International Investment Opportunities In The Tourism Industry

Background

Tourism is the term referred to the practice of touring for pleasure or business, which as associated with attracting, entertaining and accommodating tourists considering both international and local environment. Tourism is considered as both national and international sector or industry and the considerable implications are measured through balance of payments. For any developing county, tourism has become the growing aspect of the nation’s economy and therefore governments of such countries such as China, India and Indonesia are supporting international investors for industrial sustainability. While considering the past ten years’ record, it can be said that global tourism alone contributed $7.61tr to the entire economy (Sigala 2017).

Figure 1: Tourism Industry contribution to Global Economy

(Source: Reports.weforum.org 2015)

While considering the business environment of tourism, it can be said that Europe is having the largest contribution from international tourists but the maximum heterogeneity is arising from Asia-Pacific region. Parameters such as price comparison, safety and security, natural and cultural resources, openness to ICT, environment protection and transportation are having a higher magnitude for Asia-Pacific than rest of the continents.

Figure 2: Travel and Tourism Competitive Index 2015

(Source: Reports.weforum.org 2015)

From Appendix A, it can be seen that India is having the 52 raking overall and it has 5% employment from tourism industry. The employment will tremendously rise in future with 7 million international visitors.

With the development of tourism, several sub-categories have risen:

Table 1: Tourism Sub-categories

(Source: Cabiddu Lui & Piccoli 2013)

Regarding the tourism industry, global players are listed under the Global Travel Association Coalition (CLWG), which promote growth and development. The listed entities are:

• World travel and Tourism Council (WTTC)
• World Tourism Organization (UNWTO)
• World Economic Forum (GEF)
• The Asia-Pacific Travel Association (PATA)
• International civil aviation organization (ICAO)
• International Association of air transport (IATA)
• Cruise Line International Association (CLIA)
• The airports Council international (AIT) (García-Cabrera & Durán-Herrera 2014)

Considering the latest trends in tourism industry, following has been at the top:

Table 2: Tourism Industry Latest Trends

(Source: Rao 2014)

India is at present one of the fastest growing economies with GDP of 2,073bn USD. The per capita income is 1479.5 USD with inflation rate 4.93%. Also, the unemployment rate is 8.4% (Lal 2016).

Figure 3: GDP of India

(Source: Lal 2016)

Economic growth indicates business feasibility as more the people have cash, more will be the possibility of expenditure. Also, the inflation rate has decreased to 4.93%, which indicates individual will try to spend more. India at present is politically stable with new formed government, however the price of oil keeps on fluctuating.

India has able to maintain international stability, international trade regulations and economic development. With different forms in the society, India has able to set up significant segments of tourism and hospitality sector. Therefore, it can be said that India is the best foreign country to invest as it has growing economy, stable politics, diversified culture, well known for international events, skilled and talented candidates, huge unemployment rate, low labor cost, foreign guest concentration and government subsidiaries in tourism sector.

Tourism Industry Contribution to Global Economy

Figure 4: Indian Tourism Industry Segments

(Source: Agrawal 2016)

From the above figure, it can be said that India is completely organized in tourism sector, but needs foreign investment to promote its marketing strategies.

Table 3: Indian Tourism Industry Opportunities

(Source: Singh 2016)

Table 4: Indian Tourism Industry Challenges

(Source: Anwar 2016)

One of the most prominent growth in Indian service sector is tourism. Following are the most attractive points derived from Goldar (2014):

• Most potential historical and cultural heritage
• Extraordinary ecological variety and natural beauty mainly in northern and southern parts
• Highest rated foreign exchange generating large employment
• Tourism industry is expected to create 13.45 million jobs indicating present vacancy
• Initiatives taken by ministry department to educate and train human resource
• Excellent transport and communication facilities against cheap rate
• At present the industry ranks in 52^nd position Tourism & Travel competitive index

Following are the most attractive points for Indian tourism market derived from Yadav and Pandey (2016):

• 5% growth in Domestic Tourist Visits in year 2016
• 6% growth in Foreign Tourist Arrival in year 2016
• E-visa facility extended to 161 countries from 113
• International hotel chain is expected to contribute 50% share by 2022 in hospitality industry
• 5% of GDP arising from tourism industry

Figure 5: Foreign Tourist Arrival Statistics

(Source: Yadav &Pandey 2016)

Strategies taken by government of India for promoting tourism industry are:

• Cashless mode of payment after demonetization, which is safe and convenient
• ‘Ministry of Tourism Tripartite’ signed Memorandum of Understanding (MoU) to promote construction, corporation and Jammu and Kashmir tourism projects
• Projects worth US$ 67.10 million for enhancing tourism sector
• Bilateral cooperation was expanded in between India and South Africa by Union Cabinet

According to Kulkarni (2016), flourishment of any service sector depends mainly on quality, price, affordability, comfort, accessibility and satisfaction. Considering the Indian tourism industry, it can be said that it has the seventh largest number of heritage sites with huge concentration of foreign guests (about 1,118,983 Americans visited in 2015). This has all been possible because of initiatives taken by Indian Government.

According to Singewar and Deshmukh (2016), public-private partnership or PPP in India at present is extremely confined to infrastructure development. The government of India supports PPP and allows subsidiary in digital India projects and rural development. Therefore, foreign investment through PPP will not be effective. On the other hand, Ahuja (2015) pointed out that Foreign Direct Investment (FDI) in Indian tourism industry will lead to transfer of capital to foreign country. With the impact of fluctuating foreign exchange rates the amount of return earning capability will not be constant, impacting the foreign company. Furthermore, Falk (2016) pointed out that FDI in Indian tourism can be considered as capital intensive with respect to investor and therefore this can lead to non-viable economy and high risk of return.

