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International Journal of Innovative , Information & Production ISME Internationalⓒ2012 ISSN 2185-5439 Volume 3, Number 1, June 2012 PP. 49-55 THE CONNOTATION, MODELS AND STRATEGIES OF LEISURE CHAIN INTEGRATION

SHENGHUA ZHENG1 AND XIAOCAI ZHENG2 College of Business Administration Zhejiang of Hangzhou, 310032, China

[email protected] [email protected]

ABSTRACT. The development of industrial clusters plays a more and more important role in the world economy. And industry chain integration is the basic theory for its development. As one of the rising industries in the 21st century, leisure industry must join industry chain integration for its better development. Based on findings from related researches done at home and abroad, this paper applies the idea of industry chain integration to the field of leisure industry, integrates theories of industry with leisure economy, and aims to solve some problems that may arise in the process of leisure industry chain integration. After revealing the connotation, mode and micro-base of industry chain integration, the paper puts forward a strongly operational and measurable strategic project.

Keywords: Leisure Industry; Industry Chain; Integration

1. Introduction. Industry chain integration is the process of promoting the integration between upstream and downstream industries. Its purpose is to draw all enterprises in different parts of value chain link closer to each other, to achieve coordination advantages and scale advantages, thus reducing costs, achieving optimal allocation of resource, and enhancing the competitiveness of industry as a whole. For its effectiveness industry chain integration has been applied to all aspects of the national economy, covering almost all industries. As one of China's emerging industries, leisure industry is essentially a convergence-based industrial system which is leaded by industry chain, culture industry chain and and industry chain. In fact, we can characterize the overall performance of leisure industry as follows: small scale, weak competitiveness, low level of coordination, few leading enterprises. And the reason is a lack of effective industry chain integration. Therefore, it is quite necessary to execute effective integration of industry chain to make leisure industry become a prosperous industry in the 21st century. Existing researches on industry chain have mainly focused on its motivations, characteristics, models and methods, benefits, policies, and so on. Williamson (1981) proposed that the main purpose of is to save transaction costs. Rui et al. (2006) pointed out industry chain integration based on functional division of labor, manifested by knowledge connection, puts knowledge integration which is the essence of integration at the core position of the whole integration process. Rai et al. (2006) indicated industry chain integration improves firm performance. Allen (2000)’s research pointed out 50 SHENGHUA ZHENG AND XIAOCAI ZHENG that integration appears to bring about larger revenue efficiency gains than cost efficiency gains, and most of the gains appear to be linked tofits bene from risk diversification. Industry chain integration mainly has three kinds of modes: , vertical integration and hybrid integration. And equity , strategic alliances, industrial cluster are popular methods of industry chain integration (Rui, 2006; Zhao, 2008). Economides (1998) sumed up that vertical integration can bring the following benefits: better coordination among components; cost savings in joint production; possibility of a better integrated ; quicker information flow; vertical expansion to new components. Cheng et al. (2008) suggested that the government should develop effective industrial policy to encourage industry chain integration, establish a rational and efficient management system to guide the direction of industry chain integration, and create an open and flexible environment to reduce the costs of industry chain integration. All these studies provide this paper with good references, but the study of the leisure industry chain integration is yet to be carried out. So it has become a political issue that the government and scholars together to face it. By reading the latest research results both at home and abroad about industry chain integration, and combining them with the status and characteristics of the leisure industry, this paper defines the connotation of leisure industry chain integration, analyzes the integration patterns and basic conditions, and proposes integration strategies at the end of it.

2. The Connotation and Models of Leisure Industry Chain Integration.

2.1. The Connotation of Leisure Industry Chain Integration. Leisure industry chain is a value creation process that is composed of tourism industry, and sports industry. Every element of the chain is closely connected with each other. They can create more synergies than a single industry. The value chain of leisure industry can be divided into three types: the vertical supply chain, the horizontal coordination chain and the mixed chain. Within them, the tourism industry, cultural industry, and sports and recreation industry constitute the main body of leisure industry. And related departments and financial markets constitute a supporting system to provide consumers with leisure products. The development of leisure industry relies on the improvement of all aspects of service capacity and the assurance of quality. The relationship of each link of leisure industry is horizontal. Every link is in close relation with each other. From the information above, we can make leisure industry chain structure chart as follows:

