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81
DOI: http://dx.doi.org/10.20534/EJEMS-17-3-62-72
Samarina Anna, PhD student,
Dongbei University of Finance and Economics, E-mail: [email protected] Alireza Nasiri,
PhD in Management Science, University of Tehran,
E-mail: [email protected]
INNOVATIONS IN TOURISM SERVICES AND INTERNATIONAL TRADE: THE EVIDENCE FROM CHINA
Abstract: Innovation is nowadays a major driver of increasing competitiveness of firms, regions, and countries; it is one of the key sources of economic growth and development. However, despite the fact that innovation is found to be a qualitative leap that can significantly promote international trade, studies examining innovation and international trade have focused mostly on the manufacture. The transition toward a service-based economy draws attention to the relationship between trade and innovation in services. International tourism is one of the most promising sectors in international trade in services, but studies on tourism in the literature on international trade are still in infancy. The purpose of the paper is to fill the gap and investigate the relationship between innovation in tourism services and international trade, using the data on international tourism in China. A hypothesis is proposed to prove that innovation has a positive significant impact on international trade in tourism services in China. Based on the recent statistics on international tourism in China six provinces from different geographical regions were chosen as a sample and the data for the period 1998-2015 were collected from provinces' statistical yearbooks. A panel data framework was estimated with panel OLS method. The result supports the hypothesis that innovations provide significant benefit in the development of tourism industry and, therefore, promote international trade in tourism services.
Keywords: innovation, international trade, services, tourism, China.
Introduction but although mutual reinforcement between trade
In general, it is a shared opinion that innova- and innovation received the growing attention tion is an essential condition for the growth and among specialist and practitioners [10], historically, competitiveness of national economies [1-5]. Ac- literature in this area has focused merely on the tan-cording to OECD Innovation Strategy, trade is one gible goods sector. However, innovation is a critical of the framework conditions that can strengthen in- factor for success in any economic sector, including novation in the business sector through competition services [11]. According to World Bank statistics, in [6]. It is widely recognized that exporters, who need 2015 trade in services contributed 12,89% of world-to create and maintain competitive advantages in wide gross national product [12]. The transition to-the international trade arena, are more productive ward a service-based economy requires a revised un-and more innovative [7; 8]. Innovation is a quali- derstanding of a two-way relationship between trade tative leap that can significantly promote trade [9], and innovation in services [13].
Within the service industry, tourism plays a significant role in the economy, as it contributes to the economic growth and provides employment [14]. According to World Travel and Tourism Council (WTTC), in 2015 the total contribution of travel & tourism to world GDP was USD 7,170.3bn (9.8% of GDP), and total contribution to employment was 9.5% of total employment (283578000 jobs) [15]. In the process of time, tourism, despite occasional shocks, remains to show ongoing growth, strength, and sustainability. Traditionally measured by international tourist arrivals and international tourist revenues [16], tourism is one of the main components of international trade in services. According to World Tourist Organization, global international tourist arrivals increased from 25 million in 1950 to 278 million in 1980, and 1184 million in 2015. As well, international tourism revenue earned by destinations worldwide rose from US$ 2 billion in 1950 to USD 104 billion in 1980, and USD 1260 billion in 2015. Since 2010 international arrivals were increasing by 4% or more every year. In 2015 international tourism, as a worldwide export category represented 7% of the world's exports of goods, ranked third after fuels and chemicals and ahead of food and automotive products [17]. This data indicates the importance of trade in tourism services for various countries, and, in particular for Asia-Pacific region, which, according to UNWTO, recorded close to 6% growth in international tourist arrivals in 2015.
In respect that tourism is one of the rapidly growing service sectors in the world, the number of new destination and potential touristic activities is booming, so the level of competition in the international tourism market is continuously increasing. As a result, market participants have to improve their competitiveness to enlarge market share and raise the international tourism receipts [3]. The primary source of increasing the competitiveness of organization, industry, region, or country is innovation [18], the degree of which, in the tourism sector, is higher than usually believed [19].
Among the countries getting the benefit from strong growth in tourism is China, which has managed to increase by double digits the international tourism receipts in most of its regional tourist destinations [20]. The engine for three decades of unprecedented economic growth of China is not only successful structural reforms, but also science, technology, and innovations in every sector, including international tourism [21].
Despite the fact that innovation is found to be vital for economic growth, few studies focused on the impact of innovation in services on international trade. This paper aims to fill the gap in the literature and investigate the relationship between innovation in tourism services and international trade, using the data on international tourism in China.
1. Literature review
Widely recognized as an important source of economic growth, innovation has been defined in many ways in the economic literature. Schumpeter (1934) identified five categories of innovations, namely, new products/services, new processes, new markets, new resources, and new organizational forms [5]. Recent studies usually use the definition of innovation given by OECD "Oslo Manual" (2005), which divide innovations into four types: implementation of a new or significantly improved product/service, new or significantly improved process, new marketing method and new organizational method [22; 23].
