International Tourism Demand: Switzerland vs. Cambodia Analysis

Tourism Demand: Definition and Scope

Tourism may be defined as "the sum of the phenomena and relationships arising from the interaction of tourists, business suppliers, host governments, and host communities in the process of attracting and hosting these tourists and other visitors" (McIntosh & Goeldner, 1990, p. 4).

From this definition, it is clear that the development of tourism in any area involves multiple players. Tourism is also made up of numerous activities, services, and industries that contribute to the tourist experience. These include the provision of transportation and accommodation, eating and drinking establishments, entertainment facilities, and retail shops, among others (McIntosh & Goeldner, 1990). Edgell (1990, p. 12) elaborates:

"The full scope of international travel and tourism, therefore, encompasses the output of segments of many industries. The travel 'industry' consumes the output of and creates a far-reaching base of wealth for feeder industries such as agriculture, fishing, food processing, brewing, construction, airports, automobiles, and furniture. In addition, tourist activities make use of the services of other industries such as insurance, credit cards, advertising, and data processing."

The tourism industry is therefore not a stand-alone industry, but one whose relations cut across industry, product, and service lines. This has significant implications when considering the impacts of tourism on a host country.

In much of the current literature, tourism development is usually linked to the activities of developing countries. However, Roche (1992, p. 566) observed that while the development of tourism has been viewed as a symbol of "westernization" and progress, particularly in developing countries, its "role as both a symbol and vehicle of economic and socio-cultural change and 'modernization' is potentially just as significant for the advanced industrial countries."

The key challenge in measuring tourism's impacts on an economy is that tourism is part of many different industries but comprises 100% of no single industry (Global Insights, 2003). Conventionally, tourism has been measured from the demand side, reflecting the amount of expenditure made by visitors to local areas. Other economic sectors have traditionally been measured from the supply side, looking at production inputs and outputs to determine their effect on the overall economy. This has made comparison difficult.

There have been a number of attempts to bring tourism measurement in line with other industry measurements internationally. The most common form of economic impact measurement is the input/output model (I/O), which looks only at the products and services produced by tourist sectors and how this production impacts the regional economy. It does not take into account tourism spending patterns, only the production of commodities by industries assigned to tourism sectors. The next step was the development of the Tourism Satellite Account (TSA), which incorporates demand in the form of tourism expenditures when assessing impacts. The final approach is computable general equilibrium modeling (CGE), including tourism policy and forecasting models. Each model is a step closer to comprehensively assessing the true impacts of tourism on local economies, and each is based on adjustments to previous models.

Edgell reports that in 1989, there were 403 million international tourist arrivals worldwide, and that international tourist receipts exceeded U.S. $208 billion. According to the World Tourism Organization's (WTO) Tourism Highlights 2006 Edition, the total number of worldwide international tourist arrivals in 2005 was 806 million. Given the wars, natural disasters, and terrorist activities that occurred between 1989 and 2005, this doubling in the scale of tourism is highly significant. Total international tourist receipts in 2005 tripled to U.S. $680 billion.

Looking at international tourist arrivals by region in 2005, Europe led with 441.5 million, followed by Asia and the Pacific (155.4 million), the Americas (133.5 million), the Middle East (39.1 million), and Africa (36.7 million). The ranking of international tourist receipts followed a similar pattern, with Europe receiving more than half (U.S. $348.2 billion) and Africa bringing up the rear with U.S. $21.5 billion. While these figures do not detail individual country totals, it is clear that the distribution of both arrivals and receipts is skewed among global regions.

Tourism is a complex phenomenon studied by disciplines including economics, psychology, sociology, marketing, geography, and political science (Lundberg, Krishnamoorthy, & Stavenga, 1995; Przeclawski, 1993). Consequently, each discipline has provided a partial rather than holistic view of the factors that influence tourism activities, including the choice of destinations and expenditure patterns (Song & Wong, 2003).

