USAID/ Private Sector Engagement Assessment – Sector

Photo Credits: Paragliders over Phewa Lake, , by Ronhjones "Canyoning NP", by Krish Dulal (2007) and Pokhara (2007), by Vyacheslav Argenberg

NOVEMBER 2015

This publication was produced for review by the United States Agency for International Development. It was prepared by SSG Advisors, LLC in collaboration with the U.S. Global Development Lab’s Center for Transformational Partnerships, the Offices of Private Capital and Microenterprise and the Development Credit Authority, and the Asia Bureau at USAID.

TABLE OF CONTENTS

List of Acronyms ...... 3 Preface ...... 4 Introduction and Methodology ...... 5 Current State of the Sector: Overall Market Analysis ...... 6 Current State of the Sector: Key Stakeholders’ Perspective ...... 6 Private Sector’s Vision of Tourism and How it Envisions Achieving That Vision ...... 9 Potential Role for USAID in Improving the Overall Sector ...... 13 BOX: Market Segment Example ...... 15 BOX: USAID/Macedonia Example on Supporting Market-Driven Tourism ...... 18 Development Value of Unlocking Tourism’s Potential ...... 19 Other Donor- and Government- Supported Efforts in the Sector ...... 19 Annex 1: Tourism Sector Meeting Notes ...... 21 TOURISM ASSOCIATIONS ...... 21 NATIONAL GOVERNMENT ...... 24 INTERNATIONAL DONORS ...... 25 TOUR OPERATORS - (Emerging) ADVENTURE ...... 28 TOUR OPERATORS - Trekking, Cultural, and Other...... 30 ...... 33 LODGING ...... 35 CONGLOMERATES ...... 38

2 LIST OF ACRONYMS

ATTA Adventure Tourism Trade Association DFID Department for International Development (UK) FITs Free Independent Travelers GDP Gross Domestic Product GoN Government of Nepal IFC The International Finance Corporation MCC Millennium Challenge Corporation NTB National Tourism Board Samarth-NMDP Samarth National Development Programme TAAN Trekking Agencies' Association of Nepal TIA Tribhuvan International Airport UNESCO United Nations Educational, Scientific, and Cultural Organization UNWTO World Tourism Organization

3

PREFACE Following Nepal’s earthquake in April 2015, both USAID/Nepal and the private sector-focused offices in USAID/Washington came together to reflect on how the Agency could reinforce the private sector’s ability to support the Nepalese recovery and reconstruction effort. The USAID/Washington team, comprising Global Partnerships (GP), Private Capital and Microenterprise (PCM) and the Development Credit Authority (DCA), grounded its work in the theory that by leveraging the activities and resources of the recovery effort, the Government of Nepal (GoN) and development partners could empower the private sector as a partner and service provider for the recovery. In addition, effective engagement of the private sector would solidify and strengthen its role as the economic foundation for Nepal’s future growth and development. In responding to USAID/Nepal’s needs and the current realities of its portfolio, the assessment team focused on two main objectives: 1. Identify potential market-based approaches to leverage private sector ideas, energy and resources for the recovery effort and longer-term, inclusive economic growth. 2. Evaluate private sector needs, interests and opportunities across agriculture, construction and tourism with the intention to “build back better”. The team also focused on alternative pathways to recovery, as indicated by the private sector’s interest and willingness to invest.

Importantly, the team sought to accomplish these objectives with the least possible management burden for the Mission by drawing together the Agency’s resources and expertise in partnerships, enterprise development and private capital mobilization to provide a comprehensive vision for promoting private sector-led growth in these sectors. The assessment team set out to identify how USAID could strategically deploy its human and financial resources to unlock private sector potential in the target sectors that would lead to significant development results. The team conducted the analysis from a private sector perspective, so as to understand both sector-specific and cross-cutting constraints and opportunities, and where the private sector seemed most likely to channel its energy and resources to address sector-level issues, from enabling environment to infrastructure. While taking into account the pressures and limitations facing the Mission, the team looked to highlight opportunities for it to promote engagement models, market-based approaches and private sector services that could drive a deeper, more sustainable recovery.

The recommendations that follow outline ideas for Mission-based interventions that could be achieved with current resources either through investing in new projects, potential modifications to existing projects, supporting additional studies and analysis, and brokering partnerships or collaborations that can support this private sector-led approach. However, unlocking the private sector’s development potential in each sector will require a sustained course of action. The recommendations note which steps can be taken immediately by the Mission, along with suggestions for longer term engagement. This report serves as an initial starting point for sharing ideas and opportunities – along with models used by other entities across USAID that could inform the Mission’s approach – but the USAID/Washington team expects to continue to iterate on these ideas with the Mission to develop the most effective opportunities.

4 INTRODUCTION AND METHODOLOGY While USAID/Nepal has not previously invested in the tourism sector, the earthquake presented the Mission with an opportunity to reflect on the potential role USAID could play in helping the sector “build back better.” Since the industry largely comprises private sector actors, the Mission asked the Assessment Team to meet with a range of tourism-related companies and organizations to better understand the following questions:  What is the current status of the tourism industry, particularly from the private sector perspective?  How can investment in tourism create a more competitive and attractive destination, particularly in a way that will benefit the population segments that USAID’s assistance targets?  What restricts growth and innovation in the sector?  Where might USAID interventions have the biggest impact? The team met with twelve local tour companies, representatives from the National Tourism Board and the National Tourism Promotion Committee, Nepalese tourism associations, international travel associations, NepalNow, international donors (DFID/Samarth-NMDP, IFC and UNESCO), C-Suite executives from local hotels, airlines and conglomerates with tourist- related investments, and equity fund managers. In addition, the team reviewed the National Tourism Strategic Plan 2015-2024, the Post- Disaster Needs Assessment and Samarth-NMDP’s studies on tourism in Nepal. It also considered materials from USAID tourism projects in other countries, the World Tourism Organization (UNWTO) and the Adventure Tourism Trade Association (ATTA). Due to time constraints, the team did not explore many sub-sectors of tourism (e.g. medical, wellness) or with much depth (e.g. cultural/festivals, wildlife safari, domestic). However, the team did focus on adventure tourism, given its alignment with USAID/Nepal’s environment portfolio. Adventure tourism includes trekking and (“hard adventure”), as well as rafting, mountain biking, and other activities (“soft adventure”). Not only does this segment build on Nepal’s existing strengths and ‘brand’ (as limited as it is), it reaches more rural and remote areas than others. Moreover, adventure tourists are generally more accepting of the kind of ambiguities and challenges that travellers are likely to encounter in Nepal (e.g. airports without air conditioning, lackluster customer service in restaurants). For the purposes of this assessment, adventure tourism will encompass both “hard” and “soft”.1

1 Hard vs. soft adventure: During the interviews, the assessment team repeatedly heard reference to “soft adventure” and “hard adventure”. Neither term has a concrete definition, as the concepts’ meaning tended to change according to the interviewee. However, the assessment team concludes that “hard adventure” has its roots in the physical difficulty associated with a particular experience. For example, multi-day alpine expeditions and backpacking trips as well as many extreme sports would be considered “hard.” Shorter trips and even many adrenaline-pumping activities are considered “soft”, although lines can start to blur with levels of difficulty within a single activity. For example, class V rafting and and free climbing up a 100m cliff may be “hard” but other rafting and climbing might be “soft.” Nepal is famous for the “hard adventure” craved by Everest expeditioners or backpackers the three- week Annapurna Trail, but this is less than one-fifth of Nepal’s tourists. The private sector is currently eyeing “soft adventure” as a way to provide value to the 80+ percent of tourists not interested in hard-core activities and prolonged physical discomfort. “Soft adventure” can include white-water rafting, bungee jumping, parasailing, and 5 CURRENT STATE OF THE SECTOR: OVERALL MARKET ANALYSIS According to the 2015 World Tourism and Travel Council Report, tourism is estimated to represent 8.9 percent of Nepal’s GDP in 2014 and directly supports 487,500 jobs (3.5 percent of the total employment, with a greater portion in rural areas than other sectors). Many of the private sector actors with whom the Assessment Team spoke experienced an immediate drop in business of 60-80 percent and were unprepared to make projections for the fall peak season. There is strong consensus that it will take more than a year to fully recover. However, it is important to note that Nepal’s tourism sector was stagnating before the earthquake. The National Tourism Strategy reported the number of tourist arrivals in 2009 was approximately 450,000 with receipts of roughly $400 million. In 2013, although the number of visitors approached 800,000, total receipts were only $429 million. Average daily spend rates for tourism are calculated at around $40. This indicates that the development impact of tourism may have been decreasing before the earthquake—particularly if domestic tourists’ activities are captured in receipts. Globally, tourism is a growth sector—even continuing to grow during the economic downturn. Travel and tourism’s contribution to global GDP grew for four years straight (2010-2013), exceeding $2.15 trillion in 2013.2 One of the fastest growing categories of tourism is adventure tourism, which increased from $89 billion in 2010 to $263 billion in 2013. The Trade Association (ATTA) defines adventure tourism as a trip that includes at least two of the following elements: physical activity, natural environment and cultural immersion.3 Nepal has a comparative advantage in this sector due to its topography, natural beauty, biodiversity and culture. Moreover, adventure tourism has greater potential to achieve rural development and employment outcomes than other forms of tourism since it directly involves people in rural and remote areas as guesthouse owners, restauranteurs, guides, and porters.

