Mr. Assistant Minister of Culture and Tourism of Korea. Mr. Chairman of the OECD Tourism Committee. Seoul, Korea, 10-11 November 1998

Excellencies

Ladies and Gentlemen

I would like to thank the Minister of Culture and Tourism of Korea, Mrs. Nakyun Shin, as well as the OECD Secretariat for their kind invitation to participate in this major Conference in Seoul. I would like to thank you for your warm welcome and say how pleased I am to be in the Republic of Korea for the first time.

I wanted to take advantage of this Conference to express WTO's support for the continuation of OECD's involvement in tourism. Even if, in the past, there have been problems of adjustment between WTO and OECD, we have always fully supported the existence of your Tourism Committee.

I repeated this position recently in a visit to Paris when I met the Deputy Director General of your Institution, and I regret that this Tourism Committee, which has been very useful in the past, is likely to be suppressed.

At WTO we would welcome the continuation of tourism activities in other forms by OECD and look forward to your participation next year in our major Conference on Tourism Satellite Accounts.

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Let me come now to the theme of this meeting.

The continuous development of information and communication technologies (ITs) during the last decade has profound implications for the whole tourism industry. ITs incorporate software and hardware, but also information, management and telecommunication systems, to enable the processing and flow of information within and between organisations. IT also incorporates all equipment utilised for the production of commodities and the provision of services. Information Technology should be regarded therefore as a synthesis of electronics, computing and telecommunications technologies.

ITs change operational practices and also alter the competitiveness of enterprises and regions. Therefore information technology requires attention at the strategic level of the tourism industry, and naturally at the World Tourism Organization. The rapid development of both supply and demand makes ITs an imperative partner for the marketing, distribution, promotion and co-ordination of the industry.

Tourism enterprises and destinations, regardless of their size, product, specialisation and geographical coverage, need to take advantage of the emerging tools and aim to improve their ability to manage, produce and deliver tourism products.

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In the first part of this presentation, I shall look at Information Technologies development in tourism and their major trends.

Hitherto, four main eras can be identified in Information technology development:

In the first era, with the "data processing", the main objective was to improve operational efficiency by automating information based processes. This era took place from the 1960s onwards and it mainly used mainframes and mini computers.

The second era was the "management information systems (MIS)", where the aim was to increase management effectiveness by satisfying the organisational requirements. This era commenced in the 1970s. Information systems were used primarily to address the needs of internal management and co-ordination. Emphasis was given on administrative and clerical functions, especially accounting or inventory.

In the early 1980s, the "strategic information systems (SIS)" era aimed to improve competitiveness. This can be achieved mainly by changing the nature or conduct of business, through the development of integrated technology networks.

This era was facilitated by the proliferation of personal computers and the development of suitable software, which supported decision making and managerial activity.

Since the early 1990s a fourth and more profound era has been emerging: "the network era". Intra- and inter-organisational networking is proliferated by using local and wide area networks.

The development of the Internet, Intranets and, more recently, extranets revolutionised this era and the way communication and business function.

More importantly, this era alters the competitiveness of firms in the global marketplace and reduces the significance of location and size in the product delivery processes.

What are, today, the technologies available and which ones are expected to come into the market?

Technological development, in terms of hardware, software and networking, has enhanced the capabilities of organisations by providing robust tools for management and marketing.

As far as hardware is concerned faster and more reliable computers enable the performance of processes at a fraction of a time required in the past and at a function of the cost.

Software developments enable a much more integrated management of data as they enable the integration of all functions of enterprises. In particular, they support the automation of both front and back office operations and thus empower the decision making process. Through knowledge management, enterprises can enhance their organisational understanding of issues. Data warehousing and data mining enables enterprises also to understand their market segments and support the development of suitable marketing and management strategies.

The development of user-friendly interfaces and multimedia provide data and media-rich applications. Organisations can therefore distribute a greater wealth of information at a fraction of the cost. As a result, they can develop suitable opportunities to interact with their customers and partner organisations. They can also reduce their training costs, as employees are guided by software applications and do not need to memorise complicated procedures.

But, perhaps, networking is the most important element of the contemporary Information technology revolution. The proliferation of the Internet, Intranets and Extranets, support communications between employees, units, organisations, as well as with external partners and consumers.