Some scholars determine innovation as a new idea, which can bring a new visions of products and processes [24], some consider it as the ability of the firm to adopt or develop this idea in order to gain a competitive advantage [25], and some emphasis on the process of successful exploitation of the idea [26]. Innovations are often divided into technological (cover process and product innovations and involve the implementation of technical novelties) and non-technological (cover marketing and organizational innovations and doesn't rely on technical novelties) [3; 27; 28]. One of the most significant characteristics of innovation is its functionality or
practical value for the organization [29]. Regardless of type, all innovations must contain some element of novelty and should be new at least on one level: new to the company, to the market or to the world [6].
Although the innovation phenomenon has been widely studied in the literature, studies examining innovation and international trade have focused mostly on the manufacture. This is not surprising because the roots ofboth international trade and traditional innovation theory derive from manufacturing sector [19]. Innovations, as well as trade, have traditionally been related to tangible goods, and service sector was supposed to be untouched by both trade and innovation [30].
However, with the recent growth of services' share in the international trade and the global economy, widespread assumption about lack of innovative capacity in the service sector was rejected by most of the scholars [31]. Over the last two decades, studies on innovations have been focused on service sector innovativeness [32-34] and evolved into the multidisciplinary body of knowledge covering economics, management, and marketing perspective [33; 35]. Most of the researchers point out the positive relationship between innovation in services and trade performance as a result of increasing firm competitiveness [3; 30, 36-38].
The first studies on innovations in services estimated the same indicators used in manufacture sector and mostly concerned technological innovations. Nevertheless, recently it became clear that despite the fact that innovations in manufacturing and innovations in services have a lot of common ground [39], complex nature of services have the significant impact on characteristics of innovations and make it different from those traditional for manufacturing [33; 40; 41]. A case study conducted by Lacovone, Mattoo and Zahler on service and manufacturing firm in Chile proved the assumption that service firms show the same level of innovative activity as manufacturing firms, but they rely more on non-technological forms of innovation than
manufacturing firms [30]. At the same time, Rand-hawa and Scerri noted that one of the key roles in service innovations still belongs to technology (basically Information and Communication Technology) [42]. Van Ark emphasized that innovations in services relate more to organizational innovations, like the implementation of a new delivery system, service concept or client interface [43]. Bessant and Tidd stressed that simultaneity between production and consumption of services makes the process of differentiation between product and process innovations (in particular what is produced and how it is produced) more difficult for researchers [44]. Human capital plays a major role in service innovations, the experience and skills of the employees have a significant impact on innovative potential and innovative activity of the firms [45].
Thus, we can distinguish two most common points ofview on innovation in services. The first one sees innovations in services highly related to technology (ICT and other technologies) [42; 46], while the other one describes innovations in services as something unique, specific and non-technological [47]. Integrative approach sees innovations in services as a combination of two mentioned above components: technological (especially ICT) and non-technological (human resources, service concept, organizational structure, etc.) [3; 38; 40; 48].
Services usually presented a set of different activities, so most of the researchers agreed that innovation in services cannot be analyzed using the same model in every case. [32] In spite of growing attention to the topic, the theory of innovation in services still has to develop. Intangibility and heterogeneity of services make it difficult to measure and evaluate the innovation performance [44], so future research is needed [49].
It becomes even harder to measure if we are talking about innovations in tourism services. Although some researchers have recently been studying innovations in the tourism sector [3; 11; 40, 50-52], only recent research is reaching the same level that can
be compared with research on manufacturing innovations [19]. The business nature of tourism services is interdisciplinary [51], so most of the innovations in tourism are connected to innovations in other sectors which provide products and services for tourism [53]. For example, technological innovations in the transport sector have caused drastic and irreversible changes in the tourism industry. Customers got the opportunity to travel long distance comfortably and fast. Europe, the place of traditional tourist destination, started losing its position in the world tourism due to the rapid growth of Asian travel market which can provide the same services with comparable quality and price [54]. The other feature of innovations in tourism services is that it is highly visible and can be easily imitated [3, 19]. The level of competition in the tourism sector is very high, and tourism firms must continuously innovate in order to keep up their competitive advantage in the global market [11]. Some scholars strongly believe that role of technology in tourism services innovations is undeniable, technological innovations (especially ICT and the Internet) have dramatically changed the principles of tourism services and prepared a new field for future innovations [3, 55]. According to Buhalis & Law (2008), technological progress and tourism have been going hand in hand for years. Nonetheless, it is impossible to reduce innovation in tourism services exclusively to ICT or other technology, as far as some innovations are purely behavioral. Thus, innovations in tourism are both technological and behavioral [40].
