Tourism Planning and Development - Assessment 1

0594617 Tourism Planning and Development

Critical investigation and discussion behind the case of the Guggenheim Museum Bilbao as a strategy for urban regeneration

1. Discuss the economic history of Bilbao. How did historic events lead to the need for urban regeneration, and which general management framework inspired the regeneration plan?

The induction to the most notable development of the Bilbao economy began at the

tide of the Industrial Revolution in the second half of the 18th th century. The economy

within Bilbao during this period revolved primarily around mining of iron ore,

production of steel which was predominantly used in metallurgy and shipbuilding

(Gomez, 1998). In addition, the Industrial Revolution augmented trade between

Spain and Britain in the second half of the 19th century, who demanded a significant

amount of iron ore from Spain as the purity and ease of extraction of iron ore in

Bilbao was considerably higher than that of ore mined in Britain (Gomez, 1998). The

mining of iron ore within Bilbao and the city’s proximity to the Nervion River, made

Bilbao the focal point for trade and foreign investment from Britain and other

European countries which contributed towards further development of the city,

particularly in building railways and improving roads. This resulted in the Vizcaya

region becoming the most vitalised part of Spain as it came the greatest populated

Spanish region with the largest railway and largest number of registered ships which

not only assisted with trade but also in intensifying further economic development

within Bilbao (Gomez, 1998). Industrialisation flourished within Bilbao until 1939

when a change in political power begun. A general and dictator by the name of

Francisco Franco started the Spanish Civil War when he led a coup with other

military leaders against the Republican government to seize most of the western half

of Spain and began transporting troops to the mainland which led to the war. During

the Spanish Civil War, using the support of Nazi Germany and Fascist Italy, Franco

eventually overthrew the entire Republican government and assumed power as the

head of state (Burgos, 2016). With the Spanish Civil War and Franco assuming

political power of Spain, the economic development of Bilbao begun to suffer. Firstly,

the war was costly which crippled Spain financially and secondly, Franco introduced

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protectionist government policies which placed significant strain on trade with outside

nations due to embargos which forced the Spanish economy to become self-

sufficient and brought Bilbao Industrialisation sector to a stagnant halt (Gomez,

1998). This started a chain of events which led to numerous economic/social

problems from the 1970s in Bilbao which would eventually lead to the need for urban

regeneration within the city.

During the 1950’s till the mid-1970s there was a significant permanent increase in

the number of job available within the industrial sector and the Vizcaya region of

Spain was at an extremely low unemployment rate of only 3.5% by the point when it

reached 1975. However, by this stage the expansion of the Spanish economy had

almost met its pinnacle and it became apparent that the industrialisation levels of

steel were not going to be enough to satisfy Spanish demand in order to prepare for

the impending world economic crisis (Gomez, 1998). In 1975, the global economic

recession stuck Spain abruptly. Traditional industries began to become obsolete and

the unemployment rate rose to an all-time high of almost 25%. In addition, after the

death of Franco in 1975 and end of the dictatorship and municipal authorities

changed hands, the whole provincial economic collapsed due to severe

deindustrialization. Other problems included extensive traffic congestion within the

Bilbao city centre, urban dilapidation, high levels of pollution and a poor public transit

system (Plaza, 2008). These issues were handled by actualizing a substantial

reasonable public policy focused at profitability and diversity with a solid cultural

segment. Monetary and key redevelopment was joined with the regional

regeneration. A new subway system was constructed and improved sanitation

systems were developed. New infrastructure to suit residential, leisure and business

purposes was built as were new sea and riverfronts (Plaza, 2008). A seaport and

technological and industrially advanced parks were built away from the CBD.

However, the economic deciding factor was the development of the Guggenheim-

Bilbao Museum (GHB) in the 1990s and extra social ventures, for example, a concert

hall and centre for young musicians, in order to create public awareness of art and

culture in relation to tourism as a method for expanding the economy and

diminishing unemployment levels (Plaza, 2008).

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2. Critically analyse the contribution of the Guggenheim Museum to the regional Bilbao economy. What has been the immediate and indirect effect of the museum and which critical success factors can help to explain these effects?

