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 / Spring 2007 / Issue 46(originally published by Booz & Company)


Tourism: China’s New Diaspora

The global travel industry is preparing for the next tourist boom.

The global travel industry is bracing itself for a new wave of tourists out of China. Like the droves of Americans who explored Europe in the 1960s and the Japanese who traveled the world in the 1980s, the tastes and preferences of China’s new international tourists will have an enormous influence on the entire tourism ecosystem.

Currently, only about 2 percent of the Chinese population travels outside the mainland — well below the 15 percent of Americans who travel abroad. But China is catching up. The International Air Transport Association predicts that the mainland’s international passenger traffic will grow at an annual rate of 9.6 percent between 2005 and 2009, while various other agencies estimate that China will be included among the top four sources of outbound tourists by 2020.

What is unclear, however, is the quality and cost of the experiences that these tourists will seek: bus tours of Paris’s outer arrondissements, or private tours of the Louvre? Spanish street food, or tasting menus at El Bulli?

The earthier options seem to be more popular thus far. Ask for a description of the typical Chinese tourist, and observers from the industry are likely to use such words as value-conscious, shopping, gambling, and chain-smoking. Or, as the Economist put it in a June 2006 article, “Typically, a Chinese tour group will choose the cheapest hotel — even if it is 50km (30 miles) outside a city — travel by bus and eat only Chinese food…. Posh hotels, resorts and restaurants will have to wait for their Chinese windfall.”

These descriptions contain elements of truth, but they don’t offer a complete picture. As the New York Times recently noted, a significant subset of the overall population of Chinese tourists will be quite affluent and willing to spend accordingly. Consider this: China’s 31 million international travelers spent US$15.2 billion in 2005. At nearly $500 per person, mainland travelers spent more per capita than international tourists from the United States, France, or Japan.

Successful tour operators are offering upscale packages that promise deeper knowledge of a city, region, or country. They are also introducing lifestyle-oriented products, like fine-dining and wine tours that have proven popular with other nationalities, and adapting them to the increasingly sophisticated tastes of mainland travelers. Current offerings include a six-day winter trip to Kyushu, Japan, for skiing and visits to the hot springs, at a price of RMB9,000 (approximately $1,155) and a seven-day “ancient civilization exploration” tour of Egypt for RMB11,000 (approximately $1,410).

Shopping continues to be popular among mainland travelers. But China’s growing manufacturing muscle poses a challenge for overseas retailers: How do you sell to a tourist from a country that makes just about everything? One option is to appeal to Chinese consumers’ brand-conscious nature, with a focus on items with labels that can be shown off. Smart sellers will remember the trend in China in the 1980s and 1990s of leaving tags on sunglasses and jackets to show off the brand. Thus, Louis Vuitton handbags, Swiss watches, and Chow Sang Sang gold are popular. Service will also matter: Hong Kong retailers often provide service in Mandarin and accept the renminbi (the official language and currency, respectively, of the mainland).

Gambling is also a top travel pastime for Chinese people. Australia, North Korea, and Singapore are launching or intensifying efforts to attract mainland high and low rollers. However, the profitability of this business will be hit by higher marketing costs and greater competition. Larger construction and maintenance costs will also play a role as customers come to expect a luxurious, Las Vegas–style experience.

Companies within the travel and tourism industry stand to benefit from an abundance of opportunities, but must remain cognizant of the significant pitfalls. Hotels will need to keep costs down to meet mainland travelers’ value expectations. At the same time, opportunities exist both for hotel groups that can migrate customers from the lower and middle tiers into more expensive properties, and for chains that can develop a strong brand in China and use it to attract mainland tourists when they travel abroad.

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