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December 1998 Issue 12 ISSN 1052-6099

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Editor: Eliza C. Tse, Ph.D.
Department of Hospitality and Tourism Management
Virginia Polytechnic Institute and State University Blacksburg, VA 24061-0429
tel.: 540-231-8424
fax: 540-231-8313
Indochina - Emerging Markets for the Tourism Industry

Lan Li, Ph.D.
Pui Mun Lee, Ph.D.
Amy Tan
Lan Li, assistant professor at School of Family, Consumer and Nutrition Science in Northern Illinois University, USA
Pui Mun Lee, lecturer, Nanyang Business School, Nanyang Technological University, Singapore
Amy Tan, graduate student at Hong Kong Chinese University, Hong Kong

Table of Contents


In recent years, the Indochina region has steadily been transformed from a centrally-controlled economy towards a market economy. With this transformation, business opportunities for hotel developers have been increasing steadily. However, due to former isolation from the rest of the world caused by wars and ideology, knowledge about the region is scarce. The purpose of this study was to provide an in-depth analysis of business potential in the Indochina region, comprised of Myanmar, Cambodia, Laos, and Vietnam. Data for the study is drawn from interviews with executives of major international hotel chains who have hotel projects being operated or under construction in the region, and from secondary data obtained from public resources. The findings from this study indicate that in developing tourism, all four countries were encountering similar problems, such as poor infrastructure condition, shortage of trained workers, and an inadequate legal system to protect legitimate businesses. Given the current Asian economic crisis, the study also suggests governments in Indochina should review the opportunities of regional integration in tourism development.
Key words: Investment opportunity, barrier, tourism, Indochina

Indochina is the region in Asia Pacific, which connects the People's Republic of China to Peninsular Malaysia. Indochina consists of the following countries: Myanmar, Cambodia, Laos, Vietnam, and Thailand. For many years, the whole of Indochina, except Thailand, was a region of continuing wars and revolutions in East Asia. Fortunately for its people, conflicts finally ceased to become the normal ritual and countries went back to concentrating on improving peoples' lives. Especially during the past few years, the region has been attracting considerable attention from the business world for its economic development and untapped market in tourism.
In a political context, some of the countries in this region, Cambodia, Laos, and Vietnam, share a similar communist ideology. However, these countries have recently started to move away from a centrally planned economy towards a market economy system. Vietnam was the first to shift from central planning, beginning in 1986. The lure of high economic returns and the improved standard of living shown by Vietnam's transition to a market economy eventually persuaded Myanmar (not exactly a communist country but more of a military-governed country), Cambodia, and Laos to follow in Vietnam's footsteps to liberalize their countries' economies. Table 1 shows the main economic indicators of the four countries in 1997.

Table 1 Selected Economic Indicators in 1997
Country GDP
GDP per
capita ($)
Inflation CPI
Savings % of
*Source: General information on the Kingdom of Cambodia
**NA - Not available
Source: Asean-9 Selected Indicators,
Cambodia* NA** 290 9 NA**
Laos 1.59 325 6.2 4
Myanmar 14.31 300 25 11
Vietnam 19.08 250 1.6 15

Among the industries in which development emphasis was given top priority in Indochina, the tourism industry has been considered a prime development target. The tourism industry has traditionally generated valuable foreign currencies for developing countries' growing economies. For underdeveloped countries with poor infrastructure and housing, the hotel industry acts as a catalyst for building up necessary infrastructure, and accommodates potential investors. Since the transition towards a market economy, the number of foreign visitors to the region has been increasing rapidly. Vietnam alone has shown a dramatic increase from 20,000 visitors in 1986 to 1.6 million in 1996 (Lee, 1997). Cambodia received about 300,000 visitors in 1996 as compared to 3,532 in 1988. Laos had less than 3,000 visitors in 1989 but the number increased to 346,460 in 1996 (Chuchart, 1997). Total visitors in Myanmar also increased from 42,000 in 1988 to 100,000 in 1995 (Hobson and Leung, 1997).

With this marched increase in arrivals, the hotel sector in the region has been expanding steadily. International hotel operators are eager for opportunities to do business in the region. However, the region's deeply-rooted Marxist ideology and poor infrastructure prevented it from achieving its plans for an open market economy effectively. The countries of the region therefore present a mixture of opportunities and constraints to the outside world.