According to Arslan, Wassmer and Dussauge (2015), joint venture is the strategy by which two firms operate unitedly by sharing risks, resources, return and investment. For Indian tourism industry, joint alliance or joint venture is the strategy by which foreign investor will get the maximum return. This is because earlier it has been found that India is emerging economy and tourism is rapidly increasing, where the amount of risk is very less.

Considering joint venture as the market entry strategy, ABC Limited (hypothetical foreign investor company of New Zealand) can undergo joint venture with the India Tourism Development Corporation (ITDC). Investor firm needs to invest in accommodation and catering (hotel management) and transport sector. Earlier, it has been found that trained and skilled human resource is lacking in the hotel sector and therefore service quality is unsatisfactory. On the other hand, transport infrastructure especially rail and road has been found to be extremely poor. Therefore, betterment of these sectors will lead to more tourist concentration.

Travel and Tourism Competitive Index 2015

The cost of labor training and resource availability is quite cheap in India. If such resources are optimized then investor company can get huge return. Foreign exchange rate especially with USA is quite attractive for doing tourism business in India. The amount of return will be shared based on individual firm investment but it will be of long-term. Infrastructure development will lead to fluid communication and transport facility and with enhanced facility in hotels more domestic and international tourists will be seen. This will lead to revenue maximization and risk free rate of return.

Conclusion

While concluding, it must be said that India has been found one of the most prominent emerging economies. Tourism industry contributes huge amount to the Indian economy but due to poor infrastructure and unskilled human resource the service quality is not satisfactory especially to the foreign guests. Therefore, investor from New Zealand has the opportunity to invest in Indian tourism sector through joint venture with India Tourism Development Corporation (ITDC). The return will be achieved after long-term as sub-developmental projects will take huge time. This can be considered as a profitable investment for ABC Limited as with lowest risk and less amount of investment the return will continue increase after the initial years. This can be said because cost of infrastructure development will be supported by local resource suppliers leading to less capital investment and only heavy machinery from New Zealand, indicating less amount of heavy investment. On the other hand, concentration of foreign tourists towards India is expected to rise by following the past trend, which will eventually give rise to more income. This will be shared among ABC Limited and ITDC with course of time.

ABC Limited will identify the core cities where there is the most concentration of foreign tourists. Based on that communication and transportation oriented sub-projects will be carried out. This must not exceed beyond three years as inflation is expected to rise in future. Accommodation services will be strengthened initially and later catering projects will be accomplished. Only road infrastructure with government subsidiary will be improvised in the following years. Net return will be achieved after long term investment.

Reference List

Agrawal, V 2016. A review of Indian tourism industry with SWOT analysis. Journal of Tourism and Hospitality, 5(1).

Ahuja, R 2015. A Study of Flow and Trends of FDI in the Indian Economy. The International Journal of Business & Management, 3(1), p.355.

Anwar, S.A 2016. Emerging Issues in Tourism System in Relation to The People and Their Environment. Indian Journal of Commerce and Management Studies, 7(2), p.56.

Arslan, B, Wassmer, U&Dussauge, P 2015. Distributive Justice and Joint Venture Termination: A Social Exchange Perspective.

Cabiddu, F, Lui, T.W. &Piccoli, G 2013. Managing value co-creation in the tourism industry. Annals of Tourism Research, 42, pp.86-107.

Falk, M 2016. A gravity model of foreign direct investment in the hospitality industry. Tourism Management, 55, pp.225-237.

García-Cabrera, A.M&Durán-Herrera, J.J 2014. Does the tourism industry co-evolve? Annals of Tourism Research, 47, pp.81-83.

Goldar, B 2014. Globalisation, growth and employment in the organised sector of the Indian economy. IHD Working Paper WP 06/2014. New Delhi: Institute for Human Development. https://www. ihdindia. org/Working% 20Ppaers/2014/WP-0614. pdf.

Kulkarni, D.D 2016. Make in India and Tourism Industry. Indian Journal of Applied Research, 5(10).

Lal, D 2016. The Indian Economy: From Growth to Stagflation to Liberal Reform. World Economics, 17(1), pp.63-104.

Rao, R.S 2014. Emerging trends in hospitality and tourism. International Journal of Research, 1(1).

Reports.weforum.org. 2015. Index Results—The Travel & Tourism Competitiveness Index Ranking 2015. [online] Available at: https://reports.weforum.org/travel-and-tourism-competitiveness-report-2015/index-results-the-travel-tourism-competitiveness-index-ranking-2015/ [Accessed 27 Apr. 2017].

Sigala, M 2017. Collaborative commerce in tourism: implications for research and industry. Current Issues in Tourism, 20(4), pp.346-355.

Singewar, M&Deshmukh, S.S 2016. Analysis of Critical Success factors for effective implementation of Public Private Partnership in Real Estate and Infrastructural Development-A Compendium Case Study. Imperial Journal of Interdisciplinary Research, 2(8).

Singh, R 2016. The state of Indian tourism and hospitality research: A review and analysis of journal publications. Tourism Management Perspectives, 17, pp.90-99.

Yadav, A.S& Pandey, D.C 2016. Analysis and Appraisal of Foreign Tourist Arrivals and Economic Growth of Indian Tourism Industry. Global Journal of Multidisciplinary Studies, 5(2).

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