CURRENT STATE OF THE SECTOR: KEY STAKEHOLDERS’ PERSPECTIVE Common themes from the team’s interviews with 30 key stakeholders in Nepal’s tourism sector include: The industry is “brittle”. Post-earthquake, many tourist operators cited a cancellation rate of up to 90 percent. The political fight currently playing out in the region is compounding this

trekking but it also includes culture, language and non-physical activities that often complement the adventure activities. 2 Adventure Tourism Development Index, The 2015 Report 3 ATTA lists 34 types of activities under adventure tourism: archeological expedition, attending local festivals/fairs, backpacking, birdwatching, camping, caving, climbing, cruise, cultural activities, eco-tourism, educational programs, environmentally sustainable activities, fishing/fly-fishing, getting to know the locals, hiking, horseback riding, hunting, sea/whitewater kayaking, learning a new language, orienteering, rafting, research expeditions, safaris, sailing, scuba diving, snorkeling, skiing/snowboarding, surfing, trekking, walking tours, visiting family/friends, visiting historical sites and volunteer tourism. 6 situation as tourists decide whether or not to visit Nepal given the reports of (unofficial) blockages on the -Nepal border, fuel shortages, and considerable tension between protesters and police. As a landlocked country, Nepal depends greatly on good relations with India to provide the goods necessary to power its tourism industry, and those relations are currently challenging. Stagnation. Globally, tourists are becoming more sophisticated and expecting more from a destination. Moreover, they are willing to spend more for a great experience. Innovative firms tend to capture these tourists by offering them specialized products and great customer service. Innovative countries tend to attract these tourists by creating a ‘felt experience’ that reinforces the tourism industry’s success through quality infrastructure (roads, transportation, IT) and an expectation of quality. Even before the earthquake, Nepal suffered from a decreasing revenue per tourist and was losing ground to places like and . According to one interviewee, “Nepal is no longer cool” and has not evolved beyond the ‘cool’ status it earned in the 1990s. This situation has led to fewer tourists, less spending per tourist compared to other markets, and more internal competition for a dwindling customer base. Unprofessional and unprepared image. The earthquake cast significant doubt on Nepal’s level of safety, emergency preparedness, and professionalism. It is not seen as an especially ‘safe’ country and the level of safety required by many of today’s tourists exceeds what the Nepal tourism industry (as a whole) currently offers in terms of human resources, transportation, and physical assets. It is difficult to differentiate between ‘contenders’ and ‘pretenders’ since all operators offer the same product and there is no standard certification process to distinguish the skill level and emergency readiness of tour operators and their guides. The commodification of Nepal’s tourism industry forces operators to undercut one another and tourists feel the impact on quality throughout the experience. In addition, quality human resources are difficult to find and retain, especially as work abroad offers more money and more consistency. According to hotel managers, strong unions and tenure laws protect workers to the point at which their job security begins to affect the quality of service they provide. The industry lags in terms of (online) sales, marketing, web development, social media, language, and business skills. In general, the hospitality industry is not seen as professional and equal of others like construction or services. The farther from the major cities, the more interviewees complained of the lack of these skills and its impact on the ‘felt experience’, especially customer service and the creation of consumer-driven products and services. However, Nepal is well-known for its hospitality and friendly culture—several of the external tour operators highlighted that they often hear from their customers “Go to Nepal for the mountains, come back for the people.” If coupled with improved professionalism and preparedness, Nepal’s operators and guides could achieve a significant comparative advantage in the global tourism market. Unhealthy competition. In reaction to the cancellations after the earthquake, local tour operators are reducing prices and narrowing product offerings in an attempt to attract customers. However, this scramble to recover numbers has diverted the operators away from using this time to reposition themselves to more effectively capitalize on the attention the country is receiving. Several interviewees speculated that the accompanying cost-cutting is very likely to be at the expense of quality and safety, which are areas of great concern to tourists and may only make things worse.

Culture of ‘mimicking’. Innovation, professionalism and business skills are lacking in Nepal, but there is a strong culture of entrepreneurship. The barriers to entry and consequences of failure are low,

7 which allows guides and porters to start their own firms relatively easily. This expansion has helped TAAN (the trekking association) grow from 15 to 1,500 members in 30 years.4 Across the sector, actors mimic the activities of successful entrepreneurs but such decisions are often made with a poor understanding of customer demands/preferences and what it takes for a business to succeed. This leads to unhealthy competition and lack of distinction between “contenders” and “pretenders” within the sector. Lack of market data and market intelligence. Even among private sector actors, the team noticed a general lack of sophisticated market analysis that pervades the industry. Entrepreneurs create new products more because they seem like “great opportunities” than because the research and analysis yield insights into pent-up demand for a particular tourism product. The government and its Nepal Tourism Board collect limited amounts of data on incoming tourists. This data is not analyzed and converted into market intelligence, nor is it disseminated to firms in the industry. Without solid market intelligence, investors and funders are less inclined to finance larger projects and entrepreneurs take on additional risk when creating new products that distinguish themselves from the competition. Lack of institutional capacity. According to the National Tourism Strategic Plan 2015-2024, only 35 percent of tourism policies have been implemented, with most of these only partially implemented. The National Tourism Board’s mandate is limited; both Board members and industry leaders acknowledge it does not effectively serve the sector. The Ministry of Tourism lacks a permanent and professional staff, which makes it difficult for the GoN to provide guidance or leadership. Lack of cooperation, including within and between associations. The team heard in interviews that associations can be more politically-oriented than sector-oriented, especially as they grow in size and revenue. Firms still participate—because it is often required—but to varying levels. Nor do existing associations capture the full breadth of the existing tourism sector in Nepal. Mountain biking firms need to register as trekking companies as it is the only avenue open to them, but they do not have an equal voice in the trekking association. In addition, associations seem to largely operate in isolation of one another, leading to few coordinated efforts to counter Nepal’s ‘budget backpacker’ image. A majority of local operators still wait for the GoN to lead tourism-related recovery efforts. Corruption. In numerous meetings, participants expressed a lack of trust in the GoN and NTB, and to some degree, the associations. They complain that these entities are driven more by political than sector considerations and even questioned the use of funds slated to support the industry. Growth of market segments that challenge the outdated Nepal brand. Nepal is famous for mountains (Everest) and trekking but the bulk of the industry’s growth comes from two mostly non- trekking markets: and India. The number of Chinese tourists grew 9.4 percent between 2013 and 2014. The Indian market is also growing, although the extent is less known given the flows between Nepal and India. Although adventure tourism in each of these countries is growing, growth seems to be primarily in city tours and pilgrimages, respectively, which may not have the greatest development impact potential. Several organizations noted the low margins for operators who offer packages for the low and mid-end Chinese tourist segments. In addition, Nepal is seeing more Free Independent

4 This expansion is also caused by another problem within the sector as guides break off from operators to start their own businesses. Several local operators identified this as a key constraint for growing their businesses. In addition, some of the more established local operators felt that these smaller operations—that may only be an individual—tend to avoid paying VAT, which allows them to charge 25% less for tour packages. 8 Travelers (FITs) come to the country without a tour operator or package. These tourists tend to be more sophisticated and comfortable with arriving in-country and creating a travel experience on their own. Nepal’s operator- and package-driven tourism industry is not set up to adequately capture and serve these new tourists—particularly with its limited online presence—since most FITs use Internet resources to build out their custom itineraries. Infrastructure. The road network is of poor quality and limited in coverage, which hampers the ability of firms to access locations that would attract travelers. Energy provision is insufficient, especially in . The country needs an additional 800 towers to provide cellular coverage and current plans for IT development do not include tourism as a major stakeholder. Domestic flights are expensive and routes must flow through the Tribhuvan International Airport (TIA), which severely complicates the ability of tourists (domestic and international) to explore areas outside of Central Nepal. TIA, recently ranked as the 3rd worst airport in the world, has yet to lengthen its runway, which limits international travel potential. Nepal’s current state of infrastructure does not meet the demands of an increasingly-sophisticated global tourist interested in “adventure, nature, culture, and craft beer”. In many ways it hinders the creation of a ‘felt experience’ that would allow Nepal to earn more revenue, increase the number of visitors, and differentiate itself in the competitive global tourism market.

PRIVATE SECTOR’S VISION OF TOURISM AND HOW IT ENVISIONS ACHIEVING THAT VISION In addition to asking business leaders about the current state of the tourism sector, the Assessment Team opened up a line of inquiry that focused on private sector-led efforts to improve the industry. The next section highlights the common themes across the following questions: 1. What does a vibrant tourism sector look like? 2. What does the sector need to do to realize this goal? 3. What is the private sector currently doing to make this goal a reality? In those instances in which the team did not come across private sector efforts to achieve the stated goals based on its stakeholder interviews, that section is blank. One to two million tourists per year spending more than $100 per day. The GoN wants to increase the number of tourists to 2 million per year, but many private sector leaders prefer fewer tourists with higher revenue per tourist. A thriving sector has both more tourists and higher revenue per tourist. To achieve that vision: Diversification. Nepal is known for trekking and mountaineering, yet at its peak (2001) this segment captured only 28 percent of Nepal’s total foreign tourists. This proportion has since fallen to 13 percent.5 When Samarth looked at the offerings of TAAN’s 1,5000 members, it found that 85 percent of them offered the same packages. Were the country to reach its goal of attracting 2 million foreign tourists by 2024, even if the percentage of trekkers and mountaineers hold constant, new areas would need to be developed and marketed to meet that target.

5 Destination Nepal 13-19 February 2015 9 The majority of interviewees spoke of getting the numbers back up as soon as possible. In other words, to return to the pre-earthquake ‘normal’. However, in a post-earthquake study of 342 Nepalese tour operators conducted by Siddarthinc, only 3.5 percent were looking to diversify their offerings and only 28 percent of enterprises were currently looking to improve products and/or services. Unfortunately, at precisely the time in which firms should diversify their products and differentiate themselves from competitors, they retreat to the “tried and true” and fight for an increasingly smaller customer base. The diversity of landscapes, attractions and cultures within Nepal provides ample opportunities to develop niche products. This diversity allows visitors to create the kind of personalized itinerary that could make Nepal a top destination for a number of sub- sectors. For example, many of today’s global tourists want to combine light trekking, wildlife viewing, and health and wellness with a big cultural festival. Or they mix whitewater rafting and paragliding with a visit to Buddha’s birthplace. But until the Nepal brand includes these sub-sector products, it will continue to be known solely as the home of .

What the private sector is already doing: Developing niche markets and events. According to interviewees, truly innovative companies tend to involve foreigners as investors and/or managers. These firms usually act as first movers (‘contenders’) in a new area and have a better understanding of the market and their customers. They expect to recover from the earthquake more quickly in part because they have more sophisticated strategies for marketing and digital engagement (including online payment gateways). They also invest in those areas that matter to tourists (e.g. training, certifications, safety). For example, 80 percent of Single Track’s mountain biking clients postponed their trips after the earthquake but the company recovered 80 percent of those bookings for this year after an advertising campaign to targeted communities. Some of the interviewees also view events as one of the best ways to diversify Nepal’s brand and attract international and domestic tourists to new destinations, especially during traditional off season months. For example, the Kathmandu Kora Cycling Challenge has grown in four years from 19 riders at its inaugural event to 3,000 in 2015. The ATTA held its 2015 Adventure Week in Nepal in October, which presented an excellent opportunity to highlight Nepal as a world-class destination for events in non-trekking areas like trail running, rafting, parasailing, and CrossFit.

