An Analysis of Tourism Global Value Chains -...

75An Analysis of Tourism Global Value Chains

An Analysis of Tourism Global Value Chains

The present process of globalization stresses the need to continuously seek international competitiveness.Firms’ strategies have rapidly evolved in the last few years. In this sense, ‘Global Value Chains’ (GVCs)(Gereffi, 1994) are being increasingly used to describe the whole set of activities involved in theproduction and consumption of a good or service. Taking part in these global value chains is essentialfor the Small and Medium-Sized Enterprises (SMEs) to survive and even make profit from the globalizationprocess. This paper analyzes the configuration of global value chains in the tourism sector. The participationof Andalusian SMEs in the global tourism value chain is studied in greater depth.

María Pilar Tejada* and Francisco Liñán**

* Assistant Professor, Department Economia Aplicada I, University of Seville, E41018 Seville, Spain.E-mail: [email protected]

* * Associate Professor, Department Economia Aplicada I, University of Seville, E41018 Seville, Spain.E-mail: [email protected]

IntroductionThe present process of globalization stresses the need to continuously seek internationalcompetitiveness. Thus, firm strategies have been rapidly evolving in the last few years.Technological advances have exerted a critical influence on this process, modifying thetraditional consideration of competitive advantages due to: new rules of internationalcompetitiveness, relative change in the cost of some resources (labor, transports, etc.),and the new role of distance and geographical localization as elements of competitiveadvantage (López, 2005). This has led to global strategic designs, as reflected in theconfiguration of global tourism value chains.

These changes are also taking place within the tourism sector. Go and Pine (1995)point to the following elements as the cause of increasing competitive environment:globalization of tourism markets, greater consumer sovereignty, changing firm strategies,introduction of new technologies in the tourism industry, and the transformation inmarketing channels. Tourism firms are forced to restructure to adapt to this newenvironment. Main strategies in this sense are: firm mergers, introduction of new agentsin the market, new management models, and internationalization (Ioannides andDebbage, 1997; and Bywater, 1998). In other words, global value chains are emerging.

The first objective of this paper is to understand the configuration of global value chainin the tourism sector. Thus, it identifies the relationships established among the differentparticipating agents (tour operators, travel agents, Global Distribution Systems (GDS),reservation centers, hotels, airlines, Destination Management Organizations (DMO),etc.). As the second objective, it analyzes the position of Andalusian tourism firms in

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The IUP Journal of Supply Chain Management, Vol. VI, Nos. 3 & 4, 200976

global value chains, with data obtained from several case studies carried out on Andalusianhotels and travel agents.

This paper was benefited from the participation of the research group ‘SMEs andEconomic Development’ in the research project “The Role of SMEs in the Global TourismIndustry”, promoted and directed by the OECD.

Global Value Chains Conceptual FrameworkValue chain can be defined as “the full range of activities which are required to bring aproduct or service from conception, through the different phases of production (involvinga combination of physical transformation and the input of various producer services),delivery to final consumers, and final disposal after use” (Kaplinsky and Morris, 2001, p. 4).This process has been presented in Figure 1. As may be seen, value chains are frequentlypresented as a linear causal relationship. Nevertheless, in the real world, value chains aremore involved; there are numerous feedback effects along the chain. For instance, productdesign will affect its production and marketing, and these, in turn, may affect the design.

The essential idea in value chains is that each link adds value to the product (Gereffi 1999a;Kaplinsky and Readman, 2001; and UNIDO, 2002). In reality, however, there usually area larger number of links in each value chain. Besides, within these links a wide range ofactivities are present. Therefore, the configuration of value chains is considerably morecomplex than the one presented in Figure 1. Kaplinsky and Morris (2001) refers to this as the‘extended value chain’.

Source: Kaplinsky and Morris (2001)

Figure 1: Four Links in a Simple Value Chain

Designand

ProductDevelopment

Production

• Inward Logistics• Transforming• Inputs• Packaging• Others

MarketingConsumption/

Recycling

The different activities comprising each value chain may be carried out by firms locatedin different countries. Thus, the expression ‘global value chains’ is used.1

1 The term ‘global commodity chains’—with a meaning similar to global value chain—was introduced by Gereffi (1994).


It is pertinent to mention here that this concept is different from Porter’s (1985)‘value chain’, which is a basic tool for firm analysis. Porter examines all the activitiescarried out within a firm, and their interactions. The final objective is to identify sourcesof competitive advantage, which cannot be comprehended looking at the firm as a whole.On the other hand, Porter’s value chain splits the firm into strategic activities,to understand both the evolution of costs and the existing and potential sources ofdifferentiation. It is made up of all activities generating value (value-added activities)and the margins.

