Tourism Value Chain Analysis

Dr. Frederic Thomasthomas-frederic@voila.fr

A framework for tourism stakeholders to assess and maximize the development impact of

public/private investments in the tourism sector, especially the pro poor impact

The data in this presentation come from a research’s project co-funded by the IFC/MPDF and the Prosperity initiative in Cambodia and Lao PDR

Objectives

A major objective of the IFC/PI project was to develop a framework for tourism stakeholders to assess and maximize the development impact of public/private investments in the tourism sector, especially the pro poor impact

The objectives of a value chain analysis are first and foremost to better understand:

How a specific economic sector impacts on a local economy (range of activities, phases of production, number of hired people (direct, indirect, induced))?

Which opportunities exist for increasing the linkages and benefits between this economic sector and the local economy?

What is the feasibility or plausibility of each potential interventions for having an economic, local or pro-poor impact?

Finally, what would be the best strategies to increase either the global economic impact, Local Expenditures Impact or the Pro-poor Impact*?

(*This implies to take into account the return on investment!)

Introduction to Cambodian and Lao Tourism

International tourists arrivals in Cambodia (1990-2007)

200219961995 1997 1998 1999 2000 2001 2003 2004 2005 2006 20071990

260,489 286,524

466,365604,919

786,524

1,055,202

1,421,615

1,700,041

2,015,128

17,000219,680 218,843

367,743

701,014

0

0.5

1

1.5

2

2.5

Mill

ion

s vi

sito

rs

The 2007 Travel and tourism economic research - WTTC

world market share of tourism

GDP growth

2007/2006

Travel and tourism industry contribution to

GDP

Travel and tourism contribution to the

economy

Travel and tourism

economy employment

(direct/ indirect / induced)

Travel and tourism industry

employment(direct/indirect)

Cambodia 0.0% 6.5% 9.3% 20.3% 1,108,235 500,103

Vietnam 0.2% 10.5% 3.1% 11.2% 3,519,630 932,110

Lao PDR 0.0% 7.1% 4.2% 8.5% 148,532 72,248

Malaysia 0.5% 4.5% 4.4% 13.3% 1,217,080 476,438

Indonesia 0.6% 3.6% 2.4% 7.5% 6,056,156 1,980,658

Thailand 0.7% 3.3% 6.7% 14.9% 4,109,502 1,945,544

Philippines 0.2% 7.0% 4.1% 9.1% 3,542,908 1,388,229

Total international visitors in Lao PDR (1990-2007)

463,200403,000346,460

146,155

102,94687,57137,61314,400

614,278 73,823 636,361

894,806

1,095,315

500,200

737,208 735,662

1,215,106

1,623,943

0.0

0.2

0.4

0.6

0.8

1.0

1.2

1.4

1.6

1.8

Mill

ion

s v

isit

ors

Introduction to Cambodian and Lao Tourism

International Arrivals in Lao PDR (2007)

 # arrivals (LNTA)

# arrivals(- day

tripper)% GIT

Thailand 949,452 508,596 35047

Vietnam 290,584 248,649 10726

China 54,920 33,376 2027

USA 45,691 45,691 1687

France 34,584 34,584 1277

UK 31,352 31,352 1157

Japan 29,770 29,770 1099

Australia 24,492 24,492 904

Total top 8 (90%) 1,460,845 956,510 66,605

Total visitors in Laos 1,623,943 4.1%

International Arrivals in Cambodia (2007)

# arrivals (MoT)

% GIT

Korea 329,909 62.39%

Japan 161,963 56.74%

USA 137,539 26.38%

Vietnam 125,442 30.16%

China 118,417 39.68%

Taiwan 118,180 71.12%

Thailand 101,590 16.42%

France 90,168 40.76%

UK 84,103 20.86%

Malaysia 84,039 18.60%

Total top 10 (67%) 1,351,350 589,490

Total 2007 2,015,128 43.95%

The IFC/PI Approach Cambodia and Lao PDR

The data collected (demand and supply side surveys) allow the following expenditure measures of yield to be estimated:

Total trip expenditure, nationally and in destinations Average expenditure per night (total tourism) nationally

and by destination Expenditure per night by market (by origin,

demographic, travel motive) nationally and by destination

Expenditure in each tourism supply chain (accommodation, F+B, shopping, transportation) , nationally, by destination and by type of tourist

Employment in tourism, nationally and by destination, by type of tourist and by tourism sub-sector/supply chain

Review of different methodological issues observed in Cambodia and Lao PDR

Expenditures per person vs. per interviewee

FIT vs. GIT

Definition of poverty: Unskilled workers (ODI/SNV) vs. poor background’s workers

Expenditures per day and expenditures for the last 24h

Are products bought at the local market obviously locals?