Fully developed market. It becomes easier to distinguish between ‘contenders’ and ‘pretenders’ as the more innovative and entrepreneurial firms take advantage of improved market intelligence to develop industry-leading products and experiences. Niche segments beyond trekking (e.g. mountain biking, running, rafting) grow in terms of numbers and global recognition. The market bifurcates into high-end and low-end segments and the respective firms compete on quality of experience more than just lowest price. New destinations outside of the Golden Triangle (Kathmandu, Pokhara, Chitwan) grow around a diverse set of adventure and cultural activities. To achieve that vision: Turning improved data capture into actionable market intelligence. There is a general lack of understanding of the full potential of tourism in Nepal and how to develop it. Traditionally, the sector has resorted to passive marketing (i.e.

10 copy what works elsewhere) but this no longer works when the overall number of tourists declines and then drops. During the recent years of pre-earthquake stagnation, the National Tourism Strategic Plan acknowledged that “most (activities) are product-led rather than market-led.” Nepal’s tourism industry needs to capture more data at the local, national and international level, turn that data into market intelligence and transform insights into action plans and targeted marketing strategies. The current system of box-checking on an arrival card is antiquated but it is the only current form of data collection at the national level. These data rarely make their way to industry associations or individual firms, nor do the data make their way from the ground level to a central location where analysts turn raw numbers into actionable findings regarding market segments, destinations, industry trends, or products. Without these data, it is difficult to pressure test ideas, which further increases the risk associated with innovation for entrepreneurs.

What the private sector is already doing: Vertical integration. Some of the larger firms are expanding operations into new areas in order to better control aspects of quality and safety that directly impact the ‘felt experience’. For example, Astrek and Yeti Group are building high-end lodges along established and new trekking routes for clients looking for a combination of outdoor adventure and high levels of comfort and customer service. Overall, interviewees are familiar with existing tourism data from GoN immigration forms and permits and expressed interest in additional market data, though it did not appear to currently play a significant role in growing their businesses.

Coherent Nepal brand. Nepal sheds its reputation as a cheap place for trekking to a world- class destination that includes a diverse range of transformational tourist products, unique cultural experiences, and the combination of ‘wild and safe’ that made Costa Rica and New Zealand famous. It offers year-round options to both general and niche market segments that give travelers a taste of the ‘Real Nepal’, which then provides more consistent employment and income for the sector.

To achieve that vision: Creating a strong Nepal brand that resonates with targeted market segments. Across the board, interviewees stressed the need for Nepal to create a stronger global tourism brand. However, opinions were split as to whether Nepal needed to focus on a safe image campaign versus highlighting its reputation as an amazing destination with a diverse range of tourism options to targeted audiences. Creating a strong brand will require: (1) better understanding of the messages that will resonate for each potential tourist market segment; (2) greater collaboration and coordination between the private sector, its associations and the Nepal Tourism Board; and (3) staff within the NTB and throughout the tourism sector trained in marketing, storytelling, sales, and social media messaging. The sector moves beyond “Nepal is safe” and promotes the country in such a way that all campaigns attract an increase in quantity and quality (in terms of revenue) of tourists. The seasonality of trekking ceases to dictate the general health of the sector as more products and targeted marketing campaigns attract tourists to a variety of destinations on a year- round basis. Professionalization and world-class ‘felt experience’. From the airport arrival to the taxi ride and the hotel to soft adventure excursion, Nepal offers a coherent and consistent experience that matches the expectations of tourist (value for money) and industry (revenue per

11 visit and great reviews). This ‘felt experience’ includes road and airport quality, health and hygiene at eating establishments, the customer service at the hotel, the safety of an excursion, and the professionalism displayed by everyone along the chain. The sector trains and retains skilled human resources to provide the level of customer service increasingly expected by today’s global tourists. Industry leaders and business owners develop and utilize the business skills that help the industry thrive (marketing, finance, business development, analysis). These business leaders implement quality, equipment, health and safety standards as well as emergency preparedness plans for future disasters. They also create operational practices and infrastructure that support the improvements in quality and safety expected by the tourism industry. The industry designs systems that weed out the poor-performing firms and rewards good practices through policy and market-based incentive structures. The Ministry of Tourism creates a dedicated staff of professionals who lead initiatives and support private sector-led efforts to build the sector.

To achieve that vision: Improve standards. The private sector is currently waiting for the GoN to act but the Ministry of Tourism and NTB have not demonstrated leadership in the recovery efforts. Therefore, the private sector should consider taking the lead on self- regulation for those things tourists have come to expect from an experience: quality human resources trained in the necessary areas, hygiene (especially in restaurants), insurance, emergency preparedness plans, and ways to accurately identify a reputable tour operator. Non-performers would find it more difficult to continue in the market. The industry drafts codes of conduct and standards and agrees upon certifications; the GoN supports in the enforcement of these standards and expectations. Independent actors—like international donors—may be needed initially to foster this level of cooperation between the private and public sectors. On a tactical level, equipment should be adequate, sufficient and well-maintained. All guides and porters should be trained according to international standards in safety, rescue, basic medical and sector-specific skills (e.g. rock climbing, rafting). Food and water stores and emergency shelters are available in at-risk areas, along with IT systems that can track and locate people in an emergency.

What the private sector is already doing: International safety standards. Lead firms already implement international training, certifications and standards—in part due to real or perceived client demand, but also out of the entrepreneurs’ desire to provide quality services. However, there is no system to distinguish and verify firm/guide experience, skill level or application of safety standards. Many of the more forward-looking firms interviewed by the Assessment Team have executives who either come from abroad or studied abroad, so they bring the national and international standards from elsewhere to Nepal.

What the private sector is already doing: Ad-hoc cooperation. Despite low levels of GoN leadership, the Assessment Team found limited and ad hoc instances of collaboration that occur in absence of government involvement and sometimes in spite of it. NepalNow is an example where the private sector—and NTB—came together to provide crowd-sourced information on post-earthquake conditions. Many mountain biking firms came together to conduct post-monsoon trail clean up days and Astrek opened up its training facility to other firms and individuals. For trekking firms, the ability to get back to business as normal was slowed by the need for a World Bank/IFC study that verified the safety of returning with tourists to affected regions. This highlights the sector’s reliance on independent and third

12 party involvement to move most initiatives forward. According to several interviewees, without an ‘independent’ opinion, no one (GoN, insurance companies, tourists) believes the private sector when it says Nepal is safe and open for business. A government suspicious of the private sector feeds the unhealthy competition in the sector but many firms still think the GoN should lead efforts for deeper industry cooperation. Firms embrace the involvement of third parties because they usually lack the bias and politics oftentimes found in the leadership of the GoN, the NTB, and even the larger industry associations.

Better integration of tourism with the Nepalese economy. Better coordination between the GoN and the tourism sector helps identify where and how infrastructure investments complement and enhance tourism offerings. The development of key infrastructure (roads, access points, signage, bridges, checkpoints) benefits both the tourism industry as well as the larger Nepalese economy. Information technology (IT) contributes to advances in tourism, especially through cellular coverage, GPS, and technology apps that improve the infrastructure for safety. While power is a major concern for the Nepalese economy, major hydropower projects have detrimental impact on communities (hydropower projects also severely limit the rafting industry) and tourism must be a major stakeholder in any development project. Since tourism offers one of the only ways out of poverty for so many Nepalese citizens, its role in the economic development of the country must be taken into consideration. Therefore, the GoN recognizes the importance of tourism and treats the industry as one with a large role to play in Nepal’s efforts to graduate from Least Developed Country status.

To achieve that vision: Infrastructure that supports tourism. These projects range from the large (airport renovation and construction) to the small (signage and checkpoints along the Greater Himalayan Trails) but they all integrate the tourism sector into larger conversations about how to develop Nepal as a country. Currently, Nepal lacks the infrastructure for quantity (1+ million tourists per year) or quality (higher-end travelers willing to spend $500 per day). Many interviewees desire a departure from the Golden Triangle (Kathmandu, Pokhara, Chitwan) to develop new poles of growth that capitalize on the interest in niche markets like spiritual pilgrimages and adventure sports competitions. But they recognize the difficulty of developing these new products if the existing infrastructure cannot support them. For example, the Asian Development Bank (ADB) and GoN are building a new airport near Lumbini (birthplace of Buddha) but the region lacks the road or hotel infrastructure to accommodate the influx of people. There is legitimate concern that projects like this airport will turn off new people to Nepal because the ‘felt experience’ fails to live up to expectations, at which point they will choose Bhutan as a destination.

POTENTIAL ROLE FOR USAID IN IMPROVING THE OVERALL SECTOR The Assessment Team concludes that the biggest bottleneck facing Nepal’s tourism industry, the lack of actionable market intelligence that can optimize Nepal’s tourism sector, presents USAID/Nepal with an opportunity to transform the industry. Nepal has tremendous potential as a destination but the team found limited understanding of this potential among its key actors, or of what the industry needs to progress towards it. Siddharthinc’s study, finding that only 3.5 percent of tour operators were looking to diversify their offerings, is not surprising.

