Aalto School of Business

October 19, 2012 Special Topics in International Business

Ning Chen Walid O. El Cheikh Nancy Li

Hoa Hoang Shirah Foy Tiia Vhlummukka

The London Tourism Cluster

Executive Summary London is one of the most visited cities in the world with nearly 15 million international visitors annually (Greater London Authority, 2012) and has been recognised as the second most competitive city on the globe (Economist Intelligence Unit, 2012). Tourism supports 226 000 jobs (5% of all employment in London) and accounts for 6.6 billion tourism direct GVA of 34.4 billion nationally. This paper examines the factors behind the past success of the London tourism cluster through the analysis of micro and macroeconomic factors and historical development on a national and regional level. The dense transportation network in the UK in general, and in London especially, and the country's national status in history, culture, sport, entertainment, business, and education are the most significant factor conditions behind the cluster's competitiveness. The cluster also benefits from an impressive network of related and supporting industries, but relies heavily on government funding and is suffering from the burden of free-riding and uncooperative businesses. Three strategic issues currently challenge the cluster, including (1) a shift in high-spending tourists' needs and preferences as emerging Asian economies deploy more global travellers, (2) heavy investments in the 2012 Olympics which have yet to yield the expected ROI, and (3) rising competition in tourism from other European cities. cluster. Policy recommendations related to these issues are made for the further development and survival of the These recommendations center around attracting foreign visitors from emerging economies starting with China, leveraging investments made for the 2012 Olympic Games in order to build up the cluster's diamond, and differentiating London from other popular European destinations while simultaneously leveraging the dense UK transportation network to capitalize on other (nearby) cities' growing popularity.

Section 1: Competitiveness of the United Kingdom (by Ning Chen)

Overall Economic Performance: The GDP growth in UK over the past 30 years has been strong, outpacing other major European countries (The World Bank, 2012). The strong domestic demand has been the predominant driver of this growth, offset by a slightly negative trade balance, as illustrated in Exhibit 1. In the face of adverse trends in global commodity prices and the sovereign debt markets during 2011, the economy recovery has slowed down. While inflation fell steadily within the Bank of Englands target range of 1-3% , the unemployment continues to rise, reaching 8.4% of the labor force on the ILO measure. However, commentators remain bullish on the UK economy, with growth expected to continue through 2013 (1.8%) and CPI inflation falling back to 2% by the year end (ONS, 2012).

Exhibit 1: Drivers of UKs GDP Growth

Labor productivity: An analysis by the British Office of National Statistics suggests that the productivity growth accounted for more than half of UK's GDP growth and its contribution to GDP growth has been much steadier (Exhibit 2). The GDP per worker in the UK is closing the gap
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between its European peers but the gap with the US remains larger and is widening (The World Bank, 2012). In an effect to increase productivity, three contributing factors to labor productivity have received government attention: education and skill development, infrastructure improvements, and R&D investment. The main fluctuations of UK's GDP growth comes from the employment side of the equation, such as changes in the population of working age (16+) and the employment ratio. According to the analysis of Pessoa & Van Reenen (2012), the Total Factor Productivity (TFP) growth was similar at about 1% per annum, in both periods 1979-1997 and 19972007. However, the contribution of labor composition and ICT capital has increased, while that of non-ICT capital has fallen post 1997. Consequently, the contribution from the "Knowledge Economy" labor composition, ICT capital and TFP has increased in the UK from 2 to 2.3% (US 1.5 to 2.5 %), compared to a decrease from 1.6 to 1.4% in the EU.

Exhibit 2: UK growth performance over the medium term

UKs Clusters Overview: As in the case of most advanced economics, the service sector in UK dominates the economy with 77.8% of GDP (CIA, 2012). Essentially, four of UKs six largest clusters

are in services, with the business and financial clusters being global leaders (Exhibit 3). Other strong supporting clusters include communications, transportation and logistics, information technology and in particular, the tourism cluster that shows a tremendous potential.

