The government should not overregulate the informal hospitality sector due to pressure from the larger hotels, a small and medium enterprise (SME) sector expert said at Sri Lanka Economic Forum 2016.
“Some level of regulation to ensure security and safety should be merited but you want to be sure that it’s not about a mechanism for eliminating competition of that sector for larger hotels,” University of Warwick Economics Professor Christopher Woodruff said.He added that the regulations shouldn’t hinder the growth of the market, as countries that have become successful in tourism, while having large-scale developments, also foster growth of small-scale businesses.
“(In) tourism inherently, because of the Internet, there are opportunities for small-scale businesses that we should encourage as part of a healthy tourism and services sector,” he added.
The call for the regulation of the informal sector came from professionals and the larger hospitality companies in Sri Lanka and the Sri Lankan government just recently embarked on a project to bring the informal sector under regulation.
Even in Italy, the fifth most popular tourism destination in the world with 48.6 million arrivals last year, larger hotels faced a highly challenging situation due to the informal sector.
Experts say that this is due to the new-age tourist having no brand loyalty, or little desire to indulge in brands, preferring to engage in authentic experiences with the locals in the country they travel to.
However, a strong argument has been made that the informal sector does not pay taxes, employee benefits and does not train the employees to have stronger career paths.
Further, the informal establishments have been found not adhering to strong qualities and standards.
“Some level of regulation could be merited in the sense that you’re worried about an incident that causes damage to the reputation of the tourism sector and that’s something that the regulator should care about,” Prof. Woodruff said.
Being informal has its downsides as well, with banks being unwilling to finance growth.
However, Prof. Woodruff said that most tourism services are carried out in such informal tourism establishments, which contribute dynamically to the growth of a country.
An ongoing debate is that smaller businesses are much more innovative in both providing services and management practices compared to larger companies that aren’t willing to take risks and only copy ideas.
Corporates argue that having a more qualified workforce fosters innovation.