13 Risk tolerance tends to decrease as competition increases, especially if firms lack understanding of the potential upsides of any investments under consideration. Although many interviewees identified a global advertising campaign—particularly one with a “Nepal is safe” message—as an area in which USAID could assist the sector, such a campaign ignores the industry’s challenges prior to the earthquake and its lack of understanding of its tourism market. During a call with five of ATTA’s members that focus on Nepal tour packages, they cited lack of product differentiation as one of the key constraints for a thriving Nepal tourism industry. As a company, government or donor, it is hard to identify which consumer markets—by segment and by origin—to target without having a good understanding of the trends, needs, desires, and economic, social, and environmental potential of these markets. For example, Nepal may be able to increase the number of trekkers and revenue per person by adjusting current offerings or marketing them differently. Or perhaps another tourism market segment will come forth as having potential for USAID target areas [see box]. As the sector begins to identify and truly understand key market segments—and creates ways to ‘optimize’ their travel experience in Nepal—the public and private sector can focus cooperation and investment to attract and benefit from that market segment. Establishing a market research team is outside the reach of most small and medium-sized firms, but with solid market intelligence provided through a central resource, these firms may feel more empowered to invest in new offerings and niche markets. Local tour operators could use market intelligence about customer needs and global trends to design niche products and experiences that attract more sophisticated international tour operators and free independent tourists (FITs). Non-innovators (also called “pretenders” by some) will see examples of innovation and have more models from which to draw, thus reducing the amount of unhealthy competition in the sector. To determine how well this approach resonates with the tourism sector, USAID/Nepal could sponsor (in whole or in part) an initial market study, performed by an internationally-recognized firm, of a particular segment of Nepal’s tourism sector, such as adventure tourism, teahouse tours, city tours, health and wellness, cultural, or domestic tourism. The report should include recommendations that detail how local companies can optimize their offerings/services to take advantage of global trends, what GoN infrastructure investments would best support the sector, and the expected return on these investments. The study’s research objectives must be as precise as possible. Firstly, the study should focus on current visitors within a market segment. Areas of interest include: profile and origin of visitors; comprehensive understanding of visitor behavior (e.g. accommodation, transportation, activities, attractions visited); visitors’ level of satisfaction with their experience (e.g. local tourism services, infrastructure, attractions, food and drink) and visitor loyalty and likelihood to recommend a destination. Secondly, the study should focus on how Nepal could take advantage of global trends in that market segment. Importantly, the study team should interview external tour operators, travel associations (e.g. ATTA) and influential voices within that segment (e.g. adventure travel bloggers and authors) to better understand the incentivizes for choosing one location/package

14 BOX: MARKET SEGMENT EXAMPLE Birders—like backpackers—are known to open up new destinations to the international market and may be a segment worth exploring. In 2006, USAID/Guyana launched the Guyana Sustainable Tourism Initiative (GSTI). After identifying birdwatching as a niche tourism market with significant potential for Guyana, the GSTI began a market‐led approach to developing the industry. To generate market demand, the GSTI supported Guyana’s attendance at leading tourism industry trade shows and conferences while concurrently launching an aggressive marketing and media campaign. And along with the Guyana Tourism Authority (GTA), sponsored a Birding Tourism Program familiarization tour. As a result of this effort and others, occupancy rates in Guyana’s interior went from 20 percent in 2006 to 70 percent by 2011. A similar approach could be used in Nepal. Bardia National Park alone has over 400 species of birds. There may be specific market opportunities around highly charismatic or emblematic species. A 2011 U.S. Fish and Wildlife national survey on birding in the U.S. found 17.8 million took birding trips away from home (it did not specify if any were international). A 2013 UK survey found that bird watching has become the number one hobby, and it is a growing segment in other countries as well. U.S. birders are typical highly educated, affluent and of all ages, with those age 40-70 representing the largest group. The U.S. birdwatching market can further be divided into ‘hard core birders’ (the smallest category), ‘enthusiastic birders’, and ‘casual birders’ or eco-tourists (the largest category). Each category requires different marketing as their priorities and preferences differ, e.g. levels of comfort, diversity of birds, family friendliness, amount of time devoted to this single activity, and convenience--backpacking vs. areas accessible by road and travel time required. Hard core birders may actually prefer harder to access areas but this segment is much smaller. A government actor, a private sector firm or a donor would need to have more information to determine whether this segment is worth pursuing. For example, if no enthusiasts and only 2% of the hard core birders are interested in coming to Nepal, the necessary costs required to effectively meet the demands of the birding segment (infrastructure, hospitality, etc.) may not be offset by the potential revenues this market could bring. Thus this may not be the best investment at this time.

over another. Such insights will lead to a more market-driven approach for boosting Nepal’s tourism sector. While Samarth-NMDP and other organizations have developed reports on various aspects of tourism within Nepal, they have not directly engaged the key external travel influencers to understand their perspectives on how well Nepal competes with other destinations. If this approach resonates with the sector, the Mission and/or other donors may consider supporting its institutionalization by establishing a more permanent Market Intelligence Unit (MIU). Tourism Intelligence Scotland and Tourism provide good examples of what is possible. Using the results from the market intelligence study, the Mission could engage in a variety of different efforts to ensure that information is acted upon by the sector. The graphic below provides an overview of those approaches, with more detailed information below.

15

Convening Actors Across the Sector. Until such time in which the Ministry of Tourism and NTB are considered leaders in the sector, USAID’s role as a convener may be able to help fill the gap. As the market intelligence approach develops and generates information, working groups could be formed to coordinate around certain high potential market segments. For example, starting with destinations that serve key segments identified in the market analyses, USAID could work with the GoN and other donors (including MCC) to steer and focus more cost-effective and coordinated infrastructure investments that benefit tourism as well as other key sectors. Working groups could also be formed on sector-wide issues such as quality and safety standards and workforce development.6 If there is a particularly promising market segment that is identified through the market intelligence study, and if developing tourism products for that segment requires bringing a whole range of actors together, the Mission could consider using a Broad Agency Announcement.7 The Mission would put

6 When talking with one international tourism expert, he noted that governments often have a hard time understanding the tourism industry. Donors can play an important intermediary role since the private sector actors within tourism often feel like the government doesn’t believe them. Research conducted by ‘neutral’ entities can play an important role in changing the government’s approach to tourism. In Grenada, for example, the government was shocked to learn that cruise ship passengers left little money on the island as opposed to those who flew in. This despite spending millions on a cruise ship terminal—only to realize they should have used the funds to lure airlines with direct flights. He further noted that a real analysis is never at the heart of a tourism strategy—mostly it is an ad hoc strategy comprised of a wish list. Ideally, both the private and public sectors would come together to determine how best to use limited resources to increase the flow of tourists.

7 The Broad Agency Announcement is a Research and Development method to co-create and co-design a development solution based only on an initial idea. This is a different approach for designing USAID partnerships - it 16 out a specific topic – such as driving innovation in a certain type of tourism subsector – that needs further exploration, and invite relevant partners to express an interest in exploring how best to approach or address that topic. The Mission would then select which of the partners to invite to a co- creation workshop – along with extending invites to relevant donors, resources partners and government representatives – to collaboratively design activities around that topic. Then depending on the activities prioritized by the group, the Mission and other resource providers would determine how best to fund and support those activities. Such a process fosters both cross-sector dialogue and collective action with the intent of helping to infuse more trust within the sector by turning ideas into results. Co-host events for target market segments. According to the ATTA, conferences and in- country events are great ways to build internal momentum for a strong tourism sector, especially for government officials. These events also provide cost-effective ways to engage directly with external tour operators and global industry leaders, gain insights into best practices and develop new business relationships, especially for smaller firms. USAID/Nepal could play an important role by partnering with tour operators and specific industry associations to sponsor an event that attracts key participants to experience new products and locations that put Nepal on the map for a growing subsector. It could use its convening power to involve both public and private sector actors from Nepal as well as global influencers (e.g. authors, apparel retailers, equipment manufacturers, filmmakers) in a series of workshops and events that showcase Nepal as well as provide the local industry with much-needed market information it can use to optimize its products and tailor its marketing to the world. ATTA has already initiated this type of approach through its AdventureWeek Rebound Nepal, held in late October 2015 and sponsored in part by Great Himalayan Trails. The event hosted 20 participants for a week long experience in Nepal with an objective of spreading positive global media attention and storytelling around the various adventure travel opportunities. ATTA also provided a one day Adventure EDU Course for local tour operators on safety and risk management. ATTA, which has partnered with USAID in the past (see the box below on the Macedonia example), is an industry leader at the global level. Its interest and involvement thus far demonstrates a willingness to invest in Nepal. While it may not be the best partner for strategies to engage the general Indian and Chinese markets, the ATTA could be an excellent way for USAID/Nepal to work with the private sector in a very tangible way if it decides to focus on the adventure tourism market. Even if the Mission determines to focus on another market segment, USAID/Nepal could consider ATTA’s two pronged approach (market intelligence + practical engagement of global players with interest and market pull power) in other segments like religious pilgrimages. ATTA simultaneously builds the business case for a type of product or destination, and tests and optimizes that product with relevant private sector partners. They also address any critical skills gaps in local operators by

begins with the partners before the concept stage and maintains constant engagement with these partners throughout the award process, while still meeting the requirements for competition. In addition, the instrument or relationship type does not have to be determined until the development problem and solution set are fully understood and the partners can be fully engaged in determining the best relationship types and most efficient resourcing techniques. The BAA may result in a contract, cooperative agreement, grant, public-private partnership, Inter-Agency Agreement, Government to Government agreement, Donor to Donor agreement, Memorandum of Understanding, or a myriad of other highly-customized relationships with the route to each type of relationship following its own unique path that is most advantageous to implementing the development solution. The Fighting Ebola BAA provides one example: https://www.usaid.gov/sites/default/files/documents/15396/baa.pdf 17 providing technical assistance to improve their level of professionalism to a point in which the ‘felt experience’ offered matches that of what the global market expects.

BOX: USAID/MACEDONIA EXAMPLE ON SUPPORTING MARKET-DRIVEN TOURISM Through USAID/Macedonia’s Small Business Expansion Project, ATTA was subcontracted by the project’s implementer, Carana, to provide insights on a market-driven approach for developing Macedonia’s adventure tourism offerings. ATTA sent out a survey to its 700+ tour operator members to understand their perception and interest in the Macedonia market; conducted a diagnostic of local suppliers; and then hosted an Adventure Week - an intensive familiarization tour that generates immediate visibility for destinations by leveraging their global membership network of outbound tour operators, specialized media and travel advisors.Based on feedback from those initial activities, ATTA then conducted a 2-day AdventureEDU for local operators to stimulate cross-border product development and marketing collaboration. Once these new products were ready, ATTA organized a conference for 300 participants that included international buyers and the media to further drive interest in Macedonia’s adventure tourism market. Based on feedback from the participants, ATTA hosted an Adventure JumpStart program for local operators that included industry expert training on Adventure Tourism Market Trends, Operational Excellence for Adventure Tourism Companies, and Safety and Risk Management. ATTA is now working on a “game plan” for the industry - including the Government of Macedonia - to build on the momentum of these efforts to continue to drive the growth of the adventure tourism market.

Incentive fund. As the Siddarthinc survey demonstrates, most local tour operators focus on getting their numbers and revenues up as soon as possible but few see new product development as a way to do that. Instead of investing in new services or locations, they retreat to what they perceive as ‘tried and true.’ This leaves tourist segments underdeveloped and underserved. In response, USAID could develop (or co-develop) an incentive fund to reduce the actual or perceived risk firms face when they develop new products and services, upgrade their online presence, or improve their quality, safety and natural resource management practices (e.g. investing in training, new equipment). Although primarily a grant program, the fund would require that firms co-invest and put some “skin in the game”. This could take the form of financial resources, capacity building and training or volunteer service that benefits local communities (e.g. trail maintenance, event management). The idea proposed, however, should align with insights derived from market intelligence type studies and involve collaboration with other private partners - such as external tour operators - to refine and optimize the product offering to meet market demand. One way the Mission could set up this incentive fund is through issuing an addendum under the Global Develop Alliance Annual Program Statement (GDA APS) if they believed that local tour operators working in consortia with other partners would be able to provide matching resources. Otherwise, the Mission could issue a solicitation for an implementer to set up and administer this incentive fund.

