Importance of Tourism and its Economic Value

What makes tourism important and its role significant?

Kshitiz Thakur | New Delhi

Importance of tourism arises from the numerous benefits and advantages it brings to any host country. But real importance of tourism comes from its nature and how it is defined & structured. And this is what we will explain here. Tourism contributes towards complete growth and development of a country: one, by bringing numerous economic value & benefits; and, second, helping in build country's brand value, image & identity. Tourism industry goes beyond attractive destinations, to being an important economic growth contributor.

importance of tourism industry and its value and benefits

Tourism Industry Importance - An Overview

We will talk about and explain how tourism adds economic (and non-economic) value to a country and why does it have so much importance for every country. Why every country looks at tourism not just as attracting tourists but as a platform which supports economic growth and complete development. Why it is now gaining recognition and importance as an indicator towards and a barometer of not just growth & development but also social-economic factors.

To really understand the economic value & importance of tourism industry and how it plays such a significant role for countries, their economies and contributes towards wide scale growth and development as an industry we need to start with understanding what tourism is. Then we need to understand tourism industry and its composition. Only then can we truly understand and appreciate tourism's significance and the important role it plays.

Tourism is very interesting to understand as we explain later. It is an activity, it is an industry and an important growth driver for a country, its economy and also for its social progress and monitoring. Tourism no doubt brings with it tremendous economic value for a country. It touches and impacts several industries directly and many more indirectly through tourism spend. Tourism is one of the important sources of employment generation and foreign exchange earnings for a country. Due to all this tourism gains much more economic importance for any country.

Understanding what is Tourism

Definition of Tourism

The word tourism is all too familiar to all of us, we know what it means. But we may have to think little harder than this when asked how to define tourism. Or what is tourism? The two basic things we all know about it is that it is travelling; and visiting a new place. If you thought this then you summed it up quite alright.

This is what The World Tourism Organization defines tourism as, "Tourism comprises the activities of persons traveling to, and staying in places outside their usual environment for not more than one consecutive year for leisure, business and other purposes."

Let us elaborate this tourism definition a little bit now. First, tourism is travelling for the purposes of leisure, business or any other. Second, it is going to and staying in places which are outside of one's usual environment. The environment mentioned here means the place of usual stay of a tourist which is their home town, city or country.

The third important factor is the period, which means a considerable period of stay is needed but it should not be too long as that could be settling down or something similar in meaning but not tourism. The fourth thing we can add here is tourism is volunteer and self-motivated in nature and not a paid stay. And travel is the essential part of tourism.

So, in simple words tourism can be defined as travelling to a place which is different from your home city or country for various leisure or business purposes, and staying there for some considerable period of time at a length. It is travelling for some purpose and for stay which is not very long or permanent in nature.

What is Tourism Industry

Definition of Tourism as an Industry

We can understand tourism industry from the definition and description of tourism in the above section. We just have to take it forward and put it in perspective of an industry. Tourism is largely a services industry. Interestingly, tourism as an industry has no proper definition as an industry. This is because we cannot properly define tourism as an industry limited by a certain set of related economic activities. It has no predefined boundaries as an industry. And then most of the services consumed by tourists cannot be exclusively termed as being provided specifically for tourists like travel, hotel, food and lodging. So, when we try to define and structure tourism as an industry, we need to consider these limitations or should we rather say that tourism's unrestricted presence across various other industries.

The best way to describe, structure and define tourism industry is to look it through the definition and explanation of tourism.

Tourism definition above shows that it is a set of actions or activities i.e. travelling to a place, staying there and further local travelling. On this basis, we can define tourism industry as the consumption or use of all services and products by travelers throughout their tourism oriented travel trip. This is the demand side definition of tourism.

The supply side tourism definition will be like: Tourism industry is a group of industries providing services and products for various needs of tourists and travelers on leisure, business and other related tourism characterized travel trips. What the tourists spend on consumption of these services and products becomes the revenues of tourism industry.

The UNWTO (The World Tourism Organization of the United Nations) refers it as Tourism Sector which is made of several tourism focused industries that normally offer tourism characteristic products (and services). Taking this forward UNWTO defines 12 tourism industries that can be said to be serving the tourists in general. These industries are:

  1. Accommodation for visitors
  2. Food and beverage serving activities
  3. Railway passenger transport
  4. Road passenger transport
  5. Water passenger transport
  6. Air passenger transport
  7. Transport equipment rental
  8. Travel agencies and other reservation services activities
  9. Cultural activities
  10. Sports and recreational activities
  11. Retail trade of country-specific tourism characteristic goods
  12. Other country-specific tourism characteristic activities

Tourism industry is actually a large group of these industries which provide range of products and services aimed at serving tourism and the needs of travelers or visitors. This group or chain also indicates towards and brings us to the value chain of tourism industry.

