China’s MICE sector faces challenges on all sorts of levels, but the industry’s underlying growth story remains strong
Despite concerns over an economic slowdown in China, and the continuing impact of the government’s official austerity drive, China’s underlying economic growth continues to nurture an active business community. The development of this community and their projects fuels a busy and rapidly growing Meetings, Incentives, Conferences and Exhibitions (MICE) industry, creating a competitive environment that is filled with exciting growth potential and opportunities for hotels and service providers alike.
According to figures from the Global Business Travel Association (GBTA), China represents about 20% of the world’s global business travel market and is set to become the biggest market by 2016. MICE is a crucial component of this as international and domestic Chinese enterprises continue to hold events all around China, with new destinations in second and third tier cities becoming more popular. Many of these cities have been boosted by government stimulus packages. However, given the experience of MICE clients and their high expectations, it is necessary for these new locations to provide the quality of service to which corporate clients are accustomed.
Shanghai remains at the heart of the China MICE story. Home to many multinational and domestic headquarters, Shanghai is connected to the rest of China and the world via its expanding infrastructure. As tourism matures into a pillar of the Chinese economy, infrastructure projects in Shanghai, Hangzhou and beyond are expected to attract even more tourism and MICE opportunities to the country.
China’s rapid ascendency into one of the world’s largest MICE markets is only a short tale so far. The industry’s development dates back less than a decade, when China proved capable of hosting large international events, such as the Beijing 2008 Olympics and the Expo 2010 Shanghai. Both events were underpinned by the creation of an infrastructure of facilities and services that spurred leeway for further development of the industry.
In the three-year period after the last visitor left the Shanghai Expo site, demand in the city was less pronounced, although the MICE sector grew steadily. However, this year, the Shanghai Exhibition Center opened to great fanfare. “This new exhibition center – the largest in China – will greatly improve our positioning to secure more MICE business and push demand for the Puxi District, in particular the Hongqiao area,” says Marcel van Mierlo, General Manager of New World Hotel in Shanghai.
Due to faltering domestic and reduced global economic growth, GBTA has cut its growth forecast for Chinese business travel. In 2014, spending on China-originated business travel rose roughly 16.6% to US$261 billion. GBTA expects a growth of 14.2% in 2015, and 12% in 2016. However, the double-digit growth rate will push total spent to US$334 billion by the end of 2016, and that is impressive by any measure in any country.
In the coming two years, there will be continuous growth in exhibitions for Shanghai. While the overall outlook for the industry remains optimistic, a myriad of challenges do loom ahead. Due to the rapid growth of business travel in China, more firms are entering the fray in a bid to capture market share. This has created an oversupply in the market, which puts pressure on prices. Van Mierlo says: “We see prices becoming more competitive in anticipation of two new hotels opening near the new Exhibition Center.”
From a buyer’s perspective, the oversupply results not only in a greater variety of hotels, but also provides lower rates. In addition, as pressures on company budgets grow amid current economic headwinds, buyers are looking for more added-value within the rates paid. As it is, corporate meetings and exhibitions represent 35% of hotel business on average, making the MICE segment a significant source of revenue, with an average revenue per stay per delegate double or triple that of a regular corporate business traveller.
As a result of slower economic growth, companies are more efficient with their resources. The size of MICE groups has been significantly scaled down, from widely recognizable large groups in the past to somewhat smaller groups in the present. This not only holds true for MICE, but for regular tourist groups as well. With 15 meeting rooms of various sizes, a hotel such as New World Shanghai is less affected by this trend compared to competitors with large ballrooms and fewer small function rooms. In addition, the economic slowdown has produced sharply contrasted demand between domestic firms and MNCs. Chinese firms have expanded more rapidly relative to MNCs, thereby contributing to most of the industry’s growth. In 2014, a total of 3.65 million newly founded companies were established in China, a 46% increase year-on-year.
Against the backdrop of these developments, it is clear that the MICE industry will remain a dynamic sector. In adapting to the rapid changes coming to the fore, it is always important for hotels to embrace challenges and come up with new approaches to tackle them, while keeping an keen eye on delivering the service quality to which corporate clients are accustomed.
“In first tier markets, such as Beijing, Guangzhou and Shanghai, there is so much supply that the market struggles to absorb,” remarks John Yuan, Catering Sales Director of Four Points by Sheraton in Hangzhou. “For that reason, more developers look to emerging markets in second and third tier cities.”
