By Joel Chusid
Aficionados of Chinese cuisine might be taken aback, since China pie does not appear on a restaurant menu, and has nothing to do with food. The real China pie is the enormous and rapidly expanding outbound tourism market in the People’s Republic of China, which now has a population of 1.3 billion and a GDP that’s growing at 8% annually. It’s estimated that there are one million millionaires living in China, and a thousand billionaires. And with increasing affluence comes a desire to travel. Are you, as a U.S. travel marketer, prepared to get your share of that pie, which is now literally bubbling over in the oven?
For years, international leisure travel for Mainland Chinese has been a dream, but several recent developments have made this a reality. First, Chinese passports are much easier to obtain. Second, the list of ADS (approved destination status) countries which Chinese citizens are allowed to visit for purely leisure purposes, has dramatically grown in just the past couple of years alone. And third, the air service between China and many countries has been expanded by new bilateral agreements, and the US is no exception.
The numbers are staggering. In 2002, 15 million Chinese traveled abroad. By 2004, this had doubled to 30 million. The WTO estimates that the number will reach 100 million by 2020, but other sources expect this to be attained by 2015 or even earlier. Travel expenditures have been rising 27% per year, and China is on track to become the fourth largest source of tourists in the world by 2010.
Government officials and business travelers have dominated long haul travel previously, but the ability to obtain passports for Chinese to travel abroad has spurred leisure travel growth. Countries in the region have benefited, but long haul destinations like Australia and Europe have suddenly become popular. During the “Golden Week” holiday last October, a traditional travel period, 10,000 Chinese visited Europe, and this was repeated over Lunar New Year in February.
In mid-April, the first Beijing International Travel and Tourism Market (BITTM), a POW-WOW like forum for outbound travel, was attended by thousands of foreign exhibitors, suppliers, and media. NTO’s, hotels, tour operators, cruise lines, and attractions promoted their destinations and services to the Chinese travel market, and the interest generated was enormous. Two years ago, only about 2 dozen countries were on the ADS list, and these were primarily in Asia, a few in Europe, and only Cuba in the Western Hemisphere. The number is now about 80, and in the past year ADS has been awarded to most countries in Europe and Latin America, and even 10 in the Caribbean, including The Bahamas, Jamaica, and St. Lucia. The number of flights scheduled between Europe and China in 2004 increased 61% over the year before.
Countries without ADS designation cannot effectively market and sell leisure travel to their destination. The new-ADS destinations of Canada and the UK have seen how air service and tourism links have developed quickly to match the demand. The US does not have ADS, although the two countries signed a MOU to develop travel and tourism cooperation in December 2004, and this is seen as a precursor. Some observers expect an agreement could occur as soon as later this year. Once this happens, the stage is set for Chinese tourists to descend on the US, but not without challenges for both countries. (Chinese travelers, however, can and do travel to the US territories of Guam and Saipan on package tours.) Canadian tourism officials experienced the interest at the BITTM, when their booths were literally mobbed by Chinese travel buyers.
So until the ADS matter is resolved, the China pie remains in the oven, but it’s just a matter of time before the US receives that coveted ADS status. Then, US companies can start promotion in China in earnest, although you can be sure that most initial travel will occur in groups, and not just because of a language problem. This is primarily due to the difficulty in obtaining a US visa, currently an arduous and randomly selective process. The visa problem should not be underestimated, since even with ADS, some countries will only issue group visas or, in some cases, require that a tour operator place a cash deposit with the destination country’s embassy to ensure that all travelers return to China. One of the most frustrating Catch-22’s is that even though a passport-holding Chinese citizen might book a tour package abroad, they may be denied a visa, after having paid for the trip. When the US eliminated transit without visa soon after 9/11, travel patterns between China and both Latin America and the Caribbean shifted to the Atlantic from the Pacific to avoid travel via the US.
A 2004 bilateral agreement expanded the number of weekly flights from 54 to 254 flights a week between the two countries by 2010, and from 4 carriers to 9. A US DOT official acknowledged in March that an open skies agreement, like that recently achieved with India, could even be in reached when talks occur again in 2006. Continental and American begin nonstop service from Newark and Chicago, respectively, in the next year, adding to services offered by Northwest and United, and Chinese carriers are also expected to add service.
The Chinese market has some similarities to other Asian markets, but can be very different, both culturally as well as in the way business is conducted. Relationships are critical, and take time to develop. There is still significant government involvement in day to day business, and no shortage of regulations. Good government relationships between government officials and suppliers are essential, and although bribery is prohibited, this can sometimes be a gray area. The language barrier is a huge issue. Credit cards are only beginning to become pervasive, and tend to have low credit limits, and while ATM’s are ubiquitous, China is still a cash society. Electronic airline tickets are only beginning to be introduced.
But gone are people wearing drab Mao jackets in the streets. Shanghai is sometimes called “New York on steroids,” with thousands of skyscrapers, many more under construction, and MacDonalds, Starbucks, and Pizza Hut everywhere. Wal-Mart is in China, as is The Outback, and even Kinko’s. Shanghainese are well dressed, sophisticated, and it’s sometimes a shock for American tourists to observe some locals buying in elegant shops, their cell phones dangling on jeweled chains. The second largest Louis Vuitton store in the world is here, and it is patronized not by the tourists, who flock to buy the knockoffs in the street markets, but by the Chinese nouveaux riche, who are buying those bags to travel abroad. One thousand Mercedes-Benz Maybach luxury saloon cars at $750,000 each are projected to be sold per year. Beijing and Guangzhou are not far behind, although residents in smaller cities are not quite as worldly.
