UNWTOSAr12-Introductory booklet

UNWTO Regional capacity building workshop Adventure Tourism: Understanding and Developing Abha, Saudi Arabia 2012

Preface

With this booklet, we would like to welcome you to the UNWTO Regional capacity building workshop on Adventure Tourism: Understanding and Developing!

In this document, you will find the presentation of the workshop, the agenda and a document we would appreciate you read before your arrival in Abha: We hope you will enjoy the reading‌ and wish to see you soon!

UNWTO Regional capacity building workshop Adventure Tourism: Understanding and Developing 5-9 May 2012 Abha, Saudi Arabia Within the tourism sector, which has become an important business, as it produces 5% of the world’s GDP and employs around 200 million people globally, adventure tourism is one of the shooting stars, as a recent study by the George Washington University shows that adventure tourism has grown on average 17% per year in 2009 and 2010.

Numerous factors have contributed to this fast growth, such as the desire for authentic experiences, and consequently, new cultural experiences, combined with outdoor activities to stimulate both mind and body. The global interest in the environment, as well, increases the desire of people to experience outdoor attractions. And, the aspiration for a healthier lifestyle has encouraged tourists to seek a more active experience in their travelling.

As a market-based alternative catering to the growing number of travellers trying to find, understand and enjoy adventure, culture, wildlife and environment, adventure tourism is to be defined by the Adventure Travel Trade Association as having three main defining characteristics: (i) physical activity, (ii) connection to nature and the outdoors and (iii) cultural immersion, with four specific focuses: • Innovative: The majority of adventure travel businesses are entrepreneurial SME’s, from where innovative ideas and products often emerge. This is where many trends begin.

•

Inspirational: It is often the aspects of adventure travel: nature, challenging activities and culture that create desire in a traveller to visit a place.

•

Focused on Sustainability: Adventure tourism is at the front line of sustainability because the sector is so obviously depends on preservation of culture, wildlife, environment that it is aggressively focused on being sustainable for the long-term.

•

Strategic: Adventure tourism typically leaves more money in destinations as a percentage of revenue than mass tourism and supports thousands of small businesses worldwide. Although it is a smaller sector than many, it is critical and strategic to a destination’s ultimate success. Adventure tourism has to have strong support by destinations in order to achieve this success.

Furthermore, there are three main critical factors to be strongly considered, as they can entail negative impacts: (i) the safety of clients and failure to adequately address this subject; (ii) lack of protection of the environment and wildlife; and (iii) local people being excluded from financial and business opportunities.

Destinations, who can offer adventure travel, have a unique opportunity to gain from investing in adventure tourism because it is good for economies and the environment. It does not require as much sophisticated infrastructure as traditional industry might, nor paved roads, large airports or expensive equipment, due to the fact that adventure customers often use what already exists.

This course seeks to act as an introduction to a destination and its stakeholders about the opportunities and critical success factors for a solid adventure travel industry in the destination.

Main objective This workshop focuses on the development of Adventure Tourism management strategies at destination level providing theoretical and practical elements, sharing knowledge and tools that

can be used by policy makers, government officials, industry professionals, company owners for the developments of their work.

Participants shall develop, during the course, critical analysis, planning perspective and references for the improvement of Adventure Tourism in Saudi Arabia with an approach to create public policies for the benefits of all stakeholders involved.

Content Module 1 - Adventure Tourism as a Catalyst for Economic and Environmental Development • Introduction and Alignments – objectives, premises, expected results • Adventure Tourism Context Definition - concepts and relationship • Developing Adventure travel at destination level • Activities and Products in Adventure Tourism Module 2 - Adventure Tourism Product Development and Improvement • The market and its diversity • The Global Adventure Traveler Profile • Experience Economy in Adventure Tourism • Developing sustainable products (environmental, socio-cultural, economic, safe) Module 3 - Developing Adventure Tourism in Public and Private Partnership • Understanding the Adventure Tourism Industry – distribution and dynamics • Developing Integrated Public Policies for the development of Adventure Tourism • Developing Standards, Regulations and Certification • Developing Qualification Programmes • Developing Promotion Programmes Experts Gustavo Timo has been involved with adventure and nature travel for 16 years. He is one of the founders and leaders of ABETA, the Brazilian Adventure Travel Trade Association, and has served as an elected member of ABETA’s Board of Directors, as well as a Technical and has worked for 7 years as the organization general manager.

At ABETA, Gustavo’s focus is on developing, organizing and converging the adventure travel industry of Brazil. ABETA is at the forefront of establishing standards and building qualifications and certifications systems in the main adventure travel destinations of Brazil. The organization is also very active in building international awareness for Brazil as an adventure travel destination.

Gustavo Timo is on the Adventure Travel Trade Association Advisory Board and also a project leader on the Adventure Tourism Working Group on the Tourism Committee at International Standards Organization – ISOTC228.

He has wide experience as an adventure travel tour operator and consultant in adventure tourism market development in Brazil. Prior to his work at ABETA, he was Executive Director of Brasil Aventuras Expedições for 8 years, a Brazilian adventure travel company. At Aventuras Expedições he was responsible for developing new destinations, marketing, establishing strategic partnerships, training adventure travel guides and opening distribution channels in Brazil and internationally. In his work as a consultant, he supported the planning, development and marketing of nature destinations in Brazil and training entrepreneurs to manage nature based tourism.

Gustavo holds a graduation in Business Management, and specialization in projects management and a MBA in Business.

Christina Heyniger is a consultant specializing in small and medium sized business development in the field of adventure tourism. She supports adventure travel, blended adventure-volunteer tour operators, associations and governments operating in Latin America, Asia, Europe and the United States with specialized training workshops, market research and business strategy. In 2004 Christina founded Xola Consulting, a firm dedicated to adventure tourism development as a means of poverty alleviation and conservation. In 2011 she sold her firm to Vital Wave Consulting, a company focused on business acceleration in emerging markets and technology as a business enabler, and now leads their tourism practice.

Christina initiated the Adventure Tourism Development Index, an annual benchmarking of countries for adventure travel competitiveness published by the Adventure Travel Trade Association and The George Washington University. She is also the creator of Off the Radar, a successful adventure travel newsletter and website for adventure travel. She speaks regularly at travel trade meetings on the subject of adventure tourism and development including the Adventure Travel World Summit and World Travel Market.

Christina holds a BA in Communication from Cornell University, an MA in Communication, Culture and Technology from Georgetown University, and an MBA with a concentration in Entrepreneurship from American University. Originally from Alaska, Christina now lives in San Francisco, California.

Agenda Day 1

Day 2

08:30-09:00 Inauguration

08:00-10:00 Module 2 & Pract.

09:00-09:30 Presentation of course and work programme

10:00-10:15 Break

10:00-11:30 Module 1 & Pract.

11:30-11:45 Break

10:15-12:00 Module 2 & Pract.

12:00-13:00 Lunch break 13:00-15:00 Module 2 & Pract

Day 3 Technical visit • Fieldwork • Interviews • Data collection • Etc.

Day 4

Day 5

08:00-10:00 Group presentations on the outcomes of the fieldwork(5’ presentation + 5’ questions / group)

08:00-10:00 Module 3 & Pract.

10:00-10:15 Break 10:15-12:00 Module 3 & Pract.

11:45-12:00 Module 1 & Pract.

12:00-13:00 Lunch break

12:00-13:00 Lunch break

13:00-15:00 Module 3 & Pract

13:00-15:00 Module 1 & Pract.

10:00-10:15 Break 10:00-11:00 Evaluation forms & Preparing for the final presentations 11:00-12:00 Final group presentations on the final task (10’ presentation + 5’ questions / group) 12:00-13:00 Lunch break 13:00-14:30 Final group presentations on the final task (10’ presentation + 5’ questions / group) Final Comments 14:30 Closing ceremony

DVENTURE INDUSTRY

2009

RESEARCH ROUNDUP om g.c n i ult ns o lac xo

Sponsored by:

stepuptravel.org

Photo: Whit Richardson

TABLE OF CONTENTS

2009 XOLA Adventure Industry Research Roundup

Guide to the 2009 Adventure Industry Research Roundup

page iv

Chapter I World Economic Crisis and Its Effects on Tourism

page 1

Chapter II Consumer Spending, Demographics, Population, Income and Lifestyle Trends

page 8

Chapter III Consumer Technology Use

page 19

Chapter IV The Adventure Travel Market and Traveler Profile 2009

page 22

Chapter V General Media, eMarketing and Online Advertising Trends

page 31

Chapter VI Marketing Trends for Destinations and Tour Operators

page 37

Chapter VII Destination Performance Management

page 45

Chapter VIII Effects of Climate Change and Water Scarcity on Adventure Tourism

page 53

Chapter IX Global Financing Trends, Entrepreneurship and Adventure Tourism

page 66

Acknowledgements and Contact Information This report was authored by Henrietta de Veer and edited by Christina Heyniger; it is produced solely by the Xola Consulting, Inc. team.

Xola Consulting, Inc. (xolaconsulting.com) is a consulting and research services firm assisting tour operators, tourism boards, non-profit organizations and other companies in the adventure travel value chain, with sustainable adventure tourism destination and product development, marketing and research. Xola launched Off the Radar (travelofftheradar.com) in 2005 to provide travelers with information about the best entrepreneurial adventure operators around the world — those who provide guests with a genuine, personal experience; who believe in sustainable, environmentally sensitive travel; and who believe in incorporating the local people and traditions of the places where they operate.

Copyright 2010 Xola Consulting, Inc. All rights reserved.

Xola Consulting, Inc. Sante Fe, New Mexico Xolaconsulting.com Christina Heyniger President (202) 297-2206 Christina@xolaconsulting.com

Guide to the 2009 Adventure Industry Research Roundup Since September 2008, the global community has been hit by multiple financial and economic crises that have affected numerous businesses, industries and markets around the world. The debates seemed never-ending on a variety of topics — e.g., whether developing economies had “decoupled” from the developed economies and would be able to sustain growth and economic development on their own, even in the face of severe economic recession in developed economies; or if the cycle of recession and recovery would be V-shaped (a rapid descent followed by a rapid ascent), U-shaped (a rapid descent followed but a gradual improvement) or W-shaped (meaning that there would be a modest recovery, followed by another brief recession before ultimate recovery). It is now generally agreed that the global economy has hit or is hitting the bottom and will be followed by a modest recovery in 2010.

It now appears that the global tourism and travel industry will face a slow rebuilding year. Historically, the travel sector has been a lagging indicator, namely, a return to growth will lag several quarters behind other sectors of the economy, and there is no reason to think it will be different this time around. Industry observers see a continued lack of consumer confidence, resulting in constraints placed on spending, particularly for discretionary budget items such as tourism and travel. Some analysts say that, while 2010 will not be as bad for the travel and tourism (T&T) industry as 2009, it will not recover completely until unemployment goes down in a sustained and meaningful way.

Some industry analysts argue that the consumer attitudes and behaviors on spending and saving which have emerged over the last year are the “new” normal. The factors driving change in the travel and tourism industry this past year were not just related to the recession; they were also a result of rapid changes in technology as well as the changing nature, attitudes, values, expectations and behaviors of travelers themselves.

In addition to a lack of consumer confidence which will impede recovery, there are supplychain issues which will also curtail growth: overcapacity in airlines, hotels, buses, and other assets; cutbacks in T&T employment; and limited expansion in new product and service development. It is also accepted that consumers are still expecting attractive bargains and that mid-price hotels, low-fare airlines, all-inclusive hotels, packaged tours and cruises are likely to dominate the mainstream tourism business in 2010: the perception of affordability and value is predicted to continue, with consumers becoming extremely savvy in using the latest Internet tools to ferret out deals.

As Richard Turen, contributing editor of Travel Weekly, stated in his editorial of December 21st, 2009: “We are entering a decade that is going to be characterized by chaotic, connected, diverse and ‘non-ruthless’ corporate success stories such as Apple, Amazon, Zappos, Google, Virgin and JetBlue.” It can no longer be “business as usual” for any company, including those in the adventure-travel business. We must continue as an industry to professionalize; establish industry best practices across our operations; be creative, collaborative, and diverse, able to respond to changes quickly and efficiently; think of ourselves as a key part of a global community of businesses proactively working to solve local economic-development issues;

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and use all of the online and offline tools available and used by emerging companies in other industries and markets to not only survive but thrive in what is expected to be an even morerapidly changing global economy.

In the first section of the report, we update the current status of the global economic recession and its effects on tourism in general since our last research roundup published in October 2008. Then, in following chapters, we review the status of consumer sentiment internationally on changing spending priorities in the current economic environment; the profile of the adventure traveler in the current environment, with an attempt to flesh out more fully who the adventure traveler is today and likely to be in the future; consumer online-technology usage trends; general media trends; and destination marketing trends. Unveiling new research conducted in collaboration with The George Washington University and the Adventure Travel Trade Association, we provide information on the size of the adventure travel consumer market and the destination and lifestyle preferences of these travelers.

We will then discuss the effects of climate change, with an emphasis on water availability and scarcity, on adventure travel businesses since they are feeling the effects of climate more acutely and earlier than many other tourism businesses given the ecologically sensitive environments in which they work.

We also discuss the current environment for financing entrepreneurial, small businesses in general and adventure travel companies in particular because of the increasing demands on these businesses in light of increasing financial constraints as well as obligations given the climate-change and water-scarcity imperatives.

We strongly believe that tourism can deliver economic-development benefits more than most sectors of the economy. Mobility and curiosity about “otherness� is a fundamental urge of the human state, and as a result, tourism is one of the biggest export sectors in the world economy. At this critical time in world history when the competing challenges of travel as a contributor to climate change and travel as an enabler of new approaches to solving the problems of climate change and water scarcity, the tourism industry needs to make sure that it is aligned closely with, and is proactively establishing a leading role in helping set, the evolving standards on climate change and economic development.

As we stated last year, the adventure-travel industry will have to act proactively and creatively to the challenges of developing, maintaining and refreshing adventure travel products and services within the broader context of overall economic development strategies for specific communities and regions of the world.

An adventure tourism development approach must be tailored to the particular economic, political, cultural and environmental circumstances of a host country, region and/or locality since one size (or type of product) will not fit all. Because of the rapidly growing importance of the BRICMs (Brazil, Russia, India, China and Mexico), both as tourist destinations as well as emerging sources of tourists, we are publishing separately analyses of each of the BRICMs, tying each country’s climate-change and water-resource challenges to the evolution of the adventure tourism industry.

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Chapter I: The World Economic Crisis and Its Effects on Tourism This section provides an overview of global economic trends and their effects on tourism from the last quarter of 2008 through the first three quarters of 2009 (where data are available). Information in this section has been gathered from a variety of sources including the International Monetary Fund (IMF), the World Bank, the Organization of Economic Cooperation and Development (OECD), Tourism Economics, the RGE Monitor, and the United Nations World Tourism Organization (UNWTO) as well as U.S. and other government tourism monitoring services, news clips, and interviews with industry professionals.

THE ECONOMIC CRISIS AND THE GLOBAL ECONOMY IMF released in early July 2009 an update of its World Economic Outlook (WEO) released in April 2009. On a positive note, it finally seems as of the world economy is bottoming out. IMF observes that the global economy is showing signs that it is pulling out of an unprecedented recession in the post-World War II era but that stabilization is uneven across regions of the world and recovery expected to be sluggish. While it revised upward world GDP growth projections for the remainder of 2009 and 2010 primarily because of public monetary and fiscal interventions, the recovery is still expected to be sluggish and variable across various economies.

IMF examined key economic indicators of: ◗ Industrial production; ◗ Manufacturing purchasing; ◗ Merchandise exports; and ◗ Retail sales.

The following represents a summary of the views primarily held by the IMF and a number of other economists on the world economic outlook for the rest of 2009 and 2010.

Photo: Christina Heyniger

◗ World output projections for 2009 are now estimated at 1.4% and for 2010, +2.5%. However, the IMF (July 2009) projects that advanced economies as a group are not likely to show a sustained pickup in economic activity until the second half of 2010; ◗ The IMF (July 2009) projects that emerging markets will regain growth momentum during the second half of 2009, although with notable regional differences amongst the countries and regions in the group.

The massive destruction of consumer wealth and the need to rebuild household “balance sheets” has resulted in a significant loss of consumer confidence and will likely be a powerful constraint on growth, most particularly in the U.S. and Eurozone countries. According to various estimates, the median household in the U.S. will have taken a 60% to 80% hit to net worth over the last few years.

With consumer spending representing historically 70% of GDP in the U.S., the deleveraging of American households, coupled with savings rates moving from negative in 2007 and 2008 to +5.7% in April 2009 and expected to possibly go higher in the second half of 2009, could have a significant negative impact on discretionary spending patterns for quite a few years into the future.

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In addition, global unemployment rates, which are continuing to rise, could also significantly dampen consumer spending globally. This is particularly significant since, historically, unemployment can continue to rise long after an economy has recovered. The ILO makes a number of important points in its Global Employment Trends Update, May 2009 about global unemployment trends: ◗ Looking at data from 1991 onwards, 2009 will represent the worst global performance on record in terms of employment creation; ◗ It estimates that global unemployment in 2009 could increase to a range of 210 million to 239 million, an increase of between 29 million and 59 million since 2007; ◗ The potential increase in the “vulnerable” unemployed is even more alarming. It is estimated that half of the global workforce — 7 times more than the number of unemployed — is likely to be in vulnerable employment; ◗ ILO estimates that, under its worst case scenario, more than 1.4 billion workers will be living below the USD $2/day poverty line in 2009, an increase of more than 200 million since 2007.

These issues are important to the travel and tourism industry because demand is driven by and large by consumer discretionary income and consumer perceptions of a financial ability to spend amongst various categories of expenditures, including travel.

Over the longer term, we will be witnessing the on-going structural change of the world economy in spite of the current contraction of growth and the worrying emergence of some protectionist trends: ◗ The increasing globalization of economic activities in terms of both products and services; ◗ A continuing change from manufacturing-based to service-based economies, with over 65% of the world’s GDP already derived from services; and ◗ An increasing percentage of tourism expenditures as a % of world GDP, up from today’s approximate 10%, and already representing over 30% of total world service trade.

GLOBAL TOURISM TRENDS 2008 Tourism Results and 2009 Tourism Trends Year to Date The previous overview on global economic trends is intended to give readers with a specific focus on the adventure industry a framework for understanding what has been happening in the tourism industry over the last year. We hope to provide in this annual Research Roundup some insight into how the economic crisis has not only affected regions around the world differently but also countries within those regions.

The UNWTO’s October 2009 World Tourism Barometer includes data for 2008 and results through August of 2009 data (in some cases, September) by country, where available. The data are organized around tourist arrivals and receipts in the top 50 destination countries.

There is also information provided on outbound expenditures in terms of the top 50 country “spenders,” but no detail for the number of outbound tourists by country for 2009. Information on domestic-tourism numbers is also not yet available for 2008 or for 2009. Because we think it important to get a feel for outbound and domestic trends given the current tourism environment, we have included summary 2007 data to give a fuller picture of particular countries that currently dominate the world tourism market in terms of numbers of tourists and total receipts. In addition, there is significant overlap between the country lists for the top tourist destinations and top tourist generators.

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Regional Tourism Trends The following chart summarizes the number of arrivals by region for 2008 and the percent changes between 2007 and 2008 as well as between year-to-date (YTD) 2009 as compared to the same period in the previous year. While the data for 2009 are not complete, they do give some indication of trends both within regions as well as between them.

For the eight months ending August 2009, there was a 7% decline in the number of international tourists on a world-wide basis. All regions, except Africa, are experiencing negative growth, though, on average, there has been a gradual improvement since May, which was down overall by 11%, June down by 7.8% and July and August, each down by 3.0%. Through August, Europe, the Middle East and the Americas were the hardest hit, experiencing on average -8.0% growth, with central and eastern Europe plummeting by 11%.

The Asia/Pacific region is showing the clearest signs of improvement, turning positive in August. At an average -5.0% growth, the Americas show no clear signs of reversal, though South America at -1.0% growth appears to have had the best in the Americas performance by far. The Middle East, which had an abysmal performance between January and May 2009, experienced a significant reversal of fortunes, turning in positive numbers between June and September.

Through August 2009, Africa saw 4% growth. For FY 2009, UNWTO is projecting a world-wide decline of 5%, with all regions except Africa expected to register negative growth, with improvements since this summer not expected to make up for the losses of earlier in the year.

While the inter-regional data in the following chart are for 2007, they serve to emphasize that a considerable portion of travel and tourism is done within regions. Over 75% of tourists in all regions except the Americas travel within their own regions. Given the expected trends of people staying close to home in 2009 and likely into 2010, this trend will certainly continue, if not become more pronounced. # of Tourist Arrivals by Region + Subregion (MM) Country

2008

Europe Northern Europe Western Europe Central/Eastern Europe Southern/Medit. Europe Asia/Pacific Northeast Asia Southeast Asia Oceania South Asia Americas North America Caribbean Central America South America Africa North Africa Subsaharan Africa Middle East

487.9 58.1 154.9 96.5 177.9 181.9 100.9 59.7 11.2 10.1 142.9 96.3 20.3 8.3 20.8 47 17.2 29.7 55.6

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% Share of World Arrivals

% Change 2007-2008

% Change YTD 2009 (over same period of prev. year)

Tourism by Region of Destination % Share 2007 Same Region Other

52.9% 6.2% 16.6% 10.7% 19.4% 20.0% 11.0% 6.7% 1.2% 1.1% 16.0% 10.6% 2.2% 0.9% 2.3% 5.1% 1.9% 3.2% 6.0%

0.1% -1.9% -1.1% 2.5% 0.6% 1.2% 0.1% 3.3% -1.0% 3.3% 3.0% 2.6% 2.4% 7.2% 3.9% 4.1% 5.4% 3.4% 18.2%

-10.4% -9.3% -10.3% -13.2% -9.2% -6.1% -5.6% -6.3% -3.7% -11.8% -5.4% -6.8% -6.5% -3.7% 0.2% 3.1% 6.4% 1.7% -18.1%

75.9%

24.1%

78.4%

21.6%

69.5%

30.5%

75.7%

24.3%

76.8%

23.2% 3

Country Tourism Trends Tourist Arrivals and Receipts One of the most noteworthy trends for the YTD arrivals and receipts data is the wide variations between countries both between and within regions and between arrivals and receipts data within countries. In addition, shifts have occurred from an analysis of the data based on five months of results as of May 2009, compared to those through the end of August.

Of the top 50 destinations, there are countries where arrivals are down much more than total receipts such as France, U.K., Greece, Canada and Japan; in other countries, it is just the opposite, where receipts have decreased at a much faster rate than arrivals, e.g., U.S., Russia, China, Ukraine, Thailand and Mexico. There are also countries where arrivals were down but receipts flat or up (Hong Kong, Poland, Switzerland, and Australia); and other countries were both arrivals and receipts were up (Malaysia, Korea, Sweden and Taiwan).

Of the top 50 destination countries, there was significant variation in terms of the number of arriving tourists: two experienced double-digit growth (Korea and Taiwan); and 7 experienced single-digit growth (Turkey, Malaysia, South Africa, Hungary, Morocco, Indonesia, and Sweden). There were 26 countries that experienced single-digit negative growth rates, from flat to slightly negative up to -9.9%. The 12 countries that have experienced double-digit negative growth rates include France, the Ukraine, Russia, Saudi Arabia, Thailand, Poland, Japan, Ireland, the Czech Republic, Norway, and Vietnam.

In terms of international tourist receipts, they were down between 9% and 10% on a worldwide basis for the first 6 months of 2009, with only 9 destinations experiencing growth: Korea, Sweden, Taiwan, Australia, Hong Kong, Malaysia, Switzerland, Poland and Hungary. Of the 50 top destinations, 19 destinations experienced double-digit declines:, most notably among them the Ukraine, Saudi Arabia, Russia, Greece, Thailand, U.S., Mexico, Belgium, Greece, Croatia, Belgium, Argentina and Japan.

Outbound Departures In terms of outbound data, through 2007, the countries with the highest average annual growth rates of between 20% and 35% for the period of 2003 through 2007 were the Czech Republic on the low side (20%) and China, Ukraine, Malaysia, Saudi Arabia, South Africa, Croatia, Hungary, Morocco, Bulgaria, India and Brazil on the high side of 34%.

However, for YTD 2009, only 11 of the 50 largest destination countries experienced positive growth rates of outbound departures: China (19.6%); Turkey (11.2%); Malaysia (3.7%); Austria (9.6%); Netherlands (4.0%); Hungary (10%); Singapore (0.8%); Belgium (1.2%); Australia (3.5%); India (9.9%); and the Dominican Republic (5.0%).

Domestic Travel The countries experiencing the highest growth rates in domestic tourism are China, Malaysia, Poland, Macao, China and the Czech Republic. The countries with the largest domestic tourism markets in terms of the number of overnight stays by residents are China (436 million); Germany (178 million), Italy (141 million), Spain (116 million), U.K. (105 million), Russia (44 million), Canada (43 million), and Argentina (36 million). However, it should be kept in mind that the domestic data are not complete, and many countries do not report the data to UNWTO (such as the U.S., which does have a sizeable domestic tourism market estimated at over 600 million overnight stays).

The top 50 destination countries examined have widely varying characteristics in terms of area in square miles, level of GDP, and size of populations. Based on the data, between 2006 and 2007, most of the top 50 tourist-generating countries experienced substantial increases in level of outbound expenditures, well above the increases in the number of departing tourists themselves. While the same was true to a certain extent in 2008 (though hidden by the accelxolaconsulting www. .com

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erating decreases in both departures and expenditures as the year progressed), there were significant regional variations that began to appear.