International tourism, as one of the most promising sector in international trade in services, is important for a very large number of countries. However, notwithstanding its share among foreign expenditure items, studies on tourism in the literature on international trade are still in infancy [16]. Although some researchers made attempts to analyze the role and characteristics of the international tourism services as a part of international trade, research on the impact of innovations on international tourism are still limited. Clearly, there is a necessity of research in this area, yet there have been few recently published academic studies on tourism innovation and its connection to trade.
2. Highlights of innovation and international tourism in China
2.1 Innovations in China G 20 innovation report 2016 named China the second largest world R&D performer. Since 2000 Chinese gross domestic expenditure on R&D shows steady positive growth (see Table 1). In 2016 the government launched 13 th Five-Year Plan on Scientific and Technological Innovation with a set of targets to reach in 2020, so technological innovations budget will continue to be increased in the coming years. National strategy for mass entre-preneurship and innovation, released in 2015, aims to stimulate the enterprise sector to innovate, continuously increasing direct and indirect support for business innovations [21].
Table 1. - Main science and technology indicators, China, 2000-2015
year government expenditure on innovation funds and science and technology funds (billion yuan) government expenditure on R&D (billion yuan) gross domestic expenditure on R&D (% of GDP) researchers (per 1000 employed, fulltime equivalent patent application accepted patent application granted
1 2 3 4 5 6 7
2000 86524 89570 0.893 0.96 170682 105345
2001 99156 104250 0.94 1.02 203573 114251
2002 96838 128760 1.058 1.11 252631 132399
1 2 3 4 5 6 7
2003 109299 153960 1.12 1.17 308487 182226
2004 124394 196630 1.215 1.25 353807 190238
2005 149459 245000 1.308 1.5 476264 214003
2006 174456 300310 1.369 1.63 573178 268002
2007 178304 371020 1.373 1.89 693917 351782
2008 212921 461600 1.445 2.11 828328 411982
2009 274452 580210 1.665 1.52 976686 581992
2010 325018 706260 1.71 1.59 1222286 814825
2011 382802 868700 1.775 1.72 1633347 960513
2012 445263 1029840 1.906 1.83 2050649 1255138
2013 508430 1184660 1.99 1.93 2377061 1313000
2014 531445 1301560 2.021 1.97 2361243 1302687
2015 586257 1416990 2.067 - 2798500 1718192
Source: data compiled by the author from National Bureau of Statistics of China.
The Global Competitiveness Report 2016-2017, presented (scored from 1 to 7); these indexes are published by the World Economic Forum, estimates taken from the 12th pillar, named Innovation, in the the competitiveness landscape of 138 economies. Global Competitiveness Report 2016-2017. In Figure 1, six innovativeness indexes of China are
Figure 1. Innovativeness indexes of China, Source: Figure 1 is designed by author based on The Global Competitiveness Report 2016-2017
The Global Innovation Index GII, co-published or out of this group of top performers. In 2016 China
by Cornell University, INSEAD, and the World Intel- became the first middle-income economy to enter top
lectual Property Organization, ranks the innovation 25, replacing the Czech Republic. China's innovation
performance of 128 countries, based on 82 indica- ranking is the result ofhigh scores in both the Business
tors. The top 25 GII slots are occupied by a solid set of sophistication and Knowledge and technology outputs
high-income economy countries, leading the world in- pillars. Top scores in indicators such as global R&D
novations. In past years, hardly any country moved in companies, domestic market scale, research talent in
business enterprise, industrial designs by origin, patent applications by origin, utility model applications by origin, high-tech exports, and creative goods exports are all factors behind this high ranking [56].
According to 2014 China Innovation Survey, innovation is the number one priority for 42 percent of Chinese companies. The most frequent choice of the innovation strategy for Chinese companies in 2014 was Technology Drivers strategy (43 percent compared with 21 percent for Market Readers and 37 percent for Need Seekers). These data may demonstrate the Chinese companies' model of innovation — using the technological foundation in addition to customer proximity and propensity [57].
2.2. Tourism in China
As one of the most popular tourist destination countries, China experienced a rapid period of
tourism development. International tourist arrivals rose from 716 thousand in 1978 to 59,2 million in 2016 (excluding visitors from Hong Kong, Chinese Taipei and Macau) and international tourism receipts increased from USD 263 million to USD 120 billion respectively (see figure 2, figure 3) [58]. According to World Travel & Tourism Council, the total contribution of travel & tourism to GDP of China reached USD 1,000.7 bn (9.0% of GDP) in 2016 and is forecast to rise to USD 2,150.0 bn (11.0% of GDP) in 2027. Foreign visitors spend-ings or international tourism receipts generated 18% of direct travel & tourism GDP in 2016 [59]. UNWTO Tourism Highlights 2016 named China as the second largest world's top tourism earner, and fourth in arrivals after France, the United States, and Spain [60].
