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Managerial Economics for Tourism Management.

Section 3

Specific topics related to the management of community-based tourism

Asst.Prof. Komsan Suriya
Faculty of Economics, Chiang Mai University December 19, 2008

Community-based tourism (CBT) is a kind of tourism organized by people in community. Villagers get involved in management, hospitality, and income distribution. Its product is a combination of ecotourism and cultural learning. It aims at the widest income distribution to people in the community.
CBT is different from mass tourism. Mass tourism consists of enterprises in many sectors such as tour operator, accommodation, food and beverage, entertainment and transportation. A tour operator rent vehicles, book hotels, buy tickets for shows, and link these functions to serve tourists. The tour operator needs not to invest in assets because enterprises in other sectors invest instead.
CBT cannot leave investment to other enterprises. CBT takes place in a village. Houses which are converted to be homestays belong to villagers. Food and beverage are usually cooked in the village. Entertainments and shows are provided by villagers. Transportations for tourists are arranged by villagers? cars or motorcycles. Villagers manage almost the whole functions to serve tourists.
Management of CBT, therefore, is different from management of a tour operating enterprise. It is not a management of a function but a system. It is like a management of tourism city but at a scale of a village. Thus, senses of both private and public management are crucial for the management of CBT.
Questions from both private side and public side are arisen for CBT. On the private side, there are more questions from households who participate and operate different functions. On the public side, questions are on infrastructure development in the village and the income distribution.
 In this section, we will look at some topics related to management of CBT both in private and public perspectives.
I. Private management
Households operate almost all functions in tourism. They provide their houses to be tourists? accommodation. Housewives provide meals for tourists. Villagers perform shows to entertain visitors. Local guides are also villagers. Transportation is usually provided by villagers? own vehicles.
Investment is not a major point in CBT. Households get almost everything to serve tourists. There is no need to build another house or add another room in the house. There is also no need to buy a new car for only tourism purpose. Costumes for dancers in a show are traditional clothes that villagers traditionally ware in their everyday lives. Therefore, the classical question whether to buy or rent is not at the focus of CBT.
Instead, the point is at the resource allocation. Apart of tourism, villagers earn for living mainly by agricultural activities. They have to go to agricultural fields or farms to take care of their crops or livestock. Tourism is not a full-time job for them. It is concerned as only a supplementary income. Therefore, a question is who will take care of tourists when tourists come to the village. Is it worth to tradeoff between agricultural income which is a long-run profit and tourism income which is a short-run profit?
Usually, all members of a household must work in agricultural fields or farms together. No one can stay at home while other members go to work. Breakfast is at home in early morning. Lunch is also cooked at home in the early morning and taken to the field. Dinner is prepared after coming back from the field.
Offering a homestay needs at least one member to stay at home to take care of tourists. Even when tourists are outside for trekking, a member must spend time to cook the dinner and clean the house. Cooking for 10 people is a hard work. Ingredients are more than everyday?s consumption. Usually, cooking for sole members in the household takes ingredients from their gardens. Their small capacity of refrigerator, if available, allows them to store meats just for household consumption. Thus villagers must go to a market in town and buy more ingredients. The cooking process is more difficult. A bigger and heavier pan must be used. Longer time of cooking can also be expected. The household then turn to be a temporary restaurant with a temporary chef.
When an allocation of a farm labor to turn to be a chef is a must to welcome tourists, it is questionable whether it is worth for a household to do that? To make it worth, how much should be the price of the tourism? Therefore an important topic for CBT is at pricing. A too cheap price makes villager reluctant to participate in tourism activities. A too expensive price makes tourists say no to visit the village. What is an optimal price for CBT?
An opportunity cost of villagers determines a minimum price. The willingness to pay of tourists determines a maximum price. The price can be set between these extremes.
However, measurement of villagers? opportunity cost is hard. A forgone agricultural income is obviously added to the cost. Non-financial costs such as disturbance made by tourists and exploitation of natural resources are also the points. My survey indicates that households reluctant to offer accommodations to tourists because of both financial and non-financial reasons.
Nevertheless, measurement of tourists? willingness to pay is another hard job. Usually, a technique called Contingent Valuation Method (CVM) is useful to find out the willingness to pay. However, it can be used for something with no market exists. Now CBT is not new to the world any more. Applying CVM is not appropriate in this sense. Tourists will respond with normal CBT price that they know from other destinations. They may state an even lower price to convince the CBT to lower its price. Therefore, CVM will reflect only an existing market price or even a cheaper price.
A real world solution is the cost-based pricing. In a situation that villagers don?t know an exact willingness to pay of tourists, it is safer to offer a price which includes all direct costs and opportunity costs plus some reasonable profit. At least when it is acceptable to tourist, it is also acceptable to them to provide tourism. However, a large amount of tourists may not be expectable.
II. Public management