Porter (1985) defined a generic value chain from which value activities in eachparticular firm would be identified (Figure 2). Value activities are all technologically andstrategically distinct activities, belonging to two main categories:

Figure 2: Generic Firm Value Chain

Source: Porter (1985)

Marketingand Sales

Firm Infrastructure

Human Resource Management

Technological Development

Input Supply

Margin

InternalLogistic Production

ExternalLogistic

Post-SaleServices

1. Primary activities, that are directly involved in the physical production of thegoods or services, sales and delivery to the costumer, and also post-sale services.

2. Support activities, that help primary activities by providing inputs, technology,human resources, and other activities to the whole firm.

Another somewhat similar concept is filière. It was coined by the French school to referto the flow of raw materials and services needed in the production of a good or service.It focuses on quantitative technical relationships, trying to establish input-outputrelationships and local multipliers. It was first applied in the 1960s to the Frenchagricultural sector, to analyze vertical integration processes and contract manufacturing.In the 1980s, it contributed to industrial policy, especially in electronics and telecommunications.However, filière has been considered mostly as a static concept, and is limited to domesticrelationships, not including the analysis of foreign links.


The concept of global value chain, therefore, comprises more than the relationshipsestablished within the firm. It explores linkages among different firms, not only at thenational, but also at international levels. It is, thus, a wider concept than those of ‘firmvalue chain’ or ‘filière’.

On the other hand, value chains are not completely closed systems. Several overlapsmay exist. Similarly, some links (such as intermediate producers) may participate inanother value chain. This involvement in an alternative chain represents, in some cases,a small fraction of their total output, but in other instances, may imply the existence ofa large number of alternative customers.

Global Value Chains in the Tourism IndustryTourism is nowadays one of the most internationalized sectors in the world economy.According to the World Tourism Organization (WTO), international tourism is the mainsource of exports in the world. It is also the fastest growing sector in terms of incomegeneration. In 2005, there were a total of 808 million international tourists, generatingsome $500 bn income in 2004. These figures show the importance of this activity and itslevel of exposure to international changes like globalization.

Impact of Globalization on TourismGlobal economic conditions and their transformations are among the main challengesfaced by the tourism industry, as the traditional patterns are being increasingly changed.Growing international competition is transforming this activity into a global industry andaccelerating the creation process of multinational tourism organizations. According toSmeral (1998), globalization affects both the supply and demand of tourism in severalways. However, compared to other industries, very little research has been done so far ontourism Global Value Chains (GVCs) (OECD, 2005c).

Implications of Globalization on Tourism Supply

• The effect of computerized information and reservation systems is that thesuppliers of tourism services are now operating in a global market. Airlines, hotelchains and tour operators have spread their activities throughout the world. GlobalDistribution Systems (GDS) makes it possible for them to cover most of theinternational tourism demand. At the same time, alliances, cooperation ormergers—in many instances urged by the need to share the cost of technologicalsystems implemented—act as an additional globalization force. The use ofinformation and communication technologies, together with different integrationprocesses, enlarges the tourism value chain so that we can now talk of globaltourism value chains.

• Falling air transport costs has facilitated access to new destinations at a low price.This has opened up the international tourism market to relatively low-incometourists.


• New tourism destinations, many of them in developing countries, are beingdeveloped, thanks to large investments by multinational corporations. They arecreating the infrastructure needed for the destinations to be used by the differentagents participating in the tourism business. Given the almost perfect substitutabilityexisting between several tourism destinations, price becomes an essential factordetermining their competitiveness. Having low unit labor costs turns to be highlyrelevant, either in form of low wages or high productivity. Given the importanceof personal services, the challenge for these new destinations is to achieve highproductivity in order to keep costs low, while offering at the same time high-qualityservices to the customer/tourist.

Implications of Globalization on Tourism Demand• Tourism demand is changing constantly due to various factors, such as growing

income level, population ageing, saturated traditional destinations and newinterests. Similarly, advances in information and communication systems havemade tourists more knowledgeable and demanding (Vanhove, 1998).

• The high elasticity of tourism demand with respect to income would cause a veryrapid growth in global tourism demand in the near future (Bull 1994; and WTO,1997).

