Potential Reputation Bubble in the Tourism and Financial sectors of Sri Lanka - By Thanzyl Thajudeen

As we all know Sri Lanka, after the conclusion of the 30 year-old civil war and recovering from the global financial crisis in recent years, achieved an 8% growth in 2010 with Gross Domestic Product (GDP) crossing the Rs. 2.6 trillion mark, which is the second best in taking the figure of 8.2% growth back in the years 1968 and 1978, according to the Department of Statistics and Census Sri Lanka. The major growth is from the services sector; especially taking two industries that are growing at a very significant pace which is the tourism, and the banking and financial services. Despite this, there are various issues which leads to a potential reputation bubble in these two sectors discussed and brought forward in this article.

Hospitality and tourism sector

The biggest contribution and growth recorded was from the Services sector especially taking the Hotels and Restaurants sector which recorded 39.8% higher growth in 2010 compared to 13.3% growth rate which it experienced in 2009 (that’s a stunning 654,476 tourist arrival increase and the highest ever recorded number since 1969). The major reason for these increments is the prevailing ethnic peace across the country. Tourist earnings increased by 62% and room occupancy rate increased to 70% in 2010 compared to 48.4% in 2009, along with tourist arrivals growing by 15% to 65,797 in February 2011 bringing the year to date figure to 140,000 reflecting a 29% increase over 2010. Statistics issued by Sri Lanka Tourism Development Authority stated that in December 2010, there were a total of 14,714 rooms used in across all star categories.



Miss out on the Cricket World Cup 2011 opportunity
I recently wrote a strategic article which went out as an article to the Daily FT on March 14th 2011 titling ‘ICC Cricket World Cup 2011: The loss of a massive marketing opportunity’ where he outlines and argues the miss-out of developing a strategic reputation and image enhancing platform to the world. My recommendations were a digital and social media strategy, events and forums, merchandising and branding techniques, and increasingly voiced the concerned for the failure for carrying out research and insights. This was followed by Professor Liyanage who told the Bottom Line paper recently that what he felt was that enough had not been done to propagate Sri Lanka to the rest of the world and to unify the country, including how the Cricket World Cup should have been used to enhance and shape Sri Lanka’s glamour to an international standard.

No Digital Strategy in place
An article authored by myself was published on 21st February 2011 to Daily FT, and other leading financial newspapers titling ‘Sri Lanka Tourism needs to go digital’ stated many global travelers are now on the internet as we all know – Sri Lankan Tourism needs to take advantage and leverage on this massive opportunity to trigger interest globally and take the tourism sector to the next level. In the article, I stated that ‘Sri Lanka boasts many ancient assets when compared to other countries that possess many human made assets (which are doing pretty well in tourism) – why can’t we make the most of them and give them a digital drive? I think it’s time that the tourism sector in Sri Lanka consider and give the mother nation what it deserves. This could explore the many hidden treasures and potential in Sri Lanka – places and things that global travelers have never heard of; may it be for those who seek a vacation, an educational trip to learn about the ancient places and get to know history, starting up a business venture, journalists and editors to write reviews of Sri Lanka, a visit to study cultural norms and traditions, to experience adventure in the wild forests; to enjoy the scenery of the waterfalls; to put their feet onto the sandy beaches in Batticaloa and Trincomalee; to visit the famous elephants; to have fun at Hikkaduwa, visit the misty hills and tea estates in the hills through to whatever you find out here in Sri Lanka! The potential is massive as we all know. The Internet with no doubt has become the primary information resource for 95 per cent of travelers, with $153 billion worth of tourism bookings made online in 2009 from the US and Europe alone.

