The definition of an SMMTE, according to the DTI (2003: 71), is open to debate as it must relate to the boundaries of the tourism economy. Rogerson (2005: 12) defines SMMTEs as those “operations which fall within the scope of the travel and tourism economy as well as those operating within the travel and tourism industry”. Koh (as in Saayman & Slabbert, 2001: 8) defines tourism entrepreneurship as activities that create and operate legal tourism businesses (that operate on a profitable basis and seek to satisfy the needs of tourists). The tourism industry is defined as an amalgamation of public and private organisations that are involved in the development, production and marketing of the tourism offerings that meet the needs of the tourist. Although the tourism industry has some large organisations, the sector is numerically dominated by SMMTEs, according to Szivas (2001: 163), Kirsten and Rogerson (2002: 31), and Cooper and Buhalis (1992: 102), yet in the literature of tourism there is a dearth on the research into tourism and small business development. SMMTEs, state Cooper & Buhalis (1992: 101- 102), underpin the delivery of the tourism product in most countries and are particularly important in destination development, not only providing tourists with direct contact with the character of the destination, but also facilitating the rapid infusion on tourist spending in the local economy. SMMTEs’ key role is recognised by governments and international agencies, and by organisations such as the UNWTO and European Commission. SMMTEs are crucial in the resolution of the tension between the development of small-scale, personalised niche markets at local level and the dominance of large multi-national tourism companies on the global scale. It is suggested that large-scale tourism enterprises dominate opinion and increase their market share to the extent that SMMTEs play a diminished role in the industry. This is partly because one of the main advantages of SMMTEs is the flexibility and direct control of service delivery, but set against a commonly found approach of amateur management compounded by an inability to invest. The tourism industry is becoming more professional with increasing emphasis on quality management and greater responsiveness to discerning customer expectations; this may become a liability for the sustainability for SMMTEs. The public sector has an important role in encouraging co-operation and co-ordination amongst SMMTEs within tourist destinations.
The challenges, indicate Europe Direct (2003: 11-14), Dalby and Jaska (2004: 11), Rogerson (2007b: 11-18), and Buhalis (1994: 259-267), facing SMMTEs are:
i. Political, because of the need for the tourism industry to become more integrated, it is
expected that greater regulation, or even self-regulation, will become an increasing feature of SMTEs in the future. It is likely that there will be a greater focus on quality of service, customer knowledge, and the follow-up of complaints in order for SMTEs to remain competitive.
ii. Economic, increasing competition from the major players within the SMTE industry is
causing uncertainty. SMTEs will thus have to work more closely to sustain their market positions. The increasing integration between the tourism offering producers, travel organisers and the integration between various modes within a sector will become vital and will impact on the SMTE’s modus operandi.
iii. Environmental, environmental care is increasingly becoming a priority for SMTE
players. Next to the price and quality offered, tourists tend more and more to consider the environmental effort of a company as a determinant of choice. Currently, SMTE’s consider this issue as less important but higher awareness is taking place.
iv. Social, all SMTEs need to be more aware of the changing expectations of their
customers who are increasingly expecting that their decision to visit a destination will have a positive social and cultural impact on that destination.
v. Technology and innovation, the Internet is a major sales channel, but so far only half
of the SMTE’s (in the EU) have incorporated the Internet into their day-to-day activities and is indicative that technology is not yet fully appreciated by SMTEs as an enabler for business success. As the markets become more integrated, the Internet will ease communication and SMTE’s can benefit from the best practices of others through being able to share more easily. This type of knowledge sharing will be an important enabler for innovation.
vi. Distribution handicaps and tour operator dominance: marketing, and specifically,
distribution channels are the greatest weakness and threat to SMTE’s as they are unable to determine the consumer behaviour process, and, rely on seasonal demand. SMTEs thus offer product-driven, rather than market driven offerings. SMTE’s are
mostly unable to launch their marketing campaigns and lack the know-how to do so. There are members in the distribution channel in tourism, namely tour operators and travel agents, who are exploiting this marketing weakness. Tour operators minimise SMTE profit margins by negotiating, for instance, up to 70 percent discounts on the publicised room rates of the accommodation establishments.