When undertaking marketing-driven analyses, we believe that destinations should initially focus on what the trends were prior to the economic crisis. While there are likely to be many changes that become permanent in terms of consumer behavior once the global economy starts to improve, examining historical trends helps set the stage for understanding how to modify in the current environment business practices and approaches in marketing to tourist-generating countries, both existing ones as well as new source markets.

It is apparent that the world is in transition on a number of levels, most particularly as the balance of power shifts toward emerging economies. Except for China, developed countries still dominate in terms of sheer numbers of tourists as well as the money spent by tourists from these countries. However, that is changing rapidly. Before the recent crisis, the growth rates in terms of tourist generation by developing countries were consistently high, and over time, this will fundamentally change the nature of the tourism business in many destinations.

We examined destinations by a variety of measures, which emphasize the wide variations in tourism both in terms of destinations as well as those generating the most tourists. In terms of where the most money is spent per arrival, Australia is #1 at $4,400, followed by Sweden ($2,200) and India ($2,300), with U.S., Belgium, Switzerland and Germany between $1,600 and $1,900. In terms of what countries spend the most per departure, Norway is #1 at $4,118, followed by India and Australia at $2,500, Macao at $2,100 and Belgium at $2,000. Tourists from Spain, Singapore, France, Brazil, Japan, Korea, Denmark, Thailand, U.S. and Germany spend between $1,200 and $1,900 per departure.

In terms of number of departures as a % of population, residents of some countries simply love to travel. While the measure is certainly inexact since the number of departures can represent multiple departures by the same individual as well as other types of trips besides leisure-oriented ones, it is apparent that the size of population is not necessarily a predictor of how active the traveling public will be. Particularly active travelers for the size of population within a country include those from the U.K., Austria, Poland, Portugal, the Netherlands, Hungary, Ireland, Sweden and Denmark. China, Turkey, Mexico, Russia, Malaysia, Saudi Arabia, Thailand, Morocco, Bulgaria and India represent rapidly emerging tourist source markets, with substantial room for growth. In terms of domestic tourism, the countries with the most active markets are China, Germany, France and the U.K.

2009 and 2010 Tourism Trends It is difficult to predict global tourism trends for 2010 from the preliminary data we have from the UNWTO October 2009 World Tourism Barometer. UNWTO states that it believes secondary short breaks appear to have been hit more than main vacations, and long-haul travel has fallen more than short-haul trips. However, this could be changing since many long-haul destinations are offering more attractive pricing than those closer to home. However, UNWTO is not sanguine about the prospects for the rest of the year and states: “….the advance booking situation, coupled with the reduction in airline capacity, shows that it is too much to hope for a recovery by the end of August. Indeed, few major players are expecting to see a recovery before the end of the year.”

As of October, UNWTO is projected a 5.0% decline in the number of tourists for the full year of 2009. Declines in receipts are projected to decrease between 6% and 8% for the full year .

Our largest concern, however, is what we view as the “double-whammy” in many regions and countries of the world: receipts plunging more rapidly than the number of arriving tourists xolaconsulting www. .com

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because of pricing pressures and intense competition for the tourist. Even when experiencing flat or negative growth from the top source countries in 2007 and into 2008, many countries still generated significant revenue from trips since expenditures continued to rise rapidly.

However, now destinations are facing big declines in revenue, even in places that are flat or still experiencing growth in numbers of tourists.

UNWTO’s initial forecast for 2010 indicates that international tourist arrivals are likely to see a moderate recovery of 1% to 3%. Asia will experience the strongest rebound, while Europe and the Americas will take the longest to recover. Africa is expected to continue to be the star performer on a world-wide basis. UNWTO is still cautious, however, given what it expects to be a slow pace of recovery because of still-high unemployment rates; potential rising taxation levels in many advanced economies, the primary sources for international tourists, and cautious consumers around the world.

Tourism Trends 2010 and Beyond Twenty years ago, 80% of tourists came from a handful of countries and concentrated on a few destinations. Today, the picture is much more complicated; we have all witnessed the expansion of the number and types of destinations, many offering more structured tourism products, and the intensifying competition among them. In addition, source markets are rapidly growing and diversifying. In fact, emerging markets will realize both greater inbound as well as out-bound growth compared to established tourist destinations as well as tourist-generating countries.

We can already see this well-defined trend in the data reviewed above. We are also seeing many of these emerging markets investing at significant levels in tourism infrastructure and new product development, which is fueling competition among destinations. Some of projected highest growth markets for both in-bound and out-bound tourists are China and India, trends that are already visible. However, destinations should not discount other active traveler segments.

Tourism success is not necessarily measured in terms of the absolute numbers of tourists.

What works in one country does not necessarily work in another. A tourism economy must be tailored to the particular circumstances of a destination, which may change over time but must be carefully managed through the process. We have seen from the above data that tourists from around the world spend different amounts of money on their travel experiences, and it is clear that they are not just Europeans and Americans. It is also clear that the BRICM countries offer potential with their rising disposable incomes.

The following are some concluding observations on the state of the global travel industry and expected trends into 2010 and beyond: 1. Volatile economic conditions, coupled with concerns about a renewed outbreak of the H1N1 influenza, may continue to dampen demand for tourism in most places in the world; and 2. While economists see signs of the “bottoming out” of the global recession, most are not sanguine about the extent and rate of recovery. In addition, most industry observers believe that, even after recovery begins, consumers are not likely to return to their previous “exuberant” spending habits and will continue to seek value in vacation products.

xolaconsulting www. .com

Photo: Christina Heyniger

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SOURCES: THE WORLD ECONOMIC CRISIS AND ITS EFFECT ON TOURISM International Monetary Fund Outlook Update: Contractioary Forces Receding but Weak Recovery Ahead, July 8th, 2009 RGE Monitor e-Newsletter, April 22nd, 2009; July 9th, 2009; and August 6th, 2009 International Labor Organization, Employment Trends Update, May 2009 United Nations, World Economic Prospects and Situations 2009 OECD Economic Outlook 2009 Quantitative Management Associates, Economic and Market Outlook, July 2009 World Travel and Tourism Council, Annual Analysis, March 2009 UNWTO, World Tourism Barometer, January 2009, June 2009, September 2009, and October 2009 UNWTO, Impact of the Global Economic Crisis on Local Tourism Destinations, June 2009 UNWTO Tourism Highlights 2007 and 2008 Travel Weekly e-Newsletter Editorial, “Disappointing summer could make for a long winter,” August 11th, 2009

Photo: Christina Heyniger

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Chapter II: Global Consumer Spending, Demographic, Population, Income, Lifestyle and Global Competition Trends OVERVIEW With this chapter we place adventure travel, and the adventure traveler, in a broader context — discussing rapid global changes in consumer demographics, spending patterns and income levels as well trends related to changing lifestyles and values. While the global financial crisis will eventually recede and economic growth return, we do not believe that travel and tourism in general, nor adventure travel in particular, can return to “business as usual.”

As an industry, we must consider longer-term business decisions relative to these rapidly emerging trends: where will the next generation of adventure travelers come from and how will we reach them? Will the types of experiences sought by these travelers change?

How we initiate and maintain conversations and develop loyalty with existing as well as new adventure-travel consumers will determine the success or failure of the enterprises catering to them. This chapter summarizes key trends that will have major impacts on the industry’s direction, health and sustainability.

Today’s adventure travel is increasingly aimed at providing a ‘life experience’ and is certainly no longer directed solely at extreme-sport activities. “Adventure” is now accepted as a market segment that encompasses wildlife encounters, cultural experiences, visits to remote, less ‘touristed’ areas, social and educational programs, volunteering and sports.

To meet these rapidly consumer changing demands, we’ve seen rapid growth in trips that combine activities for a variety of ability levels and/or elements of adventure with five-star amenities as well as trips to an increasingly diverse array of destinations. The industry continues to respond to increasing levels of traveler sophistication by providing travelers with complex, flexible trip itineraries and options. The distinctions made between adventure tourism and the mass travel industry in terms of products and services are blurring, and we will need to continue to innovate, provide higher levels of services, and operate our businesses professionally if we are to continue to maintain our competitive position.

It has been generally accepted that adventure travelers, of all the traveler segments in the industry, are passionate about what they do and will not easily give up their trips, even in the face of economic downturns. The recent study released by the Adventure Travel Trade Association, The George Washington University and Xola suggests that adventure travelers intend to spend more in the future on adventure travel. (See Chapter IV for a more detailed discussion of the study.) In addition, a number of surveys discussing current consumer spending trends may also provide us with insight into how consumers are making decisions to travel on a global basis in today’s economy.

This chapter provides: ◗ A summary of the consumer-oriented sentiment and spending research published in the last several months, with discussion of travel as a key expenditure category; ◗ A discussion of global demographic, population, income, changing lifestyle and value shifts, which will affect the adventure-travel industry over the intermediate- to longerterm; and ◗ Information on changes in technology usage and online behavior on a world-wide basis.

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GLOBAL CONSUMER SENTIMENT AND SPENDING PATTERNS DURING THE CURRENT RECESSION Many tourism market observers are trying to better understand consumer discretionary spending.

Travel comes out of discretionary income, so how consumers are changing their spending patterns in these difficult economic circumstances offers a view into their impact on global tourism and adventure travel in particular.

U.S. Consumer Sentiment and Spending Patterns The U.S. consumer has been for some time the single largest driver of global demand, accounting for $9.2 trillion, or 18.6%, of the world’s GDP in 2008. That is roughly comparable to the combined GDPs ($10.8 trillion) of Japan, China, and Germany, the next three largest economies in the world (the Economist Intelligence Unit, Country Data, March 2009). The global economic recession, which has hit the U.S. hard, has major implications for global tourism demand.

In April 2009, Rockbridge Associates, Inc., in association with the Center for Excellence in Service at the University of Maryland’s Robert H. Smith School of Business, released research results titled: Changing Consumer Priorities in Tough Times: March 2009 Consumer Technology Pulse. The focus of the study was on how the downturn is affecting consumer spending priorities. The key finding was that almost three out of four adults in the U.S. are currently cutting household and lifestyle expenditures. The research found that the areas where the greatest numbers of consumers are spending less than last year are: dining out (58% less); travel (53% less); and sporting events (47% less).

Is this a permanent, structural change that will affect U.S. consumer-spending patterns long-term or, once the economy starts growing again, will consumers return to a pattern of lower savings and higher spending or will they maintain a more frugal attitude? Some economists believe this time that the rising savings rate is a secular trend.

In June 2009, Harris Interactive released the results of the Harris Poll, a nationwide survey of 2,681 U.S. adults surveyed online for a week in May. Some of the results are as follows: ◗ Americans are continuing to tighten their belts, saying they are spending less overall and two-thirds (64%) saying that they are less likely to take out a loan; ◗ They are weaning themselves from credit cards, with one-third (33%) saying that they are using their credit card less often than before; and ◗ In spite of this fiscal constraint, many Americans have almost no cushion to weather the downturn, now or in their retirement years. Almost one-quarter of Americans (22%) say they have no personal savings, and three in ten (30%) have no retirement savings.

At the end of July 2009, the Conference Board released its monthly Consumer Confidence Survey®, which is based on surveys of a representative sample of 5,000 U.S. households. The consumer-confidence index, which had retreated in June, deteriorated further in July and fell more than the forecast had projected.

International Consumer Sentiment and Spending Research In June 2009, Ipsos Global Public Affairs, an international market research and polling company, released the results of a global consumer survey, which found that 29% of people thought that the economic situation in their country was very good or somewhat good, only a slight dip from 31% in November 2008, but well down from 43% in April 2008 and 54% in October 2007. The upticks in confidence were led by China where it jumped to 61% from 46% xolaconsulting www. .com

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and in India where it increased five points to 70%. Confidence was still lagging in Brazil where it dipped to 56% from 61%, in Russia from 52% to 35% and Europe, a drop of nine points to 23%. Cuts in household spending remained constant during the six months previous to the survey, with entertainment, vacations and luxury items the first to go for nearly three quarters of families, followed by clothing for 61%, energy consumption 53%, and gasoline/driving for 42%.

The Boston Consulting Group (BC”) published in April 2009 its 2009 Global Report on Consumer Sentiment: Winning Consumers Through the Downturn. For the purposes of our discussion about travel and tourism, this report offers some compelling insights into consumerspending trends, with some specific analyses on travel as an expenditure category. The survey focused on the U.S., Canada, the European Big Five (France, Germany, Italy, Spain and the U.K.), and the BRICMs. Key observations are as follows: ◗ In the past, consumers helped their country’s economy by spending their way out of downturns. Today, consumers are so far unwilling (and often unable) to spend their way back to good times; ◗ Inflation has added to consumers’ fears and declining purchasing power in many markets, especially in Brazil, India, Mexico and Russia; ◗ “Trading down” (namely, where consumers move to a lower priced product or service within a specific consumption category such as travel or between categories) is increasingly the name of the game, having grown slowly in the U.S. and Europe from 2004 through 2007 and then exhibiting the largest single-year increase in all regions in 2008; and ◗ Consumers are still spending in the categories that they love but need “permission” in which to indulge.

BCG notes, however, that spending patterns can differ markedly based on product/service category, geographic region and consumer segment. As a result, it is extremely important that companies in each product/service category understand the changing needs and spending trends within their own categories and among their own customers by region and demographic group. While 59% of consumers in developed markets and about 43% in developing markets on average plan to cut spending this year, trading-down in both markets is focused on those categories viewed as commoditized or less important to them personally.

BCG views travel as a particularly interesting category in many ways for two key reasons: ◗ Historically, travel has consistently had one of the highest percentages allocated to it as a “trading-up” category when compared to other expenditure categories. This is true across all countries analyzed in both developed and developing countries; and ◗ During the downturn, all categories have been affected to a greater or lesser degree, and consumers in all countries have adopted a range of “coping” strategies for allocating discretionary income to the various categories of expenditures: ❚ The first strategy has been to delay big-ticket purchases such as cars, consumer electronics, house purchases and renovations, and so on; and ❚ The second was to cut what are viewed as non-essential purchases, including travel. However, while travel is still considered one of the key “trading-up” categories, it is also now one where spending intent has dropped the most across the board in all countries.

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The “spending-intent” cut in travel expenditures showed up in BCG’s analysis of both developed and developing countries but to different degrees. In general, travel was one of the top three categories for spending cuts in all emerging economies, including the BRICMs. China and India were outliers in that they were still the most positive about the future and that travel and vacation would return once their economies got back on a comfortable track.

In developed countries, spending intent was cut less for vacation travel as a category than found in developing countries. While travel was in the top 3 for spending cuts for all developing countries, it was #5 in the U.S. and #6 in most European countries. In fact, while vacation travel was uniformly in the top ten of expenditure categories needing to be cut by developed economies, it was also in the top ten of expenditure categories that would be cut last.

Adventure travelers surveyed in the Adventure Travel Trade Association (ATTA), the George Washington University (GW) and Xola Consulting, Inc. study, however, indicated their intention to spend more on their next trips, for example, extending trips from an average of 7.5 days, to 9.

GLOBAL DEMOGRAPHIC, POPULATION, INCOME, LIFESTYLE AND COMPETITION TRENDS For any group, organization or corporation marketing to global consumers in the current environment, it is important to be aware of the broader demographic, population, and income trends around the world. In spite of the global recession, there are still many important changes that must be factored in to destination marketing strategies moving forward.

We have grouped the changes into three categories: Demographics, Population and Income ◗ Changing distribution of age cohorts, ethnic groups, sexes, religions, and sexual orientation ◗ Emergence of the global middle class Changing Lifestyle and Values ◗ Increasing importance of “green” products and services ◗ Changing global personal and household consumption spending patterns ◗ Increased emphasis on health, wellness and recreation ◗ Escalating importance of travel and tourism globally ◗ Rapidly urbanizing world ◗ Emphasis on taking control, responsibility, self-reliance, thinking small and sustainable, implementation of consumption trade-offs on a broader scale ◗ Attitudes about environmentalism and sustainability ◗ Views on climate change and water scarcity trends and issues Global Competition Changes ◗ Continuing advances in technology on a global scale ◗ Business competitiveness locally and amongst multi-national corporations aggressively moving into international markets

Demographic and Population Trends Age, sex/sexual preference, ethnicity, religious affiliation and other demographic factors will all have profound effects going forward on the profile of the adventure traveler. What the industry has experienced in the past may become less relevant over the next 10 to 20 years. Without question, there will simply be more people to market to, though because of changes in age distribution as well as other factors such as geographic location, who these people are will be very different. xolaconsulting www. .com

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According to the 2008 Revision of the official United Nations population estimates and projections, the world population is projected to reach 7 billion early in 2012, up from the current 6.8 billion, and to surpass 9 billion people by 2050. Most of the additional 2.3 billion people will increase the populations of developing countries, which are projected to rise from 5.6 billion in 2009 to 7.9 billion in 2050 and will be distributed entirely among the population aged 15-59 (1.2 billion) and 60 and over (1.1 billion) since the number of children under age 15 in developing countries will decrease. By contrast, the population of the more developed countries and regions is expected to change minimally, dropping as a percentage of total world population from 19% to 14%.

Population aging will be a factor for both developed and developing economies. We believe that, over the longer term, this will have a major affect on the types of adventure-travel products offered. In the more developed economies, the population aged 60 and over is increasing at the fastest pace ever, growing at 1.9% annually, and is expected to increase by more than 50% over the next four decades, rising from 264 million in 2009 to 416 million in 2050. The population of less developed regions is also aging rapidly, however. Over the next two decades, the population aged 60 and over in the developing world is projected to increase at rates far surpassing 3% per year, and its numbers are expected to rise from 473 million in 2009 to 1.6 billion in 2050.

While there are 31 countries (the majority of which are the least developed) whose population will double or more between 2010 and 2050, there are 41 countries in sharp contrast expected to decrease in population between 2010 and 2050. Many of the countries are in Eastern Europe. The Russian Federation is also in that group. Population growth will remain concentrated in the current populous countries during 2010 to 2050 and include such countries as the U.S., China and India.

Minorities in the U.S. In the U.S., there has been a fairly dramatic shift in population distribution. Between the 1990 and 2000 censuses, 80% of all growth in the U.S. was minority-generated — Asian, Black, and Hispanic — and only 20% was non-Hispanic white. This is especially interesting for destinations and tourism businesses looking to attract North American consumers: understand this is a diverse group with diverse interests and priorities. It would be a mistake to assume all of these groups lack the financial capacity to spend money on travel.

For example, while the U.S. black population is growing more slowly than other minority groups, the number of African-American affluents, with individual annual incomes of $75,000 or more, is a rapidly expanding demographic. It is estimated that their purchasing power is approximately $29.8 billion and growing. A study by Uptown Magazine and Diversity Affluence found that luxury brands, targeted advertising and personalized services were increasingly important to this segment of the U.S. population. More than 70% of the group has passports and has used them for international travel the previous year. About one-third travel internationally at least three times a year, and one-tenth travel internationally at least every other month. Affluent African-Americans are looking for insider information to satisfy their need for new social experiences. They see themselves as resources for friends and colleagues on what is new and like to treat themselves to the very best and indulge in conveniences.

In an article entitled Coping With Consumers’ Newfound Frugality in Advertising Age, May 19th, 2009, the author Avi Dan, a well-known consultant with 30 years of marketing and market-positioning experience, states that the marketing industry not only must rethink its pricing strategies but also the range of audiences it is trying to address. He gives some interesting examples: “Most marketers focus on Gen-X and Gen-Y, with a combined buying power of $1 trillion, but ignore African-Americans, with total buying power in excess of $1.5 trillion, and baby boomers, with $2.1 trillion. Hispanic buying power is growing at three times the national averxolaconsulting www. .com

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age and will reach $1 trillion in 2011; Asian-Americans spend three times as much as Gen-Yers; and gay Americans clock in at $800 billion. Ignoring these segments will put undue pressure on your profitability in an environment resistant to price increases.”

Women and Marital Status Another critical factor is the changing distribution of population by sex and marital status.

Over the next decade, women will control two thirds of consumer wealth in the United States and be the beneficiaries of the largest transference of wealth in the country’s history. Estimates range from $12 to $40 trillion. Many Boomer women will experience a double inheritance windfall, from both parents and husband. The Boomer woman is a consumer with which luxury brands want to resonate (Luxury Marketing Council).

A sizeable number of people in the developed world are women over the age of 60, and over half live alone and do not have a spouse. They are also considered as a group to have above-average disposable income. In emerging economies, the status of women and their contribution to their economies have improved, and gender gaps in education and employment are narrowing. As a result, spending patterns are shifting within emerging-market households and markets, which will have repercussions across a wide variety of choices on the uses of discretionary income.

The travel industry, where many businesses have historically relied on young people to fill many of its jobs, will need to re-evaluate its recruitment and training strategies to adapt to these changing demographic circumstances.

We also believe that the changing demographics of both the developed and developing worlds will have profound implications for the adventure-travel industry, many of which we have yet to grasp much less begin to plan for. However, it is important that all of us in the adventure industry stay attuned to these trends so we can respond effectively and proactively ahead of the changes.

The Changing Patterns of Global Wealth and Income and the Emergence of the Global Middle Class Patterns of income and wealth are also shifting rapidly on a global basis. There is emerging a large and untapped group of individuals who have the interest in and means to travel, and the opportunities will be almost unlimited for the foreseeable future to take advantage of these trends. While 2008-2009 has been a very difficult time period in terms of the destruction of wealth and the pull-back in the numbers of people entering the global middle class, we believe that the long-term upward trend in terms of wealth creation and broader distribution of income will continue unabated.

High-Net-Worth Individual Trends At the end of 2008, the world’s population of high-net-worth individuals (HNWIs) was down 14.9% from the year before to 8.6 million, while their wealth had dropped 19.5% to $32.8 trillion.

The most significant declines occurred in the three largest regions: North America (-19.0%); Europe (-14.4%); and Asia/Pacific (-14.2%). The unprecedented declines wiped out two robust years of growth in 2006 and 2007, reducing both the number of HNWIs and the group’s wealth to below levels seen at the close of 2005.

HNWI wealth is forecast to start growing again as the global economy recovers. By 2013, forecasts of global HNWI financial wealth are at $48.5 trillion, with the Asia/Pacific region expected to overtake North America as the largest region for HNWI wealth.

The global HNWI population is still concentrated, but the ranks are shifting. The U.S., Japan and Germany together accounted for 54.0% of the world’s HNWI population in 2008, up very slightly from 53.3% in 2007. xolaconsulting www. .com

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Capgemini/Merrill Lynch Wealth Management World Wealth Report 2009 emphasizes that actual HNWI spending patterns also varied considerably from region to region, between mature and emerging nations and between wealth levels.

A key area of commonality across regions of the world was in “lifestyle” spending.

Notably, health and wellness was the only lifestyle spending category to see a significant increase in spending in 2008. Of surveyed HNWIs, 54% globally, and 64% of those in the Asia/Pacific region, said that they had increased spending on this category, which includes activities like high-end spa visits, fitness-equipment installations, and preventative medicine procedures. Economic uncertainty, however, did cut into HNWI spending on luxury and experiential travel. Forty percent (40%) of HNWIs overall, and 55% of HNWIs in North America, said that they reduced such spending, dashing early hopes that luxury travelers would not spurn travel during the financial turmoil.

Adventure travel destinations and companies might want to take this into consideration when framing marketing campaigns and product positioning — connecting our industry with health and wellness may provide some consumers with a better reason to spend than to take a straight holiday.

A recent survey is the Annual Survey of Affluence and Wealth in America by American Express and the Harrison Group, whose most recent results were published in April 2009. Across the 15 categories of expenditures measured by the study, travel is the only category that has ceased to erode on a quarter-by-quarter basis and shows signs of renewal. Of the 78% in the survey who said that the crisis has affected their sense of financial security, only 19% anticipate that their weekend getaway spending will increase, though 62% of respondents said that their weekend getaway spending would stay the same as the previous year. A full 46% said that they would stay in the same tier of hotels but expect a much better deal. So, the wealthy are also seeking out value in this market.

The following chart shows survey data on U.S. affluents’ travel plans in the next 12 months.

(The right-hand column label refers to “Upper Middle Class (UMC) to Super Affluent” responders, and the “Wealthy” percentage refers to those with a discretionary income over $500,000.):

International — Plan to Travel to in Next 12 Months Q1 2008 Percent

Q1 2009 Percent

UMC to Super Affluent Percent

Wealthy Percent

30 31 23 23 24 18 19 8 11 10

30 28 26 23 21 21 16 12 12 10

30 27 23 22 19 18 14 10 10 8

30 34 37 25 29 34 25 18 20 18

Caribbean & West Indies Hawaii United Kingdom Mexico Italy Canada France Australia South America Spain

Source: American Express Publishing and Harrison Group

As we can see from the chart, the majority of affluents plan to travel over the shorter term to North American and Western European destinations; 8% state their intent to visit Australia; 11% to visit South America. xolaconsulting www. .com

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Changing Global Income Levels, Lifestyles and Values Population experts estimate that 70 to 80 million people are entering the middle class per year in the emerging economy powerhouses. As developing economies grow more prosperous and their citizens become more satisfied with their lives, their aspirations change and become more like their middle-class peers in the developed world.

This is not to say that there are not cultural and socioeconomic differences that will have an impact on their consumer spending preferences and tastes, attitudes and lifestyles. In fact, it would be dangerous to make assumptions that the world’s new middle class will act exactly the same as prior generations of middle-class consumers around the world. But many believe that there are some important commonalities amongst members of the global middle class who have aspirations that are more similar to other middle-class individuals around the world than poor citizens in their own countries. For example, we’ve seen that an urban lifestyle is frequently accompanied by a desire to travel to places very different from home, e.g., to nature-based destinations.

This new middle-class demographic has been driven by massive urban migration, with high levels of mobility, including trans-nationally, technology-savviness and an entrepreneurial orientation. These new consumers want the prosperity and quality of life long expected by the middle class everywhere. As a result, global marketers state that the middle class in any country is at the forefront of consumption trends and that marketers, in order to capture customers in these markets, must innovate and create new products that take into account their requirements, lifestyle aspirations and price sensitivities.