18 By combining solid PSE with willing partners and robust market intelligence that informs strategic and tactical decision-making, USAID/Nepal can quickly establish a model that works and then pressure test it against new segments that the MIU endorses. It optimizes the markets we already know exist to build the model and then expands that model to the general sector one segment at a time. Finally, it uses market forces and pent-up demand for what Nepal has to offer to transform the sector.

DEVELOPMENT VALUE OF UNLOCKING TOURISM’S POTENTIAL Improving economic returns. A more nimble and insight-driven sector will be able to use its resources more effectively to attract (higher value) tourists—and keep them safe. These benefits will extend to other sectors like agriculture that support a stronger and more lucrative tourism industry as well as broaden the tax base. Tourism in Nepal is broadly seen as pro-poor since it regularly engages people, especially in rural areas, as porters/guides and lodging and food providers. It provides avenues to earn additional income, exposes people to new ways of thinking and incentivizes improved education and entrepreneurship. Creating sustainable economic opportunities for rural areas. The Mission can target tourism market segments which have the greatest potential to increase livelihood opportunities in rural communities while protecting biodiversity and improving natural resource management. A market study or MIU would help the Mission determine which segments have the strongest potential for impact, both in USAID/Nepal’s current priority zones and nationwide. Improving the resilience of the sector. As Nepal diversifies its product offerings and optimizes its marketing capabilities to effectively target high value segments, it would begin to build the industry-wide resiliency that will help the country weather future shocks. Much like an investor diversifies her portfolio to mitigate systemic risk, so does Nepal through a professional tourism industry that offers more experiences to a wider range of customers.

OTHER DONOR- AND GOVERNMENT- SUPPORTED EFFORTS IN THE SECTOR The Assessment Team also came across these tourism-related efforts that the government and/or other donors are supporting that the Mission may want to keep on its radar. With all these efforts, an important role that USAID could play is advocating that private tour operators (both local and international) are engaged to ensure that these investments are linked to market-driven opportunities in tourism. Asian Development Bank (ADB). Expansion and renovation of Bhairahawa Airport and the improvement of the Lumbini site as part of the South Asia Tourism Infrastructure Development Project (SATIDP). South Asia Tourism Infrastructure Development Product (SATIDP). ADB is helping Nepal, India, and improve infrastructure and services in key tourism sites. The project will upgrade transport and other infrastructure and public services in renowned natural and cultural attractions, including major Buddhist sites. It will also increase the capacity of sector

19 agencies to sustainably manage and protect these sites and encourage community participation. Great Himalayan Trails. A GoN project supported by Development Organisation (SNV), the International Centre for Integrated Mountain Development (ICIMOD) and DFID to develop two trails along the (upper and lower). DFID/Samarth-NMDP is currently promoting tourism in the areas that adjoin the routes. Nepal Tourism Board’s District Tourism Development Plans. According to the National Tourism Strategic Plan, the NTB is formulating ten plans in partnership with the respective district authorities to develop tourism. Details of existing plans were not known at the time of this report; pre-earthquake, the IFC developed tourism “cluster” plans that likely used a similar approach. IFC National Park Concessions Plan. This plan aims to pilot concessions projects in three parks. The IFC is interested in USAID support to help the project transition from planning to implementation. (However, outside of the IFC meeting, the Assessment Team did not hear this issue raised by the private sector.) UNESCO. Concerned that growth in tourism could have both negative and positive effects on World Heritage Sites, UNESCO is speaking with GoN about projects in Lumbini (birthplace of Buddha) and earthquake-affected areas. National Tourism Promotion Committee (NTPC). The NTPC is finalizing a new strategy for the post-earthquake response and beyond. It was not ready at the the time of the assessment nor the writing of this report.

20 ANNEX 1: TOURISM SECTOR MEETING NOTES TOURISM ASSOCIATIONS ● Nepal NOW Companies / ● Trekking Agencies Association of Nepal (TAAN) Organizations ● Adventure Travel and Tourism Association (ATTA), including five of its external operator members that focus on Nepal

● Huge drop in numbers and consolidation: everyone sells same product to fewer tourists; low conversion rate; client concerns about safety; loss of Europe/US market is especially hard; current political issues (Indian) ● Living in the 1970s: not adapting to new competition (e.g. Sri Lanka); selling the mtns even through trekking is 16% of tourists; reacting to challenges as if people will always come back; infrastructure is made for the travelers of 70s but current tourists are changing; reliance on repeat customers instead of attracting new market segments; much happens via personal relationships and handshakes; Nepal is still “brick and mortar” country with a weaker online presence for tourism ● Professionalization: tendency for operators to “copy” other operators in the types of packages they offer instead of analyzing customer trends; low barriers to entry; low levels of safety; good people either leave for Gulf or start new firm (hard to retain good people); challenging to tell the difference between What is the ‘contenders’ and ‘pretenders’ current ● Market intelligence: poor data collected; lack of sharing; lack of understanding situation for of market segments; poor understanding of trends; poor understanding of tourism in US/Europe - India - China markets Nepal? ● Fragmentation & multiple voices: GoN does not lead; NTB is rife with corruption; 35 associations doing own thing; NepalNow is attempt to bring private sector together; no coordinated emergency response/prep ● Low level of protection for workers: no guarantee of injury/life insurance; no recourse for lost wages ● Marketing & messaging: no coordination/collaboration; no common message or Nepal brand; GoN wants more tourists and private sector wants more $ per tourist; limited product base; people spend only $36/d because of Nepal’s brand and tourist expectations ● GoN: disorganized, inefficient, and at times antagonistic towards business ● TAAN: best and largest association but it’s a trekking association, which is not the area of growth for tourism ● Development in spite of GoN: many affected communities, especially in remote locations; must rely on themselves to rebuild roads and homes

What could a ● Professional: Skilled & retained HR; firms run as businesses (MBA-type skills); vibrant sector standards for safety, first aid, equipment, emergency preparedness; worker look like in 4-5 insurance, can differentiate between ‘contenders’ and ‘pretenders’ years? ● Models for sustainable tourism: New Zealand, Costa Rica

21 ● Market development: diversification of products; understanding of global trends and market segments; people spend more money; strengthen old products and build new products; specialization for Chinese/Indian/Western markets; create high & low-end markets and new locations (animal park in West, homestays in rural areas); build soft adventure (adrenaline + comfort) ● Brand & Image: move beyond Everest to include culture, biodiversity, adventure, religion, soft adventure; political stability and physical safety; common brand/thread for everyone ● Coordination and cooperation: all stakeholders involved; GoN does not hinder PS-led efforts to improve; solid market intelligence analysis and marketing; all firms meet standards and industry self-polices (w/ GoN oversight) ● Tourism is integrated into economy: good quality infrastructure (e.g. hotels, IT) for the tourists Nepal wants

● Market intelligence: analyze national/international data and understand market trends; institutionalize knowledge (vs. having a consultant do it) like Scotland/Costa Rica through statistics unit (like Scotland) that analyzes data and shares with tourism industry re: what new products make sense and why; design targeted marketing strategies; improve online presence ● Tourism-supporting needs: emergency preparedness plan, infrastructure, IT (cell towers, GPS, trail checkpoints, trail maps, university partnerships, new apps); infrastructure must support the ‘felt experience’ for target tourist market (not just the backpackers) ● Professionalization: HR up-skilling programs (sales, first aid, risk mgmt, new languages); MBA-type courses for owners (business continuity, insurance); certification programs and code of conduct; incorporate best practices from Costa Rica, Bhutan and New Zealand What would need to ● Convening actors: third party/independent actor who helps with HR (skilling happen to and retaining key people), branding the ‘new’ Nepal, safety standards & achieve that programs, risk mgmt, product development, business skills, story-telling, vision? business continuity, code of conduct, infrastructure needs, organization of porters and guides ● Branding: new brand/image; help with story-telling, innovation, better online presence, product diversification, PR/marketing; Nepal is more about travel than trekking ● GoN stuff: re-tool the NTB to promote and coordinate; improve regulation; approve PS-designed standards; end name/brand copying; enforce standards/policies ● Leadership: TAAN may be a better leader/partner at this point than GoN/NTB but it is biased towards trekking; need to address this ● Inclusive practices: need to be sensitive to political and ethnic realities; Nepal is more than trekking so industry leadership must comprise leaders from other sub-sectors

22 ● Copycat culture: what works will inspire others to copy ● Changes in tourist demographics/trends: Nepal attracts more Indians/Chinese than Westerners; fewer repeat customers; more free independent travelers (FIT); shorter trips; fewer packages ● Transformational experience: people looking for nature+culture+activity What current (hiking, birding, rafting, beer, temples); adventure education trends do you ● (Soft) adventure: hiking, rafting, canyoning, biking, jumping, parasailing, etc see in tourism and a nice place to stay (adventure + comfort) that could ● Events: Crossfit, Yak Attack, music festivals, marathons benefit Nepal? ● Culture: temples, festivals, heritage sites, cities ● Spiritual: , , pilgrimage ● ‘Authentic’ experience: home stays, village visits ● Wellness: yoga, meditation, fitness ● Climate change + politics: areas of uncertainty and instability

● Nepal Tourism Board: PPP that brought 35 industry associations and GoN together; rife with corruption; does not coordinate; not spend its (large) budget; associations protested the NTB and forced resignations of several corrupt officials (from both private and public sectors) ● Info sharing: low amount of info gathering/sharing ● Competition: always high but fewer tourists now drives undercutting and cannibalism ● TAAN vs. GoN: example of how an association gets really big, makes a lot of money from members, and attracts attention of political forces (i.e. corruption); best to work with TAAN now What is the level of ● PS thoughts on GoN: has reservations re: working with GoN, sees it as cooperation impediment to industry growth (i.e. not a partner) within the ● GoN thoughts on PS: does not trust private sector but would listen to 3rd sector? party/independent consultants telling it the same thing ● Seeds of PS partnership: some operators (usually run by foreigners) want to co-sponsor first aid (WFR) training for staff during down time ● : what about partnership between town and foreign government (or private sector) to develop an area as a tourist destination? Patan is good example of renovating area and creating inclusive tourism plan that includes activities & infrastructure ● Kumari: example of area with tremendous potential that suffers from poor infrastructure and access; efforts to improve infrastructure will invariably benefit the development of more tourism products

● Tourism is one of few paths out of poverty in Nepal. Low barrier to entry as Other porter, guide, homestay, teahouse owner. Most operations are family-run. Many insights? people use tourism to start new firms and improve educational situation of family.

