Crispin O'Brien to the Association of Corporate Travel Executives
ACTE Global Conference
Madrid, September 10, 1996

More seriously............ we will focus on two main areas:

• a review of the Asian economies
• a more specific look at Travel and Tourism in Asia with particular emphasis on China.

Travel and tourism is one of the world's largest industries - 6% of the world economy and is currently growing faster than the global economy as a whole. During the 1970s and 1990s, tourism tripled in size. By 2000, it is expected to grow by an additional 50%.

The World Travel and Tourism Council has predicted that Asia will eclipse Europe as the world's top tourist destination within the next 10 years to claim 30% of the total market.

Over the next decades, as Asian economics and incomes grow, tens of millions of new tourists from the emerging middle classes of Indonesia, Thailand, China, South Korea, Taiwan and other parts of the region will be enjoying leisure travel for the first time. Business travel will also grow dramatically with the increase of business opportunities in newly open and developing markets.

The facts behind headlines.

• Look at growth and potential for business.
• Let's first see what has happened in recently or in the past.

Beware Lyndon Johnson is said to have said "Crystal Ball gazing involves very little crystal and a lot of balls" OECD countries are generally forecasted to grow at just over 2% with a slight slow down in the US and a promised return to growth - Japan after almost zero growth for the three years to 1995.

Now compared NIC's (6.6%) and China's (10.5%) growth with OECD countries (2.2%). Drilling down in more detail to see what has already happened from 1960 to 1995 in Asia.

Thailand, Malaysia, Indonesia, Philippines. Looking more closely at countries within southeast Asia, growth has been around 7%.

Information selected to show the great surges in each economy (1950-75, 1960-85, 1980-95). Growth rates have been even higher in east Asia, around 8% to 9% in Japan, S Korea, Taiwan and China during their key growth phases. What is fueling these developments?

In response to the growth potential in the region, capital flows to less developed countries jumped from 1985 to 1996 with $92.76 into China with only $l.l billion foreign direct investment going to India.

Foreign direct investment is more important than portfolio (or stock market) investment. You can't move a factory as easily as you can sell a share! Why has all of this money gone into Asia?

This money is going into Asia largely because of the low labour costs - four times lower than in Western Europe or Japan. Lower wage rates have assisted eastern and southeast Asia to gain a significant share of manufactured exports, from 1963 they have outgrown Western Europe, and in 1994, they were higher than Western Europe.

Asia/NIC's just sweat shops? Cheap labour is not the only reason for Asia's success. NIC's now spend more as a % GDP R & D than western Europe. See also the trends in Japan and the US where R & D is declining.

Where does all this lead?

Simple GDP per capita measurements put Japan first then US and Germany. With China and India way way behind. But....Using Purchasing Power Parity which means $100 in Japan buys two cups of coffee and a MacDonald's if you're lucky! $10o in New York buys 2 cups of coffee, 2 MacDonald's and 2 cinema tickets on Broadway. $100 in China buys 2 coffees, 2 MacDonalds, 2 cinema tickets, and 2 bicycles. Look what happens to China; GDP using purchasing power parity is $2.9 billion more than Japan at $2.6 billion rising to $7,000 billion by 2005.

So China was already in 1994 the second largest world economy in terms of parity purchasing power with this lead increasing dramatically by 2005. How is this? Just look at the population statistics. Everybody lives in Asia these days!! With 20% of the world living in China. More than 110 million Asian people will be living in middle income households by the year 2000. (Because of China's importance in the region and demographics I will focus in more detail later.) Again - a note of caution - remember Lyndon Johnson''s crystal ball. Undoubted that Asia will dominate economies in the Long Term, the demographics show that ... but is Long Term 5, 10, 15, or 50 years?

Tourism and Travel in the Asia Pacific Area

Increasingly, some of the newly emerging countries in the Asia are demonstrating that they recognise the economic potential of travel and tourism, and many are making this a priority. ASEAN, the Association of South-East Asian Nations, has launched a collective marketing campaign to attract visitors, both tourists and the business traveller, to their nations.

Apart from business travellers and the vast array of exotic and cultural experiences that draw people from around the world, Asia is also a source of tourists who are interested in travelling not only in this region but in other parts of the world as well.

Asian airports already enjoy fastest rising level of passenger traffic. lntra Asia traffic is increasing at an annual rate of nearly 9% and the International Air Transport Association estimates that non-domestic scheduled traffic in the region will reach 200 million passengers by the year 2000 (from 112 million in 1993).

Some of the new airports being built, many paid for privately, are: in Hong Kong (expected to receive about 82 million by the year 2005), Kuala Lumpur International Airport (capacity 25 million) and Bangkok's Nong Ngu Hao International Airport (30 million at first but ultimately 100 million). New airports have also opened recently in Macau and Kansai, Osaka in Western Japan.

Around the world large carriers are pushing for broader 'open skies' agreements and trying to persuade regulators to abolish protectionist policies that favour national carriers. Among the more liberal Asian countries are Singapore, Taiwan and South Korea; they favour competition and regard increased air traffic as beneficial to their economies.

Anyone from Holiday Inn? 'I'hroughout the Asia Pacific Region, as well as in other parts of the world, new hotels and resorts are being built to accomodate the expanding traffic. The hotels of large internationally known chains, such as Holiday Inn, are well known in Asia.

