StrategyStrategy planning & execution

Clustering benefits for profitability and growth

The concentration of many attractions and related services within an area, specialized in a certain type of activities is likely to attract other operators dealing with this type of activity, as this is where their potential clients go and so as to profit from the existing tourism flows and necessary services available in that area. This saves them many marketing costs, and also results in a much lower risk investment. Therefore, consolidated and competitive clusters are more likely to attract investors.

Further, as it happens in all industries’ clusters, business’ concentration reduces trading costs, thus enhancing profitability. As in all types of clusters, there are also common infrastructures and key resources, which shared among many operators, reduces its cost per operator, through creating economies of scale.

Moreover, concentration helps to boost cooperation, and by joining efforts, partners not only accelerate innovation and develop economies of scale by sharing strategic resources, but also cooperate in lobbying to gain negotiation power against common suppliers and clients, as well as to counter or neutralize other competitive forces that shape the long term industry’s profitability. The Whitepaper “The 5 Competitive forces and business strategy” depicts how these 5 forces shape the long term profitability in the tourism industry.

In many cases, companies in a specialized cluster have a better access to skilled employees and specialized suppliers, also located within the cluster influence area. Institutions or Universities can be used mutually and capital expenditures in regional marketing, infrastructure or education programs can be employed and shared together (Müller and Lanz 1998). Finally, cluster based tourism attractions’ concentration is also beneficial to profitability as long as it contributes to extending the average tourist length of stay.

Beyond profitability, consolidated clusters are also likely to foster more new business creation. First, a concentrated clients’ base lowers the risks for new suppliers to settle in, and as a result of the cluster based boosted innovation, also more spin-offs and start-ups are likely to be created. Further, financial institutions have a good knowledge about the industry, and so they are more likely to provide financial support to new ventures.

Do you think of other clustering benefits for profitability and growth?

StrategyStrategy planning & execution

Clustering benefits for competitiveness

The cluster structuring and development in a destination offers four main types of benefits: enhancing competitiveness, boosting profitability and growth, ensuring sustainability and increasing marketing effectiveness.

As the Competitiveness Planning 3.0 Whitepaper explains in detail, destination competitiveness is based on the relation between value offered to the visitors and efforts demanded, considering experiences, feelings, service quality, and positive impacts of tourism development in the destination as the sources of value; and discomforts, risks, price and negative impacts of the tourism development in the destination as the sources of efforts demanded, or factors diminishing value.

Among all these key factors that determine the destination’s competitiveness, the tourist experience is probably the most important. In this regard, having a higher concentration of experiences –related to the same motivational profile- available within a short distance (not needing to change accommodation in many cases, nor consuming much time in transfers) clearly optimizes the whole destination experience. Cluster development also entails an increasing variety of experiences available, beyond the experience efficiency due to the reduced distances within the cluster.

A good cluster planning should consider a strategy to prevent congestion issues by spreading the tourism flows right from the conception of the cluster layout. This may be achieved by creating many itineraries throughout the cluster to diversify the visitor’s flows –avoiding “backbone itineraries” which tend to concentrate the flows-, and preventing bottlenecks.

Furthermore, by creating themed itineraries and charming transportation systems which may eventually become iconic experiences themselves, not only are the tourist flows spread out but also the experience is enhanced. Charming transportation systems may be traditional transportation means –gondolas, tramways, etc.- made tourist friendly in terms of comfort, or just innovative transport means which are a new experience for the visitors.

Business concentration makes it also more feasible to invest in key resources, which eventually influence positively the cluster’s competitiveness. This may be the case of educational facilities, R&D centers, and cross-destination infrastructures related to accessibility, environmental management & protection, etc.

Do you think of other clustering benefits for the destination competitiveness?