23 NATIONAL GOVERNMENT ● Nepal Tourism Board (NTB) Companies / ● Nepal Tourism Promotion Committee (NTPC) Organizations

● Losses: 70% decrease in tourist arrival What is the ● Image damage: much more than that to physical assets current ● All eyes on Nepal: how to capitalize on this attention situation for ● Concern: insolvency: small operators experiencing cash flow issues; revenue tourism in dropped but expenses stayed constant Nepal? ● Concern: infrastructure: hard to promote that “Nepal is back” if the GoN is not rebuilding anything to support that claim ● Nepal: Back on Top of the World: Sep 2015 logo campaign launched by NTPC [Assessment Team’s observation - no other groups mentioned this campaign] ● NTPC’s action plan: available in Nov/Dec 2015 ● NTPC’s promotion company: targeting top 5 feeder countries: India (150k), China (133k), USA (50k), UK (26k), (24k)

● Short-term GoN goal: survival then revival then build back better; return to What could a 800,000 tourists/year vibrant sector ● Long-term GoN goal: by 2020, 2 million tourists/year look like in 4-5 years?

● Marketing & promotion: safety What would ● Key infrastructure development: cultural and historical sites in KTM Valley; need to famous trekking trails; ecohomes & public houses along trails; road construction happen to & regional airports (e.g. Lumbini, Pokhara) achieve that ● NTPC needs resources (from GoN or donors) to do targeted promotion vision? campaigns in certain countries (e.g. , , , Italy)

● Lack of well-coordinated efforts What is the ● IFC is helping with the promotion campaign in China level of cooperation within the sector?

24 INTERNATIONAL DONORS ● International Finance Corporation/World Bank Companies / ● UNESCO Organizations ● DFID/Samarth-NMDP

● Industry stagnation: pre-earthquake, industry faced challenges around What is the improving its quality; attracting $40/day spenders (vs. $200/day); food safety current (30% of outbound tourists complain of hygiene) situation for ● National Tourism Strategy Plan 2015-2024: launched in 2014; IFC assisting tourism in GoN implementation; ADB is focusing on aviation safety; Plan includes a five- Nepal? year budget ● Concession framework: in June 2015, GoN adopted procedure manual for concession framework in national parks; IFC will assist the GoN in testing it out in 3 parks ● Destination development: Ministry of Tourism is interested in developing one tourism area/year (starting with Greater Pokhara); plan includes everything from HR skills to infrastructure; GoN postponed this work to deal with immediate earthquake needs ● Donor-supported independent safety assessment: operators could not get insurance or access to Everest/Annapurna without 3rd party verification; positive results from assessment allowed operators to get back up and running to those sites ● IFC programming: increasing revenues for local operators; creating direct investment and jobs; increasing number of visitors; upgrading tourism products; developing new destinations; removing investment climate obstacles ● IFC vs. GON vision: GoN wants to return to 800,000 visitors/year; IFC looking at long-term industry sustainability, focuses on sustainability plans, business plans and development plans ● Greater Himalayan Trails (GHT): DfID/Samarth-led platform to support network of trails running from East to West in Nepal; part of motivation for GHT is that while standards of trails had gone up in other parts of the world, Nepal had remained the same yet 50% of Nepal’s visitors go to national parks/trekking ● Lack of integrated planning: UNESCO laments the lack of master plan for Lumbini (ADB and GoN are building an airport but there is no supporting infrastructure for the influx of tourists) ● Lack of technical training in GoN: Tourism Ministry has no technical specialists; it’s full of political appointees or untrained staff; people rotate in/out of the Ministry (no permanent staff) ● Insurance post-earthquake: slow reaction time; firms need independent assessments to get paid and this process takes a long time, slowing down all aspects of recovery

● Integrated planning & execution: Lumbini is perfect example of why What could a infrastructure and tourism need to collaborate in order to balance preservation, vibrant sector

25 look like in 4-5 growth and inclusion years? ● Cooperation: donors are doing a lot, private sector is doing a lot, GoN is doing a lot (according to GoN) but in isolation; need more collaboration ● Professionalization: HR, safe infrastructure; health & hygiene; increased standards for trails and firms that use them; standards and certifications that match the needs for tourists; GoN has tourism experts on staff in Ministry ● Industry embrace of a higher brand standard: GHT could act as example of creating new trekking experience ● Product diversification: new products; stronger development of niche segments; upgrading current offerings to include and adventure tourism ● Numbers: 1 million visitors/year; higher revenue per tourist ($300/day) ● FDI options: wider range of accommodation options so tourists have homestays and teahouses AND hotels; larger product offerings; bring global standards to Nepal

● Regulation: industry is reluctant but willing in the absence of GoN involvement What would to self regulate; food safety and certifications are areas of interest need to ● Proactive and customer service-driven insurance: firms need better happen to insurance pools that react faster post-disaster and pay out; perform evaluation achieve that of 3rd party assessment requirements vision? ● Improved safety of trekking systems: communications, maintenance, water access, difficulty ratings, signage ● Improved safety in human resources: guide training and standards (esp. re: safety during disasters); certifications that relate to what tourists want and expect (more than what GoN wants) ● Improve safety in physical assets: earthquake-resilient teahouses ● GoN improvement: permanent staff at the Tourism Ministry who are experts in tourism and dedicated to moving industry forward ● Destination development: support discussions between private sector and Ministry of Tourism to develop plans around specific locations; private sector is already doing this (Vishal Group, Yeti Group) ● Concession framework discussions w/ IFC: need to involve the private sector in the process from the beginning ● Combination of GoN and IFC vision: balance of immediate needs and long- term sustainability; led by private sector, advised by IFC, and supported by GoN ● Role of donors: continuity and M&E: until GoN changes its personnel policies in Ministry of Tourism, industry needs an external entity to provide strategic-level oversight, guidance, and continuity (e.g. master planning, regulation); efforts must be private sector-led

● Main trends in Nepali tourism: Samarth commissioned a study in Dec 2014 What current that looked at (1) the South-East Asia Market, (2) the Domestic Tourism trends do you Market and (3) the Action/Adventure Market see in tourism ● Chinese market: growing, low margins for bargain tourists, most tourists

26 that could prefer city-based travel benefit Nepal? ● Interest in ‘traditional’ & ‘authentic’ travel: UNESCO sees more communities wanting to rebuild homes/communities in traditional styles to attract more tourists interested in ‘authentic’ experiences

● Earthquake as catalyst: earthquake helped create a national dialogue re: What is the tourism and many hope the GoN will do things differently level of ● Public sector leadership: rotating door at Ministry of Tourism + lack of cooperation dedicated and trained tourism professionals (master planners, regulators); little within the incentive for public sector improvement; lack of implementation sector? ● Private sector leadership: fragmented, ad hoc, self-interested, oftentimes stymied by GoN ● Heritage & Tourism: little cooperation; seems like they act in ignorance of each other until it’s necessary (and too late); there is Nov 2015 national workshop on Tourism & Heritage planned ● Role of donors in independent studies: donors helped with 3rd party assessment of Annapurna & Everest because GoN/insurance companies don’t trust the private sector to tell the truth; IFC will do study that explores how to increase length of stay and revenue per tourist at heritage sites in Nepal ● Role of donors for industry-level trainings: Samarth is inviting WAFTA (int’l certification association) to lead train-the-trainer sessions for associations; aim is to train guides (esp. trekking) re: safety and health; trainings would most likely be self-pay to incentivize people to get trained and stay in Nepal; IFC reports industry demand for skilled guides ● Cooperation at donor level: conversations did not lead the team to conclude that IFC, ADB, UNESCO, or DFID work with one another on a regular basis at the strategic level

● Foreign Direct Investment: very restrictive, repatriation of profits is a big Other issue (while it is technically possible, the process is quite challenging and insights? opaque); IFC has pipeline of companies avoiding Nepal because of the difficulties around FDI ● Bureaucracy: Ministry of Tourism issues 145 different types of licenses that take on average 30 days to process; IFC working with hotel that expects to wait 3-4 years before it becomes operational ● Local complacency: locals are content with level of revenue so they do not invest in upgrading operations

27 TOUR OPERATORS - (EMERGING) ADVENTURE ● Single Track Companies / ● Trail Running Nepal Organizations ● Ultimate Descents

● Contenders & Pretenders: 3 of 12 biking firms are good/registered, lots of undercutting/cannibalism in rafting; hard to differentiate between quality & copycats; leaders have good online presence/Internet savvy ● Skilled HR: starting from scratch for bike mechanics (sending abroad for training); Nepali rafting guides are world-class but work abroad ● Quality of gear: bikes are improving (which helps as airlines make it harder to bring own bikes to Nepal); bike shoes are not good ● Infrastructure: air travel networks are antiquated and inefficient, esp. for What is the current non-KTM/Pokhara; flights are expensive; trails are “too hard” for most situation for tourists; hydropower projects could negatively impact rafting tourism in ● Neglected sub-sectors: GoN and tourism ministry do poor job of promoting Nepal? niche adventure industry (rafting, running, biking) as part of Nepal brand ● Foreigners & locals: hard to have business without a Nepali partner; hard to get money out of the country ● Private sector & GoN: waiting for GoN to do something/lead; fragmented control of locations for access/use ● Safety: lack of coordinated approach to safety; legitimate concern for safety of clients; no risk analysis/mgmt; no coordinated info re: roads, weather, transportation

● Partnership w/ GoN: work w/ GoN on accreditation, registration, code of conduct, standards; make it harder for firms to join industry unless they meet standards ● GoN leadership: NTB and Ministry of Tourism leadership are actual tourism leaders, not corrupt cronies ● Integration of tourism with national planning: hydropower affects rafting; infrastructure affects everything; thinking re: tourism as we develop related- industries ● Infrastructure: trail maintenance (by industry associations, firms, volunteers What could a vibrant sector with GoN support); access; quality facilities look like in 4-5 ● Safety & quality: industry suffers when firms undercut and cannibalize; years? Nepal needs to be known for safe and quality trips ● Associations: create community and pre-competitive initiatives that build everyone (combat high level of competition/undercutting that is destroying overall value) ● Brand: raise the profile; understand needs/demands of market; meet the expectations people have for their adventure; create the experiences that are actually worth $200/day ● Professionalization: incentive structures that reward good operators; solid HR that meets international standards

