The Role of Innovation in Increasing the Profitability Level of the Travel and Tourism Industry in the United Arab Emirates (UAE)

Introduction

Tourism in the UAE plays an important role in its economy and every emirate actively invests efforts in the industry to maintain tourist interest. The region stands out as one of the leading tourist destinations of the world. The infrastructure developments initiatives that the region has initiated in the last 42 years have successfully managed to place the region on the global tourism map. Despite the success that the UAE tourism industry has achieved, there is still room for new developments and expansion. The key to the new development and expansion is innovation. Innovation can be the tool to attract more tourists, as well as develop new tourist products. This research will aim to study innovation in the tourism industry in the UAE market. In particular, it will look at how innovation at different levels can improve the profitability of the UAE tourism industry.

In the tourism sector, there is need for adequate familiarity with the customer needs and preferences in various markets. There is also need for quick and imaginative approaches in determining how the needs can be served in more attractive, efficient and user-friendly ways. Many changes are taking place in the tourism industry globally (Rosenberg 2004). There are numerous speculations toward technological changes. For instance, the Internet and information technology will strongly influence the role travel agents play in the industry. They are likely to reduce the travel agent industry size and the provider in this industry innovate new boundless of services that they can extent to potential tourists. At the moment, every household that has internet access and can use Google to search information about all locations around the world. In addition, traveler can buy tickets online where they have virtually all information about different tickets and airlines prices. The travel industry has become the largest online-based business in the entire world. The internet has transformed travel very rapidly and in many ways by influencing separate aspects of the industry. As a result, the travel industry has become very competitive. The ultimate challenge is figuring out on innovative way of improving the profitability of the industry.

It is clear that most sectors in the world have seen influential technological changes and have embraced IT based infrastructures. They have developed websites, adopted outsourcing, and in the process have created what can be considered a new economy. The changes have certainly led to changes in the existing institutional arrangement and patterns and as a result have led to the development of new wealth through innovation. There is also an increase in the willingness of entrepreneurs to take calculated risks (Weiermair 2004). Despite the fact that most of the innovations start up from the service sector, little attention has been paid on the influence of innovation on the tourism industry as well as the prevalence of innovation in the industry (Weiermair 2004). As a priority, innovation and product differentiation or development must have a unique selling strategy and preposition towards the new market. In many destinations like UAE, services and tourism industries have attained a high level of maturity and thus new tourism attractions and services are necessary (Weiermair 2004). Sometimes innovations in the tourism industry can be merely cosmetic alterations to tourism products and services. The products and change are sometimes influence by the changing market environment as well as health and economic crises such as severe acute respiratory syndrome (SARS), Middle East acute respiratory syndrome (MARS), world financial crises and Middle East political instability. The tourism industry has to continue changing to keep up with changes in the regional business environment, global industry developments, changes in client need and technological advancements. These factors are always a source of uncertainty, which is the greatest challenge most businesses face. For instance, technological changes are rapid and expensive, while the more experience customers gain, the more difficult it comes to satisfy their demands. 

There are challenges in adjusting destination management so that the management takes into account completion, process and environmental changes. Current destination management techniques cannot adequately meet the requirements of the market. UAE tourism faces competition from other tourism destinations around the world and thus the industry has to face up to the challenges. UAE regions have ambition tourism expansion goals. For instance, Dubai seeks to average 20 million visitors annually by 2020. Such an increase in the number of visitors would certainly result in an increase in the tourism profits. However, as the region rigorously develops it strategies, other regions are developing their strategies as well. Tourists will always seek out products that fit their needs and therefore developing value for customers is critical. In this regard, the challenge for the tourism industry is to continuously provide value for the clients’ money through innovation. The innovations have to drive costs down, and change production and marketing strategies by modifying the products, creating new customer experience for the highly experience multi-option travelers (Weiermair 2004).

In ensuring the innovation being the much desired outcomes, UAE has to focus on innovation at different levels, meso and macro levels. However, innovation at macro level will be more effective since it encourages innovation throughout the entire UAE region and society. The entire UAE tourism industry needs to develop innovations in order to improve the competitiveness of the region’s tourism against other regions and thus result in increased profits. The industry must take into account global changes such as increases in the elderly population in the Western countries, growing populations and economies in places like India and China, and other critical development. In addition, it is important determine which features of value chain or visitor experience to innovate, what distinguishable features will be targeted, the motivation of innovations and the success factors of the innovations.