Step one(Larry Dwyer: Tourism Yield definition)

1. Total in-country expenditures

2. Converting Expenditure Measures of Yield into local expenditure yield measures (Local Expenditure Impact)

3. Estimating pro-poor employee income (PPEDI) yield measures

4. Estimating tourism supplier pro-poor impact: Pro-poor Indirect employment income (PPEII)

5. Estimating direct seller pro-poor impact

6. Estimating Employment Measures of Yield (direct, indirect)

Tourism Yield Analysis - Approach

Due to a lack of maturity of the market (difficulties in getting sensitive data), the approach did not include profitability measures and particularly the analysis of the yield as rate on return of capital.

There is no consistent definition of Tourism Yield. We have essentially looked at 4 dimensions:

Economic Local Economic Impact Pro-poor Impact Pro-poor employee direct incomes

$

LEI

PPI

PPEDI

$Economic

$ (Expenditure / Revenues)Jobs

LEI Local Economic Impact

(what stays in Cambodia?)

PPI- Pro Poor Impact

PPEDI- Pro Poor Employee direct Incomes

Tourism Yield Analysis - Approach

Economic impact of tourism

Total in country trip expenditure =

(ALOS * ADE * Number of tourists)

ALOS = Average Length of StayADE = Average Daily expenditures per

person (and not per interviewee)

Tourism Yield Analysis - Approach

Average Daily expenditures in Cambodia

France-G France-F

Thai-G

Viet-G

China-G

UK-G

Taiwan-G

Malay-G

Jap-G

US-G

UK-F

Taiwan-F

Thai-FVN-F

US-F

Jap-FMalay-F

Korean-G

China-F

$0

$20

$40

$60

$80

$100

$120

$140

2 3 4 5 6 7 8 9 10

ALOS

Avera

ge d

aily e

xp

en

dit

ure

s p

er

pers

on

in

Cam

bo

dia

ALOS

France-GFrance-F

Thai-G

Viet-G

China-G

UK-G

Taiwan-G

Jap-G

US-G

UK-F

Taiwan-FUS-F

Jap-FMalay-F

Korean-G

$0

$20

$40

$60

$80

$100

$120

$140

60% 62% 64% 66% 68%

% LEI by nationality

Av

era

ge

da

ily

ex

pe

nd

itu

res

pe

r p

ers

on

in

Ca

mb

od

ia

Total yield by nationalities in 2006

Korea

Japan

USA

VietnamChinaTaiwan

Thailand UK

Malaysia

FranceAustralia

Germany

0

50

100

150

200

250

300

350

$0 $100 $200 $300 $400 $500 $600 $700 $800 $900 $1,000

# of

vis

itors

in 2

006

(in th

ousa

nd)

Average trip expenditures per person

Total expenditures for GIT per year by nationality

Korea

Japan

Taiwan

USA ChinaFrance

UKMalaysiaThailandVietnam

0

50

100

150

200

250

0 100 200 300 400 500 600 700

Expenditures per person per trip

# vi

sito

rs (

000)

Total expenditures for FIT per year by nationality

JapanThailand

Malaysia

USA

Vietnam

Taiwan

UKFrance

Germamy (GIT/FIT)

Australia (GIT/FIT)Chinese

0

50

100

150

200

250

0 100 200 300 400 500 600 700

Average trip expenditures per person

# vi

sito

rs (

000)

Expenditure - IVA / trip Cambodia

Tourism Yield Analysis - Approach

Tourism Yield Analysis - Approach

Expenditure - IVA / trip LAO PDR

Average daily expenditures and length of stay in Laos(weighted ALOS = 5 Average Daily exp. = US$52.5)

