Quality is key, not quantity

Vietnam’s tourism sector is looking to cultivate a welcoming smile

Vietnam is making big headlines: fastest growing economy in the region, third in the world, a speedy recovery from the financial crisis, rising gross domestic product levels, open door investor policies, bouncing back tourism figures, and the good news goes on and on.

But some recent news was not that great though: a mediocre position in the global corruption ranking, snail-pace administrative and legal reforms and remaining bottlenecks in the country’s infrastructure. But nevertheless, clearly, Vietnam has left behind the shadows of the past and is entering into the limelight of the world’s stage.

Who would have thought of Vietnam as Southeast Asia’s economic locomotive, as a consumer market and investor’s alternative 20 years ago? China and India, yes, but Vietnam? The country continues to impress with an average economic growth of six to eight percent annually.

And, following reform policies and WTO entry in 2007, the country’s integration into the global economy and financial markets is not yet complete, making it less vulnerable to international turmoil.

Vietnam has had its share though: Increased inflation, rising consumer and investment costs, trade deficits. Talking about tourism, the country received a total of 3,772,359 international visitors in 2009, suffering a drop of 10.9 per cent compared to 2008.

Most luxury hotels experienced a decrease in Revenue per Available Room (RevPar) of 30-40 per cent. So it comes as no surprise that many new tourism and hospitality developments were stopped in their tracks. Investors sat on their granted licenses and properties, biding their time.

But overall Vietnam has managed well, thanks to stringent government policies and timely counter measures. And particularly the tourism and hospitality has shown a remarkable resilience.

Once more, tourism underlined its exceptional importance for the country as a whole. Figures confirm: Vietnam has not lost its attraction. Achieving an average growth of over 30 per cent, reaching over five million tourist arrivals in 2010 - the industry is back.

A market shift

The fallout from the global economic crisis had another interesting side effect. More than just a handful of potent domestic investors grabbed up shares or took over completely from foreign owners in distress.

Hotel and resort projects were sought after in 2010 by Vietnamese enterprises, banks, investment funds, real estate firms, and construction companies like never before. Having managed their cash flow and their investments conservatively, they filled the gap, where many foreign investors failed to do so.

Seeing the potential, many affluent Vietnamese expanded their portfolio into hospitality and tourism. Recent acquisitions by SeABank, Ocean Bank Group or the sales of the Victoria Hotel group to local investors are just few examples.

But amidst the whole excitement, we dare to ask: is Vietnam’s investment in the hospitality and tourism going in the right direction? We do not have the habit of being the ‘Devil’s Advocate’, but as a successful consultancy for numerous clients in the country, one would like to see a more informed, more strategic and more sustainable approach to hospitality and tourism investment in Vietnam.

Shrewd analysis

To explain further, firstly, as in any other business, investors should do their homework. Careful strategic investment planning, conducting market analysis and feasibility studies are common sense. Money is not the issue in the beginning. But we have seen too many potent investors, inexperienced in the hospitality and tourism development, burning up funds on the wrong project.

What is tourism and hospitality? How does the market works? Who are the customers? What are their needs and wants? Where do we generate income from? Is the expected return on investment realistic? These are just a few of the many questions investors should ask themselves.

Secondly, we have seen too many investors and owners breeding up ‘pipe dreams’ of tourism projects in Vietnam. Often alien to the industry, they jump on the fast tourism train, because the market is hot, seeking the quick buck, but underestimating the complexity of this field.

Tourism and Hospitality’s commodities are ‘People’, ‘Experience’ and ‘Emotions’! Disappointing as it may sound, our message is: investors, refrain from putting money into tourism if you are better at stock market or real estate speculation. As much as tourism and hospitality is important for Vietnam as a developing country, it impacts on the economy, environment and society – and should not be a gamble.

Thirdly, local investor’s vision of hospitality and tourism projects is often shortsighted. Design and architecture of many hotel and resort properties may suit the fancy taste of owners, but more often than not lack international standards and aesthetics.

Will they sell? Experience shows: No. What sells is authenticity and what makes Vietnam unique. The country’s designers and architects have yet to define a unique style – with neither being stuck in the past nor copying the high-rise ‘cruelties’ of modern times.

Lastly, at some point during the development of hotel and resort projects, investors and owners will have to shift their approach from construction and building to tourism and hospitality. A market, customer and service driven approach must take over.

Understanding hospitality, tourism, branding, marketing, sales, human resources and customer service are all key issues for the return on investment – and deserve the owner’s top attention - no more, no less. This often does happen too late or not at all.

But there is light at the horizon: as international hospitality and tourism management consultancy, HTM experiences now a slow shift in owner’s points of view. Investing in informed advice for hotel and resort projects – strategic planning, pre-opening assistance, architectural review, brand development, marketing and sales, setting standards, recruitment, training, hotel management and other services – are more and more regarded as necessary. This gives hope for the tourism and hospitality industry in Vietnam.

Kai Marcus Schröter is the CEO of HTM Management Consultancy, an international hospitality and tourism management consultancy, providing professional advisory services in Vietnam, Laos and Cambodia since 1998.