Canada’s tourism sector: Strategies to build more competitive businesses
From Parliament Hill to the mountains of B.C. and the Halifax waterfront, 2017 was a year when Canadians celebrated the country’s 150-year anniversary. This was good news for the tourism sector, which had a year of solid growth.
With the summer coming to an end, it appears that tourism activity in Canada is poised to expand even further in 2018.
The Conference Board of Canada is expecting the sector to grow by 2.6%. The expansion is, in part, driven by more families staying in the country for their vacation. International visits are also forecast to surge 6.7%, thanks in part to 2018 being the Canada—China Year of Tourism. Meanwhile, overnight visits from the U.S. are projected to advance 3.4% this year.
An important part of the Canadian economy
All this is good news for the Canadian economy. The direct contribution of travel and tourism to GDP was $36.9 billion in 2016, which equates to roughly 1.6% of Canada’s GDP in 2016, according to the World Travel and Tourism Council.
Data from Statistics Canada also shows that tourism is also an important employer.
Over
700,000
are directly employed in the tourism industry
Roughly
4.5%
of all Canadian workers work in tourism
This is comparable to the financing and insurance sector, which directly employs 725,000 workers. We can also say that many more jobs are tied to the sector indirectly through its supply chain.
Knowing the importance of the tourism sector for the Canadian economy, it’s worth asking what entrepreneurs can do to become more competitive.
Tourism entrepreneurs need to invest to remain competitive
A number of factors are driving growth in the tourism sector.
- Cruise ship activity is projected to increase in many provinces this year.
- Convention activity in many cities is expected to be strong in 2018.
- Domestic air capacity continues to increase and new ultra-low-cost carriers are emerging.
- New direct flights from Europe, Asia-Pacific, and South America are helping Canada tap into new international markets.
However, increasing gas prices are eating into the disposable income of potential travellers and pushing up the cost of travel. High accommodation rates in some regions can also deter potential visitor.
Tourism entrepreneurs should consider reinvesting some of their profits to improve their competitiveness and ensure their survival in the event of an economic downturn. Recent BDC studies suggest that investing to improve productivity, increasing the use of digital technologies and hiring new immigrants to overcome labour shortages are promising strategies for tourism businesses.
Canada-China Year of Tourism
The Chinese and Canadian governments have named 2018 the Canada-China Year of Tourism to celebrate the ties that unite both countries. About 5% of Canada's population has Chinese ancestry. In 2016, more than 610,000 Chinese tourists visited Canada. The Government of Canada set a goal of doubling the number of Chinese tourists coming to Canada by 2021.
What distinguishes top-performing tourism businesses?
Our May 2018 study on top-performing companies in Canada indicated that 4.2% of tourism sector businesses are top performers. This is slightly higher than the average for all sectors, which stands at 4%. Top performers are firms with greater revenue growth and profitability compared to their peers (as measured by the industry median).
We found that top-performing tourism businesses are more productive and invest more in machinery and equipment, such as information and communication technologies.
How top-performing* firms in the in the tourism sector compare to their peers
| Top performers | Others | Difference | |
|---|---|---|---|
| Productivity (sales/employee) | $65,179 | $46,853 | 40% higher |
| Profit margin (net income before tax/sales) | 17% | 3% | 5.7 times higher |
| Net assets in machinery and equipment per employee | $4,109 | $3,467 | 19% higher |
| Net assets in ICT per employee | $499 | $235 | 2.1 times higher |
Source: Statistics Canada, BDC calculations, average 2013-2015.
Strategies for tourism entrepreneurs who want to become top performers
Small businesses: Focus on productivity to ensure growth
The top-performing tourism businesses are more productive, which allows them to grow and generates economies of scale to achieve greater profits.
Medium businesses: Invest more
Mid-sized tourism businesses need to reinvest their profits to become more competitive and better able to seize new opportunities in an increasingly automated and digitized economy.
Large businesses: Diversify your markets
Large SMEs need to expand internationally. High-performing tourism companies were particularly diversified compared to their peers; 38% of high-performing tourism businesses do business in more than one foreign market, compared to only 5% for other businesses.
Tourism companies should increase their use of digital technologies
We recently conducted a study to assess the digital maturity of small and medium-sized businesses in Canada.
We found that 23% of tourism businesses are digitally advanced, better than the 19% average for all Canadian companies. These companies effectively use digital technologies to run their business and have the right culture to drive change across their organization.
However, 59% of tourism businesses are digitally conservative. Given the high share of digitally conservative businesses, more can be done to improve digital maturity in the sector.
Visit bdc.ca/sbw to get more information about digitalization, try our new Digital maturity assessment tool on October 15, 2018, and get personalized advice to digitize your business.
Labour shortages are hitting tourism companies particularly hard
Another recent study assessed the extent of labour shortages in Canada as well as their impact on entrepreneurs.
In the tourism sector, 48% of entrepreneurs said they have difficulty hiring new employees. This was significantly higher than the average of 39% for all sectors combined.
Our study shows that labour shortages are holding companies back. Specifically, businesses that are more affected by labour shortages are 65% more likely to be low-growth companies.
For example, we found that tourism companies are most likely to hire less experienced staff or younger employees as a result of the labour shortage. The additional time and effort required to train junior employees keeps senior staff away from higher value tasks, such as developing client relationships or new projects.
Strategies to hire the workers you need
Our study also provides potential solutions.
Only 21% of tourism companies indicated they would hire immigrants or newcomers to Canada to offset the impact of the labour shortage. This is a missed opportunity. Especially when we consider that by 2022, 64% of Canada’s population growth will come from immigration.
Other strategies tourism entrepreneurs can use to mitigate the impact of the labour shortage include:
- developing an employee value proposition,
- improving operational efficiency,
- improving the use of technology, digitizing or automating,
- outsourcing low-value work,
- formalizing HR policies to improve retention and ease of hiring.