FOCUS

Focusing on diversification

While nowhere in the world has escaped the economic fallout from the Covid-19 crisis, Macau has been hit harder than most, with forecasts for gross domestic product to shrink more than 50 percent this year.

“[The coronavirus has] fully exposed the

vulnerability and huge risks of the Macau economy’s over-reliance on gaming tourism,” said Macau CEO Ho Iat Seng in April. “This epidemic has once again exposed the problems and risks of Macau’s economic structure.”

As a result, industry watchers predict that the government will step up its efforts to promote diversification, backing up its attempts at moral suasion with contractual teeth. The concessions of the six operators expire in 2022 and successful a retender is likely to involve meaningful commitments to non-gaming amenities.

In this focus edition of the magazine, we take a look again at what a future Macau might look like and its place in China’s Greater Bay Area mega project. The stated objectives of the GBA plan are to further deepen cooperation amongst Guangdong, Hong Kong and Macao, fully leverage the composite advantages of the three places, facilitate in-depth integration within the region, and promote coordinated regional economic development.

The scope is enormous, encompassing a total population of more than 72 million, with GDP of $1.67 trillion. But we ask whether Macau will be able to keep its unique identity in this sprawling megalopolis.

We also explore some of the ways that realistically, the gambling hub might diversify its economy and tourism sector to provide enough of a cushion to mitigate future external shocks.

Professor Desmond Lam of the University of Macau looks at several options, ranging from health and wellness to cater for a growing area of the travel market as China’s population ages, to taking advantage of its geographical position to promote water sports and other sporting activities.

Professor Glenn McCartney, also at the University of Macau, looks at some of the various proposals that have been mooted in the past, such as creating a financial services industry, to assess whether any stand any real chance of success.

GBA project to benefit, but not necessarily diversify Macau

China’s enormous Greater Bay Area (GBA) initiative sets out an ambitious role for Macau, though views are mixed on exactly how much it will help the Special Administrative Region diversify its gaming-centric economy.

The GBA project, which was formalized in 2017, aims to link Hong Kong and Macau, together with nine other southern Chinese cities to create an economic hub comparable to the Greater Tokyo Area. The cities have a total population of nearly 70 million, which is greater than the Tokyo Metropolitan Area - the world’s largest city cluster with a population of 44 million. It has a combined GDP of about US$1.34 trillion, which is lower than the US$1.78 trillion of Greater Tokyo, according to KPMG figures.

The project aims to ease the flow of goods and services as well as the movement of people across the zone. The easing of regulations comes with massive infrastructure investment to vastly improve connectivity across Southern China.

Jose Luis Sales Marques, president of the Institute of European Studies of Macau, said the GBA plan envisages three key roles for Macau: to be a world class tourism and leisure centre; to be a commerce and trade cooperation service platform between China and the Portuguese speaking countries; and, last but not least, to be a base for exchange and cooperation where Chinese culture in the mainstream and diverse cultures coexist, a place for cultural interchange.

“Therefore, what is expected of Macau is much more than just being a nice and profitable tourist city in this new region,” he said. However, how feasible are these objectives? Sales Marques says all three have enormous potential to help diversify Macau’s economy and also to diversify its tourism offering away from its current gaming and resort-centred base.

“There is much to do to improve Macau as a service platform for commerce and trade between China and the Portuguese speaking world and the Greater Bay Area itself is a market with over 70 million sophisticated consumers that should be prioritised as a target to develop those business connections,” he said. “Intercultural dialogue and exchange can lead to profitable businesses in creative industries, language training, both in Portuguese and Spanish, as well as the setting up of an educational hub, attracting universities and schools from Southern Europe and South and Central America eager to build long lasting connections with China.”

There appears to be a general consensus that Macau will benefit from its position at the heart of the GBA initiative, however, others don’t expect much diversification away from its tourism industry.

“Macau is the de-facto leisure and entertainment hub in the GBA. I do not think the role will change in the next 5 year-plan (2021-2025) and beyond,” says Alberto Vettoretti, managing partner in Dezan Shira’s Hong Kong office.

