Framing Ecotourism as a Viable Business Model

1
Framing Eco-tourism as a Viable Business Model

• Lecture 6
• Tad Hara, PhD
• School of Hotel Administration
• Cornell University

2
Framing Eco-tourism as a Viable Business Model

• Eco-Tourism as a business model does NOT have to
  be a Non-profit operation
• Thus all the rigorous investment evaluation
  methods (IRR, NPV) should be applied
• Feasibility studies, including detailed market
  analysis, has to be conducted to entice equity
  investment.
• Include, if possible, Quantification of Benefits
  to local community
• Debt-financing part may be challenging with
  international commercial banks due to sovereign
  risk, project specific risk (tourism project!?)
• Review how IFC/World Bank Group facilitate debts
• Banks with social mission may fit better

3
Framing Eco-tourism as a Viable Business Model

• Eco-Tourism as a business model
• Debt-financing part may be challenging with
  international commercial banks due to sovereign
  risk, project specific risk (tourism project!?)
• Review how IFC/World Bank Group facilitate debts
• Banks with social mission may fit better
• Grameen Bank http//www.grameen-info.org/

4
Eco-tourism as a Business Model

• A Eco-Tourism Project framework may deviate from
  common business theories
• Deviation from Revenue Maximization
• Current Revenue Maximization may not mean optimal
  revenue sustainability (Hold a Long -Term vision
  Compare (a) Extra Revenue Generation of Today,
  with (b) Possible Creation of Liability in the
  future
• Stay conscious and alert against any possibility
  of creating negative impacts tomorrow due to
  todays action/inaction
• Emphasis Not on volume (occupancy) but rather on
  extra ADR (profit margin) by strong external
  marketing towards targeted customers who do not
  mind paying premium for sustainability,
  harmony with ecology

5
Eco-tourism as a Business Model

• A Eco-Tourism Project framework may deviate from
  common business theories Practices
• Extra infrastructure investment leads to higher
  cost higher debt service, higher depreciation
  charges
• Obligation to pay close attention to the external
  benefit that your business is generating to local
  community
• Stimulate Inter-industry Transactions with local
  industries (so that indirect impact will remain
  large)? Choose domestic over imports may lead
  to higher operating expenses.
• Remember that your wage payment (in exchange for
  labor from Factors Market) will be passed to your
  employees households as a labor income. Conduct
  internal marketing that you are there to provide
  benefits to local community ?may lead to higher
  operating expenses.

6
Eco-tourism as a Business Model

• When you have uncertainty, y (required discount
  rate) goes up or down?
• And as y goes up, what happens to the Investment
  Value?

When the perceived risk (uncertainty) is high,
the value will be discounted down by higher y.
Uncertainty
0, 1, 2, 3,
n (10)
Discount rate
Todays value
7
Eco-tourism as a Business Model

• When you have uncertainty over future damage, y
  (required discount rate) should go up or down?
• And as y goes up, what happens to the Net Damage
  Value?

When the perceived risk (uncertainty) is high,
the discount rate should be lower, resulting in
higher present value.
Todays quick profit
0, 1, 2, 3,
n (10), n 50
Uncertainty
Discount rate
NPV of damages
Todays value
8
Eco-tourism as a Business Model

• A Eco-Tourism Project framework may deviate from
  common business theories
• Consider Endogenizing social benefits to local
  community, such as schools (education), roads,
  medical care into BOTH your financial statement
  AND your mindset/behavior.
• Give out certain portion of EBITDA directly back
  to local community (not through governments by
  income tax)
• Display both to local community and to your
  guests the benefits you are plowing back into
  host community (you need an economic modeling
  technique, and you learned it in this class!).

9
Eco-tourism as a Business Model

• Dilemma Established Business Model vs Eco
  Sustainable Business model
• Once you come up to the frontier topics, there is
  no single right answer. It depends (on what you
  stand for)
• Example Outsourcing
• -is it good for USA?
• http//www.illwillpress.com/tech.html
• -Hard-disk production (1980 vs 1997)
• -Boeing 777

10
Eco-tourism as a Business Model

• A Eco-Tourism Project framework may deviate from
  common business theories
• Most of literatures are qualitative, talking
  about attitudes, not with hard numbers.
• Can we quantitatively model the entire framework
  as a business model?
• The Case in U.S. Virgin Island
• (By now, you have great knowledge on the economic
  impact of Tourism Industry? You will be surprised
  how much you understand the topic!)
• Please fill in the Evaluation Form