GAMBLING FOR SUCCESS IN MACAU
by Desmond Lam
The latest figures released by the Macau government again show promising signs of an ever-growing casino gaming market. Still, the full impact of the recent clamp-down by the Guangdong province government on Individual Visit Scheme (IVS) is yet to be seen. Gross gaming revenue for Games of Fortune (i.e. casino gaming) reached almost US$ 2.5 billion in the 2nd Quarter (Q2) of 2007, a 50% jump from Q2 2006. This is an increase of 6.3% from Q1 2007 compared to 2.3% from Q1 to Q2 2006. Slot revenue has crept past 4% of gross gaming revenue compared to 1% in 2002, while VIP baccarat became stronger at 67.5% of gross gaming revenue in Q2 2007. With a slot-to-table ratio of 2.65, we now have more than 3,000 tables and around 8,000 slot machines in Macau. All these impressive results achieved with just 26 casinos so far; eighteen of them belonging to S.J.M. Venetian Macau opens in August while MGM Grand Macau will open by year end. At this rate, the annual gross gaming revenue for Games of Fortune will surpass US$ 9 billion in 2007. Not bad for a tiny little city with a population of just over 500,000.
Several factors affect whether Macau can sustain its impressive growth in the next few years. Firstly, there is the widely-publicized labor issue. Growth potential for Macau is limited by the size of its workforce, which is currently less than 300,000. In addition, there are growing concerns for the quality of Macau’s working force. Labor quality improvement is needed amid rising demands for qualified personnel in various industries such as gaming, hotel, retail and the new MICE sectors. Future growth will have to rely on continuing education, training and sound allocation of existing workforce across key sectors as well as the increasing import of foreign skilled labor and management techniques.
Secondly, there is an urgent need for better infrastructure and amenities to support the growing economy. Internally, Macau needs high quality hospitals, schools, transportation system to service the explosion of visitors and the influx of foreign workers. Understandably, there will be increasing demand for training and upgrading. Yes, Macau has opened the lotus bridge from Cotai to Zhuhai, building a new ferry terminal, planning for the expansion of the airport, and awaiting a new bridge that connects Macau, Hong Kong and Zhuhai. And there is a potential mega-metropolis in the making that includes all cities within Guangdong province, Hong Kong and Macau – the economically powerful Pearl River Delta Region. However, there are potential bottlenecks in near term; Gongbei gateway with Zhuhai, airport and ferry terminal all need further expansion to cater to incoming and outgoing travelers. More than half of visitors to Macau are from mainland China. Many of them come to Macau through the Gongbei gateway at neighboring Zhuhai.
Any political moves by the Chinese central or provincial government (e.g. on the IVS) can impede or propel future growth of Macau. The Macau government has taken a turn to diversify its economy in the past few years - e.g. tourism focusing on UNESCO heritage sites, leisure entertainment facilities like Fisherman Wharfs and Macau Tower, retailing, and the new focus on Meeting, Incentive, Convention and Exhibition (MICE) business. Whether these diversifications will be successful, given Macau’s current image as a gambling-only destination, will again be tested with the opening of Venetian Macau in August 2007. Can non-gaming attractions ever take over gaming attractions? In the next phase of growth, Macau and its casino operators will need to think about how it can successfully integrate all these attractions for sustainability. A question that, I guess, can be answered within the next 5 years.
For casino operators, there are a number of key success factors in this increasingly competitive marketplace - factors that boil down to the creation of superior customer value. It starts with the strengthening of manpower. Labor shortage implies better human resource management will be needed. Continuing education and training are needed to bring to par the quality of employees (i.e. in operations and services) to international standard and to provide a motivational source for staff promotion. All these can be done in-house or through collaboration with outside tertiary institutions.
Community relation is another key element that casino operators must eventually work hard on. Engage the community to build sustainability. Increasing political pressures from Macau and mainland China would mean more proactive community relation programs by casino operators will need to be in place to help resolve social issues. These issues include cross-border illegal workers, corruption, problem gambling, and other social concerns that pertain to community’s perceived negativity of an expanded gaming market.
In addition, an increasingly congested competitive environment will spell the end of a supply-driven gaming market. It is time to start to develop loyalty among existing customer base and to clearly communicate product value to potential customers. Effective segmentation, targeting and brand management are hence three very important tasks to build in this market. These will require a system to collect more information about customers and better understand their ever-demanding needs. Casinos should no longer assume that customers will come the very moment they open. Growing demand and building a loyal base of Chinese customers can now a longer time than expected. The battle for the hearts and minds of the Chinese gamblers has already begun. Casino operators need to start to think about providing a unique and sustainable value proposition that fit the needs and wants of Chinese gamblers. Adaptation of product offerings to the liking of local targeted segments is imperative, variety becomes essential, and service quality needs to be raised.
All these strategies are needed in light of an anticipated, and increasingly, matured gaming market amid booming non-gaming (which is, however, crucially important) sectors. But wait! There is obviously still room for tremendous growth in gaming itself. Chinese gamblers make up more than 90% of visitors to Macau each year. Among these, approximately 55% are from mainland China; presumably many from Guangdong province. In 2006, around 32% of Macau’s visitors were from the neighboring Hong Kong and 7% from Taiwan. Over time, there will be increasing pressure from various factions (and opportunities) to grow lucrative and high-value markets like the Korean and Japanese. Despite their geographical proximity to Macau, these markets currently constitute only tiny proportions of visitors to Macau. Further expansion of low cost air carriers like Viva Macau and Tiger Airways may facilitate effective targeting of these regional markets (e.g. ASEAN, Korea and Japan) beyond Guangdong province, Hong Kong and Taiwan.
Date Posted: 01-Aug-2007
Desmond Lam is an Assistant Professor of Marketing at the University of Macau. He can be contacted at DesmondL@umac.mo.
