L3: Tourism Sector

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BBB3633 | Malaysian Economics Prepared by Dr Khairul Anuar

Content of this lecture

1. Introduction

2. Design and Orientation of Tourism Policy

3. Tourist Arrivals and Tourist Receipts (2000-present)

4. Tourist Arrivals and Tourist Receipts (2000-present)

5. Hotel Industry in Malaysia

6. Ways to Promote Tourism

7. Impact of Tourism Industry to the Malaysian Economy

8. Challenges

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1. Introduction • There are 12 National Key Economic Areas (NKEAs) under the Economic

Transformation Program (ETP) as significant engine to contribute quantifiable economic growth to the Malaysian economy to help Malaysia achieve high-income status country.

• One of those key NKEAs is Tourism - an activity that has flourished tremendously over the years as a source of revenue for the country.

• Today, tourism is M’sia’s 5th largest industry in Malaysia that generating RM37 billion in GNI in 2009 and 75% of growth in the tourism sector has been from the steady increased in tourist arrivals.

• The industry continues to be one of the key foreign exchange earners, helps strengthening the service account of the balance of payments.

• It is ranked second as a generator of foreign exchange after oil and gas production.

• The increasing awareness on the importance of leisure as well as the rising standard of living has indeed compounded its significance to new heights.

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L3: Tourism Sector

www.lecturenotes638.wordpress.com

BBB3633 | Malaysian Economics Prepared by Dr Khairul Anuar

2. Design and Orientation of Tourism Policy

• The main thrusts of the government policies in the tourism sector are to

generate foreign exchange

encourage equitable economic and social development

promote rural enterprises

generate employment

accelerate rural-urban integration and cultural exchange

encourage participation by all ethnic communities

create a favourable image of Malaysia internationally

foster national unity

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2. Design and Orientation of Tourism Policy

• To attain these broad objectives, the tourism sector would have to adopt and establish the following policy guidelines. They are:

Establishment of a political, economic, and social environment conducive for the development of the tourism industry.

Identification and designation of tourism development areas and establishment of detailed controls for these areas.

Establishment of development priorities with respect to location, type, scale, and timing of investment. Encouragement of domestic and international private sector investments through extension of investment incentives for designated tourism development zones.

Creation of tourism products compatible with the physical, social, and cultural environment of the country.

Creation of awareness among Malaysians of the importance of tourism and the opportunity for entrepreneurship and employment.

Continuation of commitment and support by the government towards the tourism industry

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3. Tourist Arrivals and Tourist Receipts (2000-present)

• Visit Malaysia 2007 in January 2007 - launching of the ‘Eye on Malaysia' attracted both local and foreign tourists and allowed visitors to enjoy the beautiful lake and the breathtaking view of the capital, Kuala Lumpur.

• Thereafter tourist arrivals showed an upward trend In 2013, tourist arrivals in Malaysia of 25.7 million that have created RM65.4 million total receipts, with average spending of RM2,544 per tourist.

• The Malaysian Airlines tragedies - the tragedy of MH370 disappearance on 8 March 2014 and the crash of MH17 on 17 July 2014 obviously has influenced visit intention to Malaysia as a future holiday destination, at least in the short run.

• Many travellers are also in favour of short-haul instead of long-haul flights. The perceived failure of the government in handling the transparency issue has caused many of the potential tourists from China cancelled pre-booked tours.

• This tragedy has affected inbound tourists from China which has been a key market from tourist arrivals in Malaysia In 2013, about I.8 million Chinese visited Malaysia and this number fell in 2014 despite of the promotion of " Visit Malaysia Year 2014" 7

4. Target Markets

• Tourists to Malaysia largely come from a few major markets - Asia, ASEAN, Eastern Asia (China and Japan), Europe, Southern Asia (India), Western Asia (the Middle East countries), and Oceania (Australia)

• These markets were once considered less important, but extremely valuable in the aftermath of September 11 during which tourist arrivals from certain markets, especially from the US, slumped.

• With the strong Renminbi, compared to the devalued ASEAN currencies, travellers from China opted for cheaper overseas travel.

• In 2002, 557,647 tourists from China visited Malaysia, compared to 425,246 in 2000. Tourism value from the Asian region, specifically China, surpassed that from Europe and the US.

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4. Target Markets

• The focus towards the Middle East began earlier in 1999 to revive the ailing tourism industry due to ravages of the 1997-98 Asian financial crises.