International Tourism Demand Estimation Methods

Depending on the objectives and circumstances of a study, various functional forms have been used in empirical international tourism demand research. Until the mid-1980s, most studies adopted a causal econometric approach represented by the single-equation method, either in a linear or power equation format (Barry & O'Hagan, 1972; Gray, 1966; Stronge & Redman, 1982).

As new economic theory and econometric methods developed, tourism researchers applied those techniques in an attempt to construct an international tourism demand model that would include the most appropriate variables and yield significant estimation results. Since the introduction of the Almost Ideal Demand System (AIDS) method (Deaton & Muellbauer, 1980b), tourism researchers and applied economists have adopted the AIDS method to analyze international tourism demand, particularly in regions where many competing destinations adjoin each other.

Over sixty percent of previous international tourism demand studies have adopted the number of international tourist visitations or arrivals as the measure of demand (Crouch, 1994). Both tourist arrivals and tourism expenditure, however, have their own limitations. Song and Witt (2000) noted that tourist visitation data are collected via frontier counts or registration at accommodation establishments, but this procedure does not account for day-trippers or visitors staying with friends and relatives, especially when the data rely on lodging facility records.

Demand Theory and Price Elasticity

In general, demand theory suggests that consumers respond to a price decline by buying more of a product. In the tourism industry, demand theoretically increases when trip costs decline (Loomis & Walsh, 1997). The actual degree of consumer responsiveness to a price change, however, can vary considerably depending on the product or destination. Economists measure how responsive consumers are to price changes by employing the concept of price elasticity. Loomis and Walsh (1997) suggested that price elasticity of demand is a convenient way of comparing how price changes affect demand. Essentially, price elasticity of demand is the ratio of two percentages: the percentage change in demand and the percentage change in price.

Based on the economic theory that luxury products have elastic price demand, one can assume that international tourism, being a luxury product, has price-sensitive demand. In the literature, however, results of price elasticity studies for international tourism demand are highly varied. Tourism demand appears to be price elastic for some international destinations and inelastic for others.

In 1995, a White House Conference on travel and tourism expressed concern about the difficulty of linking demand-side measurements of tourism with those of other economic sectors. The result was a partnership between the U.S. Department of Commerce and the travel and tourism industries, through which the Travel and Tourism Satellite Account was developed. This model provided the needed consistency with U.S. national economic accounts. In 1997, the Tourism Industries Office of the International Trade Administration, the U.S. Department of Commerce, and the Bureau of Economic Analysis formalized the Travel and Tourism Satellite Accounts (TTSA).

The Tourism Satellite Account (TSA) was revised by the World Tourism Organization and ratified by the United Nations in 2000. Since then, numerous TSAs have been developed both nationally and globally. At that time, Alaska, Delaware, South Carolina, Virginia, Hawaii, New Jersey, Rhode Island, and North Carolina had completed similar studies (Global Insights, 2005). The World Tourism Organization has also sanctioned numerous international studies, including TSAs for New Zealand, the United Kingdom, China, the Philippines, and the European Union.

Computable general equilibrium modeling (CGE) is an alternative modeling approach used to assess changes in economic factors and determine their impacts on the local economy. CGEs derive their strength from applications in tourism planning, policy analysis, and forecasting. They use data provided by TSAs but offer additional analytical instruments, such as measuring changes in demand due to price or regulatory changes within the industry. Whereas the I/O and TSA models rely on an initial stimulus traced through the economic system in a deterministic way, CGE models describe how economic agents react to changes in the economy and solve a system of equations simultaneously for all markets, production sectors, and economic agents (Blake, 2004).

Comparative Data Analysis: Switzerland and Cambodia

Switzerland

The World Economic Forum report has included Switzerland among the countries with the most attractive environments for developing tourism sites. Travel and tourism represents a viable economic development alternative because it injects money from outside sources into the local economy, primarily through visitor spending on locally produced goods and services. As an export-based industry, tourism generates regional income that contributes to the development of other services and amenities — such as housing and retail — used by local residents. Such industries are characterized as having a "competitive advantage."