The GHB first opened its doors to the public on the 16th October 1997 and initially

cost €166 million to build. As of 2008 the museum currently attracts on average

800,000 non local tourists annually which is compared to only 100,000 foreign

tourists visiting Bilbao prior to the opening of the GHB (Plaza, 2008). The immediate

effects resulting in increased tourism numbers to Bilbao can be reflected in a graph

as seen below (Plaza, 2000).

(Plaza, 2000)

The above graph depicts the flow of incoming tourists visiting the Bilbao region

between January 1995 and August 1998 as well as whether they are Spanish or

Foreign visitors. The increase in tourist numbers is certainly much more than merely

a display of incremental growth as not tourism numbers increased rapidly but also

over a very short period of time. In addition, as this increase occurred directly after

the construction and opening of the GHB, it is safe to say this attraction is the

primary motivator for tourism travel to this region. There has been an increase of

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43% of foreign travellers per month and an increase of 20.4% in the domestic market

(Plaza, 2000). Another impact to consider is the significant increase in

accommodation overnight stays by tourists in the Basque Country whose primary

purpose is to visit the GHB. The graph below measures the trend of overnight stays

prior to the construction of the museum in January 1996 up until December 2004.

The data has been seasonally adjusted accordingly (Plaza, 2006).

(Plaza, 2006)

As found prior with international and domestic visitors in general, since the inception

of the GMB into the Bilbao economy, there has definitely been a boom in overnight

stays by tourists within the local area. There has been a rise of 61, 742 overnight

stays per month which is equivalent to 740,904 annually. According to further data

researched by Plaza (2006), the number of visitors on average to the GMB each

month is 82,580 with 66,064 of these (80%) being from outside of the local region.

The other primary purpose of the GMB besides from a cultural basis is to generate

economic revenue both from on private and public scale (Plaza, 2006). With the

primary industry of Bilbao being focused within the industrial sector until the 1970s,

this meant with the recession after this time resulted in the economic structure within

Bilbao at the time collapsing and the loss of almost 25% of jobs within the previous

primary industry. This meant that one of the important aims of the GHB was to fill job

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gaps within the high level of unemployment due to the recession and other economic

factors. The first graph below shows the number of people employed full time within

the service sector in the province of Biscay from 1976 (just after the recession) up

until 2004. The other graph depicts the number of people employed within the hotel

sector in the province of Biscay from 1992 until 2004 (Plaza, 2006).

(Plaza, 2006)

(Plaza, 2006)

Looking at the two graphs there is visibly a direct correlation between the substantial

increase in people employed in the service industry and more specifically within the

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hotel sector. In addition, the increase in tourists wanting to stay overnight within the

region since the construction of the GHB falls in line with the number of people

employed within hotels in the area. This could viably be due to the fact as the tourist

visitor numbers increase so did the demand for available accommodation within the

area which led to the development of more accommodation infrastructure to meet

the high demand and in turn this led to high numbers of jobs within the hotel sector

becoming available within the area. According to Plaza (2006), the creation of

employment within the service sector grew by an average of 709 jobs, annually

between 1976 and 1997 as Bilbao transitioned from an industrial industry into a

service industry. After the creation of the GHB, the average jobs within the service

industry grew to 771 annually between 1997 and 2004. This pattern can be analysed

as due of the result of the opening of the GHB, the generation of 907 full time jobs

arose. Additionally, Greffe (2004) as cited in Plaza (2006) states that a method has

been formulated which determines for every 10,000 visitors, this creates 1.15 direct

jobs (within the museum itself) and every direct job creates 0.62 indirect jobs such as

in the fields of architecture, conservation and restoration. Furthermore, this leads to

3.84 induced jobs and 2.59 jobs within the tourism industry in general. Therefore, it

can be ascertained that 900,000 visitors, which is the increase of tourists between

1998 and 2004 (Plaza, 2006), would generate 834 new jobs in total.

The final impact to assess is the GHB’s return in investment in relation to revenue.