“Given the lack of additional and diversified sectors which could potentially flourish next to the entertainment field, the lack of new/supporting industry and its land limitation, Macau shall continue to do well as the largest gambling, gaming and leisure hub in China and Asia.

I do not see how it would play a relevant role in the Portuguese-speaking world and community given the lack of infrastructure and skill base and do not see it developing as a finance centre along the lines of Hong Kong and Shenzhen either.”

“I envisage an ideal and integrated loop where all the money being made by the state and private sector in the GBA and the high savings already in the hands of the 70 million residents in the GBA would find a limited, controlled but natural outflow into the former Portuguese colony,” he adds.

The infrastructure projects currently being undertaken will allow travel within the zone within a two to three-hour period. With greater competition from other Asian jurisdictions now offering high-quality gambling facilities and likely post-Covid travel restrictions, this local market may be key for Macau’s development.

Still, Macau needs to improve its offering so tourists stay longer and keep coming back.

“The typical “visitor” in Macau would stay less than 2 days (1 day in most cases), place bets, gamble and then leave. Macau would need to build up a larger ecosystem, a wider offering to create stickiness with any sort of visitor (and gamblers too of course) for a longer period of time. This is where Vegas is doing a better job although Macau boosts six times the revenues,” Vettoretti said.

Medical and cultural tourism, MICE, coastal tourism and gastronomy are just some of the areas that are often cited as areas of potential improvement for Macau’s tourism offering.

While Beijing is unlikely to take any measures to curtail Macau’s gambling industry, which might be likened to “killing the goose that lays the golden egg,” it will be serious about diversification. The Covid-19 shock, which will result in Macau being one of the worst-affected economies this year, has too clearly highlighted its over dependence on a single industry.

“Any prediction of how much the Macau economy could diversify in terms of a percentage of GDP away from gaming, is a wild guess,” Sales Marques says. “It will take a long time to materialize. However, more important than the final destination is the process of diversification, itself, that need be taken seriously.”

Re-imagining Macau for a diversified future

By Desmond Lam*

This pandemic has changed the lives of many Macanese and millions of others globally. In this part of the world, we have moved from controlling its proliferation to managing a potential deep economic fallout as a result of it.

Nonetheless, industry observers worldwide have praised Macau for its prompt and effective management of the pandemic so far. However, the eagerly-anticipated Golden Week has come and gone. As we ponder why visitation has not returned as much as we wanted, we nevertheless need to look further into the future on the types of product portfolio that we should offer.

The good thing is that even in times of great economic depression, there is hope and opportunity. To support the Macau government initiatives to diversify, Macau and its integrated resorts need to dig deeper and innovate. We need diversity in terms of customer base and product offerings. As a Chinese city, Macau will nevertheless continue to tap on its Mainland Chinese market, even as we seek to diversify our tourist base market.

In the next 20 years, Macau will play a critical role within the Greater Bay Area (GBA) and work closely with GBA cities in all areas, since they supply the largest proportion of our annual visitor arrivals.

For years, we were told that Macau is to be a World Center for Tourism and Leisure. But, above all, this pandemic has revealed Macau’s major weaknesses particularly as a city that is over-reliant on tourism and tourist money, not just gaming and gambling.

To effectively diversify Macau’s economy, we must gradually develop other economic sectors beyond tourism. Despite our mission to diversify, we should not ignore nor demonize our gaming market, as it still makes a significant contribution to our economic prosperity and will continue to play a major role in our future economic development. For Macau to diversify its economy, continual innovation in the marketplace is a definite must.

For example, it is easy to envision a city that will have better connectivity, both physically (i.e., between different properties and attractions) and digitally (e.g., digital payment). More importantly, a physically better-connected Cotai with purposefullydesigned covers and boardwalk and buzzing activities can surely revitalize the market.

In addition, a combination of interior and exterior attractions on Cotai (i.e., weekend street flea market along the Strip), much like the Las Vegas Strip, may be viable as we innovate. We may start to toy with the idea of moving our tourists from indoor to outdoor during cooler weather.