Exhibit 3: UK Export Portfolio by Cluster 2000 2010

Source: International Cluster Competitiveness Project, 2012

The Travel and Tourism Sector generated a total impact of $162 billion of the UK's GDP in 2011, representing 6.7% of the total GDP. Between 1990 and 2011, it was growing by 20% and it is expected to grow at an annual average of 4.1% over the next decade, a figure greater than the financial services and auto manufacturing. More importantly, travel and tourism is strongly

interlinked with the entire economy of the UK. These links exist through the supply chain to the tourism industry (indirect chain), as well as through tourism-earned incomes as they are spent across a variety of other sectors. In this sense, the tourism sector benefits other sectors across the whole spectrum of the economy. For example, every $1 million spending in travel and tourism sales will generate $119,000 of gross value added in the real estate sector (Exhibit 4-7).

Exhibit 4-7: Travel and Tourism Industry and other sectors in UK

Section 2: London's Competitiveness (by Nancy Li)

Londons Global Competitiveness: Following New York, London was rated the second competitive city in the world, across the eight pillars of competitiveness in the Global City Competitiveness

Index with an overall score of 70.4. London excelled in three dimensions: i) Mature financial market which provides effective disposition to all business sectors including those in tourism cluster; ii) Acknowledgeable social and cultural character (population of 8 million and 2,000 years in history) which attracts both business visitors and individual visitors; iii) Well established physical capital such as transportation, construction and other substantial investment as a strong support to service sectors (Economist Intelligence Unit, 2012). Despite the lower GDP growth in London, comparing to the cities in the emerging economies, London is expected to lead the UK recovery as a result of its highly flexible, dynamic and competitive economy.

Exhibit 8: London's Diamond Factor Conditions (+) Cultural and historical legacy (#5) (+) Population expansion (+) Global leadership (+) Highly developed human capital (-) Unemployment rate among young people Context for Strategy and Rivalry (+) Global political and business centre (+) A large volume of fortune 500 leading companies headquartered (#2) Sound stimulus plan by government (+) Focus on environmental sustainability (-) Less effective than competing countries in institutional collaboration Demand Conditions (+) Big and sophisticated market (+) Strong willingness of private consumption and government investment (-) Financial crisis affects European demand (-) Inflated property price (-) High taxation
(Economist Intelligence Unit, 2012)

Related and Supporting Industries (+) Logistics and Transportation (+) Extremely mature financial service (+) Sustainable growth in construction industry (+) Lucrative education industry -> supply of skilled labor (+)(-) Specialized supporting industries for service clusters than goods clusters

Factor Conditions: London is one of the most culturally vibrant cities in the world with over 150 monuments, 40 000 listed buildings, 22 national museums (and more than 200 other museums), 32 000 music performances a year (17 % are free), four UNESCO World Heritage sites, twelve specialist arts and culture Higher Education Institutes, the largest football stadium in the world (the

Wembley Stadium), cultural centers, 395 public libraries, 105 cinemas and many others (GLA, 2012). In addition, the city boasts a number of free-entrance famous attractions (London & Partners, 2012) and enjoys a continuous population expansion, with a growth rate at 7% in the years between 2000 and 2009 (City of London, 2012). However, the human growth jointly with the economic slowdown has rendered a rising unemployment rate to 8% in 2011 (ONS, 2011). Apart from unemployment, the productivity in London is much higher than that in the rest of British cities also among entrepreneurs (GLA, 2012). Context for Strategy and Rivalry: In 2011, London contributed to almost 20% of UKs total GDP, while the business and financial services occupied 25% and 33% of total jobs in the city,