As initially mentioned, €166 million was the amount required to build the project, with

€126.5 million of this amount coming from the Basque Public Treasuries which is

money primary sourced from the public sector, which is safe to say is one of the

reasons outlining the critics objections behind ‘squandering so much public money

on something so irrelevant and exclusive’ (Plaza, 2008). The two important avenues

to consider within a project of this size is whether the Public Treasuries are going to

recover the investment and whether the predicted/expected revenue generated by

the GHB would be high enough to validate the initial investment. Additionally, even

more importantly the private sector needs to review how long this recovery of

investment would take. According to the GHB’s official report, the original investment

had already been recovered within the first 6 years (Plaza, 2008). However,

according to Plaza (2008), this return may not be completely accurate as the cash

flows within the report do not include both the operational costs and the investment

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amounts into new art within the museum. Additionally, as positive and negative

revenue streams much be discounted for the whole 20 years within the contract

between the Guggenheim Foundation New York and GHB which is not displayed

within the 2004 report. This leads to the conclusion that although it is clear the

investment will be regained within nine years after opening, the more accurate

figures within the report should factor in continual investment payments and include

the 8% discounted rate between the two contract parties involved (Plaza, 2006).

In order for a large heritage investment to be effective there are four key variables

which need to be met, these are also known as critical success factors (CSF). A

common mistake which destinations make is to use foreign benchmarks in order to

decide on the specifics within the attractions they decide to develop within the

destination. Although this sometimes can work, a proper marketing assessment of

that destination should be carried out first rather than using the assumption that the

same type of attraction will attract the same numbers of visitors than in a different

location or for that matter be as profitable or beneficial to the public (Plaza, 2008). A

prime example of this is the UK attempting to emulate the success of the GHB

attraction within Sheffield with the construction of the National Centre for Popular

Music, predicting the attraction would attract 400,000 visitors a year. Seven months

after opening only just over 100,000 people visited and the attraction went bankrupt

in the same year it opened (Plaza, 2008). The key four CSF’s are identified as

followed.

The first CSF is commonly identified within heritage investments. It explains that an

investment of this nature will only become effective in terms of creating new job

opportunities to the extent of how many visitors that attraction is bringing in. This

factor was definitely met by the GHB as both direct and indirect work opportunities

within the local area began to boom, merely months within the GHB opening its

doors which led to the attraction becoming an effective economic re-activator (Plaza,

2008). The second condition is to not only rely on the attraction on its own to be

effective. The destination’s economy needs to be diversified in order to create other

secondary attractions, accommodation, public transport infrastructure and such

investments which support each other in order to make the primary attraction more

effective in the short and long run. Bilbao was fortunate within this instance as the

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Basque industry previously traditionally had a more auxiliary character. This meant

with all the assistance the city received following the recession allowed extensive

development to be carried out with key contributing factors which help lead to the

GHB’s success including waterfront development, construction of parks, railway

development and construction of secondary cultural attractions such as the concert

hall for young artists (Plaza, 2008). The third CSF discussed is the level of

integration of the development zones’ markets. This means that in order for a key

attraction to be effective, the key target market(s) for that attraction should be

constructively merged with the markets of other industries within the destination. In

the case of Bilbao, although the GHB had been economically beneficial to the region,

at the present time only around 27% of business received by tourism facilities is from

the tourism industry whereas, Bilbao is primarily a city visited for non-tourist

purposes, generally business travellers (Plaza, 2008). However, this integration of

the two key markets within Bilbao are both beneficial to each other as they support

each other from a seasonal basis. The business travellers tend to visit mostly during

the weekdays in autumn, winter and spring whereas, the cultural and leisure tourists

usually travel during the weekends and summer months. This means the economy

within Bilbao is extremely manageable and sustainable as is its development (Plaza,

2008). Finally, the fourth fundamental CSF for a cultural or heritage type attraction to

be effective is the synergy between urban regeneration and productivity-related

policies. Both policies can be quite different but must work together in order to

overcome possible negative effects caused by urban regeneration. Urban

regeneration can sometimes have negative ramifications such as substantial land

increases, public tax inflation and reduction of competitive advantages. In order to

combat such potential problems production and urban regeneration within a

destination should go hand in hand. This means the more productive the economy is

overall, the less noticeable problems caused by urbanisation become. Subsidy by

private sectors will keep public taxation down and stabilize land value, increase

efficiency in human capital and increase competiveness. Fortunately for Bilbao, the

region it falls within is ranks number one in productivity within all Spanish regions

(Plaza, 2008).

