Chapter Preparing tourism businesses for the digital future Abstract

Value chains are vertical linkages in the production-consumption process that describe how private sector firms in collaboration with government and civil society receive or access resources as inputs, add value through various processes (e.g. planning, development, financing, marketing, distribution, pricing, positioning) and sell the resulting tourism products, services and experiences.
Global value ecosystems refer to a highly distributed, fluid and dynamic set of technology-mediated relationships and exchanges between those that create, consume and share value in tourism. This includes interactions between living and non-living entities (e.g. consumers, producers, governments, communities, nature, digital technologies and infrastructures).
Despite the uneven uptake of digital technologies by tourism SMEs, the digital transformation has, and will continue to have, a profound impact on tourism. The digital economy is transforming the process of communicating with tourists and marketing tourism services, and opening up new and highly creative ways of delivering tourism services and enhancing the visitor experience. It is changing the way work is organised and services delivered, and also presents opportunities to take advantage of digital advancements to handle transactions, capture and process information and data on tourism supply and demand, and improve and connect operations along tourism value chains and ecosystems.
The World Economic Forum (WEF, 2017), has estimated that in the decade to 2025, digitalisation will create up to USD 305 billion of additional value for the tourism sector alone through increased profitability, while around USD 100 billion of value generated in the sector will transfer from traditional players to new digital competitors with innovative business models and value-producing capabilities. The digital transformation is also forecast to generate benefits valued at USD 700 billion for customers and wider society, through reduced environmental footprint, improved safety and security, and cost and time savings for consumers.
On the demand side, this will be driven in part by the consumption habits of Millennials (born in the early-1980s to mid-1990s) and Generation Z (born in the late-1990s to early-2010s), who along with other emerging generations will comprise the bulk of domestic and international tourists by 2040 (OECD, 2018a). Gen Z and the Millennials are digital natives and having grown up with quick and direct access to information enabled by digital technology, the way they use and what they expect from technology will continue to influence how tourism services are delivered. Trends include: increased use of online sources and mobile platforms to source information in the planning stage (e.g. websites, social media), combined with decreasing use of offline sources (e.g. visitor information centres, print media, hotel concierge); a propensity to stay online/connected in the destination to search and explore, share experiences and get updates in real time; and an increase in the use of e-commerce payment methods over the use of cash. Furthermore, Millennials and Gen Z have embraced sharing over ownership more than previous generations, and as such have higher levels of engagement in the sharing economy (accommodation sharing, ride sharing, currency swap and crowdsourcing).
While many of the challenges and opportunities for tourism SMEs are similar as those for SMEs more generally, tourism is a unique proposition for several reasons. For example, the tourism sector is highly fragmented and heterogeneous and covers a wide range of industries with many demonstrating a dual structure characterised by a very small group of large businesses combined with a large group of SME/micro-businesses. The sector is also ‘information intensive’, which means many tourism services are ripe for digitalisation. Understanding digital uptake by tourism SMEs is particularly relevant as around 85% of those enterprises with a major role in the delivery of tourism services in OECD countries are SMEs (e.g. accommodation and food services, travel agencies, tour operators), compared to roughly two-thirds for the wider economy. Although they constitute the majority of tourism businesses, SMEs and micro-companies face more difficulties to vertically integrate than larger companies (such as hotel chains in the accommodation sub-sector) and to reach potential customers.
Another particularity of the tourism sector is that tourism enterprises operate in a global market place while delivering at the local level, as part of a unique tourism destination offer. The geographical distribution of businesses is limited only by the attractiveness and accessibility of destinations. Digital businesses such as online travel agents and accommodation platforms, have transformed tourism by connecting tourism products and services with customers anywhere in the world in real time, as well as significantly increasing market visibility for tourism SMEs. As a result, many tourism SMEs are at least partly dependent on larger intermediaries, while at the same time being under pressure from increasing consumer demands for quality and efficiency (e.g. the best service possible at the lowest price possible).
As is the case for many sectors, lifestyle and micro-enterprises in the tourism sector have a reputation for being focused on business survival, and being risk averse with limited appetite for innovation, technology pervades through most aspects of modern tourism businesses. Technological developments are progressively changing tourism value chains and the position of SMEs within them, enabling business models to evolve, and offering new ways for SMEs to collaborate and network with potential partners (e.g. to present seamless integrated visitor experiences). Tourism value chains have transformed into global value ecosystems as consumers can now have direct access to the businesses in charge of delivering the final tourism good, service or experience (Box 2.1). Informed by digitally derived data, tourism products and services are evolving toward hyper-personalisation and customisation (Skift and Adobe, 2018; Visa, 2017).
