Investing in the growth of travel in China

By Maggie Rauch, China TravelDaily

After a four percent drop in 2009, travel bookings in China will grow by five percent in 2010, projects a new PhoCusWright report, “Emerging Online Travel Marketplace in China.”

The same report predicts that travel will expand to become a $65 billion industry by 2011, and that 20 percent of that market would be online.

Where opportunities lie in that growth, and what kinds of companies might be positioned to seize them was one topic of discussion at the recent China Travel Distribution Summit.

“You can see that online booking is growing, and people are ready to travel,” said Sandeep Bahl, general manager of China for Delta-Northwest Airlines, adding that he expected support from Beijing to boost the market.

“The government in China has recognised tourism as a pillar.”

Online booking may be growing, but it is still difficult for a well-established foreign company to make its mark in China’s online travel space, experts at the conference said.

“Every single Internet company that has entered the China market has failed.” says William Bao Bean, a partner at venture capital firm Softbank China & India Holdings.

Fritz Demopolous, founder and CEO of Beijing–based travel media site Qunar.com pointed out that China’s market-leading sites for general search (Baidu), travel booking (Ctrip) and travel meta search (Qunar) are all local companies that were first movers in their space.

All three had thrived despite the entrance into the market of competitors that were big-time leaders in the United States and globally.

Demopolous said Expedia owned online travel agency eLong.com, but had only been able to corner 10 percent of the market, compared to 57 percent for Ctrip, according to iResearch.

“I don’t think there’s one company that has done well, but that’s not to say that looking forward, a foreign company may not do well.”

As Demopolous explained, a successful online venture required capital, technical knowledge and local expertise. Chinese companies had access to as much capital as a foreign competitor, he said, and the proliferation of open source technology lowered that barrier to entry.

“In the consumer internet space, knowledge and capital are free flowing,” Demopolous said. “Domestic companies aren’t at any disadvantage at all online. It’s a pure execution game, a numbers game.”

Cyril Ranque, vice president of the partner services group for Expedia Asia-Pacific, spoke at the Shenzhen conference about some of the challenges Expedia faces in China.

“It’s all about making it relevant for the local market,” he said. “For multinationals like us that’s hard to do, because we’ve been successful by rolling out processes and systems.

“And whatever we know from the outside that has worked to expand in the western world is not going to work here.”

Ranque added that Expedia’s plans in China were long term, a position the company has backed up by expanding its China portfolio beyond eLong.

This year, via TripAdvisor, it purchased travel meta search site Kuxun.com and set up a review site called Daodao.com. It also brought its corporate travel practice, Egencia, to China two years ago in hopes that Web-based corporate travel planning would grow.

Corporate travel is an area where there is some unmet need, said Softbank’s Bao Bean.

“There is opportunity for helping companies save money and cut down on employee fraud and get the best price,” he said.

Adaptability and willingness to really listen to local partners were keys to realising return on investments in China’s travel industry, said Bao Bean.

“If you try to control from abroad or put in international systems, you will have a distinct disadvantage in the Chinese market.”

And for companies entering China via mergers and acquisitions, he advised: “Make sure you don’t buy the whole company. Make sure the people running it stick around.”