TT-869 (Tourism Edition) -- Dr. McKinsey Diagnoses Japanese Tourism Industry

Japan Travel
* * * * * * * * TERRIE'S (TOURISM) TAKE - BY TERRIE LLOYD * * * * * *
A bi-weekly focused look at the tourism sector in Japan, by Terrie
Lloyd, a long-term technology and media entrepreneur living in Japan.

Tourism Sector Edition Sunday, Oct 16, 2016, Issue No. 869

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+++ Dr. McKinsey Diagnoses Japanese Tourism Industry

Last week consulting firm McKinsey Japan put out a tourism report called
"The future of Japan's tourism: Path for sustainable growth towards
2020". It's an attractive-looking document, with gorgeous photos and
easy to understand prose. In it the authors identify three key problems
confronting continued future growth of Japan's now 5-year old travel
boom, these being:
* An imbalance of tourists from East Asia versus the West and elsewhere
* Poor penetration by foreign tourists outside the major cities and
particularly outside the "Golden Triangle" (Tokyo, Kyoto, Osaka)
* Accommodation and infrastructure constraints in major cities

You can find the report here:

Of these challenges, the report chose to focus on the first two, stating
that Japan already recognizes its infrastructure issues and is doing
what's necessary to address the shortages. They may well be right if the
highly anticipated "AirBnB Law" is passed early next year. That law will
allow room owners in permitted regions (at least Tokyo, Osaka, and
surrounding cities) to rent out their rooms for a minimum 2 nights per
guest, and will significantly reduce pressure on hotels.

So we'll cover the first two items in this Take. The McKinsey report
basically blames the deficit of western tourists and the lack of
distribution of visitors beyond the major cities on the government's
poor understanding of marketing to non-Asians, the lack of a "captain"
to coalesce inbound sector players, and the lack of incentive for
companies to invest into the required technology, facilities, and
service staff to make things work for foreign guests.

To fix these problems, McKinsey suggests that the government should form
a Public-Private Partnership and that this entity should undertake five
action points:

1. Strengthen the nation's 20+ regional Destination Management
Organizations (DMOs).
These are organizations like the Setouchi Tourism Authority which are
supposed to organize all the tourist assets in a given area, improve
their service levels, and market them to foreigners. Localizing tourism
development is a good idea, but frankly if the central government is
unable to figure out how to service and market to a sophisticated
foreign audience, I wonder what chance lesser-funded and probably less
international local organizations would have? Still, local pride is a
great source of competition and if a couple of DMOs do turn a success
with foreign visitors, they might be able to serve as role models for
the others.

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2. Build an integrated online data platform.
By this McKinsey means the domestic inbound travel sector needs a way to
connect the nation's transport, accommodation, restaurants, local
events, and other tourism service providers to a single online
government-run platform. In the old days this would have been done
through a national web portal, which McKinsey seems to be espousing,
however, I think they miss the fact that foreigner travelers are already
addicted to major platforms such as TripAdvisor, Expedia, and others,
and it will take years and tens of millions of dollars for the
government to wrest travelers away from them. Instead, the government
has to offer something a lot more compelling and immediate. For example,
not a portal at all but rather the next layer down - an API-driven
nationwide data integration system. This would surface its data to the
public through any affiliate portal (including the foreign majors) that
wants the data.

McKinsey also states that METI is already talking to IT companies about
creating such a platform. Maybe they are, but my understanding is that
while there may be talk there is NO movement on a national platform of
any sort. Right now it's just wishful thinking. And why is there no
movement? Most likely because IT companies in Japan know they are
hopeless at marketing, and conversely no one trusts the marketing
companies to do the tech properly or to keep the platform neutral. So no
one is taking the first step.

3. Support hotels, attractions to build inbound tourism capabilities.
Here McKinsey is referring to improving such factors as language, online
reservations, and procurement efficiency. While these are all necessary
things, such services are already being supplied by private
organizations and government involvement is hardly necessary. OK, it is
true that these services are unnecessarily expensive because of the low
demand. So instead of coming up with government-funded projects METI
should introduce service development subsidies, similar to the targeted
R&D subsidies they have sponsored in the past, and allow hoteliers with
viable plans to apply for them. JPY5MM per hotel, with a JPY50bn budget
would go a long way to waking up the accommodation and guest support
service sector.

4. Embed foreigners in government organizations (3 into JTA, 30 into JNTO)
Although McKinsey is right that there are few if no foreigners employed
by the JTA and JNTO, and that such foreigners would provide at least a
source of good planning ideas, I would posit that both the JTA and JNTO
are hardcore bureaucracies that are unlikely to spend much time or
energy listening to their foreign staff. Because of this, the people
they'd hire would not be professional marketers/advisers, but instead be
youngsters with native-language editing experience and of little use at
a macro policy level. McKinsey seems to ignore the fact that the
control-freak habits of our bureaucrats are the biggest blocking point
for anything new to happen in Japan.