The pressures from this expanding middle class are large and increasing rapidly. It is already changing spending patterns, opening up new forms of political pressure and placing fresh burdens on the world’s resources. Understanding the preferences, demands and changing pressures from the expanding middle is likely to be critical to understanding how resource pressures and constraints and spending growth in different global markets are likely to evolve.

The biggest pressure points as well as the greatest opportunities will come from these growing income pools that will continue to shift over time.

Regardless of how the global middle class is defined and what its size is, a February 2009 Economist report emphasizes the socioeconomic effects of this rapidly emerging middle class: ◗ “As people emerge into the middle class, they do not merely create a new market. They think and behave differently. They are more open-minded, more concerned about their children’s future, more influenced by abstract values than traditional mores……These attitudes transform countries and economies. The middle class is more likely to invest in new products and new technologies than the rich, who tend to defend their existing assets.”

What is becoming very clear is that as incomes increase, spending patterns will evolve, fueling growth across a wide range of product and service categories, including adventure travel.

Environmentalism and Sustainability and Attitudes toward Climate Change In January 2009, National Geographic and the international polling firm GlobeScan completed the second annual Greendex study, measuring and monitoring consumer progress toward environmentally sustainable consumption in 17 countries around the world: U.S., Brazil, Russian Federation, India, China, Mexico, Argentina, South Korea, Hungary, Spain, Germany, Sweden, Australia, France, U.K., Japan, and Canada. Seventeen thousand consumers were polled online (1,000 per country), answering questions about their behavior in the four general areas of housing, transportation, food and consumption of goods. The Greendex survey measures consumer behavior in 65 areas related to the four broad areas and then ranks average consumer behavior by country according to the environmental impact of their discretionary and non-discretionary consumption patterns within each of them. xolaconsulting www. .com

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The results suggest that both cost considerations and environmental concerns may have motivated consumers to adopt more environmentally sustainable behavior over the past year, hence the general increase in Greendex scores. However, National Geographic also notes that the 2008 findings raised concerns about what economic development and the material aspirations that come with it would mean for the impact that the average consumer in rapidly developing countries has on the environment. At the same time, the results show that consumers in wealthy countries have a proportionately greater impact on the environment than others and that they can and should make more sustainable choices.

As was found in the first survey in 2007, the top-scoring consumers of 2009 are in the developing economies of India, Brazil and China. Argentina and South Korea are virtually tied for fourth place, followed by Mexicans, Hungarians and Russians. Ranks ninth through thirteenth, the latter a three-way tie, are all occupied by Europeans, as well as Australians in twelfth. Japanese, U.S. and Canadian consumers again score the lowest.

Marketing to Consumers in a Competitive Global Marketplace A recently released report by IBM Business Consulting Services, entitled Consumer Products 2010: Executing to Lead in a World of Extremes, emphasizes that traditional mass-market strategies will be “eclipsed by unprecedented consumer diversity, market polarization and, in many countries, mega-retailer dominance, pushing the consumer products industry to a world of extremes and big winners and big losers.”

The seven global trends listed in the report as follows represent the challenges faced by marketers worldwide in order to reach consumers successfully and to achieve sustainable growth: Consumers ◗ Consumers are fragmenting into “micro-segments” as a result of pronounced shifts in demographics, attitudes and behavior patterns, with both trading-down and trading-up changes in spending patterns; ◗ Further fragmenting consumer values by the urban and rural divides is driving a shift where urban centers across countries are more similar than between an urban center and the rural areas surrounding it in the same country; ◗ Enabled by new technology and regulation, time-strapped consumers are taking more control over their interactions with businesses; and ◗ Consumers are becoming incredibly empowered through access to information, wherever and whenever they want it.

Sellers ◗ Global mega-retailers are rapidly expanding across geographies, channel formats and product/service categories; ◗ Competition is no longer a solo game. Leading companies are teaming with alliance partners to create integrated, collaborative value networks that offer a stronger, more competitive value proposition; and ◗ Markets are rapidly restructuring and providing opportunities for a larger number of agile, and in many cases, smaller players in many industry segments.

Despite the expanding reach of a global consumer culture, the more significant trend driving change is the increasing diversity of consumer characteristics and behavior patterns across the world. These changing patterns in turn are driven by the demographic fragmentation of consumers in terms of age, income, ethnicity, household composition, religion, sex, sexual orientation, life-stage patterns and so on. In our estimation, a key to success will be to develop new business models that address these new markets, new consumers and new competition that are going after these vast opportunities. xolaconsulting www. .com

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These various studies and research data begin to set the stage for our discussion of the adventure traveler in the following chapter. For the adventure travel industry, important issues arising out of the studies and research data reviewed in this chapter, which need to be addressed, are as follows: ◗ What do the changing global demographic, population, income, and urbanization trends mean for the global tourism industry? What do they mean for the adventure travel industry in particular and for who the next generation of adventure traveler will be? ◗ How will the tourism industry appeal to minority and other newly emerging population groups? ◗ With all of the growth in population under age 45 being from emerging-market and minority populations in developed markets, how will the tourism industry draw this growing population base? ◗ How will the adventure travel industry take advantage of changes in consumer spending trends internationally and the emergence of the global middle class and the more affluent population on a global basis? ◗ Where will the tourism workforce come from in countries with declining young populations given that currently a large proportion of the tourism workforce globally is young? Also, now that the majority of the world population lives in urban areas, how will this affect tourist destinations in rural areas around the world? ◗ What will destinations have to do to counteract this trend? Given that the major tourist-generating countries have inverted population pyramids and will likely produce fewer fewer tourists in the future, what will this mean for the kinds of tourist products offered around the world and for the new marketing strategies that will be required to develop new touristgenerating markets?

The article Tourism Realities for a New Demographic Ballgame, observes: “You can plan for the future that you want or for the future you are going to get. Does the tourism industry understand the demographic trends going on around the world and in the United States? Is the tourism industry preparing for a more diverse population of tourists and a more diverse workforce? Is the tourism industry looking backward to the past or forward to the future?”

Photo: Jessica Reilly

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SOURCES: GLOBAL CONSUMER SPENDING, DEMOGRAPHIC, POPULATION, INCOME AND LIFESTYLE TRENDS Rockbridge Associates, Changing Priorities in Touch Times: March 2009 Consumer Technology Pulse, April 2009 The Conference Board, Monthly Consumer Confidence Survey, July, September 2009 Harris Interactive, Harris Poll on Consumer Confidence, June 2009 Ipsos Global Public Affairs, Global Consumer Survey, June 2009 The Nielsen Company, Nielsen Global Consumer Confidence Survey, July and September 2009 The Boston Consulting Group, 2009 Global Report on Consumer Sentiment: Winning Consumers Through the Downturn, April 2009 The United Nations, World Population Prospects: The 2008 Revision Converge Magazine, The New Future of the World: The World’s Population is Changing — But Not How One Thinks, Ron Crouch, Spring 2007 Courier Magazine, Tourism Realities for a New Demographic Ballgame, Ron Crouch, September 2007 Kentucky State Data Center, US Population by Race and Hispanic Origin, 2000-2006 Kentucky State Data Center, World and US Demographic Trends and Projections Advertising Age e-Newsletter, Coping with Consumers’ New Frugality, Avi Dan, May 19th, 2009 CapGemini and Merrill Lynch Wealth Management, The World Wealth Report 2009 Ipsos Mendelsohn, Wealth Survey, September 2008 American Express and the Harrison Group, Annual Survey of Affluence and Wealth in America, April 2009 Marketingcharts.com, Affluent African Americans Wield $29.8B in Spending Power, September 2008 Bain & Company, Luxury Goods World-Wide Market, April 2009 Nordea 1 — Emerging Consumer Fund, 2nd Quarter 2009 Report The Economist, Burgeoning Bourgeoisie, February 12th, 2009 Pew Global, The Global Middle Class, February 12th, 2009 GrowGlobally.org, A Billion More Customers Coming to a Regional Market Near You, February 26th, 2009 Goldman Sachs, Global Economics Paper No. 170, The Expanding Middle: The Exploding World Middle Class and Falling Global Inequality, July 7th, 2008 Goldman Sachs, Global Markets Institute, The Power of the Purse: Gender Equality and Middle-Class Spending, August 5th, 2009 World Bank, urbanization trends data Institute for Global Futures, Global Trends Report 2009 eMarketer e-Newsletter, US Internet Users by Race/Ethnicity, February 2009 Brandweek, WPP Group’s Mindshare Survey, Gays, Lesbians More Likely to Make Tech Purchases, June 29th, 2009 Harris Interactive, Gay Travel Snapshot — Spring and Summer 2009, May 4th, 2009 comScore, Q2 2009 US e-commerce data The Nielsen Company, Global Online Consumer Survey, April 2009 IBM Business Consulting Services, Consumer Products 2010: Executing to Lead in a World of Extremes, 2009 National Geographic/GlobeScan, 2nd Annual Greendex Study, January 2009 National Geographic/Economist Intelligence Unit/GlobeScan, Consumer Choice and the Environment: Market Basket Report, May 2009

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Chapter III: Consumer Technology Use This chapter will focus on the rapid global emergence of consumer use of online technology.

These consumer-technology trends are already having major effects on consumer perceptions, values, lifestyles and spending patterns around the world and will also accelerate as the penetration of technology use continues.

SOCIAL MEDIA USAGE AND USER-GENERATED CONTENT Recent studies on consumer use of both traditional and online media confirm trends of increasing multi-channel usage. Ketchum Communications’ third annual U.S. Media Myths & Realities survey, examining consumers’ use of dozens of traditional and new media channels, finds that consumers are using a wider variety of channels than ever before, and the lines between media channels are becoming increasingly blurred.

The Nielsen Company released in April 2009 The Global Online Media Landscape: Identifying Opportunities in a Challenging Market. One of its key conclusions is that, around the globe, the online population is looking more like the overall population, meaning that in a few short years, online access has moved from being a luxury or something “cool” for young people to an essential, basic requirement. Social media is a global phenomenon happening in all markets regardless of wider economic, social and cultural development: if you are online, you are using social media.

Nielsen believes that the meteoric growth in consumer use of social media is the single most significant story in the global online media space today: social networking sites eclipsed e-mail in global reach at 68.4% vs. 64.8% in February 2009. And even more significantly, in only the first few months of 2009, these sites are growing faster than any other online sector.

Universal McCann’s (UM) Wave.3 and Wave.4 Social Media Trackers, Spring 2008 and 2009, have mapped key changes in consumer uptake and usage of social media platforms in each of the past four years. Based on this year’s research, nearly 2/3s of active Internet users have joined a social network site, up from 57% in the Wave.3 study last year. Results also show that while blogging has nearly reached a saturation point in terms of total numbers, it also found that active Internet users are not cutting back on blogging but are increasingly opting to do it via social network pages rather than through the likes of Flickr and Blogger.

Social media platforms are also becoming more multi-media in nature. The number of bloggers and social network users who have uploaded photos, videos, music and widgets has continued to rise steadily around the world. 76% of social network users upload photos in 2009, up from 45% in 2008, and 33% upload videos compared to 16.9% last year.

The rapid emergence of the mobile Internet is also important since it is quickly becoming a key means by which consumers interact with all forms of media, including social media. eMarketer in a June 9th, 2009 newsletter projects that, as a result of rising smartphone popularity, mobile Internet access will see significant gains over the next five years, with the number of U.S. mobile Internet users reaching 134 million in 2013.

User-generated content (UGC) is now permeating the Internet, for better or for worse, and we all expect that many existing and new travel sites will have sections that include it. eMarketer, in a December 2008 report, estimates the number of U.S. UGC creators in 2008 at 82.5 million, projected to grow to 114.5 million by 2013.

A variety of research confirms that UGC influences consumer choices in a variety of areas. For example, 40% of online travel researchers use UGC when researching travel online (Jupiter Research, U.S. Online Travel Consumer Survey 2008). xolaconsulting www. .com

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In 2007, Forrester Research published its first study on the usage of what they refer to as social technographics in various parts of the world with a tool called the “Social Technographics Profile.” The study’s author/developer makes the point that many companies approach social computing as a list of technologies to be deployed as needed — a blog here, a podcast there — to achieve a marketing goal. However, the study suggested that a better approach is to start with a profile/target audience and then to determine what kind of relationship you want to build with those targeted individuals, based on what they are ready for.

All of these social-media trends are especially relevant in the adventure travel industry, where its product lends itself easily to storytelling and sharing from consumer to consumer. Adventure industry marketers should take advantage of social media trends as well as survey methodologies and invest in understanding how best to harness their potential for reaching new customers and maintaining relationships with existing ones.

Photo: Christina Heyniger

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SOURCES: CONSUMER TECHNOLOGY USE The Nielsen Company, The Global Online Media Landscape: Identifying Opportunities in a Challenging Market, April 2009 The Nielsen Company, Listening vs. Asking: Contrasting Consumer-Generated Content and Surveys, April 2009 Universal McCann, Wave.3 and Wave.4 Social Media Trackers, Spring 2008 and 2009 eMarketer e-Newsletter, Rising Smartphone Popularity, June 9th, 2009 Universal McCann, Wave.4 Media Tracker, June 2009 Strategy Analytics, Broadband Forecast H1 2009 eMarketer e-Newsletter, User-Generated Content Trends, December 2008 Jupiter Research, US Online Travel Consumer Survey 2008 Ketchum Communications/University of Southern California Annenberg Strategic Public Relations Center, US Media Myths and Realities, January 19th, 2009 Ketchum Communications, news release, Century of the Great Melting Pot, January 19th, 2009 Anderson Analytics, Survey of Social Networking Activities of US Social Network Users, May 2009 MarketingSherpa, Survey of Social Media Marketing Professionals, December 2008 eMarketer e-Newsletter, Marketing on Social Networks: Branding, Buying and Beyond, August 2009 Forrester Research, Social Technographics Profile, annual global surveys

Photo: Jessica Reilly

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Chapter IV: The 2009 Adventure Market & Traveler Profile 2009 For businesses and destinations looking to attract adventure travelers, this chapter offers the results of a recent survey of adventure travelers and estimates of the size of the international adventure travel market. We also examine the U.S. travel market, adventure travelers from developing countries, and the time taken for vacation in different countries around the world.

We find that on a world-wide basis, travelers in general, including adventure travelers, are looking for ways to economize with: 1) trips closer to home; 2) shorter stays; 3) cheaper accommodations and travel arrangements; 4) destinations they may not have previously considered; 5) web sites which facilitate comparison shopping on prices and rates; 6) lower spending on food, beverages and entertainment; 7) a focus on less expensive destinations; and 8) booking trips later for last-minute deals.

ADVENTURE INDUSTRY SNAPSHOT In May 2009, the Adventure Travel Trade Association released its Q1 2009 Industry Snapshot based on a survey conducted in February 2009 and made the following observations: ◗ “Radically changing booking forecasts and notable shifts in consumer preferences and their booking habits, combined with changes in businesses’ current and future marketing strategies, reflect a quickly adapting adventure travel community”; ◗ In spite of the downturn, the adventure-travel industry does appear to a certain extent to be weathering the storm better than some of the more mass-tourism-oriented travel entities; ◗ Twenty-two percent (22%) of adventure-travel operator survey respondents anticipate increased bookings in 2009 over 2008 levels. Of those reporting increases, more than half anticipate growing up to 20%; ◗ The survey also revealed that characteristics of adventure travelers are changing: people are requesting shorter-duration adventure options, asking for more customized trip options and special offers, and the window between booking and traveling continues to radically diminish. In terms of traveler destination preferences, closer-to-home options, especially in North and South America, also continue to climb; and ◗ Concurrent with shifts in online and print marketing (discussed in Chapter V), new forms of discounting are on the rise. Fifty-nine percent of both operator and accommodation respondents reported that in the past six months they have used new or different forms of discounting, special pricing or price combining (e.g., pay-in-full discounts, refundable deposits, free hotel nights, guaranteed departures, etc.).

RESULTS OF THE 2009 GEORGE WASHINGTON UNIVERSITY, ATTA AND XOLA CONSULTING ADVENTURE TRAVEL STUDY Adventure Market Sizing In 2009, the George Washington University (GWU), in collaboration with the Adventure Travel Trade Association (ATTA) and Xola Consulting, Inc. (Xola), undertook a study of global adventure travel. The study was based on a consumer survey of travelers in Europe, Latin America and North America in order to finally put some numbers to the size of the adventure travel market and to understand more fully its consumers. Together, these three regions of the world account for 73% of all global tourism expenditures and 69% of international departures.

The survey asked questions about past and future travel plans and captured psychographic and demographic information as well as information about spending behaviors. The survey sample of 855 respondents is representative of the population under study (with a sampling error of 3.3%). xolaconsulting www. .com

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Key Findings Departures ◗ Adventure travel represents 26.26% of all travel in North America, Latin America, and Europe; ◗ 15.59% of all international departures from these three regions are people taking trips with an adventure aspect; and ◗ The average trip length is 7.5 days.

Demographics ◗ The mean age of hard adventure tourists was 34.5 and for soft adventure tourists 37, slightly below the average for the age of the mass tourist of 42.5; ◗ Soft adventure tourists were slightly more female (56.3%), while hard adventure travelers were equally distributed between the sexes; ◗ 70% of hard adventure tourists have some college education; 50% have a four-year degree.

Soft adventure tourists were also highly educated with 23% having an associate degree, 28% having a four-year degree and 11.5% with a Master’s degree. Mass tourists were slightly less highly educated, with 17% having associate degrees, 28.6% having four-year degrees and 10% with Master’s degrees; and ◗ Adventure travelers were equally likely to be married or single, while 12.8% of mass travelers were divorced or separated and 35% were single.

Spending ◗ Adventure travelers spend nearly as much on gear and equipment for their trip as on the trip itself. In the case of hard adventure travelers, for example, 87% of their trip cost is spent again on gear. This means that in the case of a trip which costs $3,000, they will spend $2,610 on gear. Soft adventure travelers spend 42% of their trip cost again on gear.

Online Behavior ◗ The most commonly chosen method for planning trips selected by adventure travelers was “research online.” The second most popular response was “consult with friends or family”; ◗ 41% said they “typed the destination or activity they were interested in into Google or another search engine;” 31% said they visited the destination’s official website; 12% read a blog account of someone who had visited the destination; and 8% viewed a friend’s photos from the destination on a social networking website; and ◗ The majority of respondents belong to Facebook and have the most connections on that social network. However, nearly 50% of respondents said they had fewer than 50 connections on their most connected network.

Photo: Annie Aggens

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What They Value When They Travel Similar to mainstream travelers, most adventure travelers place a high importance (meaning they selected as very important or important) on: ◗ Time to be with friends ◗ Time to be with family ◗ Relaxation ◗ Exciting new activities ◗ Learning about different cultures However, in contrast to mainstream travelers, adventure travelers place a higher importance on exploring new places, time to be in nature, meeting and engaging with local cultures and “pushing their physical limits.”

Risk-Taking

Photo: Christina Heyniger

◗ The study confirmed that adventure travelers are risk-taking in their activity choices.

Adventure travelers rated the level of risk associated with their activities higher than mass tourists, but not their destinations.

Future Plans ◗ When answering questions about future trips, respondents indicated intentions to participate in more adventure activities and longer stays; ◗ A surprising 66% of all adventure travelers (combined hard and soft adventure responses) do not have a valid passport, suggesting high participation in domestic adventure travel; and ◗ Adventure travel may weather the recession better than other tourism sectors, given that travelers say they’ll take more and longer trips even during the economic slow-down.

One caveat to this information: confidential interviews with some industry leaders and reports in the trade press suggest that the current state of the industry may be more troubled than would appear based on the stated intentions of consumers responding to this survey. While some companies report revenue increases, we have been advised that a number of leading adventure travel companies are experiencing revenue decreases year-over-year of 40% on average. Many of these firms have responded aggressively by cutting costs to ensure that they continue to make money or at least break-even. Since the majority of companies are small and privately held and do not publicly report financial results, it is difficult to obtain verifiable statistics. However, we do still believe that, when the world economy turns the corner and people start traveling again in numbers, the adventure travel industry will be one of the first segments to re-establish momentum.

What They Like To Read ◗ The most frequently read publications were local newspapers, People Magazine and National Geographic.

Stuff They Own ◗ Thirty percent (30%) of respondents owned an Acer computer, far more than the second most cited brand, Apple, at 10%; and ◗ In terms of gear, Timberland was the most recognized across the three regions, followed by Quiksilver, Gore-tex, North Face and Columbia Sportswear, in that order.

A side note on “stuff” — according to the Outdoor Industry Association, although total outdoor sales were down in June 2009, across all sales channels, products related to camping, xolaconsulting www. .com

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backpacking and hiking saw healthy sales gains in June 2009. In addition, while specialty stores lost 6% in total dollar sales compared to June 2008, there were positive sales in categories related to outdoor recreation and camping (three-season backpacking tents jumped 25% in June dollar sales, synthetic fill mummy bags grew 4%, climbing gear was up 7%, hiking boots 17% and multisport shoes 24%).

YOUTH TRAVEL For in-depth statistics on youth travel we turn to STA Travel, a large student and youth travel agency. STA released survey results revealing that more than 60% of 18 to 35 year olds are unlikely to give up their holiday abroad, even if it is only for a week. Travelers are prepared to forego shopping, clubbing and expensive meals for a better holiday experience. STA also reported a 10% rise in sales of adventure tours as travelers seek more from their holiday than just sunbathing.

The current top-selling destinations for youth are Australia and various countries in Asia, with the biggest growth coming from Africa. The company is also witnessing increased bookings to China, Vietnam and Brazil. In separate research, STA has noted a trend in travelers setting themselves “see-by” deadlines to discover little-known destinations and seeking out more offthe-beaten track destinations. The study from the Future Laboratory, cited by STA in its research, claimed that the Internet had increased awareness and knowledge of new destinations and experiences, which had boomed because of the reduced cost of long-haul travel.

GLOBAL MULTIPLIERS The following paragraphs discuss recent research about a market segment referred to as “global multipliers,” which we believe share many characteristics with adventure travelers.

Understanding the characteristics and behaviors of the global multipliers adds depth to our adventure traveler Global Multipliers are High profile.

Value Consumers

In April 2009, The New York Times, Thomson Reuters and MediaVest released the results of a co-sponsored research that identified a small segment of the global population, which they call Global Multipliers, who exert a very significant influence on other consumers in such categories as travel, luxury, finance, electronics and “green” products. While the study recognizes that the concept of opinion leaders is not new in the U.S., it asserts that it is the first public study focused on Global Multipliers on a global scale.

The study estimates that there are 19 million Global Multipliers on a world-wide basis. They are not unique to any one market or region and reside in all countries around the world, though to varying degrees. For example, the study estimates that there are 2.6 million Global Multipliers in the U.S. and 242,000 in Argentina.

Global Multipliers’ impact on consumer spending is significant on a world-wide basis. The chart to the right means that Global Multipliers account for $172 billion in global travel spending, influence 16% of the world’s electronics purchases and spend $51 billion in green products in the U.S. alone, the research found. xolaconsulting www. .com

% Difference in Spending: Global Multipliers vs Non-Multipliers

Travel 18% Technology 32% Luxury 34% Green Products 33% Monthly Savings 21%* *Average % of HH income saved or invested monthly by Global Multipliers Source: Global Multipliers 2009 Conducted by The New York Times, Thomson Reuters and MediaVest

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In addition to spending more than other consumers, they are also the first to buy new products and pass their opinion on to their friends and family. It is more important to Global Multipliers than other consumers to be the first to try something new (72% to 43%), and they are more likely to enjoy trying new products and services even if they are unfamiliar with the brand (81% vs. 58%). For new destinations, reaching and catering to Global Multipliers may be a useful strategy.

Global Multipliers are also on the cutting edge of new technology and use digital media to influence others well beyond their immediate circle of local contacts. They are much more likely to use the Internet to share their opinions quickly and on a large scale by forwarding links (69% vs. 49% for average consumers), social networking (64% vs. 54%), posting user reviews (50% vs. 30%), and blogging (46% vs. 34%).

OBSERVATIONS ON U.S. TRAVELERS Most nature and adventure travelers originate from North American and Western European markets. Research conducted by the U.S. Department of Commerce on U.S. travelers, however, indicates that, even though there are many people who participate in physical, naturebased activities in the U.S. itself, U.S. travelers abroad are not as active. Findings from a range of studies of U.S. consumers are summarized below. For adventure businesses and destinations this information points to the need to develop itineraries with a mix of activities and that U.S. adventure travelers, although active, will be looking for more luxury and the incorporation of mainstream tourism activities such as shopping. ◗ U.S. Department of Commerce traveler data for U.S. residents traveling abroad show only 25.8 million left the U.S. in 2008. From self-reported data on the activities in which these travelers participate abroad, it would appear that a substantial number of tourists are still focused on “softer” forms of activities. For example, only 1.6 million individuals report having gone camping/hiking in 2008 compared to 21.4 million who ate in restaurants, 18.9 million who shopped, and almost 14 million who visited historical places. ◗ Data from the National Survey on Recreation and the Environment show that between 2000 and 2008 the number of people 16+ who participated across 62 outdoor, recreationbased activities, increased by 4.4% to 217.7 million (or an average of 27.2 million per year); however, the number of participation days grew overall by more than 22% to 203 billion and by almost 32% in terms of per capita days.

The NSRE data also show that, while the outdoor-recreation trends remain positive, there appears to be a shift toward combining ecological/environmental interests with adventure and amenities, namely, combining “hard” days and “soft nights.”