ThaiUSA

AustralianChinese

French

UKVietnamese

Japanese

$0

$10

$20

$30

$40

$50

$60

$70

0 2 4 6 8 10 12

Total Yield by nationality

Chinese Australian French UK

Vietnamese

Japanese USA

Thai

-

100,000

200,000

300,000

400,000

500,000

600,000

$0 $100 $200 $300 $400 $500

Expenditures per person per Trip

# vi

sito

rs

Opportunities for increasing the number of GIT and the amount of GIT itself are limited (low average number of rooms per hotel). Therefore the analysis focused mainly on FIT.

Local Economic Impact(defined as Local Expenditures Impact)

   Identified leakages From the top to the bottom

From bottom to the top

The example

of the hotel’s sector

• Depreciation cost or profit leaving the region for foreign owners• % of foreign staff salary (repatriation of a % of salary)• Importation for running costs (electricity, F&B, Furniture and equipment replacement…)

•Profit repatriation: Estimated as 10 to 15% of turn-over for high-end hotels•Salary repatriation: 80% of 15% of the salary bill for high-end hotel•Leakages from power operating costs (80%)•Leakages from F&B

•Salary of local staff•Local impact from F&B•Share of profit staying in the country•Local expenditures by the business as operating costs

Tourism Yield Analysis - Approach

* Our LEI approach doesn’t take into account the leakages from the starting costs (Around 90% for a high-end hotel).

Tourism Yield Analysis - LEI

Total LEI by nationality in Cambodia

France-G

France-F

Thai-GViet-G

China-G

UK-G

Taiwan-G

Malay-G

Jap-G

US-G

UK-F

Taiwan-F

Thai-F VN-F

US-F

Jap-F Malay-F

Korean-G

China-F

0

100

200

300

400

500

600

700

$30 $40 $50 $60 $70 $80

LEI per person per day

Tota

l # o

f nig

hts

(Tho

usan

d)

Total LEI by nationality in Lao PDR

Thai

USA Japanese

Vietnamese

UK French

Australian Chinese

0.0

0.5

1.0

1.5

$0 $10 $20 $30 $40 $50

Mill

ion

s

LEI per person per day

# N

igh

ts

The total contribution by nationality is extremely influenced by the number of visitors in Lao PDR.

The breakdown of expenditures and the LEI in each category varies from one nationality to another and also between the two categories of visitors (FIT/GIT).

The tourism industry public and private sectors should not particularly target an increase in tourism arrivals on the top of the trend but more the High yield markets.

Pro Poor Impact

Pro-Poor Employee Direct Income (looking at employee from poor background)

+Pro-Poor Employee Indirect income

(Indirect salary to suppliers from poor background) +

Remittances of Tourism workers from a poor background

Tourism Yield Analysis - Approach

ALOS

France-GFrance-F

Thai-G

Viet-G

China-G

UK-G

Taiwan-G

Malay-GJap-G

US-G

UK-F

Taiwan-FThai-F

VN-F

US-FJap-F

Malay-FKorean-G

China-F

$0

$20

$40

$60

$80

$100

$120

$140

$30 $35 $40 $45 $50 $55 $60 $65 $70 $75 $80

LEI by nationality

Ave

rag

e d

aily

exp

end

itu

res

per

p

erso

n in

Cam

bo

dia

PPI / person and nights /Total contribution to PPI per annum by market segment (bubbles)

France-G

France-F

Thai-GViet-G

China-G

UK-G

Taiwan-G

Malay-G

Jap-G

US-G

UK-F

Taiwan-F

Thai-FVN-F

US-F

Jap-F Malay-F

Korean-G

China-F

0

100000

200000

300000

400000

500000

600000

700000

$3 $4 $5 $6 $7 $8 $9

Pro Poor Impact per person per night

To

tal #

of

nig

hts

in C

amb

od

ia

Total PPI contribution per nationality

Thai

USA Japanese

Vietnamese

UK French Australian

Chinese

0

500000

1000000

1500000

$0 $2 $4 $6

PPI per person per day

% P

PI

Tourism Yield Analysis - PPI

The total contribution by nationality is extremely influenced by the number of visitors in Lao PDR.

