Hospitality sector must disrupt old ways
This week, Tiger Woods rolled back the years by winning the US Masters to claim his first Major since 2008. Woods’s comeback from his lost decade led many to speculate on whether this is indeed the greatest comeback in sporting history.
Another contender for that title, Muhammad Ali, was famous for his comebacks, plus a lot of knockout blows and quotes. One of his most memorable quotes, “I’m so fast that last night I turned off the light switch in my hotel room and was in bed before the room was dark,” resonated this week after the publication of the Tourism Amendment Bill.
The aim of the bill is to update provisions of the act relating to the SA Tourism Board. The bill also aims to
empower the minister to determine thresholds for shortterm home sharing. In other words, to regulate entities such as Airbnb.
The emergence of platforms such as Airbnb, Uber and Netflix has caused a regulatory conundrum across the globe. As the world evolves between industrial revolutions, the role of regulators is to not only keep up with the changing trends, but also find a way to balance the tensions between market evolution and competing stakeholder interests. These stakeholder interests ranging from employment groups, competition rules and consumer choice to tax residency issues are not always complementary and the inherent conflicts require that unpopular decisions are made.
The ability to make such decisions is linked to the market power commanded by the consumer base of a particular country. Consequently, China’s ability to set regulations to curb the unbridled power of multinational disruptors such as Uber is much greater than SA’s.
On one extreme, a country can opt for a wholesale ban on such platforms as a way of insulating its local industries and their associated jobs. This practice, with its protectionism effects, is unpopular and simply impractical in countries that champion free markets.
For such countries, the most practical and efficient instrument of intervention is regulatory reform.
The new bill’s fundamental weakness is the long-standing SA problem of the gap between policy formulation, implementation and oversight. In this case, the formulation itself requires scrutiny. In seeking to regulate the “shortterm home sharing” industry, the bill seeks to intervene in the hospitality market. As it stands, the state has oversight over traditional hospitality agents by accrediting them and grading them at a cost.
The rationale behind this model is that any potential tourist looking for accommodation options needs to have the comfort of knowing that an establishment has been duly registered and graded. The stamp of approval by the Tourism Grading Council, for example, provides this assurance. In the past, nonregulated establishments posed a risk for the consumer as there was limited information regarding their quality and comfort.
This persuaded consumers to use accredited establishments rather than gamble with the unknown.
These days, however, accreditation and grading councils have to compete with unfiltered access to information that allows consumers to tap into the collective wisdom of fellow consumers who have no vested financial interests. This lack of incentive allows for less sanitised and more objective reviews that inform user choice. The confluence of these factors, plus the lower cost associated with such platforms, increases consumer choice and drags down the average unit cost.
To keep up with increased competition and reduced prices in a country where wages cannot be lowered, traditional establishments are forced to adapt. Regulations themselves cannot provide insulation simply because disruptors, by their nature, remain ahead of the curve.
In simple terms, disruptors are nimble enough to pull an Ali on traditional industries. This means that rather than getting to bed before the light goes out, traditional industries are left in the dark as soon as the disruptors flick the switch.
● Sithole (@coruscakhaya) is a chartered accountant, academic and activist.