Terrie's Take 869 (Tourism Edition) -- Dr. McKinsey Diagnoses Japanese Tourism Industry

[Terrie's Take]

* * * * * * * * TERRIE'S (TOURISM) TAKE - BY TERRIE LLOYD * * * * * *
A bi-weekly focused look at the tourism sector in Japan, by Terrie 
Lloyd, a long-term technology and media entrepreneur living in Japan.
(http://www.terrielloyd.com)

Tourism Sector Edition Sunday, Oct 16, 2016, Issue No. 869

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+++ Dr. McKinsey Diagnoses Japanese Tourism Industry

Last week consulting firm McKinsey Japan put out a tourism report called 
"The future of Japan's tourism: Path for sustainable growth towards 
2020". It's an attractive-looking document, with gorgeous photos and 
easy to understand prose. In it the authors identify three key problems 
confronting continued future growth of Japan's now 5-year old travel 
boom, these being:
* An imbalance of tourists from East Asia versus the West and elsewhere
* Poor penetration by foreign tourists outside the major cities and 
particularly outside the "Golden Triangle" (Tokyo, Kyoto, Osaka)
* Accommodation and infrastructure constraints in major cities

You can find the report here: http://bit.ly/2dVxsJ4

Of these challenges, the report chose to focus on the first two, stating 
that Japan already recognizes its infrastructure issues and is doing 
what's necessary to address the shortages. They may well be right if the 
highly anticipated "AirBnB Law" is passed early next year. That law will 
allow room owners in permitted regions (at least Tokyo, Osaka, and 
surrounding cities) to rent out their rooms for a minimum 2 nights per 
guest, and will significantly reduce pressure on hotels.

So we'll cover the first two items in this Take. The McKinsey report 
basically blames the deficit of western tourists and the lack of 
distribution of visitors beyond the major cities on the government's 
poor understanding of marketing to non-Asians, the lack of a "captain" 
to coalesce inbound sector players, and the lack of incentive for 
companies to invest into the required technology, facilities, and 
service staff to make things work for foreign guests.

To fix these problems, McKinsey suggests that the government should form 
a Public-Private Partnership and that this entity should undertake five 
action points:

1. Strengthen the nation's 20+ regional Destination Management 
Organizations (DMOs).
These are organizations like the Setouchi Tourism Authority which are 
supposed to organize all the tourist assets in a given area, improve 
their service levels, and market them to foreigners. Localizing tourism 
development is a good idea, but frankly if the central government is 
unable to figure out how to service and market to a sophisticated 
foreign audience, I wonder what chance lesser-funded and probably less 
international local organizations would have? Still, local pride is a 
great source of competition and if a couple of DMOs do turn a success 
with foreign visitors, they might be able to serve as role models for 
the others.

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2. Build an integrated online data platform.
By this McKinsey means the domestic inbound travel sector needs a way to 
connect the nation's transport, accommodation, restaurants, local 
events, and other tourism service providers to a single online 
government-run platform. In the old days this would have been done 
through a national web portal, which McKinsey seems to be espousing, 
however, I think they miss the fact that foreigner travelers are already 
addicted to major platforms such as TripAdvisor, Expedia, and others, 
and it will take years and tens of millions of dollars for the 
government to wrest travelers away from them. Instead, the government 
has to offer something a lot more compelling and immediate. For example, 
not a portal at all but rather the next layer down - an API-driven 
nationwide data integration system. This would surface its data to the 
public through any affiliate portal (including the foreign majors) that 
wants the data.

McKinsey also states that METI already talking to IT companies about 
creating such a platform. Maybe they are, but my understanding is that 
while there may be talk there is NO movement on a national platform of 
any sort. Right now it's just wishful thinking. And why is there no 
movement? Most likely because IT companies in Japan know they are 
hopeless at marketing, and conversely no one trusts the marketing 
companies to do the tech properly or to keep the platform neutral. So no 
one is taking the first step.

3. Support hotels, attractions to build inbound tourism capabilities.
Here McKinsey is referring to improving such factors as language, online 
reservations, and procurement efficiency. While these are all necessary 
things, such services are already being supplied by private 
organizations and government involvement is hardly necessary. OK, it is 
true that these  services are unnecessarily expensive because of the low 
demand. So instead of coming up with government-funded projects METI 
should introduce service development subsidies, similar to the targeted 
R&D subsidies they have sponsored in the past, and allow hoteliers with 
viable plans to apply for them. JPY5MM per hotel, with a JPY50bn budget 
would go a long way to waking up the accommodation and guest support 
service sector.

4. Embed foreigners in government organizations (3 into JTA, 30 into JNTO)
Although McKinsey is right that there are few if no foreigners employed 
by the JTA and JNTO, and that such foreigners would provide at least a 
source of good planning ideas, I would posit that both the JTA and JNTO 
are hardcore bureaucracies that are unlikely to spend much time or 
energy listening to their foreign staff. Because of this, the people 
they'd hire would not be professional marketers/advisers, but instead be 
youngsters with native-language editing experience and of little use at 
a macro policy level. McKinsey seems to ignore the fact that the 
control-freak habits of our bureaucrats are the biggest blocking point 
for anything new to happen in Japan.

