Future expectations of SMHES in Turkey

Received 24 January 2007 Accepted 11 April 2007 Future expectations of SMHES in Turkey Murat Emeksiz, Medel Yolal and Fatmagul Cetinel Anadolu Universitesi Turizm ve Otel İsl. Y.O., Yunus Emre Kampusu Eskisehir, Turkey 26470 Small and medium sized hotel enterprises play an important role in both the world and the Turkish tourism industry. This study focuses on the problems and future expectations of small and medium sized hotel enterprises which are not popular in national literature. Data were gathered by mail questionnaires delivered to the sample size of 1370 enterprises, 313 of which replied with a response rate of 22.8 percent. Content analysis was employed to analyze the open ended questions at the end of questionnaires in order to reveal the expectations of small and medium sized hotel enterprises from governments, municipalities, association of hoteliers, tour operators and educational institutions. Findings of the study indicated that the enterprises expect the government to reduce tax rates and municipalities to conduct basic municipal services. They require associations to initiate cooperation among the enterprises and tour operators to promote the destination and the country in the foreign markets. Finally, they expect educational institutions to concentrate on applied training. It is concluded that these enterprises, suffering due to various problems and challenges should be empowered by considering them as non-governmental civil organizations supported by legislation. Keywords: expectations, problems, small and medium sized hotel enterprises, tourism, Turkey. INTRODUCTION Correspondence concerning this article should be addressed to Murat Emeksiz . Electronic mail may be sent via internet to memeksiz@anadolu.edu.tr. Copyright © 2007 Rex Publishing Co. Small and medium sized enterprises (SMEs) play a central role in the social and economic world, and Turkey with the number of business, employment opportunities and the added value they have contributed (Simsek, 2002; European Commission, 2005a; DPT, 2004). The substantial contribution of SMEs to the national economy, regional and sustainable development was accepted by almost all researchers. It has been widely accepted that SMEs provide many advantages to countries in terms of their economy and sustainable development for future generations with their innovative and productive structure and capacity of employment volume (Thomas, 1995; Asian Journal of Tourism and Hospitality Research 1(1) 128 FUTURE EXPECTATIONS OF SMHES IN TURKEY Thomas, 2000; European Commission, 2005a). It is a global trend that most countries leave the Fordist macro manufacturing background and prefer sustainable models to develop their economies (Wanhill, 2004; Fuller, 2003). Developed countries define SMEs in terms of quantitative features, including the size of the staff, turnover, total balance sheet, level of independency, and market share. For example, EU defines SMEs as enterprises with less than 250 employees with 50 million Euro total turnovers, a total balance sheet of not more than 43 million, and obtaining independent criteria. A small or medium sized enterprise is independent if big enterprise shareholders have less than 25 percent of the partnership (European Commission, 2005b). Turkey aims to adopting the EU definition of SMEs in the integration process to EU (DPT, 2004). Where tourism is specifically concerned, it is obvious that SMEs are vital to industry (Coetzer, 2001; Morrison, 1996). Although there are numerous studies on larger enterprises in tourism, the number of studies on the SME tourism is rare in Turkey. Trying to understand smaller businesses as merely scaled-down versions of larger enterprises would lead to faulty results (Thomas, 1995). Hence, it is required to illuminate economic and social parts by researches concentrated on national based tourism SMEs (Thomas, Church, Eaglen, Jameson, Lincoln & Parsons, 1998). Moreover, aspects covering subsectors of tourism such as accommodation, entertainment, food and beverage, transportation companies would create an understanding of the whole picture (Reichel & Haber, 2005). For these reasons, in the current study problems and expectations of small and medium sized hotel enterprises (SMHEs) in Turkey were studied. To understand the current situation and the problems which SMHEs face would help fill the information gap in the area and provide ground for future studies. September 2007 Development of SMHEs in Turkey To understand the problems and expectations of SMHEs in Turkey, it is necessary to know the historical development of accommodation enterprises. It aims to clarify the status of SMHEs within the general picture of tourism in Turkey, such as obvious problems and other considerations. Tourism and the