StrategyStrategy planning & execution

Cluster based competitive advantages

In line with the origins of cluster development, the combination and cooperation of many resources and operators may result in many types of competitive advantages:

Resource uniqueness: many clusters feature a unique collection of natural or cultural resources. Cases of cultural resources could be the Egyptian Pyramid cluster along the Nile River, or the Maya Pyramid cluster in Yucatan Peninsula. Examples of unique clusters based on natural heritage could be Iceland with its unique combination of volcanos, glaciers and northern lights, or the Tanzanian cluster with Mount Kilimanjaro and the Masai mara safaris.

Experience innovation: some clusters have, beyond competitive natural or cultural resources, a special deed for innovating experiences. Such is the case of Queenstown in New Zealand’s Southern Island, the most innovative destination for adventure tourism activities, where bungee jumping was invented, among many other crazy experiences. Developing unique experiences without unique resources requires building a culture of innovation.

Operators’ cooperation: the good coordination and cooperation among the cluster operators may also be the source of competitive advantage. The case of the Trois Vallées ski area, the largest ski-lift connected ski area in Europe illustrates this type of advantage. This dominion has no unique resources like other areas in the Alps –namely Zermatt-, but the connection between the three valleys offers the best mobility efficiency for skiers who want to enjoy the whole ski dominion, allowing them to enjoy all the ski areas spending the least possible time.

Differentiated product experience: clusters featuring one main product may develop their competitive advantage by creating a unique signature experience, adding an extra value that other cluster rivals do not offer. This is the case, for instance, of the Austrian Tirol for ski holidays, offering a unique “après-ski experience” consisting with traditional Tirolean pubs with local atmosphere and also a world class network of Wellness & Spa facilities. The Ski Resorts’ accommodation facilities are all in old villages, which also give character to the experience.

Dimension: some clusters base their competitiveness in offering the largest amount of facilities or resources for a specific kind of tourism activity. Such is the case of the Golf Cluster in Costa del Sol as a Winter Golf destination in Europe. On the other side of the world, the Australian Great Barrier Reef is the largest coral reef on earth, a paradise for divers. Another example could be Macau, featuring the largest offer of Casinos in Asia.

Variety: many tourists are not only motivated for one type of activity but prefer to enjoy many different experiences during their holidays. Clusters offering a large number of different attractions appeal to an increasing number of tourists. Such is the case of the Costa Brava, offering not only attractive beaches, but also first class gastronomy, unique cultural heritage sites, a Golf cluster, a protected area for diving, Casinos, facilities for skydiving, Wellness, etc.

Price: for certain products, price is sometimes a decisive factor to gain competitiveness, especially in the case of the most standardized ones. As it happens with clusters in other industries, the competition of many operators may result in a price advantage for the tourist, though this is not usually the main reason. This could be the case of Tunisian coast cluster competing with European beach destinations, the Red Sea cluster for diving, etc.

Do you think of other cluster based competitive advantages?

Strategy

Types of tourism clusters

The term cluster is used nowadays in many different fields, always to refer to a group of elements that have something in common or do something together. It may be either used to define a large area with many attractions which all together make a competitive destination, or to define an area within a destination with clearly differentiated characteristics compared to the other destination areas. The term cluster may be used as well for conceptual grouping not related to territory, in the fields of marketing and some others.

There may be established an almost endless number of cluster categories in the field of tourism, according to many different criteria, but only a few are considered relevant enough, also to illustrate the different realities in terms of cluster development for destinations.

First of all, depending on the cluster’s resources, regardless of the aforementioned distinctions, there may be three types of clusters:

  • Natural heritage: clusters based on distinguished natural resources for sporting activities or sightseeing such as mountains, marshland areas, etc.
  • Cultural heritage: clusters based on unique or differentiated tangible –monuments- or intangible –traditions, gastronomy- cultural heritage.
  • New developments: clusters based on newly built facilities which attract tourism flows by themselves, such as Theme Parks, Casinos, Museums, Golf, etc.