It is increasingly common for large tourism firms located in developed countries tospecialize in activities such as product design or marketing, that generate highervalue-addition within the tourism value chain. In contrast, those activities which yieldlower profits and bear stronger competition are carried out by firms from less developedcountries with lower labor costs. This is the case with several so-called ‘emerging destinations’,such as Southeast Asia.

Therefore, it may be necessary to focus on the way global value chains are organizingthemselves in the tourism industry. Thus, the relationships established between differentagents, patterns of governance, and the different possible kinds of upgrading are identified.

Configuration of Tourism Value ChainsTourism has traditionally been a highly fragmented industry, with many small firms locatedat tourism destinations (hotels, restaurants, etc.), that are geographically disseminated.There have always been significant difficulties in matching supply and demand. Therefore,mediation has had a crucial role in tourism, as their customers come from diversecountries.

Tour operators were a satisfactory solution to such problems. Firstly, they have enoughresources to offer mass marketing, that may reach several consumers in different countriesof the world. Secondly, as they channel a considerable quantity of tourists, they can ensurecontinuous high occupancy rates, reducing uncertainty and demand fluctuations. Thus, thetraditional tourism value chain can be represented by Figure 3. Suppliers of basic tourism


services represent the first link, while the others are: tour operators or wholesale agents,travel agents or retail agents, and finally the consumers or tourists.

From a different perspective, a simplified version of the tourism value chain can berepresented by Figure 4. At one end, the suppliers of tourism products are represented.As they produce the goods or services for the consumers/tourists, they may be consideredas the ‘principal’ stage (OECD, 2005c). Within this principal, we find the fundamentalservices (travel, accommodation, catering, entertainment, etc.) and also the peripheral orauxiliary ones (tourist guides, travel insurance, currency exchange, etc.). The ‘intermediary’is responsible for joining, building and advertising the tourism product and making itavailable to the consumers. Besides, the introduction of Information and CommunicationTechnologies (ICT) makes it possible for the principal to market its products directly to theconsumers.

Figure 3: Traditional Tourism Value Chain

Source: Yale (2001)

Tourists

Suppliers of Basic Tourism Services: Hotels, Airlines,Restaurants, Transports, etc.

Tour Operators: Wholesalers

Travel Agents: Retailers

Figure 4: Simplified Tourism Value Chain

Source: OECD (2005c)

Principal

Firm

Firm Firm

FirmIntermediary

FirmFirmConsumer (Tourist)


The role of consumers within the value chain has been traditionally downplayed.Value chain models frequently restrict value-creation to innovation, production andproduct delivery by the principal or the intermediary. Figure 4, by drawing alternativepaths available for the consumers to choose from, suggests that they may play animportant role in tourism value creation.

After these antecedents, the paper attempts to analyze the present configuration ofglobal tourism value chains. A useful approximation is presented in Figure 5. The mostrelevant agents involved in the tourism activity (tour operators, travel agents,GDS, reservation centers, hotels, DMO, etc.) are shown, together with their mostsignificant relationships.

At one end of the value chain, the primary supplier is found. It includes firms suchas hotels and restaurants, most of them are Small and Medium-Sized Enterprises (SMEs).Airlines are situated at the same level, together with other transport companies.One important difference, though, is that these firms are usually large. However,these suppliers have some common characteristics, which make their activities prone to

Figure 5: Global Tourism Value Chains

Source: Werthner and Klein (1999)

Tourist

NTOOutlets

Consumers

Irtermediaries

GovernmentBodies

TravelAgent

RTO TourOperation CRS/

GDS

LTO IncorningAgent

DMOPlanners and

Administration

HotelChain

PrimarySupplier

AirlineOther

Transport


price wars, and they need high occupancy rates to absorb fixed costs and be profitable(Guzmán et al., 2008). The common characteristics are:

• Need for significant investments in fixed assets.

• This is considerably an inelastic supply, as the number of beds or seats cannotbe modified in the short run.

• Fixed costs are quite high. They represent about two-third of total cost in airlines,and around 40% in hotels (Sinclair and Stabler, 1998), whereas marginal costs arevery low (The cost of including an extra passenger in a plane with spare seats, oran extra customer in a hotel with empty rooms, is almost zero).

• Their production is of a highly perishable nature, as it cannot be stored. Anyempty room in a hotel implies a forgone income.

