Tourism product diversification works as a way to increase visitor volume, and Macao is a good example, says fresh study involving IFTM scholar
New research drawing on Macao’s experience suggests offer diversification in the tourism sector can drive consumer demand and draw in visitors from further afield, including from source markets that have less familiarity with your core product. The research, involving a scholar from IFTM, used sectoral-level data on capital formation, employment, and value created, as indicators of diversification.
The work suggested a positive relationship in Macao between sectoral diversification and level of demand for tourism services. Such diversification “has a measurable impact on tourism demand,” wrote the authors. Diversifications to industry structure “contribute positively to tourism development,” they added.
The study was published in the May-June issue of the International Journal of Tourism Research. The paper was titled “Does diversification drive tourism demand? A structural change perspective: Evidence from a casino tourism destination”. It was produced by IFTM scholar Dr. Joey Sou Pek U, in partnership with the University of Macau’s Dr. Ricardo Siu Chi Sen.
The two scholars said that to ensure sustainable tourism development, policy should focus on market incentives able to promote industry participation in the diversification process. “Especially for tourism-dependent economies, policy intervention is critical in directing industry development with content tailored to the economies’ specific contextual settings,” they stated.
Dr. Sou and Dr. Siu argued that a successful tourism diversification strategy required “coherent, multi-sectoral coordination” involving industry operators, government, and the local community, to find the right product balance for the destination. “Practical strategies for developing a competitive tourism destination should be integrated into a larger project aimed at improving the tourism product structure at both the macro and micro levels,” they wrote.
Macao as an example
For their study, Dr. Sou and Dr. Siu used official data on visitor arrivals to Macao from 23 Mainland China provinces and municipalities, as well as from Hong Kong, for a period covering 2011 to 2019. That information was cross-referenced against data on Macao’s tourism price index, as well as on capital formation, employment, and value addition of tourism-related sectors, using a mathematical model tailored for the task.
The results indicated that “a more balanced capital structure in the tourism industry can improve tourism growth,” wrote the scholars. “This finding, in particular, supports the Macao Government’s advocacy for shifting from the traditional VIP gaming sector toward mass-gaming and non-gaming tourism markets, where demand is more resilient and less susceptible to regulatory shocks, and thus more sustainable,” they added.
The research findings highlighted that ‘external shocks’ could contribute to modifying the structure of the tourism industry in a given destination. A particular external shock alluded to in the work was an anti-corruption initiative of the Chinese Central Government. It had as a side-effect a “notable impact” on Macao’s tourism demand, especially between the third quarter of 2014 and the second quarter of 2016.
“Despite the immediate adverse impact on tourism demand, the shock served as an indirect catalyst for a more balanced” structure in the local tourism sector, boosting its long-term sustainability, suggested the authors.
Dr. Sou and Dr. Siu pointed out in their research that, in Macao’s case, the overall incentive of the market for the industry to engage in promotion of tourism diversification was “limited”, due to the “lucrative returns” generated by the dominant gaming sector. “Therefore, radical government intervention is necessary to redirect development toward a more sustainable path,” they said.
An example of such action, according to the scholars, was the most recent revision of the city’s gaming laws in 2022. The Macao Government put forward a “number of radical measures to promote the healthy development of the industry”, including mandating that operators increase investments in non-gaming sectors. The authorities also focused on “strengthening regulations on the governance structure of casinos”.
The paper highlighted however that the efficacy of the diversification-demand dynamic was contingent on multiple factors. They included, for instance, place-of-origin of visitors and their familiarity with the tourism destination’s products. Source markets “less saturated”, that included a bigger addressable number of potential first-time visitors, would be able to supply customers more “easily enticed by the novel experience offered in the destination,” Dr. Sou and Dr. Siu wrote.
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Dr. Joey Sou Pek U is an Assistant Professor at IFTM. She holds a PhD in Business Administration from the University of Macau. Dr. Sou teaches courses related to tourism economics and financial management. Her research interests include tourism demand analysis, tourism economics, and development economics.
Dr. Ricardo Siu Chi Sen is an Associate Professor in business economics at the University of Macau’s Faculty of Business Administration. He has a PhD in Economics from Renmin University of China, in Beijing. His research interests include institutional economics, gaming and tourism, the Macao economy, and China’s financial markets.
Joey Pek-U Sou and Ricardo Chi Sen Siu: “Does diversification drive tourism demand? A structural change perspective: Evidence from a casino tourism destination”, International Journal of Tourism Research, Volume 25, Issue 3, 2023, pages 293–304.
https://doi.org/10.1002/jtr.2566
Editor: Research Corner | A partnership between Macau Business and IFTM
