Growing South Carolina's Tourism Cluster

South Carolina's Low/country - famous for its powdery beaches, golf courses, and ancient live oak trees - is a favorite

In 2003, in fact, travel and tourism in the state had a total economic impact (direct, indirect, and induced) of 216,000 jobs, about 10 percent of total employment, and $10.9 billion in Gross State Product - about 9 percent of total GSR

Much of this revenue comes from out-of-state visitor expenditures and, as such, is an "invisible" export. What kind of assets, however, would spur even more growth in this tourism cluster?

In 2003, at the invitation of South Carolina business leaders, Harvard University's Michael Porter and his Monitor Group assessed the state's competitiveness and outlined a new economic development strategy based around industry clusters. In the study, Dr. Porter and his associates identified tourism as one of four existing industry clusters that have a significant impact on the state's economy.

Applying Porter's cluster theory and competitiveness strategies to the travel and tourism industry in the South Carolina Lowcountry and Resort Islands region, this article examines how to "grow" the tourism cluster.

Characteristics of Lowcountry Tourism

While the term "Lowcountry" is often used to refer to the entire South Carolina coastline below Georgetown, the Lowcountry and Resort Islands tourism region is made up of just four counties - Beaufort, CoIleton, Hampton, and Jasper. These counties are bordered on the east by the Atlantic Ocean and on the west by the Savannah River and the state of Georgia. The region begins on the northern end with the Town of Edisto Beach and continues south along the coast to historic Beaufort, bustling Port Royal and Parris Island, thriving Bluffton, and lush Hilton Head Island. Interstate 95 traverses the region, providing access to the inland towns, swamps, nature preserves, riverbeds, and artisan centers.

The attributes of the Lowcountry and Resort Islands - the unique ecosystem, early American history, seacoast location, and medley of cultural offerings - contribute to a thriving tourism industry. Traditionally, the region has attracted the following types of visitors:

* families looking for a beach vacation;

* golfers and tennis buffs;

* sportsmen looking for pristine hunting preserves; and

* heritage tourists, both history buffs of the colonial and antebellum periods and naturalists drawn to the area's endless marshes.

Beginning in the mid-1980s, large numbers of retirees discovered the region with the development of Del Webb's Sun City and other resorts on Hilton Head Island. In fact, the population in Beaufort County has grown approximately 40 percent since 1990.

As more people moved to the Lowcountry, they influenced the character of the once sleepy towns. Additionally, the influx of retirees has changed not only the local demand for goods and services, but also the interplay between the tourism industry and residents.

Lowcountry Tourism Cluster Assessment

Porter believes that long-term growth depends on industries maintaining a competitive advantage, enhanced by the location of business units or clusters. A cluster by definition is a system of interconnected firms and institutions whose value as a whole is greater than the sum of its parts.

Porter asserts that competitive advantage results from the presence of world-class institutions that first create specialized products or services and then continually upgrade them. Is there evidence that the necessary mix of labor, capital, and infrastructure relevant to the tourism cluster exists in the Lowcountry?

Porter's cluster theory provides a four-part diamond framework through which Lowcountry tourism and its components can be assessed:

* Factor/Input Conditions, e.g., labor, capital, and natural resources;

* Demand Conditions, e.g., local customers;

* Related and Supporting Industries, e.g., suppliers; and

* Strategy, Structure and Rivalry.

Factor/Input Conditions

The Lowcountry tourism cluster is concentrated within Beaufort County. Of the more than 56,000 jobs in Beaufort County in 2003, about 12,400, or 22 percent, were in the tourism industry. A majority of the tourism industry labor force commutes from neighboring counties.

Another factor condition is capital. There is little direct capital flowing into the region outside of tourism and real estate development. The demand for new housing in Beaufort, Bluffton, and Hardeeville has amplified capital inflows. Consequently, property tax assessments have increased as property values have increased.

Local infrastructure is an additional factor condition. Stakeholders throughout the Lowcountry are working together to effectively manage the infrastructure. Several associations seek to balance the growing demands of residents and the need for affordable housing for tourism employees with the long-steeped commitment to wetland preservation. Solutions have emerged through several endeavors, though forging cooperation across interest groups remains a challenge.

Land conservation remains the dominant focus in the infrastructure debate. Most private landowners recognize that preserving the wetland ecosystem benefits everyone; however, in their eagerness to reach deep water boat slips, many have built docks that violate the building standards. The Beaufort County Council responded by defining building standards to prevent unnecessary land erosion and limit irreparable damage to the wetlands.

The environment can handle only a limited number of building code infringements before the very birds and fish that attract residents and tourists alike are driven away.

