Measuring the Cost Efficiency of International Tourist Hotels in Taiwan

Abstract

This study employs data envelopment analysis (DEA) to evaluate the relative cost efficiency of 49 international tourist hotels in Taiwan. The study uses five different measures: overall efficiency (OE), allocative efficiency (AE), technical efficiency (TE), scale efficiency (SE) and pure technical efficiency (PTE). Applying efficiency measures derived from the DEA estimation, hotel efficiency determinants are evaluated using the Tobit regression model. A bootstrapping technique is applied to overcome the interdependency problem of the DEA efficiency scores adopted in the regression analysis. The empirical results demonstrate that the international tourist hotel industry in Taiwan is inefficient, with most efficiency losses attributable to technical inefficiencies, of which scale inefficiencies are the primary cause – the scale of operations of international tourist hotels in Taiwan being too small to enable the cost-savings associated with larger-scale operations. The Tobit regression results indicate that the proportion of foreign individual travellers (FIT), online transaction function (WEB) and franchising (HOTELTYPE) are related to a better performance of international tourist hotels in Taiwan. The number of years a hotel has been operating (AGE) is not significantly related to any of the efficiency measures.

Tourism and Hotel Competitiveness Research

“…Productivity is always a top priority for hotel operators (Brown & Dev, 1999Reynolds & Thompson, 2007;Sigala, 2004;Wang, Hung, & Shang, 2006). Hotel productivity generally encompasses an umbrella concept that includes efficiency, effectiveness, quality, predictability, and other performance dimensions, as well as a concept reflecting only production efficiency (Sigala).…”

“…A major advantage of DEA is that it does not require an assumption about the functional form of the model that underpins the relationships between the input and output variables (Hwang & Chang, 2003). Wang et al (2006) employed the DEA and used the Tobit regression model to evaluate the efficiency determinants of the firms. This model was applied because firm and market factors can be differentiated and are beyond the traditional input-output setting, but contribute to efficiency.…”

Tourist Preferences and Cost Efficiency of International Tourist Hotels in Taiwan

“…This study also found that the relative efficiency of those ITHs located in scenic areas is higher than those in cities. Hung et al (2006) studied the relative efficiency of ITHs in Taiwan, using five different measures: overall efficiency (OE), allocative efficiency (AE), technical efficiency (TE), scale efficiency (SE), and pure technical efficiency (PTE). The result indicated these ITHs in Taiwan are inefficient.…”

An Analysis of the Operational and Management Efficiency of Five-Star Hotels in Taiwan

“…The Taiwan Assessment and Evaluation Association has been delegated to conduct the rating. So far, most related literature has been focused on the levels and differences of operational efficiency of chain hotels and independent hotels (Hwang & Chang, 2003;Wang, Hung, & Shang, 2006;Chiang, Tsai, & Wang, 2004). Nevertheless, what hotels are facing is a highly competitive market, especially five-star hotels that are dedicated to serving customers of higher socio-economic demographics.…”

“…The results showed that the difference in the performance of these hotels was significantly related to whether the guests were foreigners and the management style of the hotel (independent or affiliated to an international chain). Wang et al (2006) conducted a study on the operational efficiency of international hotels in Taiwan and discovered that the average efficiency was 0.81, failing to achieve the relative operational efficiency standard and indicating that the hotels could reduce 19% of their personnel, number of rooms or the floor area of their food and beverage departments to make improvements. The results obtained through Tobit regression showed that those targeting the business hotel market faced tougher competition whereas the ones affiliated to hotel chains (as opposed to those independently managed) had better efficiency and scale had no significant influence.…”