The stated definition from the OECD (Organisation for Economic Co-operation & Development) of Competitive Tourism is “about the ability of the destination to optimize its attractiveness for residents and non-residents, to deliver quality innovative and attractive (e.g. providing good value for money) tourism services to consumers and to gain market share on the domestic and global market places, while ensuring that the available resources supporting tourism are used efficiently and in a sustainable way.”
Tourism is an export industry and as such, is forced to compete with every other destination on earth that offers tourism services. It is therefore important that Tourism planners and policy makers take costs into account in their assessments of the industry.
Value of Barbados’ Tourism Product
There are many who speak to the value proposition of our offerings as a destination. They will argue that Barbados is not an inexpensive destination and that we offer significantly better quality than many, less expensive but similar, destinations. We must be careful with this thinking for a number of reasons. Value is the prerogative of the consumer – in our case, the visitor. At a time when the world, and many of our repeat and potential guests, are recovering from a deep and protracted economic recession, the concept of value has changed. Customers are doing thorough investigations and checking the reviews of their peers before making decisions. A significant number are willing to “buy down” in order to satisfy their need for the experiences. That is not to say that discerning customers will opt for low quality, but they may trade a slightly lower quality for a significant reduction in price, or they may decide on a shorter stay.
Many good quality tourism destinations are in countries and regions of the world where input costs are lower than ours. Countries of the Eastern Caribbean, the Dutch Antilles, the Indian Ocean and South East Asia fall into this category. Our source markets are also pouring significant resources into programmes designed to convince residents to vacation at home, thus reducing the cost of the vacation by eliminating or significantly reducing the cost to get to that vacation location.
The Cruise Industry
We are also competing with the cruise sector. These floating tourism ‘destinations’ are able, by virtue of their nature, to purchase inputs – labour, fuel, waste disposal, food and beverage, and entertainment – in every area at the most competitive prices as they are able to make purchases along the route and they have the added advantage of scale and volume. Cruising has become a very attractive proposition to travelers and as such is a major competitor to land-based accommodation businesses.
In the face of the foregoing, Barbados has to re-examine its tourism product and the viability of that offering. We must be able to compete in order to obtain what we consider to be our fair share of the tourism market.
Cost of Doing Business in Barbados
The main element of the tourism competitiveness construct is the cost of doing business in Barbados. The largest components of our costs are remuneration, utilities (electricity and water), and food and beverage (mainly in the hotel and restaurant subsectors). Any examination of cost structures must address these areas.
Employment cost, including wages, salaries and national insurance (social security) – over 30% of revenue in an all-inclusive hotel – are comparatively high in Barbados, but generally reflect the high cost of living in the country. While it would be unthinkable to even consider reducing wages levels, there must be an improvement in the productivity of everyone working in the industry. It is generally accepted that increases in nominal wages without corresponding increases in productivity result in a decline in real GDP due to inflationary pressures. Measures must therefore be taken to improve the productivity of workers in the industry by implementing performance-based incentive schemes as a component of wage level adjustments.
The cost of utilities in Barbados is high, and the cost of electricity in particular is artificially high. That is to say, it does not reflect the cost of fuel on the open market. This artificially high cost of an important input such as electricity is detrimental to the industry. Electricity can make up as much as 5 – 10% of the expenses of a business and high costs in this area will have significant negative impact on the business. The accommodation segment of the industry consumes significant amounts of electricity and water and therefore incurs significant cost in this area.
Hotels have generally been proactive in using alternative sources of energy. This has been in the form of solar panels for the heating of water. Many hotel roofs are fully outfitted with these panels. This poses a challenge for those businesses wishing to move to the use of photo voltaic cells for the production of electricity. Most hotels do not have the free roof area to undertake a feasible investment in photo voltaic panels. Hotels and other tourism businesses need to constantly evaluate their business operations to ensure they are operating as energy efficiently as possible. From the perspective of the Government, the industry needs to be in a position where it is paying for electricity amounts similar to what its competitors are paying.
Food and Beverage
Food and beverage are a major component of any tourism offering, at between 10% and 15% of total all-inclusive revenue, and many visitors travel in order to experience the culinary fare of the destination. There are many inputs/ingredients to meals and drinks that have to be imported in small countries like Barbados. The imposition of high tariffs and rates of duty inflate the cost of offerings and serve to create a perception that it is expensive to dine in the destination. It must be noted that many of our guests come from places where food is relatively inexpensive. Many local inputs are already comparatively expensive due to the cost of labour and other inputs, and the lack of economies of scale. Adding high duties to this situation aggravates an already uncompetitive situation.
In order for Barbados to compete effectively in a highly competitive tourism landscape, our cost structures must be examined to ensure that we are not “fighting with one hand tied behind our backs” at a time when Barbados can ill afford to lose market share and vital foreign exchange inflows.