In the next link of the chain, tourism intermediaries are located. A great diversity existsamong them. The newer agents have emerged as a consequence of the Internet revolution.

Within this second link, the tour operators are highlighted. Sheldom (1994) considersthem to be one of the essential pillars of development of mass tourism. There is discussionregarding their role in the literature. On the one hand, some authors highlight theirfunction as mediators between the suppliers of tourism services (transport, accommodation,catering, etc.) and retailers or final consumers (Sheldom 1986; and Yale, 2001). On theother hand, a few researchers (Holloway, 1989; and González, 1999) stress their role asproducers of tourist packages.

The tour operator’s level ischaracterized by a few large firms, thatdominate the market. They have beenincreasing their capacities throughdifferent integration processes (verticaland horizontal). Therefore, thegovernance of global tourism valuechains is exerted by these firms, as theydetermine the overall character of thechain and coordinate interactionbetween the links.

This high level of concentration ismore evident in the European tourismindustry (Figure 6). In this sense, theoption to buy a tourist package is morecommon among European tourists thanAmericans.

Figure 6: Main European Tour Operators

Source: Schneiderbauer et al. (2004)

Others25%

TUI24%

ThomasCook16%

My Travel 14%Re We

9%

FirstChoice

7%

Kuoni5%


However, along with these large firms, an important number of SMEs also do exist.According to Sinclair and Stabler (1998), this could be explained by the high degree ofmaturation reached by the tourism market, allowing for the possibility of increasedsegmentation and differentiation.

Therefore, large tour operators are considered to be a crucial part of the mass tourismsystem (Budeanu, 2005). They concentrate on mass production of tourist packages withvery similar characteristics. On the other hand, there are some specific segments of thedemand (market niches), which are served by smaller specialized tour operators.

Next, another traditional tourism intermediary, the travel agents or retailers are found.Their main function is marketing tourist packages made by tour operators or products ofother suppliers, such as airlines or hotels. They usually get a commission on each sale.

In the last decade, many of these agents have disappeared from the tourism value chain.The Internet has opened a new direct distribution channel between the suppliers and finalconsumers, where intermediaries are not needed. However, instead of a process ofde-intermediation, it has rather most likely led to the emergence of new intermediaries(re-intermediation), or to the use of new technologies by traditional travel agents(virtual agents, for instance).

Computerized Reservation Systems (CRS) have their origin in the 1960s, whenAmerican Airlines and IBM developed the first computerized system called SABRE.An automatic procedure to manage the availability of airplane seats was needed.Soon, this system was used by travel agents. The process of deregulation of the air-travelmarket in the USA, contributed strongly to their expansion.

In course of time, CRS have been transformed into Global Distributions Systems(GDS) as the area of operations has been extended and new suppliers (hotels, car rental,railway companies) have been included. These agents have incorporated web and Internet-basedtechnologies, such as Travelocity by SABRE, or Amadeus.net by Amadeus.

Within the intermediation stage, different local, regional or national tourismorganizations (LTO, RTO, NTO—also known as National Tourism Boards, NTBs) can alsobe placed. They dedicate themselves to promotion of tourism and provide informationabout the different suppliers located in that territory.

Lastly, the new intermediaries, the so-called Destination Management Organizations(DMO), offer information and services related to their specific tourism destinations to thecustomers. They are generally public bodies. As the WTO Business Council (2001) pointsout, the future of DMOs rests in electronic commerce, so that they can:

• Create electronic links among the suppliers of tourism services and theirdestinations, so that they may concentrate on maintaining information andavailability of their products.


• Act as intermediaries to help consolidate a wide range of destination products(especially for SMEs), and distribute them electronically to the remaining agentswithin the tourism value chain.

These DMO, therefore, are justified by their value creation. For consumers, they mayprovide objective high-quality information about the destinations, simplifying thepurchase (adapting combined travels) and recommend special offers. To suppliers, they mayoffer the ‘destination brand’, information on the range of products available at a destination,information about the distribution to both final consumers and intermediaries, andinformation of mechanisms to secure transactions.