• Western Asians are known for enjoying a higher purchasing power, with an average per capita spending of RM3,278.

• They also tend to travel in large families or groups.

• Increasing arrivals were registered from Western Asia such as Saudi Arabia, Turkey, United Arab Emirates, Jordan, Kuwait, Lebanon, Syria, Oman, and others.

• In 2002, tourists from Western Asia totalled 131,779 out of 13.3 million total arrivals.

• The Arab tourists were the highest per capita spenders. In 2003, tourist arrivals from West Asia recorded a drop. Visitors from Saudi Arabia fell to 20,077 in 2003 following political instability in their home countries and the earthquake in Iran in December 2003.

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4. Target Markets • The biggest contributors to the country's coffers come from ASEAN, with

Singaporeans constituting more than 50 per cent of all tourist arrivals to Malaysia on average.

• With the Visit Malaysia Year 2014 campaign, M’sia expect an increase of 20 million ASEAN tourist to Malaysia compared to 19 million a year ago.

• Besides China and the Middle East, India also offers strong potential for Malaysian tourism.

• With the shedding of its inward looking and socialist policies of the 1970s and 1980s, Indians began to make up the tourist numbers. For example, 225,789 Indians visited Malaysia in 2005, compared to 132,127 five years ago.

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4. Target Markets

• Tourism Malaysia has also expanded its marketing efforts to other potential markets such as Australia and New Zealand Australia in particular has become an important tourism market for Malaysia.

• Data shows that tourists from Australia is one of the top-10 tourist arrivals to Malaysia.

• The data shows that tourist arrivals from Australia has been increased by 2.5-fold from 2000-2010.

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4. Target Markets

• Malaysia's tourism ministry has set a target of 28 million arrivals for VMY 2014 with RM76 billion in tourism receipts.

• Based on 2013 data, 1.79 million Chinese visited the country, a 15% increase over 2012, which showed that Chinese tourists make up about 7% of Malaysia's total arrivals, and it was the third largest source of visitors to the country.

• China is recognised as high spend travellers.

• Tourists from China have break through 1 million since 2009, and further shoot up to I.5 million in 2012. The incident of MH370 has definitely caused an adverse effect to Malaysia, especially the obvious effect would be a huge drop in tourist arrivals from China, at least temporarily, and the suspension of the promotion of VMY 2014 in China temporarily.

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5. Hotel Industry in Malaysia

• Tourist arrivals and the demand for hotel accommodation are highly dependent on tourism events organized in the destination country.

• Despite the number of tourists increasing over the past decades, the national average occupancy rate (AOR) experienced a drop as price wars were fought over shares of the shrinking pie as a way to attract guests.

• Due to an excess supply of rooms in the city, and the provision of excessive concessions, a number of lower category hotels experienced decreases in the occupancy rate to as low as 48 per cent per annum.

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6. Ways to Promote Tourism

• The development allocation for the tourism industry under the Ninth Malaysia Plan period amounted to RM1.8 billion compared to RMO.78 billion under the Eighth Malaysia Plan.

• In the Tenth Malaysia Plan, the target is to position Malaysia to be the top-10 in terms of global tourism receipt, and to do so develop iconic tourism products and improve the existing tourism sites are needed.

• It is noteworthy that sightseeing in the cities (85%) has been identified as the most activities engaged.

• Other family activities or family entertainment that slowly catching up are shopping (70%), visiting beaches (31%), hiking/trekking (24%), visiting museum (23%), and scuba diving and snorkelling(14%), among others.

• Clearly, there are a few areas that bring a high multiplier effect to the economy, and need greater attention to promote tourism in Malaysia, namely domestic tourism, shopping-tourism, meditourism, edutourism, eco-tourism, agro-tourism, and sports-tourism.

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6. Ways to Promote Tourism – Domestic Tourism

• The government emphasises on promoting domestic tourism.

• It brings about the expansion of other linked industries, especially tourist expenditure on accommodation, food and beverages, transportation, shopping, and entertainment It is believed that booming domestic tourism will help reduce heavy dependence on the influx of foreign tourists.

• Cuti-Cuti Malaysia is the tagline for the domestic tourism campaign. It was with the objective to inculcate the value of holiday culture among Malaysians, and as an attempt to change the Malaysian mind set to regard leisure as part of their life.

