Why the Chinese market represents an economic

opportunity for Italian operators IULM, May 27, 2013

Congratulazioni!

Presentation Outline

Three parts:

The reasons: Why should Italy give China a high priority in international tourism marketing?

The challenges: What are some of the major challenges in targeting and catering to the Chinese market?

The recommendations: How can Italy and Italian tourism operators attract a larger share of the outbound travel market from Mainland China?

The ReasonsWhy should Italy give China a high priority in international tourism marketing?

Increasing GDP growth, personal disposable incomes and urbanization

Major economic and demographic trends:

Rapid growth in GDP.High rate of urbanization.Expanding middle class.Increasing household incomes.Increasing disposable incomes.

1.35 billion people.635 million urban population (47%).364 million family households.Middle class 2012 = 230 millionMiddle class 2022 = 630 million

1. Reason

2010 2011 2012

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0

2

4

6

8

10

12

10.4

9.3

7.8

1.70000000000001 1.70000000000001

0.1

4.2

3

0.700000000000001

1.8

0.4

-2.3

4.5

-0.8

0.2

1.8

0.8

-0.1

2.4

1.82.2

China France Germany Italy Japan UK USA

Real GDP Growth Rates: 2006-2011 (%)

Higher educational levels and knowledge/curiosity about the world outside China

Major education and lifestyle trends:Enrollment in higher education is expanding very rapidly.More Chinese students are studying abroad; according to OECD, 18.2% of the students enrolled in member countries are from China – the largest proportion and highest absolute number of foreign students.The lifestyle trend for greater consumption is growing very fast.Spending on luxury products by the Chinese exceeds all other countries (McKinsey).

34.2 million higher-education students in 2012 (Ministry of Education China).2,358 higher education institutions in 2012.$250 billion investment by Chinese government in higher education.

2. Reason

Rapidly expanding use of the Internet and social media

Major online trends:

Tremendous growth in micro-blogging by Chinese; 309 million microblog users at the end of 2012, up 19% over 2011.Mobile phone microblog users exploding, at end of 2012 there were 202 million.Online shoppers at 242 million, up 42.9% year-on-year.468 million instant messaging users; 275 million social networking website users.

China is the largest Internet user market in the world at 564 million at end of 2012.Also largest number of mobile Internet users at 420 million.

3. Reason

309 million microblog

users

564 million Internet users in Dec. 2012

More purchasing of international product brands including luxury goods

Major consumer buying trends:

The Chinese now account for significant proportions of certain luxury brands’ worldwide sales; LV (27%), Gucci (28%), Prada (34%), Burberry (25%), etc.Buying of luxury products when traveling outside out China is growing in popularity; in a recent survey, 75% of Chinese reported buying luxury goods while abroad.

“Conspicuous” consumption is very evident in the expanding middle class of China and also among the very wealthy.Chinese Government taxes on imported luxury products are very high.

4. Reason

There is huge worldwide interest in the purchasing of luxury products by the Chinese, both when buying in China and when traveling abroad.

Fast growing volume of outbound travel from Mainland China

Major China outbound travel trends:

Rapid growth in outbound travel.Now there are114 ADS-approved countries.58.9% of outbound travelers in 2012 were leaving China for the first time, but that proportion is falling and “repeaters” are growing.More FIT arrangements is a distinct trend, although Chinese still like group travel.

83 million outbound Chinese travelers in 2012.Total expenditures of $102 billion on international travel in 2012.

5. Reason

Major Statistics on Outbound Travel

The China outbound market grew by 167.5% from 2005 to 2012 and has reached approximately 83 million tourists.

However, about two-thirds of all these outbound tourists just go to Hong Kong and Macau.

It is forecast that there will be at least 155 million outbound tourists from China by 2020.

Italy attracts a very small proportion of Chinese outbound tourists (less than 1%), but the volume is growing.

2005 2006 2007 2008 2009 2010 2011 2012 20200

20

40

60

80

100

120

140

160

180

31.03 34.5240.95

45.84 47.6657.39

70.25

83

155

Outbound Tourism Market from China (millions)

World’s #1 Source Market

May be traveling abroad for the first time; so geared up to splurge. Import taxes on foreign goods in China are very high. May be buying items for friends and work colleagues (or to resell in China). Gift-giving has a strong tradition in China.

