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Doing Business Differently in Tourism: How tourism companies can stimulate local enterprise

Date
Time (GMT +01) 12:00 13:30

Speakers:

Caroline Ashley, ODI

Michael Warner, Research Fellow, Business and Development Performance, ODI

Caroline Ashley: the rationale for interest in pro-poor tourism (PPT) is that poverty reduction requires pro-poor growth (PPG). PPG involves qualitative changes in how business is done. Linkages from the tourism sector have the potential to impact strongly on poverty levels.

This presentation draws upon action research with tourism companies ('PPT Pilots in Southern Africa', 2002-2005, funded by Business Linkages Challenge Fund) and analysis of lessons learned for companies on implementing linkages (the 'How to Series - Tips & Tools for Tourism Companies on Local Procurement, Products or Partnerships' recently published on www.odi.org.uk/rpeg/research/pro-poor_tourism/howto.html, with support from the International Finance Corporation).

PPT Definitions

PPT is not community tourism, tourism for poor people or tourism to poor areas or a specific product or Corporate Social Responsibility (CSR);
PPT is 'doing business differently' to develop linkages with the local economy;
PPT focuses on inter-sectoral and intra-sectoral local linkages with poor(ish) entrepreneurs and micro or small businesses.

Types of local linkage:

Procurement from local business - experience shows that it takes time for a corporate to identify and mentor new suppliers to allow the new entrant to meet commercial delivery standards;
Employment of local people - normally about 70% of local cash benefits from tourism flow into the local economy in the form of wages. The Southern African experience shows that, with adequate training programmes, a very high proportion of staff at even top end tourist establishments can be sourced from the local labour market;
Local partnerships - communities have some form of equity position in the tourism corporate - a relatively normal situation in Southern Africa. Requires careful planning and communication from the outset;
" Locally provided cultural products and heritage excursions attractive to the tourist.

Creating successful linkages depends on the tourism company prioritising linkages on their corporate agenda. Unlike philanthropic donations, they cannot just be handled by one person, and thus need management of corporate change. Key tips for companies are to: combine innovation and risk taking with the protection of the core business; turn challenges into opportunities and the energy for change; appoint a champion and facilitator to drive the process; and ensure new linkages are incorporated in to the daily operations of the corporate. The company must recognise the high initial transaction costs in developing local linkages and that gains will be seen in the long-term.

Can successes be replicated? Several features should be noted:

The successful pilots are all distinctive - in terms of size, speed, success;
The general pattern is of minimal local participation in tourism;
There is evidence from linkage programmes in other sectors;
The choice of the model of facilitating business change. Direct facilitation used in the PPT process is inherently slow and labour intensive as it works directly inside the company building buy-in and capacity. Alternatives include the Small Business Project model which is based on facilitating communication between large corporates and established small and medium businesses.

The policy implications of findings on PPT are:

Expand the research agenda - move beyond CSR to quantify the costs and benefits of doing business differently and the effectiveness of different linkage facilitation approaches;
Make the benefits to companies and local communities clear;
Invest in SMME support;
Incentivise corporates - through licencing arrangements and concession processes;
Reduce transaction costs - help companies get over the 'hump' by supporting the brokerage of contracts and sharing good practice tools;
Move beyond the extractives and adapt for a linkage-rich tourism sector.

Response from Michael Warner (Public Policy and Poverty Group ODI)
Many of the issues highlighted in the tourism sector also apply to the extractive and engineering contractor sectors. Key factors are mapping out the contracting process to provide incentives for local procurement and mainstreaming local procurement.


Government support for these processes in South Africa is very good and a clear regulatory environment exists. However, there is a need for corporates to provide improved indicators on local linkages.

Discussion and questions
A paradox was highlighted in that small companies often have the owner commitment but not the resources for linkages, while large companies have resources but not commitment. Whilst largely true, it is the case that operators like Wilderness Safaris and Spier are significant operations in the Southern African context, and the largest resort, Sun City, is building management commitment to linkages.

The role of government in encouraging linkage (or not) is critical. Whilst at the macro-level the South African government is supportive, recent analysis indicates very high levels of red tape for small tourism operators.

Encouraging the private sector to embrace linkage programmes is a policy issue that should focus on reducing the short-run costs to corporates (the problem is not with the benefit side). Government policy can reduce this transaction cost through the provision of subsidised brokerage services.

Direct facilitation in PPT was questioned in terms of value-for-money of donors. This is certainly an issue with the provision of direct facilitation at no charge to the private sector. However, the PPT shows a better cost to benefit ratio per job created than more conventional government poverty alleviation projects in the tourism sector.

An important difference between the extractive industry and tourism is that the latter needs social stability to operate and the former does not. There may be less incentive for extractive corporates to engage with linkage programmes than tourism corporates.

The role of domestic tourists in supporting PPT projects was discussed. While they are often ignored in planning, there are examples such as Umngazi River Bungalows catering to the South African market and featuring strong local linkages.

Like many sectors of the economy, tourism is exposed to external shocks. Linkage programmes cannot reduce this phenomenon. Indeed to the extent that they broaden the benefits of tourism, they expose more people to the negative impacts of shocks when they come. However, ODI research by Sheila Page shows that tourism is no more vulnerable to shocks that other livelihoods such as agriculture.

On the supply side, in small local economies there may be a need for producers to work together to be able to adequately supply a large tourist establishment. On the demand side, the development of 'Fair Trade in Toursim' trademarks is having an impact on the nature of tourism product required. The facilitation methodology is aimed at brokering these supply and demand issues.

The apparent lack of DFID interest in the tourism sector was questioned by participants.

Description

There is growing debate on how the private sector can contribute more to poverty reduction and pro-poor growth. Specifically, this event discussed how the tourism industry can stimulate local enterprises, and how it impacts upon poverty levels.