Understanding the Importance of Tourism Industry

Why Tourism is Important

Tourism industry is important for the benefits it brings and due to its role as a commercial activity that creates demand and growth for many more industries. Tourism not only contributes towards more economic activities but also generates more employment, revenues and play a significant role in development.

Tourism first creates demand as an activity and then fulfills that demand as a group of industries.

Tourism is an individual activity of traveling and visiting places. It has created travelers and tourists who visit different tourist places and destinations. They want to and they travel to places and make those places more popular. This way they bring earning opportunities. They also encourage development of those places, the nearby places and in fact the whole country or region to facilitate growing tourist activities.

This is the unique aspect of tourism as this creates demand for economies on global scale and more importantly for each country and even goes deeper in creating demand and growth opportunities at city level and local level for various communities.

This makes tourists important for a country. Their role and significance increases as they are also one of the best brand ambassadors for any country. Tourists come from different countries and carry back image and perception about your country with them and share it with many more.

Tourism is also a commercial activity because the whole tourism process involves consumption of services and products. Hence tourists become highly important as they are growth drivers and brand ambassadors. This highlights the importance of tourists and significance of their roles for economies and countries.

Tourism adds to the consumer population of a country who for a short period of time do almost all of the things and consumes most of the service and products which a country's native population or consumers do. They are tourists. So, it just grows the overall demand in a country's economy on a sustainable basis.

The 5 Importance of Tourism

There are 5 importance of tourism industry. These are also the advantages of tourism and are actually its 5 basic characteristics tourism making it important at the global scale and for individual countries, their economies and societies. Due to these 5 factors only tourism creates demand, fulfills that demand, increases consumption, and brings growth and development to countries and economies.

  1. Tourism activity creates demand
  2. Tourism industry value chain meets & spreads demand across industries & boosts more economic activities
  3. Tourism requires country's wholesome development
  4. Motivates to reach Global Standards
  5. Tourism induces more consumption
5 importance and advantages of tourism industry

5 advantages of Tourism - Factors making tourism important & highlighting its economic value

  1. Tourism creates demand

What is an industry? Group of companies producing goods and services for consumption. This is the general definition of an industry. It means that there is a demand which the industries fulfill by providing goods for consumption. You will always read and hear that such and such industries witnessing growth due to increased demand. Have you ever heard of an industry actually creating the demand?

Tourism is one such industry or sector that creates demand first. This is due to it being an individual and commercial activity. Tourism as an activity is what creates the demand. The whole activity of tourism is basically a 3 step process of needs and demands, which we have listed below.

  1. Tourist attractions & travelling

    • There are two basic needs that fuel the demand for tourism. One is the curiosity, desire or need to visit and see different tourist places; know, experience & see natural wonders of places, cultures, etc. Second is to travel. Need for travelling is to satisfy the desire to see tourist places and could be due to the desire to just travel; spend leisure time or holidays in different places; etc.

    • All these needs create global and regional level demand for travel and transportation services and products. The demand for tour and travel booking and reservation industry is also significant here as they cater to the needs of tourists and travelers only.

  1. Local tourism and stay

    • Having arrived to the country and the city, now tourists need to start their main tourism activity. This creates their country and city specific need for stay & accommodation, food & beverages, local travelling & touring, and other recreational or fun activities. This is how tourists create country and local specific demand.

  1. Ancillary activities

    • The third point which we may look at is that tourism as an activity can go much beyond the basic tourism activities or consumption. When tourists go visiting places they might do so many other things like go shopping, visit other local places, eat out, buy retail products or many other services.

    • These are not specifically tourism activities yet, they add to the existing demand for many industries. This way tourists also produce or help in creating additional or induced demand for many other related and not so related industries.

  1. Tourism expenditure contributes towards industries and economy as a whole

Tourism Value Chain spreads tourist spent wider across many industries

Tourism as an industry fulfills the need and demand created by the tourism as an activity. Now, tourism, as mentioned in its definition, is not an industry as such rather a group of industries. This creates the value or supply chain of tourism industry. The 12 basic types of industries classified by UNWTO listed above are the tourism value chain industries

Tourism is made up of these industries and their products, and more. This is the value chain of tourism where different industries and players provide products and services to fulfill the demand and needs of tourists.