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Figure 2. International tourists (overnight visitors) in China (1978-20)
Source: data compiled by author from National Bureau of Statistics of China
Figure 3. International tourism receipts in China (1978-2016), million US$
Source: data compiled by author from National Bureau of Statistics of China
At the end of 2009, the State Council released "The suggestion on accelerating the development of tourism" and promoted tourism industry from "important industry" to "national economy strategic pillar industry" [61]. In 2016 the State Council issued The 13th Five-Year Plan for tourism industry development, which specifies the urgent need to implement development concept of innovation, promote innovation in ideas, products, business forms, technologies and market players. According to the Plan, by 2020 the number of tourists should grow to 6.7 billion with investment to the tourism industry USD 2.94 billion [62].
The choice of the country for research is motivated by the fact that in recent years China became a highly innovative country with rich tourism heritage sites. Given the current contribution of tourism to the volume of international trade in China, innovation in tourism services become a key factor for improving international tourism competitiveness and letting China hold the leading position in the international tourism market.
3. Data and methodology
The purpose of the study is to measure the impact of innovation on the international trade in tourism services. The study uses panel framework to investigate this relationship. The hypothesis of the research is that innovation has a positively significant impact on international trade in tourism services in China. According to previous studies, we use the patent application indicator as an approximation to innovation [63-65]. It should be noted that in order to keep the size of research manageable we limited our study to technological innovations and excluded behavioral innovations. The international trade in tourism services is traditionally approximated [16] by total foreign tourists' expenditure in both business and leisure trips. We also took into consideration expenditure on research and development by both government and business sector, as a factor that can promote innovations [63], and constant parameter, indicating
province specific factor. Panel OLS method is used for estimation.
Equation (1) is the mathematical model which explains the interaction of variables.
LogT = a + PLogL + P2LogRt +8t (1)
where
logT — natural logarithm of international trade in tourism services measured with foreign tourists' expenditure, a — constant parameter, indicating province specific factor, logI — natural logarithm of innovation measured with the total patent application, logR — natural logarithm of expenditure on R&D,
£ — the error term, i stand for ith observation.
i '
The data has been collected for the period from 1998 to 2015 from several provinces of China according to their attractiveness for foreign tourists. We chose six provinces (one from each geographical region) which have rich tourism resources and received the most foreign tourists' arrivals over the past decades. The sample consists of Beijing (North China), Guangdong (South Central China), Liaoning (Northeast China), Shaanxi (Northwest China), Shanghai (East China), and Yunnan (Southwest China). All data is obtained from Beijing statistical yearbook, Guangdong statistical yearbook, Liaoning statistical yearbook, Shaanxi statistical yearbook, Shanghai statistical yearbook, and Yunnan statistical yearbook.
4. Results and discussion
Equation (1) was estimated to test the hypothesis that innovation has a positive significant impact on international trade in tourism services in China. According to estimation output, independent variables I (innovation) and a (constant term) have coefficients 0.494944*** and 6.806088***, std. error is 0.059155 and 1.373046 respectively (*** indicates 1% significance level). This result shows that there is a strong positive relationship between innovation and international trade in tourism services in China. Positive significant relationship between the constant term and the trade proves the existence of province-specific effect on the foreign tourists' arrivals and, therefore, on international trade in tourism services. The
coefficient of expenditure on R&D is 0.116223 with std. error 0.076703, which indicates that expenditure on R&D has a positive relationship with trade in tourism services, but this relationship is not significant. R square value is 78% and indicated that independent variables are explained the model and significant at 1% since f statistic is 0.0000. Apparently, innovation can be considered as a factor which provides one more form of attractiveness for international tourists. The hypothesis should not be rejected based on the estimation results, which proved significant contribution of innovation to international trade in tourism services.
Conclusion
The study deals with issues of international trade in tourism services and innovations, focusing on China. Literature review shows a small number of researchers applied to innovations in services and its contribution to international trade. The innovation benefit to the tourism industry comes not from the industry itself; it comes from the combination of different industries, service and manufac-
ture, which makes it difficult to measure. Furthermore, innovations in tourism services can be both technological and behavioral. We limited our study to technological innovations, leaving the potential for more large-scale follow-up research. The study presents recent statistics on international tourism in China and innovations and proposes the hypothesis that innovation has positively significant impact on international trade in tourism services in China. To prove the hypothesis 6 provinces from different regions of China were chosen as a sample, patent application index and foreign tourists' expenditure were utilized as a proxy to innovation and international trade in tourism services respectively. The methodology used the panel data model estimated by the Panel OLS method. The result shows positive significant impact of innovation on the international trade in tourism services in China. The hypothesis is true; innovations provide significant benefit in the development of tourism industry and, therefore, pro-
mote international trade in tourism services.
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