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Hon Mark Burton: Tourism's China Challenge

Tourism's China Challenge

Mark Burton speaks to the International Business and Trade Summit about the challenge of growing Chinese tourism in New Zealand

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Tourism is now by any measure, one of New Zealand's most important export earning industries, bringing in $7.4 billion in foreign exchange and directly or indirectly employing 1 in 10 New Zealanders.

We have seen consistent and exciting growth in the industry, with air lines offering new and extended services, a multi award-winning marketing campaign, positive media coverage, and the profile boost of films such as the The Lord of the Rings, all contributing to our international reputation.

Tourism New Zealand is the crown agency responsible for marketing New Zealand internationally.

They market the country under the 100% Pure New Zealand campaign.

Launched in 1999, this campaign conveys the unique experiences available in New Zealand, and has gained increasing prominence in our major markets.

Tourism New Zealand's aim is to promote the country to an identified target market, and encourage them to come to New Zealand.

The exception to this rule is China - and I'd like to explain why.

China is a relatively new source of tourism business for New Zealand.

Until the late 1990's the Chinese government did not sanction travel out of China for tourism purposes.

In 1999 this changed and New Zealand and Australia were the first two countries outside the Asia region to be opened up to holiday travel under a system called Approved Destination Status (or ADS).

ADS was put in place by the Chinese government to allow controlled and gradual expansion of leisure travel. Only a limited number of travel companies were approved at the China and New Zealand ends to handle this new group of tourists.

In the five years since the ADS system was put in place visitors from China have grown to 84,000 per year. Just over 60% of these visitors come here for holiday purposes or to visit friends and relatives.

Whilst China's performance has been outstanding in terms of numbers, accelerated growth has challenged us with some unique management and visitor satisfaction issues.

China's extraordinary economic momentum is well known to this forum. Within China a vast group of people now have the economic means to travel globally. In 2005 alone it is predicted that the number of travellers from China to overseas destinations will increase from 30 to 40 million.

Despite heightened competition from a new range of ADS approved countries, New Zealand will continue to receive its share of this travel growth explosion and we could realistically see a further 35 to 40% growth in the next year.

This is great news for our economy. The reality is however that the China group travel market is starting to reveal traits that sit somewhat uncomfortably with our strategic goals for tourism.

For example, one of our key strategic goals relates to emphasising the provision of a quality experience. However in China group travel companies tend to differentiate their advertised tour product on price rather than quality.

The issues raised, and some of our concerns, are not unique to us. New Zealand is experiencing what every other China group destination market is going through - the decrease of the quality and price of group tours, in a competitive, new, and rapidly expanding market.

We also face our own set of challenges in the Inbound Operator world in New Zealand.

The 1999 ADS agreement with China stipulated that we would have China ADS groups, handled in New Zealand by 20 quality assured ITOC Inbound Operators.

However, this system has often been bypassed by groups travelling on non ADS visas using all manner of low grade and "fly by night" inbound operators, of which we estimate there are quite a number operating in the Auckland area alone.

The established practice with these low grade inbound operators is to offer below cost pricing to the group travel companies in China, the goal being to simply secure access and control over the group when it arrives in New Zealand so that shortfall in costs and profit margin can be generated through shopping kickbacks and commissions.

We even hear of circumstances where guides patrol the hotel foyers to ensure that their guests do not leave the hotel to spend money in other "uncontrolled" shopping locations or do their own research as to what sheepskin or health products should cost

The loser in these situations is both the visitor, and the opportunity for our industry when these visitors are denied time and access to some of our best tourism products and experiences.

Addressing these Challenges

The early phase of development in any new market is a critical time.

In China, Tourism New Zealand has focused on managing the growth, in the attempt to set up long-term sustainable and profitable visitor flows.

It is clear that the quality benefits of the ADS system introduced in 1999 have not been fully realised by New Zealand.

A key reason is that many group visas have been issued outside of the ADS system, as China's tourism authority (CNTA) has been conservative in extending ADS coverage from the 22 agents originally approved in 1999 to handle ADS group travel to New Zealand.

Last year we negotiated a new arrangement with China that expands ADS beyond the Beijing, Shanghai and Guangdong areas to a further 6 provinces on and around the eastern seaboard of China.

The new provinces selected have populations who are keen to travel overseas and this initiative potentially increases our pool of ADS approved agents from 22 to 272.

The reason we want more China agents within the ADS system is simple: ADS group visas are only approved if the travel company handling the tour in China, uses an approved ITOC inbound operator in New Zealand. ITOC's code of ethics, audit procedures, guide and management accreditation processes give us a much higher assurance that these groups will have the quality experience we want for our guests.

To increase the rate at which new travel companies in China get themselves up to ADS standard, I provided Tourism New Zealand and the New Zealand Immigration Service $1.3 million last year to embark on a three year travel industry training programme designed to substantially improve planning and selling knowledge, and ensure agents can reliably act as the first screening process in the ADS visa application process.

Travel industry training is vital in this market development period - particularly when the rapid growth in outbound travel means a constant stream of new entrants to the travel business.

In general, travel agencies in China tend to concentrate on expanding their capacity to meet the demand, but pay less attention to expanding their destination knowledge and selling capability.

Tourism New Zealand employs a dedicated travel industry trainer based in Shanghai. Travel industry training is structured around intensive two day workshops with follow-on online training modules available on a simplified Chinese version of

Graduates of this training programme become Kiwi Specialist Agents and are invited to New Zealand for a tourism training and familiarisation visit. I am pleased to note that Air New Zealand is a key partner in this project.

So far 699 travel agents have completed this training with 162 having reached a Kiwi Specialist standard. This investment is not only enabling the expansion of the ADS system across six new provinces in China but will have a material and positive impact on the quality of itinerary development and marketing of New Zealand holidays.