The Role of Andalusian SMEs in Global Tourism Value ChainsOver the past few years, the tourism industry has had to face a large number ofunprecedented challenges (e.g., natural disasters, SARS, terrorism, economic turbulence,etc.). At the global level, the tourism industry has proved its resilience to external shocks;however, at regional and local levels, the impacts have been very severe (OECD, 2005c).Tourism organizations, such as World Trade and Tourism Council (WTTC), indicate thatthese international events have accelerated certain changes, which were taking place sincethe early 1990s due to the globalization process. The role of SMEs as traditional partners,suppliers or distributors of large firms have been deeply affected (Smeral, 1998). This newsituation has pushed more and more governments to realize that tourism cannot thrivewithout some guidance, notably for medium- to long-term. This increasingly competitiveenvironment makes the whole tourism industry—and especially SMEs—to face a largenumber of challenges (OECD, 2005c).

Traditionally, the tourism industry has had a dual character. On the one hand,a relatively small set of large multinationals exerts great power on the global tourismmarket. On the other hand, a large number of SMEs plays a significant and ever-increasingrole in this sector, as indicated by a recent OECD study (Table 1).

In this context, the OECD has conducted a study on the ‘Role of SMEs in the GlobalTourism Industry’, within the context of a larger research project. The purpose of the studyis to get to know how SMEs participate in global value chains. It will also allow theidentification of good practices that may be adequate for the SMEs to succeed in theexisting framework of globalization, making the most of their participation in global valuechains.

The research group ‘SMEs and Economic Development’ at the University of Seville hasundertaken this study in different regions of Andalusia. The fieldwork consisted of a setof case studies of Andalusian small and medium-sized tourism firms. As suggested in thegeneral OECD draft research outline, hotels and travel agents were interviewed (OECD,2005a).


Table 1: Structure of Tourism Enterprises

Tra

vel A

genc

ies

and

Oth

ers

(Inc

lude

sT

our

Ope

rato

rs)

Hot

els

Tra

vel A

genc

ies

and

Oth

ers

(Inc

lude

sT

our

Ope

rato

rs)

Hot

els

Tra

vel A

genc

ies

and

Oth

ers

(Inc

lude

sT

our

Ope

rato

rs)

Hot

els

Tra

vel A

genc

ies

and

Oth

ers

(Inc

lude

sT

our

Ope

rato

rs)

Hot

els

Austria(2001) 87.2 82.9 12.6 17 0.2 0.1 0.1 –

Denmark(2003) 91.7 82.7 6.2(<199) 15.1(<199) 0.5(>200) 0.1(>200) – –

CzechRepublic(2003) 97.4 90.6 2.5 9.2 0.05 0.1 0 0.02

France(2003) 85.7 85.4 13.9 14.5 0.1 0 0.3 0

Germany(2003) 88.4 76.4 11.4 23.4 0.1 0.1 0.1 0

Greece(2003) 94.1 17.6 5.9 58.8 – 23.5 – 0.1

Italy(2001) 93 87 6.9 12.9 0.1 0 0 0

Japan(2003) – 74.9 – 22.6(<199) – 0.5(>200) – –

Korea(2002) 88.1 97.5 11.6 2.2 0.2 0.2 0.1 0.1

Norway(2001) 83.1 65 16.6 34.4 0.1 0.5 – 0

Poland(2001) – 94.2 – 5.7 – 0.1(>249) – 0.1

Portugal(1999) 85 81.9 8.1(<19) 8.4(19) 6.9(>20) 9.8(>20) – –

Spain(2002) 91.3 74.3 8.3 19 0.4 6.6 – 0.1

SlovakRepublic(2001) 95.6 75.2 4.4 24.7 – – – 0.1

Switzerland(2001) 90.3 39 9.2 61 0.5 – – –

Turkey(2001) 90 – 10 – – – – –

Source: OECD (2005c)

1-9 Employees 10-249 Employees 250-499 Employees > 499 Employees


Andalusia is an important international destination. In terms of receptive tourism, it isequivalent to Thailand, while more than double that of other well-known destinations, suchas Cuba, Dominican Republic, or Argentina (Aurioles et al., 2001). During 2004, as estimatedby the Andalusian tourism survey (Encuesta de Coyuntura Turística de Andalucía, ECTA), a totalof 22 million tourists visited the region, which is 2.9% more compared to that of 2003. 59.1%of them were Spanish, whereas the remaining 40.9% were foreigners. Among the latter, nearlyone-third of them were British (31%). Among the former, 5.4 million were from Andalusia(internal tourists) and the other 7.7 million came from other Spanish regions.

To meet the tourism demand, the Andalusian economy has produced goods and servicesworth �12.5 mn (SAETA, 2005). Tourism has become the most significant industry in theregion, contributing 12.4% to GDP. This production generates important effects—bothdirect and indirect—on other activities. Direct effects are caused by the demand for a goodor service by the tourist, and they are logically concentrated on the services more closelyrelated to this activity. 78% of them correspond to catering and accommodation.