Hong Kong39%

Macau28%

Taiwan3%

Japan3%

S. Korea3%

Vietnam2%

Other22%

China Outbound Tourism: Market Shares by Destina-tion (%)

Italy ranks about 19th

Outbound incentive travel trips from China are also rapidly growing.More Chinese attending conferences and meetings abroad.Expansion of study tours abroad by companies and government agencies as well.

Traditional preference for Europe as a tourism destination

Major outbound destination trends:

France, Hong Kong, USA, and Italy are the first-choice shopping destinations for Chinese luxury travelers.A survey conducted for the U.S. Travel Association indicated that 5% of the Chinese respondents were likely to visit Italy in the next two years (France was 12% and UK was 6%).

Recent survey by the China Tourism Academy showed that 54% of China luxury travelers most desired overseas destination in the next year was Europe.

6. Reason

Knowledge of the history, culture, food and wine of Italy

Major knowledge trends:The Chinese increasingly are recognizing the rich history and

culture of Italy as represented by destinations such as Venice, Rome and Florence.

There are also becoming increasingly aware of the Italian cuisine and wines. Italian food is considered to be very healthy.

Increase in wine consumption and interest in wines of Italy.Italy is also considered a romantic destination by Chinese.

7. Reason

Association of Italy with high fashion and design

Major image trends in China about Italy:Italy is strongly associated with high fashion along with

France, USA and UK. Many Italian fashion brands are already well-known and highly sought after.

Italy rated highest for “famous for Arts” by Chinese in a KPMG survey. Rated second highest after France for “famous for luxury design” and “famous for fashion design” (chart on following slide).

8. Reason

KPMG Survey Results

Italy rated highest for “famous for arts” and “romantic.”

Italy rated second highest for “famous for luxury design” and “famous for fashion design.”

Association of Italy with high fashion and design

8. Reason

The Essence of the Economic Opportunity!

Many overseas Chinese living in Italy

Major emigration and study abroad trends:

There are over 200,000 Chinese living in Italy.There are also many Chinese students who are registered at universities and colleges in Italy. In 2010-2011, there were 5,293 Chinese students in Italian universities.An estimated 10% of China’s 10 million graduates per year are planning to study abroad.

9. Reason

VFR

The Challenges

What are some of the major challenges in targeting and catering to the Chinese market?

Fierce competition from all the world’s major destinations

1.Challenge

Not a uniform market!

China is a very large country with a huge and very diverse population.

It cannot be treated as one uniform market, but has to be segmented into smaller parts and targeted. This presents a major challenge for destination marketers.

There are significant differences by regions (e.g., north vs. middle vs. south vs. west) and cities; age groupings; foreign travel experience; tour groups vs. FIT; interests; household income levels; Internet users vs. non-users, etc.)

2.Challenge

Differences by regions and cities2.Challenge

China has 160 cities with more than 1 million

people

Three economic powerhouses – Bohai; Yangtze;

Pearl

The Chinese seniors market – more mobile and willing to travel for new experiences

Differences by age groupings

Young market

Differences by experiences

Inexperienced Travelers

Experienced mass market travelers

Experienced affluent travelers

Attitudes and aspirations

Travel is for sightseeing – the more the better. Travelling around the world is a lifetime dream

Travel is to explorecities outsidenearby regions.Outbound travelis an indication ofstatus and specialoccasions.

Travel is good forrelaxation andstress relief.Prefer to return toplaces that offerrelaxing activitiesand a slower pace of life.

Trip activities

Packed schedules of must-see sites. Historical and museums.

Sightseeing andrelaxing.

Entertainment, shopping,and luxury accommodations rather than overscheduledsightseeing.

Trip planning

Travel agencies for packaged tours and booking assistance.Word of mouth,TV, and websites.

Fewer packaged tours and more independently planned trips. Online search and booking.

Websites are the main channel for travel planning. Premiumtheme-based tour packages foroutbound trips.

Share of Market Declining Stable Growing

2010 56% 23% 21%

2020 33% 26% 41%

Language, cultural and dining/drinking differences

3.Challenge

Chinese prefer to speak and read Mandarin or Cantonese; not many know English very well and much fewer have mastered Italian. Major cultural differences between China and Italy. Chinese more of a collectivist culture, so tend to be more willing to do things in groups when traveling. Food is extremely important! Dining and drinking are major social activities for the Chinese; a way of having fun and sometimes “showing off.” Dining can be very noisy and animated.

