<B>Is Spain’s tourism sector ready to compete?</B>

Ramón Díaz Bernardo. Director of the Master in Tourism Management Program. Instituto de Empresa

18 October 2004

Spain remains an international tourist draw for those seeking sun, sea and sand. But it will need new competitive strategies to hold on to this top spot.

Figures show that almost 80 percent of the 50 million tourists who flock to Spain each year still come for sunny seaside resorts.

The reason is simple. Spain has managed to mix a highly attractive tourist cocktail for Europeans. The recipe includes the following ingredients: fabulous scenery and climate, a comprehensive supply of tourist services (hotels and transport), cheap prices and a safe environment for visitors. The formula has worked like a well-oiled machine, with barely a hitch, expanding continuously for some 30 years now.

However, recently we have begun to sense a change in the air. Last season, hotels were not filled to capacity and fewer Germans came. Is this a trend that will be repeated in coming seasons or just a temporary glitch? This is the big question facing the tourist sector. The trends in tourist movements are not unfavorable to Spain’s industry, quite the contrary. We are still the nearest sunny-beach destination for the two major European markets: Germany and Great Britain.

Can it be that Spain’s tourist cocktail no longer packs a punch? Let’s examine the ingredients. The scenery and climate are still fabulous, and even several blacklisted spots on the Mediterranean coastline have improved over a few years ago. Without a doubt, tourist services are better - although perhaps we are going overboard on the improvement front, and targeting an excessively high-class segment: tourists who traditionally came to Spain were mostly middle and lower-middle class Europeans. The level of security for visitors is still high, especially when compared with countries on the southern Mediterranean shoreline. So, the culprit must be price, and the problem that we are simply too expensive. However, this is not the case. In fact, this season, prices fell by around 15 percent, and yet demand did not recover to match previous years.

Wanted: new strategies

To make up the lost ground, Spain’s tourist sector will have to improve its management practices. By this I mean it must start competing more fiercely. After many years of a sector dominated by demand, where everything filled up effortlessly each summer like clockwork, the tourist industry now faces a future in which it will need new tools to compete. It is no longer sufficient to have good facilities and guaranteed sunshine; nowadays, customers have to be won over and strategies developed which clearly differentiate the offer and create lasting competitive benefits. The question is whether the Spanish tourist sector is ready for this battle.

When demand drops, prices inevitably follow. This is the typical price-war scenario. The initial hypothesis is: if I lower my prices, I’ll sell more. This hypothesis is usually true. But when all competitors do it, we find instead a widespread reduction of prices, erosion of profitability in the sector and, inevitably, disappearance of some players.

Price wars usually last long enough for the sector’s different competitors to realize that the situation is unsustainable. It is only then that one of them starts trying a new strategy, employing tools other than price to lure customers. Spain’s tourist industry has set out to cross the wilderness; i.e., it is initiating a price war. This will certainly lead to a recovery in demand and benefit the end consumer, but the sector will pay dearly in terms of profit margins. Competing and drawing customers means designing competitive strategies other than simply relying on price. We have witnessed this in other areas.

The question is where to find these new strategies. Or, in other words, does the tourist sector possess the capabilities to develop them? In any industry, the most successful competitors are those who develop innovative strategies. To innovate, one must have a high level of management skills and adopt ideas from elsewhere.

Managers who revitalize their sector are those who apply new ideas – frequently from a different industry. One example is Michel Leclercq, founder of the Decathlon chain of sports shops. Leclercq worked some years for French distribution giant Auchan, then in 1975 decided to create his own business to sell sports articles. He applied the same logic as Auchan used to sell food – i.e., huge premises, a comprehensive range of products and low prices. Decathlon has revolutionized the way sports articles are sold.

The Spanish tourist sector boasts excellent professionals, very knowledgeable about their business. But as is often the case, they are so involved in their own field that they find it difficult to embrace strategies that differ from those they habitually adopt. Finding – and implementing - innovative formulas that will set you apart from a crowded, competitive arena requires a more global vision of business and the market. It is not enough to have profound knowledge of your sector. If you want to detect where the opportunities lie, you have to be able to stretch your neck, look over the trees and see the woods.

The tourist sector does not need greater specialization; it needs a more global vision. It needs people who can bring renewed understanding of the business; people whose experience in other sectors or advanced training in business management has given them wider exposure to diverse practices. This is the issue facing an industry that must continue being the driving force behind Spain’s economy.

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