What should you be considering in the meantime and how should you prepare for when that pie is ready to be taken out of that oven?
Begin researching the Chinese outbound market — now. Plenty of studies of Chinese travel habits have been done. Chinese who travel abroad love sightseeing, theme parks, gaming, and shopping. Due to cultural and language barriers, Chinese are not that interested in Western history and art museums, but gaming, forbidden in China, is a huge draw, and Las Vegas is a necessary stop on most government and business trips to the US. Brand conscious Chinese are adept at bargaining, and shopping is a required part of any trip abroad. Many Chinese products for sale in the US are made for export markets only, and as such, are novelties for Chinese tourists. The Chinese are second only to Japanese in the amount they spend per trip. Most families are small, with rarely more than one child. There are three specific weeklong holiday peak travel seasons: Spring Festival (February, dependent on the lunar calendar), International Labor Day (May 1-7), and Chinese National Day (October 1-7), all of which are collectively referred to as “golden weeks.
Get ready for a language challenge — now. Americans have a reputation for being monolingual, although the largest concentration of Asians outside of Asia is in the Los Angeles area. But what about many other major US cities, and are hotels, cruise lines, airlines, and tour companies ready to handle Chinese visitors, in both Mandarin and Cantonese? Chinese has a variety of dialects, and Cantonese, spoken in the south of China, is not necessarily understood by Mandarin speakers, although the written language is the same. Don’t expect to use brochures in English either. The Chinese outbound market is diverse in hospitality choices, and while there is demand for budget accommodations, there are many who don’t mind paying for luxury hotels.
You will need to develop important contacts in China — now. If your company is serious about attracting Chinese visitors, this is probably the most important advice. Good contacts with private travel companies are, of course, necessary, but you won’t get any business done if you don’t have strong government relationships. Participation in BITTM in 2006 is probably a good idea, but if ADS is not achieved within a year, there may be some barriers to what you can and can’t do in terms of promotion. Relationships take time to develop, and while this may sound like doing business in Latin America, for example, it’s not. Many Chinese executives do not have secretaries or voice mail, and will not readily respond to someone they don’t know from a letter or fax. Expect to do business face to face, and above all, be patient, since deals can take much longer than you might expect. Commissions are often paid in cash. The banquet is an important part of Chinese business, and these can be fraught with protocol and cultural pitfalls, especially when it comes to the toasts, which can be physically dangerous! Learn how to work with translators, since they can make or break a deal. Do some research on what to expect, such as reading one of the numerous books published on US-China business etiquette, or enlist the help of an expert. A number of US travel companies are already in joint ventures and have made the leap. Both Expedia and Cendant have made major investments in local Chinese travel companies.
Groups will come first, so plan accordingly. Even Chinese business travel occurs in delegations, partly because of the language barrier, but more often due to the visa problem. One can also assume that the initial wave of tourists, once ADS is achieved, will occur in groups, as has been the case with the initial Chinese travel to Europe, but eventually this may change to allow for more independent travel, as the market matures.
Chinese airlines do business differently. Unlike the US carriers who serve or will serve China, Chinese carriers serving the US historically do not actively solicit new business, preferring to work within their established relationships. Doing business with them requires enormous perseverance, patience, and an expectation that you will conform to their policies, which may or may not be what the US market is used to. Currently all have their own individual transpacific routes with no direct competition, so they can pretty much do as they choose. Also, Chinese airlines serving the US are highly protective of their internal routes, where demand often exceeds supply, so they tend to tie domestic discounts to foreign passengers with international bookings on the same carrier. The landscape is going to change as competition increases due to the liberalized air bilateral, and even within China, new privately-owned carriers are sprouting up with names like Okay Airlines and United Eagle Airlines, and fare discounting has begun.
Advertising is different in China. The internet is now widely in use. People tend to use SMS (text messaging) more than the internet as cell phones are ubiquitous. Do some research, and don’t assume that what works here will achieve the same results over there, even if it’s been translated into Chinese.
Cash or Credit? With limited credit card adoption and low credit limits, most Chinese traveling abroad are forced to take their funds in cash. This is a source of trepidation, since in some countries Chinese tourists have been targeted for theft, especially since this kind of crime is very low in China. Also, tipping in China is not customary, so US suppliers need to take into account that tour guides, bus drivers, and other service personnel may not be tipped, and it may be advisable to add service charges into the base price to compensate for this.
Right now the US is a bargain, but that could change. Currently the Chinese monetary unit, the “renminbi,” which means “people’s currency,” is tied to the U.S. dollar at 8.27, which makes the US a bargain relative to Europe, and the distance is similar. The currency peg is controversial, but as long as it’s in place, the US tourism industry has a cost advantage.
Chances are your company is already thinking of China as the next source of “business development” as we call sales and marketing these days, and maybe you have a plan already in place, or perhaps you’ve already started to penetrate the market, even with that pesky little ADS barrier. If not, you’re going to miss getting a piece of that tantalizing pie!
Joel Chusid is the founder and Principal of Joel Chusid & Associates, which provides consulting services to airlines, travel, and tourism companies in a variety of areas ranging from traditional sales and marketing, strategic planning, and public relations to legal, technical, and operational issues. His 30 years of industry experience include executive positions at American Airlines where he was one of the founders of the American Eagle program, and at China Eastern Airlines where he helped bridge the business and cultural gap for the Mainland Chinese carrier to the US travel industry. A member of ATME’s Board of Directors, he resides in Dallas, Texas and Buenos Aires. Contact him at firstname.lastname@example.org or visit his website www.joelchusid.com