In Cambodia, the level or importance of the Pro poor impact for each nationality is relatively different than their LEI

Summary for Cambodia 

($) In country expenditures

% market share

($) Local Economic

Impact

% Local Economic

Impact

($)Pro-Poor

income yield

% Pro-Poor

income yield

Siem Reap$457,810,841 58% $283,842,721 62% $26,095,218 5.7%

Phnom Penh $213,118,840 27% $132,133,681 62% $18,434,780 8.65%

Sihanoukville$55,253,033 7% $39,229,653 71% $5,912,075 10.7%

Kratie$2,771,822 0.5% $1,779,510 64.2% $321,531 11.6%

Other$60,374,501 7.5% $38,760,430 64.2% $7,003,442 11.6%

TOTAL$789,329,036 100% $495,698,635 62.8% $52,016,783 6.59%

Summary for Lao PDR

($) In country expenditures

% market share

($) Local Economic

Impact

% Local Economic

Impact

($)Pro-Poor

income yield

%Pro-Poor income yield

Vientiane $88,340,566 57% $59,099,839 66.9% $10,070,825 11.4%

Luang Prabang $13,947,794 9% $10,795,593 77.4% $585,807 4.2%

Champasak $12,217,849 8% $7,074,135 57.9% $671,982 5.5%

Other $40,988,985 26%

TOTAL $155,495,194 100% $108,069,160 69.5% $12,284,120 7.9%

In Cambodia and Lao PDR, we observe that the level of PPI is higher in the capital than in the main tourist destination. An explanation could be the high number and variety of potential jobs in all sectors in Phnom Penh and Vientiane which finally attract more people from a poor background.

In both countries, the difficulty of access to training for poorer persons doesn’t help them to become a strong workforce in the hospitality service industry.

Major interventions to increase the % of LEI and /or PPI

Major interventions on changing the % of PPI should be based on- Main leakages by supply chain and feasibility to fill the gap/increase linkages and particularly with projects having a high LEI/PPI- Main sectors able to highly contribute to the global LEI/PPI- Main markets able to highly contribute to the global LEI/PPI- Making jobs more accessible for the poor

Main areas usually targeted to help the poor- Importation (F&B, handicrafts, miscellaneous products…)

Main opportunities become:- Substitution to importation strategies are often considered as the only area where an increase of LEI/PPI is feasible. Now, these strategies should be

- Able to differentiate between absolute value and percentage of LEI/PPI;- Able to compete with existing products in terms of costs, quality and just-in-

time production/distribution all the year long (With a ROI concern) and not only job creation and/or increase of incomes;

- Marketing strategies to attract high-yield market, to increase ALOS, to increase # of high yield visitors in low season

Marketing strategies

share of arrivals/expenditures/LEI and PPI among the top 10 (from the edge to the center)

7%

7%

16%

10%

10%

10%

9%14%

8%

13%

9%

9%

8%

7%13%

8%

13%9%

9%

8%

8% 18%

8%

8%

7%

7%

8%

8%

14%

7% 10%

14%

6%

12%

14%

6%

12%

12%

8%

16%

Korea (GIT)

Japan

Taiwan

China

USA

UK

France

Malaysia

Thailand

Vietnam

1. Target high yield markets1. Increase ALOS2. Increase number / change the mix3. Reduce seasonality4. Increase average daily expenditures

Substitution to importations

Total Economic and Local Expenditures Impacts by sector in Lao PDR

AccommodationF&B

Transport within town

Casino

Shopping

GuideExcursionsSpa

Others

$0

$2

$4

$6

$8

$10

$12

$14

$16

$18

0% 25% 50% 75% 100%

Average LEI per person per day

Av

era

ge

Da

ily le

ve

l of

ex

pe

nd

itu

res

pe

r p

ers

on

pe

r d

ay

Total and local economic impact by sector in Cambodia

Accommodation

Shopping

F&B

Entrance fees

Others Local transport

regional transport

Excursions Spa Casino Guides

$0

$5

$10

$15

$20

$25

$30

0% 20% 40% 60% 80% 100%

% LEI

Ave

rag

e E

xpen

dit

ure

per

per

son

per

day

1. Looking at opportunities/feasibilities/plausibility

1. Compare % and economic value of LEI 2. Determine feasible increase of LEI by sector and opportunities3. Look at competitiveness for interesting sector4. Look at domestic demand as an additional factor (ex: can

organic products be bought by locals in developing countries..)