28 ● Image: wild + safe; high levels of adrenaline with the culture and safety/quality to back it up (e.g. Switzerland) ● Events: use them to build brand; do cheap messaging; get experts out here; build up areas around a brand; events allow for year-round tourism that breaks the ‘seasonality’ of Nepal

● Destination: Nepal: bring high profile people/experts here for events/races; use events as cheap marketing, highlight what Nepal has ● Partnership with GoN: GoN recognizes sub-sectors (rafting, biking) and their importance; GoN approves industry standards ● Industry-led initiatives: standards, code of conduct, accreditation, insurance, improve infrastructure (e.g. trails) What would ● HR: trainings; standards (esp. for high-risk activities); media; sales need to happen ● Infrastructure: trails, roads, hotels, access to sites, facilities to achieve that ● Integration of tourism with larger economy: health/hygiene of food vision? industry affects tourism; infrastructure; safety ● Adventure: saturation of market means there needs to be some kind of re- branding of the industry ● Brand/messaging: social media, video, media training ● Market intelligence: lots of good ideas need to be tested (e.g. holiday packages, events)

● Sustainable village tourism: home stays; people looking for ‘authentic’ experiences in rural areas ● Potential of underdeveloped products: Nepal can be world-leader in biking, running, rafting and few people think re: it; lot of room to grow What current ● Eco-tourism at all levels below high-altitude hiking trends do you ● Pilgrimages, spiritual trips, see in tourism ● Festivals and events: biking, running that could ● Due to hydropower projects, great rafting has 10-15yrs left benefit Nepal? ● Copycat culture: no consolidation; little cooperation; easy for people to start own thing vs. build up another firm ● Power of international agents: influence behavior on the ground through enforcement of standards/certifications

● Fragmentation & competition: easy to start own thing; high level of competition; little cooperation ● Issues with GoN: hard to get official recognition of new sports (biking), What is the which complicates creation of association (need 7+ registered firms to start level of one) and sub-sector cooperation; GoN complicates life for firms; mtn bikers cooperation can’t form Training Center because they lack association within the ● Politics & power: TAAN is the most developed association but people don’t sector? trust it due to issues of political influence and corruption; TAAN asserts it has no money to pay for the cards for a Trekking Information Management System that tracks trekkers

29 ● Running: group of firms approaching Int’l Trail Running Association for global data ● Mtn biking: GHT (DfID’s Samarth) does not understand biking on the trail; hard to conceptualize multi-use trails ● Seeds of cooperation: informal info sharing attempts by mtn bike firms, they held trail cleaning days ● Community forest: this concept could work here (locals maintain trails for a fee paid by firms/associations); needs coordination/organization

● Single Track: 80% of clients postponed to next year but didn't cancel; firm Other insights? did advertising campaign and recovered 80% of bookings for this year; most companies waiting for GoN to do something for them

TOUR OPERATORS - TREKKING, CULTURAL, AND OTHER ● Natraj Tours and Travels ● Astrek Group ● President Travel and Tours ● Global Asia Companies / ● Tripitak Holidays Organizations ● Osho World Travel Nepal ● Vista Travel and Tours ● Euro-Asia ● Peace International

● Image: not as bad as media portrays ● Marketing: poor job at industry/national level; individual firms offer B2C deals and rely on word-of-mouth vs. Trip Advisor-type reviews ● Cancellations and lower #s than expected for those returning ● Global tourism industry: complexity is increasing across the board; tourism is more complicated; undercutting at all levels (int’l, tour operator, agent) ● Nepal tourism industry: lack of sophistication; people must sell “everything” because it’s the only way to survive (can’t specialize); market is more price- What is the current driven than quality-driven; local tour operators customize trips based on situation for direction from int’l operators, operators don’t need to make significant tourism in investments in infrastructure to start/run a firm Nepal? ● Unhealthy competition: shrinking customer base; huge increase in tour operators & agents; huge amount of undercutting and cannibalism; very easy to start new firm; informal labor market; few consequences for default or poor performance ● Everest: huge revenue source; if Nepal makes standards/requirements “too hard”, climbers could go through China to big mtns along border ● Standards: hard to measure them and determine compliance; hard to tell between ‘Contenders’ and ‘Pretenders’

30 ● VAT: unorganized; lack of compliance; too many loopholes; some firms do not pay and undercut rivals by 13% ● Banks: not giving loan break to firms post-earthquake; will not give loans to do marketing studies (no collateral) ● Hotels: Marriott and Sheraton are building in KTM (good sign); there is general need for accommodation across Nepal; low margins force hotels to require minimum # of nights ● Associations: little faith in leadership; complaints of corruption, cronyism and need for personal connections to get anything done ● Insurance: travel advisories impact insurance policies and without insurance, travel agencies can go bankrupt if a tourist sues

● GoN involvement: supports PS; engages in long-term planning ● Association involvement: actively working for members; pool resources to do large marketing campaigns ● Professionalization: industry is customer service-driven; customer experience is paramount ● Market intelligence: global tourism data + Nepal tourism data create market insights at the industry and firm levels ● Standards: establish the minimum standards across the industry (to start a What could a firm, exit, work in a specific location, engage in certain activities) and enforce vibrant sector them; reward/punish actors; create credibility across the industry for products, look like in 4-5 labor, safety years? ● Key driver: move from price-driven to quality-driven experience ● Social value of tourism: pulls people out of poverty, engages people in rural communities, build skills ● Infrastructure: IT is connected (e.g. checkpoints); improved access lowers the cost of travel; improve airlines and air routes; cannot promote a place if the infrastructure is severely lacking ● Year-round image: people come to Nepal around the year for festivals, holidays, culture, spiritual pilgrimages, history, events

● Market intelligence: effective capture of global/national tourism data and transformation of data into intelligence that informs product design ● Strategic marketing: use insights to inform social media trainings; int’l tourism exhibitions; partnerships w/ NatGeo/Discovery Channel; creation of strategies that address needs of customers and providers for independent news, assessments, and opinions What would need to happen ● VAT: establish a common system that applies across the industry and the to achieve that enforcement structures to ensure compliance -- level the playing field for the vision? good actors ● Enforcement of standards: many policies/regulations are in place but lack effective enforcement (firm registration, default/exit, VAT, safety, taxes, training) ● Differentiation between sub-sectors: industries should share some standards/expectations but not all; trekking is not expedition and firms should

31 comply with standards tailored to the industry ● Associations: these entities (and the NTB) need to enforce membership/leadership standards ● Independent players: donors can influence GoN and associations to enforce standards, commission studies/market research; donors also should consider re-visiting Travel Advisory policies and the photos and language they use for Nepal ● Technical assistance/training: people in rural areas (e.g. teahouse owners) need business and customer service trainings

● New market segments: Indian growing faster than Chinese; Nepali ● Desire for quality > price: firms want to emphasize quality experience (that (costs money) over a cheap experience What current trends do you ● Entrepreneurship: returning Nepalese come with business ideas see in tourism ● Low season development: Chinese New Year is a great example of how to that could grow the industry in the off-season through events/festivals benefit Nepal? ● Chinese: except for rich, this is a low margin segment; more insular than others; potential lost opportunity if Nepalese don’t act ● Stagnation: low levels of innovation; Nepal has not evolved

● National Association of Tour Operators (NATO): good level of cooperation ● Astrek Group created a climbing wall to train Sherpa and then opened it up to What is the the general public level of ● Weak leadership: GoN tried to categorize industries but met with stiff cooperation resistance and gave up; current efforts across the industry are ad hoc and within the fragmented due to lack of centralized organization/leadership sector? ● Due diligence: lacking a centralized system, foreign operators perform own due diligence on potential partners in Nepal

● Lessons from current political challenges: Nepal has a high level of accommodation in its political process to deal with highly varied interests; given the lack of strong central leadership (that it had in the old monarchy), Other insights? the democratic process is very messy and makes it easy for bad actors to influence the outcomes; strong interests to keep Nepal tourism like it is and any intervention must keep politics in mind.

32 AIRLINES

Companies / ● Buddha Air Organizations ●

● Industry health: brittle; events (earthquake, protests, travel advisory) have big impact on industry; seasonality; GoN sets prices for resident Nepali flights so main profits are from foreigners; huge losses in #s/revenue; poor marketing and PR; waiting for GoN ● Structural issues: Nepal tourism relies on 3 tried & true destinations; lack of diversification and innovation; stagnation/stuck in the past; blaming the earthquake; losing ground to competition ● Competitivity: low margins are getting lower; undercutting; general underselling of Nepal vs. other destinations ● Data: unclear/inaccurate numbers; poor info capture (e.g. many Indians are What is the current not counted); poor market intelligence situation for ● Optimization: unclear how to do this without accurate data/intelligence; not tourism in capturing full value of tourism; people with money lack ideas and don’t Nepal? invest, people with ideas lack funding ● Brand: “we are the best and the cheapest” is contradictory; Bhutan is model of what’s possible; focus on Lonely Planet backpackers (cheap) vs. Frommer’s travelers (luxury); Nepal 5-star hotels = $50/night; there is only 3 destinations in a country full of options ● Politics: corruption of NTB and TAAN; wrong people in leadership; cronyism; a lot of money and little action; no true authority; lack of trust; poor lobbying effort;, GoN focuses on quantity and PS focuses on quality; PS waiting for GoN leadership; politics affect all projects that influence tourism (infrastructure, taxes, marketing)

● Numbers: 1.5mm tourists/year is feasible goal, especially if firms focus on increased revenue per tourist ● Market intelligence: industry understands global/national trends & markets, designs tailored/targeted products and marketing plans for segments, locations, activities ● GoN: supports PS-led efforts; good governance & guidance What could a ● NTB: provides industry leadership; answers to members; led by appropriate vibrant sector leaders; leads marketing efforts look like in 4-5 ● Leadership: common vision/strategy; PPP between PS & GoN/NTB; years? ● Brand: creation of premium brand; learn from Bhutan; common understanding of ‘felt experience’; safe + awesome ● Infrastructure: supports number of tourists and their expectations for ‘felt experience’; supports low season activities as well ● Entrepreneurship: SMEs use market intelligence and design new products to grow industry