Anyone from Accor? Just to look in more detail at another hotel group - Accor. Accor Asia Pacific is one of the world's largest hotel groups in terms of properties, and has been rapidly expanding over the last few years with Asia as the group's highest growth area.

Here are some of the countries where Accor hotels are present together with the number of hotels. Accor had just four hotels in the Asia Pacific region eight years ago - now it has 67 properties with just over 10,000 rooms and employs more than 10,000 staff. Under development are 35 new hotels and the goal is 98 hotels in the region by early next century.

This pattern of growth seen throughout the hotel industry is a direct result of the strengthening of the regions economies. Recently, the chairman of the World Travel & Tourism Council (WTTC) called on governments to promote travel and to plan for it as a long-term item in their budgets. WTTC is urging governments especially those in the Asia Pacific area to move towards open and competitive markets. It is inevitable that this will happen as the economic benefits of doing so are so great. 20% of the world lives in China. Hands up those who have been to China. I first went in 1981 and boy how its changes. Only 7 open cities. 24 hour check in to police stations - come a long way in 15 years!

There are an enormous number of major project opportunities in the Asia Pacific region as massive investment in infrastructure continues. The most striking growth triangle centres around Hong Kong, Taiwan and in particular Southern China. China has consistently enjoyed the fastest economic growth rate in the region over the past decade, particularly in the coastal 'special economic zones'.

Although Hong Kong will soon change status 1st July 1997, China has enormous business invested there which will gather momentum after the handover. For example two mainland companies, CITIC and CNAC, recently took big stakes in Hong Kong's airlines and Citic Pacific and China Resources also mainland owned companies have emerged as powerful shareliolders in blue chip money companies.

'Greater China' which comprises of China, Taiwan and Hong Kong is already the biggest economy in the world in terms of foreign exchange reserve, in excess of US $200 billion. Whilst China on its own has risen to over US $700 million.

To look more closely at these figures.by contrasting Germany and China over a 10 year period. Germany's GDP growth was constant but when compared to China's GDP growth trend the difference is striking.

This growth is also affecting trade between various regions of the world. Trade between China and Japan (both imports and exports), is expected to surpass that of the US and Japan in the next 20 years and will have a huge impact on the world economy. It might interest you to know that trade across the Pacific is already bigger than that across the Atlantic....

China has declared 1996 as The Year of Leisure Travel. With the slow easing of restrictions, new regions are opening to the business and tourist traveller. For example, China is begining to consider cutting some of the red tape for travel to historic areas such as the Silk Road; parts of which were completely forbbiden to outsiders. The World Tourism Organisation (WTO) has also recently called for easing of travel restrictions to China by underlying the economic benefits to the regions in doing so.

As mentioned earlier, the tremendous growth of Chinese economy is reflected throughout the travel industry. For example...Airports are experiencing substantial increases in business. This slide shows China's main airports and proposed airport sites and airport expansion in the near future - they are everywhere!

By 1994 China had opened 668 air routes whilst international air routes numbered 84. Domestic airlines radiate from Beijing airport to all provinces, autonomous & major tourist regions, open cities and border areas.
In 1994 Chinese civil airways carried 820,000 tons of freight and 40.4 million passengers. This was an increase of 19.5% and 19.4% respectively over the previous year!

With the building of new airports and access to more regions it means the increase of travellers (Chinese and overseas) within China. As you can see in this slide, some Chinese airports experienced up to 35% increase in passengers between 1993 and 1994. In recent years, the fleet expansion rate in China was three times the world average. Although China is starting with a weaker infrastructure than most western countries, by the year 2000, it expects to have invested US $3.5 billion into airport development and the national handling capacity will be around 180 million passengers a year.

Overseas visitors to China between 1996 - 2000 are expected to grow by at least 25%. Over 52 million are expected to enter the country each year by the turn of the century. The dip in 1989 comes from Tiananmen Square, the internal troubles in China.

China will certainly be at the forefront of the Asia challenge. Whether you will be exploring the hilltribes in Yunnan in China, trading with the special economic zones or planning to invest in the construction of a new hotel .... China will certainly be an exciting place to be.

Conclusion

The golden rules for doing business in the region put forward by the Asia Pacific Advisory Group on which I serve in the UK are:

• have specific proposals and contingency plans;
• get to know your potential partner and learn flexible management;
• accommodate cultural differences - but not at the cost of the financial bottom line;
• orchestrate technology transfer - and learn from your partners strengths:
• recognize that there are short and long term horizons and differences in ground rules and values with the West - but profit is universal.

Many of these points are common sense but I would like to emphasise that as well as being aware of political and economic factors in each region is important, an understanding of the different cultures and traditions are critical to success in the region. In summary "relationships" are key and an "open mind."

In August for example, in the UK car sales soar with the new registration plates but car sales in Taiwan fall to 60% of normal monthly levels, new business ventures are postponed, few dare to get married or travel ... why? It is the Ghost Month when tradition has it that the gates of the netherworld are thrown open and ghosts swarm out to mingle with the living.

One of the only busy businesses during this period are the temples which sell fake money to burn as offerings to appease the spirits!

The Asian region is both facinating and exciting for many reasons. But if you are looking to invest in the region then it is vital that you understand the market you are moving into and expect suprises!

Whatever your business...can you ignore Asia? The data shows the answer is a strong NO?