play a significant role in providing support services to large industries. This is possible through subcontracting relations between SMEs and large industries. In summary, SMEs contributions to the economy are as follows: (a) creation of jobs at a relatively low cost of capital; (b) contribution to the Gross Domestic Product (GDP); (c) expanding the entrepreneurial base; (d) providing flexibility to adapt to market changes; (e) giving support to large scale enterprises; (f) enhancing technological innovation, creativity, and product of new goods and services; (g)capturing and exploiting markets that seem unprofitable to large businesses;( h) promoting the export industry; and (i) contributing to policies that seek to enhance rural development and are more oriented towards decentralization. The importance of SMEs, especially to less-developed countries, is quite significant. In a nutshell, SMEs can play an important role in poverty eradication, growth of the manufacturing industry, increased exports, development of entrepreneurship, and the rural economy. 1.2. An Introduction to the Tourism and Hospitality Industry 1.2.1. Understanding Tourism The tourism industry is perhaps the largest in the world, given that it contributes to 10 percent of the world’s GDP. According to the UNWTO “international tourist arrivals grew 5% in 2018 to reach the 1.4 billion mark.” International export earnings grew above 1.7 trillion USD. These figures show just how important this industry is to the world economy in terms of earnings and entrepreneurship. Before delving deeper into the discussion about tourism, it’s important to explore the definition of tourism so that we can get a better understanding of the industry. There are various definitions of the term tourism, but the most accepted one is by the United Nations World Tourism Organization (UNWTO). It defines tourism as a social, economic, and cultural activity that involves people traveling and staying in places outside their usual environment for recreation, leisure, business/professional purposes. Another commonly accepted description of a tourist is “an individual who moves at least 80 km away from their home for 24 hours; the individual may be traveling for business, leisure, or other reasons.” According to the United Nations World Tourism Organization, a tourist can be (a) domesticresident/citizen traveling within their country; (b) non -residents traveling in a certain country; and (c) outbound-residents of a certain country but traveling to another country. Modern tourism has broadened due to global...
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