respectively (ONS, 2011). It is second in hosting Fortune500 companies after New York (Citigroup, 2012). In addition, the city has a sound stimulus plan by the government which is aiming not only on the economical development but also towards a sustainable future (ONS, 2011). However, the collaboration between government, institutions and corporations is weaker in UK than most developed countries. Related and Supporting Industries: London plays a unique role in UK due to its highly specialized industries and heavily invested infrastructure. Londons Heathrow Airport is among the busiest air hubs worldwide. With government support, the transportation, construction and financial industries continued to become more specialized (Oxford Economics, 2010). This specialization supports the tourism cluster since tourism depends on information, infrastructure and business environment. For instance, Londons higher education industry might be the most lucrative in the world: Revenue from international students was 560 million in 2005-2006 (Oxford Economics, 2007). This high quality student population ensures a sufficient professional labor supply, a factor reflected in the fact that productivity in London is much higher than the UK average (Exhibit 9). The
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highest productivity occurs in entrepreneurs, many of whom work in the tourism cluster. The cluster itself is characterized by a high entrepreneurship rate and high flexibility, so much so that over 80% businesses in the tourism sector employ less than 10 people and nearly half of these employees work part time (ONS, 2012).

Exhibit 9: Relative productivity by sector, London, 2009

Source: Oxford Economics

Demand Conditions: London economy is slightly isolated due to its use of a currency different from that in the Euro zone. This protected the market from vulnerability during crisis, but the appreciation of Sterling to the Euro made the effect of weakened demand from European countries even more severe (European Central Bank, 2012). London is a city of consumption in the sense that it maintains a low interest rate and low savings rate (IMD, 2012). Government expenditure and individual consumption provide strong domestic demand (IMD, 2012). However, due to the huge public debt in current accounts and an imbalanced fiscal structure, the government will be forced to cut its expenditure and encourage more export-oriented industries such as tourism. Unfortunately, the high taxation and inflated property prices will impair the development of tourism. Compound personal taxation reached 40% in 2010 (ONS, 2011). Foreign visitors are

entitled to a VAT in accommodation, which only occurs in UK, Denmark, Slovakia and Lithuania. Expensive housing also slashes visitors and employees willingness to stay in London.

Section 3: The Tourism Cluster in London (by Walid O. El Cheikh & Hoa Hoang)
Cluster History: Londons two thousand years old history is painted with struggle against the Civil War (1642), Great Plague and Fire (16651666), WWII and terrorist bombings (2005), riots (2011) and many other calamities which affect the social, political, economical and touristic environments. Despite all these disastrous events, the Londoners overcame obstacles and attracted tourists from all the over the world. During the 19th Century, London was under the Industrial Revolution, where the key monuments were built: Trafalgar Square, Big Ben; major transportation issues were resolved: Rail, Tube; and essential health and sanitation concerns were improved: Sewer systems. During the 20th Century, the city was under the Social Revolution, where key boroughs were developed: Soho; the Bohemian/Creative identity was emerged: Authors, Artists and Intellectuals; the infrastructure was developed rapidly: Railroads, Airways; and new technologies facilitating travelling were introduced: Internet and Online Booking. Finally, in the 21 st Century, London arrived at its technological, economical and social peek, contributing to the development of the Low-Cost Airlines such as Ryanair and EasyJet; new innovations in the hotel, restaurant and tourism industries with mobile applications that facilitates reservations and bookings; location-based services such as Foursquare and Google Maps; and augmented virtual reality such as 360 panoramic photography. In addition to that, London attracted the Olympics in summer 2012. As a summary, London developed from the Factor Driven Economy in the 19 th century, to the Production Driven and Innovation Driven Economies, in the 20th and 21st centuries respectively.

Cluster Overview: The triggers for the success of the tourism cluster are not directly related to
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boosting the industry itself. It is rather connected to the combination of many factors such as the competitiveness of the business and financial clusters, the advancement of healthcare and education, the history of the city and many other indirect factors that we will try to highlight in this report. After the summer 2012, London is concentrating on the Post-Olympic Legacy in its multimillion marketing campaign worldwide. Before that, the Mayors concentration was on arts and culture, policing and crime, business and economy, employment and skills, environment, health, housing and dozen of other issues (Greater London Authority, 2012). The competitiveness of the London Tourism Cluster will be examined in this section with the attempt to identify the main reasons behind its success.

