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Economic Analysis of the Tourism Industry in Hong Kong

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Faculty of Business and Law Group Assignment Authentication Declaration Unit Code : MEE 781 Economics for Managers Unit Coordinator : David Neath Assignment No. : Two (2) Due Date : 28 October 2002 Group No. : Five (5) Student Names: CHAN, Shuk Ning Irene Student I. D.: 201061022 CHEUK, Chris Chi Ho Student I. D.: 100169977 KELSEY, Peter Wayne Student I. D.: 201135295 NG, Lily Student I. D.: 100328934 NGAI, Ka Mei Student I. D.: 97659508 TAY, Mui Lim Serene Student I. D.: 100167885 "We hereby declare that the material submitted in this assignment is our own work except where specifically acknowledged and referenced." MEE 781 Economics For Managers Assignment 2 Group 05 CHAN, Shuk Ning Irene CHEUK, Chris Chi Ho KELSEY, Peter Wayne NG, Lily NGAI, Ka Mei TAY, Mui Lim Serene Economic Analysis of the Tourism Industry in Hong Kong Executive Summary Tourism is a crucial industry for Hong Kong. The Government has worked together with industry players to enable Hong Kong to preserve its competitive edge as one of the most popular tourist destinations and venue for hosting international conferences. This includes developing multi-faceted tourist attractions, relaxing of controls over entry of visitors and upgrading service quality and standards in Hong Kong. Despite the worldwide economic downturn, this industry has not been adversely affected and continued to record an increasing number of tourist arrivals in the last 5 years. This report will analyse the general business and economic environment of the tourism industry in Hong Kong, evaluate and make recommendations as to the investment potential of this industry. This analysis was undertaken by the consultancy team of Professional Company Limited at the request of Investor Company Limited in October 2002. TABLE OF CONENTS INTRODUCTION 5 SCOPE AND METHODOLOGY 5 DISCUSSION AND ANALYSIS 6 NATURE AND OUTLINE OF THE TOURISM INDUSTRY 6 THE GENERAL BUSINESS AND ECONOMIC ENVIRONMENT 6 OVERALL MARKET TRENDS 7 TRENDS IN PRICES 8 TRENDS IN FIRM NUMBERS 9 TRENDS IN EMPLOYMENT 10 TRENDS IN INVESTMENT AND PROFITABILITY ...read more.


However, at the same time, this has caused a decrease in the demand for inbound travel both for leisure and business tourists (except for tourists from Mainland China as HK is more expensive than most places in the region. (4) Preference and Tastes Prior to 1997/98, people generally prefer long-haul trips like the 'Luxury Europe Trip with Five-Star Hotel Accommodation'. However, with the decline in the willingness and ability to spend (result of the economic slowdown), more people preferred making cheaper, shorter trips to the neighbouring Asian countries, Mainland China or even local getaway day trips within HK. As the population becomes more educated both in HK and other countries, the demand for travel services (both inbound and outbound) increases with the growing appreciation for leisure activities as a getaway from the stress. (5) Prices of Related Goods Related or complementary goods include airport taxes, travel insurance and visa application fees. The prices of these goods will affect the demand for travel services. If the prices of these goods fall, the demand for travel services will increase, and vice versa. If the price of substitutes (mainly other forms of local entertainment activities like movies, shopping, dining in restaurants) increases, this will increase the demand for travel services. Most cinemas and restaurants have been introducing 50% discounts on movies tickets, food and beverages during weekends to increase the demand of these goods and services. With the general reduction in prices of these alternative entertainment activities, the demand for outbound travel will decrease. (6) Convenience to Customers Many travel agencies have introduced their own web sites that allow online enquiry of the prices and details of tour packages, and some even offered online purchase of air-tickets and booking of travel services. These on-line services offer greater convenience to the customers and help to increases the demand for travel services. Especially when the travel agency has built up a reputation for offering good value for money, the customers are more willing to make purchases over the Internet. ...read more.


The Travel Agents Ordinance in HK provides the legislative framework for the regulation and control of travel agents and for the operation of the Travel Industry Compensation Fund. In order to improve the quality of services of travel agents and enhance the reputation of HK as a tourist-friendly city, any person carrying on business as a travel agent in HK is required to obtain a Travel Agent's Licence from the Registrar of Travel Agents. The licensing requirements include ensuring that the management meets the "fit and proper" criteria, having suitable premises and compulsory membership in TIC. These requirements are not extremely stringent reflecting relatively low barriers to entry for this industry. Government Support There are increasing numbers of social and cultural events organised by government agencies and industry players. This includes Annual Arts Festivals, Touring Theatre and Music Festivals. With the abolition of the quota system by the government, the increase in the number of Mainland travel agencies organizing inbound tours to HK and the extension of the multiple-entry business visa validity period for Mainland travelers, there is a boost in the number of Mainland visitors to HK. Conclusion From the above, it appears that the market outlook for the tourism industry in HK is extremely positive with a great potential for further growth and profitability in the next 20 to 30 years. Moreover, in HK, the market drives the economy, and the results have borne out our free-market philosophy. Behind the scenes, the government has worked hard to ensure a strong, business-friendly environment, providing an essential support framework to enable the private sectors to prosper. Investors in HK will find a wide range of support services to promote the development and enhance the competitiveness of their business. With the strong governmental support and the relatively low barriers of entry, it is recommended that Investor Company Limited should strongly consider investing in this industry. ...read more.

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