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Monday, 31 December, 2001, 18:21 GMT
Software firm is Olympic hopeful
Tourists on the Great Wall at Badaling near Beijing
China expects the Olympics will bring a huge upsurge in tourism
China starts implementing new globally agreed trade policies on 1 January 2002. But will they open China to smaller firms, helping to loosen the grip of giants like Motorola, Volkswagen and Nestle? In the second of three reports, BBC News Online's Mary Hennock explores the myth of "the world's largest market".

For Chinese sports fans, the only sure way of getting a ticket to see their team is to queue up at least a couple of days in advance and pay cash.

China is six years away from the Beijing Olympics in 2008, but light years from having the infrastructure to host such a huge event.

Not only does it have to build the main stadiums and Athletes' Village, but dozens of everyday practices will need to change if Beijing is to cater to hundreds of thousands of extra tourists.

Hotels, sports stadiums, tourist attractions and theatres often lack computerised booking systems.

Looking ahead

And China remains very much a cash economy where it's rare for consumers to be able make reservations with a credit card.

Man walks past Beijing Olympic bid logo
Just six years to the Olympics

Ian Ash relishes talking about this potentially chaotic scenario.

To the deputy chairman of Technology Facility Management (TFM), it implies limitless potential for the Oxfordshire-based software design firm.

Through its Chinese offshoot, Si Hai Tong Jie (SHTJ), the software developer is marketing a bookings system for travel agents which simplifies the process of reserving a hotel room.

'Total pandemonium'

"In principle, there's very little difference between reserving a room and reserving a seat at the Olympics," Mr Ash points out.

For TFM, the fragmentation of China's market and its low tech infrastructure presents both an opportunity and a problem.

At present, it takes seven steps for a travel agent to make a room booking but even that sequence of phone calls and faxes cannot guarantee customers a bed.

Tourist in Tiananmen Square
Domestic tourism is growing

"From the hotel's point of view they don't know what is sold till the people turn up, so they overbook," says Mr Ash. "It's total pandemonium."

"On our system, it's all done online," he says. The system lets travel agents and hoteliers see at a glance what is available, market unsold space and take credit card deposits.

"We went from nothing to the sixth largest booking agency in China in just seven months, handling 10,000 hotel room nights per month," says Mr Ash.

In 2002, the firm has set its sights on 100,000 room nights per month.

Mythical market

But to tap this opportunity, TFM must first overcome a few problems of its own.

One of the biggest myths about China is that it is the world's largest market, a commercial paradise bursting with 1.3bn consumers.

In reality, the Chinese market is highly fragmented, as the travel industry demonstrates.

To reach critical mass, TFM must persuade about 2,000 booking agencies to use its system.

"About 20 of them are decent size, then it goes into hundreds of small ones," says Mr Ash.

Many are owned by provincial tourist authorities, but state ownership does not mean national co-ordination.

Inefficient

The structure of the hotel industry is just as fragmented and revealing about its inefficiency: The biggest hotel chains are owned by banks which acquired them piecemeal as they took over state firms with a history of bad debt.

Bank of China, for instance, owns about 2,000 hotels, while the biggest non-bank owned chain consists of only about 50, says Mr Ash.

The travel industry boasts big numbers - 750 million journeys a year by domestic business travellers as well as Chinese and foreign tourists - but tapping this potential requires huge marketing efforts.

TFM was first invited to China in 1997 at the invitation of the Beijing section of the state-owned China International Travel Service (CITS).

Better terms

It took a further four years to set up SHTJ - which became known inside its parent company by a less flattering acronym.

"The biggest trouble is understanding all the rules and regulations and they're constantly changing," says Mr Ash.

The next steps are to move away from selling a service to consumers towards selling the software to travel agents and "moving significant volumes", says Mr Ash.

The main internationally-used booking system, known as Global Distribution System (GDS), costs about $20 per reservation, making it uneconomical in many developing countries, he says.

The average cost of a four-star hotel room in China is about $35.

TFM claims that to process a booking with the software it has developed for the Chinese market costs $2.

Politically sensitive

A constant sticking point in China's negotiations to join the World Trade Organisation (WTO) was over the slice of their Chinese operations foreign firms should be allowed to own.

TFM did gain one benefit from the delays to setting up its Chinese operation - as the start up date slipped further away, the Chinese side reduced its share in the venture to 10% from 50%.

But Mr Ash believes questions of company ownership remain politically sensitive despite China's decision to open its markets wider.

"We could be the clearing house for hotel bookings in China and we're a 90% British company," he says. "Now politically, that's just not going to be allowed."

TFM is a privately-owned firm with annual sales of 15m ($21.7m), but it hopes to adapt its software for other developing countries, in particular Vietnam and South Africa.

See also:

13 Jul 01 | Business
Beijing win is big business
28 Dec 01 | Business
Coffin-maker resurrects tradition
27 Dec 01 | Business
China publishes WTO terms in Chinese
21 Dec 01 | Business
Japan and China settle trade row
13 Dec 01 | Business
China firms 'fake' profits
13 Dec 01 | Business
China: an economic super power?
12 Dec 01 | Business
China grants insurance licences
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