Second, when referring to clusters that are to define areas with different characteristics within a local destination, there may be:

  • Urban clusters: those differentiated areas within city tourism destinations, either by the architecture style, atmosphere, natural resources like parks, cultural resources such as temples, palaces, museums, etc. Some well-known examples could be Paris with distinct districts and areas such as Montmartre, La Defense, Champs Elysees, Bois de Boulogne, Quartier Latin, etc. where outer connected clusters such as Versailles and Disneyland Paris could also be considered.
  • Mono-product destination clusters: some destinations focused in one main product offer however different areas with distinct atmospheres, based on natural or urban landscape, a different amount of tourism flows, different prices, and even different characteristics directly related with the tourism product. This could be the case of a Theme Park, a Ski resort with ski areas in many valleys or mountains, or National Parks with several areas with different types of landscape and even different animal species to be watched.

Third, when referring to clusters as areas grouping several attractions which all together make a competitive destination, there are also some types of clusters:

  • Touring clusters: these are groups of resources –usually natural or cultural heritage- which are to be discovered by following an itinerary that makes a touring experience. Some of these resources taken individually are not likely to attract many visitors, but as a part of a route they all gain a substantial amount of tourism flows and become a competitive destination. These may be of similar characteristics or quite different. Examples are the Loire Castles cluster in France, the “Norway in a nutshell” route, or the Rhin Castles cluster in Germany.
  • Agglomeration clusters: closely related with the dimension competitive advantage, some destinations become competitive due to the concentration of many attractions of the same kind within a limited area. This usually refers to new development attractions, but may also apply to natural or cultural resources. Such is the case of Theme Park clusters, Golf clusters, Ski clusters, Diving clusters, hiking clusters, etc. Many special interest tourists like to have the chance of experiencing many sites for the same activity during the same holiday period.
  • Multi-product clusters: unlike the agglomeration ones, some clusters base their competitiveness on the variety of products available, attracting those visitors who are interested in living different types of experiences. Some famous cases may be the Hawaii Islands, which are outstanding destination for sun & beach, Congresses & Conventions, but also for Nature tourism –National Parks with active volcanos- and surfing; Eastern Andalucia –in the South of Spain- boasts some of the most popular Sun & beach destinations, plenty of Golf courses, along with hiking & skiing in Sierra Nevada and cultural tourism in Granada.

Do you think of other tourism cluster categories?

Strategy

The origins of tourism clusters

As Porter says, “the function of a cluster is to create a forum for a growth oriented dialogue between key regional stakeholders”. However, as explained by The Cluster Competitiveness Group, “Clusters typically do not develop as a group of firms which join to pursue a common purpose or goal. Clusters exist, they have their own development and dynamic which can be influenced by private and public activities, but it is very difficult to purposefully construct them”. In the tourism industry, however, the dynamics are sometimes different than in other industries, due to its several particularities.

In this regard, the most typical origins of tourism cluster development are:

Local demand: a spatial concentration of competing businesses facilitates the customers purchasing decision making, allowing them to compare easily between several suppliers. In the case of tourism this happens very often for the shopping clusters. Local demand may also apply to different cases where the cluster is mainly developed by one operator, such as the Theme Parks in the outskirts of large metropolitan areas.

Related industries or related clusters: either for taking advantage of the customer flows or for leveraging specific resources, some industries develop in the same location where others are already developed due to the potential synergies between them, which eventually become a key competitive advantage. Such is the case of the Wellness cluster in the Tirol area (Austria), taking advantage of the ski tourists in the most competitive ski cluster in Europe. Other cases are the development of Golf clusters in Sun & beach destinations with little or no local demand for Golf, such as Spain and Portugal; or the development of Theme Parks in mature destinations.

Exploitation of new special interest demand: regardless of the geographical origin of the demand, the reasons for traveling have been increasing also due to new market segments related to interest in specific cultural or natural resources, for instance. The practice of sports related to natural resources such as mountains or underwater natural heritage has boosted the development of tourism in many places where there were neither related industries nor substantial local demand for these activities. The same applies to cultural tourism related to archeological sites and other types of cultural heritage.

