Petruccelli, the former president of American Express Global Travel
Services, this month addressed the Macau Global Tourism Forum on the future of
Western travel brands in emerging global markets. An edited excerpt of his
prepared remarks follows.
The approach of Western global brands vis a vis the newly
emerging economies is where I draw my own experience from, and those emerging
economies have been a centerpiece for GDP growth in the past five years. This
is further exacerbated by the economic and financial crisis in the mature
markets of the Western world, a crisis that continues to brutally impact most
of them. Like other industries, travel is no different. International travelers
projected by the United Nations' World Tourism Organization to almost double by
2020 to approximately 1.6 billion, with the most significant increases are
expected to take place in markets like China, India and Southeast Asia followed
by Latin America and finally the Middle East and African countries. Their
respective population size coupled with the continuous improvement in their
standards of living and the ability for their corporations to compete more and
more in the world economy will naturally drive growth in both leisure and
business travel. There are direct correlations between propensity to travel and
average family income, economic prosperity, paid holidays, infrastructure
development, international trade and overall GDP growth.
Emerging markets offer a source of untapped travel and
tourism demand benefitting from large investment in such areas as online and
mobile technology, network and low-cost carriers, transportation infrastructure
and new hotel capacity. While these markets continue to remain major inbound
destinations catering to a growing domestic travel market, they also are
becoming outbound markets with huge long-term volume potential for traditional
European and North American tourist and business destinations. Boeing predicts
that between now and 2031, passenger air travel to, from and within South Asia,
including India, as measured in revenue passenger kilometers will grow an
average of 8.1 percent annually. Boeing forecasts such traffic to annually
increase 7 percent in China, 6.6 percent in Latin America and 4.7 percent in
the Commonwealth of Independent States, including Russia.
But I would not want everyone to consider that the emerging
markets are the next guaranteed El Dorado for the West's global brands. Average
income remains very low for the majority of the emerging markets' population,
and other elements—better housing, better education, better job prospects and
political and social stability—take priority over travel for that same
population. Furthermore, recent indicators in those economies, such as
inflation rate, interest rates, real estate and housing prices, internal demand
and volatile energy prices, are signaling that the boom experienced in the past
10 years is fragile and could slow down. This challenges the growth predictions
of the next 10 years and the expected return on investments redirected into new
emerging economies from Europe and North America. Once the decision to invest
has been made, multiples complexities need to be dealt with, such as:
- The level of readiness of the organization to
support and assist in the investment, its ability to eventually adapt its
business model
- The implementation of solid control processes
from the first days, the available pool of trained workforce or the need to
train them
- The scarcity of local management, complex local
regulations
- The maturity of the customer base, cultural
expectations, local competition
- The specifics of local online and mobile
technologies
- The ability to form a joint venture with an able
partner if required, including determining rules that would govern the renewal
or exit of the partnership in due course
- Determining how to rapidly be perceived as being
innovative and bringing value to the community
Clearly, the hotel industry over the years has mastered the
management of such complexities, and that is why hotels often are pioneers in
emerging markets, but that is not the case for other industry brands.
Above all, there is one single element of potential success
or guaranteed failure: the personal and direct commitment. By that, I mean
owning the strategy and ensuring the very frequent presence in the market of
the most senior management of the organization, if not the CEO himself, coupled
with his or her own ability to build strong local ties with authorities and key
local business leaders. Those who do may not always win, but those who do not
will certainly lose.
Nothing in my opinion is further away from the truth that
the established global brands automatically will be successful in taking a
leading share in emerging markets the same way they have been in their markets
of origin and their immediate adjacencies. Especially as online and mobile
technologies are redefining the business model everywhere, I would venture
possibly the opposite: that local brands in emerging markets actually have an
edge. The co-founder of Ostrovok, a Russian hotel-focused online travel agency,
rationalizes this point eloquently in a recent article, noting a greater
ability by local brands to access pools of capital from investors and local
supply, master local customer loyalty, understand local relevance—including
local knowledge, payment methods, customer support, offline and online
infrastructure and local regulations—and almost always demonstrate greater
speed and flexibility in their decision processes. That is why a partnership is
an option to be considered in many cases.
The travel industry in the mature markets in the past 12
months has shown anemic growth figures, but these numbers will bounce back as
their economies recover and the debt issue is dealt with. For the foreseeable
future the largest volume of high-spending leisure and business travelers will
come from those economies. In 2012, the business travel market continues to be
dominated by a few major countries: two-thirds of the global spend stems from
the United States and Western Europe, and business travel management remains
very basic in most if not all emerging markets.
From my experience when I was heading the travel business at
American Express and we made the decision to enter the mainland China business travel market in 2002 in partnership with China International Travel Service, I
would recommend a calculated approach to investing in emerging markets
supported by a clear vision, with a step-by-step controlled strategy with
milestones to measure progress, coupled with strong local partnerships (which,
in many cases, is the only option) and, more importantly, the affordability to
deal with long-term prospects in terms of attractive returns. Anyone with
short-term expectations of stable ongoing growing earnings must have a proven
recipe or else. I am very much a believer that there is no free lunch, but if
the risk is bigger in the emerging markets—and no one will deny that—the higher
will be the reward.