Additionally, the constant threat of beach erosion impacts the area's infrastructure. The South Carolina Department of Health and Environmental Control (DHEC) released a Sfafe of the Beaches report in March 2005. The report noted how significantly the 2004 hurricane season damaged much of the South Carolina coast.

Edisto Beach State Park and the Town of Edisto Beach provide the only public beach access in Colleton County. According to DHEC, these areas suffered extensive erosion in 2004. Fripp Island, which accounts for about 4 percent of Lowcountry accommodations tax collections, loses beachfront each year that must be replenished to maintain the tourism revenue stream. Erosion is also a major problem on Hunting Island State Park.

Demand Conditions

Within Porter's diamond framework, demand conditions are concerned with the nature of the home market. About 16 percent of domestic visitors to the Lowcountry and Resort Islands originate in South Carolina. The state's relatively small population and low average per capita income are a disadvantage when compared to similar tourism destinations with larger, more affluent home markets.

By and large, the Lowcountry attracts high-end tourism consumers. Local retail outlets and the hospitality sector cater to these tourists. Having been introduced to the Lowcountry while on vacation or a business conference, some tourists decide to relocate to the area.

The number of retirement communities has rapidly grown in the last decade, and the interplay between tourists and residents continues to evolve as the region settles into its new demographic mix. New restaurants have opened to appeal to more sophisticated palates. The Beaufort County Symphony is another case in point. The local demand in Savannah, Georgia, can no longer support a full-time symphony (it folded in 2003 due to financial difficulty), whereas Beaufort County's local demand for refined music is strong enough to do so.

Demand conditions also focus on the role of local government. Authorities in the Lowcountry are playing a key role in this area. Regional, county, and municipal governments are focused on Grafting policies that effectively target growth while protecting local amenities. Policy examples include the Bridge to Beach Redevelopment Plan, beach renourishment, master plans for sewer and water systems, and highway maintenance. The Bridge to Beach Redevelopment Plan, for instance, aims to strengthen the viability of long-term private investment by upgrading older structures to meet current environmental and smart growth standards.

Residents and tourists alike will benefit. Not only do such activities protect the current amenities, but they also encourage positive urban planning efforts.

Related and Supporting Industries

The third component of Porter's diamond framework examines the vigor of the tourism cluster's related and supporting industries. Most of the linkages within the tourism cluster are industry-based. Linkages exist between traditional players in the tourism industry: travel services, accommodations, eating and drinking establishments, recreation and entertainment venues, and tourismrelated retail outlets.

The grid above ranks industries by their dependence on tourism. The industries in the lower tiers are the supply chain for the industries in the top tiers. In regions with a high concentration of tourism, such as the Lowcountry and Resort Islands, there would be greater dependency on tourism in all tiers than is shown here. Further research is needed to do similar analyses at the regional level.

Strategy, Structure, and Rivalry

The final component of Porter's diamond framework examines the nature of firm strategy, structure, and rivalry among members. There are three attributes to examine when evaluating this diamond element: marketing, competition, and the climate for investment.

Marketing is the engine that drives the tourism cluster. There are a variety of marketing efforts under way throughout the state. Participants from the local, regional, and state levels collaborate in what could be called a promotion triangle.

Chambers of commerce and local tourism promotion offices strive to position their areas. Regional tourism offices, such as the Lowcountry and Resort Island Tourism Commission, market the region to tourists, potential residents, and business owners. The S.C. Department of Parks, Recreation and Tourism has a state marketing program, an economic and community development program, and a research office dedicated to the travel and tourism industry in the state.

Firms often think of competition, the second attribute, in terms of rivalry. In the S.C. Competitiveness Initiative, however, the Monitor Group asserted that intense local competition was an advantage for the tourism business environment. As the intensity of competition increases, firms seek strategies that allow them to differentiate themselves from the herd. How well the Lowcountry distinguishes itself from other southern coastal areas determines the region's competitiveness.

The third dimension of this diamond element is the climate for investment. Overall, the macroeconomic environment, microeconomic factors, and political stability of the region are positive for investment. Though the property tax in South Carolina is slightly higher than the national average, sales tax and income tax rates are lower than in other states. Finally, South Carolina is an "at will" state, making it an attractive location for firms that have struggled to manage their operations while working with labor unions.

Growth Potential of the Lowcountry Tourism Cluster

There are three potential strategies the tourism industry can employ to encourage cluster growth in the region. First, they can expand their cluster membership to include additional industries along the supply chain. second, they can expand the cluster location to include the Georgia Sea Islands. Third, they can nurture the area's amenities, protecting what can be described as the Lowcountry "cash cows" through smart growth planning strategies.