New Opportunities

Tourism New Zealand is assisting and advising travel companies within China who have a strong interest in marketing single destination holidays to New Zealand, to high value visitors.

This reflects the Government's policy and fits with the Tourism New Zealand's goal to focus on travellers who have a keen desire to seek out new experiences, engage with New Zealanders and their culture, and visit a range of regions. These "Interactive Travellers" are the people who are most likely to really enjoy what New Zealand has to offer.

While only 30% of our current arrivals from China fit this "Interactive Traveller" definition, the future pool of travellers wishing to enjoy a more unique and customised experience will grow rapidly. It is up to us to ensure that they know about us.

So, Tourism New Zealand will be increasing investment in media projects in key metropolitan cities in China to further educate and inform these travellers on what New Zealand has to offer.

Encouraging the China market to consume the same high quality visitor attractions as our other key markets is a process that must be demand led. It is therefore vital for better-informed consumers in China to lead this change.

At present there are no direct air services between Northern China and New Zealand to help with the development of New Zealand only mono destination tour programmes versus the prevalent Australia/New Zealand combined travel pattern.

Air New Zealand are shortly to complete a further route study on direct flights to Northern China. Both Air China and China Eastern Airlines are also continuing to evaluate this opportunity.

I am optimistic that by mid 2006 we will have direct air services to New Zealand. This will be a very important milestone for this market's development, serving as a catalyst for the China travel industry to develop longer stay, more regionally diverse and innovative New Zealand tour programmes.

Addressing Quality from the Supply Side

Whilst encouraging the travel industry in China to sell a better quality of New Zealand experience is a goal that Tourism New Zealand is addressing with some vigour, all of New Zealand's inbound operators also need to be committed to the pursuit of better visitor outcomes. This- commitment to quality - I want to acknowledge, has been made and promoted strongly by the Inbound Tour Operators' Council.

Unfortunately, the exceptional growth from China has acted as a magnet for new inbound operator start-ups apparently eager to put profits from low cost tours and shopping commissions ahead of the quality of their client's visitor experience.

Some of these operators are so hungry for business that they are prepared to contract business with Chinese travel companies at a rate of US$45 or less per person per day; this being the total price to cover coach transport, accommodation, meals and sightseeing. It is very difficult to see how anything close to an acceptable experience can be delivered for such a limited amount.

Industry feedback confirms that many of the operators who tout the around $45 a day experience are operating businesses that are frequently found wanting in the areas of compliance relating to tax, immigration, employment, consumer protection and passenger transport issues.

I have directed the Ministry of Tourism to convene a cross agency group of government officials representing these compliance areas to take a closer look at these companies.

There are very few barriers to entry into the inbound operator sector, and absence of specific regulation on minimum standards for new entrants in the tourism sector may need to be addressed.

It is noteworthy that because of similar problems servicing Asian markets in Australia, The State of Queensland has introduced an inbound operator licensing system.

The jury is out as to whether regulatory solutions might be required in New Zealand to ensure we do not attain a reputation in China for delivering a low grade tourism experience but as Minister of Tourism I certainly am not prepared to see New Zealand's hard earned visitor reputation and markets irreparably damaged by disreputable operators.

Closing Comments

There is no doubt that New Zealand's clean environment and natural beauty are a key attraction to visitors from China.

Around 71% of visitors from China rate New Zealand as satisfying or very satisfying. For many countries, this would be a very positive result. This satisfaction level is however well below the mean for all our markets of 87%. We can not ignore this.

New Zealand needs to be vigilant that it does not create a dual polarity within it's tourism industry which leaves it struggling to market high value tourism experiences to independent travellers from other key markets because it has flooded what is a world class tourism experience with cheap infrastructure and low grade activities and retailing, to service a commercially exploited cohort of visitors.

Whilst long term visitor growth is important, it must, as I have emphasised through my 5 years as Minister of Tourism, be balanced by a sustainable and acceptable economic return for New Zealanders and balanced against the effects that growth will inevitably have on our environment, our culture and our lifestyle.

I know that the Chinese travel industry is extremely positive about New Zealand's potential as a visitor destination in their market.

Similarly, a survey conducted of more than 1200 tourism businesses in New Zealand in May 2004 showed that while half of all tourism businesses were currently working in Asia, a further 20% are very interested in becoming involved in the markets because of the opportunities available.

New Zealand tourism has simply scratched that surface in China - the future opportunities are expected to be bigger than any other market in the world.

But I want to reiterate - that to make this opportunity worthwhile, there is an immediate need for both the Government and private sector of the New Zealand tourism industry to jointly address the commercial practices and quality delivery issues that are impacting on our performance in regard to our visitors from China.

As with all our key markets, quality ahead of volume must be the approach we take in developing tourism from China. We should be consistently marketing ourselves as a high quality destination, priced at a level that sustains the quality of the fine products and services that make up our tourism industry.

The fact is - Chinese visitors will come to New Zealand at growth rates well ahead of most other markets. What we must do is ensure that the visitors we encourage and attract are those who best match the high quality, superb New Zealand experience we can deliver.

So let me conclude my comments by saying this. In the end, the alternatives are simple:

New Zealand as a low cost, relatively short stay, 'bulk' destination, Or, New Zealand as a high quality, high yield, "boutique" destination.

The former certainly offers short-term gain for the few who would exploit New Zealand's natural treasures, ultimately leaving our reputation, and the industry, in tatters.

The latter, the high quality, high yield option, offers long term, sustainable environments and long term, sustainable economic benefits for New Zealand and New Zealanders, and world class experiences for our valued guests.

Quite simply - there is no choice.

Thank you again for the opportunity to contribute to this important conference. I wish you all well for the balance of the proceedings.


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