In the late 1970, Thai government recognized the economic value of tourism, and tourism was incorporated into the national plan. Today, Thailand has already been a principal tourist destination in Asia, this study, then, focus only on the four emerging markets (Myanmar, Cambodia, Laos and Vietnam) in Indochina region. The purpose is to provide an in-depth analysis of business potential in the tourism and hotel industry. The study is based on a review of the trends in tourism development in the region, and to examine the obstacles and opportunities faced by potential investors in the region. A summary of similarities and differences, as well as an evaluation of the future outlook for the region are presented.

Root's Model of Foreign Investment Decisions

Tourism development in Indochina is basically dependent on foreign investment. With the Asian economic crisis started in 1997, investors have been taking cautions on project selection. An investor's choice for a target country is the net result of several, often conflicting factors. Root (1987) developed the model of the foreign investment decision which contains two dimensions of external and internal factors. Figure 1 shows Root's investment decision model.

Figure 1. Factors in Foreign Investment Decision
Figure 1

Source: Root (1987) "Entry Strategies for International Market," p9. USA: D.C. Heath and Company

Marketing factor in the model refers to market size, competitive structure and infrastructure. Environment factor includes political, economical and sociocultural characters of the target country. Production factors refer to the quality, quantity, and cost of raw materials and labors in a target country. Two internal factors refer to production adaptation and management commitment from investment companies. By analyzing each factor, investors might gain an in-depth understanding of their investment opportunities and barriers in a target country. This study employs the external factors in the model as a guideline to analyze the tourism investment opportunities and barriers in Indochina.

From the public information such as newspapers and industry trade journals, 15 hotel chains headquartered in Hong Kong were identified with hotel projects being operated or under construction in Indochina. Vice presidents of operation or development of these international hotel chains were contacted by phone and invited to participate in this study. Five executives from different hotels agreed to be interviewed. Three general questions regarding opportunities, barriers, and future outlook of Indochina were faxed to all respondents in advance and used as a general guideline during the unstructured interviews. All interviews were tape-recorded. Data for the study thus was primarily drawn from the interviews. Secondary data also were obtained from numerous public resources.

The findings from this study are presented in a format of country-by-country analysis. Trends in tourism development for the country are discussed first followed by an evaluation of the obstacles and opportunities that will likely be faced by potential investors.

Among the four countries in Indochina, Vietnam has proven to be one of the fastest growing tourist destinations in the region. Officially, the Vietnamese government opened its doors to tourists in 1987. In 1996, total tourism revenue in Vietnam exceeded US$250 million, and total tourist arrivals in 1997 were 1.6 million (Kangwaan, 1998). By becoming a member of Association of Southeast Asian Nations (ASEAN) in July 1995, Vietnam can expect more ASEAN-bound visitors.

Trends of Tourism and Hotel Development
Tourism has been recognized as a key industry in contributing to Vietnam's economy, and the Vietnam National Administration of Tourism was established for the sole purpose of directing and controlling this industry. Foreign investment in Vietnam's tourism industry was usually in the form of joint ventures. Total foreign investment accounted for US$10.9 billion in 1994 and over 20 percent of this amount was in hotel and tourist service (Hobson and Chon, 1994). Major hotel investors were from Hong Kong, Singapore, Japan, Malaysia, Taiwan, France, and Australia. In 1994, there were approximately 32,000 hotel rooms in Vietnam; however, only 17,000 rooms were deemed suitable for international travelers.

The Vietnamese government actively encouraged foreign hotel investment in three special zones. The mixture of investment activities in these zones were categorized as follows:
-Northern Tourism Area - large hotels and leisure complexes in Hanoi, Haiphone, and Quang Hinh; resorts along the beaches of Doson, Baichay, and Halong, and in the mountains of Tamdao, Bavi, Ninh Binh, and Sapa.
-Central Tourism Area - tourist facilities in Danang, Hue, and Quang Tri, emphasizing cultural adventure and nature-based activities.
-Southern Tourism area - deluxe hotels and resorts in Ho Chi Minh City, Bien Hot, Ba Ria, Vung Tau, and nearby areas, catering to the business and conference market.

Besides investments in up-scale projects, the development of budget hotels also is badly needed, as Vietnam is expecting a high increase in tourist arrivals with less spending power. Table 2 shows the number of hotel rooms needed by the year of 2000 and 2010.

