Agglomeration and performance in Norwegian tourism

Abstract

Natural-based attractions are central for Norwegian tourism. Northern lights, rugged arctic landscapes, fjords and mountains, rural areas with culture landscapes are all part of the Norwegian experience. However, Norwegian tourism businesses, particularly in rural areas, struggle to gain profitability. High-cost level and seasonality impose challenges to tourism firms. As the attractions are mainly nature-based and located along the coast, the country is also a thriving destination to cruise tourism. The growth in cruise tourism is mostly due to increased competitiveness of cruises relative to other modes of travel, food, and accommodation services. For the fjord and coastal destinations, cruises bring in large volumes of tourists to the benefit of many tourist suppliers, but they also compete with onshore services. Moreover, the tourism experience relies on construction of a seamless product – as opposed to many other industry sectors, competitiveness goes beyond intra-market concerns, as each firm in the tourism agglomeration rely on its collective competitiveness. Since production and consumption is geographically localized, the limited product range is a disadvantage to many rural destinations. Rural destinations may also be more prone to seasonal variations, since unlike urban destinations they do not benefit from wider market segments and activities in the off season. This thesis sheds light on these issues by recognizing the external effects that arise from geographically localized production. Market characteristics on the supply and demand sides spill over to other firms in the same area and to adjacent areas. The availability of register data on tourism firms, accompanied by refined regression techniques enables spatial analysis of tourism development. In the context of cruise tourism, a spatial econometric model is applied to investigate the effect of cruise tourism on onshore HORECA (hotels, restaurants, cafés, and similar) firms. The results indicate modest, but significant and positive effects of cruise tourism on demand of onshore firms. Urbanization is of particular relevance to tourism because of the localized nature of production, as well as of the implications of product range on competitiveness. Our results are in line with the presumption that population growth is strongly associated with decreased seasonality. Moreover, seasonal variations, approximated by sold guest nights, is detrimental to revenue of accommodation firms. Attractions in the off season appear more promising than prolonging the peak season, which is supported by the finding that areas that have seized the opportunity of developing skiing tourism have found a successful remedy to revenue deterioration. The external effects of revenue management decisions should not be neglected; first, we see empirically that hoteliers respond to falling demand in the off season not by dropping prices, but rather by allowing the occupancy rate to fall. Secondly, as we find that diversity of tourism firms associates strongly and positively with firm survival, more refined pricing decisions, that also encompass a broader destination-specific perspective is called upon.