The NSRE is an Interagency National Survey Consortium, Coordinated by the USDA Forest Service, Recreation, Wilderness, and Demographics Trends Research Group, in Athens, GA and the Human Dimensions Research Laboratory, at the University of Tennessee, Knoxville, TN. ◗ The Outdoor Industry Association’s 2009 Outdoor Recreation Participation Topline Report indicates an increasing number of Americans returned to nature and active outdoor activities in 2008. The study finds sizeable participation increases in nearly every nature-based activity, including double-digit increases in backpacking, mountain biking, and trail running and close to a ten percent (10%) increase in hiking and camping. Overall participation trends in recreation, sports and fitness remained largely unchanged between 2007 and 2008.

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ADVENTURE TRAVELERS FROM DEVELOPING COUNTRIES Our profiles of adventure travelers are drawn primarily from developed countries. However, we can be predictive about the behaviors of future adventure travelers from developing countries by analyzing the various stages in tourism consumers’ evolution: the first stage is pure sightseeing, going to see a well-known destination never seen before; stage two would include broadening out to go beyond the trademark destinations to possibly the countryside around those destinations, but probably still emphasizing sightseeing over activities; and the third stage a more sophisticated, experiential travel to more off-the-beaten-path destinations with higher levels of activity. This later category includes adventure travel in all of its forms.

While the vast majority of travelers from developing countries are currently exploring trademark destinations around the world, we believe that there is a rapidly growing group of more sophisticated emerging-market travelers who are already in phase two and a much smaller group in phase three. These are likely to be consumers in an elite group of educated, alreadywell-traveled individuals.

The chart below illustrates in very broad generalizations how traveler demands shift away from manufactured attractions toward authentic, natural experiences such as those offered by adventure travel businesses as travelers become more experienced.

Many Asian Travelers Today

Demand for Manufactured Attractions

High

Wealthy Asian Travelers Today

Most North Americans Today

Europeans Today

Low

Extent of Travel Experience

High

Source: XOLA

Recognizing these patterns, destination developers and marketers should also think about ways to convert current mass travelers into adventure tourists with the promise of authentic and unique experiences. Using online and social media solutions to sensitize and manage the expectations of these new adventure travelers around the world to the realities of destinations is also important.

VACATION TIME AROUND THE WORLD The vacation-day trends discussed below will play a role in the destinations travelers choose and how long a vacation they will be able to take. Lower vacation time means that travelers will opt to stay closer to home. This may limit the audiences for those adventure-travel companies with very long itineraries in remote areas of the world.

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In May 2009, Expedia released its ninth annual Vacation Deprivation Survey, which compares and contrasts American vacationing habits to workers in Canada, U.K., Germany, France, Spain, Italy, Austria, Australia, New Zealand and Japan. The following is a graphical picture of the vacation days earned by country and unused by country.

The survey shows that, despite earning the least amount of annual vacation days, Americans will leave an average of 3 days unused. The other obvious conclusions are that Europeans receive substantially more vacation days than their North American and Japanese counterparts. The other striking result is that the 92% of employed adults in Japan usually do not take all of their vacation, the highest percentage by far of any of the countries compared, leaving an average of 7 vacation days on the table.

France has the distinction of receiving and taking the most vacation days out of those countries surveyed. Employed adults in France receive an average of 38 days of vacation each year, compared to 13 days for U.S. employed adults and 26 days for employed adults in the U.K. French workers also take an average of 36 vacation days per year, compared to 8 days for employed adults in Japan, 11 days for U.S. employed adults, 23 for those in Austria and 24 for those in the U.K. As for the United States, the surveyed revealed that Americans will give back an average of three vacation days each; the number of Americans who will not use all of those earned days increased from 31% in 2008 to 34% in 2009; and Americans when compared to their international counterparts continue to receive and take far fewer vacation days. ◗ Workers are also taking fewer extended vacations, with the number of adults who plan to take a two-week vacation declining from 14% in 2008 to 10% in 2009; ◗ On average, Americans reported receiving 13 vacation days in 2009, one day less than the previous three years; ◗ Approximately 39% of working Americans plan on using the majority of their vacation time in 2009 by taking at least one full week of vacation and spreading out remaining days; and

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◗ Although some Americans sacrifice vacation time for work, 87% reported that certain activities help them feel as though they are truly away from work. Top activities mentioned include: traveling to another state/country (59%); enjoying food and/or drinks prepared and served by someone else (50%); trying new activities and foods (44%); and participating in outdoor activities (43%).

FINAL THOUGHTS Overall, we can characterize today’s adventure traveler as: ◗ Time-constrained; ◗ Looking for easy solutions online; ◗ Focused on intense, spectacular but time-effective and more affordable experiences, those with authenticity and the “wow” factor; and ◗ Demanding special-interest products.

Destinations do not need an infinite number of tourists to be successful; what they require is a steady flow of travelers who provide sustainable, healthy revenues to a region. What that number is can vary from locality/region of the world to the next, and part of the challenge going forward will be to undertake the kinds of analyses that will help determine what the appropriate and sustainable number is, and what the carrying capacities are of particular destinations and/or regions. This will become critically important as we address climate change and water-scarcity issues found in many places around the world, including those that attract many adventure travelers today.

Photo: Christina Heyniger

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SOURCES: THE ADVENTURE TRAVELER PROFILE 2009 PhoCusWright FYI, PhoCusWright Analysts Identify the Top 10 Travel Technology Trends for 2009, April 14th, 2009 PhoCusWright, U.S. Online Travel Overview: Update 2009-2010 Forrester Research, Technographics Online Survey, Q1 2009, April 2009 Travel Weekly, USTOA study shows tour prices down 20% from a year ago, June 19th, 2009 OTX/Google, The Traveler’s Road to Decision, July 21st, 2009 Destination Analysts, Inc., Consumer Travel Sentiment Survey, July 2009 Travel Horizons, Consumer Travel Survey, August 10th, 2009, co-authored by YPartnership and USTOA Expedia, Ninth Annual Vacation Deprivation Survey, May 2009 STA Travel, STA Travel celebrates 30 years of helping people travel the world, May 5th, 2009 Visa International/PATA, Determining Travel Preferences in 2009 and Beyond, spring 2009 International Symposium on Sustainable Tourism Development, March 16th-19th, 2009, Keynote Address, Francesco Frangialli, former UNWTO Secretary-General TripAdvisor, US Travel Trends Survey, October 2008 New York Times, Thomson Reuters, and MediaVest research, Global Message Multipliers 2009, April 2009 Outdoor Industry Association and Piper Jaffray Companies, Piper Jaffray Outdoor Industry Survey, August 2009 Outdoor Industry Association, OIA Survey Reveals Negative Sentiment Persisting, August 4th, 2009 Outdoor Industry Association, June and Mid-Year Outdoor Sales Down — Camping, Backpacking and Hiking Sales Remain Healthy, August 5th, 2009 Outdoor Industry Association, Outdoor Recreation Participation Topline Report 2009 U.S. Forest Service, Annual National Survey on Recreation and Environment, Pioneering Recreation Trends Research, RWU — 4953, 2008 by Ken Cordell, Carter Betz and Shela Mou U.S. Forest Service, Recreational Demand Trends — An Update, May 5th, 2009, Ken Cordell, Carter Betz, Gary Green and Shela Mou U.S. Forest Service, Population, Recreation and Other Trends in the U.S., Ken Cordell, 2009 U.S. Department of Commerce, International Trade Administration, Office of Travel & Tourism, Profile of U.S. Resident Travelers Visiting Overseas Destinations: 2008 Outbound Photo: Christina Heyniger

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Chapter V: General Media, e-Marketing and Online Advertising Trends Travel media play an important role in shaping consumer attitudes about destinations and specific trips, as well as in educating travelers. For destination marketers and tour operators, both editorial content and advertising in both print and online media need to continue to be important components of an overall marketing strategy. In this chapter we offer a brief summary of general print and online media trends in 2009 to support destinations and operators framing marketing strategies for 2010.

GENERAL MEDIA TRENDS U.S. advertising revenue has been plummeting this year, and no media has been immune to the trend. Figures released in mid-July 2009 by Brian Wieser, the new global director of forecasting for Interpublic Group of Cos. Magna, predict that the U.S. advertising economy would fall 14.5% in 2009. Revenue at media suppliers would drop from $189 billion to $161 billion and would not be expected to start bouncing back until the second half of 2010.

Geoff Ramsey, the CEO of eMarketer, predicted in his December 14th, 2009 article entitled Seven Predictions for 2010 (eMarketer Digital Intelligence newsletter) that, even post-recession, aggregate media dollars will fail to return to former levels; he believes that the $192 billion spent in 2008 on total U.S. media represents the absolute peak of media spending for the next decade for the following reasons: ◗ The mandate for the measurement of media effectiveness will intensify demand for lowercost, more efficient media; ◗ Media fragmentation will force marketers to target their messages to ever smaller niche audiences; ◗ Digital technologies are creating new opportunities for firms to self-market and, thus, bypass paid media; and ◗ There will be a continued emphasis on “earned media (that is, when customers become the channel),” such as on social networks and other consumer-generated community platforms, which will also take dollars away from paid media.

Mr. Ramsey also predicts that marketers will be increasingly willing to trade off customer “reach” for deeper engagement: “Rather than try to reach every conceivable person who fits a particular demographic, marketers will be looking for technologies and advertising solutions that allow them to reach only the people who — by their past surfing behavior, search queries, online purchases, social connections, Twitter posts and other digital footprints — indicate that they are likely prospects.”

SPECIALTY MAGAZINE TRENDS Between 2007 and 2008, most magazines in the travel and related categories seemed to be holding their own in terms of subscriptions, though total revenue numbers were more variable. While there are industry observers who believe that these declines reflect a temporary situation, others see a steady decline in magazine readership as well as advertising revenue.

In the U.S., the numbers are sobering. In 2008, 525 magazines shut down in the U.S. Through the first quarter of 2009, another 87 were closed down, and by December 2009, National Geographic ADVENTURE magazine was among them. Advertising pages in September issues of various consumer magazines also fell drastically (W down 53%, Allure 52%, Self 51%, Glamour 42%, Vogue 37%, GQ and Teen Vogue each 32%). The only outlier at that point was Time Inc.’s InStyle, which actually ran 2% more ad pages than last September 2008.

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The following is a list of 2008 subscription and revenue data for a sampling of adventure magazines from Magazine Publishers of America (MPA) and Publishers Information Bureau (PIB); it shows revenues down from 14% to 39% except notably for Discover and Endless Vacations, which we up 5.6% and 9%, respectively.

Sample of Adventure Magazines: Subscriptions and Revenues

Publication

2008 Subscriptions % Change Paid + from Verified 2007

Arthur Frommer’s Budget Travel Backpacker Bicycling Conde Nast Traveler Cycle World Discover Endless Vacations GQ Men’s Journal National Geographic National Geographic Adventure National Geographic Traveler Outdoor Life Outside Magazine Smithsonian Magazine Transworld Skateboarding Transworld Snowboarding Transworld Surf Travel + Leisure

672.2 352.7 379.1 823.9 321.5 704.2 1,802.4 917.5 711.7 5,060.7 616.0 725.6 940.9 691.1 2,032.7 135.4 115.1 79.7 967.8

9.3% 0.1% 2.5% 1.2% -0.8% -1.0% 2.1% -0.6% -0.3% 0.2% 3.9% -0.9% -0.6% 3.3% -0.6% 1.7% -0.2% 7.7% -1.1%

2008 Revenues ($s in 000) $30,974.5 $24,764.8 $40,704.7 $177,803.5 $39,647.2 $14,361.0 $12,930.6 $208,332.4 $116,574.5 $98,482.7 $41,800.6 $41,448.1 $35,505.4 $85,223.3 $70,190.0 $34,060.9 $22,270.4 $13,434.1 $150,879.9

% Change %Change from H120082007 H12009 2.0% 4.2% -1.3% -5.2% -15.4% -0.4% -0.1% -2.0% 8.1% -4.9% 12.5% 8.4% 0.7% -3.8% -8.0% 10.2% 61.1% 8.8% -3.3%

-22.0% 0.0% -20.5% -39.1% -14.6% 5.6% 9.1% -27.2% -35.0% -32.9% -30.4% -34.1% -21.4% -16.6% -27.1% -16.6% -16.2% -29.0% -15.2%

PricewaterhouseCoopers Global Media Outlook, published in June 2009, notes that, between 2009 and 2013, consumer-magazine ad spending in the U.S. will slide faster, falling at a compound annual rate of 0.9%, than all other media competition except newspapers. The Internet and mobile segments in contrast are climbing by approximately 6.3%. The report emphasizes that this is not about audience declines per se since consumers continue to seek out and read magazines. More than 189 million adults in the U.S. have read a magazine within the last 30 days according to Mediamark, and magazine advertising is still more trusted by consumers than ads on the web, radio or TV. What the declining magazine ad spending trend means, however, is that magazines will have to “get off of the addiction to ad pages” and start looking for new revenue streams in a variety of ways, which will be critically important over the next five years just to survive. Magazines will start to be judged by marketers for their ability to find alternative revenue streams, such as through events, partnership building, sponsorship programs, paid membership clubs, the use of different kinds of content and the creation of social media opportunities and so on.

Given these rapid changes in the magazine business, many industry analysts believe that publishers need to move quickly to capitalize on their brand assets and provide accessible, compelling content for readers who already have access to a wealth of competing content both off- and online. Advertising Age estimates that, based on an analysis of 11 major magazine group publishers, digital ad revenues for consumer magazines averaged only 6.4% of total revenues in 2008, suggesting that they have a long way to go to build their digital businesses. xolaconsulting www. .com

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According to MPA, heavy travelers are magazine readers, and they, as well as those using the Internet, by far outpace readers in other media categories as those likely to take vacations both within and outside the U.S. In addition, affluent travelers use magazines the most of any income group, with TV and Internet coming in a distant second and third, respectively (2008 Mendelsohn Affluent Survey, U.S. Adults, HHI $100,000+). Many media analysts also believe that the tactile experience a reader has as well as its escape element are still very important characteristics that are unique to magazines. However, it is still predicted that only certain magazines that provide unique experiences will survive and thrive going forward and that even those will have to “rethink themselves.”

ONLINE MARKETING AND ADVERTISING TRENDS To support adventure destinations and tour operators looking to enhance their online marketing strategies, we offer the following discussion of online advertising and marketing.

Forrester Research released survey research in July 2009 that predicts that digital marketing will be about 12% of overall advertising spend in 2009, growing to about 21% of total in five years. The survey observed that, in this recession, marketers have learned that interactive marketing is more effective, and advertising less effective, per dollar spent. Six out of ten marketers stated that they would be increasing their budget for interactive marketing by shifting money away from traditional marketing.

Razorfish’s Digital Outlook Report 2009 on Media Trends to Watch states that the trend toward niche marketing rapidly emerged in 2009, with both organic and paid search representing 37% and vertical targeting 33% of total digital-media spend. The key trends for 2010 are as follows: ◗ Social influence will go “mainstream,” and social media usage will result in more influence amongst marketers; ◗ Mobile advertising will get smarter; ◗ Performance measurement will start to enter the digital age; ◗ Portable and “beyond-the-browser” opportunities will create new consumer touch points for brands and content owners; ◗ The focus of marketing will shift to “influencers”; ◗ Top-down branding will lose importance; and ◗ Marketers will begin to organize around social influence marketing.

A report released by eMarketer on August 31st, 2009 states that, contrary to “common wisdom,” social networks can be used effectively for branding, improving customer loyalty, lead generation, direct marketing and e-commerce. It has been the generally held view over the past few years that people are interested in interacting with social network friends, not marketers. Not so, according to Anderson Analytics’ May 2009 survey—52% of social network users had become a fan or follower of a company or brand, while 46% had said something good about a brand or company on a social networking Website—double the percentage who had said something negative (23%).

“Social networks are a constantly changing database of consumer sentiment, attitudes and information, and marketers today have only the earliest glimpse of the potential. Companies that want to maximize their presence on the social Web must take advantage of social networks in all stages of the purchase funnel, from awareness to learning to buying to loyalty.” (eMarketer report, “Marketing on Social Networks: Branding, Buying and Beyond,” August 2009) xolaconsulting www. .com

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Amidst the buzz on social media, search marketing (also called search engine optimization or SEO) continues to be important. Target keywords used in the past may need to be changed or updated. While it is difficult to risk changing many of the basics in a search optimization strategy, marketers need to make sure they are using all the tools available to maximize customer touch points, such as Google Webmaster, Yahoo Site Explorer, and Microsoft Webmaster Center.

MULTI-CHANNEL MARKETING INTEGRATION Another important trend is the emergence of multi-channel marketing integration, using both offline and online marketing techniques. Based upon the findings of several of its studies, iProspect found: â—— More than one-half of U.S. search-engine marketers surveyed integrate their search engine marketing with at least one offline channel; and â—— Among search marketers who run integrated campaigns, more than one-third combine search engine marketing with direct mail, and nearly thirty percent combine search engine marketing with magazine or newspaper advertising. It is less common for marketers to use search in conjunction with television or radio ads.

The re-allocation of marketing dollars amongst the various media categories and the rapid increase of requests for integrated marketing programs have led to the general view of many industry pundits that the advertising world is changing forever, and that the current changes are structural in nature, not cyclical and simply a result of the recession. While the magazine industry, for instance, has been slow to adopt multi-channel marketing, there finally seems to be momentum toward these new integrated marketing models of doing business.

The perceived growing effectiveness of multi-channel campaigns also reinforces the requirement for tactics that first identify exactly who the customer is and then establish one-to-one relationships between marketers and consumers/customers. Rapidly changing technology, including web analytics and ad-serving software, is allowing real-time targeting for online ads, highly precise, cost-effective targeting, and the presenting of ads at the right time. The ads with the highest ROIs (MarketingSherpa, February 2008, 2008 Online Advertising Survey) are contextually targeted ads (40.5% ROI); behaviorally targeted ads (36.7%); text-linked ads (29.7%); affiliate marketing (23.4%); and rich media ads (22.0%).

Cross-channel marketing is not without its challenges, however. Most marketers state that they have problems measuring performance and effectiveness across channels. According to eMarketer in a June 23rd, 2009 article, 44% blamed the lack of suitable metrics, 37% the lack of case studies on cross-channel effectiveness and 34% the lack of measurement technology.

In spite of these issues, 85% of marketers still see the value in cross-media integration. What is needed, however, are more accurate and dependable analytic tools for measuring effectiveness and for properly allocating marketing dollars amongst the categories of traditional media such as print and TV and digital media such as search, display ads, social networks, etc.

There are now services that can help marketers find more online customers by using such techniques as behavioral targeting (based on recent behavior), geographic targeting (based on physical location), contextual targeting (e.g., people who travel or go to the theater), psychographic targeting (based on any attributes relating to personality, values, attitudes, interests, or lifestyles), and demographic targeting (based on age, sex, ethnicity, etc.).

Examples of services include Alexa, Quantcast, Compete, Hitwise, Nielsen, comScore, Google Analytics, Omniture and ClickTracks. In addition, companies such as Travelocity, with its global network of international online travel sites, has become quite aggressive in providing xolaconsulting www. .com

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its global platform for marketing campaigns. It offers a cost-efficient and very compelling way to raise brand awareness with travelers as well as drive traffic and/or sales locally, regionally and/or globally.

The key to creating long-term, sustainable conversations with consumers will be to pick a marketing theme around which can be created multiple consumer touch points that are equally compelling and viable, using a mix of both online and offline channels. Some brands, products and services are strong enough that consumers will engage with them regardless of the type of campaign used. However, for most products and services, a dialogue needs to be created and sustained, not just between brands and consumers but also between consumers and other consumers. In this way, on-going conversations are developed that support the on-going “freshness� of a brand.

Photo: Adam Vaught

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SOURCES: GENERAL MEDIA, E-MARKETING AND ONLINE ADVERTISING TRENDS Crain’s Detroit Business, Wharton School Study Sheds Light on Future of Advertising, June 1st, 2009 (Future of Advertising, SEI Center for Advertising Studies in Management, Wharton School, University of Pennsylvania) Advertising Age, Future of Advertising? Print, TV, Online Ads: ARF and Wharton School Finds WOM Largely Driven by Paid Media Ads, June 1st, 2009 Advertising Age, Magna Forecast: US Ad Economy to Drop 14.5% This Year, July 13th, 2009 eMarketer, Watching the Worldwide Advertising Spending Scuffle, July 22nd, 2009 eMarketer, Magazines Run Online, March 27th, 2009 Magazine Publishers of America, Fact Sheet: 2008 Circulation Revenue for All ABC Magazines Mediamark Research, Inc., Spring 2009 Report, May 18th, 2009 PricewaterhouseCoopers, Global Media Outlook, June 2009 Print In The Mix Research Clearinghouse, Magazine and TV Ads More Effective Than Ads on the Internet, April 1st, 2009 Ipsos Mendelsohn, The Mendelsohn Affluent Survey, US Adults, 2008 amd 2009 Forrester Research, Digital Marketing Trends, 2009 – 2014 IDC, Worldwide-US Internet Ad Spending Report, Q2 2009 Society of Digital Marketing Agencies, 2009 Digital Marketing Outlook Razorfish, Digital Outlook Report 2009 on Media Trends to Watch eMarketer, Marketers Moving to Social Media, March 23rd, 2009 iProspect, 2007 Offline Channel Influence on Online Search Behavior Study iProspect, Search Engine Marketing Integration Study, August 2008 InfoTrends, Multi-Channel Communications Measurement and Benchmarking Study, January 9th, 2009 eMarketer, The Challenges of Cross-Channel Marketing, June 23rd, 2009 Universal McCann, Wave.3 (2008) and Wave.4 (July 2009) Reports MarketingSherpa, 2008 Online Advertising Survey, February 2008 TourismInternetMarketing.com, The Social Media Trends in Travel Tourism in 2009 and Beyond, March 2009 Highland Business Research Tracking Tourism blog, It Shouldn’t Be This Difficult, July 20th, 2009 Travel Weekly, The Importance of Social Marketing Grows for Travel Companies, March 7th, 2009

Photo: Christina Heyniger

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Chapter VI: Marketing Trends for Destinations and Tour Operators In this chapter we explore key topics in online destination and corporate marketing and branding: ◗ Destination branding; ◗ Destination marketing success stories; and ◗ Marketing expenditures translating into destination revenues.

Destinations and adventure tour operators all over the world are refining their marketing approaches, reaching target audiences more personally and directly through the use of technology in addition to traditional marketing measures.

For example, according to the Adventure Travel Trade Association’s Industry Snapshot from May, 2009, destination marketers report an increased use of Internet marketing options, with the vast majority of 69 tour operators reporting that their e-mail marketing is becoming increasingly effective: 67% reported that they will place a higher priority on SEO in 2009. At the same time, 40% of tour operators say that they are eliminating their traditional print catalog altogether, while 58% are reducing the total number of catalogs mailed. In contrast, 27% of companies report an increase in direct-mail campaigns.

It must be kept in mind that marketing strategies must be relevant to the consumer, and he or she is looking for transparency, simplicity and trustworthy information quickly and efficiently. It is a crowded industry with many suppliers, so if a website does not offer what a consumer wants or if it is too complicated, flashy, or busy, he or she will go someplace else.

We recommend destination websites focus on the consumer, not the travel product being sold, and the website must be appropriately structured to meet that requirement.

As the social-networking phenomenon grows and evolves, travel agencies, suppliers and destination marketers cannot afford to sit on the sidelines and risk missing significant opportunities to engage existing customers, recruit new ones, bolster their brands, undertake market research as well as drive bookings. While it is early going in the travel space, a variety of travel companies are starting to use various interactive marketing and social-media tools to engage with their audiences. Some state that, while the travel vertical is already one of the most advanced industry segments in terms of search marketing, the industry has been under more pressure to make campaigns count and to help generate revenue from sites.

Many travel companies, however, are still reluctant to invest resources into social media and are having difficulties determining how to implement social-media campaigns. Some of the technical, structural and strategic issues that are impeding the development of travel-oriented, e-Marketing campaigns include the following (Highland Business Research blog): ◗ The travel and tourism industry rarely thinks of itself as an e-commerce or even an online business; ◗ There is a tendency by the industry to under-invest and under-perform on critical technical skills as well as service levels, most particularly when compared to e-commerce retail businesses; ◗ It is extremely rare for travel and tourism businesses to have an online specialist, and thus, they generally lack required high levels of technical knowledge; ◗ For many travel and tourism businesses, the website started as a fixed, brochure-type site, evolving into an e-commerce site through the addition of third-party e-commerce products and off-the-shelf booking engines. This integration of “ad hoc elements” has often been clumsy and very user-unfriendly; xolaconsulting www. .com

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◗ Many travel marketers have difficulty incorporating social-media strategies into broader marketing campaigns because they simply are not able to keep up with the unprecedented shifts in technology and consumer behavior; and ◗ The travel and tourism industry has its unique features and challenges as a sector. Since most of its customer/website visitors are likely to spend considerable online time at other websites in other sectors, e.g., retail, the industry needs to be fully conversant about e-commerce and online best-practice methodologies to see what works effectively online and then to understand the best use of investment dollars to maximize performance in the travel industry.

The following is some advice from a number of people involved with developing cross-platform, social-media-marketing campaigns in the travel sector (PhoCusWright blogs, Advertising Age e-newsletters, Google surveys, kayak.com surveys, Highland Business Research blogs): Build Internet traffic. The rule of thumb is that a site needs to have at least 1,000 unique visitors every month to start to build a web presence; First impressions matter. Consumers are sophisticated, and if your site is mediocre, they will leave and might not ever come back. Update the content frequently and provide attractive visuals, a contemporary and fresh look, videos, reviews and UGC. The site must also be useful and easy to use. People have short attention spans and don’t want to take more than three clicks to find what they need; Search, search, search! Searching is what consumers do the most often, so make sure targeted consumers can find and easily get to your site; Build what is considered by many top marketers today to be the “most-linked” brand, in other words, building brands through multiple, relevant, consumer engagements, often on a smaller scale.

