Sustaining tourism SMEs

Abstract

In the 1960s the European Commission drew attention to the fundamental contrasts between the regions in the Community. However, it was not until the 1970s that a Common Regional Policy (CRP) for the Member States was implemented and financed. The objectives of the CRP were to 'create a greater convergence between the economies of the Member States and to ensure a better spread of the economic activities throughout its territory'. In spite of many efforts, towards the end of the 1980s, in the run up to the adoption of the Single European Act (1987), there were still major disparities as measured by GDP per head. As a result, a commitment to economic and social cohesion was formally written into the Act. A critical aspect of the progress to regional convergence is the position of SMEs and more especially micro-businesses, which in less favoured or peripheral regions usually have a strong representation from the tourism sector. In this respect, tourism has received increasing amounts of regional aid under the European regional programme.

However, tourism SMEs usually have severe limitations in respect of marketing, delivering quality, price policy, cost control and re-adjustment ability. Theoretically, the learning process of market interaction might lead to some regulating structure that can overcome these problems, thus ensuring that businesses remain economically viable, while environmental and other free goods are conserved and maintained, so that the basis of the tourist industry is sustained. In practice, seldom is this the case: evidence suggests that only government intervention will facilitate this happening, because of the high degree of fragmentation in the industry and asymmetric information flows.

Thus market mechanisms will not create socially optimum solutions. Externalities play a very important part in the development of tourism but not in individual private businesses, hence a practical approach to sustainable development often becomes one of legislative control and the provision of public money and technical support to channel the energies of the private sector in directions that are both sustainable and profitable. The instruments for doing this are the subject matter of this paper in which an action programme for tourism SMEs is developed.