Little things count (for Chinese travelers)4.Challenge

Slippers; toothbrush & toothpaste Electric kettle; tea service

Round dining tables Sockets for Chinese plugs

Playing cards& Chinese snacks in

guest rooms

Dealing with unusual and “rude” behavior

5.Challenge

On September 22, the two government departments exposed 10 sorts of bad behaviors, Southern Weekend reported on September 28."Littering", "spitting", "snatching bus seats", "queue-jumping", "taking off shoes and socks in public", "speaking loudly", "bad temper and cursing", "smoking in non-smoking areas" and many others are listed in "The Frequent Bad Behaviors of Chinese Citizens Who Travel Abroad", enumerating complaints by netizens.

The Recommendations

How can Italy and Italian tourism operators attract a larger share of the outbound travel market from Mainland China?

Increased investment in marketing in Mainland China

1.

Recommendation

Italy must invest more in marketing its tourism in Mainland China if it wants to achieve a larger market share.Competitive destinations have a greater presence in China and are spending significantly more in appealing to Chinese outbound travelers.Examples of online and offline promotion to Chinese market from South Africa and Malaysia shown on next slide.

South Africa Tourism Chinese website and Sina Weibo page

Tourism Malaysia exhibits at Beijing shopping mall

Integrated and concerted promotional campaign across multiple partners

2.

Recommendation

The present tourism marketing and promotions from Italy are fragmented without a concerted thrust; this is not the most effective approach to marketing in China.A partnership approach involving multiple regions and tourism companies is highly recommended.

Association with fashion and automobile brands needs more attention

3.

Recommendation

Italian fashion and automobiles have high awareness among Chinese consumers as luxury items.However all brands and products are being marketed separately and not in combinations that might be more attractive to Chinese consumers.A co-branding approach is recommended, possibly combining tourism regions and cities with fashion goods, autos, wine, food products, etc.

Popularize Italian wines and food in China

4.

Recommendation

Italian food is enjoying greater popularity in China, especially pasta and pizza.Italian wines are not particularly popular now and lag well behind France and other countries.Staging Italian wine and food festivals in the larger cities such as Shanghai, Beijing, and Guangzhou will be a great idea.

Make visa acquisition easier for Chinese at Italian consulates and embassies

5.

Recommendation

It is difficult and often a frustrating experience for Chinese citizens to get visas for Italy.Immediate attention needs to be given to the current system of screening applicants to speed up visa approval times and to give Chinese citizens a better impression of Italy and its willingness to welcome them as tourists.Given that the Chinese today are notoriously “last-minute” planners, systems such as Visa on Arrival (VOA) are very popular (e.g., Thailand, Maldives, Bali, etc.)

“Our (Italian) system continues to look at the Chinese through an obsolete lens: seeing them as potential illegal immigrants hocking counterfeit bags and sweaters on the streets of Naples, or huddled in Prato, the textile-producing town near Florence that hosts Italy’s largest Chinese community.”

Consider the VFR market based on Chinese living in Italy

6.

Recommendation

Chinese people are very family-oriented and want to visit their family and friends living abroad.A special program should be considered of working with the Chinese living in Italy to invite their family and friends to visit them.This program could be launched via the Chinese social media using micro-blogging and chat websites.

What about Marco Polo?He’s so well known in China

7.

Recommendation

Marco Polo is a legendary figure in Chinese history and his life in China is especially celebrated in the Yangtze River Delta.Cooperation with cities such as Suzhou, Hangzhou and Yangzhou is a great idea.

Back-to-back World Expos – Surely a great opportunity?

Recommendation

8.

Surely the holding of the 2010 and 2015 World Expos in Shanghai and Milan respectively offers a unique and huge opportunity for the two cities to cooperate.A joint marketing campaign for 2014-2015 is suggested and also a “sister city” arrangement.

Contact information

Alastair M. Morrison, Ph.D.Distinguished Professor of Hospitality and Tourism Management

President, International Tourism Studies Association (ITSA)Marriott Hall, Purdue University

West Lafayette, IN 47907-2059, USAE-mail: alastair@purdue.edu; alastair@belletourism.com

Phone: 1-765-409-0004 (USA)Tel: 13761855678 (in China)

©2013 Alastair M. Morrison