Two non-gaming sectors that consistently performed well in the past decades are our food and beverage and luxury retail sectors. With 20 Michelin-starred restaurants, restaurants that offer varied international cuisines and numerous local outlets serving Macanese food, Macau can truly develop its gastronomy further.

Similarly, our retail market, specifically our luxury segment, has ballooned along with our gaming market since 2003. Macau should continue to develop its gastronomy and retail industry in the next 20 years, with a major focus on service quality and distinctiveness.

The future of Macau non-gaming sectors will certainly also include more technologyenhanced entertainment such as drone entertainment shows, drone races, ESports, AI visual projection displays, etc. This tech attracts young and adult tourists alike.

We cannot ignore our senior visitors, who may be avoiding traveling nowadays because of their higher risk to COVID-19, but what is grey now may be golden to Macau in the future. This phenomenon gives room for the development of the medical, health and wellness tourism sectors.

For a city surrounded by waters, there are surprisingly few waterrelated communal and tourism activities. This could change as we increasingly look for innovative ideas to raise the living quality of residents and to boost novelty in our tourism product offerings. In fact, further development of sports or, more accurately, sports entertainment tourism, beyond our current portfolio of Grand Prix and other international sports events (like boxing and volleyball competition) will continue to grow in importance as complementary product offerings to health or wellness tourism.

To promote Macau as an international tourism city, Macau and its integrated resorts will need to, consciously, develop “instagrammable” (i.e., wechat-able or even douyin-able) attractions and/ or Instagram-worthy iconic structures (or even buildings). The current most “instagrammable” attractions in Macau are mostly centered on cultural or historically rich places like the 20 UNESCO sites and old Macau streets. Iconic buildings, whether old, new, East or West, like Macau Tower, Ruins of St. Paul’s, Hotel Lisboa and/or Macau Eiffel Tower, add to the visual richness of our destination and provide easy mental access to online users.

To this point, Macau and its integrated resorts will need to create stronger mental pictures that are enduring and easily accessible on the internet and various mobile social media. Mental availability, along with physical accessibility, can help pull our targeted tourists over.

While physical accessibility centers on making it easier for our visitors to come to Macau (i.e., taking away the need for nucleic acid test, travel visa availability and easy of application, and facilitating private transportation from point to point), mental availability is about making visible our brands/offerings/promotion to our potential visitors and getting into their consideration set every time they think about a destination.

Moreover, to be successful, Macau needs to be seen as a place for world-class entertainment, beyond gaming – a perception still lingering among many of our visitors. Macau will need to build a stronger city brand that conveys this message and, more importantly, relates to premium quality in products and services.

For Macau to diversify its economy, continual innovation in the marketplace is a definite must.

Above all, one non-gaming sector that relies less on mass tourist numbers and more on visitors’ spending power is the business travelers’ market. For years, the Macau Government Tourism Office has attemptedto build an amicable international MICE (Meeting, Incentives, Conferences and Exhibition) market but with limited success. This effort will certainly continue with the adding of more, and better, modern MICE facilities. Among all, incentivemeetings are more targeted and can bring about the “right” bleisure (business-leisure) visitors to the city – visitors with, potentially, higher net worth and spending propensity. This segment will grow further as connectivity within GBA improves. A MICE destination targeting ‘bleisure’ travelers from neighboring GBA cities may work – one that focuses on short-trip and short-stay MICE tourism that more effectively make use of Macau’s regional airport, land- and sea-based connectivity to these relatively nearby cities.

To build diversity beyond tourism-dependent economic sectors, which mostly rely on visitor arrival numbers, Macau has to look towards other areas such as the featured finance, medical, health care, and/or even the education market. As it continues to strengthen its services-related sectors, Macau’s efforts to diversify in these new industries will require new knowledge, skills and capabilities. This means an increase in the import of foreign talents and the education or re-education of existing local employees to take up new roles. For the former, it will require a review of current labor law and regulations, and for the latter, an expansion of training/educational programmes for its existing labor force.

