International competitive advantages in tourism: An eclectic view

Highlights

• Competitive advantages in tourism are gauged

• A novel methodology is adopted

• Factor proportions, scale economies, countrys efficiency explain competitive advantages.

Abstract

This study investigates the determinants of competitive advantages in tourism services for the EU-28 countries over the period 2000–2013. After having extended the Balassa methodology to measure competitive advantages, a dynamic panel data model is implemented to explain their drivers. The econometric analysis indicates that specific factor-proportions variables, as well as variables related to the new trade theory, contribute significantly to the explanation of international competitive advantages in tourism. At the same time, factors related to the new trade theory help strengthening these advantages. Particularly interesting seems to be our finding about the negative statistical association between competitive advantages in tourism and the overall efficiency of the country, measured by per capita GDP. Some policy and managerial implications conclude the work.

Introduction

Over the past decades international tourism has experienced continued expansion, becoming one of the largest and fastest-growing economic sectors worldwide. Despite the uncertain global economic outlook and terrorism risks, the number of international tourists has shown a virtually uninterrupted growth from 25 million arrivals in 1950 to 528 million in 1995, reaching a total of 1,235 million in 2016 (UNWTO, 2017). In the ranking by total arrivals at tourist accommodation establishments, Europe leads the growth in absolute terms and the Mediterranean countries¹ as a whole cover the highest share of the European market.

In this context, the present study provides a comprehensive analysis of competitive advantages in tourism and their determinants for the EU-28 countries given their role as top tourist destinations. A country has a competitive advantage in tourism services when it is able to produce them at a lower opportunity cost than other countries. This advantage can be due to the relative abundance of a destination's factor endowments (natural, historical and cultural resources), different countries' technologies and productivities, or other factors. The presence of a competitive advantage gives a country the ability to sell tourism services on international markets at a lower price than its competitors and realize stronger revenues. When countries specialize according to their competitive advantages they can compete successfully in international export markets, raise profits and support job creation.

Understanding the determinants of competitive advantages in tourism is, hence, of key importance for both advanced and developing economies, since it would allow them to have a more comprehensive overview of the sources of tourism performances, enabling policy makers to design better strategies to enhance those activities exhibiting such potential and improve performance. From a managerial point of view, it would permit to monitor tourism progress over time, identify emerging risks for firms operating in the sector and track relative performances against key competitors over time.

The present study contributes to the existing literature in different ways.

First, it offers an extensive investigation of competitive advantages and their drivers. As it has been highlighted by Webster, Fletcher, Hardwick, and Morakabati (2007), while much of the empirical research on tourism has focused on tourist flows (e.g. Algieri and Kanellopoulou, 2009, Bobirca, 2007, Crouch, 2010, Crouch and Ritchie, 1999, Dwyer et al., 2000, Enright and Newton, 2005, Gooroochurn and Sugiyarto, 2005, Mazanec et al., 2007), also from an environmental or a sustainable tourism perspective (e.g. Evans, 2016, Ritchie and Crouch, 2003), few studies have focused on competitive advantages in tourism. The present study tries to fill this gap by specifically addressing the nature and the triggers of competitive advantages in the EU-28 countries. There is a subtle distinction between comparative and competitive advantage. Porter, 1990a, Porter, 1990b and Crouch and Ritchie (1999) indicate that competitive advantage depends on the efficiency and effectiveness of resource deployment over the long-term. Destinations that are factor disadvantaged are often stimulated “… to find innovative ways of overcoming their comparative weakness by developing competitive strengths” (Porter, 1990a, Porter, 1990b, p.83). Therefore, “ … a destination is competitive if it can attract and satisfy potential tourists and this competitiveness is determined both by tourism-specific factors and by a much wider range of factors that influence the tourism service providers” (Enright & Newton, 2004, p. 778).

Comparative advantage is a potential advantage, i.e. a country is potentially better suited for production of one good or service than another good or service, but it should exploit its advantage to become competitive. If countries specialize according to their competitive advantages, then they grow in competitiveness and gain from trade. Comparative and competitive advantages hence coincide only when competitive advantages are fully exploited. Conversely, it is possible that a country has a potential comparative advantage, but it is not exploited because either infrastructure deficiencies or skill shortages or other policy choices make the sector overlooked. Similarly, competitive advantages can be created or, at the very least, raised significantly without having comparative advantages. This is the case of Las Vegas that overcame the natural and environmental obstacles of desert and has ranked among the top tourist destinations.

Second, from a methodological point of view, we develop an extended version of the Balassa index to account for tourism specificities. The Balassa index is a traditional measure of comparative or competitive advantages computed using export flows; we extend it to account for the total trade flows in tourism, i.e. both tourism exports and imports. The use of the extended Balassa index seems to be preferable to the traditional index both on theoretical grounds, since it takes into account both exports and imports (Balassa & Noland, 1989) and on empirical ones, since it turned out to perform significantly better in terms of explicative power of the model in the econometric analysis.

Third, we propose an econometric dynamic panel data model, which reflects an eclectic view of theoretical foundations of competitive advantages, going from the classical factor-proportions theory, to the new trade theory, to the management theory insights put forward by Porter. A similar study that applies a panel data approach to explain the drivers of comparative advantages has been carried out by Zhang and Jensen (2007), but our study differs from their contribution for at least two important aspects. First, while Zhang and Jensen use the ‘number of arrivals’ as proxy for comparative advantages in tourism, we employ a specific measure of competitive advantage, obtained extending the classical Balassa methodology. Additionally, while Zhang and Jensen implemented a static panel analysis, we adopt a dynamic System-GMM framework to explicitly account for endogeneity problem and persistency in trade structure. To the best of our knowledge, our study is the first to estimate a dynamic model of competitive advantages in tourism.

The remainder of the study is organized as follows. Section 2 revises the literature on comparative and competitive advantages. Section 3 presents the linkages between comparative and competitive advantages. Section 4 discusses the adopted competitive advantage indicators. Section 5 shows the empirical results of the traditional and extended competitive advantage indices. 6 The determinants of competitive advantages in tourism, 7 Main results of the econometric analysis present the econometric analysis of competitive advantages' drivers and discuss the empirical findings. Section 8 concludes.