accommodation sector have achieved great success after the military coup in 1980. In terms of the economic considerations of governments, tourism was seen as the most effective tool for earning foreign currency (Tosun, 2001). Tourism Encouragement Law (law number 2634) took effect in 1982. After the elections in 1983, despite the rapid growth in free market economy, state protection and support continued. Tourism investors, particularly those who invested in accommodation enterprises were provided public territories with low rentals at the southern coasts with various financial opportunities (Yarcan, 1998; Goymen, 2000). Financial incentives were given by 1985 which boosted the fast growth of tourism investments. State funds were given between 7-20 percent of the total investment without expecting any return; which contributed to greater development. During 1987 to 1989 period, 80 percent of state incentives were benefited by star rated hotels* particularly the 5star rated hotels (Cakici, 1996). Supporting the larger organizations for mass tourism purposes, without any concerns for sustainability (Liu, 2003) was abandoned due to the economic crisis experienced in the country in the 90’s. State incentives were replaced by fund credits by the state after the Gulf War in 1991. Fund credits were, however, stopped after the 1994 economic crisis which resulted in high inflation and devaluation. Construction of accommodation enterprises are still being supported by the governments in spite of the crisis experienced in 2001. At present, however, tourism investments, considered as one of the most important sectors *Undersecretariat of Treasury informs how many enterprises benifited from these incentives. However, it is not possible to get information according to these enterprises. 129 MURAT EMEKSIZ, MEDEL YOLAL and FATMAGUL CETINEL and projects, are funded in order to reduce investment costs. Currently, tourism investors are provided with several incentives including exemptions from VAT when investing in certified enterprises, lower customs duty, and funds given for mass housing. A forty (40) percent investment discount is applied without need for investment certificates (Ataer, Erdemli & Varisli, 2003). Although SMHEs dominate the sector in Turkey (95 percent of all the hotel stock) (Kultur ve Turizm Bakanligi, 2005), these were not considered to be SMEs (Aykin, 2001). The status of SMEs in tourism was re-evaluated for the 8th Five-year Development Plan (DPT, 2001) and the regulation in 2001 identified accommodation enterprises as SMEs (Resmi Gazete, 2001). Table 1 summarizes the opening years of SMHEs for periods of ten years. While, 28.4 percent of the enterprises were opened in 1981-1990, 39 percent of these were opened during the 1991-2000 period when credit incentives were very available. At that time, Turkey was not stable economically and politically. Devaluation experienced in 1995 was the economic outcome of this fact. During the period, Turkish tourism also struggled to survive due to various reasons. New openings after the 2001 economic crisis (15.3 percent) is interpreted as an indicator of the entrepreneurial dynamism of SMHEs in Turkey (Emeksiz, Yolal & Cetinel, 2007). Table 1 SMHEs and start-up years Start-up years Frequency % Before 1970 19 6.1 Between 1971-1980 20 6.4 Between 1981-1990 89 28.4 Between 1991-2000 122 39.0 After 2001 48 15.3 Missing 15 4.8 313 100.0 Total Source: Emeksiz, Yolal ve Çetinel, 2007 Asian Journal of Tourism and Hospitality Research 1(1) Problems of SMHEs The problems of SMHEs can be summarised under these headings (Wanhill, 2004; Simsek, 2002; DPT, 2004): smaller market share, financial problems, difficulties with creditors in obtaining loans, weak managerial skills, resistance to advice or changes, difficulty in following innovations, low levels of technology adoption, difficulties in attracting a skilled labor force, and higher production costs due to lack of economies of scale. Tourism SMEs require special attention because of their apparent difference from manufacturing SMEs. Studies on tourism SMEs conducted by Thomas et al. (1998) in UK, Page, Forer and Lawton (1999) in New Zealand and on SMHEs by Emeksiz et al. (2007) in Turkey support this assumption. Both the studies in UK and New Zealand involved smaller hotels. For this reason in Table 2, obstacles to improve on business performance in the studies mentioned above were comparatively presented. As can be traced in Table 2, although production costs and factors increasing rates occupy the initial three ranks, there are country based differences. While ‘high rents and rates’ took the first and second rank in UK and New Zealand, this obstacle was cited in the lower ranks in Turkey. The main reason is that merely 14.4 percent of the enterprises in Turkey operate