TABLE 1. Leisure industry chain structure chart

Cultural industry Sports and recreation industry

Tourism industry

Related services sectors Financial markets

THE CONNOTATION, MODELS AND STRATEGIES OFLEISURE INDUSTRY CHAIN INTEGRATION 51

Leisure industry chain integration can be explained like this: as a kind of productivity, leisure industry china integration puts all aspects of the various elements, various kinds of enterprises which constituted leisure industry together through specific market and government coordination mechanisms. Following the rule of “benefit and efficiency first”, leisure industry promotes the optimum allocation of resources such as the people, finance, material, information, technology etc. within a certain range, making it possible to achieve reallocation of some resources including supporting services in a wider range of geographic and industrial areas. Through all of these, we achieve the purposes of reducing costs, improving structures, increasing efficiency, a unified market, organizing the ties of technical and economic of leisure industry chain, and promoting the rationalization and adaptability of the industry chain. In essence, leisure industry chain integration is a kind of market integration which makes enterprises as the main body and industries as the framework. At the same time, leisure industry chain integration cannot be totally independent of the guidance of government, the coordination of industry , the service of intermediary organizations, and the support of financial markets. The paper suggests related departments do as follows: the government can balance the interests of the involved parties to reach a consensus on mutual integration, and guide the integration of industry chain. It can build industry organizations of multi-stakeholder to strengthen the coordination capacity of the industry chain integration. It can improve systems of modern intermediary agencies such as companies which serve for investment and financing, property transactions, information and legal supply to enhance the service capabilities of industry chain integration. It also can establish the multi-layer financial market system to promote the organic integration of financial markets while industry chain integration plays the role of the original integration “drive”.

2.2. The Integration Model. Strategic alliance is one of the most efficient models for the integration of leisure industry chain. It is built on the premise of independent business operation, and it attaches importance to link alliance partners in the joint area of each other's advantages so as to promote the business efficiency of all the alliance enterprises. Commonly, strategic alliance can be divided into three types. They are virtual alliance, common industry union strategic alliance and integrated strategic alliance. Mergers and acquisitions (M&A) is a primary model for leisure industry chain integration. It is also an effective way to reduce costs or reconfigure the resource of enterprise, thus to improve the competition of the company. M&A can be classified into horizontal type, vertical type, and mixed type. Horizontal M&A involves two or more enterprises which engaged in the same type of business (for example, among , among travel agencies, among enterprises, etc.). Vertical M&A happens among businesses in the same industry but different segments of the industry chain. For instance, travel agencies merger hotels, sports retailers takeover their manufacturers and so on. Mixed M&A involves businesses which engage in unrelated business of enterprises, for example, a tourist attraction buys the shares of an animation company and holds its shares. Industry cluster is a highly effective new model of leisure industry chain integration. It integrates the leisure industry chain based on space view. It should rely on the joint efforts of the government, industry associations and enterprises to promote the integration of 52 SHENGHUA ZHENG AND XIAOCAI ZHENG leisure industry chain with the help of industrial clusters. The government can build leisure creative parks, leisure science and technology park, LBD (leisure Business District), etc., to form industry cluster. The government should use many kinds of ways to attract investment and make preferential policies to attract many businesses to these areas. Then it can plan rational industrial structure and ultimately achieves the concentration of leisure industry to reach the integration effect of industry chain.

3. The Strategies of Leisure Industry Chain Integration.

3.1. Integrating Cognitive Environment to Form an Integrated Industry Chain of Social Consensus. First of all, we should take measures to improve the understanding of leisure industry and cultivate the social consensus on developing leisure industry in the whole society. Secondly, we should enhance cognitive education of the nature of leisure industry to form the concept and behavior of integration. As we know, industry chain integration is essentially a kind of innovative behavior, so we can make people from all walks of life and all the involved participants fully understand the importance of by the activities of cognitive education. We should make all-out efforts to encourage people to participate in innovation, making it the inherent drive for the integration of leisure industry chain, as well as making it a supporting force for dealing with internal and external environmental changes. Thirdly, we should strengthen cognitive education of chain integrity and integration to achieve stakeholders of industry chain integration in a win-win situation. In addition, we also should strengthen the risk education of chain integration to improve the awareness of risk prevention and the ability of risk prediction in the process of integration.

