The development and positioning of small- and medium-sized retail travel agencies in Hong Kong

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The development and positioning of small- and medium-sized retail travel agencies in Hong Kong


Author: Sun, Yuk Shing Edic
Title: The development and positioning of small- and medium-sized retail travel agencies in Hong Kong
Degree: DHTM
Year: 2014
Subject: Travel agents -- China -- Hong Kong
Hong Kong Polytechnic University -- Dissertations
Department: School of Hotel and Tourism Management
Pages: ix, 201 pages : illustrations ; 30 cm
Language: English
InnoPac Record:
Abstract: Travel agencies, particularly small- and medium-sized retail travel agencies, are significantly affected by the changing economic, technical, and social environments because their limited resources prevent them from responding to changes in a timely and flexible manner. The introduction of electronic distribution has facilitated a change in the airline commission structure and business environment of travel agencies. Buhalis (1998) and Tse (2003) suggested two strategic directions that travel agencies can follow. The first direction offers differentiation by designing high-quality, personalized travel arrangements for which consumers are willing to pay a premium. The second direction offers inexpensive products through standardization, high volume, and consolidation. Are small- and medium-sized travel agencies in Hong Kong able to adopt and benefit from these recommended strategies? Findings from observations of this study indicate that over 90% of travel agencies in Hong Kong are not only small- and medium-sized, but specifically, micro-sized, and operate with few members. The finding is significant as it is related to the strategic development of the small retail travel agencies. To examine the roles of small- and medium-sized travel agencies according to Porter's (1985) value chain concept, 11 in-depth interviews with owners/managers of small and medium enterprises (SMEs) were conducted. Results revealed that micro-sized agencies mainly contribute to primary activities by adding value to sales, marketing, and servicing activities. The limited resources of such agencies restrict them from fully benefiting by adopting either a cost leadership or differentiation strategy under Porter's (1985) generic strategy framework. However, their small and simple characteristic provides them with great flexibility to survive in the market by offering close, direct, and personal service with a human touch to their clients. Micro-sized agencies occupy a small designated segment. This specific segment can be fragmented or niche markets wherein large firms either cannot economically enter or are reluctant to enter. To minimize running cost, micro-sized agencies operate in small office spaces in second-tier and inexpensive commercial buildings. To work with travel consultants (TCs) at low costs, retail agencies implement a profit-sharing setup. This setup encourages TCs to be productive because their total remuneration package is based on their actual sales performance.
This study confirms that micro-sized retail agencies do not employ strategic plans for long-term development. To compete with multinational travel management companies (TMCs) and online travel agencies (OTAs), micro-sized retail agencies should establish a strategic relationship with traditional wholesale agencies for a synergetic effect. In such a relationship, micro-sized retail agencies can add value to sales, marketing, and servicing (primary activities) through market testing via personalized and attentive services (support activities). The clear division of labor between small- and medium-sized agencies and wholesalers strengthens the effectiveness and efficiency of the value system in the distribution network. The proposed setting does not only enhance the relationship between wholesale and micro-sized retail agencies but also benefits both agencies through the synergy effect in several areas, such as low running costs by sharing office space, office equipment, utilities, and administrative support. Agencies under such setting have greater buffer in pricing strategy, which offers them considerable advantages over competitors because the two layers are integrated or merged in the distribution system. The new setting can also capture the specific segment between the capability and commodity spectra. Penrose (1959) called these opportunities for small firms "interstices in the economy" because such productive opportunities are composed of interstices that are left open by large firms, which micro-sized agencies can take advantage of. Apart from the two strategic directions suggested by Buhalis (1998) and Tse (2003), the proposed setting also enables TMCs, OTAs, and wholesalers/micro-sized retailers to serve the travel market in three continuums under different structures and to satisfy the needs of the complex market environment. To enhance understanding of the travel agency business in Hong Kong, the present study suggests that the government of the Hong Kong Special Administrative Region should develop a specific definition for SMEs based on the business environment in Hong Kong. Without such definition, the term SME is too broad, and thus, cannot precisely describe and reflect the strategic directions and actual situation of local retail agencies.

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