Indirect effects are generated from other economic activities (clothing, electricity,water, etc.) as a consequence of increased demand by any sector (for instance, hostelry).Therefore, more varied productions are included here. The sum of both the effectsrepresents the impact of tourism demand on the Andalusian economy. In 2004, it wasestimated at �17,634.6 mn, with 71% being direct effects and the remaining 29% beingindirect ones. Thus, the multiplier effect on production is 1.42, implying that for each euroof tourism demand, goods and services worth �1.42mn have to be produced.

The impact of tourism on employment is also noteworthy in Andalusia. In 2004,258,037 job positions were needed to satisfy tourism demand. 207,037 of them beingdirect, and the remaining 50,554, indirect. Therefore, the employment multiplier effect is1.24. Table 2 shows the employment structure of Andalusian tourism firms.

Table 2: Employment Structure of Andalusian Tourism Enterprises

Andalucia(2005) 89.4 81.0 10.5 18.3 0.1 0.7 0.1 0.1

Tra

vel A

genc

ies

and

Oth

ers

(Inc

lude

sT

our

Ope

rato

rs)*

Hot

els*

*

Tra

vel A

genc

ies

and

Oth

ers

(Inc

lude

sT

our

Ope

rato

rs)

Hot

els

Tra

vel A

genc

ies

and

Oth

ers

(Inc

lude

sT

our

Ope

rato

rs)

Hot

els

Tra

vel A

genc

ies

and

Oth

ers

(Inc

lude

sT

our

Ope

rato

rs)

Hot

els

Note: * Division 63 National Classification of Economic Activities (CNAE), corresponding to Division 79of the International Standard Industrial Classification (ISIC, Rev. 4).

** Division 55.1 of CNAE, corresponding partly to Division 55 of ISIC (Rev. 4).

Source: Compiled with Data from Directorio Central de Empresas (DIRCE), INE

1-9 Employees 10-199 Employees 199-499 Employees > 499 Employees


Figure 7: Structure of the Interview of Tourism Firms

Primary Source: OECD (2005b)

1. Identificationof the Firm

2. Awareness of theValue Chain

3. Relationships Withinthe Value Chain

4. Dynamics Within theValue Chain

5. Public Support

Size, ownership, cost structure, sales, etc.

Customers, suppliers, intermediaries,value-added, etc.

Impact of technologies.Contracts (types, conditions, trends, etc.)

Cooperation agreements, strengths and weak-nesses, improvement within the value chain

Support measures to SMEs

As explained before, in-depth interviews with a number of tourism firms werecarried out. The interview was structured following the outline proposed by the OECD’sresearch project steering committee. It was divided into five main sections, as shown inFigure 7. The major conclusions reached from the case studies with respect to the effectof globalization on the role of Andalusian tourism SMEs in global value chains arepresented next.

Identification of Firms• A high proportion of firms interviewed have less than 50 employees, in

accordance with the fragmentation or atomization of Andalusian tourismbusinesses.

• Similarly, annual turnover in 2005 was moderate. Most firms had sales between¤1 mn and ¤5 mn.

• None of these firms belong to hotel or travel-agent chains. Some are familyfirms managed directly by the owners. Some belong to an investment group,


but they have an independent management. Finally, there is also one hotel,having signed a management agreement.

• With respect to their cost structure, the most important one is personnel, whichaccounts for about 25-45% of total costs of hotels, and even more in case oftravel agents (upto 75-80%). Secondly, intermediate consumption of goods andservices represent 20-30% of total costs of hotels, and they are much less in caseof travel agents.

Awareness of the Value Chain• The tourism demand covered by these firms differs notably between hotels and

travel agents. The former normally accommodate some 40-45% of foreign tourists,coming mostly from European Union countries (the UK, Germany, France, etc.) andthe US. Travel agents, in contrast, cater mostly to local customers (some 80%), i.e.,Andalusian tourists travelling both within and outside their region. When we lookat travel motives, the most important reasons for travelling are: cultural, sun andsand, business and conferences.

• Value-addition represents around 60-70% of the total turnover of hotels.Travel agents, as they are mainly mediators taking a commission, generate a muchlower value-addition (10-20% of turnover).