When defining the limits of a cluster, we may consider two different criteria:

  • Cluster boundaries are defined by the linkages and complementarities across industries and institutions which are important in market competition.
  • Cluster boundaries are determined by the physical characteristics of the territory, regardless of its exploitation for tourism development.

The first corresponds to generic business cluster boundary definition, whereas the second is more closely related to tourism clusters. However, as explained in upcoming sections of this Whitepaper, some tourism clusters may correspond rather to the first boundary definition.

Do you think of other criteria to define the limits of a tourism cluster?

StrategyStrategy planning & executionSustainabilityTourism marketingTourism trends

A theoretical approach to cluster development

As introduced in the first point, tourism clusters are created to leverage the unique resources of a location or in some cases to gather artificial resources in the same location. In both cases, they improve the value of the location to end up making the location a key strategic factor.

To make a cluster competitive there are many key success factors that should be considered by the cluster members:

  • Transport infrastructure within, and to access the cluster from the target markets
  • Solidarity and cooperation spirit among players
  • Cooperation between the Government and the private players
  • Creating a welcoming atmosphere to attract international talent
  • Foresee space for attracting new businesses and expanding the cluster

A very specific key success factor is the existence of a governance structure to promote collaboration and joint projects, fostering innovation and promoting the cluster internationally. This governance body should be also responsible for:

  • Attracting new businesses
  • Performance monitoring
  • Intelligence research
  • Identifying needs for improvement and training
  • Representing the cluster players internationally
  • Organizing networking events and conferences
  • Coordinating players to design and implement the cluster development strategy

As mentioned before, there may be many types of players within a cluster, and so the types of cooperation between them may also be different. There are at least two types of cooperation:

  • Value chain cooperation: between players from different sections of the value chain, to gain efficiency or to add new value.
  • Coopetition: competitors sharing resources and costs that are not afordable for each one alone.

Research has shown that tourism development is a venue in which cooperation is often more important than competition (Inman et al. 1998). A cluster based development should try to build the value chain within each cluster in the region. A cluster strategy places all public and private stakeholders in the position of being producers and suppliers to one another, and seeks for constructive ways to define and carry out mutually beneficial action. The value chain is central to the tourism cluster concept, as it demonstrates how tourism can generate benefits to the economy beyond the tourism sector through linked industries (Gollub et al. 2002).

Do you think of other key success factors to make a cluster competitive?

StrategyStrategy planning & executionSustainabilityTourism trends

What is a cluster and why are they created?

One of the key strategies to develop in any Tourism Development Plan consists of structuring the territory in different areas according to the kinds of activities to be carried out in each one. The clustering strategy is essential for the tourism development regardless of the dimension of the territory: clusters exist within countries, regions and even towns.

A cluster may be defined as a concentration of interconnected businesses and institutions in a limited geographical area. In most cases, such businesses and institutions belong to the same sector; but, as we will see in some case studies, sometimes there are new business sectors that flourish in a cluster to take advantage of assets related to other sectors in the cluster.

It may also be defined as an area characterised by a set of distinctive tourism assets which all together create a unique value system capable of attracting tourists and competing with other destinations. Many industry players settle down in the same location to cooperate in the search for synergies that improve their competitiveness:

  • Need for specific infrastructures to be leveraged by many industry players
  • Need for collaboration between industry players to create economies of scale and scope
  • Cooperation in joint marketing

Clusters also arise because they help businesses increase their productivity by sharing many strategic resources, diminishing trading costs between suppliers and clients, and fostering innovation thanks to proximity of a sector’s stakeholders. In the case of tourism destinations, clusters are the result of a concentration of operators exploiting a cultural or natural resource, or a concentration of operators developing artificial and complementary attractions.

