TT-812 (Tourism Edition) -- Japan About to Overtake Korea as an Inbound Tourist Destination?

* * * * * * * * TERRIE'S (TOURISM) TAKE - BY TERRIE LLOYD * * * * * *
A bi-weekly focused look at the tourism sector in Japan, by Terrie
Lloyd, a long-term technology and media entrepreneur living in Japan.
(http://www.terrielloyd.com)

Tourism Sector Edition Sunday, July 12, 2015, Issue No. 812

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+++ Japan About to Overtake Korea as an Inbound Tourist Destination?

The Nikkei ran an interesting tourism story today, talking about how the
Middle East Respiratory Syndrome (MERS) outbreak in South Korea has
knocked the stuffing out of the tourism industry there. Apparently the
number of Chinese tourists fell by 54% in June, to 260,000 travelers --
probably about half the number who visited Japan in the same month (I'm
extrapolating, the figures are not out yet). Since the Chinese are the
biggest spenders in South Korea, dropping about US$2,070 per person
while they are there, this translates into a JPY75.8bn revenue loss for
last month alone. And since 82% of every inbound tourist dollar (won?)
stays in Korea (only 18% is needed to import goods and services to
support those tourists), it is "high grade" national income with few
strings attached. No wonder South Korean government is concerned about it.

But then the article goes on to delve deeper into South Korea's other
tourist problems, and comes up with two other significant contributors
-- a lack of hotel rooms and a lack of cities and transportation outside
Seoul for visitors to visit and spend their money. We're not so sure
about the hotel shortage claim, in that a quick check around other media
shows that the hotels situation has been chronic since at least 2010.
Five years is plenty of time to build more hotels, so we believe the
"shortage" is probably self-inflicted to the benefit of local operators
-- meaning that the government and local interests are limiting the
efforts of foreign investors to participate in the sector. We say this
because here in Japan there are now a number of foreign funds putting
billions of dollars into the hotels sector, and there are plenty of new
buildings being planned. So it's not like there is a shortage of
outsider interest in the North Asia market.

For the last few years South Korea has been a worthy competitor to Japan
for inbound tourists, and in fact in 2014 there were 14.2m arrivals in
South Korea versus only 13.4m in Japan. However, now in 2015, with the
first quarter numbers confirmed, the picture is very different and if
annualized it is likely that there will be around 16.5m arrivals in
Japan and possibly a fall to just 13m in South Korea.

So is this just the MERS effect or is there something deeper going on?

[Continued below...]

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We have always thought that the South Korean government runs a very
capable inbound tourism operation. They are putting money in the right
places, and for years have been dressing up the country with attractions
and events that make foreigners want to come. At the forefront of their
efforts has been turning Seoul into a shopping mecca, and making it easy
for nationals of other Asian countries to make the quick hop to enjoy
the latest in fashion, food, beauty, and electronics. It certainly
helped them when Japan had the 3/11 Tohoku disaster, as the radiation
fears caused the Japan-bound flow to move slightly to the West instead.
In that year, Japan's inbound numbers fell almost 27% while South
Korea's rose by a similar amount.

But the reality is that South Korea is fundamentally one large city and
a lot of not-so-well-connected smaller ones. Furthermore, through no
fault of their own, there are few authentic historical locations that
can match Kyoto for color and atmosphere. This means that going to South
Korea is either going to be a one-time visit to Seoul for the curious,
or people are repeat traveling for a specific reason. We have covered in
a previous Take how Japanese housewives are fulfilling their weekend
fantasies by attending idol concerts and getting plastic surgery done at
cut-rate prices. The food is also pretty good as well... :-)

But perhaps the biggest point to be drawn from South Korea's softening
tourism sector is the country's over-reliance on Chinese tourists, a
problem that Japan also suffers from. Without this free-spending group,
profits quickly fall and there is a big knock-on effect on the economy.
This is particularly so in South Korea where inbound tourism directly
accounts for about 3% of all exports (including goods and services),
versus 1.8% for Japan. A lot of people are employed downstream of the
tourism sector there, and any slow-down puts significantly more pressure
on the rest of the economy to make up for the shortfall.

Therefore it is understandable that there is concern. But perhaps both
South Korea and Japan need to wake up to the fact that the Chinese
inbound market is an unreliable one and is fraught with risk. In fact,
we think they both need to diversify as quickly as possible because the
Chinese are so sensitive to negative news and public views. Whether it
is the threat of a viral health outbreak, a war over some remote
islands, a falling stock market, or gripes about inadequate hotels and
inconvenient transfers, China is a market that has few loyalties and
which will quickly find another outlet to satisfy it.

While MERS has been a negative news item for South Korea, in our opinion
the June rout in stocks will have a more dramatic impact in the number
of Chinese tourists traveling abroad over the coming months. Already,
auto makers in China are experiencing a significant fall in June sales,
with GM reporting almost no growth in June despite a massive 20% price
cut, and Ford having an actual 3% drop in the same month. What is
happening in the auto market will soon spread to other discretionary
spending items over the coming weeks. Given that the Chinese stock
market has lost about US$3trn in value and there are many people who
were trading on margin, rather than buying cars and taking overseas
spending trips they will instead be fighting to keep possession of their
homes.

Our guess is that inbound Chinese tourism to either Japan or Korea will
fall by 20% or more over the coming months, which will impact South
Korea more than it will Japan. This coupled with the Japanese government
finally getting their act together in terms of visas and currency
adjustment means that Japan will probably overtake South Korea for
inbound tourists in 2015 for the first time in seven years. But before
the Japanese government starts crowing over South Korea's misfortune,
they should put things into proper perspective. Basically both countries
are fighting over a minor share of the overall world market. In
comparison in 2014 France had 84m international visitors, the USA had
70m, and Spain had 61m.

Heck even in Asia, both Malaysia and Hong Kong had 27m inbound foreign
tourists and Thailand had 25m. North Asia has a long way to go to catch
up and depending on China alone to fill the gap is pure folly.

...The information janitors/

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Title: "Replacing Cash and Protecting People Utilizing Smart Phones"
Details: Complete event details at http://www.icajapan.jp/

Date: Wednesday, July 22nd, 2015
Time: 6:30 Doors open, Buffet Dinner included and Cash Bar
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RSVP: By 5pm on Monday 20th July 2015. Venue is The Foreign
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