MKT01760 Tourism in Australia for Global Financial Crises
Answer:
Position statement:
Australian Trade and Investment Commission, Government of Australia clearly mentions its aim to promote tourism in Australia. The central government clearly lays down its goals regarding National Tourism Policy and Strategy in its official website. It mentions that the Government of Australia aims to establish a strong and booming tourism, both international and domestic tourism. The body further mentions that in order to make Australia more attractive as a tourist destination, the government is taking several initiatives like reduction of taxes, red tapes’ and compliance related complexities (aph.gov.au 2018). The commission also mentions that it would collaborate with the tourism industry to promote Australian tourism in order to create demand in the international market. This would enable it to attract more tourists from the international market which would ultimately lead to high volume of revenue generation (austrade.gov.au 2018). The tourism industry is an important source of income for the country and earns up 3.1 percent of the GDP. However, the tourism goals of the Australian Government are increasing coming under the influence of issue of global financial crises or GFC (traveldailynews.com 2018). This outcome of the GFC would be falling in economic activities and generation of revenue. GFC as per Eugenio-Martin and Campos-Soria (2014) leads to ‘cut back’ of the amount tourists spend towards touring places. This is due to decrease in disposable income available with the tourists due to decrease in income. The paper would aim to propose a new tourism plan to tackle with the problem of GFC on one hand and promote Australian tourism on the other hand. It would aim to point sustainable measures which can be taken to tourism in Australia tide over this threat of GFC which is hitting all its sectors very badly.
Background context:
Reserve Bank of Australia in its bulletin of March Quarter 2015 shed light on the issues which have led to the emergence of global financial crises (rba.gov.au 2018). This bulletin would provide strong substratum to delve further into the factors responsible for GFC which has taken the tourism sector in Australian in its spate. The following are the causes of global financial crises:
Credit crunch in leading banks:
The leading banks in developed markets like the United States and the United Kingdom suffered from a severe cash crunch around the 2007. According to Alegre and Sard (2015) loans are assets for banks because they are able
to lend the financial capital in the market to borrowers in form of loans. The banks in return are able to earn immense amount of income in form of interests which boosts their financial stability. The banks in the leading global markets like the US pushed immense amount of money into the sectors like real-estate which led to the increase in the prices of properties. They lent money both to corporate and individuals. These borrowers were however not able to pay interests to the banks which created intense cash crunch within the banking sector as a result. This impaired to power of the banks to mobilise funds into the economies to boost other sectors. Their income fell owing to lowering of their lending power and were able to give investors high returns on their investments. The investors as a result lost trust in the profitability of the banks and withdrew their investments which weakened the banks’ financial position even more (Rey 2015).
Financial crises within the economies:
Bordo and Haubrich (2017) point out that the deficiency of financial resources in the banks resulted in financial crises within the developed economies like the UK and the US. This discussion can be strengthened by drawing from the discussion of Claessens and Van Horen (2015). They mention that banks play the tremendous role of collecting deposits from individual investors and corporate organisations. They make this money available to the industries which boosts their operations. The global industries engage in financial transactions worth billions and use the online methods of transaction using the payment gateways of banks. Thus, it can be inferred from the discussion that banks not only play significant role in mobilisation of funds within the global economy but also provides gateways for the movement of the funds. The weakening of the leading banks led to deficiency in the capital available to the industrial which hit their productivity. Thus, the global financial crises literally jeopardised the financial activities in the global economy.
Reduction in industrial output and fall in revenue generation:
Dungey and Gajurel (2015) points out that lack of available financial capital led to reduction in industrial output and fall in revenue generation. Alegre and Sard (2015) can be reiterated here. They mention that loans which banks led to the industrial sector boosts their operations and hence revenue generation. The robust operations of the global companies are dependent to a great extent on the business loans they borrow from banks. When the banks were not able to make the requisite loans available to the companies, their productivity automatically suffered. The outcome of this fall of productivity was that they were not able to produce goods to meet the market demand. This in turn resulted in the lower revenue generation in these companies. Thus it can be pointed out that the reduction in industrial output and fall in revenue generation contributed towards intensifying GFC.
