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The Importance Of China Inbound Tourism Market For Airbnb

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Business model

Airbnb is a three-sided business that relies on trust and responsibility from both supplier (i. e. , host) and consumer, or so called peer-to-peer. Additionally, Airbnb ensures money transactions between them, facilitates the search for accommodation, diminishes the guest-host risk, and facilitates a management of short term rentals (Reinhold & Dolnicar, 2017). The platform is unique due to the number of hosts and guest that interact in the platform (Reinhold & Dolnicar, 2017). Therefore, an extended list of housings is important in order to compete in big markets. The more places listed in the platform, the more they can attract different users. Not to forget that the success also relies on the trust of the users, the worth of mouth.

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Why is the inbound tourism market in Market so important for Airbnb? The users of short-term accommodation sharing platforms originate from outbound and inbound travel. A question for Airbnb’s is how effective are its accomodation sharing services in China to target these users and how could it successfully exploit opportunities latent in the Chinese market? To answer these questions we conduct a brief analysis of Airbnb’s position in the Chinese market. It is to notice that Airbnb’s growth rate of inbound and outbound in 2017 was 250% and 110% respectively (36KE, 2017). Observing a difference of 140% in growth rate suggests that the inbound segment is a promising market. In addition, in 2017 inbound tourism in China showed a significant growth totalling up to 138 million tourists compared to a total of 129 million of outbound tourism (Li, 2018). Besides, in 2017 on average, each Chinese citizen travelled 3. 7 times, which sum up to 5 billion trips (jinhua,2017). Given the significant rise of inbound travel in China, Airbnb has to consider the importance of this segment to obtain a larger market share in the short-term accommodation sharing market. For Airbnb to expand its accomodation sharing services in China, it has to consider taking this segment into account. When Airbnb entered the Chinese market in 2015, (daxueconsulting, 2016), the only accommodation for local travelers was hotels. Figure 1 shows the total hotel market size in China in 2015 was 65. 2 billion USD which can be regarded as total accommodation size. Therefore, it’s attractive for Airbnb to grab partially inbound market share. In addition, the middle class grows significantly so that more travelers can afford high quality accommodations. (Elizabeth Weise, 2017) Figure 1 shows the mid-scale and high end customers will increase 6. 6% and 5. 8% annually from 2015 to 2022, reaching to 56. 8% and 24. 8% respectively in 2022. In the end of 2016, Airbnb Chinese subsidiary opened in Beijing to develop both inbound and outbound market. (FX361. COM,2016) The localization has been prioritized now while recently changed the platform name to a local name, “Aibiying”.

Difficulties for Airbnb in China

The strategic issue of Airbnb is that it has encountered difficulties to fully explode the home-sharing concept in China’s inbound tourism. Airbnb values are not successful in the inbound Chinese market as they do not comply with the Chinese culture.

Culture

Global and local inbound consumers do not perceive a price advantage of Airbnb over the inbound hotel industry in China. Furthermore, quality cannot be assured through the Airbnb interface. A second factor is that home-sharing is not common in China, long-term rental are preferred while short-term leases are provided by mediators. Therefore, the supplying volume is limited and the list for host places are short in compared to the market potential (Li, 2017). The cultural distance between China and the US is substantial. Airbnb needs to employ a suitable strategy of advertisement, promotion, product design is the key point to cater the local demands in China.

Competition

Due to a lack of formal institutions compared to the domestic market of Airbnb, the US, successful expansion in China would heavily rely upon informal institutions. Since ‘guanxi’, a personalized social networks of influence3, forms an integral part of the Chinese culture, such an informal institution might be considered a variable to success in China for a foreign business as Airbnb. Competitors such as Tuijia have strong local network which Airbnb tried to benefit from, but eventually the negotiations for a merge between Tuijia and Airbnb failed in 2017. In a society where collectivism is accepted as a norm, trust in strangers is not easily established. The competitor Xiaozhu. com aims to provide a guaranteed platform for online communication and transactions for landlords and tenants. Xiaozhu. com’s focus is also to establish mechanisms such as property and personal safety guarantee schemes as well as identification. This proactive approach to such an underlying cultural influence has to be addressed effectively by Airbnb.

Regulations

The Chinese government is open to shared economy. Peer-to-peer businesses are seen as a contribution to GDP, an increase in tax income, and a increase in employment. (Xiang & Dolnicar, 2018) Despite the openness, the regulations are not innovative and Airbnb operates under regular hotel industry regulations. Therefore, this regulation implies that the hosts or suppliers in Airbnb list should comply with food quality, safety and hygiene regulations. In consequence many of the home-sharing platforms are under a grey area for regulations. Airbnb is willing to comply with the regulations but the local competitors can adapt faster. To give an example, data regulations in China required the users data to be in local based Chinese servers (Tsang & Mozur, 2017), but for Airbnb implies to integrate information from different servers.

Recommendations for Airbnb

As already elaborated, the Chinese inbound tourism market has a great importance for Airbnb. Therefore, we suggest the Airbnb to continue its inbound tourism in China while increasing its focus to the adaptation to the local market environment.

15 April 2020

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