The Internet uses the World Wide Web (WWW) as a distributed multimedia protocol to enable the instant distribution of media-rich documents (such as textual data, graphics, pictures, video, and sounds). The Internet effectively revolutionises the interactivity between computer users and servers. As a result, an innovative platform for efficient, live and timely exchange of ideas and products was established. It also provided unique opportunities for interactive marketing to all service providers.

Similarly "Intranets" operate as closed or secured networks within organisations. They use standard protocols to harness the needs of internal business users. By using a single controlled, user-friendly interface to provide relevant data to all employees in the organisation. This supports the formulation of close partnerships with other members of the value-chain for the production of goods and services.

More recently, "extranets" use the same principles and computer networks to enhance the interactivity and transparency between organisations and their trusted partners. By linking and sharing data and processes they formulate low cost and user friendly electronic commerce arrangements. Automation of standard procedures support the effectiveness of business networks and empowers a closer collaboration.

Let's mention that a new wave of technological developments and tools is emerging and will support the future tourism organisation. Most of the technological tools required already exist. However they may need improvements in order to enhance their speed, reliability and adaptation to the industry.

Computer Reservation Systems (CRSs) have been leading the IT development in tourism since the early 1970s. As you know, a CRS is basically a dynamic database, which enables a tourism organisation to manage its inventory on-line and also to make it accessible to its distribution partners, i.e. travel agencies and tour operators. CRSs also enable flexible pricing and capacity alterations on-line, and thus support a great degree of flexibility.

Airlines realised that their presentation on travel agencies desktop screens was critical for their ability to attract bookings. Hence, they developed CRSs interfaces to enable them to communicate directly with intermediaries. Automating the reservation process reduced the need of labour cost dramatically, as travel agencies can have direct access to tourism inventory and undertake simple functions such as reservations and ticketing, without having to contact members of staff. Thus, airlines use CRSs to manage their inventory and distribute their capacity as well as to manage their expansion of tourism globally.

The evolution of CRSs to Global Distribution Systems (GDSs) in the early 1980s effectively developed them to electronic travel supermarkets. GDSs expanded gradually their geographical and operational coverage by integrating both horizontally, with other airline systems, and vertically by incorporating the entire range of principals, such as accommodation, car rentals, train and ferry ticketing, entertainment and other provisions.

Hence, GDSs propelled the development of the electronic marketplace in tourism and became a key element of the distribution mix and strategy of every tourism organisation. Although GDSs concentrate on the business travel sector, increasingly they offer more leisure products, by introducing theatre tickets, holiday packages and leisure destinations.

Currently four major GDSs dominate the international tourism distribution, namely Sabre, Galileo, Amadeus and Worldspan.

Other smaller regional GDSs include Abacus mainly in Asia-Pacific (related with Worldspan); Axess mainly in Japan; Gets as a non-airline initiated, independent CRS; Infini Travel Information, mainly in Japan, and TOPAS in South Korea.

Although Sabre and Galileo dominate reservations with market shares at 33% and 31% respectively, Amadeus dominate travel agency locations with 42% of the market total.

The relationship between GDSs and the Internet, and the future of the GDSs is under a lot of speculation in the marketplace. The dramatic development of electronic travel agencies, such as Expedia, Travelocity, Internet Travel Network, and Preview Travel empowers consumers to access tourism suppliers directly. These developments create a wide range of opportunities and threats in the industry.

The majority of GDSs have been unable or unwilling to move towards capturing a market share for the on-line consumer and have remained loyal to their travel agency distributors. However, the popularity of travel products on the Internet and the expected growth of this market has forced GDSs to: either develop their own interfaces with consumers (e.g. SABRE developed Travelocity), or establish partnerships with Internet providers (e.g. Worldspan-Abacus facilitate reservations for Expedia and Amadeus supports ITN).

Internet providers, on the other hand, find it difficult to develop interfaces with all tourism suppliers. Therefore, it seems that Internet providers will be using GDSs as the search engine for itinerary construction, reservation mechanisms and financial systems for undertaking all transactions related to bookings

Another main issue relates to the possibility of direct purchasing services through the Internet or other systems?

The development of the Internet enables consumers to access information on-line and to build their itineraries and undertake reservations from the convenience of their own computer. Consumers use the Internet to get information on personal interests and are empowered to construct and purchase customised itineraries.

