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Potential reduction of corporate travel expenditures

How the efficient use of travel management tools support micro, small, and medium sized enterprises in reducing corporate travel expenditures

Bachelor Thesis 2009 99 Pages

Tourism

Excerpt

Table of contents

ABSTRACT

LIST OF TABLES

LIST OF FIGURES

LIST OF ABBREVIATIONS

1. Thesis Introduction
1.1. Introduction
1.2. Objects
1.3. Dissertation Structure

2. Business Travel
2.1. Definition of Business Travel
2.2. Current Market Overview of the Business Travel Market
2.3. Historic Development and Trends in Business Travel
2.4. Specialties of Business Travel in Small and Medium Sized Enterprises
2.4.1. Definition of Small and Medium Sized Enterprises
2.4.2. Corporate Travel Behavior in Small and Medium Sized Enterprises
2.4.3. Cost Structure

3. Travel Management
3.1. The Business Travel Management Process
3.1.1. Definition of Business Travel Management
3.1.2. Tasks and Objectives of Business Travel Management
3.1.3. Stages of the Business Travel Management Process
3.1.3.1. Pre-trip Process
3.1.3.2. On-Trip Process
3.1.3.3. Post-Trip Process
3.1.4. Positioning of Business Travel Management in Companies
3.2. Business Travel Management Tools
3.2.1 Corporate Credit Card
3.2.2. Travel Policy
3.2.3. Online Booking Engine
3.2.4. Travel Agency
3.3. Business Travel Management Tools for Small and Medium Sized Enterprises

4. Research Methodology
4.1. Research Question
4.2. Hypothesis
4.3. Research Design
4.4. Data Collection Method
4.4.1. Secondary Data
4.4.2. Primary Data
4.5. Sampling Procedure
4.6. Questionnaire Design and Layout
4.7. Data Analysis
4.8. Research Problems and Limitations

5. Research Results and Analysis
5.1. Facts and Figures
5.1.1. Response Rate
5.1.2. Characteristics of the Respondents
5.1.2.1. Industries
5.1.2.2. Headcount
5.1.2.3. Annual Turnover
5.1.2.4. Annual Travel Expenditures
5.2. Micro, Small, and Medium-sized Enterprises applying Business Travel Management Tools

5.3. Reduction of Travel Expenditure

6. Summary of Findings and Suggestions

List of References

Appendices

ABSTRACT

This bachelor thesis is concerned with the cost reduction potential of travel management tools with regard to business travel expenditures in micro, small, and medium-sized enterprises. For this purpose, primary research in the form of a questionnaire was conducted. The results, which are presented at the end of the thesis, reveal that travel management tools are on the spot for micro, small and medium-sized enterprises but by far not as much that one could say the market is saturated, since 29 percent of the companies are currently applying travel management tools, but more than half of them have not yet thought about the matter. The findings also show that corporate credit cards and online booking engines are by far the most popular tools and that travel policies and online booking engines are the most efficient tools for micro, small, and medium-sized enterprises with respect to their corresponding cost saving potential.

Keywords: Small and medium-sized enterprises; Travel management tools;
Business travel; Cost reduction

LIST OF TABLES

Table 1: Categories of enterprises by the EU

Table 2: Companies deploying Travel Management Tools

Table 3: Deployed Travel Management Tools

LIST OF FIGURES

Figure 1: Business Travel Sectors

Figure 2: Travel Expenditures per Day 2002-2007

Figure 3: Who makes travel arrangements in SMEs and how long does it take in average?

Figure 4: Business travel cost distribution

Figure 5: Objectives of Participants

Figure 6: Tasks and Objectives of Business Travel Management

Figure 7: Tasks of a Travel Agency from the Business Clients' Point of View

Figure 8: Sources of primary data collection

Figure 9: Classification of Sampling Methods

Figure 10: Response rates

Figure 11: Industries of responded Companies

Figure 12: Headcount of responded Companies

Figure 13: Annual Turnover of responded Companies

Figure 14: Relation between Headcount and Annual Turnover

Figure 15: Annual Business Travel Expenditures of the respondents

Figure 16: Application of Travel Management Tools with respect to Company Sizes

Figure 17: Average Range of Travel Expenditure Reduction of the Travel Management Tools

LIST OF ABBREVIATIONS

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1. Thesis Introduction

1.1. Introduction

As commonly known, business travel is more and more increasing. Besides large, international operating companies, today globalization forces micro, small, and medium-sized enterprises to increase their business travel as well. Along with the mounting number of business travel, the management of that travel becomes increasingly important.

