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Proposal for Business Tourism Expansion

I. Project Title: Tourism Expansion in the Maldives

II. Subject of Project

The proposed project will be to define a detailed business plan for expansion of an existing tourist business in the Maldives. The current business consists of a small travel business and a small tourist hotel in the Maldives. The goal of the project is to define viable expansion opportunities and create a detailed business plan to execute the best such opportunities and expand the existing businesses. The ultimate outcome of the research will be a detailed, well researched, and carefully thought out set of business recommendations that, once implemented, should lead to significantly greater businesses and profits while maximizing positive impact on local economy and environmental niches.

III. Research Questions

Several research questions will be considered in researching the proposed business plan. These questions include:

  • RQ1: What are the best opportunities for expansion of the tourist business in the Maldives?
  • RQ2: What are the costs (financial and other) involved in each such opportunity?
  • RQ3: What are the risks (financial and other) involved in each such opportunity?
  • RQ4: What are the potential profits (financial and other) involved in each such opportunity?
  • RQ5: What are the recommended courses of action as a result of the answers to these questions?

The key outcome of this project will be the set of recommendations for expansion of the existing businesses.

The dependent variable will be the expansion project recommendation; the independent variables will be costs, risks, and potential profits of the investigated projects.

The objectives that result from these research questions are to identify and analyze the opportunities, costs, risks, and potential profits for possible expansions of the existing businesses. This will lead to a cost-benefit analysis of these options, which in turn will lead to a set of recommendations on the options that are most likely to maximize profits and improve overall business success.

IV. Importance of Project

The existing businesses in the Maldives consists of a small travel business, a “low class” guest house, and a small scale money transfer operation. The concern of the project is two-fold. First to determine the best routes for expansion and greater profitability of the existing businesses. The second, more academic reason for pursuing this project is to determine the economic impact of such an expansion of small, locally owned businesses in a developing country in a remote region of the world. The population of the Maldives is decreasing each year and has been since the early 2000s (CIA, 2011; U.S. Dept. of State, 2007). Tourism is the largest sector in the Maldives economy and funds more than 90% of government tax revenue (i.e., from import duties and taxes derived from tourism) (CIA, 2011). With such economic vulnerability, the Maldives as a whole can benefit from any business activity that benefits tourism revenues. Ideally, although specific to the businesses involved, the proposed project will provide an exemplar for how to improve the economics of remote, tourism-based regions in the world.

V. Preliminary Literature Search

A preliminary literature search provided an overview of both the Maldives tourism industry specifically, and also an understanding of the economics of tourism-based economies in developing regions such as the Maldives. In the following review of literature, major issues of Maldivean economy and environment are introduced to indicate key elements for consideration.

Tourism Demand in the Maldives

Riza and King (2010) developed a model of the tourism demand for small island economies such as the Maldives to identify the determining factors that contribute to that demand. This study used the number of tourist arrivals as a dependent variable in their investigation. The authors noted that there is only one primary accommodation for the Maldives which is the resort, and that as a matter of policy, only one resort is permitted on any island (there are approximately 1200 islands in the Maldives). Thus, there are currently 87 resorts in the Maldives, each with activities such as sunbathing, diving, sailing, and fishing. In large part, the Maldives are limited by their low-lying status; no island exceeds two meters above sea level, placing all of them in grave danger due to rising sea levels as a result of global climate change. Riza and King also noted that the typical length of stay is 8 to 9 nights and has been quite stable at that level for more than 20 years, with the vast majority staying between one and two weeks. The authors looked at five key countries which represent sources for most Maldivan tourists: Germany (20% of tourists), Italy (20%), Japan (9%), the U.K. (12%), and Switzerland (6%); together these account for about two-thirds of all tourist arrivals. The model Riza and King developed considered variables such as tourist income, cost of living in the Maldives, cost of living in competing destinations (which included a set of 16 alternate tropical island destinations), the cost of travel both to the Maldives and to the competing destinations, the cost of tourist-consumed goods, government tourism marketing expenditures, and an estimate of private tourism marketing expenditures. Additional factors included the impact of the ongoing War on Terror given that the Maldives is primarily a Muslim country. The resulting mathematical model demonstrates that tourism to the Maldives is a luxury and responds to global economic conditions as other luxury travel; the level of tourism is also sensitive to the competing destination prices and cost of travel. More positively, however, Riza and King noted that marketing efforts can pay off in substantially improved tourism rates (Riza and King).

