New Zealand’s reliance on international tourism, particularly the “batch and beach” image, presents a significant vulnerability for businesses across the country. Over-dependence leaves businesses extremely vulnerable to external shocks, economic downturns, and rapidly changing tastes, exposing the need for diversification and innovation to ensure sustainable growth. This article dives into the challenges faced by tourism-dependent businesses in New Zealand and explores strategies for expanding revenue streams and increasing resilience.
Understanding the Over-Reliance on Tourism
Tourism has long been a cornerstone of the New Zealand economy, contributing significantly to GDP and employment. Before the pandemic, it accounted for around 5.5% of GDP directly and closer to 10% indirectly. While the industry has recovered to some extent, the COVID-19 pandemic brutally highlighted the dangers of relying so heavily on one sector. Border closures decimated businesses, leaving many struggling to survive. Even beyond pandemics, tourism is susceptible to fluctuating global economies, natural disasters, and shifting consumer preferences. For instance, a sudden surge in fuel prices could deter long-haul travelers, directly impacting the tourism sector. Similarly, negative media coverage concerning environmental issues or safety concerns could lead to a decline in visitor numbers. The challenge lies in reducing this dependency and building a more diverse and robust economic foundation.
The “Bach and Beach” Mentality
The perception of New Zealand as primarily a destination for scenic beauty and outdoor adventures, specifically centered around beach holidays and iconic backcountry cabins (“baches”), is both a blessing and a curse. While these aspects are undoubtedly attractive, they can overshadow other potential opportunities. This creates an image limitation that influences product development, marketing strategies, and investment decisions, preventing businesses from exploring diverse markets and offerings. Businesses can overcome these limitations by promoting alternative attractions in NZ. For example, New Zealand is becoming a popular location for filmmakers, and businesses can start by offering services to the industry.
Geographical Concentration of Tourist Activities
Tourism activity is not evenly distributed across New Zealand. Certain regions, such as Queenstown-Lakes District, Fiordland, and Rotorua, are heavily weighted towards tourism, making them particularly vulnerable to downturns. This concentration places immense pressure on local infrastructure and resources, exacerbates environmental concerns, and can lead to social tensions between residents and transient populations. A more balanced approach involves encouraging the development of tourism-related activities in lesser-known regions. This could be achieved by offering incentives for businesses to invest in new locations and by promoting the unique cultural and natural attractions these areas have to offer. Examples of regions that could benefit from increased tourism include Northland, the East Coast, and Southland, all of which offer unique cultural experiences and pristine natural environments.
Challenges Faced by Tourism-Dependent Businesses
Diversifying away from tourism is easier said than done. Businesses face several significant hurdles. These limitations are based on finance limitations, capability deficits, and mindset barriers.
Financial Constraints
Diversification often requires significant investment in new equipment, training, and marketing. Many small and medium-sized businesses (SMEs), which make up a large proportion of New Zealand’s tourism sector, struggle to access the necessary capital. Banks may be reluctant to lend to businesses attempting to enter new markets, particularly if they lack a proven track record. Government grants and subsidies specifically aimed at supporting diversification efforts can help alleviate these financial burdens and encourage businesses to take calculated risks. Low-interest loans or tax incentives, coupled with streamlined application processes, can provide a needed boost to SMEs seeking to broaden their horizons.
Example: A small adventure tourism operator in Queenstown wanted to diversify into providing filmmaking location services. They required specialized camera equipment and experienced drone operators. The initial investment costs were too high, so they explored options like angel investors or applying for a regional development fund to partially cover the expenses.
Skills Gap and Lack of Expertise
Venturing into new sectors requires acquiring new skills and knowledge. Many tourism operators lack the specific expertise needed to succeed in different industries. This can range from technical skills, such as software development or advanced manufacturing, to softer skills like marketing and sales in unfamiliar markets. Addressing this skills gap demands a multi-faceted approach, including targeted training programs, mentorship schemes, and partnerships with educational institutions. Government initiatives that subsidize training costs or offer scholarships for employees to upskill can also play a crucial role.
Example: A family-owned lodge in the Bay of Islands wanted to diversify into offering wellness retreats. However, they lacked expertise in areas like yoga instruction, nutrition, and massage therapy. To overcome this, they contacted local yoga instructors and sought assistance from local businesses to provide these services in their lodge.
Resistance to Change and Risk Aversion
Established businesses often develop a certain way of working, making them resistant to change. The perceived risk associated with entering new markets can be daunting, especially for smaller companies that have built their reputations and client bases over many years. Overcoming this inertia requires a shift in mindset and a willingness to embrace experimentation. Business owners need to cultivate a culture of innovation and encourage employees to explore new ideas. Case studies of successful diversification strategies within New Zealand can provide inspiration and demonstrate the potential rewards of taking calculated risks.
