Competitiveness Analysis of the Tourism Sector in Mexico According to Michael Porter's Diamond Model
In 2009, and for a period of six month, I have travelled to Mexico as an exchange student. This experience has enabled me to observer, in total immersion, the strategy implemented by Mexico to maintain economical and social fast emergence. I noticed that the development of tourism was a very important issue in this strategy, and this is the reason why I decided to analyse the competitiveness of Mexico for this sector.
In the 2008 edition of the Travel & Tourism Competitiveness Index (TTCI), which measures factors that make it attractive to invest or develop business in the travel and tourism sector in a specific country, Mexico reached the 57th ranked worldwide, the fifth ranked among countries in Latin America and the ninth in the American continent. Tourism remains one of the main economic supports in Mexico. Thanks to the government high investment policy, and with the benefits of its natural and historical attractiveness, Mexico reached the 6th rank of the world most touristic countries in 2009, with 21. millions of international visits (67% coming from the USA). Source: Euromonitor International In this report, according to Michael Porter’s diamond model, we will analyse successively six drivers that have influence in international competitiveness of the tourism industry in Mexico: –
The factor conditions (human resources, natural resources, and infrastructures) -The firms strategy, structure and rivalry (main trends, challenges and emergence of clusters) -The demand conditions for the three main tourism areas in Mexico: Ecotourism, Cultural and business tourism. The related and supporting industries -The government measures to maintain growth in the tourism sector -The “chances” factor and the case with the H1n1 virus I)The factor conditions 1)Human resources Since the 1990’s, the educative system was split into various, uncoordinated and inefficient programs. According to a new law for education adopted by the federal government in 2006, people form 5 to 18 years old have had the obligation to attempt a scholar instruction and the educative frame came to fit into the international standards.
Nowadays, in every level of instruction, public and private institutions have been settled and the government ensures the free access to education until the university. The country expenditures dedicated to education represent more than 5% of the GDP. As a result, the Mexican rate of alphabetisation is the highest of Latin America (91%) and over a total of 111 million of inhabitant, 36. 2 million (32%) are attending formal studies: -31. 2 millions are in primary, middle and high school. -1. 9 millions are attending superior study out of the college/university process -4. millions are attending superior studies in the college/university process There is a total of 120 universities in Mexico (64 publics and 56 privates). The main one is the National Autonomous University of Mexico (UNAM), located in Mexico City and gathering more than 300 000 students.
2)Natural resources Mineral resources are quite abundant and various in Mexico, including mainly petroleum, silver, copper, gold, lead, zinc, natural gas and timber. Moreover, the dominant tropical climate enables a quite good land use ratio (13% of arable land). )Infrastructures In opposite with the attractiveness of the multiple touristic areas spread in the country, Mexico suffers of an important lack of infrastructure. One of the most harming factors in the Mexican tourism industry is the lack of informatics and telecommunication infrastructure (64th nation in the world): despite improving quality and increasing telephone and internet availability, the public remains poorly served since “Telmex”, a Mexican group remains dominant, even after the opening to competition in 1997.
We also have to consider the bad competitiveness of the Mexican transport Infrastructure, especially in the terrestrial area: The railway sector is totally abandoned, and the automobile road condition is very poor in terms of maintenance, security, etc. Aware of this drawback, the actual Mexican government is highly focused on this problem. In the last 4 years, the country hardly doubled his investments, especially for the transport-dedicated infrastructure. New airports have been built and security and assistance has been developed in existing and recently built roadways.
II)The firms strategies, structures and rivalry 1)A common policy of Sustainable Development According to the National Development Chart of 2006, “the growth should be, from now on, clean and preserving the environment and rebuilding ecological systems, until harmony between humans and nature is reached”. In the recent years, the development of tourism in the country has faced an environmental and social crisis, such as urban sprawl around the big resorts causing the deterioration of ecological environment and the loss of the cultural identity.