Significant increase of direct bookings by on-line users for airlines, hotels and other travel business are also anticipated. Forrester Research predicts that Travel and Tourism will be only second to Computer products as it anticipates that by the year 2000 the total on-line turnover on tourism and travel products will reach almost $1.6 billion.

The Travel Industry Association of America (TIA) forecasts that by the year 2002 the proportion of airline tickets purchased online is going to drop to 73% of all on-line travel sales, accounting for $6.5 billion. Non-airline sales (hotel and car rental) will grow from $31m in 1996 to $2.2b in 2002.

Direct sales by suppliers are expected to grow from 22% in 1997 to 30% of online sales in 2002. The leading incentive for the direct sale transformation is to reduce commissions paid to travel intermediaries by establishing direct links with consumers. Although in 1996 only less than 1% of all airline ticket revenue came from on-line sources, it is anticipated by that by the year 2002 it will increase to 8.2% and will be the leading travel purchase on the Internet.

Although the Internet is still slow, often chaotic and perceived as insecure for on-line purchases it is quite interesting to observe the growth of some of the on-line providers, such as Expedia (the Microsoft on-line travel agency), TravelWeb or Marriott Hotels.

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The rapid growth of the volume of traveller as well as the requirements for complex, specialised and quality products make ITs imperative for the tourism industry. Tourists become more demanding, requesting high quality products and value for money.

The use of ITs is therefore driven by the development of complex demand requests, as well as by the rapid expansion and sophistication of new products, which tend to address niche market segments.

Increasingly, success for tourism organisations and destinations will depend on the quick identification of consumer needs and the interaction with prospective clients. This can only be achieved by using comprehensive, personalised and up-to-date communication media, for the design of products, which satisfy their specific needs.

In addition, consumer expectations are rising rapidly as they experience tourism organisations and destinations around the world. Frequent travellers, these who travel several times a year on both business and leisure, are experienced enough to compare products and destinations. Increasingly they require an instance response to last minute requests and arrangements.

Today, Ladies and Gentleman, information is the life-blood of tourism and thus, technology is fundamental for the ability of the industry to operate.

ITs become the nucleus of the tourism industry. A whole system of ITs is being rapidly diffused throughout the tourism industry and no player will escape its impacts.

However, the emerging globalisation and increased competition will require from these players a great degree of efficiency in communication and operations, both internally and externally.

Only organisations, which offer flexible and customised tourism products, will be able to succeed in the global marketplace. Hence, ITs change the best operational practices in the industry and enable innovative operators to take advantage of the emerging tools. ITs are also used for the development, and provision of new services and products. Identifying information on facilities and services and amalgamating the various elements in meaningful clusters can only be achieved by using the whole range of communication facilities.

Perhaps the most significant strategic implication of ITs is the development of competitive advantages by both reducing cost and enhancing differentiation. Identifying niche markets through ITs and distributing customised products enables tourism organisations to differentiate their products and charge premium prices. Enterprises which take advantage of the emerging IT tools are capable to interact closely with their consumers and adapt to their products constantly.

Reduction of costs is also emerge through the increase of efficiency, management of communication and promotion costs and the outsourcing of non-core activities to inter-connected partners.

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Before concluding, let me briefly address four questions.

First question:

What impact will IT have on the structure of the tourism industry?

It should be very clear that Information Technology facilitates and empowers market forces to implement their business plans and desires. Technology does not, in each own right, create any major structural changes in the industry. It simply supports and empowers business initiatives, which may have not taken please if the tools emerging were not available.

Two major trends can be observed in the tourism industry though, partly as a result of the emerging IT tools: namely concentration and consumer empowerment.

The first trend relates to concentration and integration, both horizontal and vertical. The availability of IT based management tools enable organisations to function efficiently on a greater scale than in the past. They also provide opportunities to organisations to expand both geographically and operationally. As a result, tourism companies develop new functions in many locations and manage their operations centrally. Vertical and horizontal integration supports the rationalisation of organisations. It also encourages them to achieve economies of scale as well as to develop umbrella brand names, which differentiate them in the marketplace.

IT also empowers consumers and bridges the distance with suppliers. Consumers will increasingly feel more in a position to identify the right product, at the right price, at the right place, and at the right time. Service providers who identify the consumer needs best will therefore promote suitable products and attract a greater market share. Relationship and customised marketing will enable enterprises to identify suitable market segments and maintain them in the long term.