According to the ‘Geschäftsreiseanalyse 2008’, published by the Verband Deutsches Reisemanagement e.V. (VDR), small and medium sized enterprises in Germany had average travel expenditures of EUR 118,000 in 2007. Even if this is a rather small amount, SMEs generated EUR 39.1 billion of travel expenditures.[1] This corresponds to 80.3 percent of the overall travel expenditures of the entire market. These figures let assume that there should be great cost reduction potential for the SMEs on the one hand and a highly economic market for providers of business travel management tools on the other hand. SMEs are considered as a target group which is hard to attract but once acquired as a customer, they are said to be highly loyal and therefore ensure constant revenues for the business travel industry.[2]

Although travel management companies (TMCs), especially the big business travel agencies, have already increased the offer for SMEs, there are no adequate studies about the portion of SMEs currently applying travel management tools. The same is true for the actual saving potential of these tools with regard to business travel expenditures. Another interesting question would be, if there are certain tools which are especially popular among SMEs.

These unanswered questions were the reason for a detailed examination of the topic and the conduction of an intense research. The next paragraph will provide greater details about the objectives of this thesis that have been defined by the author and which will be achieved by the conducted research.

1.2. Objects

The overall aim of this thesis is to find out, what portion of micro, small, and medium-sized enterprises deploy travel management tools and in how far these tools help to reduce business travel expenditures. In order to specify this general aim, the author has developed the following six objectives for this thesis:

1. To review existing literature on business travel and business travel management tools to provide necessary context for the study.
2. To analyze secondary data with respect to existing definitions of small and medium sized enterprises.
3. To review existing studies dealing with the relation of small and medium sized enterprises and business travel management tools.
4. To conduct a survey of the correlation of micro, small, and medium sized enterprises and business travel management tools and their cost reduction potential.
5. To investigate the portion of micro, small, and medium sized enterprises currently applying business travel management tools and in how far these tools help to reduce business travel expenditures.
6. To outline and evaluate the findings of conducted primary and secondary research as well as develop recommendations for the use of business travel management tools in the SME sector.

1.3. Dissertation Structure

This bachelor thesis was created according to the guidelines written down in the ‘Thesis Handbook’ published by the International University of Applied Sciences (IUAS) Bad Honnef • Bonn. In this handbook from April 2009, the IUAS recommends that the main body of the thesis should consist out of the following components:

1. Introduction
2. Literature review
3. Research methods / Methodology
4. Research findings
5. Conclusion and recommendation / limitations[3]

The thesis structure, built up by the author, is based on these guidelines. The first chapter gives the reader an introduction in the research topic and defines the aims and objectives of this thesis. The introduction part is followed by literature review which provides the reader with crucial theoretical knowledge and acts as the basis for this research paper. Chapter two first of all defines business travel, gives an insight into the current market situation as well as the historic development and trends. Furthermore, it will deal with the definition of SMEs and their particularities concerning business travel. The third chapter deals with the definition of business travel management and the travel management process. The latter one includes tasks and objectives, stages, and the positioning of business travel management within companies. In addition, this chapter gives an overview of common travel management tools, in particular with respect to SMEs. As from chapter four, this thesis deals with the conducted primary research. Details about the research methodology are written down in chapter four. It provides information about every issue worth knowing, such as the hypothesis, research design, data collection method, sampling procedure, design of the questionnaire, and data analysis. In chapter five, the findings of conducted primary research are presented in numbers, words, and graphics. This chapter gives insights about the response rate, characteristics of the respondents, as well as the portion of micro, small, and medium-sized enterprises applying travel management tools and their actual cost reduction potential. Chapter six summaries the research findings and gives recommendations as well as a final conclusion of the bachelor thesis.