Table 2
Hotel Room Needed in Vietnam by 2000 and 2010
Types of Hotel Year 2000 (Rooms) Year 2010 (Rooms)
Source: Master Plan of Vietnam Tourism Development period 1995-2010. p7, 1998
Budget Hotel 25,270 51,200
Business and Luxury Hotel 13,760 28,240
Total Room Needed 39,300 79,440

Opportunities and Barriers

In 1986, the Vietnamese government set itself the goal of creating a market economy in order to improve the people's standard of living. After a ten-year effort, Vietnam's remarkable economic performance has impressed the international business community. Vietnam's stellar economic performance provides tremendous potential for the tourism and hotel industry. The opportunities includes the following:

The Opportunities
1. Fast economic growth and stable government. Since 1989, the Vietnamese government has laid down some solid foundations to create a new foreign trade system, including increasing the number of trading companies all over the country, and at the same time adapting the banking system to foreign trade and liberalizing foreign exchange. For the past four years, its average GDP growth rate has been around 7%. In February 1994, the United States (US) lifted its trade embargo on Vietnam, and many US firms have since shown considerable interest in investing in Vietnam. Vietnam's economic reform also has benefited from a stable and supportive government. The Law on Foreign Investment was passed in 1987 and revised in 1992 to provide a favorable environment for foreign investors.

2. Opportunities for joint ventures. The revision of the Foreign Investment Law allows for 100% foreign-owned projects, but the majority of foreign investment projects are still joint ventures. Hotel executives prefer to have local counterparts in their projects in order to benefit from their familiarity with the country and a system that was closed until recently. Most local partners are state-owned enterprises or state agencies, which often contribute their capital in the form of land use. Through the explosive new communication channel Internet, the US Foreign Commercial Service of the American Embassy in Singapore regularly publishes information about hotel and resort projects in Vietnam that are seeking foreign joint-venture partners. In June 1995, 11 resort and hotel projects in Ho Chi Minh City were listed on the Internet for the purpose of looking for potential foreign business partners.

3. A highly educated labor force. The greatest asset in Vietnam is its population of 72 million with a literacy rate of more than 80%. Vietnam's labor force is similar to that of Japan in the early 1960s - there is a high level of education, but the majority of jobs have low pay. Currently, about 100 university students a year join the tourism industry, but a projected need of over 400,000 personnel by the year 2000 will be necessary to satisfy the demand of the industry. Most hotel executives agree that the labor force in Vietnam is a great resource to hotel industry development.

The Barriers
Foreign investors must also understand the problems and risks of doing business in Vietnam. The barriers include the following:
1. Communist bureaucracy. Although the outlook for Vietnam's tourism is positive, several obstacles to growth have been recognized but need to be refined further. Hotel executives complained the cumbersome levels of bureaucracy and "red tape" they have to contend with on a nearly daily basis. There are many unnecessary regulations which interfere with market activities. Corruption in certain segments of public and private sectors remains rampant, although efforts are underway to eradicate this problem (Grub, 1992).
2. Lack of environmental protection. The country has very little regulation in some important areas, resulting in insufficient protection of the public interest and provision for public goods. Vietnam has few environmental regulations to protect society's interest in its natural resources base (East Asian Executive Report, 1994). Executives interviewed worried that the country would face the same environmental problems as Thailand if its government does not protect its natural resources now. The environmental problem may hurt the tourism industry in the long run.

3. Inadequate legal system and infrastructure. Vietnam has recognized the need to reform its legal system to support economic reforms. It has begun the process of enacting the necessary laws and decrees in such areas as contracting, banking, property rights and foreign investment laws. However, hotel executives indicated that the current problem is mainly due to uncertainty and inconsistency in interpreting these laws. Different government authorities implement policies according to their own interpretations, which leaves foreign investors confused. The rule of law must prevail if economic expansion is to be sustained.

4. Inadequate infrastructure. Pubic investment in the infrastructure of Vietnam has been neglected for several years. The economy has been able to grow despite infrastructure bottlenecks, but as economic activity expands, the bottlenecks will certainly get worse. A shortage of power, insufficient water supply, and poor transportation system is some of the major problems reported. Unless there is a concerted effort to improve the infrastructure, economic growth in Vietnam would be impeded in the near future.

Myanmar, with a total land area of 676,577 square kilometers, is the largest country on the mainland of South East Asia. The British colonized Myanmar in 1886. In 1948, Myanmar became independent and almost immediately began to disintegrate as a nation as communists, Muslims and native tribes all revolted. In 1962, Myanmar's military assumed governmental power and set the country on the path of socialism. In 1988, after three decades of isolation, the military government opened its country to the outside world.