*Desmond Lam is a Professor in Integrated Resort and Tourism Management and the Director of Accreditations at the Faculty of Business Administration, University of Macau. A life member of Clare Hall (University of Cambridge), Desmond is a recipient of several awards including the Emerging Leader trophy at the 2016 Asia Gaming Awards.

Be what you want to be – Macao 2021 and beyond

By Glenn McCartney*

Before delving into the much-discussed path of Macao’s diversification efforts and challenges in the past 20 years, and future outlook, let me take a step back. During COVID-19 there are 3 lines of concurrent thought for a ‘strategic’ tourism recovery, that is, one that better positions the city for greater sustainable development in the medium to longer term – one aim being a diversified tourism portfolio.

First, is in dealing with the immediacy of the present-day challenge of recovery – reactivating visitation and gambling revenues back to Macao’s tourism industry quickly, but safely, in close collaboration with health professionals and the various health mandates required to be in place. Marketing campaigns are engineered for this shorter outlook.

The second mode, during the lockdown downtime, and as the city’s tourism recovery ramps up into 2021, is a phase of reviewing, reflecting, and changing where appropriate, past policies, processes and laws around those issues that influence Macao’s tourism trajectory, be it tourism or casino specific (considering there is a public casino tendering process soon), or issues such as labour, land, or construction. This should involve a high level of collaboration and consensus seeking between public authorities and private sector (casinos, hotels, retailers, transportation modes, travel agencies). Upon COVID-19 exit, and later into 2021, this fresh and coordinated analysis then propels and navigates Macao on an adjusted development path.

The third mode involves longer-term thinking on Macao’s tourism development, after working through dealing with the ‘now’ and reopening. This longerterm aim will include forward thinking positions on construction projects on Cotai, Macao city branding and city tourism product mix, non-gaming development, and talent and training requirements. It involves scenario planners and forecasters, presenting states of Macao 10 to 20 years from now including the official vision of Macao, particularly within the Greater Bay Area. Multiple perspectives play into this analysis such as consumer travel trends and motives, technologies (SMART city, service robots and AI, IoT) and sustainability aspects involving the community, economy, and environment - and given the dramatic impact of COVID-19 to tourism, assessing future risks and corresponding remedies for the city.

An analysis of all 3 modes will determine Macao’s diversification efforts going into 2021 and beyond. In 2019, casino taxation contribution to Macao’s total tax was 84 percent, compared to 55 percent in 2006. Given the significant losses to the casino concessions for most of 2020 due to the COVID-19 lockdown, the focus on revenue recovery will be from the casino floor. This already is apparent in October as greater casino revenues return. Chinese visitors to the casino resorts have less non-gaming leisure options due to COVID-19 mandates and casino operator efforts to stem losses, resulting in the scale back of the event and entertainment sector. The Chinese visitor is therefore perhaps more gaming centric at present. With high costs and the need for specialized labour, it will take some time to fully reactivate the event and entertainment sector.

I can put 4 or 5 possible tourism trajectory outcomes for Macao in the next 10 years, but Macao’s diversification efforts are anchored and steered by policy changes and updates (mode 2). These will chart Macao’s development trajectory going into 2021, and in turn will guide the city to a certain state in the next 10 or 20 years in terms of the gaming/non-gaming mix. Externalities (regional travel destination competition, Chinese consumer preferences, politics, technologies, risk) will exist and shape Macao’s development too.

Reflecting on the initial 3 modes to consider in 2020, Macao’s diversification efforts could be limiting in 2021. However, considering that diversification is multi-facet and can encompass several sectors beyond leisure (such as the creative or finance sectors for example), the longer-term economic arguments and development of Macao as one less reliant on casino revenues, will also be about strategic choices – and ones which will ultimately shape the Macao of 2021 and beyond.

*Professor Glenn McCartney MBE is Associate Professor of International Integrated Resort Management at the University of Macau, China, where he also serves the University as Associate Dean (Curriculum and Teaching) in the Faculty of Business Administration. Professor McCartney worked for many years in different operational, strategic and consultancy roles within the tourism, hospitality and gaming industry in Macao and other Asian regional countries.