• In addition, the implementation of the five-day work week for the public sector beginning July 2005 was a good measure to further boost domestic tourism. It contributed to an uptrend in domestic tourism among Malaysia's 1.2 million civil servants.

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6. Ways to Promote Tourism – Domestic Tourism

• Malaysia is a multicultural and multi religion country that celebrates diverse festival throughout the year. We could employ other thematic efforts to continuously promote the country year-round events of festivities and celebrations.

• Another way to stimulate domestic tourism, promotions of attractively-priced tour packages, such as multi destination holiday packages within Singapore, Thailand, and Hong Kong with Malaysia by cruise or air are necessary in selected international markets and neighbouring countries.

• We should continuously promoting differentiated strategies to cater for family fun.

• We have developed new iconic tourism products to promote tourism industry.

• A few good examples for family fun isLegoland Malaysia in Iskandar Malaysia, Johor; visiting the leveraging iconic institutions such as Muzium Negara, and Istana Negara, Kuala Lumpur; the botanical garden that are equipped with cycling paths, and green spaces in Lake Gardens.

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6. Ways to Promote Tourism – Shopping Tourism • Shopping represented about 31% of total tourist spending in Malaysia in

2012, and it is the second largest expenditure category after accommodation .

• The enthusiasm of the government in promoting the Mega Sales Carnival has made Malaysia a shopping paradise that offers fantastic luxury shopping deals.

• This has spurred both consumption spending and tourist arrivals, and made Malaysia a leading shopping destination.

• The carnival was first launched in 2000, initially held tri-yearly in the months of March, August and December.

• In the most recent Visit Malaysia Year 2014 campaign, we have positioned ourselves as a shopping destination and as a place with affordable luxury products. Johore Premium Factory Outlet is one of the favourite places to buy affordable luxury products, where extraordinary discounts offer bargains galore for both local and overseas shoppers.

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6. Ways to Promote Tourism - Medi-Tourism

• Medi-tourism is popularly known as health tourism.

• The idea of mixing leisure with healthcare has made Malaysia a major health tourism destination, from the setting up of spas on hills and beach resorts to tapping the country's ethnic diversity to attract people from the region.

• This area has clearly been spelled out as the key growth area to spearhead Malaysia's tourism industry.

• The Government has in fact allocated 5% or RMS.5 billion of the social sector development expenditure, amounting to RM110 billion, for healthcare to build 31 new public hospitals, of which half are already under construction.

• In the 2007 Budget, policies remained focused on further developing health tourism to fully exploit the tourism potential.

• The healthcare travel industry grew by 12.3% between 2006 and 2008. Malaysia attracted over 1 million foreign patients with total medical receipts of about RM8OO million (10 MP).

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6. Ways to Promote Tourism - Medi-Tourism

• Medi-tourists travel for dual purposes: for treatment (dialysis, cardiology, orthopaedics, obstetrics, gynaecology, nephrology, urology, as well as ophthalmology)and/or for preventive healthcare (medical check-up, blood tests, etc.).

• When families, relatives or close friends travel together to accompany the patients, it becomes a lucrative opportunity for other related tourism clusters when this group of patient-family goes sightseeing Malaysia has the potential to become a healthcare centre for people from China, India, Indonesia, and West Asia by leveraging on the country's diversity.

• In 2002, Malaysia had a total of 191,900 patients seeking medical treatment services, compared to 78,318 in 2000

• Foreign patients spent a total of RM15O million for healthcare and treatment services in Malaysia

• Tourist arrival for health treatment has been in an upwards trend (from as low as 0.3% in 2005 to 6.8% in 2012). Malaysia will continue to become one of the recognised networks that allow tourist participation in rehabilitation activities. 19

6. Ways to Promote Tourism - Edu-Tourism

• Edu-tourism is an important revenue-generating source.

• Malaysia is well-positioned to take advantage of recent changes in US immigration procedures for 26 countries, which may divert students' directions, especially those from West Asia, away from traditional education institutions in North America and Europe.

• To position Malaysia as a centre of academic excellence, it is essential to attract international students to study here while providing them with reasonable and affordable tour packages to visit the country's scenic spots.

• Credit largely goes to aggressive efforts in promoting Malaysia as a centre of education excellence via joint promotional campaigns between the Ministry of Education, higher learning institutions and training centres with foreign universities.