2. Business Travel

2.1. Definition of Business Travel

The author Gerald Espich wrote in his book ‘Business Travel-Management’ that business travel stays in contrast to leisure travel. While leisure travel is predominantly for recreation and amusement purposes, business travel is exclusively for business purposes and is generally of shorter duration but with highly experienced travelers. Business trips are often planned and conducted at short notice and occur on a frequent basis. Such trips are predominantly made by an individual travelling alone and the destination is usually fixed by the demands of the job, i.e. the place where the customer is based, where a problem occurred, or where the signing for a contract takes place.[4]

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Figure 1: Business Travel Sectors[5]

A business trip can have several reasons. On the one hand there is individual business travel for purposes such as preparation of business transactions, sales and presentations of products and services, consulting, or installation, maintenance, and repairing of products. In general, it can be said that individual business travel comprises all trips done by travelers whose employment requires them to travel in order to execute their work.[6] On the other hand there is the MICE travel which comprises all travel activities related to meetings, incentives, congresses, and events.[7]

A distinction between different travel motives is the approach of Walter Fryer. In the book ‘Geschäftsreise-Tourismus’, he states that in context of the classification of business and leisure travel, motives (enjoyment, recreation, or work), autonomy of travelling (self-determined or through others), as well as the date and the duration of the trip should be considered as main criterions for differentiation. Business trips are conducted during labor time and are counted as a duty of the job. Freyer defines business tourism as a work related translocation of short duration with one overnight stay as a minimum and without an overnight stay as business day-trips.[8]

In the book ‘SAP Travel Management’, the authors Ewald Brochausen, Markus Melzer, Marcus Thurner, and Hendrik Vordenbäumen describe business travel as advance payment or investment in the operative production process which can be assigned directly or indirectly to the operating output. As an illustration they give the example of an employee attending a seminar. The travel expenditures of that trip could be understood as an investment in the human capital of the company.[9]

Rob Davidson and Beulah Cope quote in their book ‘Business Travel’, the official definition of the United Nations World Tourism Organization (UNWTO). The UNWTO suggests that people travelling for business or professional purposes can also be considered as tourists.[10] Additionally, the authors identify all trips whose purpose is linked with the traveler’s employment or business interest as business travel.[11]

2.2. Current Market Overview of the Business Travel Market

In a globalizing world the business travel market is a steadily growing, major segment of the tourism industry and the global economy in general. In Germany, more than half a million jobs are related to business travel and every second Euro earned by German hotels is spent by a business traveler.[12]

According to the ‘VDR-Geschäftsreiseanalyse 2008’, conducted by the VDR in cooperation with BearingPoint, the number of business trips executed by German companies with ten or more employees, rose by 5.6 percent to 166.6 million from 2006 to 2007. The service sector is the most active branch, as far as business travel is concerned, with a share of 40 percent of all business trips. In the same year German companies had travel expenditures to the amount of EUR 48.7 billion. Both, the number of business trips and the travel expenditure are constantly increasing throughout the last years. From 2006 to 2007 the costs for business travel went up by 2.7 percent.

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Figure 2: Travel Expenditures per Day 2002-2007[13]

Concerning the duration of business travel, the study shows that after a continuous decline in recent years, 2007 is the first year in which the average length of a trip slightly increases to 2.3 days. Almost every fifth journey lasted four days or longer. The average costs per business trip decreased from EUR 325 in 2006 to EUR 316 in 2007. Hence, average travel expenditure for each business trip dropped by EUR 9. Especially against the background of raising general market prices, this is a remarkable development which can certainly be attributed to travel management and the adaption of specific tools for planning, booking, and steering of business travel. Unlike the costs per trip which are constantly decreasing for the last years, the business travel expenditures per person and day went down for the first time since 2004. A business traveler spent on average EUR 137 per day. This is more than twice as much as the daily expenditure of a leisure traveler in 2007.[14]

The number of overnight stays generated by German companies rose considerably in 2007 by 7 percent to a total of 55.6 million. One key reason for that development is the fact that China and the USA were both major business destinations in 2007, naturally leading to longer business trips.[15]