Niyaz (2010) noted that, the War on Terror has had an ongoing negative impact on tourism to the Maldives; recent terrorist activity in the Maldives (a bombing that injured ten people, including tourists, in the capital city of Male in 2007; Islamic terrorists were suspected of the bombing) may have ongoing further adverse impacts. Until that 2007 incident, the Maldives were considered a secure destination for tourism, but that bombing, which targeted European and Western tourists, has disrupted that opinion (Niyaz).

Economic Impact of Tourism in the Maldives

Yahya, Parameswaran, Ahmed, and Sebastian (2005) investigated the socioeconomic impact of tourism on the Maldives. Because the resorts which are the linchpins of the tourist industry are heavily controlled by foreign nationals, these authors estimate that only approximately one dollar in eight (less than 13%) actually goes into local coffers. The result has been long-term problems, including economic instability, lack of development of other economic sectors, and environmental damage due to over-development of resort locations and tourist activities that disrupt environmental niches. The authors suggest that the government place greater emphasis on developing other economic sectors including fishing or fisheries and providing international financial services (Yahya, Parameswaran, Ahmed, and Sebastian).

Yahya, Parameswaran, and Sebastian (2005) note that this economic structure is particularly unfair because consistently ex-patriate employees are paid higher than—often substantially higher than—Maldivans. For example, they note that a Maldivan assistant cook at a Maldivan resort is paid 2,052 Maldivan Rifiyaa, while a foreign assistant cook is paid 10% more, or 2,288 Maldivan Rifiyaa. A food and beverage manager is paid 6,537 Maldivan Rifiyaa if a local, but 12,307 if a foreign national. Much of the income paid to foreign workers leaves the country as remittances rather than being spent on local goods and services. Even resorts advertised as “entirely local” are controlled by foreign investors. (Yahya, Parameswaran, and Sebastian).

Environmental and Marketing Impact of Tourism

Claude and Zaccour (2009) considered the impact of decisions by individual tourist destinations in terms of improvements and the development of the destinations’ reputations over time. The authors note that the overall popularity of destination tourist locations tends to decline over time in large part as a result of their evolving reputation among tourists over time (Claude and Zaccour).

The Maldives, as noted earlier, is one of the most vulnerable island states to issues of global warming and its resulting sea level rise. Niyaz and Storey (2011) investigated how the environmental impact assessments (EIAs) came into conflict with the government’s desire to expand tourism development in order to improve the local economy. The authors noted that EIA consultants generally asked for little public input on proposed new development projects, and that such input was often either ignored or not considered in any focused way. In general, public opinion was not solicited because the decision to move forward was, in effect, already made. Further, there were cultural inhibitions against protesting any development approved by the government. Existing processes focus nearly exclusively on the economic benefits of any proposed tourism development, including infrastructure, jobs (though migrant South Asians take many tourism jobs), and resort developments ( Niyaz and Store).

Trends in Tourism in the Maldives

With the world economic recession, tourism has lost ground since 2008. The result, according to Cushing (2010), has been to increase packages that are all-inclusive and the development of increased interest in accessing the mid-market level of tourism rather than relying solely on the luxury market. Small, less luxurious options that still offer the basics have appeared in the Maldives mix of tourist options; although they have fewer frills they are appealing to families and others on a more limited budget. Also, more innovative options have begun to appear based on tourist preferences and tastes (Cushing).

VI. Proposed Methodology and Rationale for Methodology

The proposed methodology for this project is first to identify appropriate possible expansions of the existing business, including (as examples) setting up tour packages to the island, and including financial services and transfers to the various resorts. Once those possibilities have been identified, economic research into the costs, risks, and potential rewards of each option. Additional factors that will come into play may include environmental impact of each option, and the overall impact of the options on the local economy. Those results will then be analyzed on a cost-benefit basis and conclusions drawn.

This methodology provides a mechanism to weight critical aspects of the expansion decision according to larger issues including local economic impact and environmental issues. Because the Maldives is so vulnerable to ecological damage, including these impacts in a business expansion decision will provide a model for other similar business decisions. It also will help provide a model for keeping a larger percentage of the economic benefit of business expansions within the country instead of exporting it to foreign concerns.

VII. Project Plan

The project plan for this study is to accomplish it in four main phases:

  • Perform a literature search and do research on the opportunities for expansion of the businesses in the Maldives. The result of this phase will be to identify at least three different expansion opportunities that show the greatest promise. These options will define the topics in the rest of the study.
  • Research each of the options to determine financial impact, risk, economic impact, and environmental impact.
  • Analyze the results of the option research .
  • Develop a set of recommendations for business expansion and complete the final paper.

The first phase of this project can be concluded within approximately two weeks after approval of this proposal. The second phase will require six weeks. The final phase will be complete in approximately two additional weeks, and the final report submitted two weeks after that.