Fall in GDP and USD value:
The lowering productivity hampered the gross domestic products of the major economies like the US and the value of their currency suffered.
This factor can be pointed out from the analysis of the 10 year USD value graph shown above. The graph clearly shows a sharp decline in the USD rates towards end of 2008 and beginning of 2009. It can further be pointed out that the fall in the USD rates kept on making resurgence almost every year. This frequent fall in exchange rates of USD weakened its position in the global currency markets. It can also be pointed out that the USA is the leading global economy and it provides financial assistance to several economies. The USA and the UK are home to several global companies (Claessens and Van Horen 2015). Thus, weakening of these economies weakened several other economies in the world. Thus, weakening of the American economy had its effect on the entire global leading to a breakdown in the global economic system.
Effect of GFC on Australian tourism:
GFC would have devastating impact on the tourism market in Australia which is worth $130 billion and account of 11 percent of Australian export (dfat.gov.au. 2018). It would be prudent to point out that the United States of America alone accounts for around 15 percent of the country’s inbound tourists. The United States of America is one of the main economic partners of Australia. They two countries collaborate in important areas like environment, tourism and economic development (usa.embassy.gov.au 2018). It can be pointed out from this analysis that breakdown of the American economy owing the GFC would also have direct effect on the Australian economy. Secondly, weakening of USD in the international market would mean that the Americans would be traveling less to Australia (nasdaq.com 2018). Thirdly, since the American economy supports economic development of several other economies, its weakening would also slow down the economic development of these dependent. This would result in less number of tourists from these countries heading towards Australia. This would mean the the Australian tourism industry and the Australian economy as a whole would receive lower amount of foreign currency reserve. This would result in the draining of the foreign currency reserve available with the Reserve Bank of Australia. The outcome of this weakening would be devaluation of AUD against international currencies (Goodfriend 2015). This would mean that Australian tourists would have to pay more to visit foreign countries. This factor coupled with the low amount of disposable income would discourage Australian tourists from travelling to foreign tourists destinations. This, it can be inferred from the discussion that GFC would hit the Australian tourism industry both outbound wise and inbound wise, thus lowering its revenue generation.
A statement of need:
The Australian tourism plan should aim to mitigate the impact of GFC and boost Australian tourism. The Australian tourism sector generates a whopping $ 13 billion revenue (dfat.gov.au. 2018). This means that the tourism would strengthen the entire economy of Australia as a whole. The plan would require support from stakeholders like government, financial institutions, investors, business organisations, suppliers, customers and the society as a whole. The National Tourism Planning should aim to strengthen and promote the tourism industry of Australia in the face of the GFC. The following are the main participants of the National Tourism Planning of Australia:
Government of Australia:
The Government of Australia would play the most important role in formation and implementation of National Tourism Planning. The government bodies both in the central and the state level need to collaborate to form the policies. The government bodies of Australia like the Department of Foreign Affairs and Trade form laws and policies pertaining to international tourism (dfat.gov.au 2018). The state governments form tourism laws and policies for their respective states. Australia has embassies in several countries like China and these countries in turn have their embassies in Australia. The embassies collaborate with each other in tourism related issues to ensure smooth operations in the tourism market.
International bodies and partner governments:
The international bodies like the European Union and partner governments would play very significant role in the National Tourism Plan of Australia. As pointed out that the majority of the revenue generation of the tourism sector in Australia is dependent on international tourism, inbound and outbound. This means that the international organisations play a very important role in the operations of the tourism market. For example, the Government of Australia and the European Union signed 2008 European Union-Australia Partnership Framework. The essence of the agreement is cooperation in areas like foreign policies and migration, all of which have significant role in the tourism sector (eeas.europa.eu. 2018). The country entered with free trade agreement with China, its largest tourism partner which aims to strengthen the economic sector of Australia including tourism (austrade.gov.au 2018). The Government of Australia entered a similar agreement with its present second important tourism partner, India (india.embassy.gov.au 2018). India and China together account for around half of the international tourism business in Australia (tra.gov.au 2018). The analysis of these agreements shows that the agreements not only allows Australia to form a strong National Tourism Planning but also allow it to tide over GFC. These nations like China and India are experiencing immense economic growth. These two countries are also emerging as sought after tourist destinations. This m aeeans that collaborating with these countries would enable Australia to diversify the losses its tourism sector suffered due to GFC in the US. It can be pointed out that in other words, the aims of the tourism plan would also be diversifying the loss it would incur due to financial crises (Rey 2015). Thus, involvement of the governments and international bodies would contribute towards making the tourism plan of Australia stronger and financially sustainable, thus immune to GFC to a certain extent.