The Annual Report 2007, published by the German National Tourist Board (GNTB), claims that Germany has an 11 percent share of all international business trips and is consequently the number one destination in the world regarding trade fair travel and Europe’s most popular location for conferences and meetings. In Germany, EUR 10.8 billion of the EUR 63.3 billion revenue generated by business travel, including day trips, comes from the inbound tourism sector. Eighty-one percent of all business trips involving an overnight stay by German business travelers were done within Germany. The most frequently visited regions were Bavaria, with a 20 percent market share, followed by North Rhine-Westphalia with 15 percent and Baden-Württemberg accounting for 11 percent of the market. The average travel expenditure per domestic business trip, including at least one overnight stay, was EUR 538. Besides the domestic business travel, Germany was also visited by many foreigners. Within Europe, business travelers from Poland were the largest group with around 1.1 million business trips, followed by Switzerland and the UK. The USA was the most important source market outside Europe, with approximately 629,000 visits in 2007. As 28 percent of all non-domestic trips with at least one overnight stay are business related travel, business tourism has a more important role in Germany than in any other European country, where business trips as a whole just account for 15 percent of all non-domestic travel. In 2006, 9.7 million overnight stays in Germany were generated by foreign business travelers who spent an average of EUR 628 per trip. In terms of overnight stays, this was an increase of 16.3 percent; however, it has to be taken in consideration that the 2006 FIFA World Cup™ which took place in Germany fueled that number.[16]

Unfortunately, after six years in a row of consistent growth in the business travel industry, these boom times elapsed since autumn 2008.[17] Since that time the world economy is facing the worst crisis since Second World War. In these tough times several changes in business travel can be observed and even if business experts are fairly unsure about future development there are some emerging trends. What can be experienced in the last month is that companies are tremendously cutting down travel spending. A survey of the National Business Travel Association (NBTA) found out that “nearly 85 percent of 119 responding companies decreased travel spending since October 2008, and more than 70 percent expect continued decrease through 2009.”[18] Business trips, meetings, and congresses are traditionally the segment which is cut at first place in times of crisis.[19] According to an article written by Patrik W. Diemer, CEO of Lufthansa Airplus, companies booked in the first two month of 2009, 10 percent less overnight stays in hotels even though average hotel rates decreased.

However, the three main business travel markets Europe, USA, and Asia are reacting very differently to the worldwide recession. While companies in the US and in Asia are first of all shutting down business travel activities in general and then, as a second step, looking for cheaper airfares and hotel rates, travel manager in Europe favor the other way round. Instead of not travelling at all, they attempt to reduce travel expenditures by trying to book lower rates. Only 5 percent of European companies have cut back their business travel completely, compared to 20 percent in the US, and 25 percent in Asia.[20]

But a complete cut down of business travel is seen very critical by many experts. Norman Gage, Advantage’s director of business travel, said: “Firms would be committing corporate suicide if they stopped travelling now. It is during this difficult period that salesmen must be on the road selling their wares and the TMC is there to make sure they achieve that as cost-effectively as possible.”[21]

Generally, it can be observed that there is less business travel together with more reasonable prices at the moment. At the same time the duration of stay increases. Two years ago the length of a business trip was 2.3 days on average, 2.4 days in 2008, and these days a business trip takes as long as 2.5 days. What seems to be illogical at the first glance makes actually sense, as the reduction in quantity of business trip results in an extensive workload during the single trips.

Changes can also be seen as far as the booking of air tickets is concerned. In order to save costs, business travelers nowadays book their tickets much more in advance as they did before the economy took its huge downturn. 2007 tickets were pre-booked about 13 days before departure, last year it was almost 15 days, and today even 16 days. This trend is especially distinct for business class tickets. However, first and business class tickets in general have become rare in recent times because they were substituted by economy class. The worldwide proportion of business class tickets on business flights dropped by 5 percent, consequently, nowadays the portion of high class tickets amount for 10 percent of all globally booked tickets. Yet, the first airlines react on that lack of demand by changing the configuration of their aircrafts. “Qantas Airways announced that they will temporarily remove first class on 42 of their weekly long-haul international routes starting in July.”[22] Overall, companies booked 19 percent less flight tickets for their business trips in the first two month of 2009 although airfares decreased by 11 percent. On the other hand, the demand for rail travel increased as this mode of transportation “is better for the environment and often more cost-effective.”[23]

Another big issue in corporate travel is the substitution of face-to-face meeting by the use of new information and communication technologies, such as videoconferencing. At the ITM conference in Liverpool, the keynote speaker Ken Livingstone said: “Videoconferencing will revolutionise the business community’s attitude to travel, (…) business trips in the future may be ditched after initial face-to-face contact has been made, in favour of virtual alternatives. Video conferencing will grow massively.”[24] Some people suggest that these new technologies will affect the overall demand for business travel, others say that the personal and social face-to-face contact with clients is so essential for any kind of business partnerships that it will cushion this impact.[25]

Concerning the current economic crisis, there is one thing all experts agree on: corporate travel will definitely recover in the next years and the demand for business travel management will even be higher than ever before.[26] An optimistic view about when the economy is going to recover, has Kevin Mitchell, chairman of the Business Travel Coalition (BTC), who states in a journal called ‘Travel Agent’, “while business travel can and will recover from the current recession and business downturn, it will probably be 2010 before it happens.”[27] Other experts, like Rolf Freitag, CEO of IPK International, forecast that 2010 will be the year of the trough and small growth will be recorded in 2011 and 2012.