Theory

This study will be guided by the Schumpeterian theory which states that profits and growth are achieved through innovation (Cantwell 2001). The theory focuses on quasi-monopoly opportunities that can be exploited by entrepreneurial firms to enjoy first mover advantages. Innovators enjoy a temporal monopoly with their inputs/processes and/or outputs/products and in turn make higher profits. The profits result from high prices of products and low prices of inputs. Research and development drive the innovation process. Large firms finance research and development and thus consistently innovate and benefit from temporal-monopoly. The Schumpeterian theory also emphasizes the role of entrepreneurship in finding opportunities to create new-value generating initiatives, which can expand and thus transform the flow of income. Schumpeter distinguished between two areas of economic analysis as well as two approaches of generating profits. The first area is that of traditional economic theory. This is founded upon a circular movement of income whereby profits result from market power or imperfections. The power or imperfections act in favor of the few firms by influencing process and quantities within the market. The second area facilitates the first area through creativity, innovation and change. There is still market power but it is now an outcome of the variations in creative process. In this regard, it is the creative process that generates profits, which creates a new stream of income. Research and development can be a source of inventions and innovations. The innovations must then be commercialized in order to earn profits. Penrose (1959) applied Schumpeter’s two streams to analyze the firm. As a price and output-decision taker, the firm can generate more profits by raising its market power. On the other hand, the firm also acts as a tool of problem solving, learning and innovation. According to Penrose (1959), the first stream clearly falls under the convention theory of the firm. However, the second stream falls under a different theory of the growth of the firm.

Hypothesis: innovation in the UAE tourism industry can help develop new tourism products and thus create a temporal monopoly where it can control prices and make large profits.

Literature Review

In a recent study, Monteiro & Sousa (2011) examined effect of innovation on tourism improvement at meso innovation level. The study used information provided by managers that is innovative to generate a clear perspective of innovation in tourism and hospitality. The information from the managers was supplemented or compared with information from previous studies. In their interviews Monteiro and Sousa (2011) collected information from 24 managers that their employees considered more innovative and also 6 of those considered low innovative. Afterwards, content and correspondence analysis was conducted for the extraction of perceptual maps. The data shows the difference between non-innovative and innovative managers’ implication and self-perceptions in innovation services. From their research, they suggested the innovation can be utilized to improve tourism and hospitality organizations. They also emphasized on the employee creativity in the management process.

In another study, Andrea (2012) showed that innovation plays a critical role in the development of a company and meeting the high customer expectations. Andrea (2012) also noted that technologies helped drive innovation and keep up with customer’s expectations. The researcher further found that the enormous interest hospitality authors have in the role of innovation in tourism and hospitality sector. Many authors who have explored this topic approached it through development of models and analysis of tourism and hospitality. Andreas study focused on meso level innovation and successfully used secondary data. Andrea (2012) analyzed 17 previous studies on innovation and tourism. The findings highlighted involvement and commitment of employees as influential to innovation and tourism and hospitality industry. ICT is also influential on innovations in service delivery. In addition, the findings highlighted the significance of the relation between performance of the hotel and success of innovation and innovation types implemented in this area of study.

Lorgulescu’s (2013) research acknowledged the importance of studies on tourism and hospitality innovation for development in the industry. Studies explore determinants of innovations, different costs and individual market attractiveness of firms and the effect of innovation on firms. Literature appreciates the importance of a creative work force in service delivery, but there is little knowledge on innovativeness and ways the workforce can be used.

Studies indicate that employee and leadership relationships and organizational climate are the social-contextual factors that influence individual innovative performance. Personnel recruitment is critical in influencing innovation; however, it has not been investigated by literature in the hospitality and tourism industry. According Lorgulescu (2013), there are insufficient human resource management research practices that have relevance in innovation. Very few studies correlate different countries’ performance and culture in tourism and hospitality industries. Finally, there is a lack of empirical research on innovation capacity and hotel services and the few that are available are in their infancy.

Gyurácz-Németh, Friedrich & Clarke (2013) first focused on the proper definition of innovation within the tourism and hospitality innovation industry. Moreover, Gyurácz-Németh, Friedrich & Clarke (2013) present the factors and characteristics of innovation that determine the novelty success. They also present, through examples, different forms of innovation. The study focuses on innovation at a meso level through a case study of a Hungarian hotel. It also explores classification of innovation processes. Gyurácz-Németh, Friedrich & Clarke (2013) divide the processes of innovation into various categories based on the literature from various authors. They grouped the hotels innovations according their sources and activities involved. The case study relied on secondary sources and found that the Hungarian hotel’s innovation style encourages change and development. The styles creative activities emphasize organizational factors and non-management factors that facilitate the innovation process.

Vila, Enz & Costa (2012) studied corporate-level development in Spain’s twenty-seven largest hotel chains. These hotels had a general bias in regards to innovation as most of them offer tokens for creative concepts and have formal R&D departments. Vila, Enz & Costa (2012) focused on innovation at a macro level and collect primary data through the use of a survey. The findings of the survey showed that the greatest creativity plans on management improvement take into consideration a framework that includes four types of innovation: management, process, product innovation and knowledge of market that is enhanced framework. However, the most frequently discussed innovation is the one that involves market enhanced knowledge which includes usage of communication improvements and sales channels.