Let me give you a first-hand example of how bad the bureaucracy can be. 
My company, Japan Travel, has an office in Singapore. We spent 2 years 
and ill-afforded funds to create a network across the island nation and 
raise awareness of both us and Japan to intending travelers there. About 
6 months ago we managed to secure a deal to sponsor a nationwide 
promotion with a major restaurant chain, whereby in return for 
attractive travel prizes from us, we would invite contestants to become 
members of our travel club and send them a weekly newsletter. We 
negotiated terms, signed the contract, and all was looking good.

Then a few days later our Singapore restaurant partner dropped a 
bombshell on us. Apparently JNTO had sponsored the restaurant chain's 
cooks to travel to Japan to create their new recipes, and through their 
agent made an implied threat to the partner that they would pull that 
sponsorship if my company was allowed to proceed with the promotion as 
contracted. As a result we were kicked off the prime positions on major 
web pages (relegated to the bottom of the page or removed entirely) and 
worse still were prevented from including our community sign-ups in the 
contest. Why? Well, the JNTO agent (we never spoke to JNTO themselves) 
said that JNTO didn't want to be seen as "favoring" a Japanese company 
in this highly visible campaign. I was furious - JNTO didn't provide us 
with a cent of funding, we'd signed the contract before even learning 
that they were involved, and yet they imperiously killed our investment 
because they wanted to control public dialog and not have some unknown 
pipsqueak like us stealing attention.

With a mindset like this, how does McKinsey think a PPP would actually 
work? In my experience, Japan's tourism bureaucracy is singularly 
incapable of working alongside private companies without wanting 
complete control and gutting private initiatives. The irony is that 
since JNTO is itself a pipsqueak compared to the likes of TripAdvisor 
and Expedia, in terms of influencing the foreign market it is going to 
have to submit to and be mercilessly sucked dry of advertising funds by 
those majors, much to their commercial delight. Yep, it's a dog-eats-dog 
world out there...

5. Enhance online promotion.
The last action point by McKinsey involves the JTA and JNTO making 
returned tourists ambassadors of the country by supplying those people 
with both inspiration for places they have yet to see, and canned 
memories of the highlights they may have seen, on influential social 
media like Facebook. McKinsey helpfully suggests that the Japanese 
government could set itself a measurable KPI, such as increasing 
Facebook Likes from the current 400K to 5MM. This would be music to 
Dentsu's ears. The fact is, though, as the highly successful Hokkaido 
Likers campaign found out several years ago, while getting people to 
Like you on Facebook is a great way to disseminate a marketing message, 
it doesn't necessarily translate into a meaningful increase in sales.

Inside my own company I already know that Facebook is better than Google 
SEO in terms of producing results, but by far the best PR is to improve 
the value proposition of the destination in the first place This means 
following Maslow's Hierarchy of Needs. If western tourists are comparing 
Japan to Thailand for prices then you either make things cheaper or 
create more value for money. Going upmarket does work, as proven by the 
fact that tourists don't stop going to France because it costs more 
than, say, Spain. Instead, the experience in France is so compelling 
that tourists are willing to pay more to experience it. This is what I 
call the "Tokyo Disneyland Pricing" phenomenon. Just keep making the 
experience bigger and better and keep putting the prices up at the same 
time. The Japanese government should learn Destination Management and 
pricing from the pros - Oriental Land, the folks who run Tokyo 
Disneyland, and Disney itself.

Lastly we get to the real core issue - that of McKinsey's recommendation 
that the government forms a PPP. While this is a fine idea in principle, 
I can see many hurdles to having such an organization. The biggest of 
these I have just mentioned - entrenched bureaucratic thinking. But not 
far behind is another problem that McKinsey completely ignores: the fact 
that currently the Japanese Inbound Tourism sector is pretty much 
controlled by foreign entities, not Japanese ones.

By this I mean that foreign tourists are buying their airfares, hotel 
bookings, and other major pre-trip purchases (probably about 70% of 
their total trip spend) off international firms. So if there is to be a 
PPP, it is inconceivable to me that the Japanese government would allow 
it to be proportionately represented by the actual players - meaning 
foreigners. So this will set up a conflict of interests that the PPP was 
supposed to resolve. But hey, if a miracle occurs and we get to see 
American, Delta, HK Express, Air Asia, Airbnb, TripAdvisor, Expedia, 
Hilton, Mystays, JAL, ANA, Hyakuzen Renma, Jalan, JTB, KNT, Rakuten 
Travel, and Okura all sitting at the same table, THEN I agree that 
things could get very exciting indeed.

Secondly, the Japanese government will always pander to vested interests 
of large domestic corporations. Already their own procurement system is 
designed to block start-ups and outsiders by using a grading system and 
that gives almost all small companies a "D" rating - meaning untouchable 
- for government project bids, forcing innovative little guys to find an 
acceptable big-guy sponsor. This is how Kasumigaseki controls its 
relationships and restrains them to just a few players (in tourism: 
Dentsu, JTB, and Gurunavi). Therefore, while an industry-wide PPP sounds 
grand, the players who would be the biggest beneficiaries of such an 
alliance would also be some of the most clueless and 
foreigner-unfriendly entities in the sector. That doesn't sound like a 
winning formula to me.


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