in rented buildings (Emeksiz et al., 2007). As Table 2 shows, the most common causes of concern for the SMHEs in Turkey were related to taxation policy. Hence, 63.9 percent of the sample identified taxes as a factor constraining their performance, followed by production costs (54.3 percent) and VAT (52.7 percent). The lack of skilled employees was regarded as one of the most cited problems. Continually increasing prices (84.3 percent), delay in receivables (70.3 percent) and weak capital structure (43.8 percent) are among the most important financial problems of SMHEs (Emeksiz, et al., 2007). As can be seen 130 FUTURE EXPECTATIONS OF SMHES IN TURKEY Table 2 Obstacles to improved business performance Thomas et al. (1998) (n=1103) High rents and rates %§ % 45 Page et al. (1999) (n=297) Competition from local business % 34.34 Emeksiz et al. (2007) (n=313) Taxes Interest Rates 43 High rents and rates 31.65 Production costs (Labour, energy, material) 54.3 Labour cost 41 Interest Rates 29.97 Value Add Tax (VAT) 52.7 Inflation ? Lack of customer demand 22.9 Lack of skilled employees 41.9 Competition from local business ? Government regulations 22.22 28.4 Government regulations ? Inflation 20.88 Insufficient buying power of the public (Lack of customer demand) Exchange rates Competition from larger business ? Competition from larger business 16.50 Labour productivity 22.7 Lack of skilled employees ? Labour cost 15.49 Competition from larger business 21.4 Lack of customer demand ? Debtors/Poor cash flows 12.79 20.8 Limited access to business development finance ? Lack of skilled employees 10.77 Limited access to business development finance Debtors/Poor cash flows 63.9 24.3 15.7 *Since the values were presented graphically in the study some of the figures cannot be gathered. in the findings section of this paper, the corporate tax of about 30 percent really forces firms. Struggling in the service production phase, SMHEs are faced with the obstacle of VAT amounting to 18 percent in the service delivery phase, and later on, difficulties of cash flow. In a labor intensive industry such as tourism, skilled employees are crucial for the success of SMHEs. However, lack of skilled employees was emphasized in the fourth rank by the sample. It is known that the majority of SMHEs do not employ professional human resources managers and the duties of such posts are undertaken by owners/managers. Lack of human resource planning, recruiting when some personnel resigns, word of mouth recruitment, selection through the decision of owner/managers are common problems related to human resource applications in SMHEs. As a result, a qualified workforce could not be attached to these firms (Emeksiz et al., 2007). Obviously, the problems of the SMHEs are specific to Turkey. At this point, identifying the expectations of SMHEs from the social and September 2007 economical bodies would help problems which SMHEs face. solve the METHOD In Turkey, there are 2325 operations certified as hotels registered in the Ministry of Culture and Tourism considered as the study population. They all differ in size and service quality. The population frame was taken from the ministry and 1, 2, and 3 star rated hotels were chosen as the sample of the study since they have SME characteristics. The total number of the sample is 1370. However, due to the accessibility and classification difficulties observed, municipality establishments were not included in the survey The questionnaire was based on earlier researches by Thomas et al. (1998), Friel (1999) in UK, and Page et al. (1999) in New Zealand, Yolal (2003) in Turkey, adapting the questions to the conditions of SMHEs in Turkey. Mail survey was employed in the research. Questionnaire forms were mailed to 1370 hotels in July, 2005 and hotel managers were requested 131 MURAT EMEKSIZ, MEDEL YOLAL and FATMAGUL CETINEL to reply. Since the response rate was low, approximately 500 hotels were invited in September and reminded of the questionnaires. The total number of responses was 347 (n=347) and response rate was 25.3 percent. However, since data in 34 forms were not reliable, these were excluded (n=313). In the study actual response rate is 22.8 percent but although the rate is low, this is comparable to other postal surveys (Thomas et al., 1998) with a rate of 26 percent. The questionnaire consisted of nine sections including enterprising and ownership, business operations, finance, human resources, marketing, information technologies, service quality, environmental protection and future expectations. In the current study, future expectations of SMHEs were analyzed. This section of the survey has five open-ended questions requesting the respondents to write their expectations from government, municipalities, association of hoteliers, tour operators and