• The most important intermediaries for both types of firms are tour operators.Around 50% of hotel sales are made through these intermediaries. On the otherhand, tour operators are the most important supplier of travel agents. The secondmost important intermediaries are central reservation systems, which account for20-30% of hotel sales, and 5-15% of travel agents’ transactions. The proportion ofrooms sold directly by hotels is very small hence, intermediaries are essential forthese service suppliers.

• The vertically-integrated tour operators exert governance in the tourism valuechain. They have the capacity to establish price and other conditions, thus governingthe value chain. In Spain, the main tour operators belong to Globalia Corp., Iberia orMarsans Groups. However, governance seems to be of an ‘Arm’s-length marketrelations’ kind,2 as there is no need of close collaboration in defining and designingthe product, and relationships are normally based on market transactions.Andalusian tourism SMEs do not seem to be too concerned about the need toincrease/improve their participation in global value chains. Some of these firms donot even consider themselves as belonging to any of them.

• The main consequences of globalization for them are the significant increases inuncertainty and competition. This situation is reflected within each destination,

2 For a discussion on different kinds of governance, see Humphrey and Schmitz (2000). From looser to tighter, theyidentify four modalities: arm’s-length market relations, network, quasi-hierarchy and hierarchy.


as new hotels and travel agents belonging to large national and internationalchains have been established. Similarly, new destinations, such as East Europe andSoutheast Asia, are continuously emerging. This situation results in worrisome‘price wars’ among both hotels and travel agents. In the last few years, especiallysince 2002, their margins have reduced due to price-pressure from the large touroperators. Prices received are equal and sometimes lower, but costs are nowsubstantially higher. They are also suffering from the effects of cheaper airtransport. Low-cost airlines are bringing a greater number of tourists, but they aremostly young and have lower purchasing power.

• Most interviewees perceive the tourism industry to be completely global, as largevertically-integrated businesses are controlled by enterprises belonging todifferent countries and operating in several destinations. However, there still isa small fraction of firms (both hotels and travel agents) that do not feel that theyare affected by globalization. They trust the high quality of their products andcostumer’s fidelity due to personalized and higher value-added services providedby them.

Relationships Within the Value Chain• Surveyed travel agents belong to Buying Groups (UNIDA, STAR, GEA, etc.), that

jointly negotiate commercial agreements (commissions, etc.). There are some 30 or40 of such groups in Spain, located in Madrid and Barcelona. In this way, they mayobtain 2-4% of additional profitability. Travel agents also sign direct agreements oftwo main kinds: getting a commission on each sale, or establishing a net price towhich the agent adds its margin, with hotels and leisure firms.

• Hotels surveyed have signed a large number of agreements with differenttour operators, central reservation systems and traditional or virtual travelagents. One of the hotels had more than 500 active agreements. They usuallydetermine a price and the number of rooms. Hotels complain that intermediariespress very hard on prices, while they do not fill all the rooms allotted to them.Contracts are signed for each year or season, with circumstances varyingsubstantially in each destination. They are normally signed one year in advance,even though the customers are increasingly last-minute buyers. Therefore, thelevel of uncertainty is higher. Several hotels believe that in the future, agreementswill be negotiated at lesser advance notice and with greater flexibility, dependingon the demand level (price discrimination similar to that applied by airlines).In a similar way, some interviewees have become members of associations ofindependent hotels (GSD, Etursa, etc.). This allows them to increase theircommercial potential in exchange for a fixed monthly rate and a commission oneach room sold (between 20-30%, usually).


• Impact of New Technologies:

– All firms surveyed are trying to incorporate new technologies. They all haveInternet access, webpage, computerized systems, etc. Hotels are also investing insafety technologies (fire detection systems, hygiene control, etc.).

– For travel agents adopting new technologies has become the need of the hour.Hotels, on the other hand, do not consider it so important to develop a nextgeneration webpage, as customers use their pages mostly for getting information.Direct online booking is marginal, representing only a very tiny fraction of totalsales. In any instance, the costs of implementing and maintaining thesetechnologies are completely borne by them (hotels and travel agents).

– There is general agreement on new technologies modifying relationships withinthe tourism value chain, especially with respect to intermediation. Some hotelsexpect these changes to give them greater autonomy from tour operators(more flexible agreements). Hotels think travel agents will be most affected,especially small independent ones, which may even disappear. However, whentravel agents are asked, they think that, even though pressures will be strong,offering a greater quality product and higher value-added will increasecostumers’ fidelity. They also stress a significant proportion of the populationwill never purchase through the Internet (because of their age or education).In this regard, in Andalusia the segment of the population without Internetaccess is higher than the Spanish average, as also those who have not boughtanything through the web, and not intending to do so in the near future.