3.2. Integrating External Environment of Industry to Optimize External Drive Mechanism for the Industry Chain Integration. Integrating the institutional environment to build and promote the operational system of industry chain integration. Feasible suggestions are as follows: Reorganize regulation structure. Involve related government departments to establish a coordinated management body by which these departments can promote the development of leisure industry, and enhance the process of industry chain integration. Establish trade organizations. It is highly recommendable that a Leisure Industry Coordinating Committee be established. The Committee can do a lot of things to improve external environment, such as communicating to the public the spirit of government’s plan and requirements about the development of industry and the integration of industry chain, public service platform for leisure industry with the help of the government, providing full-service for the development of leisure industry and the integration of leisure industry chain, making industry statute, uniforming industry standards, and establishing a sound health image of the industry and so on. Form expert working group. It is necessary to form a Work Improvement Team, which is constituted of the relevant functional departments of senior officials, specialists in business practice circle and the experts in theoretical circle. The Work Improvement Team is a permanent establishment, affiliating to Leisure Industry Coordinating Committee. It THE CONNOTATION, MODELS AND STRATEGIES OFLEISURE INDUSTRY CHAIN INTEGRATION 53 dedicates the following things: studying the development of leisure industry, the integration of leisure industry chain, the integration of the various regulatory bodies and the corresponding policies of leisure industry; studying the various branches of leisure industry’s developing planning and corresponding policies; and finding collaboration and integration path for existing planning and policies of branch industries. Integrating institutional environment system to build the system which promotes the integration of industry chain. In order to achieve the purpose above, the relevant departments should take such measures: making development plan of leisure industry and integration plan of industry chain; broadening the entry-barriers of the industry, and promoting industrial integration; innovating and optimizing the corresponding policies about the development of leisure industry and the integration of leisure industry chain; establishing security system of the integration of leisure industry chain. Integrating investment and financing environment to build a financial market system which promote the industry chain integration. The following way is suggested to reach the goal: converting the usage of loans, making use of capital markets, guiding private investment, accelerating the introduction of foreign investment, and strengthening the financing networks of small-and-medium enterprises. Integrating intermediary environment to build the social service system which promotes the integration of industry chain. A well-developed market-oriented operation of social service system is an important foundation to promote the integration of leisure industry chain. And integrating the environment of intermediary is the only way to promote the integration of leisure industry chain. The following are concrete methods: building public service platform of leisure industry and nurturing modern professional intermediaries such as companies about consulting, investment and financing, market research, property rights transactions, information, technology and legal, etc.

3.3. Integrating Internal Environment of Industry to Strengthen the Internal Driven Mechanism of Industry Chain Integration. Integrating spatial layout to form development pattern of concentration which supports the industry chain integration. We can achieve the goal by making two kinds of spatial layout. One is integrating leisure venues and facilities to prevent the duplication of leisure venues and to make further integration of the existing venues and facilities in area and optimize their layout. The other is integrating the spatial layout of leisure industry to form a concentration-style leisure industry spatial development pattern that is based on enterprise-style ecological communities. Integrating industrial structure to form a reasonable industrial structure which supports industry chain integration. We should actively promote the process of integration among leisure industry and other industries (such as high tech, finance, education) as well as the various branches of industry, so as to integrate the industrial structure, then form a reasonable industrial structure that supports the integration of industry chain. Industry integration directly contributes to the industrial innovation. New industries and new products which are produced on the basis of industrial integration accelerate the process of integration and optimization among the whole leisure industry and various branches of industrial structure. Integrating product structure to form a solid micro-foundation that supports industry 54 SHENGHUA ZHENG AND XIAOCAI ZHENG chain integration. There are three kinds of products we should make great efforts to develop. They are "high, refined, unique, new" products which means high-level refined, distinctive, and high added-value, integration-type products which encourage cross-industry products to integrate, integrated products which means the product or project that is comprehensive, and can promote or even integrate the development of leisure products or projects in the entire chain of leisure industry. Integrating industrial organization to form the core competitiveness that supports industry chain integration and to achieve a mechanism for leisure industry chain integration that is dominated by enterprises. Integrating resources and innovating marketing methods to achieve an overall marketing strategy. Based on different industry chain levels and parts, leisure marketing should establish an Integrated Marketing System characterized by clear labor division and close collaboration. Integrating human resources and innovating personnel training model to build a diversified talent echelon that is adapted to leisure industry chain integration.

4. Conclusions. Along with the policies of developing modern service industry and expanding domestic demand, leisure industry naturally becomes one of the most preferred industries to implement new economic policies. And the industry chain integration is the foundation for leisure industry to fulfill its historic mission. Based on findings from related researches done at home and abroad, this paper applies the idea of industry chain integration to the field of leisure industry, integrates theories of industry organization with leisure economy, and aims to solve some problems that may arise in the process of leisure industry chain integration. After revealing the connotation, mode and micro-base of industry chain integration, the paper puts forward a strongly operational and measurable strategic project. Hopefully this paper can help upgrade and even optimize the leisure industry of China.

Acknowledgment. This work is partially supported by NSFC (Natural Science Foundation of China) (70773105). The authors also gratefully acknowledge the helpful comments and suggestions of the reviewers, which have improved the presentation.

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