The power has shifted to thousands of small conversations that can grow to influence millions; Learn about other direct-to-consumer marketing communications techniques such as blogs and e-mail newsletters before making the transition to Twitter, and when you make that transition, make sure your Twitter voice is consistent with your brand image; Make a travel brand personal and content compelling; Connect to your audience as frequently as possible and reply to them directly if they are speaking to others about your brand; Use multiple social media, not just search engine optimization. Google recently stated that most of the recent growth in travel query volume has come from the “tail.” In fact, the average number of terms in a travel-related search phrase has increased from 2.5 to 4+. Consumers are becoming increasingly sophisticated searchers, and it is important for search marketers to embrace this opportunity to provide more relevant ads for “long-tail” keywords; and Be authentic in your communications.

Of course, in the travel industry at large, there is no shortage of technology companies eager to support destinations with marketing services online. Online travel marketplaces such as Stepuptravel.org, Tourdust.com, Geckogo.com, Responsibletravel.com, WHL.travel, localyte.com and Adventure Link, to name a few, provide travelers with a source of information on adventure companies and, in some cases, services to support booking online. Going a step further, companies such as StepUp Travel have begun licensing its technology, developed to maximize the distribution of providers’ content to selected content aggregators and distributors online — to destinations, associations or even individual service providers. xolaconsulting www. .com

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For the adventure industry the above-discussed trends are useful to understand and leverage. The shift to focusing on “influencers” (or who we refer to as global multipliers in Chapter IV) means adventure tour operators and destinations must identify the influencers in their target markets and spend marketing dollars to speak directly to them, not wasting time and money spreading the word to a vast audience. Influencers can be aficionados of specific types of adventure travel, for example; they can be bloggers with a strong following, young people or established experts. The trick is to identify the influencers for your product and build a relationship with them.

DESTINATION BRANDING A critical element of a destination marketing strategy today is if a marketer can create a community of consumers. Today’s and the next generation of travelers have proliferating preferences based on combinations of experiences, products and prices that suit their individual preferences, which may vary on a worldwide basis. Choices will also continue to grow exponentially. Destinations will need to understand which products, customers and distribution channels will create the most value and will match with what the destination actually has to offer. FutureBrand in its Country Brand Index report in 2007 states: “A country’s ability to be authentic, deliver authentic and communicate authentic is probably one of the biggest destination advantages today.” This is as true today as it was then.

A large body of literature has emerged over the last decade to address issues surrounding destination branding. One common observation is that destination brands are global, chaotic, subject to rapid change, and highly competitive. Countries, regions, and cities are becoming “brands” around the world. And a variety of factors, such as cultural, political, and economic, come into play when shaping a destination’s brand.

Some have observed that every country already has a “brand,” whether it likes it or not. The challenge is to align consumer perceptions with a nation’s most attractive qualities, which are not always obvious. For many emerging destinations in the adventure travel arena, significant challenges exist in changing travelers’ perceptions about the destination. In many cases, regions and cities, which are not as complex as countries, can be easier to brand, posing fewer challenges.

THE EVOLVING TRAVEL SUPPLY CHAIN & THE ROLE OF TOUR OPERATORS Early this year, PhoCusWright, in conjuction with the American Society of Travel Agents (ASTA), published a study entitled The U.S. Packaged Travel Landscape: 2006 – 2010. The tour operator segment of the industry is highly complex and fragmented: there are several different types of travel packages as well as several different types of tour-operator companies that create them. There is also considerable overlap between different types of packages and travel packagers. The types of packages include Escorted Tours, FIT (flexible independent travel), and Group Travel. Types of travel packagers include traditional vacation packagers, tour operators, escorted operators, online operators, and wholesalers. Many of the top adventure-travel outfitters can be considered in this study’s Escorted Operators category: they provide fully escorted programs that usually include more components and complexity than other types of packages and have fixed departure dates.

Key findings of the report are as follows: ◗ Approximately 700 tour operators accounted for $12.3 billion in gross travel sales in 2008: the largest 3% of all tour operators account for 51% of gross sales, with the smallest 74% of all tour operators accounting for 9% of sales; ◗ The vast majority of tour operators are small (74% have annual sales of less than $10 million), niche operators that focus on group travel to the senior and student markets and sell mostly to consumers and group leaders directly; xolaconsulting www. .com

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◗ Fewer than 200 tour operators are actively engaged in the travel agent channel, and the large population of small group operators tend to sell directly to consumers; ◗ Escorted tour operators lie somewhere in the middle, representing both larger and smaller companies and both travel-agent and consumer direct distribution; ◗ In actuality, tour operators do not fit easily into one of the three categories, and most sell multiple types of packaged travel (packages, groups, FITs, and escorted).Three in four operators offer group, escorted and package products, and nearly two thirds offer custom FITs. PhoCusWright estimates that package/FIT travel represents approximately $8.7 billion of the $12.3 billion packaged travel market, followed by escorted tours at $2.8 billion and groups at 8% of the total or $800 million; and ◗ When online packagers are included in the market, a total of another $6 billion or so of tour sales for 2008 can be added for a grand total of more than $18.2 billion.

North American and European-based tour operators, establishing themselves in the locations from where the vast majority of tourists have historically been generated, have dominated the industry for many years, though a range of companies in emerging markets is aiming to fill gaps in the marketplace in terms of products and services, particularly in those areas of the world that have not been well-represented by the current crop of operators.

Over time, many tour operators have diversified by brands, a variety of travel styles, price points and destinations. In some ways, they are the new “mass-market” travel companies, attempting to provide to consumers as many choices as they can from one company. Others have chosen to remain single product-oriented (e.g., biking only) or to focus on a handful of destinations or a region of the world. Some destinations, which have historically been longhaul and booked months in advance, are now viewed as quick-trip destinations, causing operators to adjust their ways of doing business.

Because of where they are placed in the value chain, tour operators clearly can have a significant leveraging effect. What we mean by that is that they are in a key position to influence millions of travelers by promoting certain types of tourism products and certain types of traveler behavior. They are also well-positioned to influence their suppliers, partners and the local infrastructure of guides, support staff and others and encourage them to adopt better business practices. In fact, they will be a key to the development of sustainable tourism products and to ensuring that the complete value chain is adhering to certain goals and guidelines and acting responsibly.

In the case of areas of the world under pressure (for example, those facing water-scarcity issues, as will be discussed in Chapter VIII), tour operators are in a position to propose alternative approaches to lessen the pressure. They are also in a position to help develop new destinations or new products that lengthen the tourism season for certain regions, making them more stable and viable year-round. This is a very large issue in the industry given the precariousness of many tourism jobs because of the shortness of the season. Again, tour operators could make a difference by thinking innovatively and responsibly to smooth out these issues.

We believe these above trends have been particularly true in the adventure travel industry.

Some of the top adventure travel companies in the world, still mostly North American and European-based, have been around for decades, having established their businesses in the early years of the development of niche, special-interest, eco- and nature-based tourism products, with a continually expanding range of products and destinations in new markets since the 1980s. The question is how and whether their roles will change and evolve as the rest of the tourism supply chain responds to market challenges. xolaconsulting www. .com

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THE ROLE OF GOVERNMENTS IN DESTINATION BRANDING Destination marketing organizations (DMOs) continue to face challenges when it comes to their relationships with their local governments, stakeholders and other partners regarding their respective roles and value they can offer. Industry literature points to the mixed signals given off by governments at various levels. In many places, governments are increasingly imposing new taxes (such as luggage fees, landing fees, car rental fees, hotel taxes, energy surcharges, even carbon offsets), enacting laws and placing other restrictions on travel and travel-related commerce that deter travelers, even as they spend heavily to attract them.

In our estimation, while governments at all levels have important roles to play, they are generally ones of supporting and setting the general direction for the industry, not of operating it in a direct manner. Although in the private sector international adventure companies have shown themselves to be responsible for driving this industry, there cannot be sustainable tourism, which involves a range of rules and regulations involving the environment, labor, security, etc., without governments getting involved.

In addition, since so many businesses in the tourism industry are SMEs (Small-to-mediumenterprises) and can’t spend effectively to promote a destination internationally, governments around the world need to take on the task of promoting their nations’ brands internationally. At the same time, governments must also involve local organizations effectively and as part of an inter-connected value chain, or building viable and sustainable tourism products will not work.

DESTINATION MARKETING SUCCESS STORIES As more destinations clamor into the adventure travel space, understanding brand differentiation is more critical than ever. Marketing literature has cited Spain, India and New Zealand as recent, successful country-branding campaigns. Spain was transformed from a sleepy, “lowrent” vacation spot for British and German working classes to a cutting-edge cultural destination; the Incredible India campaign stresses the subcontinent’s natural beauty and its status as an enormous economic engine in South Asia in a difficult, post-tsunami travel environment; New Zealand, which was an isolated, rural, English-speaking country in the South Pacific, capitalized on the exposure it earned from serving as the beautiful backdrop for the Lord of the Rings trilogy, increasing foreign tourism spending from $3.2 billion in 1999 to $5.2 billion in 2005.

In the adventure category specifically, emerging standouts of adventure branding can be found in the examples of Norway, Australia, and New Zealand. These destinations are clearly making a commitment to establishing an outdoor brand: for example, Norway’s site, visitnorway.com, focuses on activities in fjords and mountains, and skiing, and includes a video, “Powered By Nature.” Brazil and Iceland are two additional destinations to watch; both have been aggressively developing their adventure brands since 2007.

In the United States, Nevada and Utah have committed to branding themselves as outdoor/nature/adventure destinations. The first sentence of Utah’s website at www.utah.com says: “Welcome to Utah, paradise for outdoor enthusiasts!” Similarly, at travelnevada.com, one finds a very focused discussion of nature and adventure activities.

While every country and destination will need to tailor their brand-building strategies to their particular circumstances, learning from what leading destinations have done can be helpful. In general, these destinations have become e-businesses throughout their operations; have sophisticated customer analytics capabilities in order to understand visitors, their motivations and needs and their online conversion behavior; have easy-to-use websites and dynamic content; have developed sophisticated e-marketing strategies, including the use of user-generated content (UGC); have developed a distinctive narrative or personality based on customer needs, not on a product orientation; have already integrated mobile services; and have implemented partnership strategies across all parts of their businesses, including distribution. xolaconsulting www. .com

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MARKETING EXPENDITURES TRANSLATE INTO DESTINATION REVENUES The success of any marketing plan is measured by how much additional income is generated for each dollar spent on marketing. During this economic downturn we have found significant debate about cutting marketing and promotional budgets, with many organizations trying to do more with smaller budgets. It is happening in both the private sector as well as in government organizations responsible for tourism marketing. A number of analyses has attempted to establish a case for or against reducing public tourism spending by answering these questions: 1. If the tourism promotion budget is reduced or eliminated, how many visitors might be lost?

2. How much tourism spending will disappear with these lost visitors?

3. This loss of visitor spending will reduce state and local tax receipts by how much?

4. Will the loss of tax receipts be greater than the original promotional budget savings?

The most recent work on the subject has been undertaken jointly by IHS Global Insights (IHS) and D.K. Shifflet & Associates (DKSA) to help its public tourism clients answer these questions. They examined a number of cases where promotional budgets were cut to see what the effect would be on tourism visitors and spending, and also looked at several cases where budgets were increased to see what, if any, revenue increases would be experienced. ◗ In 1993, the state of Colorado dropped all funding for tourism promotion to shore up the state’s budget. By 1997, Colorado’s overnight leisure visitation had dropped by almost 30%, with the state’s rank as a summer resort dropping from #1 to #17. Tourism expenditures fell by about $2.4 billion, and state/local tax receipts by $134 million during that four-year period. Other comparative destinations also lost visitors during that period as well, but Colorado’s losses were nearly twice those of its competitive states. When travel promotion resumed in 2004, it took Colorado three more years to recover to the travel levels recorded on the eve of the interruption some seven years earlier. ◗ IHS/DKSA analyzed ten other states and found similar stories. The number of lost visitors needed to totally negate any budget savings ranged from 0.4% in New Jersey to 1.5% in Utah.

In fact, all but South Carolina and Utah show a number less than 1%. Thus, they ask the question: “Could your state or city lose less than the 1%? Is it worth the risk to find out?” In essence, they believe that if a state or city really wants to reduce a budget deficit, it should invest in tourism promotion, not reduce or eliminate it.

The same seems to hold true internationally.

Highlighted in the February 2009 Journal of Tourism Research entitled Measuring the Return from Australian Tourism Expenditure (Kulendram and Dwyer), the goals of the study were to estimate demand for travel to Australia from various key origin countries, and estimate visitation from these origin markets by income, travel prices, and marketing. The results of the study were significant and favorable. Incremental visitation (that is, tourist arrivals) from each key origin market was positively related to incremental changes in ATC marketing spending; and once visitor volume was converted into spending, the benefit-to-cost ratio ranged from 3-to-1 for the U.K., 7-to-1 for the U.S., and 36-to-1 for New Zealand. xolaconsulting www. .com

Photo: Christina Heyniger

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Tourism Economics (a subsidiary of Oxford Economics plc) has also undertaken similar research and found comparable returns in the following cases: Destination

Target Market

Australia United Kingdom Canada Hawaii Canada Philadelphia United States

United States Global United Kingdom United States United States W. Europe United Kingdom

Amount Spent ($ in MM)

Return on Spending

Return on Taxes

$3.5 $42.1 $1.0 $15.0 $4.8 $1.2 $4.1

64:1 47:1 13:1 177:1 23:1 44:1 117:1

5:1 5:1 2:1 3:1 3:1 3:1 10:1

Tourism Economics states that its research on tourism marketing programs around the world shows a consistent return on investment when the tourism brand and the product are strong behind the campaign. In addition, in times of crisis, destinations which have invested have often gained significant market share.

What does all of this mean to brand marketers? Increasingly, the bottom line is to build “sustainable conversations” with customers. Historically, most modern advertising campaigns have centered on piquing interest, driving sales and customer retention, and creating brand awareness. In most instances, campaigns would create “buzz,” a quick burst of conversation and then run their course.

The key to creating long-term, sustainable conversations is to pick a marketing theme around which can be created multiple points of view that are equally compelling and viable. Some brands, products and services are strong enough that consumers will engage with them regardless of the type of campaign used. However, for most products and services, a dialogue needs to be created and sustained, not just between brands and consumers but also between consumers and other consumers. In this way, on-going conversations are developed that support the on-going “freshness” of a brand.

Photo: Christina Heyniger

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SOURCES: MARKETING TRENDS FOR DESTINATIONS AND TOUR OPERATORS UNWTO/ETC, 2009 Handbook on Tourism Destinations Branding with an Introductory Essay by Simon Arholt, Why National Image Matters, 2009 Highland Business Research Tracking Tourism blog, It’s Not About Me, It’s About You, March 26th, 2009 Niall Caldwell and Joao R. Freire, Differences between Branding a Country, a Region, and a City: Applying the Brand Box Model, Brand Management, Vol. 12, No. 1, 50-61, September 2004 Saila Saraniemi and Mari Ohonen, Destination branding from a corporate perspective, 2008 Highland Business Research Tracking Tourism blog, How do you market travel to the Axis of Evil?

November 11th, 2008 Landor Associates, Country Branding is More than Just a Logo, May 2007 IHS Global Insight/D.K. Shifflet & Associates, Ltd., Public Tourism Promotion ROI: Cutting the Promotion Budget is Tempting, Is it Worth It? February 2009 D.K. Shifflet & Associates, Ltd., The Power of Promotion in a Challenging Economic Environment : Will It Keep Them Coming ? March 24th, 2009 Kulendram & Dwyer, Measuring the Return from Australian Tourism Expenditure, Journal of Tourism Research, February 2009 Tourism Economics, an Oxford Economics company, The Outlook for Travel and Strategic Implications for the Caribbean, January 2009 Deloitte, Global Tourism Opportunities Research Study, February 2009

Photo: Whit Richardson

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Chapter VII: Destination Performance Measurement In any industry, tracking performance is important. Understanding the reasons behind successes and failures supports the formulation of strategy, the allocation of budget and the evolution of products and services. In the tourism industry, we find the following categories of success measurements: ◗ General, company- and/or organization-oriented business measures (e.g., customer retention rates, quality of customer service, etc.); ◗ Tourism industry-specific indicators (i.e., traditional tourism-specific measures such as number of arrivals and receipts); and ◗ Product-specific measures (e.g., tailored to specific offerings such as the ATDI for adventure tourism).

In combination, these performance measures can be used to benchmark destinations.

In this chapter, we will only discuss tourism industry and product performance-measurement tools, not more general business and company measures.

TOURISM INDUSTRY METRICS Two of the most well-known tourism-related metrics tools are the World Economic Forum’s annual Travel and Tourism Competitiveness Index (TTCI) and the Adventure Travel Trade Association (ATTA) and George Washington University (GWU)’s Adventure Tourism Development Index (ATDI), launched in 2008. (Xola Consulting advanced the ATDI’s “10 Pillars of Adventure Tourism Competitiveness”; in 2008 GW developed the technical methodology for ranking countries.) Other measures of tourism activity include the Location Quotient (LQ), which is a measure used to gauge the economic impact of travel and tourism in sub-regions of a larger state or country, and the National Quality Institute’s (NQI) Framework for Success.

These initiatives incorporate a wide range of factors — for example, tourist arrivals, flights per day, tourism receipts, tourism receipts per arrival, length of stay, government spending on tourism as a % of GDP, and occupancy rates. At the level of the individual destination, however, we believe these indicators of success should be expanded, to capture whether and how tourism revenues are translating into costs and benefits for the environment and people who live in these destinations.

Readers should keep in mind how the value assumptions underlying the criteria used in various ranking systems, including their relative weightings, influence the results and how they are used. For example, by giving a destination a high score for certain types of infrastructure, analysts send the message to tourism developers that infrastructure of this type is preferred; over time, this can have an important influence over tourism investment and spending, and policies. Similarly, by favoring destinations based on the numbers of tourists they receive, the industry continues to send the message that high volumes of tourists are always desired.

World Economic Forum: Travel and Tourism Competitiveness Index 2009 The World Economic Forum, in collaboration with Booz Allen Hamilton, releases an annual Travel and Tourism Competitiveness Index (TTCI) and Report. It rates 133 countries using 15 criteria, organized into three broad categories (T&T regulatory framework, T&T business environment/infrastructure, and T&T human, cultural and natural resources) to judge which ones have the most conducive environments for developing and managing the travel and tourism industry. In general, the TTCI emphasizes the importance of more mass tourism-oriented measures, such as safety and security, strong infrastructure, stable and mature regulatory frameworks and so on.

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The following chart summarizes the 2009 rankings of the top 20 countries, also providing their rankings for the previous two years.

The Travel & Tourism Competitive Index 2009 Country

2009 Rank

2008 Rank

2007 Rank

Switzerland

1

1

1

Austria

2

2

2

Germany

3

3

3

France

4

10

12

Canada

5

9

7

Spain

6

5

15

Sweden

7

8

17

United States

8

7

5 13

Australia

9

4

Singapore

10

16

8

United Kingdom

11

6

10

Hong Kong

12

14

6

Netherlands

13

18

19

Denmark

14

13

11

Finland

15

12

16

Iceland

16

11

4

Portugal

17

15

22

Ireland

18

21

11

Norway

19

17

23

New Zealand

20

19

14

Brazil

45

49

59

China

47

62

103

Mexico

51

55

49

Russia

59

64

68

India

62

65

65

Fourteen of the 20 top countries are in Europe (including Iceland), with Switzerland, Austria and Germany maintaining their top spots in each of the last three years.

There are no developing countries represented in the top 20.

Several countries improved their rankings between 2008 and 2009: France, Canada, Sweden, Singapore, Hong Kong, the Netherlands, and Ireland. The only new name to appear in 2009 in the top 20 was Ireland, which replaced Luxembourg.

More interesting from our point of view are the scores and changes in relative rankings of the five BRICM countries, Brazil, Russia, India, China and Mexico, since it is clear from analyses in previous chapters that these countries as well as several others will become not only dominant destinations but also sources for the next generation of travelers.

Photo: Christina Heyniger

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The following shows each country’s scores along all of the criteria:

BRICM 2009 TCCI Scores Criteria

Brazil

Russia

45

59

T&T Regulatory Framework Policy Rules and regulations Environmental sustainability Safety and security Health and hygiene Prioritization of travel and tourism

95 94 33 130 80 84

T&T Business Environment/Infrastructure Air transport infrastructure Ground transport infrastructure Tourism infrastructure ICT infrastructure Price competitiveness in T&T industry T&T human, cultural, and natural resources Human resources Education and training Availability of qualified labor Affinity for travel and tourism Natural resources Cultural resources

Overall Score

India

China

Mexico

62

47

51

79 114 114 129 10 75

107 108 74 120 111 42

88 87 105 116 91 28

80 58 101 126 74 35

69 46 110 45 60 91

61 30 81 60 50 108

63 37 49 73 104 46

59 34 55 80 68 20

62 40 84 49 69 77

4 55 40 87 108 2 14

38 88 64 110 123 23 30

18 90 70 109 96 14 24

12 43 46 62 127 7 15

13 63 65 64 90 18 20

Out of the 133 countries rated, none of the five countries performed well in terms of overall scores for the T&T regulatory framework criteria, though Russia scored extremely well in health and hygiene and China on the prioritization of travel and tourism, followed by Mexico and India. The T&T business environment/infrastructure ratings varied greatly across each of the criteria, except for air transport infrastructure, which was fairly comparable from country to country. The best scores were found in the T&T human, cultural, and natural resources pillar, though it too saw some very low scores. Overall, the scores were fairly tightly grouped, from 45 for Brazil to 61 for India.

Brazil moved up four places overall to 45 between 2008 and 2009 because of strong scores in natural resources (#2) and cultural resources (#14), with a large proportion of protected land, a focus on environmental sustainability (at #33, the best of the BRICMs), and the most diverse fauna in the world. It has also seen improvement in the availability of qualified labor. It had the best overall score of all of the BRICMs, two places ahead of China.

On the downside, its ground transport network remains undeveloped (at #110, the worst score of the BRICMs countries); it also has the worst score of the five countries for the prioritization of travel and tourism, though it had the best score of the BRICMs (#45) in terms of tourism infrastructure. There are substantial safety and security issues, though that is also true for all of the countries in the group. Other negatives include a lack of price competitiveness (primarily attributable to high ticket taxes and airport charges) and an overall policy environment not conducive to the development of the tourism sector. xolaconsulting www. .com

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Russia, ranked #59 overall, is up five places from 2008, primarily because of its relatively high marks for natural and cultural resources, its relatively well-developed air transport infrastructure, and health and hygiene ratings. While tourism infrastructure is improving, it still gets low marks because of few available hotel rooms in particular. There is a very high level of crime and violence and a high mortality rate from road traffic accidents.

The most striking aspect of Russia’s ratings is that the country is not viewed as having a very conducive policy environment because of extremely high foreign ownership restrictions, poorly protected property rights, and stringent visa requirements for most visitors. In addition, it has an extremely low ranking in terms of environmental sustainability; in general, tourism is not seen as a priority industry. Of the five countries, it has the worst scores in safety and security (#129), policy rules and regulations (#114), environmental sustainability (#114), price competitiveness in the T&T industry (#108), availability of qualified labor (#110), and affinity for travel and tourism (#123). While the lowest of all of the BRICMs, it has high scores overall in natural resources (#23) and cultural resources (#30).

India is up three places from 2008 to #62, though it was flat in the rankings between 2007 and 2008; it has the worst ranking of all of the BRICMs (though only slightly worse than Russia’s score of 59). India is assessed as having attractive levels of natural and cultural resources, a reasonably good air transport network and a quite good ground transportation infrastructure.

Despite government and industry efforts to promote tourism abroad, WEF feels that its marketing and branding promotional campaigns to attract tourists have been average. Areas of concern include the general policy environment (#108), safety and security (#120), health and hygiene (#111), ICT infrastructure (#104), and the lack of availability of qualified labor (#109, just one ahead of Russia).

China has experienced the largest rank improvement of all countries in 2009 (most particularly in comparison to the other BRICM countries), moving up a dramatic 15 places to #47, just two behind Brazil, and a remarkable 56 places between 2007 and 2009. Its rankings have improved along almost every criterion, with notable improvements in natural (#7) and cultural (#15) resources, human resources (#43), price competitiveness (the best of the BRICMs at #20), and prioritization of travel and tourism (#28), again the best of the five country comparables. It also has relatively good air (#34) and ground transport (#55) infrastructures.

However, there are some weaknesses still evident, which are pulling the country’s ranking down. Its policy environment is not conducive for T&T development (ranked #87), with strong foreign ownership restrictions and visa requirements for most visitors. It also has poor environmental sustainability policies (#105) as well as issues related to health and hygiene (#91) and safety and security (#116). Its tourism infrastructure is still relatively undeveloped and rated the worst of all of the BRICMs, though it has improved dramatically over the last three years.

Photo: Christina Heyniger

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Mexico improved its ranking by four places to #55 between 2008 and 2009.

Mexico gets quite high marks for natural (#18) and cultural (#20) resources. The country has the best scores of all of the BRICMs in terms of policy rules and regulations (#58) 48

and affinity for travel and tourism (#90, though still not a strong score in the overall rankings).

It also has a strong prioritization of the T&T sector. Of the BRICMs, it has one of the best ratings for availability of qualified labor (#64).

Areas of concern include environmental sustainability (#101), safety and security (#126), ground transport infrastructure (#84), and lack of price competitiveness (#77 because of high ticket taxes and airport charges). Health and hygiene also remains a concern (#74).