• Foreign students normally would stay for at least a year to complete their studies. They are the best free advertisers' in promoting Malaysia as a major tourist destination as long as they are satisfied with their stay in Malaysia

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6. Ways to Promote Tourism - Eco-Tourism

• Eco-tourism relates to travel to relatively uncontaminated natural areas that conserve the environment and sustain the well-being of the local people; enjoy the scenery and its flora and fauna, and cultural manifestation found in the areas.

• Eco-tourism brings benefits to rural communities in terms of increased revenue.

• Eco-tourism is also a powerful incentive for governments to conserve certain areas.

• It offers a realistic key solution to the apparent conflict between environmental protection and economic growth.

• The government has emphasized the preservation of natural attractions such as heritage sites and natural sites like wildlife sanctuaries (Mulu Caves), national parks (Taman Negara in Peninsular Malaysia, Kinabalu Park in Sabah, Bako National Park in Sarawak), highlands (Genting Highlands, Cameron Highlands), and islands (marine parks at Tioman, Sipadan, Perhentian, the Geopark and Pulau Payar Marine Park in Langkawi, and Redang Islands) as tourist attractions. T

• The focus is on high yield markets by customizing quality products for individual needs, to give tourists maximum value from their leisure time in order to attract them to stay longer and to make repeat visits. This could promote nature adventure and various kind of activities could be engaged such as scuba diving, snorkel ling, sailing, boating, hiking, trekking, and golfing.

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6. Ways to Promote Tourism - Agro-Tourism

• The tourism industry also stands to benefit from the parallel development of agro-tourism.

• More value-added activities will be expanded such as farm-stays and visits to agricultural parks.

• In Malaysia, farm holidays are slowly gaining popularity, which has long been a big hit among major producers of agricultural crops in Europe, the US, Canada,and Australia

• For instance, in the year 2002, about I.8 million holiday makersand tourists chose vacations in farmhouses in Italy, where activities ranged from horse riding and cart rides to trekking.

• Apart from that, visitors are usually allowed to eat fruits that they pick in orchards or the organizer offers various meals made using the farm's own produce.

• In Malaysia, agro-tourism was developed with the participation of the rural population who offer accommodation at their homes to tourists at a reasonable price with the choice of either day visits or farm-stays based on the bed-and-breakfast concept in the West.

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6. Ways to Promote Tourism - Sport Tourism

• To increase Malaysia's market share for convention centres, international and local organizations should be encouraged to hold conventions in Malaysia, such as exhibitions, travel trade fairs, sporting events and games.

• Tourist arrival for the purpose of conference or convention has been increased by more than 50 folds from I % in 2006 to 51% in 2012.

• Hosting more international events such as international sport activities, establishing Malaysia as a business tourism destination, apart from targeting more conferences or conventions can also boost up the growth to the tourism industry.

• Among these international sport eventsare the Malaysia Formula One (FI)Grand Prix, Formula One, Power Boat Race, Putrajaya Boat Championship, World Motor Cycle Grand Prix, Mount Kinabalu Climbathon, Langkawi International Maritime and Aerospace (LIMA) Exhibition, Le Tour de Langkawi (international cycling event), World Golf Championships, and Commonwealth Games 1998.

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6. Ways to Promote Tourism - Homestay

• Homestay is collaboration project by local entrepreneurs (homestay host) and government agencies.

• Homestay can be classified as a type of community-based tourism product, which has seen as catalyst for sustainable development and rural development.

• Government develops homestay program under the National Plan for Rural development.

• This small-scale tourism business creates more jobs opportunities and increase income level and improve the quality of life in rural areas, apart from conserve and enforce existing community cultural and heritage.

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7. Impact of Tourism Industry to the Malaysian Economy a. Foreign Exchange Earning

• The tourism industry is acknowledged as one of the leading

sectors in generating income via foreign exchange (Forex) earnings of the country.

• A rise in tourist arrivals will boost Forex earnings.

• Government revenues from the tourism sector can be obtained via direct and indirect contributions.

• Direct contributions are generated by taxes on income from tourism businesses and levies on departure taxes, while indirect contributions are taxes levied on goods and services supplied to tourists.

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7. Impact of Tourism Industry to the Malaysian Economy b. Employment and Creation of Jobs

• Employment opportunities have grown in tandem with the industry.

