As the Chinese government gears up to further ease restrictions on foreign-owned travel management companies this summer, more agencies are looking to move into this rapidly growing travel market. China is now the third-largest business travel market in the world, according to the World Travel and Tourism Council, and demand for managed travel services continues to rise.
China officially began to allow wholly foreign-owned travel agencies in 2003, but it has been difficult for TMCs to obtain the necessary approvals to launch subsidiaries. By the end of 2006, the Chinese government had approved 25 foreign-owned and controlled travel management companies. That figure is expected to rise beginning in July, when China plans to lower the operating capital requirements to open foreign-funded agencies from 4 million yuan ($519,000) to 2.5 million yuan ($324,000).
However, the lure of 1.3 billion potential domestic consumers and the flood of multinational corporations expanding operations in China may cloud the unique challenges the market presents, agency executives said. Multinational TMCs that have already begun to make inroads into the market are not abandoning their preferences for local partnerships quite yet.
"It's really helpful to have that local expertise," said Kevin Ruffles, president of Asia-Pacific operations for HRG. "We're unique in that we have a majority-controlled company in China."
About 80 percent of HRG's business in China is from domestic-based leads, but a large proportion of that figure is generated by multinational companies doing business in China, Ruffles said. The TMC partners with Jin Jiang International Group, China's largest hotel operator and travel agency.
"As China transforms from a communist economy to a capitalist economy, things are changing very fast. Local operators are maturing," Ruffles said, adding that HRG would continue its strategy of local partnerships and organic growth, even as China eases restrictions on opening wholly owned subsidiaries.
Though China has the fourth-largest economy in the world, and economic growth continues to skyrocket, only a small percentage of the population is part of the consumer class, Ruffles said.
Corporations in China spent $7.41 billion on air travel in 2005, according to the third annual China Business Travel Survey, released in October 2006 by American Express Business Travel. Carlson Wagonlit Travel estimated that 55 percent of the $11.97 billion China air market represented corporate travel in 2006. Within the corporate air market, CWT said air travel would expand by more than 11 percent annually through 2008 to $6.9 billion. While international travel is expected to grow 9 percent a year through 2008, domestic corporate travel is projected to surge 12 percent a year, CWT said.
Amex said the general use of negotiated rates was up 20 percent since 2004, showing that managed travel is taking root. However, only one-third of 200 Chinese and foreign-owned organizations polled said they used a TMC for their business travel needs. Only 37 percent of respondents said their companies use Internet-based travel tools, though more than half of responding Chinese and foreign-owned companies said they were considering adopting such tools.
Consultant Carol Ann Salcito, president of Management Alternatives, agreed that the Chinese managed travel market is changing "very fast."
"In some ways they are behind, but in others ways the market is mature," Salcito said, adding that the use of cell phones and other technology is widespread. Chinese travel managers and suppliers are "quick learners," she added.
Salcito served as chair of last month's Corporate Travel & Technology World conference in Shanghai, organized by the National Business Travel Association and travel trade newspaper TTG Asia. She said that while none of the educational sessions focused on the use of TMCs, it is helpful for companies to look for partnerships and agency services for managed travel in China.
"With the high level of technical expertise present in China, and with travel management becoming a focus relatively early in China's development as a major player in the global economy, we fully expect Chinese travel management to be one of the most important, most effective segments of the business travel industry in just a few years," according to a prepared statement by Suzanne Fletcher, NBTA president and CEO.
All major TMCs have already begun to establish partnerships with Chinese agencies. American Express entered the market in 2002, following the country's accession to the World Trade Organization, in a joint venture with China International Travel Services Corp. In early 2003, Carlson Wagonlit Travel announced a partnership with China Air Service, a leading travel management company in China. BCD Travel partners there with Jebsen Travel Management, which had joined the predecessor TQ3 network in 2004.
A subsidiary of Japan Airlines was the first wholly owned foreign travel agency in China, opening in Sept. 2003, but as of yet no mega travel management company has announced plans to leave its Chinese partner.
"Everyone is coming to China," HRG's Ruffles said. "The market is exploding. We really feel it is best to have a partner."