Only time will tell who is right about the end of the recession and the development and impact of new information and communication technologies.

2.3. Historic Development and Trends in Business Travel

Business travel is not a phenomenon of modern times. In fact, people were already traveling for business purposes in ancient times. Specific forms of business travel like the ‘Silk Route’ or the medieval trade fairs of Europe are the reasons for a static growth of business travel in Europe; however, the most significant growth has occurred in the twentieth century as new forms of business tourism developed. The only fluctuations in the historical growth of business travel were due to wars, instability or widespread disease.

It all began in ancient times with short-distance trade of agricultural products. Later, the rise of the great empires fueled the growth of trade based business travel as they traded goods all across the empires. Well established trade routes developed such as the famous ‘Silk Route’ which reached its peak in the Middle Ages. Another occurrence in the medieval period were big trade fairs which took place at strategically important towns along the major trade routes. The Beaucaire trade fair on the Rhône River in Southern France was one of the most famous fairs at that time.

Besides these common types of early business travel there were also three highly specialized but important forms. The first group was religious priests who often had to travel, making pilgrimages to shrines. Soldiers were the second group, travelling from one battlefield to another to take part in battles or move to newly occupied territory. Temporarily migrating workers built the third group. This people were, for example, crafts people who moved to cities in order to practice their trade while there was just little demand for their services at the place where they came from.

Between 1750 and 1900 three major reasons were the cause of an impressive growth in business travel. The Industrial Revolution which began in the late eighteenth and the nineteenth century boosted the production of industrial goods. These goods had to be brought to the market all over Europe which stimulated the growth of business travel especially with trade representatives travelling to various clients to sell their products. Another reason was that a lot of European countries developed colonies, creating steady flow of goods and soldiers from the home country to the colony and vice versa. Furthermore, the development of the railroad as well as the improvement of the roads in general made business travel a lot easier. Especially the railroad made business trips to more distant places more affordable and less time-consuming.

In the twentieth century the concept of conferences and conventions was born in the USA. In 1896 the first convention bureau was created in Detroit. The invention of the private automobile in the first half of the twentieth century was another factor which further fueled the growth of business travel.

In the last 60 years business travel has experienced its fastest development for several reasons on the demand-side as well as on the supply-side in business travel and tourism. On the one hand, there was a rapid development in the economy especially in formerly less developed countries, the reduction of trade barriers and the growth of free trade associations of countries, such as the European Union or the North American Trade Association. Furthermore, the development of new industries, for instance, information technology led to increasing business travel due to the selling of products and the support of customers.[28]

2.4. Specialties of Business Travel in Small and Medium Sized Enterprises

Naturally, one would expect, the larger the company, the larger the business travel activity and expenditure, respectively. Although, this is certainly true, due to the enormous number of SMEs, it is a matter of fact that in the year 2007, EUR 39.1 billion out of a total of EUR 48.7 billion business travel expenditure, were spent by SMEs in Germany.[29] In the UK, 99.9 percent of 3.7 million companies active, are classed as SMEs with less than 250 employees, according to the government’s Small Business Service. Carlson Wagonlit Travel puts business travel expenditures at about 1.5 percent of turnover. Taken the £ 0.5 trillion turnover generated by SMEs in the UK as a basis, it turns out that the SME sector spends an amount of £ 7.5 billion on business travel.[30]

The author M. Frary wrote in his article ‘Small - the new big’: “Half of the money spent on business travel in Europe is thought to emanate from small to medium-sized enterprises (SMEs). Travel management companies (TMCs) would love to get their hands on that business but the high volume, low value and fragmented nature of the market means it has traditionally been difficult to access.”[31] But once obtained as a corporate client SMEs secure constant revenues and are loyal to their business partners, since they do not do as many bid invitations as larger enterprises. Just because of lower service fees SMEs do not right away change their supplier, states Michael Marx, head of LCC Business Plus. Furthermore, margins for TMCs are often higher with SMEs and the economic risk is better distributed when serving many SMEs instead of just a few big ones.[32]

Even if the market is relatively difficult to access, it is “a market that is increasingly attracting the attention of the major players in the business travel world”[33]. Big TMCs are nowadays launching products and services especially designed and addressed to the needs and wants of SMEs. But what exactly are the needs and wants of a SME?

