The Importance of Tourism for the Malaysian Economy in a Recession

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Given the relatively small size of our economy, Malaysia is a country heavily reliant on exports as a source of income. Manufacturing, our biggest foreign exchange earner, currently accounts for the bulk (70%) of total exports led by electronic parts and components, followed by commodities such as oil and gas as well as palm oil. As long as this over-dependency remains, Malaysia will always be exposed to the risks of the cyclical nature of global ICT product demand and the speculative prices of raw materials.

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Based on the growth experience of industrialized economies, manufacturing has also already reached its optimum share of 30% contribution to the Malaysian GDP. In other words, traditional means of exports will continue to decline and diversification of our export earnings is imperative for us to compensate for the resulting gaps. Dato Seri Najib Razak’s recent announcement of further liberalization to the services sector couldn’t have been more well-timed.

Through this, we can expect to speed up our reduction of on imported services while boosting our exports (in various other categories) to register a healthier overall bank balance. We’ve only just started seeing trade surplus for services since 2007. This would not have been possible without tourism, which contributes to almost 50% of the services sector and Malaysia’s 2nd largest foreign exchange earner. Besides having an incredible multiplier effect in terms of income and employment distribution due to far-reaching linkages to other sectors (construction, finance, insurance, manufacturing etc. – tourism, unlike other goods or services, has no exact substitutes; meaning demand for holidays is more likely to grow rather than be traded with something else. Neither is it subjected to price fluctuations affected by speculative factors like commodities for example. If the index of average international tourist expenditure equals the price of the international product, prices received enjoy greater stability versus raw materials. In fact, prices have tended to increase in a stable manner due to among other things, demand for holidays and the rigidity of destination supply in the short and medium term.

Tourism also has the capacity to recover foreign-currency investment in a shorter time – a strong motivation for FDI inflows to the country. The UNWTO estimates that a medium-class beach hotel in a developing country will earn back in 1 year the entire foreign exchange required to build and equip it. In this bleak climate however, decline in international arrivals is naturally expected. Unless enough measures are put in place to safeguard the industry – the impact would overwhelming on not just travel per se, but on a massive chunk of businesses that rely on tourism as a demand stimulus.

There are several key things we need to do. Firstly, we need to be extremely targeted in terms of our source markets. This recession is quickly speeding up the shift of economic power to emerging economies – the result of the contrast between the excess of savings in Asia and the debt burden of Europe and North America. While it is a global downturn, China, India, and MENA region are still expected to post positive growth – which is a far cry from the -3% growth forecasted for developed countries.

Besides ASEAN, contribution of international arrivals from these countries will make up a substantial share of our prospects. What this also means, is that our ASEAN counterparts would be vying for the same piece of the pie. Even more difficult is the fact ASEAN destinations share their own equivalent of what Malaysia offers as a travel destination – common key interests like cultural experiences, beaches and spas, historical monuments, shopping, local cuisine, sports etc.

As witnessed from most communication efforts both regionally and globally, countries have more often than not packaged these attractions together in a beautifully crafted montage of pictures either on television or print advertising that spells out what a destination has to offer. During a time when such demonstrations become expected proof of value, how do we then break through the clutter and arrest the traveler’s attention? To do this, we need to create ideas that mean something to them, ideas they would want to spend their time with. Value need not necessarily mean tangible or functional attractions to a traveler alone.

Rather than starting with the multitude of things a destination has to offer, we need to look at our arrival prospects as people first – and identify a fundamental need, that could be emotional or rational, before tailoring our destination to resolve them. An example of how this approach has worked lies within Tourism Malaysia’s own communications targeting the South and West Asian markets by JWT-Sen Media Malaysia in 2008. In India, 2 large and rapidly growing segments of travelers were identified – honeymooners and young, affluent working couples with kids.

Surveys revealed an interesting discovery amongst newlyweds, the fact that a majority of marriages in India were still largely arranged, by choice. A honeymoon for them is akin to a couple on a first date, where an awkward tension exists between both parties. By tapping on this, we demonstrated the emotional value of a Malaysian holiday by telling a story of how a relatively unknown man called a husband becomes a close friend of a woman with each passing day, having gone through different experiences in Malaysia together.

As for young families – the main motivation behind a holiday is to indulge in quality time with their family, as 55% feel they don’t spend enough time with their children back home. To capture this segment, a story of a busy, successful boss who rediscovers the dad in him was spun around a holiday experience in Malaysia. Similarly for West Asia, we tapped on a finding that the target looked forward to the refreshing feeling of “water” when they go on a holiday, as it’s a transient form of escapism from their natural surroundings.

We sought to bring this feeling to life by weaving a tale about a little girl who comes to Malaysia with her parents, equipped with a tiny parasol, looking for cool hills and the excitement of rain…and finds it. Through selling value based on fundamental “people” motivations instead of purely selling the destination, Malaysia posted a growth of arrivals from India by 28% within the months of October to December 2008 (when the campaigns ran) versus the same period during a recession-free 2007. In the largest West Asian markets – Saudi Arabia and Iran posted an astonishing 47% and 64% growth in arrivals respectively.

The question we need to ask ourselves now is – what are travelers looking for in these times, and how do they want to feel? Once this has been identified – it’s a matter of ensuring the most efficient way to reach them. While this sounds seemingly simple, the proliferation of channels to reach ever-changing consumers is continuing to evolve rapidly. It’s no longer enough to assume threshold weight on traditional mediums like print or TV advertising alone to talk to different segments of travelers with incredibly different needs.

The availability of broadband connections has expanded speedily in our target markets – the number of Internet users in China has grown by over 40% YOY to 298 million in 2008, whereas in India, a growth of 33% was seen among urban users. Increasingly, travelers in the Asia Pacific region prefer to plan their travels online – 75% of them in fact, as evidenced by the latest PATA/Visa Travel Intentions Survey; strongly catalyzed by the growth in low-cost airlines over the years, where most transactions happen online.

Planning usually kicks off broad based, before honing into destinations that arrest their attention for more focused planning. The Internet allows travelers to find what interests them more easily and connect with like-minded people in ways they never could before. Top sources for information are travel, hotel, airline websites, as well as word-of-mouth and recommendations. Where the latter stemmed mostly from family and friends in the past; it has found its way to be readily available in the form of travel blogs, networking sites and various other forums.

The Internet as an alternative media channel is unrivalled in its targeting and accountability, providing the capability to track what people search for and where they surf – and allow communications and information to be tailored specifically to travelers’ presumed special interests. The on-going advancements of the infrastructure also give much fluidity to the medium; allowing the creation of the destination experience digitally to make travelers feel a certain way; which is far more powerful than asking people to think about the value. In the TV era, getting trial happened at the end of the marketing process – now it can be the start.