Tourism in a community gathers people to manage the whole system together. An organization is usually set up to manage tourism. Different types of organizations are found in different villages such as cooperatives and village commission. Committees of the organizations are either elected by villagers or selected by the head of village.
An important decision of the tourism organization is on the provision of infrastructure in the village. The situation of the village is not like that of the local government. The budget constraint prevents a village in massive investment in infrastructure. Roads to the village needs additional budget from local or national government. Clean water supply is another investment that only the budget of the village may not be able to cover. Destroying of solid garbage without releasing much carbon dioxide and carbon monoxide to the atmosphere needs a high performance and expensive burner. Although the villagers? hearts to provide good and green tourism is true, the limited budget refuses them to do so.
Key questions for public management are therefore at the efficiency of budget allocation. What are the priorities to be invested? What is a good combination of investment to provide tourism at an acceptable standard? What is the standard of tourism that the village should provide? What infrastructure should be upgraded in the future? What source of fund can the village access? Is it worth to get a financial loan for the development? Is it worth to found a development fund from savings of villagers?
The village has at least three options. First, no tourism requires any investment. Second, substantial standard of tourism requires substantial investment. Third, high standard of tourism needs all the budget plus extra financial loan.

Managerial economics receiving main idea from microeconomics suggests that the extremes are not as good as the combination of both sides. Therefore, it is clear that the second choice is the best. However, how good should be the standard? There can be ten choices of standard levels? What level is an optimum?

 According to the national homestay standard of Thailand, at least basic needs should be provided in a village conducting CBT. The basic needs are listed below.
1. Accommodation
  A clean house with clean bed and clean toilet is a must. No poisonous insects or animals are found in the house.
2. Food sanitary
  Clean and safe food cooked by well stored ingredients is crucial. Clean water must be provided. Kitchen must be clean.
3. Safety
  The village must be guarded by tourism organization. Cautions for any danger in the village or tourism activities must be provided. First aid kits must be available. Communication to the nearest hospital must be prompted.
4. Management
  A tourism organization should be set for only tourism purpose. Tourism products must be clear stated with their listed price. Local guides should be full of knowledge of the village. Villagers should be trained about standard hospitality.
5. Entertainment and adventure
  Series of entertainment and adventurous activities should be provided to tourists. The standard suggests villagers to show their cultures and local intellectualities.
6. Environment
  Environmental protection measures must be stated clearly. Modification of the landscape to welcome tourists should not be made unless it is necessary.
7. Creation of the value added
  Varieties of handicrafts and souvenirs should be offered to tourists. Capacity building of local staffs is another value added concerned in this context.
8. Marketing promotion
  A substantial budget should be allocated to marketing purpose. Public relation is crucial for being known by tourists. Thus, marketing promotion with its budget must be clearly planned.

However, the word ?clean? is different from place to place. We cannot expect for a village in a high mountain providing a clean room like a hotel in downtown. When the villagers think it is clean enough for them, it should be clean enough for visitors. Therefore, standards are different among villagers according to their living standards.
It is obvious that a village that would like to open to tourism opportunity must have substantial budget to satisfy their specific standards. Less budgets will prevent the village from participation in tourism. More budgets will allow the village to offer a higher standard.
Investment to make a village meet the standard is therefore a must. It is a threshold to start tourism in the village. After passing the threshold, how high should be the standard? We discuss that managerial economics will suggest a standard between two extremes, neither a minimum requirement nor the standard of a five stars hotel.
Competition among villages raises the CBT standard from time to time. Tour operators in downtown begin to contact CBTs with good standards and send tourists to them. Those CBTs earn tourism income more than villages with lower standard.
Thus, the budget allocation determines not only the matching of minimal requirements but the advantage in competition. For a real world solution, dynamic investments into infrastructures in a village are made gradually by the tourism organization. The village does not stop to invest but continuously add facilities little by little. First, they invested much in roads for the access to the village. Second, they purchased big water tanks to provide clean and sufficient water supply. Third, some households add lodges next to their houses. Later, they acquired a high performance burner for destroying solid garbage. Currently, they are constructing more buildings to extend the capacity of a restaurant.

This article should be referred as
Suriya, Komsan. 2008. Managerial Economics for Tourism Management. [online]

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