Dynamics Within the Value Chain• All surveyed firms belong to some kind of association of similar firms, such as local

hotels associations (Asociación de Hoteles de Sevilla y Provincia, Asociación deEmpresarios Hoteleros de la Costa del Sol, AEHCOS) or the Regional Federation ofTravel Agents (FEAVA). They are also members of more general businessassociations (Confederación de Empresarios de Andalucía, CEA). This offers theminformation, training, contacts and other advantages.

• A high proportion of these firms belong to Buying Groups (UNIDA, GEA, STAR, etc.)or marketing clubs (GSM, Etursa, Domus Selecta, etc.). This gives them increasednegotiating power with respect to other actors and, therefore, additional profitability.However, they must normally pay a fee and a commission on each operation.

• Regarding the forms of upgrading used, firms surveyed have concentrated basicallyon product upgrading,3 trying to increase the value-addition of their products

3 Upgrading refers to the competitive improvement within the value chain. Humphrey and Schmitz (2000 and2002) identify four kinds of upgrading: process upgrading (transforming inputs into outputs more efficiently byreorganizing the production system or introducing superior technology), product upgrading (moving into moresophisticated product lines with increased unit values), functional upgrading (acquiring new functions orabandoning existing ones to increase the overall skill content of activities), and inter-sectoral upgrading(moving into new productive activities).


through high-quality features. Thus, some hotels offer Internet access in theirrooms or seek recognition of their quality standards (Q for tourism quality). There hasalso been process upgrading by hotels, as they try to increase direct sales tocustomers (especially online), thus reducing their dependency on tour operators.Within travel agents, there is only one specific example of functional upgrading, asthis firm has now also expanded to wholesale service. Therefore, it can now buildand sell its own tourism packages. However, it is not seeking to developsubstantially this tour operator activity, but building packages better adapted to theneeds and preferences of its customers (increasing fidelity). Hence, it will notnormally market it packages through other travel agents.

Public Support• More than half the interviewed firms have received some kind of help from

public administration, but in relatively small amounts. Most of this assistancehas been for improving the facilities or computer hardware.

• All firms mentioned the enormous red tape they had to go through and the longdelays in approvals and receipt of grants. Therefore, their effectiveness isseriously undermined (Guzmán et al., 2008).

There seems to be a considerable disagreement with respect to the need of specificmeasures to help SMEs improve their position in global value chains. Some of theinterviewees argue that their size implies a serious barrier when trying to face thechallenges of globalization. Therefore, they consider that help should be provided,especially for the following aims: marketing, renovation and updating facilities, adoptionof new technologies, promoting cooperation between firms and adapting to changingregulations.

On the other hand, a number of firms do not consider this specific help as necessary.They think it would be more fruitful if the public administration effectively perform itsfunctions, such as promoting the destination, controlling the observance of existing rules,or improving transport infrastructure and communications. They particularly ask theregional government to recognize the true importance of tourism in Andalusia.

ConclusionGlobal economic conditions and their transformations are among the main challengesfaced by the tourism industry. Globalization has its implications on both the supply anddemand in the tourism industry. Investments by multinationals in developing countries,increased usage of technologies like Internet, and decreased cost of air travel are few effectsof globalization on the supply of tourism. On the other hand, increasing income, changinglife styles and development of newer tourist sites have led to higher demand for tourism.Globalization has also led to increase in the number of travel agents and tour operators.


Against this backdrop, this paper analyzes the configuration of global value chains in thetourism sector. Growing international competition is transforming tourism into a globalindustry and accelerating the creation process of multinational tourism organizations.To remain competitive in the present era of globalization is a challenging task, especiallyfor the SMEs. In this paper, a host of SMEs from Andalusia have been selected and variousaspects were studied. It analyzes the position of Andalusian tourism firms in global valuechains, with data obtained from several case studies carried out on Andalusian hotels andtravel agents. It was found that these firms have undergone several changes in the era ofglobalization and are facing many new challenges, e.g., intense competition (especially pricewars among hotels), and increasing costs. Only proper support from the government,restructuring of the value chain, upgrading quality and value offered in the service package,and adoption of new technologies can help them remain competitive, which is essentiallythe need of the hour.

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