By Don A. Holbrook, Las Vegas, Nevada
Tourism has been long overlooked by economic developers as an industry that should be left to the chamber of commerce or tourism bureau folks in most locales. This is, in my opinion, a major oversight in any community’s long-term economic growth strategy. Economic development at its core is simply the attraction of capital that will be spent in the represented locales economy. This of course is then used for all the various goods and services that the constituents need and want in that local economy. Herein lies the major oversight. For many decades local economies have been event driven in their approach to drawing these dollars to their economy. This creates a short-term spike in their economic impact, but nothing as sexy as a real permanent physical asset that employs folks and pays taxes, while also generating additional monies that get spent many times over in the local economy by those that support such enterprises.
A recent study by Deloitte Consulting “Hospitality 2015” points out that over half of humanity is now considered middle class and thus their appetite to find leisure outlets is driving ever-increasing demand for things to do and places to visit and hospitality infrastructure to accommodate their desires, tastes and interests. The World Economic Data report shows that tourism accounts for 8.5 percent of USA total GDP and increasing rather than decreasing in value and contribution to our overall economy. It is going to reach nearly 12 percent of GDP by 2030 according to their forecasts. This can be a double-edge sword; it is a mature industry that is growing rapidly and adding value and reinventing itself constantly. These are not low-paying jobs as many have depicted them in the past. According to Payscale Human Capital Associates, the average tourism industry job is still about $10,000 to $12,000 higher than the U.S. average wage earner.
So now we have determined that perhaps instead of focusing on tourism as an afterthought, the smart and savvy economic development professional should look for those pearls of opportunity that can create some real long-term sustainable economic growth within their locale. First and foremost, any economic developer that desires to make this one of their catalyst showcase projects should do so armed with facts and knowledge of how to reverse engineer the results that are acceptable to their desired outcomes. As in any other major investment of time and money in the economic development field, this will require an investigation and yes, some risk on the part of the community that is going to undertake the project and thus realize the positive economic results.
What is the normal process for identifying such opportunities? That should be the first order of events. You have to understand what process works best and exactly what does such a process entail overall? As is the case in most organized success stories, the process is a system engineered overlay of components. This includes time, talent, money and other tangible and intangible resources that will be necessary to engineer your success and produce your desired results.
Chris Brown, President of Contour Entertainment, Burbank CA and former Executive VP of Disney Imagineering works on projects around the world and within the U.S. His years at Disney running and overseeing creative projects taught him some simple lessons. According to Brown, just about every community has some story to tell; they just don’t do a very good job of presenting that story so that it is compelling enough to interest people to take notice. Brown has stated that tourism is all about developing your own unique story and then getting it presented right so that others will want to become more aware of it and take their time and money to investigate it for their own entertainment value. This is the core of what made and makes Disney successful still today. It is all about the story, according to Brown.
Communities have a difficult time having the patience to focus on the process that will create their own story and serve their best long-term economic tourism interests. Many projects within the United States have gotten started but not had the horsepower to see their visions through the developmental years to fruition. This is largely due to the pressure on local politicians that are too focused on short-term results to stay the course, and was the case with other false starts in Europe and Australia. However, the Asian and Middle Eastern economies have had a voracious appetite for new entertainment and their investment into the tourism sector has been enormously successful. Their now burgeoning results economically have driven strong support in their economies for place based tourism instead of event led tourism as we have mostly in the United States. Dubai for example is now the fifth most popular tourism destination globally. This attracts numerous visitors and is expected to create an additional 277,000 new jobs by 2020. The entire population of Dubai is somewhere around two million people and growing to nearly three million in the next decade. Dubai made a specific direction to invest in becoming a world tourism destination to offset their declining oil economy. That investment over the past thirty years is now paying off in real long-term economic growth and stability.