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3. Based on the identified critical success factors, would you consider Auckland to benefit from a Guggenheim-like investment?

Auckland is currently the most visited destination within New Zealand which receives

approximately 72% of all visitors to the country on an annual basis with Australia and

China being its primary international markets and secondary international markets

include the United States, Japan and South East Asia. Emerging international

markets include Indonesia and South America, primarily due to increased flight

connectivity (Auckland Tourism, Events and Economic Development Ltd, 2014).

Auckland is arguably the most urban tourism developed destination within New

Zealand (possibly next to Wellington) which makes this a key contributor to its variety

of different types of tourist attractions and activities Auckland has to offer visitors. As

developed a tourism destination Auckland is, the question to ask is would the city

actually benefit from a Guggenheim-like investment. As discussed prior, there are

key contributing CSF’s which should be met by any heritage type attractions in a

destination, and in the case of the GHB were all met which inevitably led to the

success of the attraction. However, does Auckland meet all these CSF’s?

The first factor to consider is would an investment of this magnitude create enough

direct and indirect job opportunities within Auckland in order to support the number of

visitors the attraction would receive. The first thing to look at is the level of

unemployment within Auckland and the key industry demand sectors. As of August

2015, the unemployment rate in Auckland sat at just above 6% with South Auckland

having a significantly higher unemployment rate compared to the rest of Auckland

and New Zealand, almost double the averages in other areas. Furthermore, these

tend to be mostly younger individuals who are poorly educated and are primarily

Maori or Pacific Islander (Ministry of Business, Innovation and Employment, 2015).

As a majority of employment would have to come from this region of Auckland it is

highly unlikely these unemployed would be able to fit the attributes required to work

in a heritage attraction such as an art museum. However, the distinct advantage this

majority group does have is the cultural element which is quite unique to New

Zealand. If the heritage attraction incorporated this culture into the architecture,

featured exhibits and other such features of the attraction, then this could create

unique employment opportunities for this majority unemployed demographic.

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The second CSF so consider, is does Auckland have enough secondary attractions

and/or tourism related infrastructure to support the investment of such an iconic

heritage attraction and if not what would else would need to be developed? In the

instance of Auckland, the flagship city contains a variety of different both primary and

secondary attractions as well as extensive network of both accommodation and

public transport options with more current and planned developments within these

sectors to take place. However, although these can be seen as a positive in regards

to tourism numbers, many of these features could work against such a heritage

investment. First of all, Auckland currently has approximately 20 different art

galleries/museums of notice which means with the sheer number of attractions

similar to that of the proposed attraction could limit the demand for such an

investment which may result in greatly reduced estimated visitor numbers.

Alternatively, this could work in the opposite manner with the new heritage attraction

stealing visitor numbers from the surrounding competition resulting in their

bankruptcy. In addition, it also raises the question of where such a large heritage

attraction would be built as there is little space to build such a large heritage

attraction within the CBD from scratch as most likely the museum would need to be

built on top of an existed site or as an extension of an existing attraction such as the

Auckland Memorial Museum.

The third factor to consider is could the development of a heritage attraction merge

harmoniously with other markets outside of the tourism industry. Initially the

attraction would need to be supported by the construction and tradespeople industry

which would be quite beneficial to employment within Auckland as in December

2015 it was found within Auckland construction had the strongest growth in number

of people employed (Ministry of Business, Innovation and Employment, 2015).

Additionally, the museum would be able to work in synergy with the arts and media

industry, both in the art work and exhibits the attraction provides and in the

marketing and promotion of the attraction itself, both on a domestic and international

scale. Investments and accounting services within the attraction would also involve

the finance and business sectors and employment within the attraction may be

sourced externally through universities and educational institutes which means that

industry may also be part of the development process.

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The final success factor to evaluate is the synergy between the public and private

policy with the development with such a large scale economic heritage investment.