Cluster Map: The London Tourism Cluster has five major elements which are categorized in different colors in the Exhibit 10: i) The Main Tourism Elements (MTE) presented in Blue, ii) The Facilitators presented in Orange, iii) Industry Suppliers and Service Providers presented in Violet, iv) Support Elements presented in Green and v) Government presented in Red.

The Main Tourism Elements: The essential places and activities that represent the direct interaction with the tourists are i) Food and Beverage Establishments: restaurants, cafes, bars and nightclubs, ii) Accommodation: hotels and hostels, iii) Entertainment: events, shows, concerts, music, festivals, films, theater and other, iv) Shops: fashion and clothing, merchandise, souvenirs and other, v) Sightseeing: monuments, museums, galleries, arts and tours and vi) Activities: leisure and sports, business and finance, education, health and other. The quality of a visitors experience depends not only on the appeal of the primary attractions but also on the quality and efficiency of complementary businesses such as hotels, restaurants, shopping outlets, and transportation

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facilities. Because members of the cluster are mutually dependent, good performance by one can boost the success of the others (Porter, 1998). Exhibit 10: London Tourism Cluster Map

The Facilitators: Tourists reach London using one of the international/domestic/regional transportation methods such as airlines, trains, buses or private vehicles. They mostly book flights and hotels through an online booking agency such as Booking.com and they tend to purchase additional services, such as car rental, bus tours and activities, from a travel agent. Industry Suppliers and Service Providers: There are thousands of companies that supply products and services to the London Tourism Cluster. For example, restaurants need British (or international) meat to serve steaks, wines to complement meals, furniture to accommodate visitors, banking

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services to store their cash and marketing to advertise their menus. The Support Elements: Institutions such as universities and R&D centers are one of the many support groups for London Tourism Cluster which provides knowledge, know-how and skilled labor force. In addition, associations and unions encourage the productivity and the protection of the people involved in the cluster. Government: The national and local authorities play an indispensable role in maintaining the efficiency, security and prosperity of London. In addition to that, one of the roles of the Greater London Authority is to promote the city, nationally and internationally, which impacts directly on the number of tourists visiting London.

Exhibit 11: London Tourism Cluster Diamond

Factor Conditions (+) National status in history, culture, sport, entertainment, education, business, etc. (+)Largely dense communication and transportation network (+)/(-) Large labor supply for service sector but usually low quality in management & staff level Context for Strategy & Rivalry (+) UK Government's strategic plan in Tourism development (+) London and Partners (+) Intensive local competition driven by large number of SMEs (+) Higher self-control for business players (-) Dependence on public funding (-) Free-riding businesses/un-cooperation Demand Conditions (+) Domestic visitors account for half of total (+) Large proportion of visitors from 1st world > high spending (+) History & Heritage is the strongest appeal for visitors (+) Highly satisfied customers' experience > high word-of-mouth & return probability (-) low rate of domestic holiday among British (20%) (-) Currently low attention on potential visitors from emerging economies

Related and Supporting Industries (+) Entertainment & sporting events (+) High accommodation capacity to handle increasing number of visitors (+) Strong restaurant industry (+) Easy access to financial cluster (+) Large retail cluster for shopping (+)Education to supply skilled labor

Factor Conditions: For centuries, London has been widely renowned as the global leader in terms of business, education, arts, sports and history (Global Power City Index, 2009). The citys global
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status is a key input factor for Londons tourism cluster; its diverse culture is illustrated as being a world in one city with more than 300 languages spoken within the region that is host to four World Heritage Sites and numerous other attractions representing the citys exceptional history. Dense connectivity also plays a major part in tourists travel to London. Five highly capable international airports together with more than 100 airlines including low-budget and domestic operations directly link the city to more than 300 worldwide destinations. The local, national and even continental comprehensive rail, road and sea transport system which centers around London further consolidates the citys connection network (London & Partners, 2012). Londons tourism cluster is fueled by a large labor supply of approximately 4 million employees, of which nearly 10% work in the tourism sector (Wigham, 2005). However, this large work force is criticized by the British government for lacking advanced management skills in the field (UK Minister for Tourism and Heritage, 2011). Additionally, traffic congestion resulting from the dense population is a challenge to London tourism as more than 10 million journeys are made daily by private vehicle, and nearly 7000 buses cover around 700 routes (London authority, 2011).