One of those markets is Hangzhou, according to Chris Dexter, General Manager of Wyndham Grand Plaza Royale in Hangzhou: “Close to Shanghai, Hangzhou’s tourism standards are very mature compared to other destinations. As a five star hotel brand with an international footprint, we are pleased awareness of Hangzhou has greatly increased throughout the years, attracting international events from MICE clients around the world.” As a MICE destination, Hangzhou has much to offer. Besides famous tourist spots such as Westlake, Xixi National Wetland Park and Longjing Tea Plantation, Hangzhou boasts the International Animation Festival, Westlake Expo, Westlake Marathon, and more.
“Hangzhou not only has the business needs, but plenty of MICE resources, which enable Hangzhou to develop the industry,” Yuan remarks. “As of March 2015, the occupancy level in Hangzhou grew 5%, while the revenue per available room (RevPAR), a key indicator of the industry performance, rose over 9.4%.”
Hangzhou has become a more popular national MICE destination, but many second tier cities in China lag behind first tier destinations. This stems from the fact that the volume of conventions is significantly less and service quality needs improvement. Nevertheless, the expansion of the MICE industry is a firm driver of regional growth. Cities compete on unique selling points, such as location, environment and history.
More importantly, the MICE industry requires a strong focus on developing infrastructure projects and marketing on an international scale. “The local government sees the value of tourism and the need to pursue MICE business to drive occupancy into hotels,” notes Wyndham’s Dexter.
“Driving up average occupancy rates could be easier said than done, as an increasing amount of international hotel brands will open in Hangzhou in the next two years,” according to Carey Wang, Director of Sales & Marketing at The Azure Hangzhou, a luxury “collection” hotel. “As the hotel competition greatly increases, we must continuously improve product differentiation and services to win market recognition.” One such development is the construction of the Olympic Exhibition Center, Hangzhou International Conference and Conference Center, all of which strengthen the city’s competitiveness and benefits hotels.
Smaller cities, such as Zhuzhou, are not yet a major MICE destination in terms of national scale, but are on the rise. “Zhuzhou is home to a large numbers of manufacturers,” remarks Byrds Yang, Director of Business Development of the city’s Hilton. “Attracted by convenient logistics and investment climate, more global companies have set up branch plants, bringing hotels a growing opportunity for meetings that relate to the city’s rapidly rising local manufacturing industry.”
In terms of logistics, Zhuzhou benefits from strong accessibility. The Express Train Station provides convenient rides to Beijing, Guangzhou and Shenzhen. Changsha Huanghua International Airport (CSX) is within a 50-minute drive and has adequate domestic and international flights.
“All these advantage provide potential for the MICE business to soar, especially for large manufacturing industry conventions,” Yang says. “Still, we are faced with a market segmental adjustment. Like many hotels in second tier cities, corporate meeting volume is shrinking. Therefore, we stress extra marketing input and efforts in other segments, such as weddings and social events.”
“There is room for improving China’s MICE industry,” adds Sophie Wang, Sales and Marketing Director of Shanghai’s Westin Bund Center. “Compared with other Asian cities, such as Hong Kong and Singapore, China’s infrastructure, whether it is roads, venues or airports, is not so competitive, despite the recent gains. These points are very pivotal for the MICE industry. For example, there aren’t so many direct f lights between the Chinese mainland and some smaller cities in key countries, compared to major MICE centers like Hong Kong and Singapore.”
Another major bottleneck is the government’s crackdown on lavish spending by officials. The local government has always been a key client of the hotel industry, providing many high and medium level meetings. “Not all hotels rely on government groups for revenue, yet the economic crackdown impacts business, as the MICE group average daily rate, food and beverage revenues have declined sharply,” concludes Yuan.
This austerity trend coincides with reduced company budgets, placing the focus on cost efficiency for MICE industry operators. While more competition enters the market, many MICE hotels are under constant pressure to adapt to a rapidly changing environment.
Yet, with MICE experiencing double-digit growth rates, the industry should benefit strongly from new opportunities coming on-stream, rather than being severely constrained by rigid market conditions. For these reasons, China’s MICE industry will continue its success story, although be it on a more competitive and dynamic footing in the months and years ahead.
Key Chinese gateway cities will benefit from the steady growth in MICE, which will be largely fueled by the domestic market. As a result, the industry at large will continue outpacing growth of international MICE, thereby posing strong competition to well established destinations in the region.