In the 1990s, the Myanmar's government decided that the tourism industry might be the remedy for Myanmar's economic ailments. A Tourism Law was enacted in June 1990 with a view to provide adequate planning for tourism projects. The Myanmar Tourism Commission was formed to establish policy guidelines and for the systematic operation of the tourism industry (Country Profile, 1995). The government has predicted that tourism will become the country's number one earner of foreign currency by the year 2000.

Trends of Tourism and Hotel Development
Myanmar's government designated the year 1996 as The Visit Myanmar Year, and Europeans and Americans are the two main target markets, representing 60% of total arrivals (Campbell, 1996). Visitors to Myanmar usually spend one night in the capital, Rangoon and then spend the rest of the time in popular resort areas such as Mandalay and Pagan. Most visitors take internal flights - Myanmar Airways and Air Mandalay within Myanmar.

Myanmar's government is positioning the tourism sector as the top priority in foreign investment. Table 3 shows approved foreign investment in major industry segments in 1997. In 1995, the total foreign investment in hotel development had accounted for US$956.5 million (Hobson and Leung, 1997). Table 4 exhibits Singapore, Thailand and Malaysia are the major hotel investors in 1995. The shortage of hotel rooms with international standards is of major concern to the Myanmar's government. In 1994, out of the 1,367 hotel rooms in Myanmar, only 50% of them met international standard.

Table 3. Approved Foreign Investments of the Major Industries in Myanmar (1997)
Sectors Foreign Investment in Million
Source: Economic Development of Myanmar published by the Myanmar Tourism Commission, p3. 1997.
Oil and Gas 2295.92
Manufacturing 1299.90
Real Estate 997.15
Hotel and Tourism 770.56
Mining 498.66

Table 4. Hotel Development, Completed and Planned in Myanmar (1995)
Countries No. of Project No. of Rooms Investment
(million US$)
Source: Hobson and Leung, "Hotel Development in Myanmar," Cornell Hotel and Restaurant Administration Quarterly, v38(1), p.60-70.
Singapore 8 2,588 453.5
Thailand 7 1,468 160.0
Malaysia 3 1,400 201.0
Japan 3 450 82.0
Hong Kong 2 675 60.0
Total 23 6,581 956.5

The shortage of airline service is another problem which hindered the success of promoting The Visit Burma Year in 1996. The government had held talks with more regional airlines to boost service to Myanmar (PATA Travel News, June 1995). Seven airlines - Myanmar Airways International (a joint-venture with Singapore), Silk Air (a Singapore-owned airline), Thai International, Air India, Laos Airlines, Air China, and Biman Bangladesh have international services to Myanmar currently. Rangoon airport is due to be extended by the end of 1996 to take Boeing 747 aircraft, and similar work will be carried out in Mandalay and Pagan (Boyd, 1994). China is the major investor and contractor in the airport modernization project (Vatikiotis, 1995).

Opportunities and Barriers
Like other developing countries in their early stages of development, Myanmar will have to rely on foreign funds for most of its tourism and hotel projects. Through interviewing hotel executives in the region, a picture of opportunities and barriers in Myanmar was put together. The opportunities presented by Myanmar are as follows:

The Opportunities
1. A liberal foreign-investment law. Most executives interviewed agreed that Myanmar has a liberal foreign-investment law. The law allows wholly-owned foreign ventures to have a three-year tax break, and repatriation of profits. Private banks also was allowed to operate in 1992 for the first time since the 1960s. The government also plans to grant full branch licenses for foreign banks. In 1994, 19 foreign banks had obtained licenses for representative offices in Rangoon, and 10 had started operations.

2. Explicit legal and accounting system. Most executives interviewed claimed Myanmar should be an even easier place to do business than other emerging markets in Indochina. Myanmar's legal, accounting, and labor law system is inherited from the British. The government need not introduce intellectual-property legislation, as its patent and copyright law dates back to 1928.

3. English language and high literacy rate. English is widely spoken in Myanmar and there is an 81.5% literacy rate, accounting for one of the country's assets. One executive indicted that his hotel recruited 170 university graduates in a newly-opened hotel in Rangoon.