According to Damian Cook, CEO and founder of e-tourism frontiers, a Nairobi-based digital marketing consultancy, he states that worldwide, an average of 48 per cent of bookings are made over the Internet, while the rate of online bookings in countries such as the US is as high as 70 per cent. Sri Lankan Tourism needs to be in the present sales and marketing channel – it is not those traditional ones anymore – it’s the digital and social platforms out there – if you have failed to recognize this, the industry might suffer losses – more than this, it will lose the holistic massive opportunity the digital drive holds for the tourism sector. From sharing, reviewing, and purchasing – Sri Lankan Tourism needs a digital strategy overall in place – many members in the tourism sector don’t realize the potential it holds globally. Getting into all social media platforms is vital for Sri Lanka’s tourism sector growth.
Online marketing has to be pivotal in promoting Sri Lanka Tourism to the world, and this requires working together with organizations such as Google as well as TripAdvisor (which we all know as the biggest online site for travel advice). For worst, even TripAdvisor has no much information on their page about Sri Lanka – this requires the Tourism Board to work together with these global players who hold very high influential power’.

Reputation fallout on Hilton Colombo
As we all know Hilton Colombo, the brand that belongs to the world’s foremost star class hotel chain Hilton, is now taken over by the Government. Hotel Developers (Lanka) PLC known as HDL in short is the owning company of Hilton Colombo on 10th March 2011 announced the Government takeover of Sri Lanka’s premier five stars.

On 27th March 2011, Sunday Leader interviewed Cornel Perera, who is the promoter behind the Hilton Colombo project and the owner of Cornel and Company Ltd (CCL). In the interview, he stated that the government has no legal basis to do what they have done — not even a moral right. I don’t want to embarrass them but they ought to get some sound legal advice. Our action number 4785 is still operative. I am the owner of the Hilton with 83% of the shares with the Japanese option. I am saying I don’t want it. With my shares I can take on the USD 40 Million loan and with today’s returns I can repay but I don’t want that in the spirit of patriotism. I am the Godfather of the minimum rates. Ask anyone. I am passionate about hospitality’.

What’s happening to Hilton’s reputation on this massive issue which will potentially damage their brand and image on an international level? Will this issue with the premiere star class hotel in Sri Lanka have a negative impact on the hotels and hospitality industry, and increasingly the tourism sector? There already have been interviews and news stories published on this issue; will it not affect the sector?

The uncertainty of tourism ambassador Tony’s role
The Sri Lanka Tourism Promotion Bureau on 01st March 2011 announced that it has invested US$ 10,000 in the new Brand Ambassador for Sri Lanka Tourism, Tony Greig. The news story by Daily FT on 28th February stated that the tourism industry welcomed the appointment and noted that given billions glued to TV globally during the ICC World Cup and the IPL thereafter, Tony’s role on promoting destination Sri Lanka will have a positive impact among prospective holiday makers to Sri Lanka. In a significant move to boost destination Sri Lanka the world famous past cricketer and currently influential and entertaining commentator Tony Greig has been appointed as a Tourism ambassador.

However, there have been no activities from Tony Greig in enhancing the country’s image and reputation to showcase the wonder of Asia. A recent news story on The Bottom Line stated that nothing has been heard from Grieg’s side in respect of pepping up the country’s image as a tourist destination. As it is, not a word was mentioned by Tony Greig on 10 Sports about Sri Lanka’s tourist image and many questioned what type of a role he was actually playing to promote Sri Lanka as its goodwill ambassador.

The irresponsibility of a reputed tourist hotel’s manager
A story on 02nd March 2011 published by Daily Mirror stated that the construction site manager of a reputed tourist hotel company in the country and eight others who allegedly felled trees in the Kumburupitiya forest reserve in Nilaveli under the pretext of clearing the site for a hotel project were taken into custody by Uppuveli police. Police said the suspects were felling satinwood, teak and other valuable forest trees misusing a permit issued by the Forest Conservation Department to collect 200 metres of firewood. During the raid police seized 49 logs and sawing equipment.

What is this behavior of the so called managers? As the country and the world moves towards green and nurturing the trees and plants along with other natural resources whether renewable or non-renewable ones, how will this kind of a mis-behavior of a manager of a reputed tourist hotel reflect on the attitudes and personality of the hotels and hospitality sector? This not only questions the responsibility and accountability aspects, but also the negative personality and attitude.