Unsurprisingly, as far as business travel is concerned, there are differences between a big global player and a rather small company. Unlike big enterprises, SMEs often have too small travel volumes or costs occurring from professional TMCs are too high compared to the potential cost reduction. Many SMEs do partly manage their business travel but not in such detail as travel managers in big companies do as they often track every movement of all travelers and each euro spent. “The analysis of this information and the staff required to do it is an expense level of detail not required by SMEs.”[34] BTI corporate sales support director Nick Hurrell said in an article in Business Travel World: “They don't have complex travel policies or complicated air and hotel programmes; what they want is an ability to book their travel requirements by telephone, e-mail or online, but with full telephone back-up from 'real' travel agents when they need it.”[35] They require personal service and simple products. Even though local presence of travel agencies is not any longer necessary, because of online booking or Etix, the personal contact is still important in the SME sector.[36]

However, the core needs of companies regarding business travel, in SMEs as well as in larger companies, are quite similar. They are all looking for cost reduction. The only general difference is that SMEs do more rely on their travel agencies because they do not employ professional travel managers but “look more towards their agency to get expertise and negotiate better deals”, Steve Power, vice president and general manager of American Express One, states.[37]

The cooperation with a business travel agent is of critical importance for SMEs. As they, individually, do not have enough booking volumes to be in a powerful position for negotiations with supplier or qualify for corporate discounted rates. Bill Stevenson, marketing director of Expotel, recommends “that SMEs need to seek ways of consolidating their buying power”.[38] One way to bundle travel volumes is the consolidation through a business travel agency. Underlining that statement the VDR revealed that SMEs have to pay considerable more on average per trip than big enterprises. They also discovered that in general merely large companies focus on negotiations with suppliers and that in particular in SMEs travel policies, negotiations with suppliers, and steering of costs do not had a high priority.[39]

2.4.1. Definition of Small and Medium Sized Enterprises

There are many different approaches when it comes to the definition of small and medium-sized enterprises (SMEs). Many of them take size-indicators, such as profit, fixed assets, balance sheet total, number of employees or annual turnover, as defining criteria. As most of these numbers are generally not available for the public, the majority of definitions are drawn by two variables, the number of employees and the annual turnover.[40] For the purpose of this thesis the author uses a definition published by the European Union in 2003: “The category of small and medium-sized enterprises (SMEs) is made up of enterprises which employ fewer than 250 persons and which have an annual turnover not exceeding EUR 50 million, and/or an annual balance sheet total not exceeding EUR 43 million.”[41] Despite this definition which describes the upper limits of SMEs, the European Union divides SMEs is three subcategories. The smallest type of an SME is referred as the micro category. These enterprises have less than ten employees and a maximum annual turnover of EUR 2 million, and/or an annual balance sheet total not greater than EUR 2 million. The small enterprise category consists of companies with a headcount fewer than 50, an annual turnover ceiling of EUR 10 million, and an annual balance sheet total not exceeding EUR 10 million. The third and largest category in terms of headcount, turnover and balance sheet total respectively is the group of medium-sized enterprises. This category sets the limits for SMEs and is defined by the above mentioned citation. According to statistics of the Bundesagentur für Arbeit, published on June 30, 2007, there were 374,970 small and medium-sized companies in Germany. At that point of time they employed a total of 13,343,951 employees.[42]

Table 1: Categories of enterprises by the EU[43]

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2.4.2. Corporate Travel Behavior in Small and Medium Sized Enterprises

As mentioned before, big TMCs are nowadays trying to get a foot in the business travel market of the SME sector, since over 60 percent of business travel expenditures are allotted to enterprises with a headcount less than 250.[44]

TMCs, mainly focusing on large companies in former days, have to review their products and understand the corporate travel behavior of that “hot commodity”[45] which has obviously certain differences compared to big companies.