Second question:

In these relations betwen consumers and suppliers, what is going to be the role of the travel agency and intermediaries?

The future role of tourism intermediaries is currently under question. Several arguments can be developed towards the disintermediation of the tourism distribution channel. To the degree that consumers will be able to find suitable products on-line easily, they may find that travel agencies' services are no necessary. This is more likely to be the case for younger generations, who are more familiar with technology, linguistically advanced and culturally aware.

However, travel intermediaries offer a wide range of services, which add value to the tourism product. They often negotiate prices with suppliers and offer tourism products at a fraction of their cost. Also intermediaries provide advisory services and develop a personal relationship with consumers. This enables them to use their expertise in order to identify suitable products and satisfy their needs better. Intermediaries and particularly tour operators organise all the logistics. They take most of the risk involved in international tourism away from consumers by providing transfers, local guides speaking the language of consumers as well as emergency procedures if there is an unexpected problem.

To the degree that intermediaries add value to the tourism product, they will be able to maintain, or even enhance, their position. Taking advantage of the new IT tools will enable them to expand their business to other market segments as well as geographically. However, adapting the business to reflect the new situation and offering a better value from what consumers can find themselves, will be critical for the ability of intermediaries to retain their competitive advantage.

Another important issue is the changing face of the industry through the introduction of ITs in small and medium-sized tourism enterprises.

A wide range of opportunities and challenges emerge for smaller and medium-sized tourism enterprises (SMTEs) and destinations. Traditionally the vast majority of tourism suppliers are small. Hence, they have enormous difficulties in marketing their products globally and compete with larger counterparts. Multinational organisations took advantage of the emergent technologies earlier than smaller ones expanded their operations globally. Some SMTEs were absorbed by larger organisations or they had to develop franchising agreements with consortia, such as the Best Western Hotels, in order to gain visibility in the marketplace.

However, the development of the Internet also empowers even tiny tourism organisations and destinations to be represented in the electronic marketplace and to network with consumers and partners alike. ITs facilitate the amalgamation of independently-produced products. It therefore, enables the delivery of seamless tourism experiences by networks of small providers. Evidence from recent research in Greece, England, and Wales demonstrate that Internet offers a cost effective mechanism for marketing and particularly promotion and distribution of SMTEs

Innovative entrepreneurs who appreciate the power of the new media and design their presence in the electronic marketplace will gain benefits. They can also achieve competitive advantages by positioning themselves as niche operators offering unique and authentic products. Co-operating, rather than competing, with other local entrepreneurs will enable them to develop their virtual size and compete on equal footage with some of their larger competitors.

And here is the last question:

Will the balance between generating countries from the North and developing countries from the South be modified by the introduction of IT?

Traditionally tourism activity is generated from Northern countries which concentrate wealth. Visitors often spend leisure time in southern Countries, where they can enjoy advanced climatic conditions and landscapes.

To the degree that the economies of Northern countries are stronger, people will have more disposable income and leisure time. Hence Northern countries will remain the principal generator of tourism activities. However, the emerging ITs essentially reduce the geographical barriers and enable people to work from remote locations. Thus, a new labour division is gradually developing on a global scale. Eventually organisations will take advantage of skilled employees regardless of their location or nationality. This is evident to a certain extend today. Indian programmers provide a great proportion of the software developed for several Western companies. Increasingly employees from the North immigrate for periods of time to Southern countries and they telework.

In addition, due to Information Technologies people from Southern countries receive a similar amount and quality of information with people from the North. As a result, their motivation to visit and experience foreign places emerges to similar levels with Northern travellers.

To the degree that there will be societal changes and a re-allocation of disposable income globally, due to emerging IT tools it can be anticipated that the balance between tourism generating and receiving regions will be altered since the relation between producers and consumers on the one hand, and individual suppliers on the other, is also a North/South relation.

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In conclusion, let me stress that the analysis of ITs in tourism illustrates the great complexity of the issue and demonstrates that tourism marketing is constantly evolving, taking advantage of the emerging ITs tools. ITs are changing the pace of the industry.

The emerging ITs-based tools will require a pervasive re-engineering of business processes, as well as the development of strategic vision and commitment. But this will enable tourism enterprises and destinations to develop their competitiveness in the new millennium.

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