What is most striking about the scores within and between each of the countries is the intravariability of the scores across the criteria. Also, while overall rankings are not greatly disparate, the rankings along specific criteria are widely divergent. What is apparent is that, so far, none of these five countries has put all of the pieces together to have a coherent, wellarticulated, well-executed tourism policy. China, however, does seem the most directed in terms of its specific policies and tactics to continue to make the most significant improvements in its rankings. It will be interesting to see if Brazil, having been awarded the 2016 Olympics, will make significant investments in its tourism industry and improve its TCCI ranking overall as well as relative to the other BRICMs.

ADVENTURE TOURISM DEVELOPMENT INDEX RANKINGS Specific to the adventure tourism industry, The George Washington University and the Adventure Travel Trade Association publish the Adventure Tourism Development Index (ATDI). The ATDI offers a ranking of 195 countries around the world based on principles of sustainable adventure tourism and is calculated through a combination of survey data of adventure-travel experts from around the world and quantitative data gathered from various international indices.

This benchmarking tool is intended to support entrepreneurs and governments that want to develop and market sustainable adventure tourism products and services. It uses a broad definition of adventure travel, based on how consumers themselves define adventure — as a blend of physical activity, nature exploration, and cultural education/experience. The ATDI gauges the potential of a country to host an adventure travel market and examines ten factors (the 10 Pillars of Adventure Market Competitiveness), which include a range of indicators organized in three main categories: 1. Safe and Welcoming (sustainable development, safety, natural resources, and health); 2. Readiness (humanitarian support, infrastructure, cultural resources, and image); and 3. Adventure (entrepreneurship and adventure-activity resources).

Within these three categories, specific scores for individual criteria are added together (e.g., if a country is ranked first in each of the 3 categories, it will have a total score of three, and will thus be ranked the best country overall). In this way, a specific country is able to compensate for a low ranking in one category by a higher one in another.

The ATDI provides an interesting complement to the TTCI because of some key differences in its methodology: ◗ The ATDI calculates each rated country’s scores in a different way from the TTCI. The TTCI gives equal weighting to all of the pillars, adding up the individual scores to get a total score and, thus, an individual ranking for each of the 133 countries evaluated. In contrast, the ATDI weights most heavily its Adventure category, which includes the indicators for entrepreneurship and adventure activity resources. In addition, the ATDI includes measurements that focus on criteria more important to adventure travel (e.g., the amount of non-urbanized space, a certain level of acceptable risk) than those which emphasize more mass-marketoriented criteria as found with the TTCI; xolaconsulting www. .com

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◗ The ATDI includes a larger set of rated countries in order to measure the worldwide adventure-travel market and its potential. The 195 countries rated represent approximately 95% of the countries in the world, compared to the 133 rated by the TTCI; ◗ The ATDI places 195 countries into two categories, “developing” (167) and “developed” (28). In the TTCI, it is not unexpected that all of the highly-rated countries are from developed countries. The ATDI provides a means for developing countries to be measured for their adventuretourism competitiveness vis-à-vis their peers, not just against that of developed countries; and ◗ ATDI scores further group countries into three categories: A (above-average performance); B (average); and C (below average).

It should be kept in mind that the ATDI is still evolving. As an example, the methodology used for the ATDI 2009 index was augmented from the 2008 index to incorporate suggestions by the ATDI Advisory Board in order to reflect most accurately the experiences, expectations and priorities of adventure travelers in order to improve destination performance measurement.

The most significant changes were: 1) the inclusion of measurements of the amount of total coastline and of availability of water as part of the evaluation of the Natural Resources pillar (hence benefiting countries with a large proportion of water as a site for adventure activities); and 2) the addition of adventure-expert survey information for the safety, natural resources, and cultural resources pillars. (For the full ATDI report and explanation, visit www.adventureindex.travel.)

The methodological changes described above can explain some key changes in country rankings between 2008 and 2009 shown below.

Developing Countries 1.

2.

3.

4.

5.

6.

7.

8.

9.

10.

2009 Slovak Republic Israel Czech Republic Estonia Slovenia Chile Bulgaria Latvia Botswana Lithuania

1.

2.

3.

4.

5.

6.

7.

8.

9.

10.

2009 Iceland Switzerland New Zealand United Kingdom Australia Luxembourg Denmark Ireland Germany Spain

2008 Estonia Chile Slovak Republic Czech Republic Hungary Botswana Bulgaria Jordan Latvia Uruguay

Developed Countries 2008 Switzerland Sweden New Zealand United Kingdom Spain United States Norway Germany Iceland France Photo: Maple Leaf Adventures

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A comparison of the 2009 and 2008 rankings reveals that, in the developing countries category, three new countries entered the top ten to replace three that fell off the list. For the developed countries category, four countries did likewise. Both of last year’s number ones relinquished their top spot.

In both indices, a lot of movement was relatively minor, with countries gaining or losing a few spots. However, in the developing country index, some significant moves stand out. Israel’s 9spot gain and Slovenia’s 10-spot gain pushed them both into the top ten, Israel all the way up to number 2. Meanwhile, Hungary and Uruguay dropped 7 and 8 spots, respectively, dropping out of the top ten. Egypt and Bhutan were the biggest movers from 2008 to 2009, although neither reached the top ten. Egypt moved up 19 spots and Bhutan an impressive 56 spots, from 78th to 22nd.

In the developed countries index, Australia, Denmark, and Ireland posted big gains, moving up 12, 15, and 15 spots, respectively. All three made it into the top ten. The biggest drops were seen in the scores of Sweden and the United States, dropping 15 and 18 spots, respectively, both moving out of the top 10 and the U.S. out of the top 20. Countries that do well in the ATDI but are not yet popular with adventure travelers might consider emphasizing nature and adventure product development and marketing.

The BRICMs: How do they stack up and what happened between 2008 and 2009?

The following chart shows the 2009 ATDI scores for the BRICM countries in each of the 10 pillars. Each criterion is awarded a score from 1 to 10. For additional detail on these scores, interested parties may contact info@adventuretravel.biz.

ATDI BRICM SCORES 2009 Safe and Welcoming Criteria Country

Sust.

Nat. Dev. Safety Health Res.

Adventure Criteria

Readiness

TOTAL

Adv. Entre Res. prnshp

TOTAL

Cult. Human Infra Res. itarian strct. Image TOTAL

Brazil

8.26

5.74

2.91

7.23

24.14

4.88

6.67

11.55

7.26

4.63

5.04

6.93

23.86

Russia

8.41

4.77

6.04

7.73

26.95

7.15

6.08

13.23

7.41

3.46

7.57

8.81

27.25

India

6.66

5.33

1.99

5.44

19.42

5.60

6.44

12.04

7.77

4.56

8.85

9.46

30.64

China

6.54

6.42

2.39

6.29

21.64

6.03

6.32

12.35

8.69

4.52

7.57

9.09

29.87

Mexico

8.55

5.81

2.42

6.98

23.77

5.22

7.58

12.80

6.97

4.68

4.77

7.91

24.33

The only BRICM country to be in the “A” grouping for both 2008 and 2009 is Russia at #24 in the overall 2009 ranking. The rest of the countries are all in group B and earned average ratings: China (#55 in terms of its overall ranking); Mexico (#56); Brazil (#69); and India (#87).

Photo: Christina Heyniger

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SOURCES: DESTINATION PERFORMANCE MEASUREMENT World Economic Forum, Travel and Tourism Competitiveness Report and Indices, 2008 and 2009 Adventure Travel Trade Association and the George Washington University’s Adventure Tourism Development Indices and Reports, 2008 and 2009

Photo: Jessica Reilly

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Chapter VIII: Effects of Climate Change and Water Scarcity on Adventure Tourism The debate concerning the sustainability of international tourism and the large increases in the numbers of the traveling public in the face of climate change has not faded or disappeared as a result of the current downturn. If anything, because tourism has become a central pillar in the economic development strategies of many nations and is an industry that has grown used to successful, stable growth for quite awhile now, it is now facing a series of challenges that go well beyond the downturn.

Climate change and water scarcity are real issues that will affect a wide range of tourist destinations, both positively and negatively, and countries will need to think through how they will manage their policies governing the tourism industry. Current survey research shows that many people want to continue to travel on a worldwide basis, but at the same time, are leaving the responsibility for the environment to the travel industry. It also appears that many travel consumers still view green travel as a luxury, not a necessity, and in spite of being supportive of green goals, in general are not very enthusiastic about paying for it.

GLOBAL CLIMATE-CHANGE POLICY STATUS In August 2009, the National Forum on Energy, Environment, and Climate Change Policy took place in Mexico City, and Angel Gurria, OECD Secretary-General, gave a speech entitled, Toward a Green Economy: Policies to Tackle Climate Change. In an introductory comment stressing the urgency of the problem, Secretary-General Gurria stated: “We must act now. We need to start producing, transporting, consuming, regulating, governing, even thinking differently, starting today. Climate change means cultural change. And, as a matter of fact, the current financial and economic crisis is giving us a unique opportunity to make that change.”

Also in August 2009, there was a United Nations-led climate conference in Bonn, Germany, scheduled four months before the United Nations Framework Convention on Climate Change (UNFCCC), which was held in Copenhagen in December 2009. The August session was meant to be a pre-negotiating session to find points of agreement and commonality before the Convention, and most participants agreed that “marginal” progress had been made. Yvo de Boer, the UNFCCC Secretariat, stated after the conference that money has been the central issue in the negotiations, with disagreement between developed and developing nations over how much funding should be provided by wealthier countries to developing countries as they transition to a low-carbon future. Mr. De Boer estimates that climate change will cost around $300 billion per year, $200 billion a year for mitigation projects and $100 billion a year for adaptation from 2020 onwards.

In September 2009, the Economics of Climate Adaptation (ECA) Working Group released a report entitled Shaping Climate-Resilient Development, which indicated that climate risks could cost nations up to 19% of their GDPs by 2030, with developing countries the most vulnerable.

The report concludes, however, that cost-effective adaptation measures already exist that can prevent between 40% and 60% of the projected economic loss, with even higher levels of prevention possible in highly targeted geographies. So, whatever the numbers end up being, the sharing of costs to mitigate and adapt to climate change is not an insignificant issue.

With the Copenhagen UNFCCC two-week conference completed in December 2009, it is now clear that a formal agreement to replace the Kyoto Protocol is unlikely to happen for the foreseeable future. While there was a last-minute climate change deal brokered by the U.S., India, China, South Africa and Brazil, several developing countries, most notably the Sudan, Venezuela, Bolivia, Nicaragua, Cuba and Tuvalu, rejected it, saying that it will be inadequate to combat global warning and was brokered unfairly by a few countries. xolaconsulting www. .com

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The accord includes international backing for an overall limit of two degrees on global warming, an agreement that all countries need to take action on climate change, and the provision of immediate and longer term financial help to those countries most at risk of climate change.

As part of the accord, $30 billion of short-term funding from developed countries over the next three years will help jump-start emission reduction measures and help the poorest countries adapt to the impacts of climate change. Developed countries have also committed to work to provide long-term financing of $100 billion a year by 2020. However, the Copenhagen accord cannot be signed into a UN pact as it requires the approval of all 193 participating nations, which looks highly unlikely at the present time.

This serves as a reminder to us all that what Richard Haass, President of the Council on Foreign Relations, calls multilateralism is increasingly difficult to achieve: “There are simply too many participants, too many contentious issues and too many domestic political concerns to discuss.” (Financial Times, Wednesday, January 6, 2010, page 9)

GLOBAL CLIMATE-CHANGE CHALLENGES What then are the challenges we face in addressing the effects of climate change going forward? ◗ Highly complex, system-wide interactions. Countries no longer have the luxury of evaluating each country’s resiliency to climate change and water scarcity on a stand-alone basis; all countries are intimately inter-connected and need to solve the problems together. ◗ Interconnectedness of protecting the environment, fostering economic development, and reducing poverty. Many climate-change observers are beginning to realize that protecting the environment, fostering economic development and reducing poverty are inextricably linked. ◗ Lack of Alignment of Funding Sources and Climate-Change Mission. Most philanthropic organizations, the primary funding sources of many climate-change initiatives, currently focus on one narrow area or single issue and have difficulty developing as well as executing on strategies for broader or multi-tiered missions (such as a combined climate change/water scarcity/economic development missions).

As the growing interconnectedness between the world’s problems becomes apparent, organizations are recognizing that protecting the environment and fostering economic development are not necessarily conflicting aims. Oxfam, which traditionally has fought poverty and injustice around the world, has started to combat climate change since it believes that unpredictable weather patterns will likely hurt the world’s poor the most; World Wildlife Fund, established to protect endangered species and prevent the degradation of the natural environment, is working to place the environment at the heart of economic development initiatives and demonstrate the importance of poverty reduction to conservation.

These forwarding-thinking organizations believe that, as the lines between conservation, economic development and poverty alleviation continue to blur, more groups will emerge with the skill sets required to move effectively between these previously separate domains and to provide detailed and verifiable measures to calculate returns on investment based on social, environmental and economic terms. Some analysts believe that the way for non-profits to go is to build alliances and strategic partnerships with organizations with different but complementary skill sets in order to build strengths in dealing with these complex, inter-connected issues.

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NEW APPROACHES TO GLOBAL CLIMATE-CHANGE CHALLENGES The World Resources Institute, in a recently published book Ecosystem Services: A Guide for Decision Makers, believes that the most powerful tool in forming a bridge between protecting the environment and encouraging economic development will be through the concept of ‘ecosystem services’: “By focusing on dependencies of humans on the environment, the two traditionally divergent groups and approaches will be reconciled. We should be saving environments not for nature’s sake but for people’s sake.”

At the present time, current financing strategies reflect the siloed approach to problem-solving and are inadequate to meet the demands we are all facing going forward. Most charities try to use short-term funding to finance long-term problems, for example, and certainly not for complex, inter-connected ones as we are discussing. In addition, because of the “singlemission” orientation, they oftentimes provide only stop-gap measures, not ones that fundamentally address the inter-connected set of problems facing a particular place or geography.

And, most are not tied to any systematic effort to produce long-term benefits that can fundamentally change the dynamics that produced the problem in the first place.

While tourism is not a panacea to all of the world’s problems, we believe that it has a unique position, since it is dependent on the health, well-being and sustainability of the environment.

As an industry, it is really composed of many separate but inter-connected industries, and as a result, has an ability to cross previously distinct boundaries and work with other organizations and industries with vested interests to find sustainable solutions, which include appropriate financing mechanisms, that bridge the current gap between the environment, economic development and poverty alleviation.

We believe that mass tourism products as currently offered and developed in many parts of the world do not attempt to bridge these goals and are often antithetical to them, either individually or on a combined basis. In contrast, the adventure travel industry can play a critical role in forming the bridges required to meet these goals simultaneously.

GLOBAL WATER RESOURCES Water is a key element of human security and a prime driver of economic development. Virtually every industry from agriculture, electric power and industrial manufacturing to food and beverage, apparel and tourism relies on it to grow and sustain their businesses. However, while water is in fact a plentiful and renewable resource on a global basis, it is not distributed evenly over the globe.

Fewer than 10 countries possess 60% of the world’s available freshwater: Brazil, Russia, China, Canada, Indonesia, U.S., India, Colombia and the Democratic Republic of the Congo.

However, local variations within countries can be highly significant. Overseas Development Institute in a March 2009 article entitled Adapting to Climate Change in the Water Sector makes a key point that the main cause of increasing water stress will be growing water withdrawals as a consequence of growing population and improving economic conditions, rather than decreasing water availability.

TRENDS IN WATER USAGE, AVAILABILITY AND SCARCITY Water use has grown at more than twice the rate of population increase over the last century, making sustainable, efficient and equitable management of this increasingly scarce resource a key challenge going forward. The Stockholm International Water Institute calculated in 2008 that 1.4 billion people live in “closed basins“ — regions where existing water cannot meet the agricultural, industrial, municipal, and environmental needs of all. This estimate is similar to a 2007 Food and Agriculture Organization (FAO) calculation that 1.2 billion people live in countries and regions that are water-scarce. Both organizations project that the situation is expected to worsen rapidly: FAO estimates that the number of water-scarce people will rise xolaconsulting www. .com

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to 1.8 billion by 2025, particularly as population growth pushes many countries and regions into the scarcity column.

Water overuse is damaging the environment in many major basins. High overuse tends to occur in regions heavily dependent on irrigated agriculture, such as the Indo-Gangetic Plain in South Asia, the North China Plain and the High Plains of North America, and in areas undergoing rapid urbanization and industrial development. As millions of people in water-stressed areas are discovering, the environment is foreclosing on unsustainable water debts on an extensive scale where water use exceeds the amount of water that is naturally replenished every year. It is estimated that about one-third of the world’s population lives in countries with moderate-to-high water stress; by 2020, water use is expected to increase by 40%, and 17% more water will be required for food production to meet the needs of the world’s growing population (United Nations WWAP 2003).

The following chart summarizes FAO/WRI estimates on water availability around the world:

Water scarcity has many causes, not just resulting from climate change. Population growth and mobility are major drivers at the regional and global levels, but other factors play a large role locally. Pollution reduces the amount of usable water available to farmers, industry, and cities. The World Bank and the government of China have estimated, for instance, that 54 percent of the water in seven main rivers in China is unusable because of pollution.

In addition, urbanization tends to increase domestic and industrial demand for water, as do rising incomes, two trends prominent in rapidly developing countries such as China, India, and Brazil. Changes in demographics and increasing consumption that comes with rising per capita incomes are also critical drivers that put pressure on water. There is also a significant increase in demand for energy, which is a big user of water, most particularly for bio-fuels.

Tourism can also place tremendous pressures on local and regional water resources.

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Agriculture is the number-one user of water worldwide, accounting for about 70% of all freshwater withdrawn from lakes, waterways, and aquifers around the world. The figure is closer to 90% in several developing countries where roughly three-quarters of the world’s irrigated farmlands are located. Water shortages are most acute in the driest areas of the world which are home to more than 2 billion people and to half of all poor people. Most countries in the Middle East and North Africa suffer from acute water scarcity, as do countries like Mexico, Pakistan, South Africa, and large parts of China and India. Rising demand for food caused by growing populations as well as shifting diets as a result of rising per capita incomes may entail crops and food stuffs that use more water in their production processes.

WATER SCARCITY AND CLIMATE CHANGE There is growing recognition that water is the primary medium through which climate change will have an impact on people, ecosystems and economies. We already have a world of droughts, floods and extreme weather endangering populations and economies and hugely varying inter- and intra-year rainfalls within countries and regions around the world. Climate change may at some point bring back weather unpredictability to countries that have long had water security, with reliable water supplies. For many other countries, however, water scarcity is already a way of life, and increased hydrological variability will only exacerbate a complex and difficult situation.

A number of recent studies by the UN World Meteorological Organization (WMO) on water scarcity trends around the world emphasize that key sectors such as agriculture, energy, tourism and health will be among those most affected by the impact of climate change on water resources, most particularly in terms of reduced water availability, a deterioration in water quality, increased runoff and an increase in the salination of groundwater as a result of sea-level rises.

The organization strongly pushes, as a result, that water-resources development and management policies should be central to all economic-development and poverty-alleviation efforts. In view of the competing demands for water, it recommends inter-sectoral planning at levels not experienced before and urges water resource managers at all levels of government as well as in the private sector to develop together water-resource management plans to ensure the sustainability of sources of water for all key uses.

Climate change is expected to exacerbate an already worsening water-scarcity situation and have a net negative impact on water scarcity globally this century. By the 2050s, the area subject to greater water stress as a result of climate change will be twice as large as the area experiencing decreased water stress. Less rainfall is expected in already arid areas, including the Mediterranean Basin, western United States, southern Africa, and northeastern Brazil, where various models all indicate that runoff will decrease by 10-30 percent in the coming decades.

Loss of snowpack will also remove a natural, off-season water reservoir in many regions.

Signs of scarcity are already plentiful. Several major rivers, including the Indus, Rio Grande, Colorado, Murray-Darling, and Yellow, no longer reach the sea year-round as a growing share of their waters is claimed for various uses. Water tables are falling as groundwater is overpumped in South Asia, northern China, the Middle East, North Africa, and the southwestern United States, often propping up food production unsustainably. The World Bank estimates that some 15 percent of India’s food, for example, is produced using water from nonrenewable aquifers. Another sign of scarcity is that desalination, a limited and expensive water supply solution, is on the rise.

There are many studies that tie directly the success of wealthy countries and GDP per capita growth when compared to poor ones to the availability of water. There is growing evidence that, in order to be successful in poverty alleviation, there has to be increased water security. xolaconsulting www. .com

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In Water and Economic Development: The Role of Variability and a Framework for Resilience (Brown and Lall, 2006), the authors argue that “…countries with high intra-annual variability (rainfall concentrated in a single season) and inter-annual variability (typically symptomatic of longer-term climate shifts) can be expected to lag in economic development.

Furthermore, the affected countries typically lack the most common response to hydrologic variability in industrialized countries — water storage infrastructure.”

POTENTIAL SOLUTIONS TO WATER SCARCITY Policymakers are beginning to look at a variety of solutions to address water scarcity.

“Hard” infrastructure approaches. Desalination, for example, is seen as increasingly feasible, particularly for small-scale water supply, as technological advances are starting to reduce costs (though global production is still tiny, representing barely 0.003 percent of the world’s municipal and industrial water consumption). Not surprisingly, 47 percent of global capacity in 2006 was in the Middle East, where the need is great and energy cheap.

“Soft,” more natural rather than human-engineered water strategies such as improvements in efficiency of use (e.g., conservation, recycling, reuse).

Structural shifts in water use, including growing crops that are less water-intensive and changing dietary patterns to reduce meat consumption (where production processes use a great deal of water); and Shifting to renewable sources of energy.

Sound water resource management at all levels can help countries adopt flexible approaches that allow more people to have the water they need while preserving the environment. The keys to successful coping will be in robust mitigation and adaptation methods, using resilient, supply-side management, “hard” infrastructure as well as “soft” demand-side techniques.

In Water Management, Water Security and Climate Change Adaptation: Early Impacts and Essential Responses (Global Water Partnership, August 2009), the report concludes; “Actions to implement robust water management are adaption actions. Understanding the dynamics of current variability and future climate change as they affect water supply and demand across all water-using sectors, and enhanced capacity to respond to these dynamics enables better water resources management. This strengthens the resilience to current climate challenges, while building capacity to adapt to future climate change.”

The paper does note, however, that there will be tough trade-offs in order to balance equity, environmental and economic priorities between sectors, individuals, businesses and nations in water-management adaptation policies and will require integrated approaches that cross over previously distinct boundaries of action.

TOURISM AND ITS EFFECT ON LOCAL WATER SUPPLIES Every country as well as economic sector within that country will have to deal with the challenges of climate change through adaptation and mitigation. Tourism is no exception, and in the decades to come, climate change will play a pivotal role in tourism development and management. With its close links to the environment, tourism is a highly climate-sensitive sector. However, tourism’s relationship with the environment is very complex, and the quality of that environment, both natural and man-made, is essential to tourism’s success.

The most critical element in understanding the effects of tourism on local communities is that negative impacts occur when the level of visitor use is greater than the environment’s ability to cope with this use in a sustainable way. This can be thought of as the “carrying capacity” of a particular geography. If it is not managed properly, the environment can degrade quickly, with tourism putting pressure on resources that are already scarce. xolaconsulting www. .com

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We believe that, while the world aggregate amount of water will not decrease, variable climate effects on the sources of freshwater around the world will create very challenging situations for many regions and countries. Likewise, while it is unlikely that the total number of tourists will change downward as a result of climate change, it is highly likely that individual countries will face dramatic changes in the number of tourists, both upwards and downwards. As a result, the regional manifestations of climate change will vary around the world, requiring the adoption of highly flexible and tailored mitigation and adaptation strategies in already-evident changing climate conditions.

In many areas of the world, water has been seen as playing a central role in attracting tourists to a region. There has been little analysis, however, on the diverse ways that tourism uses water and the relative effects of those diverse ways on local water supplies. For example, there is little analysis of the differences between “consumptive” and “non-consumptive” water use as related to the tourism sector, the destination or the community. (Non-consumptive uses of water include water sports, wildlife tourism, skiing, natural-springs spas, etc. while examples of consumptive uses include golf, agritourism, washing and cleaning, meals and drinks, swimming pools and health clubs.) In addition, these uses can be seasonal or periodic as well as indirect or direct (which is related to who controls the use of the water).

The tourism industry is already having a major negative impact on the world’s water supply in hot and arid climates. The mere presence of tourists means a much higher demand placed on the water supply. This becomes particularly acute because of the seasonal nature of the business in many regions of the world when destinations can have up to ten times more inhabitants than during normal times. It has been estimated that the average global tourist uses anywhere from 100 to 2,000 liters of water per day (S. Gossling, Tourism and Water, 2006), a figure that is several times higher than that of the average residential user.

The European Environmental Agency has noted that “in the Mediterranean, it is not uncommon for a tourist to use on average over four times as much water as a local resident.” In fact, tourism’s water consumption can lower the water table in destinations, meaning local communities face water shortages as a result and may even lack access to clean water supplies for themselves.

In addition, sewage outflow from diffuse, small-scale tourism and recreation facilities, such as found around outfitter camps, can be a particularly significant source of bacteria and algae in freshwater systems in remote areas, though it is difficult to get the effect measured in a quantifiable way. In some regions of the world, where tourism is a major industry, these trends can result in water shortages and degradation of water supplies as well as increased production of untreated waste water.

Another complicating factor is that, in many parts of the world, tourism has displaced agriculture, moving people off of farms to work in tourism-related industries. In addition, as agricultural product is increasingly used to support tourism-related activities, it reduces food availability for local inhabitants. This can have the perverse effect of increasing local inflationary pressures and making the local environment unsustainable from an agricultural standpoint.