Context for strategy and rivalry: As mentioned in previous parts, London is a competitive city with a highly hospitable business environment. Competition in the tourism cluster is driven by a large pool of companies operating in tourism-related sectors such as accommodation, restaurants, entertainment, and so on. However, according to the nations recent report on tourism, cooperation between tourism-related businesses throughout the UK has not been as effective as expected due to a large proportion of free-riders. This has led to some promotional and operational inefficiency within the cluster. To tackle this problem and push the national tourism sector to an advanced and sustainable level, the British government implemented a long-term plan in 2011 aimed at three major targets: initiating ambitious national-level marketing campaigns; improving
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productivity and competitiveness of the tourism sector; and increasing domestic travel among British residents (UK Minister for Tourism and Heritage, 2011). The plan started with the 2012 London Olympics the once-in-a-generation chance to boost Britains tourism industry to create a so-called tourism legacy for the UK and London in particular. London & Partners (L&P) launched in 2011 as the official promotional organization of London and one of the local tourism bodies under the VisitBritain national tourism agency. It operates as a non-profit public private partnership focused on attracting new businesses, students and visitors to London in order to make it the best big city on earth (London & Partners, 2011).

Demand conditions: According to a visitor survey conducted by TNS Travel & Tourism (2009), the citys history and heritage is the most influential factor for both domestic and foreign visitors who choose to travel to London. Five thousand respondents gave London overwhelmingly positive feedback and indicated a high probability of recommendations to others and return visits (TNS, 2009). In 2009, London attracted 10.8 million domestic visitors and 14.2 million foreign visitors, who generated total spending of 2.2 billion and 8.2 billion, respectively. More than 55% of foreign visitors to the UK spend time in London (VisitLondon, 2009). These visitors come mainly from developed economies such as USA, France, and Germany (Exhibit 12). This, on the one hand, helps assure high spending per visitor. However, on the other hand, the fact that no BRIC countries are among Londons top 10 inbound markets reflects the British tourism industrys lack of attention to potential visitors from emerging economies. Despite this oversight of emerging economies, Exhibit 13 shows stable income for London tourism through the global recession: The number of visitors and their spending even slightly increased during the year 2010. Domestic visitors invariably accounted for around half of the total number of tourists; however, their spending contributed merely 20% to total spending. Reports from the UK government show that only 20% of Brits who
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travel domestically during holidays leave room for growth an issue to be tackled by the governments new plan for tourism development (UK Minister for Tourism and Heritage, 2011). Exhibit 12: Origins of Foreign Visitors London Exhibit 13: London Visit & Spend (excl day visits) 2000 2010

Source: Visit London (2009)

Source: London & Partners (2010)

Related & Supporting Industries: In general, related and supporting industries are performing excellently in aiding Londons tourism cluster. For example, the tourism cluster, which still largely depends on public funding, greatly benefits from the fact that London is one of the worlds biggest financial centers. A system of 6000 restaurants (of which 55 are rewarded a Michelin Star), and a hotel industry encompassing 1300 businesses ranging from luxury to low-budget enable London to serve, for instance, over 3 million visitors in August 2012 during the Olympic Games (London & Partners, 2012). As another supporting industry, shopping makes up one third of London visitors activities (TNS Travel & Tourism, 2009) and London is ranked first in Europe in this regard by the Global Shopper City Index. Most international brands can be found in London, and the city attracts world-famous department stores such as Liberty and Harrods. Open and vibrant shopping areas, such as Covent Garden and Spitalfields Market, dot the city (Global Shopper Index, 2012). Event organizations comprise more than 1000 venues in London: More than 300 museums and art galleries, 63 theatres, and 13 professional football teams make entertainment at the Thames-River city unique for tourists. In 2012, FDI in tourism-related sectors such as food and drink, retail,
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transport, entertainment amount to more than 20% of total FDI (London & Partners). The last, but not least, notable point is the education sector in London, in which training in hospitality will be increased as a result of the governments new plan.