The False Strategy with the Hot Air Balloon Festival 2011
As you may have come across that Sri Lankan Tourism in promoting ‘Visit Sri Lanka 2011’ year supported the Hot Air Balloon Festival 2011 held from 19 March to 2 April came to a conclusion yesterday at the Independence Square. This event was organized by the Ceylon Airship and Balloon Club for the fourth time in its history where the fest included participants from countries such as America, England, Italy, Japan, Germany, Switzerland and Sri Lanka.

In the recent news story of Daily FT, Captain Anil Jayasinghe stated that the sport is still a new one in Sri Lanka and is a niche product that needs high financial requirements but yet Sri Lanka is a tempting destination and it’s believed that this is the only air balloon festival in South Asia. The number of participants for the event is 40. He claimed that the initial idea was to have in 2010 but with some numerous requests from the Sri Lankan Tourism, this fest was postponed to 2011 along with promoting ‘Visit Sri Lanka 2011’.

All of the hot air balloons carried international logos and brands such as Blaser and Bulevard to name a few. How could we promote Visit Sri Lanka 2011 in this? The overall ideas are based on showcasing these international brands and host it locally in Sri Lanka which actually motivates and gives out a need to go for these destinations and brands (of which most are in the hotel and hospitality sector). Where are the local ones? What about some of our very own premier hotels such as Galle Face Hotel or the Mount Lavinia Hotel for example which has a rich Sri Lankan heritage over the past years?

Why not manufacture and brand Sri Lankan hospitality brands and organizations on the hot air balloons and showcase them to international regions which actually in turn will drive tourists attraction and visitor number to Sri Lanka? What happened in this fest here is the total opposite of this question that is outlined here apart from arguing that Sri Lanka was just a host country for this festival. If so, why did the Sri Lankan Tourism send out so much of requests to postpone and have it along with Visit Sri Lanka 2011 – obviously to increase the image and tourist attraction to Sri Lankan right? But, in this case it is the other way around.

Tourism Education not developed and marketed to Home and International
If we look at tourism education in Sri Lanka, it is pretty massive and along with the rich cultural heritage and traditions, and most importantly the knowledge and resources available in the country. While other educational sectors are doing well with some starting to do well such as in the fields of Information Technology, Agriculture, Business & Management, as well as the Fisheries, marine and maritime, there is no much activity done in tourism education such as developing syllabuses, integrating Tourism into syllabuses of management, providing a basic degree, or specialization in the final year of suitable degree programmes, and so on.

The Department of Economics of the University of Colombo have only recently realized and is now calling for applications for the Master’s program and also a Post Graduate Diploma in Tourism Economics and Hotel management which will provide enhanced and required manpower of tourism and hospitality industry with academic recognition and professional excellence. Apart from this, there is now international programmes which actually calls the upper income and upper middle income students such as private institutes affiliated with universities from Singapore; the recent entry from the Management & Science University from Malaysia; Professional qualifications delivered by various local private institutions conferred from bodies such as CTH and ABE in the United Kingdom – Only a very small proportionate of students could afford these programmes in Sri Lanka.

And interestingly, Sabaragamuwa University is the only university in Sri Lanka conducting various tourism related degree programmes focusing on ecotourism and sustainable tourism. With very much demand from foreign hotels to recruit Sri Lankan marketers in the hospitality sector and with the rich resources that Sri Lanka boasts, why isn’t there a proper tourism education strategy in place which will attract many local students who are heroes of tomorrow to take up tourism education and explore potential, and go beyond to even attract international students and exhibit a strong tourism and hospitality education to the whole world.