The Barriers
As with any other countries, as opportunities abound, there also are barriers to contend with. The barriers include:
1. International disapproval of the military government. Hotel executives brim with enthusiasm, but they were slow in action when it comes to actual investments. The reason is the international disapproval of the military government. In 1988, a pro-democracy demonstration called for the resignation of the military government and subsequent massive confrontations between demonstrators and the military resulted in approximately 3,000 deaths in a six-week period. Aung San Suu Kyi, the leader of the pro-democracy movement and the winner of a Nobel Peace Prize owner were put under house arrest in 1989 and was only released in July 1995.

Pro-democracy activists in the US and Europe are against any foreign aid and investment in Myanmar, as they contend the current government sees foreign investment and economic growth as the key to maintaining the military's grip on power. Under political pressure from their shareholders, several American manufacturing companies pulled out of Myanmar, including Eddie Bauer, Liz Caliborne, and Levis Strauss. Hotel executives perceived the country as being in an unstable political environment. According to Gerald Pettie, president of Choice Hotels International: " (his) company would love to get involved in Myanmar, but it is just too risky now" (Sikes, 1993).

2.High inflation and inadequate infrastructure. The value of the kyat currency has been steadily sliding. Inflation runs 50% a year. Fuel is rationed and power blackouts are common. Hotel operators here have to struggle on daily basis for some basic power supply in order to run a hotel.


Cambodia, with a landmass of 181,040 square kilometers, is about the size of the State of Missouri in the USA. Ever since the Second World War, Cambodia has been the battlefield for the French-Indochina war, the Vietnam-Cambodia war, and numerous civil wars. The decades of wars virtually destroyed the country's economy. Cambodia became one of the world's poorest countries and its per capital GDP in 1986 was one of the lowest in the world.

In September 1989, Vietnam withdrew the last 50,000 troops it had stationed in Cambodia and left the country to four political parties. Two of them were non-communists, consisting of Prince Sihanouk's National United Front and Son Sann's (formal Prime Minister) Buddhist Liberal Democratic Party. The remaining two political parties were communists, the Vietnamese-sponsored Cambodian People's Party (CPP) and the Khmer Rouge (hard-line communist).

With help from the United Nations military peacekeeping force, Cambodians conducted a free and fair government election in May 1993. The Provisional National Government of Cambodia was formed on July 1 1993 and a new Constitution was promulgated. The National United Front and the CPP share power in the newly formed Royal Cambodian Government. The Khmer Rouge refused to accept the new government and barred peoples (about 10% of the population) in its control area from participating in the election.

New government leaders wanted to restore the country's economy by moving towards a free market economy. Good working relations are being established with international financial institutions. The UN has spent US$2 billion on building the infrastructure in Cambodia, and foreign investments are arriving from Singapore, Hong Kong, the US and Thailand (Fitzgerald, 1993). Following the example set by Vietnam and Myanmar, Cambodia also is in the process of developing its tourism industry. According to the Minister of Tourism for Cambodia, tourism represents one of Cambodia's main opportunities for rebuilding its economy. This perception is reinforced by the fact that Cambodia possesses an invaluable asset in the form of the world famous temple complex in Angkor. Angkor Wat is one of the Seven Wonders of the World (Sereyvuth, 1994).

Trends of Tourism and Hotel Development
The total number of visitors to Cambodia has been increasing steadily since the new government was formed. The United Nations' aid workers, government delegations, and tourists make up the major visitor markets in the country's capital city, Phnom Penh (EU, 1994). About 70% of tourists were from Asia and 30% from the other part of the world.

The Cambodian government has been actively involved in tourism marketing and hotel development. Approximately US$130,000 was spent on tourism promotion in 1993 (Dowine, 1993). The hotel industry absorbed most of the investment committed to Cambodia in 1993, with about US$200 million in capital pledged (Boyd, 1994). Table 5 shows hotel rooms available in the three primary tourist destinations. Table 6 shows the major hotel projects in Cambodia and major investors were from Singapore and Malaysia.

Table 5. Numbers of Business Hotels and Budget Guest Houses in Cambodia
Location Business Hotel Budget Guest House
*NA - not available
Source: "Tourism in the Kingdom of Cambodia.",Feb. 8,1998, p.3.
Phnom Penh 102
3,325 rooms)
(252 rooms)
Siem Reap 14
(450 rooms)
(169 rooms)
Sihanoukville 20
(351 rooms)
Total 136 148