Section 4: Strategic Issues (by Tiia Vhlummukka)

Europe accounts for over half of all international tourist arrivals worldwide and was the fastestgrowing region in 2011 (UNWTO, 2012). This trend, however, might not continue forever since emerging countries and cities are increasing their share of the tourism pie. The potential for growing numbers of visitors to Europe is in attracting visitors from Asia, therefore marketing needs to be targeted in that direction. London has been the most visited city in the world but now needs to rise to the occasion to defend this position as other European cities are catching up. At the same time, the growth of tourism to Europe as a whole is slowing down even though the continent will still keep its place as the most attractive place to visit at least for the coming decades. The three most significant strategic issues for the London tourism cluster are the Chinese market, postOlympic tourism and competition.

Chinese Market: As Asian economies continue to develop and deploy more people into the global tourist pool, attracting these visitors has become a key issue for competitiveness. The importance of the Chinese market is immediately evident when we see that these visitors' holiday spending per visit is three times the global average, at 1,677 per visit in 2010 (Warrell & Thompson 2012). This number decreased in 2011 (to 1,099 each per visit), though the number of Chinese tourist to UK slightly increased in the same year 1 (Office for National Statistics, 2012). The UK government has

1 One explanation for this might be that France, with a wide variety of luxury products, is attracting the consumers that are willing to spend more. London's competitiveness relative to Paris and other European cities will be addressed as a third strategic issue.
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introduced an 8million campaign aimed at tripling the number of Chinese visitors to the UK over the next three years. This is in response to indicators that the UK is falling behind in attracting Chinese tourists. For example France is currently attracting 25 to 50 per cent more Chinese visitors than the UK. Germany is also ahead. The sheer size of the market in China is what makes the investment so important. By 2030 China should have around 1.4 billion middle class consumers (i.e. potential tourists), which creates a market four times bigger than America (Warrell & Thompson, 2012). London's tourism cluster currently does not play to attracting Chinese tourists: There is a lack of Mandarin-speaking staff in London, and information such as flyers and signs need to be translated. The Chinese preferred payment card, UnionPay, is still not commonly accepted in London. Other issues include a lack of direct travel connections to China and other Asian cities, as well as a complicated visa system which deters some international tourists (Warrell & Thompson, 2012).

Post-Olympic Tourism: The Olympics should be for Britain what Usain Bolt is for athletics something that grabs the attention of the whole world and refuses to let go. Culture Secretary Jeremy Hunt (Jowit, 2012)

Leading up to the Olympics, the UK government allocated 1billion to support the Great tourist advertising and marketing campaign, which was established specifically to back up the Olympic Games. The goal is to enhance Britains reputation across the globe and refresh the brand of the nation by portraying it amongst the top places in the world to visit, live, work, study and do business. To emphasize the effects of the games in relation to business, London hosted a global investment conference and 17 business summits during the Olympics (Hammond 2012). However,

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in late July 2012 the newspapers started reporting that the games are putting off other tourists, reflected in decreased sales in theatres, shops and museums. Entrepreneurs were surprised to see their businesses suffer while consumers were at the arena watching the Games. The regional transportation authorities had for months been warning of heavy disruption in central London; their public announcements turned out to be quite effective since they deterred enough regional travelers that the disruption never occurred. It seems that the short-term benefits of the Olympics are quite elusive, however the prime minister predicts a 13billion flow of economic investment stemming from the games over the next four years, some of which is expected to come from tourism (Alleyne & Ford Rojas 2012). The 2012 London Olympics provided a once-in-a-generation global showcase for Britain, which will hopefully turn out to be much more valuable than the actual profit yielded by the event itself. Uncertainty lingers concerning whether the games will actually be as beneficial to the economy as predicted. This is a key question considering the economic situation in Britain and Europe as a whole; whether the Great campaign succeeds will depend on also the global economys fortunes in coming years. To maximize benefits from the campaign and the Olympics, efforts to raise awareness and the city's reputation need to be sustained. Competition in Europe: As competition for tourists grows national reputation can be an asset or a liability, with a direct effect on future economic fortunes. The UK's main competitors are other attractive tourist locations in Europe. France has a dominant position with 79.5 million international arrivals in 2011, compared with 29.2 million in the UK (UNWTO, 2012). Other major competitors at the country level are Spain, Italy, Turkey and Germany. London has been known as the most visited city in the world (UNSCBRP, 2012), however Paris seems to be catching up. In one sense, Paris has already overtaken London in 2011: When comparing data on visitor numbers from the Paris Office du Tourisme et des Congrs and the UK