Geographic Limitations and Infrastructure Gaps
Many tourism businesses are located in remote or rural areas with limited access to infrastructure and support services. This can make it difficult to develop new products or access wider markets. Poor broadband connectivity, inadequate transportation networks, and a lack of specialized suppliers can all hinder diversification efforts. Investing in infrastructure improvements in these regions is essential to level the playing field and enable businesses to compete on a national or even international scale. Furthermore, encouraging the development of shared resource centers or co-working spaces can provide access to equipment, expertise, and networking opportunities that would otherwise be out of reach for smaller businesses.
Strategies for Diversification
Diversifying doesn’t mean abandoning tourism altogether, but rather creating a more balanced and resilient business model. Numerous strategies can be employed, depending on the specific resources, capabilities, and market opportunities available. The key is to be strategic and adaptable, continually assessing market trends. In other words, embrace change.
Product & Service Diversification
This involves expanding the range of products and services offered to cater to different customer segments or seasonal demands. A ski resort, for example, could offer mountain biking trails and hiking in the summer months, or host corporate events and conferences during off-peak seasons. Similarly, a winery could offer cooking classes, art exhibitions, or live music performances to attract a broader audience beyond wine-tasting enthusiasts. Product or service diversification is commonly adopted among NZ businesses to increase its product portfolio and cater to different markets.
Example: A tourism agency in Rotorua adds an array of services focused on local indigenous culture, and collaborates with local Māori tribes to offer authentic cultural tours, storytelling sessions, and traditional arts and crafts workshops.
Market Diversification
Businesses can target new customer segments within the tourism sector or explore opportunities in entirely different industries. For example, a luxury lodge that previously catered exclusively to international tourists could adapt its offerings to attract domestic travelers or host corporate retreats. Alternatively, a transportation company that primarily served the tourism industry could explore opportunities in logistics or freight services. This strategy requires a great deal of Competitive research.
Example: A rural farm offering accommodation to tourists begins exploring agri-tourism. It starts by marketing its farm produce directly to local restaurants, or online. This also strengthens community ties.
Geographic Diversification
This involves expanding operations to new locations, either within New Zealand or internationally. A successful tour operator in Queenstown, for instance, could open a branch in another tourist destination, such as Auckland or Christchurch. This can help to mitigate the impact of local economic downturns or seasonal fluctuations. A great example of geographic diversification is expansion of international franchises. One example is a popular fast-food chain in New Zealand opening new outlets in Australia or the Pacific Islands to reduce reliance on its New Zealand markets.
Vertical Integration
This involves expanding operations along the supply chain, either forwards or backwards. A helicopter tour company, for example, could acquire its own maintenance facility or offer its own accommodation options, reducing its reliance on external suppliers. Or, a restaurant could cultivate its own produce. This may lead to high initial expenses; however, it guarantees full control.
Digital Transformation
Businesses can leverage digital technologies to reach new markets, streamline operations, and enhance the customer experience. This could involve developing a mobile app, implementing an online booking system, or using social media to promote their products and services to a global audience. Embracing digital technologies is crucial to access wider market segments.
Example: A small store selling local artwork and crafts on the West Coast of the South Island creates an e-commerce website to sell its products to international customers. This allows them to reach a much larger market and reduce dependence on local tourism.
Case Studies of Successful Diversification
Learning from successful examples can provide inspiration and practical guidance for businesses seeking to diversify. Following are illustrative examples of tourism-dependent businesses that have transitioned.
Case Study 1: Air Milford
Air Milford which is based in Te Anau, is primarily known for its scenic flights over Fiordland National Park. Facing the challenges of seasonal demand and economic volatility, they strategically diversified into providing aerial support for conservation efforts, film crews, and essential transport services for remote communities. This diversification was not merely opportunistic but a calculated expansion leveraging their existing infrastructure and expertise in aviation. The financial investment was substantial, requiring specialized aircraft and equipment. The transition also required upskilling pilots and ground staff to handle diverse operational demands, necessitating significant training and development programs. Air Milford’s success demonstrates that diversification through related services can create stability and sustained growth, significantly reducing reliance on unpredictable tourism fluctuations.
Case Study 2: Whale Watch Kaikoura
Whale Watch Kaikoura, a Māori-owned tourism business, faced immense challenges after the 2016 earthquake, which decimated the local tourism infrastructure. In response, they not only rebuilt their tourism operations but also diversified by investing in sustainable seafood businesses and eco-friendly accommodation options. The company invested in aquaculture, developing sustainable seafood products for local and export markets. The cultural implications of diversifying were profound, allowing Whale Watch Kaikoura to strengthen its connection with local resources and traditional Māori values. This diversification strategy has enabled Whale Watch Kaikoura to become more resilient and economically stable, while also contributing to the sustainable development of the Kaikoura region.
Case Study 3: Skyline Queenstown
Skyline Queenstown, renowned for its gondola rides and luge tracks, has successfully diversified its offerings beyond traditional tourism activities. They invested in expanding their food and beverage services, developing conference and event facilities, and creating adventure activities like downhill mountain biking and stargazing tours. The shift demanded a transformation of Skyline’s workforce, involving training in hospitality management, event coordination, and specialized adventure sports instruction. Socially, diversifying improved Skyline Queenstown’s role as a community hub, hosting local events and contributing to the local economy year-round. As a result, Skyline Queenstown became a multifunctional destination, substantially increasing its revenue streams and reducing its vulnerability to seasonal tourist flows.
