Doing business differently in

tourism:

how can tourism companies

stimulate SMME development?

Caroline Ashley

Starting assumptions1. Poverty reduction requires pro-poor growth.

2. Pro-poor growth means not just more business, but adapting how business is done and who participates.

3. Many poor countries have strong or growing tourism and need pro-poor growth in tourism.

4. Tourism businesses remain profit-driven, but changes at the margin:

– Can be commercially feasible – the business case(s)

– Potentially have high development impact given the scale of the industry

So…?

What role can the private sector play?

1. Doing business differently in what way?

2. What does it involve for companies? Useful strategies and tips, common challenges.

3. Is it worth it for companies? The business case

4. How much do local SMMEs gain? The development case

Implications:

5. What do we learn about facilitating ‘doing business differently’ as a development strategy?

Pro poor tourism (PPT)

• An approach to tourism that increases net

benefits to the poor.

• Not just community tourism/SMMEs, tourism in

poor areas, or a specific product.

• For companies, PPT means doing business

differently, moving beyond CSR

i.e. more than philanthropic donation

‘Local linkages’

• PPT focus is on ‘local linkages’ with poor(ish)

entrepreneurs, micro/small businesses.

• Both inter-sectoral (with farmers), and intra-

sectoral (with other tourism service providers).

• Local participation anywhere in the value chain

(upstream, downstream): payment/purchase

may be via the tourist, the hotel, or tour operator

Drawing from

• PPT Pilots in

Southern Africa• 2002-2005

• ODI & Mboza

• NB SA post-apartheid context

• The ‘How To…?’

series: tips and tools

for tourism companies

on local procurement,

products and

partnerships

• (2005)

Different kinds of local linkages

1.Procurement from local businesses

Key ingredients

• Spending time to seek out and get started

with new suppliers

• Combining a mentoring relationship with

commercial delivery standards

• Adapting procedures, e.g. payments

2. Local employment

Key ingredients

• Training – particularly for un/semi-skilled

staff

• Living wagewages account for the vast majority (70%+) of local cash

benefit from tourism

• Local recruitment

3. Local partnerships

Key ingredients

• Sort out the legalities

• Carefully structured financial deal

• Do not neglect non-financial benefits

• Communication, patience and

expectations management!

4. Local cultural products

Key ingredients

• Moving beyond the standard products

• Marketing: adapting to specialist and

mainstream markets

• Combining ‘authenticity’ with practical

requirement of tourists.

Operationalising the linkages

Donations can be separate from day to day

business and the roles of operational staff.

In contrast, establishing linkages needs

changes in operations, therefore:

• High-level strategic commitment

• A process of internal change

Key ingredients

Tip 1: match local linkages to corporate drivers of change

Tip 2: build buy-in at the top

Tip 3: analyse existing practices before initiating change

Tip 4: identify internal procedures that block newcomers

Tip 5: combine innovation and risk-taking with protection of core business

Tip 6: turn existing challenges into opportunities and

energy for change

Tip 7: appoint a champion and facilitator to drive the process

Tip 8: ensure new linkages are incorporated into daily operations

Tip 9: motivate staff and

deal with resistance

Tip 10: bring in an outsider

to help move things on

Tip 11: integrate the linkages approach into your values and brand

What does it cost companies?

• Management attention, champion’s time

• High initial transaction costs – facilitation &

risk at first.

• A mind-set: to innovate, think laterally and

share ‘business DNA’. To bear specifc

short-term costs for longer term broad

gains.

Is it worth the effort??

Benefits to companies

1. Customer satisfaction

2. Enhanced brand and USP

3. Local support and licence to operate

4. Staff morale & quality customer service

5. Diversification of product

6. Industry awards, recognition,

word-of-mouth marketing

& media coverage

7. Potential cost-saving

8. Recognition from Govt, Scorecard gains

9. Access to responsible financing

10. Improved corporate governance

Is it replicable beyond a few companies

and beyond South Africa?

• Wilderness, Spier, Umngazi, Stormsriver… all are distinctive in some way. Sun City is mainstream – impact much slower, potential higher. Market leaders develop the business model and reduce risks for others.

• South Africa: the BEE agenda helps and distracts

• Beyond South Africa, policy incentives are less, but local (community) and international (guest/investor) incentives remain.

• Beyond South Africa the ‘gulf’ (market failure) bw corporates and SMMES is less, but local participation in the value chain is still often minimal.

• Linkage approaches are working in other countries and other sectors, particularly those with high reputational risk and large scale investments.

Benefits to the local economy

• New contracts, jobs for entrepreneurs and formerly unemployed.

But beyond the Rand value of contracts:

• Access to ‘business DNA’ – skills and advice

• Access to new networks, contacts

• A basis for expansion: collateral for loans

• Enhanced reputation & marketability

• A dialogue leads to new ideas, new initiatives

i.e. local benefits start small, but are diverse and incremental, high potential.

New contracts at Spier• 7 new contracts, Aug 04- Aug 05

• Contract value > R700,000 (£65,000)

• 33 new jobs (12 women, 20 regular not contract)

ie. small so far, but…

Annual procurement is R75 million (2004)

Aim to shift 10% (R7.5 mn, £666,000) to local SMMES

= much more than CSR spend

= 50% of annual local wages economy

= 3 times donor spend on PPT Pilots

SMME impacts from PPT PilotsIn total:

• 69 new jobs, of which 38 are regular

• 11 micro-enterprises strengthened or created

• Wide range of non-contract linkages and benefits.

New local wages to donor funding ratio:

2:5 very roughly, conservatively: excluding pipeline jobs, jobs retained, replication impacts, non-financial benefits.

So development value rests on:

• linkages being maintained, SMMEs

thriving

• the business model spreading

• the approach being commercially viable

for companies

With replication, potential value is very high

because of untapped potential.

Lessons learnt about facilitating

business changeVarious linkage approaches: IFC, SBP, Ford, BLCF

• slow, long-term

• Approach and impact depends on existing level of company buy-in and level of SMME devt.

• Direct facilitation is useful but labour intensive. Alternative foci: brokering links bw company and SMME, building up SMMEs, creating the anchor and operating conditions, replicating models.

Comparison with Small Business Project

• Linkage facilitation with large corporates and SMEs, anchor projects, via Business Linkage Centres:

• 1998 - 2003, 80 corporates, 958 linkages worth R1,353.million, with 600 SMEs and 3,000 new jobs.

Policy implications

1. Push the agenda: Moving beyond CSR, philanthropy and greenery – ‘doing business differently.’ This is not obvious in tourism!

2. Invest in SMME support and operating environment: business development, training, regulations, infrastructure, legal rights etc

3. ‘Incentivise’ corporates: licencing,

concession allocations, political

expectations, marketing support.

4. Reduce transaction costs: help

companies over the ‘hump’ by brokering

contacts, sharing good practice tools,

destination-wide initiatives to achieve

economies of scale.

5. Focus tourism policy not only on ‘bums in beds’ but who participates in the sector.

6. Adapt ‘linkage approaches’ beyond extractives to tourism.

7. Research agenda:

• the development benefits of doing business differently;

• quantification of business costs and benefits

• effectiveness of different linkage facilitation approaches.

Thank you!

Caroline Ashley, c.ashley@odi.org.uk

• www.pptpilot.org.za

• www.odi.org.uk/rpeg/research/pro-poor_tourism/howto.html

• www.propoortourism.org.uk

Jonathan Mitchell, jonathan.mitchell@odi.org.uk

David Harrison, davidharrison53@btopenworld.com

Tourism and Poverty Programme, ODI