During the five-year period studied, Switzerland received an average of 15,810 international arrivals annually. Statistics show a gradual but slow increase in tourist numbers, from 11,878 in 2005 to 13,747 in 2010 (Euromonitor, 2011). Considering arrivals by purpose, leisure visitors outnumbered business travelers: on average, 8,757 tourists visited for business annually during the last five years, while the average number of leisure tourists was approximately 19,946 per year.

Tourism Attraction Sales — Switzerland

Five years of data on tourism attraction sales show that sales increased from USD 1,250 million to USD 1,330 million, reflecting improvement in Switzerland's tourism industry. Among the attraction categories, Casinos generated the highest revenue (USD 909.7 million annually), followed by Theme/Amusement Parks (USD 117.5 million), Museums (USD 100.8 million), and National Parks (USD 85.2 million).

Table 1 — Tourism Attraction Sales 2005–2010 (Switzerland, USD millions)

Tourist Attractions: 1,252.9 (2005) | 1,347.3 (2006) | 1,434.4 (2007) | 1,454.1 (2008) | 1,330.6 (2009) | 1,360.4 (2010) | Average: 1,363.3
Art Galleries: 34.2 | 36.1 | 37.6 | 38.2 | 37.1 | 38.1 | Average: 36.9
Historic Buildings/Sites: 15.5 | 16.1 | 16.9 | 17.1 | 16.2 | 16.4 | Average: 16.4
Museums: 93.5 | 96.7 | 99.4 | — | — | — | Average: —
National Parks/Areas of Natural Beauty: 77.7 | 83.1 | 86.5 | 87.5 | 88.0 | 88.2 | Average: 85.2
Zoos/Aquariums: 73.0 | 76.8 | 82.4 | 84.3 | 83.6 | 93.7 | Average: 82.3
Other Tourist Attractions: 13.5 | 14.0 | 15.1 | 15.2 | 14.9 | 15.4 | Average: 14.7

Source: Travel and Tourism — Euromonitor from trade sources/national statistics.

Cambodia

Compared to Switzerland, Cambodia received significantly fewer international arrivals, averaging 2,290 annually. The five-year data (2005–2010) show that international business and leisure arrivals increased during this period: in 2005, the number of international arrivals was 1,421, rising to 2,386 in 2010 (Euromonitor, 2011).

Looking at arrivals by purpose of visit, an average of 2,125 individuals visited Cambodia for leisure while approximately 165 arrived for business purposes. By comparison, in Switzerland an average of 13,151 persons arrived for leisure and 2,659 visited for business (Euromonitor, 2011).

Tourism Attraction Sales — Cambodia

Six years of data on tourism attraction sales in Cambodia (2005–2010) indicate that sales increased from USD 49.3 million to USD 140 million, reflecting meaningful improvement in Cambodia's tourism industry over this period.

Conclusion

From the above discussion, it is evident that tourism has become one of the most prominent sectors for revenue generation, the promotion of culture, and overall development for host countries. To reap its full advantages, the tourism sector must be planned in accordance with demand as well as the latest trends in the industry.

Five years of data on tourism show that there is a considerable difference between Switzerland and Cambodia in terms of annual international arrivals, tourism attraction sales, and tourism expenditure. Switzerland is a developed country with well-established and well-maintained historical and cultural sites. Its transportation infrastructure, hotel accommodations, guided services, and other facilities are considerably more developed. The analysis also found that cultural tourism needs to be promoted, as it can contribute significantly to any country's GDP.

The paper was organized into five sections: an introduction to tourism demand and its determinants; tourism's relationship with business; tourism growth and demand in Switzerland and Cambodia; and suggestions and recommendations based on the research. Each section contributes to a broader understanding of how tourism functions as an economic and social force, and how it might be better managed to maximize benefits for host communities.

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