First of all the quantity of business trips should be examined. A survey conducted by American Express One in the year 2003, found out that 57 percent of SMEs travel between every two and six month for business purposes. According to the business owners the top three reasons for travelling are winning new business, followed by networking at industry conferences and events, and maintaining and developing relationships with clients and business partners.[46] Other than big corporations small firms are under more pressure to meet clients and therefore do not travel less due to any kind of crisis and are not as likely to restrict travel than big companies are. Norman Gage, Advantage Travel Centres director of business travel, confirmed: “A big US firm can order staff not to fly, but that doesn’t happen in SMEs, making them less susceptible to international crises.”[47]

As far as the booking procedure is concerned, 43 percent of small business owner specified that the individual travelling executives do their booking by themselves. Almost a third said that whoever has the time makes the travel arrangements for business trips and 20 percent leave it to their personal assistant or secretary.

That might most likely be the reason why slightly over half of the respondents said that they spend over an hour on making bookings for a single business trip, while 26 percent spend up to three hours. An even worth situation appears in 17 percent of SMEs, in which employees in charge spend more than a day making travel arrangements for one business trip.[48] Given that this is a fifth of the entire working week, this circumstances cost companies time and money and result in enormous opportunity.

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Figure 3: Who makes travel arrangements in SMEs and how long does it take in average?[49]

The minority which assigns an external travel agency for the travel arrangements thinks that corporate agents are the cheapest source of travel products, as the author David Carroll reveals in his article ‘SMEs rate corporate agents’. The second cheapest source of business travel is believes to be the internet.[50]

Although the SMEs sector prefers some kind of premium service and local presence of travel agencies and tends to be the slowest segment for adopting travel management tools like online booking, the economic situation is driving even them to reconsider these tools and look more towards costs saving options like self-booking, call centers, and travel policies.[51]

With regard to choosing suppliers, business travelers of SMEs have high expectations for standards of comfort while travelling. This is in particular the case concerning hotel accommodation. Business travelers are not just staying at low-cost hotels to safe funds but rather attach importance to value for money.[52] Chris Jarvis, key account manager for the De Vere hotels group, states: “I think they are looking for the best deal combined with location (…). However, they also like to be recognised and valued, especially as many SMEs are entrepreneurs and very successful in their own sphere. It has perhaps been wrong for hotels in the past not to see the potential they offer.”[53] Nevertheless, SMEs try to cut costs by selecting the most efficient mode of transportation. According to the American Express One Travel Barometer, 27 percent of the small business owners said that they rather take the train than the plane for domestic travel. However, if they decide to travel by plane, not costs are the most important aspect for choosing a particular airline but service levels.

The paying procedures, most of the SMEs executives apply, are not the most efficient ones with regard to extra costs. Forty-eight percent of the business travelers pay their company’s business travel expenses by their own personal credit card and claim back the expenses after they returned. A quarter of the business travelers withdraw money at an ATM, handing in the receipts for expense collection at a later date. Eighteen percent obtain cash for business trip expenses in advance. All of these procedures cause extra ‘hidden’ costs since the collection, verifying, and approval of all the expenses require numerous human resources and time.[54]

2.4.3. Cost Structure

A company of the SME sector had in 2007 average business travel expenditures of EUR 118,000. Compared to 2006 this amount decreased by 1 percent, while the average business travel volume increased by 2 percent, hence SMEs became more cost conscious. Only 8 percent of the enterprises with 10 to 250 employees had a dedicated travel manager.

In general there are different cost drivers during the process of business travel. According to the ‘VDR-Geschäftsreiseanalyse 2008’, by far the major factors are air transportation as well as accommodation with a proportion of 30 and 24 percent respectively of total travel expenditures. On the third place there is the railroad transportation followed by meals and rental cars. This cost distribution did not change significantly from 2006 to 2007 except cost for meals which increased by more than 17 percent. Other costs which include booking or service fees account for 11 percent of total travel expenditures.

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Figure 4: Business travel cost distribution[55]

Differences in prices for booking or service fees with respect to the size of a company have diminished for domestic and European bookings but they are still remarkable in the field of intercontinental bookings. With a service fee of EUR 47.50 SMEs are far above the average of EUR 36 for an intercontinental booking.[56]

The high proportion of accommodation costs partly result from the high standards of comfort business travelers of SMEs are maintaining. Forty percent of the travelers said they spend an average of EUR 170 per night for a middle class hotel. Up to EUR 105 were spent by 42 percent when traveling on business. Budget hotels were only chosen by 11 percent of the travelers, paying up to EUR 65 per night.

