Importance of Tourism and its Economic Value

Why tourism industry is important?

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 and its Importance

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 all the benefits and advantages it brings for any country, we need to start with understanding what is tourism and then know what is tourism as an industry and what all it comprises. Before going on with all the explaining and definitions of tourism and of the industry let us briefly look at what it is.

Tourism basically implies travelling to a new place for leisure or business purposes, staying there for a significant yet limited period of time and coming back. This involves various activities on behalf of an individual or group of individuals. Further, these activities involve consuming of different services and products. All these activities along with the services and products used is tourism industry. Whatever a tourist pays for during this whole activity creates tourism industry revenues.

Tourism brings with it tremendous economic value for a country. This is primarily because it involves a large number of products and services which benefit from inbound tourism. This is the most unique aspect of tourism where it touches and impacts several industries directly and many more indirectly through tourism spend. This makes this industry a lot more important than other industries. Tourism is one of the important sources of employment generation and foreign exchange earnings for a country. So we can say tourism gains much more economic importance for any country.

Let us now go into details and understand tourism, its industry & value chain and its importance and the various benefits and advantages it brings with it.

Understanding what is Tourism

Definition of Tourism

The word tourism is all too familiar to all of us, we know what it means. Just the mention of this name would bring so many images of beautiful places, natures, beaches, cities, travel and fun. But we may have to think little hard 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 or a place away from your home. 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. How this definition relates to what we thought about it. First, tourism is travelling for the purposes of leisure, business or any other. Broadly the objective can be summed as either leisure or business. 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. In case of domestic tourism the environment would be their home town or city and in case of international tourism it would be the country they live in.

The third important factor is the period. If one goes to another city or country and stays there for a longer period then it does not count as 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.

Tourism although involves travelling but is more than just travelling as the definitions clarified. We would like to point out few of our own differences between tourism and travel which will bring little more clarity about tourism.

    Tourism means:

  • Travel which is not a routine trip of any kind
  • Travel which not just involves local transportation
  • Travel which usually uses more than local and inter city or inter country transportation
  • Travel which usually involves a stay
  • Travel which is volunteer totally or at least partially
  • Travel which ends at the source of travel which is home place

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 Importance of Tourism

Why Tourism is Important

Tourism is one industry or sector which impacts nearly every major section of an economy and country. It results in large scale employment generation, pushes for infrastructure development, is a major contributor to GDP of a country, brings foreign exchange, facilitates and boosts trade, and what not. But these are actually the benefits of tourism, which we will discuss next.

What we want to explain here are 4 very basic reasons which are often not looked at. These are the unique and major reasons for importance of tourism which arises from and due to its nature, composition and what it brings. The way tourism is defined, what it includes or covers and what all activities it involves and the nature and purpose of those activities define, describe and lay down why and how important tourism is for countries.

4 Reasons for Importance of Tourism

  1. Tourism creates demand

What tourism does in simple terms is add to consuming population of any country. All the population of any country collectively are consumers as we consume various products and services. Our expenditure on consumption is the revenue for industries and makes up for the GDP of a country. When population increases so does consumption. The inbound tourists consume different services and products when they travel around the country. This way they create additional demand which simply means adding number of consumers.

A simple way of stressing upon the importance and economic value of tourism industry for a country is saying:

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. So, it just grows the overall demand in a country's economy on a sustainable basis.

  1. Tourism means consumption

We stated above 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.

  1. Tourism Value Chain spreads tourist spent wider across many industries

Tourism means consumption of some of the basic or necessary services and products in order to make the activity as tourism. It also includes some supporting and to some extent optional consumption. The industries providing services and products across all these points collectively form what is called as the tourism value chain.

By its very definition tourism means going to a place and staying there for some time. By its very nature and composition tourism involves wide scale consumption and expenditure. This means use of air, water, land transport; accommodation services like hotels and lodging; and to some extent food services. This is what we call as the primary tourism value chain. This comprises of transport industries and services, accommodation industries and their services, and food and beverages industries and its range of services & products. These are also called as and covered under hospitality industry.

Tourism Industry Value Chain

Tourism boosts many more industries beyond its value chain

Then there are other services or industries which are involved in tourism and form the extended value chain of tourism. These we term as supporting and optional services. These industries include travel agency services for travel planning, booking, etc.; local restaurants, food joints and places to eat; local transport rental services; cultural activities; recreational activities; destinations and places to visit; retail services. Well, travel agency services are in a way the first point of tourism planning. But since people can also do ticket bookings and hotel reservations on their own therefore we have included these under supporting.

It usually also covers, but is difficult to quantify, other services, outside of its value chain, which tourists can use like online food delivery and food outlets, takeaways, food chains, local food vendors, etc.; entertainment places cinemas, parks, etc.; electronics & telecommunications products and services; shopping malls and other retail places; and few more we believe.

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.

So, directly or indirectly tourism also brings:

  • Improvement of living standards
  • Cultural growth
  • Betterment of society
  • Global connectivity
  • Introduction of new technologies

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 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.

Tourism Value in Conclusion

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.

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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