So, the need to develop simultaneously sustainable tourism and agricultural policies today as a critical element to a total economic development plan is particularly important in developing economies. While each country, and each region and locality within a country, will have a different set of conditions and circumstances that will drive that plan, the importance of a balanced, long-term view cannot be over-emphasized.

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Sustainable Tourism’s Role in the Development of Climate-Change Mitigation and Adaptation Strategies The T&T industry’s focus on climate change has heightened interest in sustainable tourism issues, though to date, the focus has largely been on the reduction of carbon emissions rather than on changing water-usage regimes. In May 2009, the World Economic Forum (WEF), in conjunction with Booz & Company, released a report entitled Towards a Low Carbon Travel and Tourism Sector.

WEF’s report estimates T&T industry’s contribution to global greenhouse gas (GHG) emissions to be approximately 5% of global anthropogenic emissions. The industry, excluding aviation, is responsible for about 3% of the total, which is expected to grow at 2.5% per year until 2035. While aviation contributes 2% of the total, its contribution is expected to decrease to 2005 levels over the near term because of the global recession and recent declines in air traffic. As the global economy recovers, it is estimated that, while air traffic will grow at an annual rate of 5% in the subsequent 15 to 20 years, annual increases in aviation carbon emissions will be limited to about 2.7% per year because of expected load-factor gains and improvements in fuel efficiency.

The report breaks out the various components of the industry’s contribution to carbon emissions and then provides some recommendations about the types of mitigation and adaptation actions that can be taken going forward. It analyzes five distinct clusters: land transport, air transport, water transport, accommodation and tourism activities. Within each of those categories, it then discusses both the direct and indirect emissions produced as well as the implications for policy makers as they try to come up with ways to counter the trends.

Where is Tourism on the Sustainability Curve?

Many T&T industry observers feel that, while tourism products are driven by the environment, the industry has a long way to go before environmentally sustainable practices become the norm. KPMG Sustainability Group has stated in a recent report that tourism is among the industries least prepared for, and the most vulnerable to, climate change, both physically and in terms of its image.

It is also an industry that has, at its very being, an inherent contradiction: tourism, if undertaken responsibly, can contribute to the healthy economic development of local communities as well as ensure the preservation of biodiversity and conservation in general, without which many unique natural environments around the world would have disappeared; on the other hand, the means of transportation required to get tourists to those communities and destinations is inherently unsustainable as currently delivered. This contradiction is still a long way from being resolved.

In May 2009, the Inter-American Development Bank (IDB) released a new Tourism Sustainability Scorecard, an interactive tool originally developed to ensure that IDB’s investments in private-sector tourism projects are sustainable and maximize social, economic, cultural and environmental benefits for local communities and destinations.

The Scorecard was developed on the basis of the Global Sustainable Tourism Criteria, and includes 52 criteria and their corresponding indicators, which are grouped into six categories: 1. Effective sustainable management practices; 2. Socioeconomic issues; 3. Cultural heritage issues; 4. Environmental issues; 5. Impact on the tourism destination; and 6. Real-estate activities associated with the tourism project. xolaconsulting www. .com

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These criteria are intended to constitute “the minimum standard that any tourism business should aspire to reach in order to protect and sustain the world’s natural and cultural resources while ensuring tourism meets its potential as a tool for poverty alleviation.” The Scorecard does not provide a score for a particular project; rather, it generates a “color map” of performance indicators showing how sustainable the project is likely to be, with the color codes designating performance indicators from excellent to unacceptable.

Since May 2009 when the Scorecard was released, a number of critiques of the Scorecard has emerged, citing significant weaknesses in the approach. They fall into the following categories: ◗ The model used as the basis for the Scorecard was an approach developed by the Forest Stewardship Council (FSC) in the pulp and paper industry. To date, only 4.3% of the industry had received certification by FSC, with market penetration low and marginal. Thus, many feel that the current effort by IDC will yield the same poor results; ◗ It will be extremely difficult to ensure a consistent process for certifying properties and other elements of the tourism value chain to produce sustainable tourism products since the range of activities as well as impacts on destinations are substantial and greatly varying. The tourist is not just a consumer but has a direct impact on the environment for which he or she has responsibility; ◗ The criteria are viewed as a “wish list” of what should be done but no indications are given as to what specifically should be done and how to do it in specific locations and whether the goals have actually been met. For example, there are no specific measures in terms of actual reduction in water consumption, greenhouse gas emissions per bed night or waste; ◗ The criteria are extensive, varied and not ranked, so it is not clear how destinations or other participants in the value chain make decisions amongst the criteria in terms of trade-offs from a risk-management point of view; ◗ The certification process is “opaque” so the consumer has no idea what a tourism business has actually achieved against the criteria; ◗ There are also no inspection processes in place to ensure that destinations or other participants in the value chain have actually implemented sustainability practices, so there is no way to know if the certification is appropriate or warranted; and ◗ The 52 criteria represent a laundry list of concerns and issues in the industry but are not of equal importance and certainly do not reflect the cultural, political, economic and ecological diversity found around the world. The criteria should be prioritized for locally significant issues that will make for improvements in sustainability, not based on a list of “nice to haves.”

We believe that IDB’s efforts are a good start to an important process, but we also agree with some of the observations that many mitigation and adaptation strategies to achieve sustainability in various localities and regions around the world will need to be tailored to meet the specific circumstances of those areas. It is not “one size fits all.” For one thing, how will all of this get financed?

In our estimation, the complexity of the types of financial support necessary not only to develop tourism products but also to ensure that they are sustainable from multiple points of view (including water and carbon footprint issues) has increased exponentially just over the last five years and will continue to do so going forward over the next decade.

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Tourism Climate-Change Mitigation and Adaptation Strategies Going Forward Intense competition for scarce resources, including water, already exists at all levels of the world economy and will definitely increase over time in almost all countries. The question then becomes — what are the strategies the tourism industry should adopt as a component of an intricate web of competing interests and influences to ensure that it will provide the means for countries to continue to prosper in a sustainable way through the development and management of tourism.

We are beginning to see developed various frameworks to provide suggested courses of action to the issues surrounding climate change and their effects on destinations around the world.

The initial focus has been on mitigation strategies where possible (e.g., reducing water usage through conservation techniques, encouraging the use of mass-transit systems, etc.) and adaptation strategies to help tourism businesses adapt to changing climate conditions that cannot be mitigated (using natural defense systems to counteract rising sea levels, for example). In December, 2009, Xola released a paper entitled, Adventure Tourism Companies & Climate Change: Observations from the Himalaya, Amazon, and Polar Regions Spark Adaptation Strategies for Business, which explores adaptation strategies applied in adventure industry businesses.

We include a summary of the Global Water Partnership’s recommendations for water resource management because we think the group has a very robust, integrated approach that has application to the tourism industry’s sustainability strategy and should be incorporated into the industry’s thinking about how to deal with climate-change and waterscarcity issues over the long term: ◗ Plan water infrastructure investments within larger and long-term economic development strategies that include investments in energy, roads, schools and other types of infrastructure as well as reforms in policies and institutions; ◗ Adopt a needs-driven approach to infrastructure that requires integration across seasonal, annual, decadal and longer timescales in order to address climatic variability and change; ◗ Undertake comprehensive options assessments for meeting water-related development needs; ◗ Consider the full extent of infrastructure life-cycle costs (social, economic, and environmental) and benefits and their distribution among different segments of society (equity); ◗ Gain public acceptance for infrastructure proposals by involving all stakeholders in decision-making; ◗ Adopt a multi-use approach to designing and managing community water supplies; ◗ Take a multi-purpose approach to infrastructure for water supply, energy, irrigation and reuse/recycling, that is, as a broad economic development choice rather than a single water-oriented issue; and ◗ Recognize the potential that the sharing of water resources can have on peace, economic development and security.

We like this approach and think that it has direct applicability to the development of sustainable tourism. The T&T industry is ideally positioned to be a driving force behind cross-sector initiatives and should view itself as key to putting in place policies that support broader economic development initiatives that benefit the whole community, not just the tourism sector. It will no longer work for the tourism industry to view itself as an island unto itself but intimately tied to the fortunes of the nations, regions and communities in which they have prospered historically and would like to prosper in the future.

If the industry truly wants to be a leader in sustainability globally, it needs to commit to concrete actions that produce change on the ground. For example, the tourism industry xolaconsulting www. .com

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needs to use water resources more efficiently and avoid the use of harmful substances that affect its quality. In fact, we believe it is time for local governments, tour operators, hotels, and other stakeholders to organize and come up with solutions together to this potentially catastrophic situation in many destinations around the world.

ADVENTURE TOURISM’S ROLE IN CLIMATE CHANGE AND WATER SCARCITY For the tourism industry, climate change presents complex policy challenges, given that it simultaneously suffers from the effects of climate change as well as contributes to it. The adventure travel industry in particular, with its heavy reliance on natural resources and multiple businesses offering trips in “extreme” environments (polar, marine, mountain, tropical), is already experiencing the effects of climate change well before many more mainstream tourism businesses. The changes will have accelerating economic and financial impacts on these businesses in the coming years.

Photo: Jessica Reilly

Adventure tourism has generally had a smaller carbon and water footprint than mass tourism across all of the components of consumption (except air travel), and has generally had a lower environmental impact on local and regional communities. As a result, the industry has historically appealed to the “environmentally-conscious” segment of the travelling public. We believe this now is helping propel the industry forward by capturing an even large number of people who want to continue to travel but to do so in as sustainable a way as possible. The potential to capture this rapidly emerging market has already driven many tourism service providers to adopt more sustainable practices, like those of their long-time adventure travel companies that date back over the last two to three decades when they were established. As an example, twelve of the big tour operators in Costa Rica, making up approximately 60% of the market, now require their local service providers to be “sustainability-certified.”

Adventure travel companies are starting to pioneer new business strategies to mitigate the impact of climate change on their financial viability. While we believe the adventure tourism industry is ahead of the curve in helping to raise consciousness about the development and implementation of climate-change and water-scarcity mitigation and adaptation strategies when compared to the tourism industry in general, the process is only just beginning on a world-wide basis. There is a complex, multi-faceted set of issues associated with climate change and water scarcity, and they must be viewed in the broader context of economic development imperatives and getting the right balance between competing societal, environmental, human equity, job creation and wealth distribution needs. The adventure travel industry must continue to be in the forefront of leading the charge toward a healthy, sustainable path to growth and prosperity for the worldwide tourism industry.

It is also our opinion that the tourism industry will have to be in a position to show that its ability to create sustainable jobs while supporting the environment, including its water resources, will be critically important as competition amongst different industries and service sectors intensifies. The adventure-travel industry must be able to present sensible and constructive mitigation and adaptation strategies to both the challenges of carbon emissions as well as water scarcity, not an insignificant challenge going forward. xolaconsulting www. .com

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SOURCES: EFFECTS OF CLIMATE CHANGE AND WATER SCARCITY ON ADVENTURE TOURISM National Forum on Energy, Environment and Climate Change Policy, Keynote Speech, Angel Gurria, OECD Secretary-General, Toward a Green Economy: Policies to Attack Climate Change, August 2009 Reuters, Climate Change Risk Could Cost Developing Countries Up to 19% of GDP by 2030, August 14th, 2009 Malone, E.L. and A.L. Brenkert. In press. Vulnerability, sensitivity, and coping/adaptive capacity worldwide. In The Distributional Effects of Climate Change: Social and Economic Implications, M. Ruth and M. Ibarraran, eds. Elsevier Science, Dordrecht.

Yohe, G., E.L. Malone, A.L. Brenkert, M. Schlesigner, H. Meij, and D. Lee. 2006. Geographic Distributions of Vulnerability to Climate Change. Integrated Assessment Journal 6:3.

Economics of Climate Adaptation Working Group, Shaping Climate — Resilient Development, September 2009 Science Magazine, Global Failures and Missing Institutions, September 11th, 2009 Financial Times, World In Need of A Dual Approach, by Sarah Murray, February 2nd, 2009 World Resources Institute, Water Poverty Index comparisons UN World Meteorological Organization, Fact Sheet #5, Climate Information for Transport and Tourism (wmo.int/wcc3) Xola Consulting, Inc., Exploring the Effects of Climate Change and Sustainable Development in the Adventure Tourism Industry, February 2009 World Business Council for Sustainable Development, Water Facts and Trends, August 2009 Overseas Development Institute, Adapting to Climate Change in the Water Sector, March 2009 UN Food & Agriculture Organization (FAO), 2007 Water Statistics UNFAO, Making Every Drop Count, February 14th, 2007 UNFAO, Water Scarcity Factsheet (fao.org/nr/water) UN, World Water Assessment Program, 2006 UN, World Water Development Report, Water in a Changing World, March 2009 Water International, Inc., National Water Footprint Data Water Footprint Network, Various Comparative Data and Country Rankings Worldwatch Institute, Water Scarcity Looms, August 6th, 2009 Brown & Lall, Water and Economic Development: The Role of Variability and a Framework for Resilience, 2006 Dr. Casey Brown, International Research Institute for Climate and Society, Columbia University, Climate and Development: Mitigating Variability in Water Resources, 2009 Global Water Partnership, Water Management, Water Security, and Climate Change Adaptation: Early Impacts and Essential Responses, August 2009 International Union for Conservation of Nature (IUCN), Water Matters, Water Security — An Adaptation Perspective, June 2nd, 2007 Ceres/Pacific Institute, Water Scarcity and Climate Change: Growing Risks for Businesses and Investors, February 2009 Stockholm Water Front, A Forum for Global Water Issues, Water Security: Time to Talk Across Sectors, May 2009 S. Gossling, Tourism and Water, S. Gossling & C.M. Hall (eds), Tourism and Global Environmental Change: Ecological, Social, Economic and Political Interrelationships, Routledge, London, pp. 180-194 Edgar E. Hertwich & Glen P. Peters, Carbon Footprint of Nations: A Global, Trade-Linked Analysis, Environmental Science Technology, 2009, 43, 6414-6420 World Economic Forum/Booz & Company, Towards a Low Carbon Travel & Tourism Sector, May 2009 xolaconsulting www. .com

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Overseas Development Institute, Briefing Paper, Can Tourism Offer Pro-Poor Pathways to Prosperity?

June 2007 World Travel Market, Tourism and Water Report, 2007 Breaking Travel News, Responsibility Travel warns of serious impact of tourism on world’s water supply, March 18th, 2009 Indicus Analytics, Role of Tourism Sector in Climate Change — A Perspective, November 7th, 2008 Climate Change Corp., Special Report: Tourism blind to high climate risk, April 23rd, 2008 Inter-American Development Bank, Tourism Sustainability Scorecard, May 29th, 2009 Inter-American Development Bank, IDB releases sustainability scorecard for private sector tourism projects, May 29th, 2009 Haroldgoodwin.com Blog, The Weakness of the Global Sustainability Tourism Criteria Approach, July 12th, 2009

Photo: Christina Heyniger

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Chapter IX: Global Financing Trends, Entrepreneurship and Adventure Tourism INTRODUCTION We believe the tourism industry is an especially suitable sector for supporting developing countries’ sustainable economic-development initiatives. Today, it is a USD $1.0 trillion industry employing about 230 million on a worldwide basis. Investments in the tourism sector represent almost 10% of total investment value worldwide (or $USD 1.2 trillion) and represent an even higher percentage and in certain regions and countries (e.g., Namibia 13% of total investments, Malaysia 12% and island nations in the Caribbean ranging from 15% to 76%).

In fact, revenue generated from all forms of tourism has grown 35% faster than the world economy since 1975; the industry is significant in nearly all of the 12 poorest countries and is considered one of the most dynamic economic sectors; for the “least developed” countries, tourism is one of the few ways to participate in the global economy; and it is the only economic area where many developing countries run a trade surplus and is one of the principal or main sources of foreign exchange earnings.

Given that the travel and tourism industry, including the adventure industry, is dominated by micro-, small-, and medium-sized enterprises (MSMEs), access to capital poses a unique set of challenges based on geography as well as stage of economic development of the destination country and/or region.

To support adventure businesses seeking financing, this chapter a brief overview of the historical experience of financing entrepreneurially-driven small businesses around the world, what has worked and what has not under a range of circumstances, and what we are beginning to see in the way of options going forward.

The global T&T industry has its own financing constraints. As we have seen in discussions in previous chapters, the global T&T scene is changing rapidly, with competing demands on financial resources escalating exponentially as a result of T&T’s intimate relationship with climate change and water-infrastructure issues. All of these trends are converging to create a globally competitive environment for financial resources, with MSMEs experiencing the most difficulty in gaining access to them.

GLOBAL ENTREPRENEURSHIP TRENDS A variety of studies and research endeavors has focused on MSMEs and the general area of entrepreneurship on a global basis. A notable one is the Global Entrepreneurship Monitor (GEM), which, since 1997, has become one of the world’s leading research consortia concerned with improving the understanding of the relationship between entrepreneurship and national economic development. On an annual basis, it interviews at least 2,000 individuals in each of 43 countries about their attitudes to, and their involvement in, entrepreneurship.

Photo: Whit Richardson

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The 2008 GEM Report aggregates data on entrepreneurial attitudes, activity, and aspirations on a country-by-country basis and then across three general types of economies: factor-driven (generally with an extractive-driven economic base), efficiency-driven (characterized by increasing industrialization and a build-up of scale in pursuit of higher productivity and the development of institutions to support infrastructure build-up), and innovation-driven (dominated by an expanding services sector catering to the needs of an increasingly affluent population). Using this economic framework, GEM provides a means to measure and track the wide variety and kinds of entrepreneurial aspirations such as innovativeness, competitiveness and high-growth aspirations across types of countries, types of economies as well as sectors within economies.

Each of the 43 countries in the 2008 study has very different entrepreneurial profiles in terms of individuals’ attitudes about entrepreneurship, their actual entrepreneurial activity, the numbers of entrepreneurs with high expectations of adding employees and building growth businesses and, finally, the numbers of entrepreneurs who are actually successful in building growth businesses.

The following review of the 2008 GEM data provides a global perspective on MSME financing and may be useful for adventure tourism-based MSMEs seeking to raise financing.

There was an overall global decline in entrepreneurs’ perceived opportunities to start a business in 2008: ◗ Low- and middle-income countries continued to have relatively high rates of early-stage, “necessity-driven” entrepreneurship, with middle-income Latin American countries having the highest and Eastern European countries the lowest. High-business-growth expectations amongst entrepreneurs are found most frequently in Colombia, China, Peru and Chile; ◗ High-growth-expectation, early-stage entrepreneurial activity (HEA) in China is the highest of any GEM country analyzed, more than five times the rate of India, for example; ◗ When analyzing the “anatomy” of entrepreneurial activity (defined as the relative prevalence of HEA entrepreneurs as a percentage of all entrepreneurs), those with the highest relative rates are Singapore, Hong Kong, China and Turkey, where over 20% of entrepreneurs aspire for rapid growth. In contrast, entrepreneurs in India and Mexico are marked by very low levels of growth expectation; ◗ The number of individuals globally expecting to start a business within the next three years remained stable; and ◗ Most new entrepreneurs around the world expect no or limited job creation from their ventures: a small share of this group of new global entrepreneurs is responsible for a high share of total expected job creation, with only 8% of all start-up entrepreneurs expecting to create 20 or more jobs. Almost 90% of new jobs are expected to be created by less than one quarter of all entrepreneurs.

The 2008 GEM Report clearly indicates that rates of entrepreneurial activity differ across countries for cultural, institutional, economic and demographic reasons. For example, individual motivations, regulations and enforcement of regulations for setting up a business can be vastly different across the globe. There is also a varying distribution of entrepreneurship amongst different sectors of the economy depending on its stage of development.

This suggests that “public policy needs to be informed by the dynamics of entrepreneurship and economic development, as well as relevant local institutional conditions and other context-dependent variables (2008 GEM Report, page 36).”

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GLOBAL FINANCING OVERVIEW OF MSMEs Financing MSMEs on a country-by-country basis is a highly complex, difficult process, requiring deep analysis of a wide range of variables. To evaluate investment worthiness, both debt and equity investors around the world generally rely on a variety of readily available, comparative data which are then used to base investment decisions; if those data are unavailable, financing is generally hard to find or not provided at all.

As a result, adventure-travel companies have a major challenge: because most are small and privately held, with very little outside financing used on a historical basis, there are few, if any, criteria that financing sources can use to evaluate the potential for a specific business to provide attractive returns on investment or to produce attractive levels of cash flow that will enable it to pay interest and repay principal on a loan. Likewise, equity investors generally seek investments in companies that have the potential to scale to levels that will provide high returns over time. Because of the profile of most adventure travel companies as niche-oriented and small-scale and with relatively low profit margins, it is highly unlikely that they would typically be viewed as investment-worthy by financiers following standard conventions.

While the report is several years old, The GEM 2006 Financing Report includes some interesting findings that still hold true. The conclusions from this report provide a good segue into a discussion of financing MSMEs around the world, in particular, in the adventure tourism sector. The study makes a distinction between informal and formal investments in the 42 nations that participated in the 2006 study.

Key Findings ◗ In the 42 participating countries, 208 million “informal” investors (whose prevalence represents about 4% of the adult populations of the participating GEM nations) provided $600 billion to hundreds of millions of entrepreneurs’ businesses, whose investments approximated 1.5% of the combined GDP of those nations; ◗ Entrepreneurs themselves provide 62% of the start-up capital for their new ventures. When these monies are combined with the amount of informal investment, the sum is 3.9% of the combined GDP of the 42 nations; and ◗ In terms of “formal” investment, in 2005, $37.3 billion of professionally-managed venture capital was invested in 11,066 companies in the GEM nations, a little over 6% of the $600 billion invested through the informal sector.

Key Implications ◗ Self-financing by entrepreneurs themselves and from close family members, friends, neighbors and even strangers is by far the biggest source of informal capital for start-ups; ◗ The average micro-loan is a few hundred dollars, which is not enough to get a business started and provide employment for an entrepreneur. Even in advanced countries, entrepreneurs generally start with very little, and it is only a handful of “superstars” that have access to professional levels of capital; ◗ Fewer than one in 10,000 start-ups globally have venture capital in hand when they open their doors for business. Even though there has emerged an active private-equity community around the world, it follows the investment model of its U.S. and European peers and in general focuses on an elite group of potential high-growth companies in developing nations; ◗ Informal investment is essential to supporting entrepreneurial activity whereas venture capital makes no perceptible difference to overall entrepreneurial activity at a grassroots level. Venture capital does, however, make a difference in the acceleration in the growth of a handful of superstar companies and is a bedrock to an innovation-driven economy; and xolaconsulting www. .com

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â—— A nation that wants an environment in which entrepreneurs thrive must have policies that facilitate informal investments as well as support the development of locally-based financing alternatives.

CAPITAL FLOWS IN EMERGING ECONOMIES Private-Capital Flows The following brief summary of the current status of private-capital flows in emerging countries illustrates the ripple effects the crisis is having globally, though they vary across countries and regions of the world. While some of these impacts will not affect MSME financing directly, they do affect the many ways economic activity takes place and are financially supported, including the health and viability of local banking operations and organizations such as microfinance institutions.

Private capital flows globally in 2008 went below 2006 levels and are expected to plummet to about $363 billion in 2009 (World Bank forecast in Global Development Finance 2009, published on June 22nd, 2009). The global financial and economic crisis has made credit scarce and has caused investors to retreat to safe-haven assets, making it more difficult for emerging markets to service foreign-currency debts or finance current-account deficits. The Economist Intelligence Unit (EIU) expects external financing to remain difficult for many countries for the next two years at least.

In terms of private capital, emerging-market venture capital and private equity as financial instruments are managed very similarly to investments made in both the U.S. and other developed nations. They are not geared to financial support of small projects, most particularly in rural areas. This is also true by and large for social investing, particularly in the U.S., where many of the funds are invested in companies that investors believe represent high-growth opportunities but that also have a social mission. However, we think that overall investment trends in emerging markets do tell us about the range and kinds of economic and financial investment activities occurring now.

Just as in the more developed economies, we believe that, ultimately, the interest in a broader range of investments that can generate benefits to a wider clientele will accelerate as many emerging economies seek to enable more of their populations to experience rising incomes. Not everyone will move to urban areas, and many countries have tremendous natural resources that can be developed in a sustainable way to benefit local populations. At some point, the scale will tip.

Development Aid Trends After declining between 2005 and 2007, official development aid (ODA) rose again by 10% in 2008 to $119.8 billion, generally attributed by experts to the international financial crisis. In addition to various government commitments, private aid has become an increasing important part of the financing mix, spurring a variety of public-private partnerships, most particularly in the areas of health, education and climate change.

OECD estimates that about 40% of developing countries are highly exposed to the poverty effects of the financial crisis and will need to have increased levels of financial assistance to weather the storm. In nearly half of poor countries, official aid is over 10% of gross national income. Four-fifths of these countries are in Sub-Saharan Africa, all of which are being severely affected by the economic resession as well as aid contractions.

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Remittance Trends Remittances have become a major source of financial flows in emerging nations, and there is considerable debate as to their role in economic development. Remittance flows to developing countries reached $328 billion in 2008, up 15% from $285 billion in 2007. All regions of the world experienced strong growth: South Asia registered a 33% growth in remittance flows as India reported $52 billion in 2008, sharply higher than an original estimate of $45 billion (World Bank, Migration and Development Brief 10, July 13, 2009); remittances to East Asia and the Pacific rose 20% as China and the Philippines reported strong growth.

The top ten recipients of migrant remittances among developing countries in 2008 are as follows: India ($52.0 billion); China ($40.6 billion); Mexico ($26.3 billion); Philippines ($18.6 billion); Poland ($10.7 billion); Nigeria ($10.0 billion); Egypt ($9.5 billion); Romania ($9.4 billion); Bangladesh ($9.0 billion); and Vietnam ($7.2 billion).