Through meta-analysis, Repnik (2013) offered the tourism and hospitality industry solutions on how competitiveness can be raised in the industry. While focusing on innovation at micro level, he compared several studies and their findings. He results showed that if employees are well trained, their ability to innovate will improve thus making the industry more profitable.

As Perez, Borras, Ruperez & Belda (n.d.) assert significant changes that have taken place in the tourism industry revolve around the development and adoption of modern technologies. Perez, Borras, Ruperez & Belda (n.d.) analyzed the main characteristics of the sector that have an effect on innovation. With a focus on innovation at a macro level, they also explored the relationship between specialization, profitability and geographical concentration in Spanish hotels. The study found that innovation has a very big impact on profitability. Furthermore, it found out that while the greater industrial specialization in the industry results in an innovation level that is higher, the greater industrial competition in the area greatly affects the level of innovation negatively.

In every industry, innovation and creativity are critical (Pirnar, Bulut & Eris 2012). With a focus on innovation at a macro level, Pirnar, Bulut, and Eris (2012) studied innovation in the industry in accordance to the changing trends in tourism and preferences of the consumers. Pirnar, Bulut, & Eris (2012) found that in the tourism industry, innovation influences all the aspects development and formation ideas and better tourism services improvement leading to improved profitability. Korres (2008) focused his study of innovation and profitability by exploring their impact on global economies. Tourism plays an important role in the economy. It is a tool for creating employment and protection of cultural heritage.

Innovation and Tourism Products in the UAE

Tourism is an important economic earner in the Middle East. There are numerous tourism products that the region provides to its visitors. The United Arab Emirates Spa market overview (2014) reported that the tourism concept has become an enormous attraction to visitors. The concept of spa is not just a body ritual therapy but serves a greater purpose, including mind and body healing.

Hazbun (2006) explained that the tourism industry has been greatly affected by instability in the Middle East. The political instability has led to the development of tourism strategies brought by many innovational changes in all sectors, especially in Dubai. The UAE government has really played a major role in ensuring the industry is back on track after a long period of interference. Haryopratomo, Kos, Samtani, Subramanian & Verjee (2011) show that the massive innovation that transformed Dubai from a desert into a dream city has improved profitability in the tourism and hospitality sector. Haryopratomo, Kos, Samtani, Subramanian & Verjee (2011) also explain how macro and micro competitiveness helped Dubai to attain great innovation that reflected positively to tourism industry.

Similarly, Blanke and Mia (2007) reported that the Arab world grew from a vast undeveloped desert to sprawling urban landscapes after decades of innovation. They further illustrate how the innovation was done within a short period of time and greatly shaped Arab countries economies thus increase improvement in tourism industry. The UAE developed in all infrastructures, communication and other sectors due to the high innovative ideas in the region. According to Suktan and Byat (2014), the United Arab Emirates has transformed itself into knowledge-based and innovative economy has improved the tourism and hospitality industry.

Anwar and Sohail (2004), assert that the United Arab Emirates has been in the forefront in improving and stabilizing the tourism and hospitality industry. They show in the study that the UAE organizes a number of events like the Dubai shopping festival in order to increase the interest of local and international tourists (Anwar & Sohail 2004). Peter and Anandkumar (2011) observed that the relationship between tourism and shopping in Dubai is deeply influenced by the industry success.

According to Rizzo and Schreiner (2008), development in the Middle East, especially spas in Dubai, has really improved the tourism and hospitality industry. In addition, according to market research done in January 2014, the culture and the ability to adapt other technologies from developed countries and the improvement of health services have greatly influenced the tourism and hospitality industry. Zaidan (2015) emphasizes the role played by latest urban entertainment and tourism shopping in the improvement of the profitability of the hospitality and tourism industry. In a similar study, the 2010 market report shows how agricultural produces greatly influenced tourism. As reported by Dinar Standard growth strategy research and advisory, the fastest growing global tourism area is Halal tourism. The sector is strictly based on the needs of Muslim tourists that seek an environment that is family-friendly (Agriculture and Agri-Food Canada 2010; Gulf Business Consulting 2014). In this respect, the focus is on attracting tourists from the fifty-seven Muslim-majority countries. Furthermore, most services offered by conventional Western hotels cannot be offered in Muslim hotels due to their cultural and religious beliefs. On the other hand, services offered in the Muslim hotels can be transferred to the conventional hotel. By giving Muslims a religious-friendly environment, they can improve the tourism sector further.

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