educational institutions. The responses of the firms were edited and statements were used as the analysis unit (Yildirim & Simsek, 2003). Statements were categorized under certain themes and their frequencies and percentages were calculated, using SPSS version 11.5. the government to cut-down the energy prices. At present, hotels certified by the Ministry of Culture and Tourism purchase electricity with lower prices. No discount is current for natural gas and water. However, it should be noted that higher energy prices are not specific to SMHEs. One of the most interesting finding is related to certain limitations on bed-supply which is often mentioned as one of the structural problems that Turkish tourism industry faced with. Although frequencies are low, other worth considering issues are as follows: • • • • • • RESULTS Expectations of SMHEs Issues of taxes and VAT mentioned above as the obstacles to improved business performance came to surface in the expectations of SMHEs. As can be traced in Table 3, SMHEs primarily expected government to lower the taxes and VAT which increases the sales price of the product at 18 percent. SMHEs suffering from weak capital structure expected government to obtain credit and funds for the purpose of increasing investments and renovations. Another important issue is the high energy costs resulting in higher production costs and the firms require Asian Journal of Tourism and Hospitality Research 1(1) Prevention of proposed ‘accommodation tax’ (3 percent on the sales price) to be considered legal. SMHEs in the eastern and southeastern regions (which are weak in tourist flow) expect the government to promote the region more effectively. Security and safety issues related to touristy areas. Protection of historical sites and attractions. Prevention of partisanship while funding the investments. Establishing control and audit criteria for hotels and restaurants which are not under the authority of Ministry of Culture and Tourism. Services rendered by local authorities and municipalities are critical to the success of the destination. Table 4 illustrates the expectations of SMHEs from municipalities. Emphasis of their expectations focuses on the basic municipal services. As to environmental protection, the firms expect: • • • More effective lightening which is important for security issues, Traffic regulations, Expanded green areas and parks, 132 FUTURE EXPECTATIONS OF SMHES IN TURKEY • • • • Exclusion of street vendors and tourist tractors, Collection of stray animals on the streets, Prevention of noise pollution, More city maps and direction signs in the destinations. pressure group against the government. Prevention of price competition with larger hotels, establishing effective communication Table 4 Expectations of SMHEs from the municipalities Theme Environmental protection Firms that took part in the study expect municipality councils to involve them in decision making. On the other hand, it is interesting to note that firms are willing for municipalities to Table 3 Expectations of SMHEs from the government Theme Decreasing tax rates Decreasing VAT rates Credits and incentives for investment and renovation Decreasing energy costs Promotion of the country in the foreign markets Establishing environmental protection policies Promotion of the destination in foreign markets Reducing bureaucracy More objective audit and control on star rated hotels Concentrate on security issues Limit the bed-supply n (%) 85 (27.2) Improving infrastructure Getting hotels participate in decisions related to the local concerns Contribution for the publicity of the destination Decreasing the levels of local outlays and payments such as sewage payments Protection of cultural and historical heritage Developing environmental protection policies 77 (24.6) 65 (20.8) 38 (12.1) 28 (8.9) 22 (7.0) 16 (5.1) 13 (4.2) 12 (3.8) 66 (21.1) 49 (15.7) 46 (14.7) 32 (10.2) 17 (5.4) 14 (4.5) channels among the smaller hotels are their further expectations. Specifically resort hotels complain about ‘all inclusive pricing’ strategies. There is also a group of hotels (4.5 percent) which are hopeless about these associations and federations 12 (3.8) 11 (3.5) 8 (2.6) 8 (2.6) protect their cultural and historical heritage from danger. Cooperation among the hoteliers is also an important issue for the success of tourism in Turkey. The Federation of Turkish Hoteliers which is composed of regional hotelier associations, has still no legislation and only 42.8 percent of the SMHEs are members of these associations (Emeksiz et al., 2007). Table 5 shows the expectations of SMHEs from the regional hotelier unions. Joining to work together under one umbrella and joint collaboration are their mostly emphasized expectation. They expect these associations to take charge in promoting