Automation and robotics are a key trend in tourism with applications developed for physical tourism businesses as well as online. For instance, many tasks that were once handled by humans now being taken over by robots or automated systems such as chatbots. These have fallen into widespread use across the industry and are designed to help people find and book tours, transport and accommodation by asking a set of questions. More sophisticated examples might include the robot “staff” used by some hotels to run the reception desk or even serve food and drinks. While robots have advanced in their abilities to provide products and services, industry, government and consumers have not entirely figured out how to integrate these into the economy (Ivanov and Webster, 2019).
The development and adoption of new technologies is expected to continue at pace in the future, driven by the cumulative nature and exponential rate of technological change, the convergence of technologies into new combinations, dramatic reductions in costs, the emergence of new digital business models and declining entry costs (UNCTAD, 2018). Previous OECD work on enabling technologies shaping the future of tourism highlighted the need to develop a better understanding of the challenges and opportunities arising from these technological advancements to inform the development of appropriate policy responses (OECD, 2018a; OECD, 2019a).
The shift to a digital economy offers opportunities for tourism enterprises of all sizes including access new markets and bringing new tourism services to consumers globally, and improving competitiveness, performance and productivity. For SMEs in particular, it can improve access to market intelligence, enable businesses to achieve scale without mass, and facilitate access to global markets and knowledge networks at relatively low cost (OECD, 2017b).
However, digitalisation of SMEs has been identified as a particular challenge in relation to productivity in micro and small business that are often resource-constrained (European Commission, 2017; OECD, 2019a). OECD data shows that while the gaps in the uptake of digital technologies between large and small firms have narrowed in most countries in terms of simple connectivity and web presence, these gaps remain more important for more advanced technologies.
In an effort to help bridge this gap, the European Commission developed the Digital Tourism Network, an informal and flexible forum designed to bring relevant public and private stakeholders around the table to discuss common challenges and opportunities associated with the EU tourism industry's digital transformation, and exchange good practices for boosting the innovation capacity of tourism entrepreneurs, especially SMEs. With the help of the Digital Tourism Network, the European Commission conducted a targeted stakeholder consultation on tourism and digitalisation in 2016. A 2018 report of findings delivers recommendations on enhancing the uptake of digitalisation of tourism in the EU. As a follow-up to this work, the Digital Tourism Network focuses on the issues of higher–level digitalisation of tourism in the EU, through stakeholder discussions and events.
Realising the benefits from the digital revolution will depend on a combination of investment in digital infrastructure, as well as the skills development of human capital and innovation in business models and processes (OECD, 2019d). Such investment will be key to opening up the opportunities from the digital transition for tourism SMEs. This requires investment in the skills and technical inputs needed to facilitate the adoption and effective use of new technologies, but also in organisational change, process innovation and new business models, otherwise referred to as ‘knowledge-based assets’ (OECD, 2018c). However, in some countries (e.g. Denmark) widening gaps have been identified in the investment of tourism enterprises in digital technologies compared to other sectors.
While the extent and implications of the digital transformation in tourism are difficult to assess in the absence of comprehensive data, available evidence suggests that the adoption of digital technologies in the sector has been inconsistent, and there remains much that governments can do to support the digital transition. Data and findings from other sectors also point to potential gains relevant for tourism: data-driven management enhances decision-making and increases productivity; technology, and particularly the interoperability of systems, can significantly reduce costs; and automation increases the efficient of sales processes (OECD, 2017a; Brynjolfsson et al., 2011).
Policy will have a significant impact on the pace of transformation and the extent to which positive social, economic and environmental benefits will be able to scale (WEF, 2019). Facilitating the adoption of new technologies in tourism SMEs, empowering tourism SMEs to keep pace with evolving consumer demands, and supporting the digitalisation of marketing channels and business models and processes in tourism SMEs are important priorities for the sector.
Yet, minimal barriers to entry and low marginal costs of participating in the digital economy mean that tourism SMEs are able to participate and take advantage of innovation occurring at the ecosystem level (European Commission, 2017; OECD, 2017a). Governments have an important role in shaping the conditions for the digital transformation of tourism SMEs, as well as supporting these businesses to adopt and adapt to digitally-enhanced business models and integrate into digital value ecosystems. An understanding of these drivers and trends, and the challenges for tourism SMEs in particular, provides the foundation for developing appropriate and effective policy responses. A key challenge for policy makers is how to unlock these opportunities while ensuring that no one is left behind.