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Office for National Statistics, Paris reported 15.6 million visitors in 2011 while London attracted a slightly lower 15.3 million in the same year. Paris was the original favorite to host the 2012 Olympic Games but lost the bid for the event to London. While tourism went down in London during the Olympics, tourism in Paris was up with foreign visits growing strongly in the first part of 2012 (Carnegy, 2012). Currency valuation has played some role in this: The declining value of the euro against the US dollar and sterling makes it more difficult for London to compete with Paris. It is expensive for Europeans to travel to the UK and visitors from outside of Europe are more likely to choose a Eurozone country in order to get more for their money. Tourism in Paris seems to be booming. The question now is whether London will be able to compete maybe even benefit from the increased traffic to Paris. Global Competition: Over the past sixty years, the tourism industry has experienced continuous expansion, becoming one of the largest and fastest-growing economic sectors in the world (UNWTO, 2012). Many new destinations have developed in emerging economies, challenging the traditional destinations in Europe and North America. According to a 2012 UNWTO report, emerging destinations have grown faster than the traditional tourism locations and the trend will continue in the future. In the next twenty years travelers to tourist destinations in emerging economies are expected to increase at double the pace compared with advanced economies (UNWTO, 2012). The UNWTO estimates that the biggest growth in tourism arrivals will be seen in Asia and the Pacific, but the Middle East and Africa are also expected to more than double their tourist arrivals before 2030. Europe and the Americas will grow comparatively less, however Europe will continue to be the most visited continent. It will be both challenging and vital for the UK and London to maintain its status as an attractive destination.

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Section 5: Policy Recommendations (by Shirah Foy)

Several policy measures may be undertaken to mitigate risks and leverage advantages in addressing the strategic issues we've identified as facing the London tourism cluster. Chinese Market: The importance of emerging Asian economies, especially China, to the future of tourism has been well established. It is crucial for the tourism cluster in London to not only adapt to the needs and preferences of Asian consumers, but to work towards actively delighting these visitors as well. Our recommended strategy for the Chinese market encompasses three points: Improve the UK and London's image in China. The British Council is Britain's official representative organization abroad a sort of cultural embassy. As such, the British Council should increase activity in major Chinese cities, especially high-income areas from which originate high-spending international travelers. An aggressive advertising campaign should be launched to promote London-China relations and create a vibrant and welcoming aura around the city, which is perceived in China as old fashioned and foggy, and not a welcoming destination (Briggs, 2005). Collaboration with London & Partners (L&P) the young and bright new non-profit public private partnership should be an objective in this campaign to renew and refresh perceptions of London in China. Improve the Chinese tourist experience in London. Efforts to renew the UK and London's image in China will only succeed if new visitors' expectations are met once they arrive. User