the region and destinations, and become a September 2007 Attention to cleaning services n (%) Table 6 indicates SMHEs expect relevant and interrelated issues from tour operators and travel agencies. Involvement of tour operators and travel agencies in the efforts to promote the country and the regions in foreign markets is the most important expectation of SMHEs which have limited marketing professionalism and resources (Emeksiz et al., 2007). They also expect tour operators and travel agencies to evaluate hotels as partners. Following this, they want tour operators to focus on quality and carry quality travellers in optimal prices. Another important concern is the prevention of extensive price cutdowns. Hotels located in regions other than Marmara, Aegean and Mediterranean, require more cultural tours to their regions. Firms with cash-flow problems want tour operators and travel agencies to make timely payments. Commitment to reservation agreements and professional guiding services are less frequently cited issues. 133 MURAT EMEKSIZ, MEDEL YOLAL and FATMAGUL CETINEL Table 6 The expectations of SMHEs from the Table 5 Expectations of SMHEs from the Federation/Association of Hoteliers Theme Joining together under one umbrella and cooperation Taking responsibility in regional and national promotion Effective interaction with the ministry Prevention of price competition Effective communication channels among hotels Struggling for the advantage of the sector Support in training Hopeless about the federation and associations Prevention of unjust competition (Precautions for diminishing the effects of all inclusive pricing) n (%) 82 (26.2) 49 (15.7) 28 (8.9) 19 (6.1) 19 (6.1) Theme n (%) Promotion of the region and country 45 (14.4) Avoiding over-commercialisation 37 (11.8) Concern on the quality and optimal prices 29 (9.3) Prevention of extensive price cut-downs 24 (7.7) Increasing the number of regional culture tours 23 (7.3) In time payments 16 (5.1) Commitment to reservation contracts 11 (3.5) Professional guiding services 10 (3.2) 18 (5.8) 14 (4.5) 14 (4.5) 13 (4.2) educational institutions are presented in Table 7 under six themes. The lack of skilled employees cited in the fourth rank in the problems of SMHEs appears in this section once again. SMHEs facing problems in attracting a skilled workforce also have limited resources for training and retaining the employees (Emeksiz et al., 2007). This fact overlaps with expectations of SMHEs from educational institutions. As the table shows, the most common expectation or concern for the firms in this survey generally relates to applied training. They also expect these institutions to graduate highly motivated, skilful students, to keep in touch with the industry, to teach students foreign language skills, and to focus on the quality of education. Although infrequent, they also request schools to conduct training programmes for the owner/managers and the employees. DISCUSSION AND CONCLUSION In Turkey, 95 percent of the hotel stock is composed of SMHEs. Ninety-nine percent of these firms are owned and operated by local investors and their contribution to local economy and employment is great. Another aspect of Asian Journal of Tourism and Hospitality Research 1(1) Expectations of SMHEs from the tour operators and travel agencies SMHEs is their focus on the domestic markets (Emeksiz et al., 2007). For these reasons they contribute much in the economic and social sustainability of the tourism industry. In this study the problems and expectations of SMHEs were under question. However similar studies conducted on small and medium sized food and beverage outlets, travel agencies and recreation facilities would inform political bodies much more about the problems of these firms and get them to make mare comprehensive decisions. Contrary to EU countries, 30 percent of tax receipts in Turkey are collected directly, and the rest, indirectly (Ozfidan, 2006; Anka Haber Ajansi, 2007). This information is proof of tax inequity in Turkey. Hence it is necessary to conduct further researches on taxes since taxes Table 7 Expectations of SMHEs from the educational institutions Theme Applied training Graduating skilled students Collaboration with the industry Concentrate on teaching foreign language Increase the quality of education Training programmes for the owner/managers and employees of SMHEs n (%) 51 (16.3) 29 (9.3) 22 (7.0) 18 (5.8) 18 (5.8) 12 (3.8) 134 FUTURE EXPECTATIONS OF SMHES IN TURKEY are subject to the main complaint issue among SMHEs because the government made a new regulation in 2006 and lowered corporate taxes from 30 percent to 20 percent (Resmi Gazete, 2006). Another issue of concern for accommodation suppliers is the proposal of ‘accommodation tax’ regulation which will be collected 3 percent, which aims