• An increase in tourist arrivals and tourism-related activities has brought spin-off effects

on other service sectors (especially wholesale and retail trade, hotels and restaurants, transport, storage, and communications).

• Total employment (including that in travel and tour agency operating businesses, airlines, tourism educational institutions, and the hotel industry) has been increasing almost every year, except in 1997.

• • Despite a reduction of 23.8% in total employment, tourism educational institutions sector

have shown an increment.

• The employment in the hotel industry created an average annual rate of 3.2% to reach 79,600 in 2000

• Thus, rapid expansion of the tourism industry has led to significant employment creation through tourism-related businesses such as hotels and lodging industry, food and beverages, car rental, cultural and entertainment, banking and financial services, and so on.

• For instance, the tourism industry generates additional income to rural development through producing and selling locally-made handicrafts.

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7. Impact of Tourism Industry to the Malaysian Economy c. Infrastructure Investment Stimulation

• Tourism induces better infrastructure development such as the improvement of the quality of water systems, electricity, telephony networks, and public transport networks. Travelling within the country is accessible via the 847 km-long North-South Expressway, rail services, LRT (to facilitate tourists travelling within the city), the modem KLIA airport with high-quality MAS Airbuses, and others.

• Such investments stimulate the quality of life for residents and increase the standard of living for the people.

• To promote Malaysia as the preferred holiday destination, the government allocated slightly more than RMI billion for tourism-related expenses.

• These included major programmes such as the preservation of national historical sites, beautification and environment protection, tourism product development, as well as the provision of accommodation and tourism-related infrastructure facilities. Allocations for other ministries such as the domestic trade and consumer affairs, health, education, sports, agriculture, and transport will indirectly benefit the tourism industry. 27

7. Impact of Tourism Industry to the Malaysian Economy c. Infrastructure Investment Stimulation

• Apart from ensuring the continuous growth of the industry, certain efforts were carried out such as:

1) resorting to different sources for funds such as (a) the Special Tourism Fund; (b) the SME Tourism Fund that focuses on the accommodation, transport

services, and tourism resort industries and the support industries for the tourism sector;

(c) the Tourism Infrastructure Fund which mostly finances tourism infrastructure projects such as the building of integrated tourism centres, marinas, safaris, and theme parks (such as Sunway Lagoon Theme Park, Desa Water Park, Legoland Theme Park, and etc);

2) establishing the National Tourism Human Resource Development Council in

1992 to coordinate planning and development of human resources for the industry, and

3) establishing the Human Resource Development Fund in 1995 to encourage the

provision of training by private hospitality and tourism establishments within the tourism industry(see Ministry of Culture, Arts and Tourism, 2001).

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8. Challenges –

a. Safety and Security Issues

• The tourism industry is particularly sensitive to issues of tourist comfort, safety and security. For example, the haze hazard and the outbreak of localised viruses have adversely affected in-bound tourist arrivals.

• Therefore, haze and health-related preventive measures should be effectively formulated and implemented.

• More recently, there have been cases of gunmen kidnapped cases happened at the Malaysian splendid island of Borneo in Sabah, rebuild the tourists' confidence level is necessary.

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8. Challenges – b. Human Resource Development (HRD)

• Although tourism resources serve as a crucial factor for the development of the tourism industry, this alone does not suffice for the success of the tourism industry.

• The industry's success also hinges inextricably on the need to place emphasis on HRD and to provide quality training to equip workers with relevant skills ranging from operational and production levels right up to management levels.

• Sufficient funds are required for education and training to develop the required human resources.

• Since tourism is a labour-intensive industry, both government and private sectors are responsible for sustaining the quality of tourism-related services.

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8. Challenges –

c. Promotion and Marketing Plan

• If funds are mismanaged, the tourism sector will not develop to its full potential.

• Major programmes such as preservation and conservation of national historical sites and other tourism-related infrastructure must be properly planned.

• With sluggish performance and boorish sentiments expected in the near future, more intense and innovative marketing efforts are crucial to promote the tourism industry.

• Well-planned and proper implementation of marketing efforts has a positive impact via advertising and promotional campaigns. Locally-manufactured products must be marketed in promoting Malaysia as a shopping paradise.

• It is vital that promotion and marketing campaigns are aggressively implemented to overtake competitors from Thailand, Hong Kong, and Singapore.

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