Fourth Industrial Revolution: Implications for tourism in SL

• Davos analysis positive

In the backdrop of a looming global recession brewing from China, Sri Lanka Tourism has set a target of being the number revenue earner for Sri Lanka by 2020. If we strictly evaluate from a resource availability perspective, it is a very practical target to set given that apparel is at $5 billion and tea $1.6 billion.

If the current $2.7 billion plus tourism industry is serious about the set target, I guess it would be prudent to understand the implications of the Fourth Industrial Revolution that is panning out globally which was highlighted at the Davos World Economic Forum 2016 last month.

77% of British visitors decide the next travel destination with online data

SL Prime Minister – invited after two decades

After a lapse of almost two decades a Sri Lankan head of state/PM was invited to the famous Davos economic summit where the “who’s who” of the business world meets annually. The uniqueness of this year’s World Economic Forum (WEF) was the spotlight of the ‘4th Industrial Revolution’, described by founder and Executive Chairman of WEF, Klaus Schwab, who defined it as “technological revolution that will fundamentally alter the way we live, work and relate to one another”. Whilst it may have its own positives, it will be interesting to understand the implications for tourism in Sri Lanka. 

Flashback – 1, 2 and 3

1. The First Industrial Revolution began in Britain in the last quarter of the 18th century with the mechanisation of the textile industry, harnessing of steam power, and birth of the modern factory. During this time Sri Lanka tourism was limited to the elite. Cruise travel was popular. Given that Sri Lanka was under British rule, there was a link between Sri Lanka and UK and travel was essentially between these two countries.

2. The Second Revolution began roughly a century after the first and peaked at the beginning of the 20th century, embodied in Henry Ford’s creation of the moving assembly line that ushered in mass production. Factories could produce countless numbers of identical products quickly and cheaply — Ford’s famous line was about being able to sell customers cars of any colour they liked, so long as it was black. During this time, Sri Lanka witnessed trade tourism into the country which was linked to the tea industry of the country. The famous London tea auctions was a high point of business travel among Sri Lankans and the colonial era was in play during this time.

3. The third Industrial Revolution, beginning in 1970, was digital. It applied to electronics and information technology to processes of production. Mass customisation and additive manufacturing — the so-called ‘3D printing’ — are its key concepts, and its applications, yet to be imagined fully, are quite mind-boggling. 

Sri Lanka witnessed the ‘local insurgency’ in Sri Lanka in 1971 which, stunted the growth of the tourism industry that was followed by the two decades of civil conflict that took away the shine of the country. From a tourism perspective, what’s important to note is that way back in 1990 Sri Lanka and Cambodia registered 200,000 tourists. By 2009 Cambodia tourism had grown to two million visitors whilst Sri Lanka was at a low ebb of 0.5 million visitors. If one does a back of the envelope calculation, the cost of the war on the Sri Lankan tourism sector was $6 billion from a very conservative estimate. 

4th Industrial Revolution – Implication for SL

Conceptualised as an upgrade on the Third Revolution, it is marked by a fusion of technologies straddling the physical, digital and biological worlds. In a paper on ‘The Fourth Industrial Revolution,’ top economist Schwab says that there are three things about the ongoing transformation that can carve out as a new phase rather than a prolongation of the current revolution. They are velocity, scope, and systems impact. The speed of change is utterly unprecedented, it is disrupting almost every industry in every country, and it heralds “the transformation of entire systems of production, management, and governance”.

The 1.8 million visitor arrivals recorded in 2015 into Sri Lanka comes under this hammer, the logic being that almost 60% of the tourist arrivals are consumed by the uncontrolled sector fuelled by online travel agencies such as Agoda and Booking.com that have created a revolution on the ground, leaving the traditional sector challenged by spiralling costs and low ROI.

Why I refer to this as a revolution is because it has disrupted the conventional tourism approach of tour operator led business into the country that has been in the tourism business model for years. Traditional blue chip leisure companies are experiencing severe competition that cannot be regularised, which includes home stays and apartments also attracting tourist arrivals. Companies are experiencing a sharp growth in web-based bookings, which has given rise for new tech savvy talent to be recruited whose way of life is centred on Facebook, Pinterest, Trip Advisor, YouTube and Twitter, away from the extrovert-driven tourism executive that was once recruited. 

Sri Lanka is grappling to adopt this disruptive behaviour that is circling the world, especially in the booming outbound travel market of China where localised versions such Weibo and WeChat are the mediums of communication. Just like what the apparel industry experienced 10 years back where lead times shot down to 12-14 days, Sri Lanka Tourism will have either ride the wave or it will perish. I guess within the next five years taking part in travel fairs will lose its lustre given the digital shift that is in play. 