to transfer funds to the local administrations by the proposal (Ozkan, 2005). Hotels add 18 percent of VAT to the prices of services rendered. An additional 3 percent of accommodation tax would increase the service prices. Lowering the VAT rate to 8 percent, average rate in EU is about this rate, is the general aim of accommodation businesses not specific to SMHEs (Simsek, 2006). Hotel managers whose opinions were obtained through telephone interviews indicated that they are not against the accommodation tax if the VAT is lowered to 8 percent. The common expectation of SMHEs from the government is the reduction of operating costs that affect their business performance adversely. Besides reducing operating costs, Wanhill (2004) offers government to assist in implementing efficiency/productivity measures. Besides a range of investment incentives, he outlined a program for creating the right business environment for SMEs in order to improve their service quality, diversity, competitiveness and profitability. But how could this succeed in Turkey? To overcome the problems and resolve the expectations of SMHEs, it is vital to unite accommodation businesses and SMHEs under a non-governmental civil organization. Obstacles to such organizing are as follows: First, although there are nine associations of the hoteliers among the developed regions in the country, there are no associations in the Eastern, South-Eastern and Black Sea regions of the country (www.turofed.org.tr/bolgeler, 2007). Second, the Turkish Hotels Federation has the status of an association, and encounters problems in making decisions and carrying out its decisions. Although September 2007 it is proposed to unite the regional associations empowered by a law in the 8th Five-Year Development Plan, this could not succeed yet (DPT, 2001). The regulation regarding federations should be made to take the problems and expectations of SMHEs into account. Third, the democracy and civil initiatives of the sector is limited and the authors think that it is the most important problem. Individual efforts of the firms are not satisfactory and only concentrate on short-term solutions. To survive in a globalizing, neo-liberal environment, they should come together and cooperate. Unless cooperation and collaboration is succeeded, the problems and expectations of these firms can not be resolved. SMHEs expect the government, local administrations, associations and tour operators to promote the country in foreign markets and underscore the importance of regional promotion and publicity. It is also known that the marketing function of the SMHEs is peripheral to the management task of running the business (Page, 2003; Yolal, Emeksiz & Cetinel, 2006). They are also in a weak bargaining position vis-a-vis the large tour operators (Dahles, 1997) and in such business relations they appear over-dependent on tour operators (Buhalis, 2000). To overcome obstacles hindering the adoption of marketing theory by SMHEs, many authors offer cooperation between the hotels as well as with bodies related to tourism (Morrison, 1998; Morrison & Thomas, 1999; Fyall & Garrod, 2005; Yolal, Emeksiz & Cetinel, 2007). Such cooperation is also prerequisite for SMHEs in Turkey for purposes of expanding the marketing efforts of individual hotels. The tourism curriculum in the tourism schools in Turkey should be revised on the basis of SMHEs needs. Educational institutions such as vocational tourism high schools and two-year university levels, should motivate students to work in SMHEs. However, human resources related problems in SMHEs show the lack of professional human resources practices. More 135 MURAT EMEKSIZ, MEDEL YOLAL and FATMAGUL CETINEL efforts are needed to provide lifelong training and an adequate supply of skills adapted to the needs of small businesses (European Commission, 2005a). Training and consultancy services for the owner/managers of SMHEs conducted by educational institutions with the initiation of the Ministry of Culture and Tourism would help overcome these problems. It is known that 87 percent of SMHEs are internet users (Yolal et al. 2007) and such training and consultancy can be performed on an internet based portal in an interactive and cost-effective way. ACKNOWLEDGEMENTS This study is financed and supported by Scientific Research Projects Fund of Anadolu University, Eskisehir, Turkey. REFERENCES Anka Haber Ajansı (2007). Devlet vergiyi dolayli topluyor. Retrieved January 10, 2007 from http://kozmopolit.net/haberler/10170. Ataer, M.U., Erdemli, S. & Varisli, A. (2003). Turizm sektorune saglanan devlet yardimlari (State incentives in tourism industry). Hazine Dergisi, 16, 1-11. Retrieved December, 2005, from http:// www.treasury.gov.tr/hazinedergisi.htm. Aykin, S. M. 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