Tourism Subsidies: Short-term Transactions vs Long-term Innovation

In the global tourism industry tourism subsidies go by lots of different names: incentive, rebate, subvention, supplement. But regardless of the label, at the end of the day the DMO or some other destination entity ends up writing a check to an event organizer or tour operator in order to bring their associated visitor economy business transactions to town.

Ask DMO/destination leaders about subsidies and, after exclaiming how they’re out of control, they resign themselves to the fact that they are now just part of doing business.

Meeting professionals will tell you that, given eternal budget pressure, if there are incentives available, they’ll take them. For larger congresses and citywide events the provision of an incentive is now basically table stakes even in a booming meeting industry economy. (I heard one international association leader publicly say that unless the venue is FREE, they won’t even consider the destination.)

poker-cash_3104004kBring DMO leaders and meeting professionals together to discuss event incentives and the room feels more like the finals of the World Series of Poker with $millions on the table surrounded by stoic players quietly watching and waiting to play their cards.

Regardless of how and why we got here…tourism subsidies are a reality and we have to deal with them. But consider this: economists will tell you that transactional subsidies rarely work over the long-term for most industries. These subsidies typically create industry inefficiencies and can stifle long-term innovation because free cash has a way of smoothing over all sorts of systemic shortcomings in favor of short-term transactions.

The question for DMOs is this: Is there a better approach than transactional subsidies to event organizers and tour operators to help the local tourism industry and community thrive?

I believe there is. Simply put, DMOs need to consider “industry innovation incentives”.

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The Singapore Tourism Board has made this a cornerstone strategy and has recently established two new tourism industry innovation funds to enhance their tourism industry performance:

Singapore Kickstart Fund: The fund supports the creation and test-bedding of innovative lifestyle concepts and events with strong tourism potential and scalability. This is with the aim of enhancing the vibrancy of Singapore as a tourist destination in areas such as the arts, entertainment, dining, sports and retail.”

Singapore Experience Step-Up Fund: “The S$10M fund aims to encourage businesses to develop new tourism experiences that will enhance overall visitor experience and satisfaction in Singapore… The Board is also calling for proposals for tour development and technology initiatives.”

The STB has chosen to provide innovation incentives/subsidies as a way to create long-term competitive success through destination innovation/product development as opposed to a reliance on subsidies to generate short-term marketplace transactions.

Sadly, the STB, an acknowledged trailblazer in the DMO world, remains an outlier in this approach. In Europe and North America, transactional subsidies still rule as a foundational strategy for many DMOs to achieve their stakeholder mandated short-term room-night performance metrics.

I believe investing in “innovation incentives” are the type of DMO product development “NEXTPractices” contemplated in DMAI’s DestinationNEXT study. But its even bigger than that. It’s also about industry leadership organizations investing in the innovation capital of their industry’s future.

Still, I marvel at today’s explosion of tourism industry innovation. But the interesting thing is that most of it is coming via entrepreneurs from “outside” the established tourism industry ecosystem. (E.g. airbnb founder Joe Chesky is a design school graduate who was running a minor league hockey team when he started airbnb.)  Igniting industry innovation it seems is someone else’s responsibility.

But it doesn’t have to be. Imagine what $25K or $50K could do in the hands of two or three local tourism entrepreneurs with big ideas as compared to a far away tour operator looking to supplement their advertising budget.

With tourism revenues (and their associated tax revenues) growing across the globe, now is a good time to break with convention and consider how redirecting subsidies from short-term transactions to long-term innovation is the ultimate form of destination marketing legacy and long-term competitive advantage.

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