10 Months of Declining Tourism - Reversed?

practicalities - Vietnam: April 17, 2015

By now everyone has heard it. Ten straight month-on-month declines of international arrivals to Vietnam. It is not coincidence that going back ten months brings us to the anti-Chinese riots last May. In fact, I can practically guarantee that the streak will end this June when we start comparing 2015 to the post-riot reality. So is this a tourism problem or is it a Chinese tourism problem? Below is a chart for the last 10 months that shows the year-on-year difference of total international arrivals and international arrivals when keeping the number of Chinese (China, Taiwan, Hong Kong) constant.I also held the number of Russians constant forthe last four months due to the drop in the Ruble’s value, for which Vietnam has absolutely nocontrol. 

Can 10 Months of Declining Tourism in Vietnam Really Be Reversed?

Note: Russian inbound numbers adjusted for Dec 2014-Mar 2015; January and February combined because of Tet holiday.


Both lines look bleak, but the change in non-Chinese arrivals looks significantly better. In fact, only half of the 10 months had a decrease. Still, Vietnam’s tourism industry should be doing better. So why isn’t it?

Three Generations of Tourism and Development

I often compare Vietnam tourism to Mexican tourism from the second half of the 20th century. The two countries are incredibly similar geographically and geopolitically; both being the southern neighbor to very large and veryfast growing middle class populations.Mexico’s coastal tourism development came in three stages. Each stage had a distinct type of traveler.

The First Generation:Quiet seaside fishing villages like Acapulco and Port of Vallarta discovered by what I call “wanderers”. The wanderer likes discovering places and wishes the place would never change; but in mass, they do exactly that. The outcome is tourism development that never allows infrastructure to catch up, thus making it difficultfor the area to gain a reputation for quality.

The Second Generation of tourism development in Mexico was the opposite.Planned mega-resort locations such as Cancun. Walled to keep the tourists in and the locals out, these resorts were perfect for first time American travelers who wanted warm weather and the benefits of third world prices without the third world risks.Second generation resorts turned Mexico into the tenth most visited country in the world.

Then American middle class growth slowed and its travelers became more experienced.Wanting more than just a beach, the newest generation of tourists to Mexico expected a unique, quality experience. This customer gets more upset about a bad experience and wasting their valuable time, rather than their money. That does not necessarily mean they are rich, but rather have a good understanding of what they want and what their options are. Niche tourism is another phrase for the same thing.It is tourism designed around meeting specific purchase considerations for a small segment of a market. Mexico’s third generation businesses leveraged the ancient Maya ruins, jungle excursions, and high-end yachting along the coast.

Where Does That Leave Vietnam?

Vietnam’s tourism development is just starting its second generation. Places like Vung Tau,PhanThiet and NhaTrang are first generation locationsalready over-developed for the infrastructure.Sapa is rapidly following.Even Saigon and Hanoi are incredibly difficult to access for travelers, especially the inexperienced. Walking is incredibly frustrating and public transportation doesn’t exist. Getting on Highway 1Aendangers your life and the trains are 50 years old.Backpackers and other wanderers have been coming to Vietnam for decades and the hassles and obstructions are welcomed since they help keep others away. One backpacking website even listed “crossing the street” as one of Hanoi’s big attractions. Vietnam is still an excellent place to visit for the wanderers but not so much for experienced travelers who have moved on from the adventure of not getting robbed or cheated.

The second generation of tourism development has begun.Danang has a strip of second generation resorts and Cam Ranh is following a few years behind. Before May 2014, Danang was beginning to fill up with China’s rising middle class and NhaTrang could not contain all the new Russians.Unfortunately for the investors in these projects, the Vietnamese government is doing what they can to keep first-time international travelers away. I receive a weekly newsletter called China Tourism Update which usually has ten headlines about countries making it easier for Chinese visitors to visit, and another five about how large and fast growing the Chinese outbound market is. The Vietnam government is the only one in the world that is trying to make it more difficult for them.

I can only assume then, that the clamor in the press from experts is about Vietnam being unable to increase the number of third generation tourists – the experienced travelers (mostly European, North Americans, and Australians) who have the money to spend but choose not to use it on Vietnam.

Becoming Third Generation

The Vietnamese Government focusing on 3rd generation tourists is like climbing to the top of a coconut tree for a small coconut when a giant coconut is lying on the ground with a straw sticking out. However, if the government is intent on bringing more Europeans, North Americans, and Australian non-backer tourists (i.e., 3rd generation) instead of simply welcoming mass amounts of Chinese, then it had better do something quickly and correctly. Many of the best locations like Sapa have already been destroyed due to a lack of planning; at least according to one newspaper. Smart and efficient use of resources could turn it around, but it is more likely to get a cable car and amusement park than proper waste collection and treatment facilities. 

The Vietnamese provincial governments would rather not develop the Son Doong caves into a high-end natural wonder accessible to people who really care about that type of exploration. Instead, they plan is to build a cable car which allows mass amounts of people (and trash) inside; thus spoiling the attraction for those who really care and would spend the money to make their experience amazing. 

Rather than refurbish the beautiful old French buildings on BaNa hills and create a unique, exclusive and quiet hillside retreat, the Vietnamese developer chose to build a fake plaster French castle with a loud arcade.

As a country, Vietnam simply doesn’t have the expertise or inclination to understand what it would take to move quickly past the first and second generation. Hopefully the eventual profits of a large number of Chinese visitors can be used to upgrade infrastructure and preserve locations for the third generation of visitors that might arrive later.


Quite honestly, I believe Vietnam should focus on first-time travelers from South Korea, China, Russia, and later India. Nearly all of its marketing budget should be spent in China. China is the best fit, it is the largest, and it is the fastest growing. Instead, Vietnam does everything they can to make the Chinese feel unwelcome but nothing to make experienced travelers want to come. Making the visa process more costly and complicated for these new international travelers is the exact opposite of what the competition is doing. Every international investor in Vietnam is counting on this market rebounding. Make Chinese feel welcome and they will come back. 

At the business level, it is still possible to target the 3rd generation market. Next month I’ll discuss some of those businesses who have done it or doing it now, plus one Vietnam province that still has a chance to become a 3rd generation destination.