The Role of Government and Industry Support
Government and industry bodies have a crucial role to play in supporting diversification efforts. This includes providing financial assistance, offering training and mentoring programs, and promoting innovation and collaboration. Tourism New Zealand and local tourism organizations can actively promote alternative tourism experiences by supporting businesses in developing sustainable practices.
Financial Incentives and Grants
The government can offer grants, subsidies, and tax incentives to encourage businesses to invest in diversification initiatives. These programs can help to offset the initial costs associated with entering new markets or developing new products and services. For example, the Provincial Growth Fund has been used to support various economic development projects in regional New Zealand, including diversification initiatives in tourism-dependent areas. While the Provincial Growth Fund has wrapped up, its legacy can continue through future regional development schemes. Streamlined application systems are also helpful for new businesses that may not have the capabilities to navigate extensive bureaucratic processes.
Training and Mentoring Programs
Providing access to training and mentoring programs can help businesses develop the skills and knowledge needed to succeed in new sectors. These programs can cover a wide range of topics, from business planning and marketing to technical skills and industry-specific knowledge. Collaboration with educational institutions is essential in offering quality training.
Promoting Innovation and Collaboration
Encouraging innovation and collaboration can help businesses develop new ideas and share best practices. This could involve supporting research and development initiatives, facilitating networking events, and creating platforms for businesses to collaborate on joint projects. For instance, joint marketing campaigns among rural farms that cater to tourism and local businesses are great for strengthening community collaboration.
Practical Steps for Businesses to Take
Diversification is a journey, not a destination. Businesses need to be prepared to adapt and evolve as market conditions change. Here are some practical steps they can take to get started:
- Assess your strengths and weaknesses: Identify your core competencies and resources, as well as any areas where you lack expertise or capacity.
- Research potential opportunities: Conduct Competitive research to identify emerging trends and unmet needs in your local area and beyond.
- Develop a diversification plan: Outline your goals, strategies, and timelines for diversifying your business.
- Seek advice and support: Consult with business advisors, industry experts, and government agencies to get guidance and support.
- Start small and experiment: Don’t try to do everything at once. Start with a pilot project or a small-scale initiative to test the waters.
- Monitor your progress and adjust your plan: Track your key performance indicators and be prepared to adjust your plan as needed based on the results.
FAQ Section
Here are some commonly asked questions about diversifying tourism-dependent businesses:
What are the main benefits of diversifying a tourism-dependent business?
Diversifying reduces reliance on a single industry, making the business more resilient to economic shocks and seasonal fluctuations. It also opens up new revenue streams and growth opportunities, potentially increasing profitability. Benefits include reduced business vulnerabilities, improved financial stability, new revenue streams, and improved long-term sustainability.
How can I identify potential diversification opportunities for my business?
Start by assessing your existing strengths and resources. Conduct Competitive research to identify emerging trends and unmet needs in your area. Consider your business’s core competencies and how they could be applied to different markets or industries. Talk to your customers, suppliers, and other businesses in your community to gather insights and ideas.
What are some common mistakes to avoid when diversifying?
Avoid diversifying without a clear plan or understanding of the new market. Don’t overextend your resources or spread yourself too thin. Don’t neglect your existing business while pursuing new opportunities. Avoid underestimating the challenges and costs involved in diversifying. Never enter a new market without sufficient research.
Where can I find financial assistance and support for diversifying my business?
Explore government grants, subsidies, and tax incentives offered by central and local government agencies. Contact business advisory services and industry organizations for guidance and support. Consider crowdfunding or angel investment to raise capital for your diversification initiatives. Seek advice from financial institutions and explore options for loans or lines of credit.
How important is innovation in the diversification process?
Innovation is crucial for successful diversification. It involves developing new products, services, or business models that meet the changing needs of the market. It enables businesses to adapt to new challenges, identify new opportunities, and gain a competitive advantage. Foster a culture of innovation within your business by encouraging creativity, experimentation, and collaboration.
References
Tourism New Zealand Reports
New Zealand Trade and Enterprise (NZTE) Resources
Ministry of Business, Innovation and Employment (MBIE) Reports
Regional Development Funds case studies
Tourism-dependent businesses in New Zealand face significant challenges but also possess immense potential for diversification. By strategically expanding their horizons and embracing change, these businesses can weather any storm, cultivate resilience, and unlock new pathways to success. The key lies in proactive planning, leveraging resources, and fostering a culture of innovation. Businesses must take decisive action today, investing in new skills, exploring new markets, or adopting new technologies, resulting in the creation of a more sustainable, profitable, and adaptable future. The future of New Zealand’s tourism-dependent businesses hinges on their ability to move beyond the batch, embrace diversity, and build a resilient economic environment.