This situation is not unique to Mexico and the so-called mass tourism has shown worldwide some negative effects as those mentioned above. One of the drivers for extra competitiveness in the Mexican tourism industry can be found, without a doubt, in the capacity of the firm to fit in this sustainable policy. 2)Four main challenges : In addition to assuming fully the principles defined in the National Development Chart, each business that wants to increase his competitive advantages will have to be aware of this four strategic challenges : A)The importance of a private-public collaboration:
Although traditionally there have been strategies for collaboration between public and private sectors in tourism, especially in regard to promotion, the industry recently acknowledged the need to establish a philosophy of ongoing collaboration aimed to improve the value of the offer. This is a trend that has recently been highlighted in a study by the World Tourism Organization, which identifies four paths for this collaboration: • Improving the attractiveness of the destination • Improving the efficiency of Marketing • Improving productivity • Improving the overall operation of the tourism system. B)Innovation:
Since the tourism industry appears to be one of the most lucrativein the Mexican Economy, the market place is slightly craweded and a growing number of company are offering identical services to identicaly targeted customers. The intense competition that is recorded in tourism demands a continuous effort to find new ways to strengthen one’s brand and to diffrentiate one’s offer from the domestic competitors. C)Teamwork: Even if the final services are provided by private companies in the sector of tourisme, there is a need to consider that the governement plays a role of great importance in the development of the industry.
In order to support this sector’s prosperity, the federal governement works with other sectors of public administration, legislative committees, with NGOs, with tourism service providers, with trade unions and, of course, with local communities. To stay competitive, a company has to be aware of these alliance,and has to try to be included in this global system and to take advantage of it. D)Local driven approach: A tourism service offer is always tightly attached to a specific geographical area that of presents localities and specificities.
Therefore, each firm has to increase its reactivity since an efficient strategy requires a local and adaptable vision of the activity. 3)The Importance of E-commerce To Travel and Tourism According to AMIPCI (Mexican Internet Association), the internet has experienced sustained growth in Mexico over the review period. This has had and will continue to have an important impact on the travel and tourism industry in Mexico, including air, travel accommodation, car rental and travel retail categories. However, most of the Mexican travellers persist in seeking advice from travel agents before purchasing online.
Thus, the survival of these traditional operators will depend on their ability to offer advice that adds high value to the customer, and consequently establish and charge fees for such services. The major constraints for traditional travel retailing in Mexico are growing consumer access to the internet and credit cards. 4)Low Cost offers The Mexican tourism sector acknowledges a very important growth in the implementation of Low Costs strategies. Almost all Mexican airline providers are turning to this trend : The first Mexican low cost carrier was Click Mexicana, a subsidiary of Grupo Posadas de Mexico, which began operations in July 2005.
Avolar, began operations in September 2005, followed by Interjet in December. Volaris began flying in March 2006, followed by Aerolineas Mesoamericanas in June and Viva Aerobus in December. In 2010, low cost carriers will grow by 5% in terms of passengers carried to reach over 14 million. The degree of competition among low cost airlines is expected to stabilise during the forecast period, therefore players may be offer more competitive fares which will boost demand.
However, some domestic routes may disappear due to poor profit margins. It is anticipated that the low cost carrier category in Mexico will account for almost 16 million passengers in 2014. 5)Firms competition, emergence of clusters In Mexico, even if the government tries to implement strategic alliances between companies of similar activity, the firms often choose to operate with independent strategies. In the scale of the country, this policy is harmfull to the competitiveness of the tourism industry. One efficient trategy for this sector would be, from the construction of clusters, to better meet the needs, desires and expectations of tourists, say to provide an experience of greater value than international competitors. However, some “clusters” strategies start to emerge in the tourism sector in Mexico. For instance, a few car renters, accomodations infrastructure and travel retailers have chosen to share their marketing strategy and their customer databases in order to increase their marketshare and to greater the value of the offer. III)Demand conditions
We can split the tourism offer in Mexico in three mains submarkets: the “ecotourism” market, the “cultural tourism” market, and the “business tourism” market. Each of these three segments shows specific parameters and figures. 1)The “ecotourism” demand parameters Ecotourism is the responsible travel to fragile, pristine, and usually protected areas that strives to be low impact and (often) small scale. It purports to educate the traveller; provide funds for ecological conservation; directly benefit the economic development and political empowerment of local communities; and foster respect for different cultures and for human rights.