Table 6. Hotel Projects Under Construction in Cambodia, 1997
Project Investors No. of Rooms Investment
(Million US$)
Source: "Tourism in the Kingdom of Cambodia," 1998 Opportunities and Barriers
Le Royal Hotel Raffles International
209 25
Grand Hotel Raffles International
300 30
Royal Angkor Thai Nakon Patana & Minor Group 300 15
Independence Hotel YTL Corporation 100 15
Chedi Hotel Aman Resort
145 13
Auberge du Temple Aman Resort
32 6.5

By assessing opinions of hotel executives in the region, opportunities and barriers to tourism development were identified. Opportunities presented by Cambodia are summarized as follows:

The Opportunities
1. A new and relaxed foreign investment law. In 1994, the government revamped foreign investment law with a 70-year land lease as part of the investment reforms to attract joint-venture hotel projects (Boyd, 1994). As foreign firms cannot own land in Cambodia, the fixed land lease is expected to make it easier for foreign investors to get loans for their hotel projects. The new law also offers eight-year tax incentives that compare favorably with Vietnam and Myanmar, and it allows foreign firms to freely repatriate their profits and import overseas staff for joint ventures (Boyd, 1994).

2. Government commitment. The new government has placed tourism as a high priority in their national development plan. In supporting tourism development, the government has spent US$1 million upgrading and expanding Phnom Penh's international airport, and initiated many contracts with foreign investors in projects that help rehabilitate old hotels in the country. Tourism officials and aircrews are sent for training in Thailand, Malaysia, and Singapore (Hail, 1993). The entry visa requirement was abolished for journeys of up to 15 days and the cost of permits for longer stays was reduced in December 1994 (Boyd, 1995). In addition, the government intends to develop Cambodia into a leading Asian gambling Mecca; Ariston, a Malaysian company, has signed a $1.3 billion contract to develop a casino resort and a commercial center in Cambodia.

The Barriers:
The barriers identified in Cambodia includes
1. Political uncertainty and security. The Khmer Rouge continues to pose an armed threat to the new government. Military conflict between the government and the Khmer Rouge still keeps tourists away from certain areas in the northwest part of the country. Khmer Rouge Radio commentaries have threatened physical harm to American and other foreign nationals. Some Westerners, including one American citizen, have been taken hostage and several non-Americans have been killed (State Department Travel Information, 1995). The political uncertainty and security issue has delayed major investments in new hotel projects. Some tour agents also suspended ticket sales to certain areas of the country (Boyd, 1993). The US Embassy discourages its personnel from traveling to certain areas, as high levels of crime, military conflict, and banditry remain a persistent problem in these areas (State Department Travel Information, 1995).

2. Lack of basic infrastructure. Inadequate infrastructure has held back development in the tourism and hotel industry. Currently the country has 13 usable airports but only 6 of them with permanent-surface runways. Telecommunication service is barely adequate for government requirements and is virtually nonexistent for the general public (Cambodia, 1995).

With most supplies and equipment being imported from Thailand, hotel overhead in Cambodia is among the highest in the region (Boyd, 1993). Monthly operating costs average US $5,000 per room, partly because of electricity charges and land rents (Boyd, 1993). Most of these costs are passed on to the guest who makes Cambodia a more expensive destination than its neighbors (Vietnam and Myanmar).

3. Inefficient labor force. An unskilled and uneducated labor force is another deficiency. It is estimated that the level of illiteracy in Cambodia is at 80% (Business Asia, 1994). To improve the overall quality and productivity of its labor force, foreign investors and the government must invest heavily in education and industry training. The Hotel Sofitel Cambodiana plans to invest US$50,000 in training its staff and hopes to open a hotel school with the aid of the Alliance Francis and the French Embassy (Dowine, 1993).

Laos, a landlocked country of 4.8 million people, was a French colony in the late 19th century. After the Second World War, the Laotians fought for their independence and achieved it in 1953. However, in 1964 the US began bombing eastern Laos when Laos' communist party fought alongside North Vietnamese troops in the Vietnam-US War. By the time a cease-fire was negotiated in 1973, Laos had become the most bomb-devastated country in the history of warfare (Destination Laos, 1995M).

In 1975, the communist party took control of the country and many private businesses were closed down. In the early 1980s following in the footsteps of its neighbors, China and Vietnam, the Laotian government realized that economic reform was the only alternative for political survival. Since 1986, Laotian leaders have been liberalizing their economy and encouraging private enterprise (The Economist, 1994).

