Overtaking Croatia

Forbes Magazine
Thursday February 27, 5:34 pm ET
By Justin Doebele

Japan's tourism industry is suffering. Add one more rescue act for Koizumi.
In the 1960s "Japan was a paradise for tourists," says Philip Gsell, the president of Toppan Travel in Tokyo. He recalls how Americans and Europeans would spend weeks crisscrossing the country, staying in the best hotels. "Now our customers normally stay only three or four days, mostly in Tokyo," he says.

ADVERTISEMENT One would expect the world's second-largest economy to have a tourism industry to match. Instead, it's lopsided: While Japanese are avid travelers, for foreigners Japan is terra incognito.

Japan gets 5 million international visitors a year, ranking it 33rd in the world, below Ukraine and the Czech Republic. In international-tourism receipts Japan's $3.3 billion is outdone by Croatia, (see chart).

Another measure: The U.S. has 4.2 million hotel rooms; Japan, with half the population and half the economy, has only a third that many.

To be sure, Japan is an island nation, so its numbers aren't inflated by short-term border crossings as with other countries. But so is Britain, and its tourist numbers are in the world's top ten for both visitors and receipts.

"The numbers are very sad," says Masafumi Miura, an official at the Japan Association of Travel Agents. "It's a bad situation."

To address the problem Prime Minister Junichiro Koizumi announced in January a "Visit Japan" campaign aimed at doubling the number of arrivals by 2010. "The entire government will endeavor to promote tourism," he told parliament. The government's tourism budget will be increased from $25 million to $42 million--still paltry--for the fiscal year starting this April, and a high-level committee is working to carry out Koizumi's mandate.

National efforts are backed up by local ones. Shintaro Ishihara, Tokyo's governor (the equivalent of mayor), is talking up tourism as a way to revive the local economy--including casinos--and hasa budget of $22 million to carry out his plans.

"This is the biggest change I've seen in my 20 years in the industry," says Masato Takamatsu, vice president of Japan Tourism Marketing, a research and consulting subsidiary of Japan's largest travel agency, JTB Corp.

An irony is that Japan was one of, if not the, first Asian countries to market itself to Western tourists. A group called the Welcome Society of Japan was formed in 1893 to bring in tourists, followed by the launch in 1912 of the state-owned Japan Tourist Bureau. Until World War II Japan courted tourists to earn foreign currency to fuel its modernization and military.

As Japan's postwar export boom solved the foreign currency problem, the tourism effort lost its impetus. Business, not tourism, drove most visitors to Japan. (On top of this were visits connected to the U.S. military presence in Japan.) This kept arrival numbers up--they have grown rather steadily over the decades--but has masked a fundamental deterioration of recreational traffic. "Tourism hasn't been recognized as an important industry," says Masahiko Maiya, president of Hotel Okura in Tokyo.

The biggest blow came from the rapid appreciation of the yen in the mid 1980s, making Japan one of the world's most expensive countries to visit. "Everyone has heard the horror stories about high costs," says C.J. Dennett, a vice president at the Asia division of the Westlake Village, California, Pleasant Holidays, the first U.S. travel agent to specialize in Asian tours, founded in 1959. A typical seven-day package from Pleasant for Japan today costs $1,250, while similar packages for China go for $886 (all-inclusive, including air, from the U.S. West Coast).

"Even for theJapanese, it's expensive to travel," says Margaret Price, an Australian living in Japan who's written extensively about the tourism industry. Instead, Japanese tourists have flocked to cheaper destinations outside the country, making 16 million trips abroad, spending $43 billion. In comparison, Americans made 58 million trips outside the U.S.and spent $83 billion.

Japan's government also encouraged its citizens to travel abroad. Bureaucrats used to boast its "tourism deficit" would help offset its trade surplus. The decade-long recession has changed that mind-set.

A nation like Thailand now gets 10 million visitors a year, twice that of Japan. Five years ago Thailand got only 7 million. Virtually no one visited Cambodia ten years ago, and today its total hovers around 1 million a year. "Other countries have been much more aggressive than Japan in their marketing efforts," says Dennett. Singapore, for example, spends $72 million to attract some 8 million visitors to its island nation.

In Japan tourism is the responsibility of a tangle of bureaucracies, including the Ministry of Land, Infrastructure and Transport. "There's no tourism ministry, and there should be," says Price. At the ministry only 130 employees out of 68,000 are responsible for tourism affairs.

Despite talk of radical change, the "Visit Japan" campaign may be more recycled than new. Back in 1996 the government also talked of boosting tourism under a "Welcome Plan 21," with the aim of doubling tourism by 2005 (instead of 2010). Some officials say the two plans are one. "The DˇVisit Japan' campaign is for realizing the aim of DˇWelcome Plan 21,'" says Isokazu Tanaka, the executive director of overseas promotion at the Japan National Tourism Organization.

In the meantime Japan suffered setbacks, failing to land the 2008 Summer Olympics in Osaka and to get the expected number of arrivals for the World Cup games it shared with Korea.

If Japan is to revive tourism, big changes will be necessary. The lack of English speakers, especially outside of the major cities, is one barrier. Writer Price was asked by tourism officials to test the English skills of staff at 25 hotels in the southern prefecture of Ehime, touted as a model for foreign tourism. A third couldn't understand her when she tried to make a reservation using only English.

Japan also has geography going against it. "We are geographically handicapped, being so distant from markets such as Singapore and the U.S.," says Satoru Kanazawa, head of the land ministry's tourism department. Unlike Southeast Asia, where countries are close enough together to allow reasonable hopping around the region, north Asia tends to be a one-country destination. "If you are getting on a plane for 14 hours and this is a once-in-a-lifetime visit, tourists want multiple destinations. Japan is more of a solo destination," says Dennett.

Not surprisingly the countries that send the most visitors to Japan are also the closest, notably Korea, Taiwan, China and Hong Kong (the U.S. is the fifth). China's growth is the most rapid; the half a million arrivals last year was double 1997's number. (Korea is still number one with over 1 million.) Chinese tourism is burgeoning throughout the region.

Yet Japan is ambivalent about its Chinese visitors because some stay as illegal workers. It's a hotly debated topic in a country with draconian immigration laws. "Some want to expand tourism with China. Others want to close the door," says Miura of the travel agent group.

To combat the problem Japan requires each Mainlander to put up a bond of up to $6,000 and to travel in package tours of at least six people. But if Japan wants to increase tourism, it has no choice but to court the Chinese. "China is our most important market in Asia," says Kanazawa.

Aside from geography, which it can't change, Japan can do much better. Despite its prowess at marketing its products, Japan is lousy at marketing itself.

First to go should be the stereotypes of "temples, geishas and cherry blossoms," says Price. And contemporary images of Japan don't help: crowded cities, stressed office workers and widespread recession. "I can't imagine why anyone would want to come here," says John Bosworth, an American who has lived in Japan for 30 years and runs a travel agency.

Japan can offer a wide variety of travel experiences, from tropical beaches in southern Okinawa to European-style towns and ski resorts in northern Hokkaido. "No one tells you about these places," says Price.

Japanese officials also talk about creating niche tourism. Ideas include ecotourism, cycling tours, bird-watching and pottery tours to learn the secrets of Japanese ceramics.

Even the cost issue can be deflected. "I think Japan has gotten a bad rap expense-wise. There are cheap alternatives, whether it's accommodations, food or getting around," says Tony Wheeler, the founder and owner of the Lonely Planet budget travel guides (now the world's largest travel guide publisher).

For example, Japan offers a rail pass allowing unlimited travel in Japan, including the famous bullet trains, which is similar to the Eurailpass in Europe. Yet few know that it exists, and that the price of a 14-day pass is just $382, cheaper than a 15-day Eurailpass at $498.

And visitor costs in general are declining, both because the yen exchange rate has generally grown more favorable for Europeans and Americans in the past five years and because domestic prices are falling because of deflation. Japan is doing nothing to herald this abroad.

The shortage of international-brand hotels may be giving way. The Hyatt chain is about to open a new unit in Tokyo. The Raffles hotel chain in Singapore and the Okura chain signed a strategic alliance last May.

Yet much of what makes Japan special is an acquired taste, like sushi. Take the ryokan, a traditional inn sans beds--lodgers get a futon mattress on the floor. "My friend complained he felt like he was camping when he stayed in one of them," says Price. Yet for Japanese, austerity is the charm--it's called wabi or tranquil simplicity.

"The Japanese definitely have their work cut out for them," says Dennett. Yet few doubt that almost any effort would be an improvement over the current neglect. Offers veteran travel agent Gsell, "Something is better than nothing."

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