In Mexico, this type of tourism represents a major share of the global industry, and a very wide range of offers are addressed to the international travelers, including observation of floral unique ecosystems ; safaris (whale, turtle, birds and butterflies watching) and geological and fossil interests. For this specific tourism offer, 58% of the domestic (national) tourists are men and the most consuming age segment is 24-35 years old. In the case international tourists, 50% of the people are women and the most frequent age segment is slightly older (35-49 years old). 1% of them are coming form the US, mainly from California, Texas and New York. In both national and international cases; ecotourism is highly associated to a family trip (more than 50% of the time), and therefore security and safety in transport, during the tourism activities and in the accommodation is the major factor of satisfaction. 2)The “cultural tourism” demand parameters The offer of cultural tourism packages is also very large. And different types of trips must be considered: Rest driven trips, Fun driven trips; Experimental and contact driven trips and expression driven trips.
This type of tourism has various contributions in a national scale. On the first hand, it represents a major economic boost for the development of local heritage. In addition, it reinforces the strong identity and pride of local communities. Furthermore, it participates to the growth of the financial resources to maintain and develop the benefit of these communities through tourist spending. Gender and Age: There is an equal interest of men and women for this type of tourism, whether they show Mexican or international origins.
Most of the national cultural tourists are aged between 35 and 49years old, while internationally, it is rather between 25 and 34 years old. The international travelers show a specific preference for the purchase of global and preset packages, while the domestic tourists are more interested in buying and composing each step of their trip themselves. One of Mexico’s major strength in this segment remains it culture of welcoming and hospitality. Mexico also presents a very high competitive advantage considering the huge number of worldwide famous historic and cultural sites and the quantity and quality of the activities that are available.
According to the opinion of the cultural tourists, Mexico’s biggest drawback is composed by the lack of hygiene and cleanliness in food, beverage and hotel accommodations. 3)The “business tourism” demand parameters The business tourism industry consists is the provision of facilities and services to the millions of delegates who annually attend meetings, congresses, exhibitions, business events, incentive travel and corporate hospitality. 60% of the international business tourists coming to Mexico are men aged between 30 and 49 years old.
Most of the time, the prospect presents an important purchase power and this type of tourism can be associated with luxury resort services since the average wage of the tourist is over 70 000 US$ per year. Even if there is no significant distinction in tourism spending depending on the country of origin, we acknowledge that in average, the richest business tourists are coming from the USA (representing 73% of the global business tourism visits). The rest of Latin and South America brings 12% of the Mexican business tourism flow. Europe brings 7%, Canada 5%, Africa, Oceania and Asia 1%.
In a recent survey* carried out by the federal government, we learn that the index of global satisfaction for the international business tourists is 7. 9 out of 10. This result is slightly under the global tourism grade: 8,2, proving that the business segment is more demanding and expects services of higher value. This survey also insists on the expectation of this segment for secure and safe accommodations, well developed telecommunication technologies and a quality service of public transport. Survey : Perfil y Grado de Satisfaccion del Turista Internacional de Negocios – Secretaria de Negocios, Gobierno federal – 2009
IV)Related and supporting industries 1)The tourism industry supports and is supported by various other sectors Travel and Tourism is an industry related to several markets as diverse as transportation (airlines, rail and ferry companies), travel retail, travel accommodation, tourist attractions, health and wellness, as well as standard tourism parameters. Indeed, the tourist, whether he is in holidays, in week end or in a business trip, generates by his consumption a substantial economic activity that has a direct influence on the income and the employment in several sectors.
Travel and Tourism is an industry is related and supported by a very wide range of other industries such as: -Travel agencies tour-operator, activities planners, tourism offices and booking platforms. -Hotels, campings, and other touristic accommodations (holiday villages, youth hostels, refuges, shelters, etc. -Transportation sector: Roadways (bus, car renters, taxis, etc. ); Airlines companies (regular flights and charter); Railways; Ferry companies -Food and drink market (restaurants, bars, etc. ) Leisure and sports and thermal activities In Mexico, the tourism figures are considered to have a direct or indirect influence on one over five companies’ results. 2)A very large panel of domestic supporting associations Many associations are supporting the tourism development in Mexico. Their principal missions are to ease network communication and federate the various market players, increase lobbying and the emergence of clusters. -The Mexican Association of Tourism Development (AMDETUR) and the National Tourism Business Council (CNET)
Born as a result of the continuous and rapid growth of the tourism activity in Mexico and the need to have a single common strategy and joint work between the authorities and private companies, its initiative is to standardize the offer and define an adequate activity framework. -The Mexican Association of Adventure Tourism and Ecotourism (AMTAVE) This organization is in charge of federating the activity of the best companies operating in the adventure and ecotourism segment. Another of its missions is to protect the Mexican most famous destinations, contributing to sustainable and ecological development. The Tourism Promotion Council (CPTM) This entity has a mission to animate and promote the activity and to promote the attractiveness of the Mexican offers by providing information through Internet on the Mexican people and their traditions, the natural beauty of the sites, and cultural and historical articles. V)Government drivers The new Federal Law on Tourism, derived from the National Confederation of Commerce Chambers (CONCANACO) in 2007, proposed structural reform for the tourism industry, including a restructuring of the Ministry of Tourism.