The implication to Sri Lanka is that we must recruit a top quality digital talent who can mix and match the digital platforms to reach its target travellers. What’s more important is the ability to evaluate one’s communication performance by way of tools like ‘Google Analytics’ to be specific. The question is, is Sri Lanka ready for this revolution? A country that has mastered this new destination marketing strategy is Seychelles, which I guess Sri Lanka needs to study. Hence we see the industry moving from an industry managed by art to science.

Technical details

Whilst we can broadly be educative just to survive in business in the landscape change taking place a point to note is that Nicholas Davis, Head of Society and Innovation at the Davos Forum, describes the new revolution as the advent of cyber-physical systems which, while being “reliant on the technologies and infrastructure of the third industrial revolution…, represent entirely new ways in which technology becomes embedded within societies and even our human bodies”. 

Examples, Davis says, include genome editing, new forms of machine intelligence, and breakthrough approaches to governance that rely on cryptographic methods such as blockchain, which I guess Sri Lanka tourism will have to master in the years to come that will sure be linked to mobile technology.

What’s in store?

Let’s accept it, there are both opportunities and challenges ahead. Like the earlier industrial revolutions, the fourth has the potential to achieve the following:

lift global incomes and improve lives worldwide, and 

the supply-side miracle due to technological innovation will lead to long-term gains in efficiency and productivity. 

At the same time, all revolutions have large groups of losers as well which is the danger in the Fourth Revolution. Unless the tourism professional of tomorrow moves away from being an extrovert to a thinking/learning tourist expert, Sri Lanka will not be able to meet up to the changing times ahead.

Challenges

A report by the Swiss bank UBS this week said the spread of artificial intelligence and robots will harm economies like India and some Latin American countries by cutting their cheap labour advantage. Earlier researchers at Oxford estimated that 35% of workers in the UK and 47% in the US could lose their jobs to technology over the next two decades. This is dangerous but it’s the reality that we have face. 

A classic example is Cinnamon Red which has introduced a new eco system into Sri Lanka which very rightly identified the Fourth Industrial Revolution. If others do not heed to this change, the loser will be Sri Lanka, given the absence of a structured destination marketing campaign as I pen this column.

Talent over capital

Increasing inequality remains the biggest social concern about the Fourth Industrial Revolution. Top economists voice that irrespective of the net outcome of the revolution, what is important to note is “in the future, talent, more than capital, will represent the critical factor of production”, giving rise to a job market “increasingly segregated into low-skill/low-pay and high-skill/high-pay segments, which in turn will lead to an increase in social tensions”. India, with a very large low-skilled or unskilled youth population, will likely face severe challenges.

For Sri Lanka, given the launch of top of the rung leisure properties like Shangri-La, Anantara ITC and Movenpick, I guess the above development will come to play naturally as we will be operating in global networks. However, given the deeper integration of the Sri Lankan economy to the global network, we will see the war on talent rather than capital. This issue will be severe for Sri Lanka given that the unemployment rate is at around 5% as per latest research.

The difference

Hence we see how Fourth Industrial Revolution builds upon the third, which is primarily digital in nature. This also exposes it to the unpredictability and instabilities of the digital era. There were no bubbles during the first two industrial revolutions, but there have been far too many in the third. A lot of the models are just not sustainable — or are waiting for a big disruptor to come along. For instance, the music industry turned on its head with the Apple iPod, and the chances are the smartphone industry could be wiped away by the next big thing in tech, which could be just about anything.

Sri Lanka will have to invest heavily on researching the changing global traveller on how they book and how they purchase a country for their next destination. Product lifecycles will be shorter, which will call for stronger innovation to stay ahead as a top of mind travel destination which explains the shift in thinking required. The issue here is that the current industry ROI is between 6-10% and the organisation will find it hard to adjust to this disruption with limited funding.

Conclusions 

With device and product cycles being so short, it is becoming increasingly difficult to predict anything which has anything to do with technology. The current buzz ‘Fourth Industrial Revolution’ could be a very short interlude before the fifth one comes along.

The current expectation is that driverless cars will be the disruptor that will be the next generation to brands such as Uber and that will put millions of drivers out of work and change everything from the taxi sector to the automobile industry. But the million dollar question is whether Sri Lanka is ready for the Fourth Revolution when we have been trying to launch a new destination marketing campaign for the last six years without much headway.

(The author has a double degree in marketing, MBA and twice ‘Marketing Achiever’ award winner of the Chartered Institute of Marketing. The thoughts are strictly his personal views and writing is a hobby he pursues.)