In spite of the dominant role played by SMMTEs in the international tourism industry, they remain vulnerable in the modern business environment. The distribution challenges they face as well as the fierce competition caused by globalisation on the industry and the transformation of tourism demand place SMMTEs in a disadvantaged position. In addition, the radical development within the technological field, which most SMMTEs cannot embrace, effectively excludes them from prospective tourists (Buhalis, 1994: 271). It is important to understand the magnitude of competition within the tourism industry faced by SMMTEs argue Buhalis and Cooper (1998: 329-330). These are:
i. Level 1 - competition from similar product and service providers at a destination. Most SMMTEs focus their competitive efforts against neighbouring SMMTEs and do not appreciate that they also compete against tourism offerings in alternative destinations or with alternative leisure offerings and tourist spending opportunity at the tourist’s place of origin.
ii. Level 2 – competition from similar or undifferentiated destinations. The destinations establish an image with the consumer that is easily substituted by alternative destinations. Thus SMMTEs compete with firms and alternative tourism destinations nationally and internationally.
iii. Level 3 – competition from differentiated destinations. Destinations provide unique tourism offerings based on their natural and socio-cultural resources and are regarded unique in the sense that they are not easily substitutable.
iv. Level 4 - competition in the distribution channel. Conflict arises within the distribution channel in that each member of the channel tries to increase its profit margins against the profit margins of other members. In the light that tourist market segments have maximum price limits which they can afford and are willing to pay, the competition between
members is fierce and powerful channel members can dominate and determine the distribution of total profit margins.
v. Level 5 – competition with alternative leisure activities. Alternative forms of leisure activity have effectively reduced the need for consumers to travel to particular destinations in order to enjoy tourism offerings.
SMMTEs should be reminded that though it is natural to compete against enterprises within the same sector, they should not forget that the entire array of SMMTEs comprising the destination is ultimately why the tourist visits a destination. The amalgam of offerings by SMMTEs at a destination should maximise the satisfaction of the customer needs and expectations. It is thus recommended by Buhalis (1998: 338) that SMMTEs should form networks so that they can pool their resources to increase their competitiveness, draw up strategic management plans and marketing plans, reduce operating costs, and increase their know-how.
The development of business linkages, state Rogerson (2004: 17), between large established SMMTEs and small local SMMTEs through outsourcing, subcontracting or other linkages arrangements is viewed as an important means to upgrade SMMTEs, including informal SMMTEs. Business linkages are seen to enable SMMTEs, run by local entrepreneurs, to participate in the dynamic segments of a growing tourism economy. Outsourcing opportunities are identified in a variety of economic activities that include food and beverage provision, arts and crafts, cleaning and laundry services, furniture production, transport services, tourist guiding, etcetera. Rogerson (2004: 18-19) provides a model that depicts the development of tourism entrepreneurship and business linkages in a developing economy context. It is stated that that mechanism by which tourism development may galvanise new SMMTE development, or business linkages, is complex.
Figure 2.5: Models of business linkages and tourism
Source: Rogerson (2004: 18), and Kirsten and Rogerson (2002: 34)
The three stage model of SMMTE development, as illustrated in Figure 2.5, can be explained as follows:
i. In the initial stage the local provision to a tourism facility is limited and the tourism
industry is very dependent on overseas (or, outside the local destination) suppliers. This situation is common because either the local production system cannot meet the increase in demand or because the facility is foreign owned and has a corporate policy of not using local supplies.
ii. During the intermediate stage the number of local SMMTEs increase and become more
geographically spread, profits filter more widely into the local tourism economy and existing or newly developed SMMTEs start to supply the local tourism facility. Consequently, as the local SMMTE linkages evolve, levels of foreign ownership and dependence are reduced.
iii. In the advanced or mature stages the situation is reached whereby a broad-based local
tourism economy has been formed with the developed patterns of local supply and a minimal dependence on foreign suppliers.
Rogerson (2004: 18-19) underscores that a critical factor for achieving this degree of integration is the role of government intervention. The limited linkages that exist in the initial stages can be addressed through intervention programmes to enhance local entrepreneurship processes and deal with a situation of poor entrepreneurial skills.