Business organisations and suppliers:
Lee and Fernando (2015) point out that business organisations and supplier firms would play significant roles in the National Tourism Planning. The tourism sector in Australia involve several types of organisations like travel companies and hotels. The industry also involves hotels and suppliers of tickets. This means that the industry in order to form an effective tourism plan require to gain participation of these bodies as well. It can be pointed out that top tourism companies operate in multiple countries. They in fact generate immense revenue in foreign currencies which in turn contribute towards foreign currency reserve of Australia (Jones 2017). These companies have operations in emerging markets like Thailand, Malaysia and China. Thus, they can enable the Government of Australia attract tourists and revenue from these countries. This can help the country to diversity the loss it suffers by losing America and the UK due to GFC. Thus, it can be inferred that business organisations and suppliers would play a significant role towards the successful implementation of the National Tourism Plan of Australia.
Financial organisations:
Alegre and Sard (2015) can be reiterated to emphasise on the tremendously important roles financial organisations like banks would play in the National Tourism Plan of Australia. The banks provide loans to the tourism organisations to operate in the tourism market. It can also be pointed out that the tourism companies involve in immense amount of financial transactions which includes multi-currency transactions as well. The banks also provide gateways to the tourism companies to process their financial transactions. The companies deposit their earnings in the firm of foreign currencies with the banks which in turn deposit the same with the Reserve Bank of Australia (Goodfriend 2015). Korstanje and George (2015) in this regard point out that since foreign travel involves risks, the travel insurance companies play significant roles by providing travel insurances to international tourists. It can further be pointed out that availability of travel insurance enable customers to obtain insurance for their valuables and documents. Thus, presence of travel companies encourage international tourists to travel to Australia. Thus, it can be inferred that financial institutions play significant roles towards efficient implementation of National Tourism Plan in Australia.
Tourists (Customers):
It can pointed out that the tourists both international and domestic would play important roles in the efficient implementation of National Tourism Plan of Australia. Fang, Ye and Law (2016) point out that the tourists create demand for the tourism services. The inbound international tourists visit Australia and outbound Australian tourists visit foreign countries. The Australian government, tourism business organisations and the financial institutions are able to generate immense revenue by serving these tourists. The foreign tourists are the sources of foreign exchanges which contribute to the foreign exchange reserve of the country (Jones 2017). Thus, the tourists would be the actual drivers of the National Tourism Plan. They create demand for the tourism services, generate revenue for all the stakeholders involved in the tourism market of Australia including the government and also the sources of foreign reserve of the Government of Australia.
Scope of the proposed plan:
The scope of the proposed National Tourism Plan of Australia would have two main objectives. The first objective of the plan would promoting the tourism industry of Australia and attracting more international tourists. The countries targeted would include the already existing top tourism partners namely China and India. The tourism plan should in turn concentrate towards attracting tourists from other markets like Southeast Asian countries and Middle East countries (Claessens and Van Horen 2015). The second objective of the plan would be achieved from achievement of the first objective. The second objective would be diversification of the losses the Australian tourism industry suffers due to GFC and the extreme dependence on the American tourists in the early 2000s. The following are the proposed approaches which the Government of Australia can take to achieve National Tourism Plan:
Systems approach:
The systems approach takes into consideration the interactions between the different participants of the tourism plan. They include, government bodies, international bodies, business organisations, suppliers, financial institutions and customers.
Meta-problems approach:
The meta-problems approach deals with problems within the systems of an organisation. The approach deals with the challenges and emphasis on their efficient management.