Potential thinking bump for new entrants

As we all know there is increasing foreign hotel and restaurant chains considering or have already planned out in establishing their operations in Sri Lanka. This is all a part of developing economic and fair competition in the market, along with increasing growth and attraction in the tourism and related sectors of the economy in Sri Lanka. For instance, the recently heard Hong Kong-based Shangri-La hotels chain which has taken approval from the Board of nvestment of Sri Lanka is to set up a seven star hotel in Colombo with announcements stating the purchase of six acres of Government land facing the Galle Face green promenade for this purpose, along with developing a multi-use complex with retailing, deluxe apartments and a 500-key luxury hotel scheduled to be open in early 2014 with the project amounting to an investment of USD 500 million.

All the listed out negativities here may potentially lead to a reputation bubble, or as we call in the traditional world, crisis. If the sector is exhibiting negativity in reputation, there are high chances for new entrants such as the above to re-consider their thinking of commencing operations in Sri Lanka. It’s always a best practice to not take this as a negative fallout, but to try learning and shaping quickly and of course, strategically.



Banking and Financial sector

The Banking, Insurance & Real Estate sector grew by 7.5% in 2010, as against the growth of 5.7% in the year 2009. Loans and advances increased rapidly in the year 2010, compared with 2009 according to the statistics from the Department of Census and Statistics of Sri Lanka.



Failure of Conduct and Corporate Governance
Central Bank of Sri Lanka, the financial market watchdog in the country, recently fined Standard Chartered Bank with Rs.27 billion that is amounting for about US $ 245 million for alleged violation of the country’s exchange control laws for a capital transfer of US $ 121 million (Rs.13.3 billion) related controversial oil hedging deal. Central Bank of Sri Lanka completed a thorough nine-month investigation and communicated the notice of the Rs. 27b fine however Standard Chartered Bank’s Sri Lankan CEO was quoted on Asian Tribune on 2nd March 2011 stating that the Bank will vigorously defend its position in the matter as it is a matter between the bank and the regulator.

Reports state that Standard Chartered Bank had violated the Sri Lanka’s Exchange Control Act No. 24 of 1953, where capital transactions need to obtain prior approval from the CBSL. Reports also outline that the Standard Chartered Bank has a 26 days period to appeal to the Minister of Finance Hon President Mahinda Rajapakse.

Doesn’t this reflect the behavior and mis-conduct of the banking sector which in turn have a very negative reputation in the industry as a whole?

EPF’s investment in listed commercial banks in CSE
Central Bank’s August 2010 statement on EPF investing in the stock market was published on Daily FT on 31st March 2011. The Central Bank issuing a statement says, “In terms of the section 5(e) of the EPF Act, Monetary Board may invest the monies of the fund in such securities as the Monetary Board may consider fit and may sell such securities.” UNP MP and Consultant Economist Dr. Harsha de Silva agrees with this statement but totally challenged and fired the statement of Central Bank stating “Accordingly, the EPF clearly has the authority to make investments in the share market, including the banking and financial sectors.”

The Investment Committee of the Monetary Board and the Employee Provident Fund Department clearly stated that “Accordingly, the EPF clearly has the authority to make investments in the share market, including the banking and financial sectors.” Dr. Harsha De Silva strongly argued that ‘in this background, how can the Central Bank say that it is free to buy and sell any amount of shares of listed commercial banks on the CSE? Does not this kind of cavalier attitude create negative perceptions about governance in Sri Lanka? Does it not disincentivise genuine investors from coming to this country?

Most Investment companies are not registered with CBSL
We have all heard about the Sakvithi scam that put many innocent people into huge financial trouble, with mosts of them not even be paid or even considered to pay in future despite stating that they are taking initiatives to pay back slowly.

Interestingly when coming across a story in Daily FT titling ‘Beware, the investors may get “Sakvithified” or “Golden Keyed’’, Mohamad Zahran posted out a question to learned members of the “Discussion Panel” at a evening presentation at the Centre for Banking Studies on “Taming the Beast in the forest – Experiences from the Finance Companies” by Nelumani Daulagala, Director – Department of Supervision of Non-Bank Financial Institutions, Central Bank of Sri Lanka as to whether the Companies inviting investments for tree plantation are registered and monitored by the CBSL, P. Samarasiri who is the Assistant Governor for the Central Bank of Sri Lanka responded that these are not registered with the CBSL and that these companies are only governed by the Companies Act. How dangerous is that?