33 ● Convening authority: the industry is ready to discuss branding, market intelligence, standards, categorization, segmentation, marketing, safety, rescue, ‘felt’ experience ● Coordinated leadership: PPP between PS and Gon/NTB; an improved NTB that leads and supports PS efforts ● Felt experience: industry-wide efforts to bring infrastructure standards up to back up the new image of Nepal (hotels, roads, safety, health/hygiene, cleanliness of locations, airports); firms differentiate themselves based on quality > price What would ● Professionalization: improved capacity of individuals, firms, associations, need to happen and NTB re: training, safety, standards to achieve that ● Safety: independent assessments that analyze situation and pressure GoN vision? to act; training; emphasis on security and rescue ● Market intelligence: take global/national data and analyze segments, trends, locations, products, opportunities; findings and insights then inform product design and marketing (e.g. should Nepal develop the Birtthhia Park?); entrepreneurs have access to insights and market rewards those who use insights well ● Online acumen: training firms and associations to improve expertise with the Internet for tourism (payment, marketing, social media, sales, Expedia, PayPal, booking)

● Nepal is not as cool as it used to be: stagnation in products; other destinations are evolving; stuck with backpackers; prices are stagnant and quality reflects the price people pay but tourists now expect more What current ● Growth markets: Chinese (numbers, low margins); Indians (numbers and trends do you revenue); domestic (trekking, culture) see in tourism ● Soft adventure: people want to have an adventure and a nice place to stay; that could they want remote but comfort in getting there; people want an ‘authentic’ benefit Nepal? rural experience that is comfortable ● Online: sales are growing; cutting out agents (middlemen) ● Buddhism and Hinduism: more pilgrimages

● Connecting tourism with other sectors: Buddha Air & Yeti Group are both involved in agricultural development projects that relate to core business What is the (tourism - especially in the communities located in key areas); other projects level of represent separate vertical cooperation ● Working with international groups: Yeti did a project with National within the Geographic and Smithsonian to promote Nepal sector? ● Airline Association: vibrant, lobbies the GoN; industry has thin margins and needs volume to succeed

● Tourism is pro-poor; it involves rural people as porters/guides/lodge Other insights? owners/food providers; anyone can get involved; hard to have a monopoly on any activity/location; more sustainable employment

34 LODGING ● Annapurna Hotel Companies / ● Hyatt Hotel Organizations ● Shangri-La Hotel ● Dwarika Hotel

● Competition (local): expenses increase, revenue decreases; fewer tourists from traditional markets; more competition for fewer people ● Competition (global): tourists are more sophisticated; Nepal is losing ground to new destinations (Maldives, Bhutan, Sri Lanka) ● Structural issues: using the earthquake as excuse for larger issues of competitiveness, product diversity and general decline ● Infrastructure: not enough hotels to meet national tourism goals; poor infrastructure that supports more expensive hotel; KTM airport is rated as one of world’s worst; poor roads, poor ‘felt experience’ What is the ● Power: lack of electricity forces hotels to rely on imported diesel to run 1-2 current generators; current blockade of fuel highlights challenges situation for ● HR: unions are strong in hotel industry; highly trained people tend to leave for tourism in the Gulf; tourism is not seen as ‘serious’ industry; low productivity; owners Nepal? lack flexibility; hotels cut all other costs before HR; too many people working; there is tenure for workers ● Supply chain: 60% of goods come from India, including some that should come from Nepal but the quality/quantity is not good enough; imported goods subject to border issues (fuel, food) ● Politics: tourism is highly politicized; identity politics is strong and people help ethnic group before Nepal; politicians tend not to promote attractions/ development outside of their ethnic group/region ● FDI process: cumbersome and laborious for foreigners

● Infrastructure that supports tourism: in order to justify $200/d Nepal improves safety, quality road networks, IT, KTM airport, etc. ● Professional HR: hospitality is ‘serious’ career; there are training (mentorship/apprenticeship) programs; opportunities for people returning from work abroad; excellent customer service; entrepreneurial spirit; setting & enforcing standards (especially for safety and emergency preparedness) ● Role of GoN: through its Ministries and the NTB, the GoN promotes the What could a vibrant sector industry, it hires professional leaders, spends money, and works with the look like in 4-5 private sector to lead emergency preparedness/safety years? ● Brand/image: Nepal is a destination; positive images (not “it’s safe”), promotion of the diversity of options; creating the ‘felt experience’; huge push for PR/marketing with new image to each market segment (e.g. backpackers, India, culture, adventure); Nepal is seen as professional ● Integration of Investment Board: connect tourism with major infrastructure projects to ensure they support each other ● Embrace of foreigners and FDI as sources of innovation

35 ● Convening events: modernization of tourism industry, training, IT, computerization, job security, transparency ● Training of GoN: scholarships; how to build professional skills ● Safety: emergency plans, shelters, IT, disaster trainings for staff ● HR: standardized trainings (hotels can then complement them with specific stuff); mgmt needs more HR flexibility ● Infrastructure: enough hotels and conference rooms; renovate/build airports; it must handle the numbers & expectations for Nepal What would ● Marketing: using market intelligence, industry and and firms create targeted need to happen strategies for segments, destinations, products; promote Nepal as a to achieve that destination (not just a stopover to Tibet) vision? ● FDI: work w/ GoN to streamline process, simplify rules, limit the bureaucracy’s ability to hinder; ‘one window’ system ● Supply chain diversification: work w/ agriculture teams to increase amount of locally-sourced products; build reserves for critical needs ● Focus on quality more than quantify ● The Paris example: re-zone KTM to includes Zone A, B, C that allow for preservation and a thriving economy, as well as a place for both tourists and locals

● Cyclical nature of tourism: every 10yrs Nepal goes through something (SARS, blockade, politics, earthquake); will need about 4yrs to get back to ‘normal’ levels ● Soft adventure: do cool stuff in comfort; desire to do ‘extreme’ stuff before I am too old to handle it ● Events, conferences, conventions ● Hard core expeditions ● Bucket List: Nepal is still exotic (like Cuba/) and people want to get there ● Lifestyle tourism: example of Russians who spend a lot of money to live a certain lifestyle while abroad What current ● China: overall increase; increased segmentation of market into the high-end trends do you and low-end (the latter will be very low margin) see in tourism ● India: weddings are big business; gambling; Hinduism-related sites that could ● Politics: anxiety re: post-Constitution; FDI rules; labor law reform; corruption; benefit Nepal? gambling rules ● HR: always losing young people for 3-6yrs as they work abroad but they come back ● India-Nepal issues: anxiety re: Constitution, blockade, border ● Felt Experience: if Nepal cannot create a better ‘felt experience’, there is potential for price war among high-end hotels since the infrastructure does not match the price; some fear that KTM becomes a stopover for better places if the ‘felt experience’ here stagnates ● Ideal KTM: part of Nepal’s draw is tourists and locals intermingle so easily here; with poor planning and worsening KTM infrastructure, famous tourist destinations could lose their luster for locals; need a conscious plan that

36 integrates tourists and locals at all locations ● Global competition: South America is starting to take Nepal tourists because it offers much of the same (mountains, culture, adventure) but has the infrastructure to back up the ‘felt experience’

● Ad hoc and localized: Annapurna & Yeti Group work together; there are pockets of cooperation but it’s not organized ● Post-earthquake cooperation: everyone suffered and everyone helped, recognize that everyone is “in it together” ● GoN involvement: Ministry of Tourism has a lot of money but poor leadership; spends no money and generates lots of distrust, more talk than action What is the level of ● Hotel association: while strong, it has been more focused on the cooperation Constitution than industry cooperation; now a priority within the ● Power of independent opinions: the GoN and PS don’t work together very sector? much and the GoN is traditionally suspicious of the PS; GoN tends to listen to 3rd party/independent voices ● Dwarika Hotel created a training program for carving and building; it has some GoN involvement ● Dwarika Hotel is building homes in 2 year project to provide training/materials to locals for DIY houses that retain historic and cultural features, GoN involved a little

● Tourism is the canary of Nepal’s general economy - how it does tends to Other insights? reveal the health of the overall economy

37 CONGLOMERATES ● Yeti Group Companies / ● Vishal Group (The Leaf) Organizations ● Golcha Group

● Tourism past vs. present: Nepal tourism started with backpackers but they are not as much of the future as we’d like them to be ● Average spending: $10-100/day, usually about $36/day ● Post-earthquake: world’s eyes on Nepal but more people suffer from cash What is the flow challenges and are doing more firefighting than strategic thinking current ● Herd mentality: aka copycat culture; strong in Nepal situation for ● HR: few qualified Nepali workers; need to bring in Indians as workers and tourism in Westerners as mgmt; no visa issues for Indians; low retention; no contract Nepal? enforcement; no non-compete clause enforcement ● The Leaf: Vishal Group’s luxury hotel; lots of inquiries; lots of foreign investors (China & Hong Kong) and operators (UK, Russia, Spain, Germany) interested; aims to be in Chitwan, Lumbini, Pokhara, KTM, and Nagarkot.

● Using the earthquake as an opportunity: focused global (investor) attention on the country; time to galvanize support for projects What could a ● Luxury tourism: Dwarika proved it could be done, Vishal Group wants to vibrant sector prove that there is larger market for it look like in 4-5 ● Destination: Nepal: moving beyond the Big 3 (KTM, Chitwan, Pokhara) to years? include other areas; build out those areas (e.g. Nagarkot) with services and products that combine adventure + comfort

● Data collection and market intelligence: data into insights at the national, industry, and firm levels; turn market intelligence into tailored product design What would ● Leadership to turn data into intelligence: small and less diversified firms need to happen cannot afford market studies but need to benefit from them to achieve that ● Marketing: create and sell the brand; create the story vision? ● Felt Experience: the infrastructure (e.g. airport) needs to support Destination: Nepal if it is to become luxury market

What current ● Numbers vs. revenue: tourism is growing but without an increase in per day trends do you spending see in tourism ● Indian youth: increasingly interested in adventure trips that could ● Adventure (non-trekking) tourism: still in its infancy in Nepal benefit Nepal?

● Vishal Group belongs to Entrepreneurs’ Organization (minimum of $1 million in business to join). Held EO summit in Nepal; 250 delegates from 30 Other insights? countries for 3 days. Not enough places for rich investors to spend money on tourist-type activities. The demand is there - but not the supply. ● Education: lots of potential for PPPs in this space

38