With a population of over four million and a GDP estimated at US$1.5 billion, Laos is still among the poorest countries in the world (Business Asia, 1993). The country's infrastructure is in worse shape than neighboring Vietnam. However, the country has attracted a reasonable amount of investor interest, albeit mostly in small projects. In 1988, the country introduced its first foreign investment law which allowed 100% foreign ownership. In 1993, Laos had licensed 421 foreign investments worth US$585 million. Companies from Thailand were the largest investors accounting for 167 projects, followed by US firms, with projects worth US$82.5 million (Business Asia, 1994).

Trends of Tourism and Hotel Development
Since 1986, the Laotian government has opened its doors to foreign visitors. Laos, the least-visited country in Asia, quickly attracted many curious visitors. Regional travelers are the major visitors to Laos, representing 65% of the travel market, followed by Western Europeans and Americans (EU, 1994). Figure 2 shows the tourist arrivals and earnings from 1992 to 1995. Major tourist destinations include Vientiane (the capital), Luang Prabang (famous for its Buddhist temple), and Champasak (a resort area).

Figure 2.Tourist Arrival and Earnings in Laos During 1991-1995
Figure 2

In 1989, 450 hotel rooms were available in the country, and the number increased to 2000 in 1993 (EU, 1994). The current shortage of hotel rooms has attracted many foreign investors. The number and amount of foreign investments in Laos' hotel and tourism industry are illustrated in Table 7. Major international hotels in Laos include Best Western, Holiday Inn, and Thai Dust Thani. Investors are mainly from Thailand, Singapore, Japan, and Australia (Boyd, 1993).

Table 7. Foreign Investment in Laos Hotel and Tourism Industry, June 30, 1994
Year Number of Projects
Invested Capital (US$)
Source: "Lao 2000 Much the Same as Lao Today," PATA Travel News, January 1995, p41.
1990 6 1,791,000
1991 8 96,731,000
1992 5 6,576,000
1993 6 4,445,000
First Half of 1994 3 265,600,000

Currently, Vientiane's Wattay airport is the only legal arrival and departure point for foreign airline passengers. Very few international airlines fly into the country. Lao Aviation, the national carrier, operates flights to some major cities in Thailand, Vietnam, and southern China. SilkAir of Singapore began its new twice-weekly service from Singapore to the capital city, Vientiane, in October 1995 (Travel News Asia, 1995). A Thai firm, Orient Air Express, has been contracted to fly domestic charters between Vientiane and Luang Prabang (Boyd, 1993).

Opportunities and Barriers
In April 1994, the Friendship Bridge was opened and it linked Laos and Thailand together and theoretically to the rest of the world (Asian Business, 1994). The Australian government financially supported construction of the US$1,1 billion project. Motorists are able to drive all the way from Singapore to the Thai town of Nong Khai, then over the bridge to the Laos capital, Vientiane (Asia Travel Trade, 1993). It was predicted that Laos would never be the same after the bridge is opened, and tourism industry anticipated a deluge of tourist interest to the country. Currently, Laos has yet to completely turn its tourism potential into reality, and opportunities and barriers to further development both exist. The opportunities are as follows:

The Opportunities
1. Political stability. After years of political struggle and the Vietnam War, Laotians enjoy a peaceful life style today. Compared with Myanmar and Cambodia, Laos has a more stable government. Although the communist party still runs the government, a 79-member Supreme People's Council was elected by millions of Laotians. The political stability is certainly a plus for foreign investors in Laos.

The Barriers
1. Slow and restricted development in tourism. The Laotians are proud of their present achievements in tourism but admit that they are not ambitious in this field. The government reiterated its intention to limit the size of the tourism business. Little effort has been made to promote the country as a tourist destination. Investors complain that the government has not made decisions on many hotel projects (Business Asia, 1993), and was picky about who was allowed to visit the country (PATA Travel News, 1995). Mass tourism is discouraged, as the government fears it will bring harmful effects to Laos' culture and society. Foreign tourists must join a tour group in order to visit the country and fees are steep (Business Asia, 1994). These restricted policies are holding back tourism development.

2. Limited business demand and tourism resources. With a country of over four million people and an illiteracy rate of approximately 40%. Laos offers limited business opportunities. For the foreseeable future the economy will continue to depend on aid from the International Monetary Fund and other international sources. From a business perspective, Laos is not an attractive consumer market for most international business travelers. In addition, Laos offers very limited tourism attractions because the landlocked country is inaccessible and there is a lack of natural and historical attractions. Attracting repeating tourists to Laos is a problem for hotel investors in the long term.