The approach selected and justification:
The most appropriate approach in this case would be systems approach. This is because efficient implementation of the National Tourism Plan would require collaboration of all the stakeholders like governments, business organisations, suppliers and customers. Thus, it can be justified that systems approach is appropriate for National Tourism Planning. The main policy of National Tourism Plan would be formed by the Government of Australia and involve all the all participants mentioned (Claessens and Van Horen 2015).
Instruments:
The implementation of the National Tourism Plan of Australia would involve the following instruments:
|
Instruments |
Descriptions |
|
Advocacy |
Tourism plans, accreditation from international bodies and projects to boost tourism which can also involve multiple countries. |
|
Money and funds |
Subsidies from governments, Free trade policies and foreign exchanges |
|
Government actions |
Laws, policies and bilateral agreements |
|
Laws |
Laws, legislations etc. |
Proposed process:
The proposed process to develop a National Tourism Plan should involve consultation, implementation and review. The three mentioned components are described as below:
Consultation:
The Government of Australia `should consult all the participants while forming the planning. The government should consult the partner governments to gain knowledge about their tourism laws and policies. The Australian Government should also consult the international bodies like the EU. Then it should collate the knowledge gained from these bodies to form its National Tourism Plans. The government should also consult the business organisation to gain information about important tourism aspects like customer expectations and market trends.
Implementation:
The implementation process would involve enforcement of the National Tourism Policies through business organisations. The government should ensure that the business organisations and suppliers comply with the laws and do not exploit tourists (Rey 2015).
Review:
The government should review the National Tourism Plan in various terms./ First, it can compare between the number of inbound tourists from different countries and the income from them. Then, it can also compare between the foreign exchange earned from tourists of different countries. Thirdly it can compare between the number of domestic tourists and foreign tourists.
|
Year |
Inbound tourists |
Inbound tourists |
Inbound tourists | |||
|
China |
India |
USA | ||||
|
No of tourists |
Amount of foreign exchange earned |
No of tourists |
Amount of foreign exchange earned |
No of tourists |
Amount of foreign exchange earned | |
|
2019 | ||||||
|
2020 | ||||||
|
2021 | ||||||
|
2022 | ||||||
|
2023 | ||||||
For example, it can compare between outbound tourists from particular countries. A fall in the number of tourists would mean that the government need to promote its tourism in that particular country. The review can be carried annually to take appropriate actions.
Bibliography:
Alegre, J. and Sard, M., 2015. When demand drops and prices rise. Tourist packages in the Balearic Islands during the economic crisis. Tourism Management, 46, pp.375-385.
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Austrade.gov.au. 2018. austrade.gov.au. [online] Available at: https://www.austrade.gov.au/Australian/Tourism/Policy-and-Strategy [Accessed 12 Sep. 2018].
Bordo, M.D. and Haubrich, J.G., 2017. Deep recessions, fast recoveries, and financial crises: Evidence from the American record. Economic Inquiry, 55(1), pp.527-541.
Claessens, S. and Van Horen, N., 2015. The impact of the global financial crisis on banking globalization. IMF Economic Review, 63(4), pp.868-918.
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Dungey, M. and Gajurel, D., 2015. Contagion and banking crisis–International evidence for 2007–2009. Journal of Banking & Finance, 60, pp.271-283.
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Eugenio-Martin, J.L. and Campos-Soria, J.A., 2014. Economic crisis and tourism expenditure cutback decision. Annals of tourism Research, 44, pp.53-73.
Fang, B., Ye, Q. and Law, R., 2016. Effect of sharing economy on tourism industry employment. Annals of Tourism Research, 57(3), pp.264-267.
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Lee, H.K. and Fernando, Y., 2015. The antecedents and outcomes of the medical tourism supply chain. Tourism Management, 46, pp.148-157.
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Rey, H., 2015. Dilemma not trilemma: the global financial cycle and monetary policy independence (No. w21162). National Bureau of Economic Research.
Tra.gov.au. 2018. tra.gov.au. [online] Available at: https://www.tra.gov.au/ArticleDocuments/257/Tourism%20Forecasts.pdf.aspx?Embed=Y [Accessed 12 Sep. 2018].
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