The growth markets that seem well oiled to grow and attract new visitors in the next five years in the U.S. is a variety of traditional markets on the economic mend such as New York City, San Francisco, L.A., Boston and Atlanta, and these markets are focused on culture and massive population bases seeking outlets for leisure. And, then there are the new comers like Burlington, Vermont and Austin, Texas and the markets that are trying to reinvent themselves such as Detroit, Houston, Phoenix and even L.A. to some extent. What goes without notice and flies under the radar are all the smaller markets that have done a great job in carving out tourism-supported economies. Places such as Solvang California, Paso Robles (California’s other wine country) and Gatlinburg Tennessee joined by Branson Missouri and even Kansas City Kansas and their legends development area. These locales are building on their historical beauty, friendly people and destination specific leisure activities to pull in a larger number of people each year to bolster their economies. Each of these markets took a business case approach to rebranding and reinventing themselves and it is paying off. They also found the void in leisure demand and filled it with place-based economic development projects that created their long-term economic base for their well-positioned transformative growth in jobs and capital investments.
The approach that most industry experts feel is the most likely to be successful is to focus on the catalyst project style of creating a unique design project that can tell your local story and anchor a place-based strategy – showcasing a unique project that will create ancillary economic impact or windfalls over the long haul. The general population desires affordable luxury hoteliers and moderate priced cuisine tied to leisure and recreation fun opportunities with unique local story based flair. Communities can start by creating unique local features such as farmers markets and bazaars and local artists showcases tied to culture and food. This is not enough to grow a sustainable model that creates enough horsepower to draw people from greater ranges, thus pulling in new dollars into their local economy. But it creates capacity and acumen of a sense of place. Once you identify your story and brand you have to fill your pipeline with real place based projects that will create the infrastructure and facilities to draw money from outside your local market. Now the real value of such place based economic development can be immensely realized.
I have found the best and most practical approach is a three-step process. The first step is to get an opinion on what the story might be for a certain locale or region, what I call the Go/NO Go opinion of whether to invest in such a place-based strategy. This should include a full SWOT analysis as to why it is necessary or to make it simpler to comprehend, “if you build this will visitors come and spend money on it?” I call these catalyst projects. The first step has to be practical and consumer orientation driven filled with realism, not hubris or wild unsupported speculation. It has to step outside the local bias and get way outside of the box of what will develop naturally. In other words, if undertaken, it would be a catalyst to cause economic impact that has a return on investment sufficient to repay those placing the capital into the project and taking the economic risks. The first step is a concept paper that denotes what could be done to achieve this and why it would be successful or not. It has to review current, past and even failed efforts to be well rounded.
The second step is a full-blown business case of who would do what and at what expense and what risks are involved in funding this investment by the various public agencies. The creation of a full-blown business case to attract private sector investment into the project is a critical marketing tool, without it most will fail. It will have to have public sector risk capital engaged especially to produce the first two steps. The third step is the marketing and solicitation of the proper development team and their vetting their investor base. This now encompasses the traditional economic development marketing concept, with the caveat that the economic development folks are now armed with a valid business case of their local needs and opportunities with a realistic picture of how much the private sector will need to invest and thus have at risk along with a realistic return on investment for the investors. The business case should include the new hybrid economic development incentives designed to enhance the project attracting the necessary capital to launch and operate it successfully. This approach is the most practical way for any community to create a major place-based tourism oriented economic development strategy.
In the end the community or region is creating their own story and it is their intellectual capital. This intellectual property can be contributed as part of the risk investment and/or repaid from revenue or purchased outright when the development agreement is signed. The necessary economic development incentives the private sector will desire for their own return on investment become the caveat that attracts the repayment of public sector risk capital. In today’s volatile global economy this laser beam focus is far more likely than a shotgun approach that lacks specifics and details. The sophistication of the capital markets is such that the laser beam is the only realistic model that will get your local economy noticed amongst the plethora of economic development cheerleading efforts that are ongoing constantly. Today a business case will trump a marketing pitch filled with promises any day of the week. Good hunting!
Don A. Holbrook is a 25-year veteran economic development site location & incentive consultant. He and his team have worked on projects across North America and around the globe. His focus is primarily on place based economic development tourism strategies and designing the team and products that communities’ can use to attract such investments. He lives in Las Vegas Nevada and has written five best selling books and speaks frequently around the world at professional functions. He has been featured on CBS, NBC, Fox, ABC, PBS television and radio networks, and in LA Times, USA Today, New York Times, Washington Post, FDI (the Economist Group) and many local television, print and radio interviews. He has been one of the North American Judges for FDI Magazine for the past six years on The Best Community Economies for Growth & Investment. He is a former board of director of the International Economic Development Council, and Fellow Member of IEDC, as well as Certified Economic Developer.