This study was conducted during the end of 1995 and early 1996 when the market of Indochina just opened to the world. Most investors in the region were from Asian countries, but the financial turmoil in 1997 has altered this dynamic. Firstly, investment from Korea, Malaysia and Thailand has been dramatically reduced. In Vietnam, a five-star Thai-financed hotel on the shores of Hanoi's West Lake was abandoned, just weeks before completion. Secondly, in the past, many investors were willing to overlook Indochina's poor infrastructure and highly regulated business climate because of its cheap start-up, overhead and labor costs. Now, with the currency devaluation in Asia, the cost of doing business is dropping elsewhere in Asia and Indochina is not so much of a bargain. Numbers of investment and business travels from neighbors such as Hong Kong and Thailand have sharply declined. Foreign companies such as Pepsi-Colar, Apple Computer and Heineken have withdrawn from Myanmar. Vietnam Airways reported that it carried 2.6 million fewer people in 1997 than in 1996 (Lamb, 1998)

Faced with a decline in foreign investors and fallout from the regional currency crisis, all countries in the region are targeting new investors from Europe, North America and Australia. New incentives on reduced land rental prices, tax and import duties were introduced in every country, however it is important that investors be well aware of the implications arising from the differing opportunities and barriers that exist in the region. In particular, investors must understand the similarities and differences among these countries. An informed investor who knows the characteristics will be in a more competitive position to plan long term tourism projects

All four countries are attempting to switch from centrally controlled economies of the past to systems open to private enterprises, market mechanisms, liberal trade, and foreign investment. Tourism is seen as a quick way to earn vital foreign exchange. In developing tourism, these countries are encountering similar problems, such as poor infrastructure condition, shortage of trained workers, and an inadequate legal system to protect legitimate businesses. Even though reforms and changes are taking place in all four countries, problems will not be solved overnight, and foreign investors and operators must realize the risk involved in doing business in the region. Joint ventures are considered the best strategy, as local partners have a much better understanding of the laws and policies in each country. Another similarity is the financial system in Indochina shares many of the characteristics of Indonesia and Thailand, particularly the lack of openness in direction of funds, bad debts and bad state management of the economy. Potential investors must keep pressure on government of each country to speed up its economic and financial system reforms.

The four countries have different histories, politics, and levels of economic development. Given current levels of economic development, Vietnam is, without doubt, developing more quickly than the others are if lessons can be learnt from the Asian economic crisis. Most international hotel chains are present in this market. Myanmar is a promising market because of its highly literate population and existing legal system. But political instability is major drawback keeping investors away currently if not permanently. Cambodia has rich tourism resources, but a poor infrastructure that will hinder its development. The security of tourists is a critical issue, which must be addressed before the country can attract investors. Laos has been lagging behind its neighbors in the region in the area of tourism. The country lacks tourist resources and has a poorly educated labor force. A drastic change in current conditions can not be expected, as the Laotian government is hesitant to fully open its doors to foreign tourists and investors.

Asian economic crises will slowdown the economic development of Indochina region in the short term due to the low export growth and less foreign investment. However, lessons will be learnt from this crisis, countries in the region must continue their economic and financial system reforms. Tourism is still a vital industry as hard currency earner. However, instead of competing with each other in the region, governments need to review opportunities for regional integration in transportation infrastructure, tourism, environmental management, human resource development, and investment issues. The Greater Mekong Basin is considered a major tourism destination of the 21st century (Chandler, 1994). The Mekong Basin is based on the Mekong River, which passes through six countries, including Vietnam, Cambodia, Laos, Burma, Thailand, and China. With an estimated 230 million people living along the Basin, the region boasts of varied and numerous nature and cultural "jewels," promising enormous potential for tourism development. Nearly seven million visitors visited the Great Mekon Basin in 1993 ( PATA Home Page, 1995). The ministers of all six countries discussed joint projects and are working on a river-based tourism plan.

As countries in the region became more aware of their own differences and similarities in their tourism resources and economic development, an integrated approach in tourism development should be adopted. The integrated approach will ease the financial burden of promotional efforts by the individual national tourism organization of each country with limited budgets, while allowing industry's expertise in human resource development to be shared by all countries. It is a win-win approach for future tourism development in Indochina.

It is important to note that as an exploratory research, this study must be viewed within caution. Only five hotel executives participated in the study and they might not represent the whole population of hotel investors in the region. A further empirical study is suggested to produce data appropriate for quantitative analysis.


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