Cluster Expansion

Cluster membership could evolve into a myriad of forms. Retirement communities are plausible candidates because their potential audience overlaps that of the tourism cluster audience. Transportation providers are also candidates. While most tourists travel to the Lowcountry via automobile or through the Savannah/Hilton Head International Airport, the regional airport at Hilton Head operates a modest business supporting travel and commercial air traffic. The Beaufort County Council has approved an airport study that will determine whether the airport expands or exists at all. It may better serve the community if it is developed into a tourism-driven facility.

Cluster Location

Cluster location expansion could enlarge the Lowcountry region into Georgia, incorporating the Georgia Sea Islands, perhaps reaching as far as Savannah. The areas share similar ecosystem and historical characteristics. Of course, such expansion would need to address a host of political issues dealing with marketing strategies, tax revenue usage, and infrastructure investment. The possible economic benefit, however, could provide both states with additional income. Tourists may extend the duration of their visits, which in turn would generate greater revenues. Savvy promotions could bundle product and service offerings to induce greater spending per tourist.

Figures on Georgia's and South Carolina's tourism revenue by county reveal concentrated pockets of revenue along the Atlantic coast. Beaufort County captured $733.2 million in domestic visitor expenditures in 2002. Chatham County, which borders South Carolina's Jasper County, captured $747.8 million from tourists that year.

A survey by the Georgia Tourism Association in 2001 revealed that visitors view Georgia as having a family atmosphere, offering many sporting and recreational activities, being a great place for sightseeing, and having a unique Southern culture. South Carolina promotes the same attributes in its direct marketing campaigns. Perhaps a program to encourage tourists in either state to visit the other state would expand the amount of tourism revenue that both capture.

Protection of Natural Amenities

The Lowcountry must protect its natural amenities to continue attracting tourists and maintain the high quality of life that attracts new residents.

The recent surge in year-round residents over the last decade has placed tremendous pressures on the area. Local governments face rising costs associated with increased demand on infrastructure and road traffic. To maintain local services, county governments have levied local option sales taxes. The sales tax burden is estimated to fall 60 percent on tourists and 40 percent on residents in the region.

As property values increase faster than wages, Lowcountry residents have struggled to pay higher property taxes, as well. While the housing market and the related value chain of support services generate jobs and tax revenue, area leaders need to carefully weigh the benefits of such growth against the risks it poses to the tourism cluster.

Unchecked expansion also creates problems. "Smart growth" is a response to unchecked urban expansion. The term "smart growth" describes a holistic strategy to foster a balance of economic viability and environmental sensitivity with community livability. In 2002, a graduate student at the University of South Carolina assessed the rampant growth in Beaufort County between 1990 and 2000 using spatial data in a Geographical Information System model. He categorized a number of variables into three components: economic, environmental, and cultural.

The economic component surveyed existing infrastructure, such as sewer lines, water lines, and roads, and evaluated them by costs and distance grids. The environmental component categorized land area based on development potential. Land was measured along a scale from agriculture to forest to wetland. Lastly, the cultural component surveyed hospitals, libraries, public schools, and places for worship based on the need for such services by year-round residents.

The study concluded the majority of population growth and new housing units were not in areas categorized as highly suitable for development. Additionally, there were several instances of significant growth in areas designated as having no growth potential.

Conclusion

Few people were surprised when the S.C. Competitiveness Initiative identified tourism as a major cluster in the state. But does the Lowcountry have the right kind of assets to maintain a competitive tourism cluster? This analysis indicates the assets are there but need to be carefully managed to ensure economic prosperity.

Factor conditions indicate that the local infrastructure remains a crucial component in attracting tourists. Adequate beach renourishment and land conservation efforts are essential for protecting the Lowcountry's natural assets longterm. While local demand conditions may have been relatively weak in the past, recent population growth has had a positive impact. In particular, the large number of affluent retirees has dramatically stimulated new businesses, including a number of upscale restaurants, retail venues, and a locally supported symphony.

Overall, the tourism cluster has pursued effective promotional strategies. The cluster, however, must continue to differentiate the Lowcountry from neighboring rivals. Inspecting the related and supporting industries showed that the tourism cluster could strengthen ties to its supplier base.

The tourism cluster can pursue a number of strategies to foster economic growth. Based on this analysis, smart growth principles emerge as the strongest option. They alone support current expansion pressure while nurturing the Lowcountry's amenities and protecting these assets for the future.

There are few places where 300-year-old live oaks thrive alongside retail shopping venues. The ultimate success of the tourism cluster depends on how well the region balances growth with the need to protect what is unique to the Lowcountry.