Clusters are areas that can be considered as being internally homogeneous with specific traits that differentiate them from others. The goal of the clustering strategy is to structure the location of all tourism activities in accordance with the types of experiences and feelings they offer or the characteristics of the physical environment, and also to define a clear identity for every cluster and communicate it clearly to the visitors.

As Michael Porter says “Clusters are not unique, they are extremely typical –and therein lies the paradox: the enduring competitive advantages in a global economy lie increasingly in local settings which distant rivals cannot compensate. In a cluster, interconnected companies, firms in related industries and associated institutions both compete and cooperate”.

The term cluster may apply to many different destination dimensions: at a national, regional or local level. We may use clusters to distinguish several geographical areas within a country, each of which is specialized in a different type of experience, but also within each of these clusters there may be –and usually there are- sub-clusters according to smaller geographical areas with specific characteristics that are different from the rest, so long as these characteristics are relevant to be leveraged for a distinct tourism experience. At the lower scale, we distinguish clusters within local destinations, so long as these comprehend different areas providing unique or clearly differentiated atmospheres, resources and experiences.

Do you think of other reasons to explain the creation of clusters?

StrategyStrategy planning & execution

Enforcing strategy execution

As mentioned in previous sections, implementation entails describing all tasks to carry out for every program, assigning accountabilities, prioritizing and time planning, along with the KPI monitoring and evolution assessment. However, it is important to explain the type of recommended organizational chart for the DMO in charge of implementing the programs. The main executives responsible for the competitiveness program implementation could be:

  • Managing director: in charge of leading the executive team, the corporate strategy direction, and institutional relationships. He or she would be the leader of the implementation process, and so ultimately responsible for assigning accountabilities, prioritizing, time planning and deciding whether it is convenient to reorient strategy. He or she should lead special programs such as the new flight connections.
  • Experience development director: in charge of programs related to heritage conservation, urban aesthetic harmony, DMC incubator, signage system, congestion & pollution, etc.
  • Business intelligence director: responsible for the monitoring system, and so in charge of collecting, analyzing and communicating the intelligence data following the KPIs.
  • Quality director: in charge of implementing the service quality related programs, such as the Quality label certification, Eco-label certification, and related issues.
  • Human Resources director: in charge of all professional training programs related to service quality for professionals, and also co-responsible for Hospitality programs
  • Marketing director: in charge of the product related programs such as the Product Clubs, Product labels, Benchmarking trips, Destination APP, Tourist offices & call center and partnership with nearby destinations.

In the case of programs entitling mandatory changes on private properties such as buildings or businesses, implementation would be more difficult and therefore more complex strategies would be needed. These strategy guidelines could support these programs enforcement:

  • Changing regulations establishing a reasonable deadline for making the necessary changes. Such deadlines should be negotiated with the affected stakeholders to ensure the feasibility of the implementation.
  • Establishing an incentive system to stimulate early adoption of the new policies consisting of fiscal incentives, privileged marketing, etc.
  • Offering funding facilities such as soft credits, partial subsidies, and searching for imaginative formulas like those described in the Whitepaper “Envisioning destination models 3.0”.

How would you enforce execution related to private properties?

StrategyStrategy planning & execution

Competitiveness clubs

Beyond the DMO’s Board of directors, who are accountable for the implementation of the Tourism Development Plans –along with other stakeholders-, there can be created a sort of Think Tank usually called a Competitiveness Club, with representatives of both the private and the public sector, to work as a consultation body that gives support and advice in the elaboration and implementation of the Tourism development Plans.

This is a volunteer driven organization, where members participate driven by their professional interest in exchanging opinions and visions on the challenges of the local and global tourism industry. Particularly, when elaborating the competitiveness assessments and improvement programs, the Competitiveness club is due to provide support in the assessment of the conditions of the destinations’ operators, products, facilities, infrastructures and related supporting sectors.

