Expedia Group CEO Mark Okerstrom raised more than a few eyebrows at the Phocuswright travel conference in Los Angeles on November 15 when he said that the US-based online travel agency “has a real chance of winning” in the domestic Chinese market.

Okerstrom restated the company’s commitment to China, even though he couldn’t provide any concrete ideas about how to fix the company’s lack of success in that country. The travel site already sold its majority stake in the under-performing Chinese online travel agency eLong to Chinese competitor Ctrip.com International, and its direct sales in China are currently slim.

Expedia CEO Mark Okerstrom stated that his company was still dedicated to serving the Chinese market, even if success has been elusive for several years now

The travel booking company has been a success story stateside, with last year’s revenue coming in at just over $10.06 billion, putting them behind travel market leader Booking Holdings (formerly Priceline Group) and their $12.68 billion haul. Meanwhile, China’s largest online travel agency Ctrip earned $4.1 billion in revenue in 2017.

But unfortunately, China is an obstacle that every major international travel company is trying to address now, and it doesn’t seem as if there’s any obvious path to success in that country’s travel market.

Why do international travel companies face such difficulties in China?

Part of it is the fact that domestic firms tend to have an advantage in understanding what does and does not work in terms of marketing and sales in their home country. Language and cultural barriers further expand the divide between China and Western countries. Foreign companies have struggled similarly in other major markets like Japan where domestic competitors maintain a significant home-field advantage.

But unlike China, there are significant markets that foreign firms dominate in Japan. The smartphone market is a good example. Despite Japan’s bevy of well-respected domestic hardware producers, Apple is by far the most dominant manufacturer in that country with around a 45 percent share of the market. The same cannot be said for China, where Apple is the most popular foreign manufacturer, but with only an 8 percent share of that market.

Without much to offer in IP or technology, online travel agencies are unable to trade for access to the Chinese market in the same ways other international companies can

The differences in market structures and average incomes account for some of these disparities, but more broadly, companies like Expedia and Booking — and indeed all foreign companies including airlines — struggle in China in large part because of the Chinese government’s efforts to limit the success of foreign companies in the country.

The Chinese government still sees private companies as agents of state power. While this means limiting foreign companies’ influence to safeguard national security, Beijing also leverages relationships between Chinese companies and international companies by trading market access for strategically useful technology, which has allowed some U.S. tech firms to enter the market.

But travel companies like Booking or Expedia don’t really have this option. Tourism is arguably one of the most “non-strategic” consumer industries, and there’s not a lot of innovative technological development or IP produced by travel companies, which means far fewer opportunities to trade for market access.

How do Chinese companies benefit from foreign competition in the travel space?

Foreign companies can invest in partnerships with Chinese companies like Ctrip, Alibaba, or Meituan Dianping, but drawing direct revenue from these partnerships is often tricky, even with listings cross-posted on multiple online travel agencies in China.

Countering this is a challenging task that could be impossible for any major international online travel agency. Meanwhile, focusing on reaching Chinese tourists when they’re abroad is also challenging, as Chinese online travel agencies already have listings that are similarly robust, further reducing the influence of foreign travel industry players.

International online travel agencies may have to look to emerging markets other than China for new opportunities

It’s possible that companies like Expedia and Booking may just have to come to terms with the fact that they’ll never have the kind of presence in China they were hoping for. But there’s a bit of good news out there: While China will be the most important travel market soon, there are other large, growing markets with conditions that are more friendly to foreign companies, such as countries like India and Indonesia. Therefore, Western travel companies might want to consider diversifying as a way to offset their lack of success in China.


Travel Trends