This tourism value chain is created on the basis of the three needs mentioned above which create demand for various different products and services. But what this value chain also means is that tourism creates demand for not just one or two industries but so many different industries all together. This makes it very important from point of view of economic growth as it provides revenues and other benefits like employment generation to these industries.

Tourism Industry Value Chain

First of the tourism specific demands which it creates is for travel and transportation industry to reach tourist destinations. This involves air, water, rail and road transportation industries. Secondly, it creates various demand for the hospitality industry which includes accommodation, food & beverages, resorts, etc. The third demand which is the main one and often supersedes these two is for bookings and reservation industry.

These industries, specifically transportation and hospitality, by themselves are huge and span across various sub industries, and therefore play important role in the economy of any country. These are also some of the very basic type of industries. This makes tourism very important.

The 2nd demand it creates is spread across the accommodation and hospitality industry, food & beverages industries, local travel & transportation services industry, destination management and recreational services.

Tourism boosts many more industries beyond its value chain

The 3rd demand is for the supportive and relatively undefined segment of demand. These could include services from local restaurants, local food joints and places to eat; entertainment places cinemas & theme parks or cultural or sports activities; and may even include retail products and services; shopping malls; or electronics & telecommunications products and services. Tourists are there to experience and enjoy so there is no definitive limit as to what they may do or buy additional to their planned tourism activities. This further strengthens the role and significance of tourism for a country and its economy.

All these services and their respective industries are part of tourism and collectively form the tourism industry value chain.

The 12 industries listed by UNWTO broadly define and describe tourism industry value chain. According to the typical process a tourist takes when going for a tour, we can re-arrange those 12 industries in the following way:

    Primary Activities:

  1. Travel agencies and other reservation services activities
  2. Railway passenger transport
  3. Road passenger transport
  4. Water passenger transport
  5. Air passenger transport
  6. Accommodation for visitors
  7. Food and beverage serving activities
  8. Transport equipment rental

    Secondary Activities:

  1. Cultural activities
  2. Sports and recreational activities
  3. Other country-specific tourism characteristic activities
  4. Retail trade of country-specific tourism characteristic goods

So, by its definition and composition tourism can be termed as a high value and high spending commercial activity. But what makes it more important is the wide spread of tourism revenues over several industries. This makes tourism contribute more widely and strongly to the economy. This way it results in more and wide employment generation, more industry revenues, much more induced spending by those industries, much contribution towards taxes, etc.

So, tourism creates a huge demand for different products and services for the whole economy. This sector consistently brings in new consumers for these industries as well.

  1. Tourism requires multi scale development

This is the reason which perhaps makes tourism much more important than any other industry or sector. This is perhaps stronger reason than the others discussed above. And we will use a global and very important tourism index to strengthen this point. Tourism actually helps in and contributes towards the overall development of a country and towards development and well-being of societies.

In order to consistently attract new tourists, to establish a strong inbound tourism market and to sustain tourism growth a country needs to do lot of things. Tourism growth for a country is somewhere synonym to overall growth and development of that country and to the safety, healthiness, openness of the country as a society. A country also needs to create improved infrastructure for its citizens and tourists alike.

Let us look at this from a more factual and proved point of view. For years World Economic Forum (WEF) has been monitoring tourism competitiveness of countries and their growth and progress towards being a competitive inbound tourism market. They do this by evaluating countries across parameters which they have created and they monitor it through the Travel & Tourism Competitiveness Index (TTCI). According to WEF the TTCI index measures "the set of factors and policies that enable the sustainable development of the travel and tourism sector, which in turn, contributes to the development and competitiveness of a country".

Measure of importance of tourism by WEF's TTCI IndexSource: TTC Report 2017

The 2017 TTC index, which covered 136 countries and their economies for its report, measures their competitiveness on three key areas which are, regulatory framework; business environment and infrastructure; and human, cultural, and natural resources. These 3 key sub-indexes collectively measure competitiveness of each country on 14 key parameters. These are, policy rules and regulations; air transport infrastructure; ground transport infrastructure; tourism infrastructure; price competitiveness in the T&T industry; ICT infrastructure; prioritization of travel and tourism; human resources; safety and security; health and hygiene; environmental sustainability; affinity for travel and tourism; natural resources; and cultural resources.

Looking at the index and why it measures a country's competitiveness on so many areas to judge its tourism competitiveness we can surely say that Tourism effects, and requires contribution from, lot many industries beyond its value chain, whole lot of different sections of a country, and its overall society and political environment as well.