experience studies should be conducted to determine sticking points in the current tourism infrastructure, and members of the tourism cluster as well as government bodies and supporting entities should do their best to accommodate Chinese tourists' needs. Special attention should be paid to preferences and items/services considered luxury, as it has been shown that Chinese visitors have the means to dispense more than the average visitor. London
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retailers would benefit from accepting popular Chinese credit cards, including the popular UnionPay. Facilitate travel while maintaining security. This includes reviewing (and attempting to simplify) visa restrictions for Chinese tourists as well as expanding transportation capacity. One example of simplified visa processing is the Russian visa-free allowance for ferry passengers coming from Helsinki to spend 72 hours in St. Petersburg without a visa, provided they are preregistered at an approved hotel (St. Peter Line, 2012). In terms of expanding travel capacity, more direct flights between China and the UK would be ideal. Currently only 1 500 flights between UK and China are served each year, whereas in Germany the number is 4 600 (Warrell & Thompson, 2012). In the long term, catching up with Germany would require expanding the already-full Heathrow airport, or building/expanding on another airport in the greater London area. A shorter-term initiative requiring less capital could engineer express routes between London and other European cities heavily trafficked with inbound flights from China. For example, members in the travel segment of the cluster could offer a special package deal for Beijing-Frankfurt flight + Frankfurt-London train.

Leveraging Investments, Post-Olympics: To maintain and boost competitiveness, London needs to make the most of the billions of GBP, thousands of man-hours, setup of various organisations and steering committees such as London & Partners and the London 2012 Organising Committee (LOCOG), and extensive public service announcements included in investments for the 2012 Olympic Games. We recommend capitalizing on the post-Olympic environment by taking action in three ways. First, continue the legacy of the Olympics via Paralympic games, activities, and other programmes, such as Olympic-themed museum displays and performances. Second, retain the service industry labour pool employed during the Olympics. The LOCOG reported that more than
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6000 full-time and temporary employees, up to 70 000 volunteers, and over 100 000 contractors contributed to the total 200 000 individuals working at the games (2012). Considering that the cluster struggles with a relatively unskilled, low quality staff and management workforce (see Factor Conditions in Exhibit 11), it would be wise to capitalize on the recent work experience these employees gained in the service sector by funneling individuals with management potential into training programs where they will be prepared to further develop the cluster. Third, and finally, public service announcements were effective in deterring locals from visiting the city center during the games so much so that The Guardian referred to London as empty (Jackson, 2012). It's time to now emphasize the rare peace and quiet of the city to locals through a new set of announcements in local newspapers, on TV and radio stations, enticing residents in the London area to spend quality leisure time in the city and get their holiday shopping done now, before the crowds return.

Competition within Europe: London needs to defend its title as most visited city even as it is faces stiff competition from new, exotic destinations in developing countries as well as longtime European rivals such as Paris. We recommend three initiatives to maintain London's competitiveness in this environment. Differentiate London from other European capitals. This includes doing more to capitalize on the city's unique value, history, identity, and diversity. Leverage the growing popularity of other cities. One positive practice to continue is that of advertising London at high-traffic tourist sites in other popular European cities (for example, a giant billboard for London in front of the Louvre in Paris). But going beyond mere advertising, the UK can capitalize on its highly developed transportation network (plane, train, Chunnel, bus) to bring people straight to London from other popular European tourist destinations such
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as Paris, Brussels, Berlin, and Frankfurt. The two-hour train connection from Paris to London especially holds potential for increasing the number of visitors via this initiative. Once again, a simplification of the visa application system would be key to maximizing the benefits of the initiative. Leverage transit tourism. London's situation as the cultural, political, business, and transportation center of the UK means that it gets a considerable amount of through-traffic. The idea is to capture some of that traffic in the form of mini-visits or just passing through travelers by enabling a new no-hassle/low-hassle, enjoyable way to spend a few days in London while in transit to or from other UK destinations.

Section 6: Concluding Remarks (by Shirah Foy and Walid O. El Cheikh)

No one event or condition has been identified as the trigger for the London Tourism Cluster. Rather, the cluster's success has been and will continue to be dependent on a diverse network of businesses, institutions, and organisations in industries such as the business and financial sectors, education, entertainment, and healthcare which bring large numbers of visitors to the city. The history and unique identity of the city, which could be considered as London's main competitive advantages, will continue to play a significant role in drawing visitors. However, improving London's reputation in emerging countries such as China and facilitating these citizens' travel to London must be made a priority if the city is to remain competitive in attracting visitors from what is currently the highest-potential customer segment in global tourism.

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