Let me give you a first-hand example of how bad the bureaucracy can be.
My company, Japan Travel, has an office in Singapore. We spent 2 years
and ill-afforded funds to create a network across the island nation and
raise awareness of both us and Japan to intending travelers there. About
6 months ago we managed to secure a deal to sponsor a nationwide
promotion with a major restaurant chain, whereby in return for
attractive travel prizes from us, we would invite contestants to become
members of our travel club and send them a weekly newsletter. We
negotiated terms, signed the contract, and all was looking good.

Then a few days later our Singapore restaurant partner dropped a
bombshell on us. Apparently JNTO had sponsored the restaurant chain's
cooks to travel to Japan to create their new recipes, and through their
agent made an implied threat to the partner that they would pull that
sponsorship if my company was allowed to proceed with the promotion as
contracted. As a result we were kicked off the prime positions on major
web pages (relegated to the bottom of the page or removed entirely) and
worse still were prevented from including our community sign-ups in the
contest. Why? Well, the JNTO agent (we never spoke to JNTO themselves)
said that JNTO didn't want to be seen as "favoring" a Japanese company
in this highly visible campaign. I was furious - JNTO didn't provide us
with a cent of funding, we'd signed the contract before even learning
that they were involved, and yet they imperiously killed our investment
because they wanted to control public dialog and not have some unknown
pipsqueak like us stealing attention.

With a mindset like this, how does McKinsey think a PPP would actually
work? In my experience, Japan's tourism bureaucracy is singularly
incapable of working alongside private companies without wanting
complete control and gutting private initiatives. The irony is that
since JNTO is itself a pipsqueak compared to the likes of TripAdvisor
and Expedia, in terms of influencing the foreign market it is going to
have to submit to and be mercilessly sucked dry of advertising funds by
those majors, much to their commercial delight. Yep, it's a dog-eats-dog
world out there...

5. Enhance online promotion.
The last action point by McKinsey involves the JTA and JNTO making
returned tourists ambassadors of the country by supplying those people
with both inspiration for places they have yet to see, and canned
memories of the highlights they may have seen, on influential social
media like Facebook. McKinsey helpfully suggests that the Japanese
government could set itself a measurable KPI, such as increasing
Facebook Likes from the current 400K to 5MM. This would be music to
Dentsu's ears. The fact is, though, as the highly successful Hokkaido
Likers campaign found out several years ago, while getting people to
Like you on Facebook is a great way to disseminate a marketing message,
it doesn't necessarily translate into a meaningful increase in sales.

Inside my own company I already know that Facebook is better than Google
SEO in terms of producing results, but by far the best PR is to improve
the value proposition of the destination in the first place This means
following Maslow's Hierarchy of Needs. If western tourists are comparing
Japan to Thailand for prices then you either make things cheaper or
create more value for money. Going upmarket does work, as proven by the
fact that tourists don't stop going to France because it costs more
than, say, Spain. Instead, the experience in France is so compelling
that tourists are willing to pay more to experience it. This is what I
call the "Tokyo Disneyland Pricing" phenomenon. Just keep making the
experience bigger and better and keep putting the prices up at the same
time. The Japanese government should learn Destination Management and
pricing from the pros - Oriental Land, the folks who run Tokyo
Disneyland, and Disney itself.

Lastly we get to the real core issue - that of McKinsey's recommendation
that the government forms a PPP. While this is a fine idea in principle,
I can see many hurdles to having such an organization. The biggest of
these I have just mentioned - entrenched bureaucratic thinking. But not
far behind is another problem that McKinsey completely ignores: the fact
that currently the Japanese Inbound Tourism sector is pretty much
controlled by foreign entities, not Japanese ones.

By this I mean that foreign tourists are buying their airfares, hotel
bookings, and other major pre-trip purchases (probably about 70% of
their total trip spend) off international firms. So if there is to be a
PPP, it is inconceivable to me that the Japanese government would allow
it to be proportionately represented by the actual players - meaning
foreigners. So this will set up a conflict of interests that the PPP was
supposed to resolve. But hey, if a miracle occurs and we get to see
American, Delta, HK Express, Air Asia, Airbnb, TripAdvisor, Expedia,
Hilton, Mystays, JAL, ANA, Hyakuzen Renma, Jalan, JTB, KNT, Rakuten
Travel, and Okura all sitting at the same table, THEN I agree that
things could get very exciting indeed.

Secondly, the Japanese government will always pander to vested interests
of large domestic corporations. Already their own procurement system is
designed to block start-ups and outsiders by using a grading system and
that gives almost all small companies a "D" rating - meaning untouchable
- for government project bids, forcing innovative little guys to find an
acceptable big-guy sponsor. This is how Kasumigaseki controls its
relationships and restrains them to just a few players (in tourism:
Dentsu, JTB, and Gurunavi). Therefore, while an industry-wide PPP sounds
grand, the players who would be the biggest beneficiaries of such an
alliance would also be some of the most clueless and
foreigner-unfriendly entities in the sector. That doesn't sound like a
winning formula to me.

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