Hence, only a complete growth and development of a country across industries, society, political landscape, safety & security, etc. can bring a growth in inbound tourism. So, a country seeking growth in tourism has to provide for many things on all these fronts.

  1. Brings global standards in infrastructure and services

The other important observation about the travel and tourism sector which we want to highlight is that the tourists, who are the consumers of this sector, are global and act accordingly when it comes to perception and consumption of tourism and related services as a whole. This observation or characteristic of this industry is what further strengthens its influence over the above discussed range of industries.

Let us first answer why a tourism consumer is truly global. Because he or she is a traveler, meaning, they travel to various places for business and leisure. What does this imply? This has a critical implication, among other things, affecting from both demand and supply sides. Looking from the demand side this implies that travelers (the consumers) have consumed almost the same set or bundle of services at various destinations and event venues globally, and so at the point of consuming these services, presently or in future, they would compare these at a global level. This demand side implication will prompt the country or region looking to attract tourists to induce quality and global standards in the infrastructure and tourism services they are providing.

The supply side of the same implication is that these services are available at various countries and places (which are event venues and destinations) and they can choose it from anywhere. So, the traveler evaluates and compares the infrastructure and services related to tourism, at any given point of time, at a global level. This prompts service providers to be more competitive and add more value to their services and bring innovation and ideas.

Hence, the provider of the infrastructure and services will have to adhere to global standards and not just be content with only serving their consumers.

And for their own good, a country needs to create and provide modern and better facilities and services to make tourists consume more and increase tourism revenues or the tourism services export.

Let us add here, in case of business tourism and MICE tourism, the expectations; the standards or parameters; the services and the infrastructure; and the quality levels, all are little high. Hence, tourism industry, apart from being so wide, also has wide and deep impacts, not only on the industries it involves but also on other several industries, the infrastructure and economy of country, and also its social, cultural and political environment. And yes, your consumer group is international. Hence, the standards or parameters of evaluation are international. Therefore your service level to your consumer group needs to be of international level.

  1. Tourism means consumption

We stated in the first point that tourism creates demand, i.e. adding number of consumers. Now how much they consume and whether they do or not is entirely different. But tourism, due to its very nature, encourages consumption of services and products due to two reasons. The first reason is that tourism as a term comprises of set of activities involving use of services and products. This we discuss in out next point on value chain of tourism industry. The second reason is that tourism, to much extent, means enjoyment, exploring and experience a place to its full extent, and also to kind of experimenting and doing new things.

We all want to thoroughly enjoy our tourism time. So, apart from the basic and necessary expenditure tourists may be motivated to do many other activities and consume and spend on other things to make their travel time more enjoyable and memorable one. Like if you have planned to travel to few destinations then you may also take some time off to visit some nearby local places. You may hire some local transport and just visit local markets, do some shopping to buy local things, taste their local food (famous or which represents their culture, etc.). So by its very nature and the state you are in while travelling makes a visitor consume and spend.

Tourism Value & Benefits - Conclusion

To strengthen the true role, importance and significance of tourism industry as a whole, we would like to quote Mr. Mutyandasvika, general manager of The Elephant Hills resort as telling The Sunday News of Zimbabwe in an interview, that hosting conferences and meetings significantly contributed to the hotel revenues but MICE business in general is helping in the branding of that place's destination, employment creation and infrastructure development.

Tourism brings people from everywhere in the world. It is connecting places with people; places with places; and people with people. This sector brings the developed, growing, developing and emerging economies, all on single platform, thus driving them to become competitive globally and improve on their level of services, at least to be tourism competitive. It can even drive countries to have a stable and sound political environment and also have a more developed society.

Tourism brings many benefits, including but not limited to the following few:

  1. Growth and boost in Economic activities
  2. Boost wide scale industry revenues
  3. Infrastructure development
  4. Country's improved brand image
  5. Source of foreign exchange earnings
  6. Source of employment generation
  7. Connectivity and growth to local, regional and even the remotest areas
  8. Global connectivity
  9. Improvement in infrastructure and living standards
  10. Cultural growth
  11. Betterment of society
  12. Introduction of new technologies

Thus travel and tourism can give boost to the economy in terms of consumer spending, job creation and more. For developing and emerging countries tourism can provide a great push to the economy.

This sector is driving growth in industries, in fact pushing those industries and economies to do better. This uniqueness of travel and tourism and its impact can be said to be more pronounced in the business travel segment. Thus, tourism as a while and within it MICE or business events are, or could be, a significant factor in developing world-class infrastructure and level of services.

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