Furthermore, the Competitiveness club should provide advisory support to the local Government and DMO both in the destination strategies design and implementation. This would entail a close cooperation with the monitoring system and the open innovation system. To be effective, there should be appointed a formal leader and a secretary.

Finally, as a representative body of the tourism private sector, it could also play the role of lobby, to defend the interest of the local industry in the design of the Government policies, given their important influence in many issues affecting the tourism business.

What other functions do you think that Competitiveness Clubs could be in charge of?

Environmental sustainabilitySustainabilityThird sector and social sustainability

Monitoring sustainability issues

Beyond the indicators related to the Competitiveness programs and mission related goals –poverty alleviation & environment protection-, it is also recommendable to carry out a comprehensive assessment of sustainability issues through the elaboration of a set of Sustainable Tourism Indicators (STI).

First of all, tourism sustainable development has to be based upon three main principles:

  • Equitability: the generation of wealth out of the tourism activity should be fairly distributed among all the destination stakeholders.
  • Livability: the tourism activity should allow the destination’s inhabitants to cover their present and future needs, ensuring a long-lasting quality of life.
  • Viability: development has to respect the carrying capacities of the destination ecosystems without using non-renewable resources

The indicators have to play the role of analyzing all types of factors affecting the structure of the tourism industry, assessing the benefits and impacts of the tourism activity, identifying critical issues that need to be addressed, measuring the achievement of the Plan’s objectives and orientating in the need for strategy shift in line with the objectives achievement.

Based on the 20 main sustainability issues identified in the WTO’s “Indicators of sustainable development for tourism destinations: a Guidebook”, Tangenay, Rajaonson and Therrien developed a list of 20 STI as the main indicators to monitor the key sustainability issues within a destination. These are exposed in the following table.

Sustainability issue Indicator
Ecosystem Area of natural protected space
Water Water consumption (tourism sector)
Atmosphere Air pollution (tourism sector)
Energy Energy consumption (tourism sector)
Waste Volume of waste recycled or treated/total volume generated
Well-being Level of satisfaction of the local population
Resilience and risk Environmental vulnerability
Security and safety Ratio of tourists to local population at cultural events
Health Quality of bodies of water (lakes, rivers and sea)
Satisfaction Level of tourist satisfaction
Public participation Level of public participation in election
Culture Level of maintenance of heritage sites
Accessibility Frequency, capacity of services, or level of use by existing transport modes to the destination
Investments Percentage of new real estate developments intended for tourism
Ecotourism promotion Number and % of businesses that acquired an eco-responsible label
Economic vitality Percentage of income generated by tourism in the community
Employment % of new jobs in the tourism sector occupied by local residents
Marketing Percentage of return visits
Distinction Number of visits to heritage sites
Traffic Volume of tourists

Whenever data is not available, other indicators for the same issue should be found according to the available data related to this issue in the destination. Further, in relation to the previous section about monitoring the implementation of the Plan, the STI scorecard has to include indicators directly related to the destinations policy on sustainability.

In this regard, the KPIs related to environmental impacts should be designed by specialized consultants specifically for every destination –depending on the type of environment and issues to tackle-, whereas some of the KPIs to track the evolution of poverty alleviation could be:

  • Newly created tourism businesses in the poorer layers of the community
  • Increased disposable income in the poorer layers of the community
  • Newly created “non-tourism” businesses serving the poorer layers of the community
  • Increased turnover of old businesses serving the poorer layers of the community
  • Increased number of households with access to Internet and computer literacy
  • Increased access to primary & secondary education in the poorer layers of the community

Concerning the value for money, service quality could be measured in two ways other than the tourists’ satisfaction:

  • Mystery tourist system, consisting of periodical service evaluation by outsourced professionals pretending to be casual tourists.
  • Tracking of congestion and “early sold out” services through systematic observation, to identify bottlenecks and unsatisfied demand for critical services.

Would you consider other indicators?