The Reality of Financing Small Tourism Firms: The Case of Indian Tourism SMEs

The Reality of Financing Small Tourism Firms: The Case of Indian Tourism SMEs

Javed Hussain, Navjot Sandhu, Hatem El-Gohary, David J. Edwards
DOI: 10.4018/IJCRMM.2020010105
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Small tourist firms occupy an important place within the Indian tourism industry and make a significant contribution towards gross domestic production. This study investigates access to and finance preferences of SME tourism firms in the Punjab area, India. The study employed a post-positivist research approach depending on semi-structured questionnaires and interviews. The findings confirmed that tourism firms relied on pecking order trajectory, drawing capital from own savings, family and informal lenders, which is consistent with the literature. The study provides a unique insight into issues related to tourism firms and benchmarks findings with SME literature to identify the salient points.
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Despite the size, turnover and importance for the tourism industry, the sector remains an under-researched one (Altin et al., 2017), particularly regarding its contribution toward economic and social fabric of countries such as India. Tourism is predicted to increase significantly by 2020 (Nawijn et al., 2008), not only in Europe, East Asia and the Pacific regions but there is also high growth reported amongst less developed economies too. Tourism plays a pivotal role to foster international understanding, for entrepreneurial education; could be a major economic and social tool to alleviate poverty, promote social, cultural cohesion and above all serves as a catalyst for transfer of human and technological knowledge. Globally, the tourism sector is the fourth biggest principal industry after oil, chemicals and food industries (Tugcu, 2014). International tourism generates economic growth (Balaguar and Cantavella-Joda’, 2002) and provides a spillover properly effect (Cernat and Gourdon, 201) through the transfer of knowledge and technology which promotes social development.

Tourism in developing economies is dominated by SMEs, and its prominence for employment and development of the economy is observed to have an upward trajectory over the last 40 years (Thomas et al., 2011). For small tourism firms (like other small enterprises) access to finance remains a major challenge, in particular, within developing economies. There is a widespread body of literature for small enterprises that examines the contribution of small enterprises in general (Du et al., 2015) and suggest that access to finance impedes their potentials all over the world (Bec and Demirguc-kunt, 2006; and Beck et al., 2008). Tourism firms in developing economies face acute challenges due to underdeveloped financial environment and markets. However, the issues associated with the developing economies tourism firms’ such as capital structure and finance constraints is under-researched. Consequently, local tourism firms are unable to operate efficiently or compete with international tourism firms; hence, they fail to fully support economic and growth potentials (Nawijn et al., 2008) of their region. Yet, it has been suggested that the tourism sector is vital for job creation (Thomas et al., 2011; Wanhill, 1999) and to promote competitiveness (Scmitz and Spencer, 2005) but, unfortunately, the sector only attracted limited sporadic attention of academics and policymakers (Petersen and Wanhill, 2005; Rogerson 2006; Thomas et al., 2001).

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