An important point to consider is how much money would the creation of such a

heritage investment cost and more importantly where would the investment(s) for the

project come from? Auckland’s prominent public art gallery initially cost $121 million

to develop which was funded by a mix of central government and public/private

trusts (Clark, 2008). Since the gallery has opened until now, almost double that

amount has been invested within the gallery, mostly from the government. However,

this was back in 1888 and investments into such projects today are follow a different

pattern than over a century ago. Public and private partnerships are very important

today as the policy ideals of both parties need to fall in line with one another in order

for an attraction which both parties are key stakeholders within to be able to

smoothly develop. Furthermore, art galleries, particularly of this magnitude have a

huge range of external and internal investors to consider, especially in regards to art

exhibits who need to be convinced why they should display their work within that

particular museum and not another.

To conclude, it is extremely unlikely looking at Auckland as a tourist destination that

it would actually benefit from a Guggenheim-like investment. Although there is a

market segment within the tourism sector who are interested in such attractions, it is

not on large enough scale in order for a new such heritage attraction to be

sustainable at this period of time. According to statistics found by Lawton and Page

(2016), currently 44% of tourism attractions promoted within Auckland are outdoor

activities and 25% of attractions are adventure activities, neither of which fit within

this type of attraction. Only 8% of tourism attraction/activities within Auckland are

within the museum/gallery category which means it would be unlikely Auckland

would benefit at this time from such a heritage attraction, especially with the current

competition in the tourism market. Furthermore, one of the key contributors to the

GHB’s success was its location as Bilbao sits right in amongst an array of European

neighbours which contribute to the numbers visiting the Guggenheim. Although quite

accessible to the rest of the world, New Zealand sits quite a distance from the

tourism markets who would be interested in such an attraction and certainly

international visitors would not travel all the way to Auckland, New Zealand just to

see an art museum so the attraction would primarily need to focus on promoting to

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the domestic tourism market. In order for such a heritage attraction to be viably

sustainable it would need to feature multiple unique selling points and incorporate

other attraction elements to cater to a diverse array of tourist demands which set the

attraction well apart from the competition.

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References

Auckland Tourism, Events and Economic Development Ltd. (2014). Tourism Sector -

Bold plans for a thriving industry. Retrieved from Auckland Tourism website:

http://www.aucklandnz.com/invest/tourism-sector

Burgos, C. H. (2016). The Triumph of ‘Normality', Social Attitudes, Popular Opinion

and the Construction of the Franco Regime in Post-War Rural Spain (1936-

1952). European History Quarterly , 46(2), 291-310.

doi:10.1177/0265691416631900

Clark, H. (2008, March 6). Announcement of Funding for Auckland Art Gallery

Redevelopment. Retrieved from The official website of the New Zealand

Government: https://www.beehive.govt.nz/speech/announcement-funding-

auckland-art-gallery-redevelopment

Gomez, M. V. (1998). Reflective Images: The Case of Urban Regeneration in

Glasgow and Bilbao. International Journal of Urban and Regional Research,

22(1), 106-121. doi:10.1111/1468-2427.00126

Lawton, G.R., & Page, S. J. (1997). Analysing the Promotion, Product and Visitor

Expectations of Urban Tourism: Auckland, New Zealand as a Case Study.

Journal of Travel & Tourism Marketing, 6(3-4), 123-142.

doi:10.1300/J073v06n03_08

Ministry of Business, Inovation and Employment. (2015). Quarterly Labour Market

Report. Wellington: New Zealand Government . Retrieved from

http://www.mbie.govt.nz/info-services/employment-skills/labour-market-

reports/labour-market-analysis/labour-market-report/document-image-library/

quarterly-labour-market-report-aug-2015.pdf

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Plaza, B. (1999). The Guggenheim-Bilbao Museum Effect: A Reply to Maria V.

Gomez' 'Reflective Images: The Case of Urban Regeneration in Glasgow and

Bilbao'. International Journal of Urban and Regional Research, 23(3), 589-

592. doi:10.1111/1468-2427.00215

Plaza, B. (2006). The Return on Investment of the Guggenheim Museum Bilbao.

International Journal of Urban and Regional Research, 30(2), 452-467.

doi:10.1111/j.1468-2427.2006.00672.x

Plaza, B. (2008). On Some Challenges and Conditions for the Guggenheim Museum

Bilbao to be an Effective Economic Re-activator. International Journal of

Urban and Regional Research, 32(2), 506-517. doi:10.1111/j.1468-

2427.2008.00796.x

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Tourism Planning and Development - Assessment 1