In June 2009, Felipe Calderon signed the decree, approved by congress, which created a General Tourism Law. This law has been a constant demand of businessmen, tourism service providers and state, since the dynamics of the industry require a more flexible instrument to ensure the development of tourism. This new law is intended to offer much better planning and programming of the tourism industry’s activities using the criteria of social benefits, environmental sustainability, competitiveness and balanced development across the country’s regions.
According to a Euromonitor study of June 2010, the main contributions of this law to the Mexican tourism industry are: -to establish responsibilities, coordinate and simplify the relationship between the federal, state and local governments regarding tourism affairs -the creation of an Executive Tourism Commission, from two or more agencies or entities of the Federal Public Administration, with responsibilities to identify, address and resolve issues relating to tourism competition -the creation of a Tourism Consulting Commission to formulate strategies and actions.
The commission will formulate the basis for planning and strategic tourism activities, based on the criteria of social benefits, sustainability, competitiveness and balanced regional development -the creation of a country tourism map based on a National Tourism Registration system. A public catalogue of tourism service providers in the country -municipalities and the federal district access information nationwide in order to better understand the tourism market and establish communications with the private sector as required; -to clarify the rights and obligations of domestic and international tourists travelling through Mexican territories.
This law also lists the rights and obligations of tourism service providers and specifies penalties for each type of violation These legislative changes will modify and strengthen the competitiveness of Mexico in the world tourism industry. The main development and growth areas appear to be cultural and ecotourism, while other regulations are to be settled to boost the business tourism sector, and to promote the emergence of innovative offers such as religious and health tourism. The benefits of this project highly depend on the financial means liberated by the government to apply the new measures.
Also, the Mexican government must succeed in providing the structural changes that will allow the domestic companies to play with these new rules. VI)Chance As we are going to analyze the consequence of the H1n1 Virus in the Mexican tourism industry, the term “chance” would rather be, in this case, switched with the term “Misfortune”. 1)Mexico’s 2009 misfortune In 2009, the outbreak of an unknown disease, during the global recession period and during the high touristic season created what many experts considered “the perfect storm”.
This crisis had direct tremendous consequences in all the sectors figure. According to the Mexican Minister of Tourism, during May 2009, the tourism industry suffered of a 32% decrease in international visitors and a 54% drop in global tourist spending. Hotel occupancy rates decreased by 55% and the top 15 tourist destinations collectively touched bottom with a 20% occupancy rate, forcing hoteliers to create massive special discounts to survive the situation. To counter this critical situation, the domestic players have had to use their reactivity and innovate.
For instance, The “Gran Avalon Hotel” in Cancun offered “flu free” guarantees: If guests were able to prove they had contracted H1N1 during their stay, they would receive a free vacation in Cancun for the next three years. Nowadays, the international travelers seem to have overcome their fears about traveling to Mexico and the tourism flow returned to normal levels by the end of 2009. In the beginning of 2010, the occupancy rate for the top 15 tourism destinations had nearly recovered to 2008 levels and many destinations, such as the Mayan Riviera and Los Cabos, over passed their all time record in the number of visit in January. )Medium and Long term perspectives For the years to come, a recovery is expected as the H1N1 virus can be considered as totally shut down. In a close future, growth will be dependent on extent of the recoveries of the US and Mexican economies as American visitors and domestic tourists are the biggest drivers of tourism development.
Conclusion References Databases: -Euromonitor -Xerfi International -Factiva Internet: