CHAPTER 2 EFFICIENCY IN TAIWAN’S INTERNATIONAL TOURIST HOTEL INDUSTRY
2.3 D ATA D ESCRIPTION AND E MPIRICAL R ESULTS
2.3.1 Data Description
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follows:
[
{ }
] [ n{ }
mn mn] mn m n n mn
mn x z z
x max βˆ βˆ max νˆ νˆ
~ = + − + − , m=1,2,Κ ,M;n=1,2,Κ ,N (2-7) where ~ and xmn xmn denote the adjusted and original variable input usage, respectively.
{ }
ˆ ˆ ][maxn znβm −znβm forces all international tourist hotels to operate in the least favorable set of external conditions observed in the sample. [maxn
{ }
vˆmn −vˆmn] forces all international tourist hotels to operate in the worst situation observed in the sample.Finally, the third stage uses the data of the adjusted variable inputs, original quasi-fixed inputs and original outputs to re-evaluate the efficiency in order to yield more accurate measures.
2.3 Data Description and Empirical Results
2.3.1 Data Description
The data used in this paper are based on Taiwan’s international tourist hotels operated from 2003 to 2009. They were conducted by the Annual Operation of the International Tourist Hotels, published by the Tourist Bureau, Ministry of Transportation and Communications, ROC. After discarding incomplete observations, 47 international tourist hotels are remained and are listed in Appendix 2A.
Referring to Johns et al. (1997), Anderson et al. (2000), Hwang and Chang (2003), Chiang et al. (2004), Wang and He (2006), Wang et al. (2006) and Shang et al. (2008), the outputs of international tourist hotels are divided into three categories: guest room revenue, food and beverage (F&B) revenue as well as other revenue. Four types of inputs are distinguished:
guest room, labor, F&B expense and other expense. The revenues of international tourist hotels are mainly from the guest room revenue and F&B revenue. The average guest room revenue and F&B revenue account for 46% of total revenues, respectively. Although the average other revenue only accounts for around 8% of total revenues, the maximum value among all international tourist hotels is 62%. Hence, the other revenue is considered as a type of output, and is measured in terms of total revenues except guest room revenue and F&B revenue to avoid double-counting. The guest room is represented as the quasi-fixed input and is measured by the number of guest rooms. The quantity of labor is measured by the number of employees. The other expense is measured in terms of total operating expenses except guest room expense, labor-related expense and F&B expense. In addition, guest room
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revenue, F&B revenue and other revenue are deflated by the consumer price index with 2006 as the base year. F&B expense and other expense are deflated by the wholesale price index with 2006 as the base year. The consumer and wholesale price indices are published by the Directorate-General of Budget, Accounting and Statistics of Executive Yuan, ROC.
In the second stage, the variables of market structure, hotel characteristics and external environment are chosen to filter out the impacts of exogenous variables.8 Market structure is represented by the degree of market concentration. The degree of market concentration is measured by Herfindahl-Hirschman Index (H). An international tourist hotel’s H is the sum of the squared ratios of revenues from each international tourist hotel to total revenues of all international tourist hotels in the same city or county.9 The higher value of H represents the higher market concentration. Hotel characteristics are divided into hotel size, market condition and hotel style. The hotel size is measured by the number of guest rooms. The dummy variable SIZE 1 is equal to 1 for the international tourist hotel with 201 to 400 guest rooms; otherwise, SIZE 1 is equal to 0. The dummy variable SIZE 2 is equal to 1 for the international tourist hotel with more than 401 guest rooms; otherwise, SIZE 2 is equal to 0.10 The market condition is denoted by the dummy variable which the international tourist hotel belongs to a resort hotel or city hotel. The dummy variable RESORT is equal to 1 for international tourist hotels being resort hotels, and 0 for those being city hotels. The hotel style is denoted by the dummy variable which the international tourist hotel belongs to an international and/or domestic chain hotel or independent hotel. The dummy variable CHAIN is equal to 1 for international tourist hotels being international and/or domestic chain hotels, and 0 for those being independent hotels. External environment is represented by two events:
severe acute respiratory syndrome (SARS) in 2003 and financial tsunami in 2008 and 2009.
The theoretical foundations of these exogenous variables are illustrated as follows:
Market Structure
The Degree of Market Concentration (H). The lower degree of market concentration is, the
8 According to Fried et al. (1999), exogenous variables are these factors that may affect pure technical efficiency but are not controlled by DMUs in the short run, such as the form of ownership, location characteristics, labor relations as well as government regulations.
9 Since an international tourist hotel competes with other international tourist hotel in the same county or city, this paper divides the locations of total international tourist hotels into 13 areas by counties and cities. These 13 areas include Taipei, Kaohsiung, Taichung, Hsinchu, Hualien, Tainan and Taitung cities as well as Kaohsiung, Taoyuan, Hualien, Tainan, Taitung and Pingtung counties.
10 According to Tourist Bureau (2010), hotel size is divided into eight categories: less than 100, 101-200, 201-300, 301-400, 401-500, 501-600, 601-700 and more than 701 guest rooms. However, this classification is too detail and leads to only two international tourist hotels in some categories.
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more competitive pressure among international tourist hotels will be. International tourist hotels have more desire to reduce wasted resources and increase their efficiency in order to survive (Lovell, 1993). Hence, under the same quantities of outputs, if the competitive pressure is higher, the international tourist hotels will use fewer quantities of inputs and lead to fewer input slacks. Therefore, the relationship between the degree of market concentration and input slack is expected to be positive. In other words, the relationship between the degree of market concentration and pure technical efficiency is expected to be negative.
Hotel Characteristics
Hotel Size (SIZE). When the firm size expands, the input usage may be reduced through sharing or joint utilization, but also may be increased through allocative complexity (Baumol et al., 1982). Hence, the impacts of hotel size on input slack and pure technical efficiency are indeterminable.
Market Condition (RESORT). Resort hotels face the more volatile demand than city hotels, but the number of guest rooms cannot be changed in the short run (Baum and Mudambi, 1995). Hence, the effects of the peak season and off-peak season on resort hotels are more serious, and easily lead to waste labor and resources. Therefore, the relationship between the market condition and input slack is expected to be positive. In other words, the relationship between the market condition and pure technical efficiency is expected to be negative.
Hotel Style (CHAIN). Chain hotels could attract more visitors via marketing chain and benefit from the managerial experience of hotel chains via technology transfers, but could increase input usage and costs by requiring standard services and facilities (Wang and He, 2006).
Hence, the impacts of hotel style on input slack and pure technical efficiency are indeterminable.
External Environment
Severe Acute Respiratory Syndrome (SARS). SARS is a respiratory disease in humans. It can be spread from person to person through respiratory secretions. In order to reduce contact with others, people will avoid going to public places. Hence, demands for accommodation and F&B in international tourist hotels will be reduced and input slacks will be increased during the period of SARS infection. Therefore, the relationship between SARS and input slack is expected to be positive. In other words, the relationship between SARS and pure technical efficiency is expected to be negative.
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Financial Tsunami (FT). During the period of financial tsunami, people will decrease additional expenditures and increase savings because of uncertain incomes and the possibility of unemployment. Hence, the unnecessary tourism expenditure will be lowered and demands for accommodation and F&B in international tourist hotels will be reduced. Therefore, the financial tsunami is expected to have a positive relationship with input slack and a negative relationship with pure technical efficiency.
The definitions of relevant variables are summarized in Appendix 2B. The descriptive statistics of relevant variables is presented in Table 2.1. On the output side, guest room revenues range from 26 million to 1,479 million NT dollars; F&B revenues range from 5 million to 1,250 million NT dollars; other revenues range from 10,758 to 454 million NT dollars. On the input side, guest rooms range from 50 to 873 rooms; labors range from 53 to 982 employees; F&B expenses range from 3 million to 368 million NT dollars; other expenses range from 10 million to 1,085 million NT dollars. These represent that there are extremely different among individual international tourist hotels on the output and input sides.
The guest room is represented as the quasi-fixed input because only 12 out of 47 international tourist hotels change the quantities of guest rooms during the period of 2003-2009 and most international tourist hotels change within 10 guest rooms (see Appendix 2C). In addition, 58.7% of international tourist hotels have 201 to 400 guest rooms, indicating that over half international tourist hotels is the middle size. The average value of market condition dummy indicates that 14.9% of international tourist hotels are resort hotels. The average value of hotel style dummy represents that 59.3% of international tourist hotels are chain hotels.