For developing countries as a whole, remittances are large relative to other financial flows.

During the last ten years, for example, remittance flows amounted on average to about one third of export earnings, more than twice private capital flows, almost 10 times official development capital flows, and more than 12 times official transfers (The International Monetary Fund, Do Workers’ Remittances Promote Economic Growth?, July 1, 2009).

MSME FINANCING DURING THE GLOBAL FINANCIAL CRISIS The global financial crisis and the ensuing flight away from risk have affected credit flows towards various groups of firms to different degrees, but certainly MSMEs with the weakest financial structures and low or non-existent credit ratings, have suffered the most. In OECD countries alone, MSMEs form the backbone of the economy, accounting for up to 97% of all firms, between 40% and 60% of GDP, and up to 70% of employment. In many developing countries, and for certain sectors of the world economy, such as adventure tourism, these percentages are even higher.

As a general rule, access to financing, and the different types of financing available, is generally related to the scalability, adaptation capabilities and strategic direction of a business. A big question in the literature is whether there are investment models for supporting MSMEs that can be transferred directly from developed to low-income and emerging economies and how well specific financing mechanisms, including microfinance, move across various countries and regions of the world.

What does seem to be the case is that transferring “best practices” across national boundaries is highly complex and difficult, most particularly in the context of substantial crosscultural differences. These differences certainly have implications for how businesses scale, grow, obtain financing and become profitable in a sustainable way.

Microfinance: Does It Have a Role in Economic Development?

Microfinance is defined for the purposes of this report as the provision to very poor families of very small loans to help them engage in productive activities or to grow their tiny businesses (Microfinance Gateway, 2008). Microfinance as a “poor-people” financing mechanism has been designed to be provided by institutions different from those in developed countries and specifically, for environments with poor “institutional quality and depth,” which can also vary substantially across developing countries as well. It is generally viewed as an informal lending model (based on group lending and no collateral), though it has begun to diversify in structure in various countries around the world.

There are two opposing camps in the microfinance world: one that views with an almost evangelical fervor microfinance as a panacea that will eliminate poverty and create jobs and rising incomes for poor people around the world; on the other side is a group of practitioners who xolaconsulting www. .com

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believe that, in countries where corruption, under-developed institutions, poor infrastructure and immature markets are the norm, microfinance is, at best, a palliative. They believe that economic development has always preceded mass access to banking and related financial services, and when such services grew, they were always savings-based, not debt- and borrowing-oriented, as is the case in microfinance.

As a general rule, we believe microfinance has a place in the financing scheme of things but is unlikely to be the instrument of choice, at least as currently structured, for economic development purposes.

In our view, the microfinance industry still has a long way to go to achieve the same status as that of the venture capital industry or the socially-responsible investing (SRI) asset management business and to demonstrate unequivocally its ability to alleviate poverty and create jobs. The current financial crisis may expose even further some of the flaws of the microfinance business model, which still emphasizes lending and credit primarily to individuals and microenterprises in spite of the slow emergence of other financial products, such as savings, microinsurance and remittance and payment services.

We believe that the problem lies not with microfinance per se but with how it is currently structured — in many cases rigidly — and with how little success it has had in building successful microenterprises that create jobs and rising incomes for more than one person or a family unit. In developed societies, economic development generally preceded credit, and there is no reason to believe that it will not be the same for developing countries.

In fact, the venture capital industry in the U.S. relies very little on debt, believing that, in order to build a flourishing, sustainable enterprise, there has to be a direct, equity investment in the business, not in the form of a debt instrument. Debt instruments in the U.S. are Photo: Jessica Reilly generally thought to be appropriate for later-stage businesses that have cash flows able to support interest and debt repayments over time. So, the notion of poor people borrowing money that is short-term (e.g., it generally has to be repaid in less than 12 months in microfinance) as an economic development tool seems antithetical to the notion of long-term growth through equity investments.

The goal then is to find the paths to success and to develop and implement new microfinance and investment models for investing in microenterprises that will have a positive and sustainable impact on local and regional communities. There are already many alternatives to microfinance that might be more appropriate from a sustainable development perspective, including local development banks, cooperative banks, credit unions, national and regional development funds, social venture capital funds, community development banks, and so on. xolaconsulting www. .com

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Evolving today’s microfinance institutions (MFIs) into more developmentally-oriented, locally-based financing platforms is crucial. To meet the dual goals of economic development and poverty alleviation, they should provide a wider array of financial products and services and integrate more fully with other social, human resource development, and health and educational services of the communities.

Financing the Base of the Pyramid (BoP) Many development economists observe that most financing models currently used do not work to reach the population of 4 billion at the “base of the pyramid.” The BoP Protocol™, which has gone through several iterations and now is at a stage called BoP Protocol 2.0™, is a pioneering business incubation process that enables multinational corporations (MNCs) to generate new business opportunities at the base of the economic pyramid and enables local entrepreneurs to build a network of business relationships that expand the supply chains in which they participate. Based on this participatory philosophy, the BoP Protocol™ is in essence a market-driven model for long-term business co-creation that marries MNCs’ resources, technologies and best practices with those of a local community.

Market-Based MSME Solutions for Social and Economic Change In addition to the private, public/government and not-for-private sectors found in today’s business world, a fourth sector known as the social enterprise sector is emerging. However, before it can take its place as the fourth leg in the business world, there are structural challenges it faces, not the least of which is definitional. Simplistically, it is a for-profit/not-forprofit hybrid model that uses private investment to work on common-good social problems (though many have already added such goals as environmental sustainability, corporate social responsibility, etc. to the base concept).

Virtually on an almost daily basis, we read about another social enterprise initiative around the world, though it is still in its nascent stages, characterized as highly fragmented with many small-scale enterprises struggling to gain scale. In almost all cases, however, there is still a lack of funding available to social ventures from either traditional or non-traditional sources.

In fact, only a few market-based efforts have achieved to date any meaningful scale, nor have many been replicated in different countries or economies at different stages of development. While it is generally understood that market-based solutions will be more sustainable, particularly when tailored to local situations with ground-up support, it is unclear how many of these solutions will get financed since actual financing mechanisms have lagged behind the market-based solution ideas.

The Monitor Group Analysis of Global Market-Based MSME Solutions In January 2009 the Monitor Group LP published a research report entitled Investing for Social and Environmental Impact, a Design for Catalyzing an Emerging Industry. Then in March a second report, Emerging Markets, Emerging Models, was released — one of the first broad-scale, in-depth, cross-country analyses of several hundred market-based projects around the world over a two-year period. Monitor conducted the research because it felt it needed to understand why so few market-based solutions failed to scale and what business models across sectors show the promise of helping MSMEs grow and gain scale. The study also focused on those market-based solutions that offer “socially beneficial” products and services to poor people, both as customers as well as suppliers.

The research uncovered a plethora of market-based approaches that claimed to be profitable and financially self-sustaining, but on closer inspection, were found to be struggling financially and in general served only a few thousand people, a drop in the bucket given the millions living in conditions of extreme poverty. xolaconsulting www. .com

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The study focused primarily on companies with business models that held the promise to be: ◗ Profitable and commercially viable (or at least self-sustaining without requiring continuous subsidies, grants and donations); ◗ Scalable (able to reach and improve the lives of significant numbers of people); and ◗ Market-based (i.e., those solutions that engage with the formal market economy in some fashion to provide products and services to poor people who are either consumers or suppliers).

Some key findings of the research were as follows: ◗ Market-based solutions offer immense promise in emerging markets to provide social and economic benefits to poor people; ◗ Success is highly dependent on adopting the right business models, which must be tailored to the particular economic and social conditions of the poor; ◗ Small entrants are more likely than large corporations to be best-positioned to organize on a local level the extensive supply chains needed to address emerging-market opportunities; ◗ Non-commercial, “soft” funding plays an important role in lower-end, local markets and has helped many of the successful enterprises examined in the research to reach scale.

In fact, in many cases, soft funding may be the only way through which specialist business models can be developed, adapted, tested, overcome critical barriers and achieve some scale; and ◗ Meaningful scale is achieved in different ways but invariably takes time, up to as many as ten years to reach scale and provide meaningful, enduring benefits. In Monitor’s estimation, while scale is sensitive to national context, most particularly relative to the size of the population base, it believes that scale, broadly defined, is one million customers or 50,000 small suppliers or producers, though it would consider lower thresholds for small countries.

The recurring obstacles to success across all of the business models studied were the following: ◗ Distribution, a barrier for rural people in particular; ◗ Customer education and awareness; ◗ Cost of value-chain aggregation; ◗ Fixed costs, particularly for capital assets; ◗ Access to capital and credit; ◗ Human capital; and ◗ System effects where, to be successful, the entire value chain has to be organized from start to finish for it to work, thus making it expensive, time-consuming, and burdensome for implementing a business model that otherwise might work.

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Three of Monitor’s key conclusions provide some sensible guidance as to how to build some scale in an adventure-travel business: ◗ Aggregation of participants in a supply chain can transform poor people into viable economic entities that can be financed more easily and/or more appropriately; ◗ Success starts at the top of the supply chain, that is, the supply chain needs to be set up by an “organizational brain” to head up the chain and to bring together the parties and execute on the business strategy. This individual/group should have the best connections, the market knowledge, access to information on trends, pricing, customer demands, etc. in order to align incentives downstream as well as minimize the risks associated with the supply-chain approach. This organizational brain can either be directly responsible for providing credit, handling start-up and/or switching costs, promotional costs as well as required supplies, or responsible for pulling together the outside parties that can provide financing in the forms needed when required; ◗ Implementation of market-based approaches is very difficult and complex and takes a great deal of work on the part of participants, but most particularly by the “head” of the supply chain.

The Investing for Social & Environmental Impact report focused on identifying those investors who are seeking to make investments that generate social and environmental value as well as financial return and of tying the support of various market-based solutions globally to what it calls the “currently disparate and uncoordinated range of investing sectors and regions converging to create a new global industry, driven by similar forces and with common challenges.” Monitor defines this “loose” collection of social-investment activities as “impact investing,” which currently operates in the largely unchartered area between philanthropy and a singular focus on profit maximization.

The extensive report has two key observations relevant to us: 1. Increasing the amount of money and the social and environmental value of impact investing will require developing local financing infrastructures to facilitate investments; and 2. Action will be required to address the lack of “absorptive” capacity for investment capital of these local companies by supporting the development of scalable, growth-oriented, investment-worthy business models in emerging economies.

Photo: Jessica Reilly

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However, we take issue with Monitor’s definition of scale. We agree with Monitor’s observations on the ways in which the power and productivity of as many people as possible at the base of the pyramid can be unleashed. But we fine its overall “business-scalability” approach very limiting and, in the end, self-defeating from an economic-development perspective. It excludes businesses that, while they may not meet Monitor’s “scale” requirements, may still be profitable and sustainable, and provide communities, particularly rural communities, with a means to improve livings while protecting environments, biodiversity and other social and cultural values.

Even given that many emerging economies need many more “scalable” businesses that create greatly increased levels of jobs and can be financed by professional sources of capital, in our estimation, it is unrealistic to assume that focusing only on “scalable” businesses in emerging economies will solve a country’s job- and wealth-creation issues. As discussed earlier in the chapter, less than 10% of new global entrepreneurs are responsible for almost 90% of new job creation.

In fact, fewer than one in 10,000 start-ups globally have professional venture capital in hand when they open their doors for business. Venture capital, which can accelerate a handful of superstar companies and is the bedrock to an innovation-driven economy, makes no perceptible difference to overall entrepreneurial activity at a grassroots level. Even in the U.S., long considered the most successful, entrepreneurially-driven economy in the world, MSMEs and smaller, family-run businesses still dominate its economy, not venture-backed enterprises.

A nation that wants an environment in which entrepreneurs thrive must have policies that facilitate informal investments and support the development of locally-based financing alternatives. In contrast to Monitor, we believe that these MSME businesses are critical components of a successful value chain of producers and service providers that, when taken together, form the base of a vibrant economy and are part of the rising tide of improving lives and livelihoods.

For example, in the U.S., many of the very successful, world-class adventure-travel companies have been around for decades, but most are still small and provide a highly specialized service catering to an evolving niche audience. There is no reason why such companies could not be (and many already are in certain areas of the world) successful in emerging markets.

This year’s Research Roundup has focused on the very real challenges of climate change and water scarcity as well as the lack of capital not only to develop and implement successful adventure-travel-oriented business models but also to fund climate-change mitigation and adaptation strategies. We find that the problem with Monitor’s approach is that the financing model it supports is still based on a more venture capital-oriented model focused on scalable, high-growth businesses. It is our experience that, even for mature, highgrowth/high-expectation markets such as the U.S., only a handful of such models actually succeed. If we were to adopt exclusively Monitor’s notion of scalability in the travel and tourism business, only mass-tourism projects would ever get funded.

We do agree with Monitor’s value-chain aggregation approach, tying wide-ranging activities under one umbrella and with an organizational brain coordinating them. This is particularly appropriate in adventure tourism, when the value chain is extensive, deep and broad. However, with Monitor’s approach, many small profitable and sustainable projects would not get funded because, even under optimum circumstances, they could not scale to the sizes deemed as necessary to be worthy of investment.

We believe that the value-chain finance approach provides a market-based solution to bridge the gap between larger-scale, professionally-oriented financings for highly scalable enterprises and small-scale investments such as microfinance focused primarily on poor individuals. xolaconsulting www. .com

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VALUE CHAIN ANALYSIS AND FINANCE USAID has started to become very involved in global microenterprise development at the local level, particularly at the base of the pyramid, linking low-income people into businessgrowth opportunities. Its view is that growth that reduces poverty should focus not only on access to financial services that directly improve the performance of MSMEs which the poor own and operate but also on the performance of industries in which large numbers of the poor participate, as workers and as entrepreneurs.

In a policy brief, USAID states that, in order to achieve sustainable and successful microenterprise development that creates jobs and reduces poverty, the following must be done: ◗ The development of competitive value chains in sectors important to smaller entrepreneurs, most particularly those that open up new market opportunities, including export; ◗ The upgrading of microenterprise capacity through new funding mechanisms that support new production and service delivery techniques and other technological improvements aimed at meeting higher quality standards; ◗ The implementation of sustainable “win-win” models within communities of integrated value chains of larger firms delivering support and services to the smaller firms that supply them with goods and services; ◗ The creation of a dialogue amongst all stakeholders, critical to a local conversation process and climate-change and water-scarcity mitigation and adaptation strategies; ◗ The leveraging of promotional dollars across a broader base of inter-related businesses; ◗ The aggregation of microenterprises into groups, including cooperatives and self-help groups (SHGs) to increase market bargaining power and scale; and ◗ The support of micro- and small enterprise capacity to advocate for their own interests with policy makers, protected-area managers, funders, municipal authorities, government agencies and chambers of commerce.

This approach is part of a broad discipline called value-chain analysis. Value-chain analysis attempts to optimize any given value chain to meet market requirements by harmonizing all of the value-chain participants, improving quality and productivity. The approach focused on key points along the chain where interventions can expand income opportunities within a commercial service sector for all or many participants. This increases the overall competitiveness of the product or service, allows niche markets to be targeted more effectively and creates growth and new employment locally and/or regionally.

Value-chain finance is defined by USAID as financing provided to or by a value chain actor in order to increase value-chain growth and competitiveness. Whether provided by a local bank, a buyer or an input supplier, value chain financing allows firms to operate, to transact with others and to upgrade. Value chain finance is not a separate subset of finance nor is it a completely new field. Depending on the requirement, financing can be provided by various entities both within and outside the chain at different points in time and includes a wide range of products — from trade credit, in-kind loans, seasonal loans from buyers, short- and longerterm working capital, letters of credit, guarantees and more.

Value chain financing is a market-based solution that requires an in-depth understanding of local markets, the inter-relationships between all of the participants in that value chain, and the ability to facilitate changes in individual firm behavior to increase the competitiveness of the whole value chain, thereby generating wealth for all participating firms and contributing to local economic growth.

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VALUE CHAIN ANALYSIS AND FINANCE IN TRAVEL AND TOURISM There is an extensive literature emerging on market-based, value chain-oriented solutions in travel and tourism. Overseas Development Institute Briefing Paper 49, March 2009, entitled Value Chain Analysis and Poverty Reduction at Scale, focuses on making markets work for the poor to unblock profitable market opportunities in the T&T sector. It strongly points out: “The need — and opportunity — to harness markets for poverty reduction is evident in tourism. Developing countries are littered with well-intentioned, community-based tourism projects, delivering small benefits to few people. Developed in isolation from commercial distribution channels, they lack the client volumes needed for commercial sustainability. In contrast, Ministries of Tourism and mainstream businesses often see increased arrival numbers as the (only) barometer of success. Research by ODI suggests that neither approach is right, but tourism markets can — in some cases — be exploited for the benefit of the poor.”

The article debunks a number of myths. For example, it states that assuming that some types of tourism (e.g., backpackers) are de facto better than others for the poor is wrong. It also dismisses arguments that certain types of interventions are better than others simply because they are available (e.g., government funds to fund certain changes in product). In terms of the first assumption, it gives examples of pro-poor income as a % of destination spending on 11 different types of tourism at various destinations around the world, which range from 28% for mountain climbing in Northern Tanzania to a low of 7% in Cambodia for cultural tourism experiences.

The point of the article is that similar types of tourism can perform very differently in different contexts, and that it is important to understand the intricacies of the particular destination and what specific actions need to be taken to have identifiable, quantifiable results.

Identifying interventions requires assessment of governance structures and markets within a destination, coupled with other data including inter-sectoral links between tourism and the non-tourism economy and the possible competition between various segments. For example, destinations with already high linkages between tourism and the rest of the economy can boost pro-poor income (PPI) by coming up with strategies for boosting tourist spending. On the other hand, destinations with low linkages should strengthen linkages rather than focus on sector expansion.

ODI believes that the value in its approach is first in challenging assumptions and then generating an empirical basis to assess options to sustainable, pro-poor tourism options. It also argues that the approach generates benchmarks, allowing comparisons between contrasting destinations. Finally, using a value-chain approach helps develop a wider perspective of the multiple actors and processes in the chain in order to develop workable marketbased solutions.

We believe that there is a major opportunity to change the “economic-development” conversation globally and to reorient economic growth towards a long-term development path that is more local, inclusive and sustainable. Adventure tourism can be a critical enabler of that conversation.

FINANCING SUSTAINABLE ADVENTURE TOURISM MSMEs Some of reasons why tourism can be an efficient tool to fight poverty and create jobs in developing economies are as follows (UNWTO): ◗ Tourism is consumed at the point of production, opening up opportunities for local businesses of all sorts, including selling both goods and services directly to visitors; ◗ It is a more diverse industry than many others, having the potential to support a wide array of economic options; xolaconsulting www. .com

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◗ The industry is labor-intensive, provide a wide range of different types of employment opportunities, from skilled to unskilled, including for women and youth, both highly vulnerable poor population groups; ◗ It creates many opportunities for micro- and small enterprises; ◗ The infrastructure required for tourism can also benefit poor communities directly (for example, transport and communications, water supply and sanitation, public security and health services); ◗ Most developing countries have a comparative advantage in tourism over developed countries because they have assets of enormous value such as protected areas, natural landscapes, wildlife and climate, authentic culture, art and music; and ◗ Tourism provides not only material benefits for the poor but also cultural pride.

Thus, when done correctly, tourism investment can be an effective tool for generating sustainable economic returns, conserving environmental biodiversity and potentially providing the optimal use of environmental resources, creating employment opportunities for local communities, and increasing participation of local stakeholders and respect for sociocultural authenticity of host communities. In fact, good business strategies and careful planning, tailored to local conditions, can mitigate the possible negative impacts of tourism and provide innovative financing streams for site conservation. Because of what is known as its significant “multiplier effect,” the tourism value chain can also be leveraged to support broader community economic development initiatives beyond tourism services.

THE ADVENTURE TOURISM OPPORTUNITY Within the global tourism economy, the adventure travel sector holds special promise for socially and environmentally motivated investors. Adventure tour business owners are often passionate advocates for conservation and environmental protection. They are leaders in their communities — taking on issues from land-use designations to water quality to wildlife protection and the human rights of local people.

Predominantly small and micro adventure businesses are unusually reliant on local sources of people and goods to operate their companies. Consider the typical scenario: a tour operator serves guests who place a high premium on authentic experiences and local culture; he therefore books his guests into a family-owned local lodge which purchases food for meals from a local grower, on his treks he takes his guests through mountain villages, passing the benefits — small in absolute terms but significant in impact, throughout the region.

From tour operators to lodge owners and gear suppliers, organic food growers and handcrafts producers, the adventure-tourism supply chain is inherently local, driving benefits directly to communities.

A well-documented case in Yunnan, China, for example, showed that what seemed to be the scant fees trekkers in the 1980s were paying for a bed at village guest houses near the famous Tiger Leaping Gorge made a significant contribution to lifting local people out of absolute poverty; now locals have diversified their offerings and serve hikers with small shops, frying banana pancakes, selling handcrafts and transporting hikers or their gear on their horses.

In another example from Africa, we see the powerful effect of buying local, something adventure businesses do habitually — each $1 of new income for a farmer yields an average income increase to other local workers in the local economy, ranging from $1.96 in Niger to $2.88 in Burkina Faso.

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and preservation of land. Important standards to support the industry’s development and avoid exploitation and degradation of local cultures are being promoted and extended by academics, consultants, and the industry’s association, the Adventure Travel Trade Association.

See the Adventure Tourism Development Index online.)

New Financial/Investment Instruments Are Urgently Needed Thus, more flexible financial instruments need to be developed, custom-tailored to the needs of MSMEs in attractive adventure tourism destinations, to include investment subsidies, tax measures, long-term loans, leasing and insurance products, lines of credit or overdraft facilities, government guarantees and international payment transactional support. A recently published working paper entitled Financial Markets, Microfinance and Tourism in Developing Countries (May 2008, Jos van der Sterren, Breda University of Applied Sciences) argues that local commercial banks and other local financial institutions such as credit unions must play an increasingly important role in innovating new financial products to meet the local financing needs of tourism, a highly diverse, dynamic sector of the economy.

At the present time, the research paper observes that MFIs are mainly poverty- and not businessoriented. What this means is that their business is almost solely at raising individuals out of poverty (even if the loans are allegedly made to a microenterprise). Secondly, both MFIs and commercial banks in developing countries do not appear to have tourism sector expertise. In fact, it probably can be said that, as a general rule, MFIs around the world do not in general have industry or market segment expertise as would be found in the venture-capital industry. As a result, most MFIs would currently be unable to develop appropriately tailored financial solutions, most particularly market-driven and value chain-based, customized for the tourism sector.

We believe that, through a refocusing of their efforts and an upgrading of sector/industry expertise, MFIs and other local financial institutions, such as credit unions, could have the opportunity to finance broad and overlapping groups of businesses by supporting coherent and smooth supply chains. In this way, they could boost the revenue of all of their inter-connected clients, helping them to achieve financial sustainability more rapidly as well as to increase their size, market power and reach.

Another key emerging issue is the financing of sustainability, climate-change and waterscarcity projects, which will need to be integrated into a community’s broader economic development plan, which includes tourism. In so many destinations that rely on naturebased tourism, the criticality of the inter-relationships of these driving forces cannot be over-stated. It is also why we believe value-chain analysis can be an invaluable tool for specifying all of the linkages between the various sectors and their requirements.

So what’s holding the adventure industry back from Changing the World? It lacks investment.

Adventure businesses typically lack the necessary access to credit and other financing sources to ever get beyond the “boot-strapping” phase, especially in developing countries.

With government support primarily aimed at attracting foreign direct investment and largescale development projects, not directed towards expanding local enterprises, there is little support for these types of small businesses, which deliver such significant benefits in their communities. While there has been a substantial expansion of the microfinance industry around the world, MFIs have not by and large met this funding gap, nor can they, as we have argued earlier in this chapter, unless they change the way they do business.

There are clearly many existing constraints in the development of nature-based tourism including policy constraints regarding land-tenure policies and poor linkages with higheryielding source markets, tour operators as well as to agriculture and other key sectors of the economy, in addition to the lack of appropriate financing options. xolaconsulting www. .com

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However, there is also growing evidence that the tourism value chain can be leveraged to support community economic development beyond tourism services, an important point which allows broader access to financing alternatives.

We also believe that there may be opportunities to link the development and/or expansion of a nature-based tourism project to sources of capital that are opening up for climatechange and water-scarcity mitigation and adaptation projects around the world, since some of the most hard-hit regions are ones with very active tourism sectors.

We also agree with the BoP Protocol approach. The world is getting smaller and smaller, and engaging regional, national and large multi-national corporations in local projects is no longer out of the question. For example, adventure tourists move around the world freely and in order to get to an ultimate destination, use all sorts of hospitality and travel services to do so. Many of these companies are becoming increasingly motivated to engage directly with the BoP not only to sell products but also to help provide sets of supplier solutions that will be mutually beneficial. Therefore, strategic partnerships across the tourism value chain will become increasingly critical to the long-term success of adventure-travel businesses and destinations.

It is time for the adventure-travel industry to begin to think creatively on how to bridge the financing gap. There is money out there; it is now a matter of having in place the right partnerships, an integrated value-chain approach, and a business plan that ties into and helps solve some of the broader sustainability, water-scarcity, climate-change, and economic-development issues in the local geographies in which an adventure-travel business operates.

We do not have the luxury to wait around for the development of appropriately structured investment instruments that can be used locally to meet the needs of emerging local adventure travel companies and destinations. We need to raise the industry’s profile globally by not only viewing ourselves as key enablers of the social enterprise locally but also as driving forces behind solving local sustainability, climate-change and water-scarcity issues in a broader economic-development context.

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Photo: Christina Heyniger

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