29 Dec 09
A new market opportunity in China
It seems that nowadays everybody is talking about the opportunity of online travel in China, and perhaps with good reason as according to a recent research by Phocuswright, “online [travel] distribution growth continues at an impressive rate of 19% in 2009, in spite of the overall downturn in travel”.
However, the solemn fact remains that few foreign travel outfits have actually been successful in China, especially online. Just ask Expedia about how its China acquisition eLong is doing… Despite being the country’s number two OTA, eLong is still struggling with profitability given its huge marketing expenses. To be fair, foreign web companies have a difficult stand in China in general, and Expedia is in good company with businesses like Google and eBay – both struggling to gain market share. Nonetheless, Expedia’s or rather Tripadvisor’s latest foray into China with its platform daodao.com may actually have a good shot of succeeding, but it’s still too early to tell.
Overall, when talking about travel in China, there are 3 main market segments:
- Inbound travel
- Domestic travel
- Outbound travel
Previously, all market segments were dominated by (formerly) state-owned travel agencies such as CTS or CITS, both due to regulations and learning-by-doing expertise. Inbound travel is probably the market area that is the most competitive with foreign companies such as Gray Line being quite successful here. However, because of high market fragmentation and low entry barriers, this is not a market with large opportunities to be reaped.
The domestic market, despite being fairly open, is dominated by local players given their expertise about local consumer behavior and their ability to adapt quickly to changing market conditions. Foreign companies have little competitive advantage here except for their financial clout (see Expedia) and technological edge (which is eroding quickly).
That leaves the outbound market, which has been the most regulated market segment due to fear of unlawful emigration. However, regulations have changed recently and now foreign companies are allowed to offer outbound services to Chinese customers without going through the hassle of finding a Chinese partner with a valid and costly license. Given Chinese traveler’s interest in traveling abroad, this is without doubt the new big opportunity for suppliers of destination activities around the world (think of a Chinese couple booking a Venice gondola ride). And, of course, we at GetYourGuide strive to be at the forefront of it all.
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Filed under Market intelligence.
Tagged with China, inbound travel, market data, outbound travel.
4 Comments
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19% is quite impressive, indeed. I particularly expect quite a boost in metasearch & reviews, as the marketplace is pretty cluttered at the moment.
Hi John,
My name is margi and I am writing you from Manila Philippines. I am starting a tavel agency that also operates our own custom tours of the Philippines. I am looking for a way to advertize our tour online for Chinese tourists to contact us directly. What can you suggest re: How Chinese tourists feel about booking online? I would appreciate your comments. Thanks. Margi
Hi Margi,
advertising to Chinese customers can be tricky. If you can read Mandarin, you can try putting up ads on Baidu, the Chinese search engine. Investing into Google ads even though they’re excellent value in China can be dangerous given Google’s current situation there.
As for booking online: Chinese people have only transitioned to booking online in the last 2-3 years. Before it was very inconvenient to pay online by credit card and it used to be common that you book online but would have your ticket delivered by a messenger who would also collect the money (kind of like food delivery). Nowadays, it’s more common, especially with white-collar worker. Nonetheless, the fact that Ctrip,com, the biggest OTA in China, also runs Asia’s largest call center should tell you something about the booking behaviour of Chinese consumers.
Tao
Interesting point of view.Thanks for the post. – I have been laid up with intentional flu. – Samuel Goldwyn 1882 – 1974