Step two – Study the feasibility/plausibility of interventions

1. Breaking down the value chain

2. Looking at supply chain’s specificities (competitiveness, opportunities, linkages and leakages)

3. Studying the feasibility of interventions based on understanding of context

4. Breaking down the supply chain for any plausible intervention

5. Studying the Return on investment for each plausible intervention

Feasibility / potential to change the LEI/PPI by supply chain: The example of the accommodation sector (1)

Sectors Interventions / leakages Strategies vs. Feasibility/ plausibility

Increase of

economic impact

Increase % of LEI

Increase % of PPI

Decrease profit repatriation (Estimated as 10 to 15% of turn-over for high-end hotels)

Increase of FDI is a must - no plausibility to increase LEI

by attracting FDI

no No

Decrease salary repatriation (80% of 15% of the salary bill for high-end hotel)

Capacity building for local staff to reach high position takes 10 to 20 years.

no no no

Decrease leakages from power operating costs (80%)

out of project no no no

Decrease leakages from F&B (F&B constitutes 31.5% of operating costs and its LEI is approximately 60%) - 60% of F&B bill is Food.

implement linkages projects yes yes yes

Decrease leakages from operating costs (decoration, equipments, products…)

Implement linkages projects yes yes yes

Accommodation

others increase of salary / gender equity in salary

yes yes yes

Feasibility / potential to change the LEI by sector

Changing the % of LEI

Example: encourage the production of fruits by local farmers

Cambodia

Average Daily

expenditures per person

Share of expenditures on food and beverages

% Fruits over F&B

% LEI for fruits

US$ final LEI for

fruits per person

Hotel US$ 20 31.5% 5% 60% $0.082

Restaurants US$ 17 55.2% 5% 60% $0.122

Opportunities exist but they remains limited in terms of yields.

Feasibility / potential to change the PPI by sector

Changing the % of PPIMain identified

areas for substitution to

importationTarget products % of the sector’s

billFeasibility and

constraintsPotential gains

(based on 2007)

Food

-Fruits-Vegetables-Meats (importation concerned high-end products)

-Around 5% of food’s bill-Around 8-10%-Around 20%

-Competitiveness-Yearly production- very few opportunities for meat (need to develop traceability system)

Calculated by breaking down the supply chain

Beverages

-Alcoholic beverages-Non alcoholic beverages

-Around 12% of beverages bill-Around 5%

- No real opportunities (consumption based on brands)

None

Handicrafts

Sectors with high levels of importation (clothing, scarves, handbags) >60%

-10% for clothing of the products bill-6% for scarves-8% for handbags

-Competitiveness-Quality Calculated by

breaking down the supply chain

Operating products

-Hygiene products-Cleaning products

-Towels, napkins, bed sheets…(replaced every 6 months)

-Min. evaluation at US$ 4 millions leakages per year (FIAS -2006)

-Not calculated

-Competitiveness-Quality and quantity Potential Pro

poor impact if project linked with poverty reduction

Construction and equipment materials

All items currently imported

No survey Need for the development of an industrial base

To be defined

ConclusionAs an example, out of one US dollar spent in a restaurant,

$0.0042 have a pro-poor impact on the local vegetables sector $0.0037 have a pro-poor impact on the local fruits sector

Opportunities exist to substitute imported fruits and vegetables Up to $2.4m for the vegetables sector Up to $2.1m for the fruits sector

$ 2.4m Veggies $2.1m Fruits

$1m potential $1m potentialNot all

Fruits and vegetables grown in Cambodia

How easy?Cost of production (competitiveness)?

Supply the market all year long? $1m Assumption of realistic opportunities

$100k Share to the poor?

-Lack of skills-Cost of training-How easy?-ROI

Summary

Can’t assume, details matters

Evidence based conclusion (potential)

With good understanding of context to maximize ROI and development