Zahran voiced the danger of investing in these companies which are not registered with the CBSL and strongly suggested that Nivard Cabral, the Governor of CBSL formulate new legislation or amend existing finance and monetary regulations to be able to monitor these investment companies before the investors get “sakvtihified”!

Listed firms not complying with SLAS
An analysis done by the Securities and Exchange Commission (SEC) stated that most listed companies in the CSE are non compliant with several mandatory standards, rules and legislations by violating and not complying with the Sri Lanka Auditing Standards (SLAS), Listing Rules and the Companies Act. The SEC observed that SLAS 30, SLAS 18 and section 7.6 and 7.10 of the Listing Rules were mostly violated. The SEC has sent out 39 letters of Comment and 5 Letters of Caution, out of 106 company reviews which were concluded in the analysis. Reviews on Annual Reports of 27 more companies are on-going.

This reminds of the case with Eastern Merchants PLC, a specialist in the export of Sri Lanka’s traditional commodities such as tea, natural rubber, desiccated coconut, coconut fibre as well as non-traditional goods such as spices. SEC issued a warning on Eastern Merchants PLC early this year and its Directors for not complying with the Sri Lanka Accounting Standards in the preparation of the audited financial statements of the Company for the financial year ended on 31 March, 2009 which is a violation of Rule 7.5 (a) of the Listing Rules of the Colombo Stock Exchange which requires listed companies to prepare financial statements in compliance with Sri Lanka Accounting Standards. SEC said rules issued by it make it mandatory requirement for every company listed to comply with the Listing Requirements.



The Reputation Bubble as I call

Every nation has its own set of reputation – this may be negative or positive. For instance, South Africa’s reputation tarnished due to violence in human rights, Australia’s reputation been damaged due to attacks on Indian students, Hungary’s reputation tarnished due to extremism, or for the worst even Sri Lanka’s 30 year old civil war that had been tarnishing the country’s economic growth and image very badly.

The below model shows what happens when crisis is anticipated and planned during three stages namely the pre-stage, during crisis stage, and post stage. On the other hand, it looks at a surprised crisis wakeup during the above three stages. So, if we look at the tourism and financial sector in Sri Lanka, it is very critical to anticipate and plan out to work out the issues without getting surprised – that is the time when the reputation bubble happens!



On the positive side, Sri Lanka now had a upturn reputation in tourism due to post war climate and the recent ICC Cricket World Cup 2011, and is looking at attractive visitor numbers, did the sector just think about all the listed issues it’s facing currently which is outlined here? Taking the increasing investments in the country with the banking and financial sector growing at a significant pace with massive amounts of profits blowing up which are thrown on the press releases in Sri Lanka, along with Sri Lanka been seen as a investor destination throughout the world, think about the things that are happening around this sector – the issues outlined here – the power of these negativities will blow up the sector including the tourism sector if necessary action is not taken to nurture and secure reputation across these two sectors that have a potential reputation bubble.

As said by Warren Buffet, “It takes 20 years to build a reputation and five minutes to ruin it. If you think about that, you’ll do things differently”. Reputation is one of the world’s underestimated powers though it is only now that only many of the top global brands practice it on a continuous basis whilst many other brands mostly being locals are not even considering this strategic aspect. It’s a potentially a massive reputation bubble taking the current issues the tourism and financial sector in Sri Lanka is facing.

This article appeared in Daily Financial Times of Sri Lanka:

http://www.ft.lk/2011/04/08/potential-reputation-bubble-in-the-tourism-and-financial-sectors-of-sri-lanka/

http://www.ft.lk/wp-content/uploads/file/issus.jpg [the article in print image]