ase Study
Egyptian innovation: the growing charm of Egypt’s Sharm
Background: building
the business Sharm el-Sheikh lies at the southern tip of Egypt’s Sinai Desert. It has become a major tourist destination in the Middle East with a large, modern airport, a wide range of hotels and tourist attractions, especially those associated with water sports and scuba diving. But it did not happen overnight.
When the Israelis took over the Sinai Desert after the 1967 war, they had the imagination to see that Sharm could be more than just a fishing village: it had tourist potential. They built the first small hotels, a seafront promenade and a marina. But it was only after the whole Sinai peninsula was handed back to the Egyptian nation in 1982 that Sharm el-Sheikh began to expand. It was not easy for developing nations like Egypt to undertake such a task. There was little infrastructure for large-scale tourism and few people trained in all the services required to operate modern hotels and resorts such as cooks, cleaners, waiters and managers. Nevertheless, international companies were encouraged to invest in the area because of support from the Egyptian government and because they could see the potential demand in the area.
Changing demand for Egyptian tourism
For hundreds of years, tourists have come from around the world to see Egypt’s historic sites: the pyramids, the temples and the Nile itself. Egypt actually has around one-third of all the world’s ancient monuments still preserved. Tourism became one of the major contributors to the Egyptian economy. The strategic problem for the country was two-fold. First, many tourists visit foreign countries for the sun and sea rather than history: Egyptian antiquities simply did not meet this demand. Second, there was some evidence of flattening demand for ancient Egyptian history possibly because many other historic sites were becoming accessible around the world. The expansion of Sharm el-Sheikh as a leisure tourist destination was one answer to this changing and unmet demand.
Developing Sharm
From a strategy viewpoint, Sharm had the benefit from the start of its development of year-round sun, calm seas, good swimming and sandy beaches. But there were other resorts with similar attributes so that this was not a competitive advantage. However, Sharm was different because it also had coral reefs suitable for snorkelling and scuba diving. It was also largely undeveloped so it had clear space for new marinas and large hotels and an international airport. Hotel and resort companies like Marriott, Accor, Four Seasons and Le Meridien then invested in the area. The Egyptian government developed a major conference centre, road infrastructure and a new airport. A new marina and golf courses were also built. The scuba diving demand was supported by the construction of a full medical centre for diving related illnesses. At the same time, an area of 600 square kilometres was designated as a protected area of coral reefs, sand dunes and wildlife. Over the next few years, there were setbacks. Sharm was hit by a series of terror attacks in 2005 aimed at the tourist industry with over 80 people being killed. However, the attack was never repeated as a result of greatly increased security in the area. In 2010, five people were attacked by a shark off the coast of Sharm with one fatality. In 2011, there was substantial political change in Egypt, though at the time of writing this case it appeared to have a limited impact on Sharm. More generally, the area was able to bounce back from its difficulties.
The government was so encouraged by its strategy that it was supporting developments further north in Sinai, in towns like Dahab and even in selected parts of the Sinai Desert itself. This was all part of the government’s national tourist strategy to increase Egyptian visitor numbers from 12 million in 2008 to 30 million in 2020: an ambitious target by any standards. But travel innovation in Sharm el-Sheikh had shown the way: it had started with 20,000 annual visitors in the mid-1980s building up to 5 million in 2010.
Case questions
1 To what extent did the Egyptian government need to acquire new knowledge and new technology? How did it undertake this task?
2 Given the dramatic increase in visitors to Sharm el-Sheikh over 20 years, does this mean that it was an innovative development? What makes it innovative? And, if it was not innovative, why?
3 To what extent is government support needed in new developments like Sharm el-Sheikh? Are they essential or merely desirable? Should governments take the lead or merely respond to initiatives taken by private developers?