This rather high level of comfort can also be found in SMEs air travel. Roughly half of the business travelers of the SME sector are flying with a traditional airline, spending up to EUR 300 on a short haul return ticket to a destination within Europe. Sixteen percent are even spending as much as EUR 500 on a return ticket, while only a third of the SME employees are using ‘no frills’ airlines for short haul business trips with air fares around EUR 100 for return tickets.[57]

As mentioned before, another major cost driver besides transport and accommodation are administrative costs and opportunity costs respectively. As there is no consistency in the SMEs concerning who is in charge of business travel it is especially hard for smaller companies to find good deals or cost saving opportunities. In addition, many business travelers are using different ways to pay for travel arrangements.

Niall Mackin, head of American Express One, commented on this unfortunate situation: “With executives charging business travel expenses to their personal cards or via cash advances it makes it incredibly difficult and time consuming for small business owners to keep accurate business records required for efficient budgeting and completion of VAT and tax returns. It also involves burdensome tasks such as processing expense claims, eating into valuable working hours that could be spent on core business functions or winning new business.”[58]

3. Travel Management

3.1. The Business Travel Management Process

The business travel management process is a highly complex process which will be explained in detail in the next paragraphs. They provide information about the definition as well as the tasks and objectives of business travel management, Furthermore, an insight in the stages of the business travel management process and the positioning of business travel management within companies, will be given.

3.1.1. Definition of Business Travel Management

In former days business travel management was primarily about organizing business trips with all its facets, choosing and booking the right mode of transportation and accommodation. Nowadays, business travel management is a lot more than the pure organization of business trips.[59]

[...]


[1] (Verband Deutsches Reisemanagement e.V. (VDR), 2008, pp. 5,7)

[2] (Pracht & Jürs, 2009)

[3] (International University of Applied Siences (IUAS) Bad Honnef • Bonn, 2009, p. 8)

[4] (Davidson & Cope, 2003, p. 4)

[5] Author’s design. Based on Davidson & Cope,2003, pp. 3,4 & Espich, 2001, p. 1

[6] (Davidson & Cope, 2003, pp. 3,4)

[7] (Espich, 2001, p. 1)

[8] (Freyer, Naumann, & Schröder, 2004)

[9] (Brochhausen, Melzer, Thurner, & Vordenbäumen, 2004, pp. 11-12)

[10] (UNWTO, 1993)

[11] (Davidson & Cope, 2003, p. 3)

[12] (Verband Deutsches Reisemanagement e.V. (VDR), 2008, p. 3)

[13] Author’s design. Based on VDR, 2008, p. 7

[14] (Verband Deutsches Reisemanagement e.V. (VDR), 2008, p. 7)

[15] (Verband Deutsches Reisemanagement e.V. (VDR), 2008, p. 8)

[16] (German National Tourist Board (GNTB), 2008)

[17] (Graue, 2009)

[18] (Dooley, 2009, p. 44)

[19] (Graue, 2009)

[20] (Diemer, 2009)

[21] (Ferguson, 2009)

[22] (Heckman, 2009)

[23] (Ferguson, 2009)

[24] (Livingstone, 2009)

[25] (Swarbrooke & Horner, 2001, p. 20)

[26] (Graue, 2009)

[27] (Dooley, 2009)

[28] (Swarbrooke & Horner, 2001, pp. 13-20)

[29] (Verband Deutsches Reisemanagement e.V. (VDR), 2008, p. 5)

[30] (Frary, Small but bountiful, 2003, p. 19)

[31] (Frary, Small - the new big, 2006, p. 39)

[32] (Pracht & Jürs, 2009)

[33] (Churchill, 2003)

[34] (Chetwynd, 2006)

[35] (Churchill, 2003)

[36] (Pracht & Jürs, 2009)

[37] (Campbell, Rising Agency Fees Reflact Post-Commission Reality, 2003)

[38] (Churchill, 2003)

[39] (Frankfurter Allgemeine Zeitung GmbH , 2004, pp. 15,17)

[40] Institut für Mittelstandsforschung Bonn, 2004

[41] Article 2 of the EU Recommendation 2003/361/EC

[42] Statistic of the Bundesagentur für Arbeit, data center, Nürnberg, 2008

[43] Author’s design. Based on Article 2 of the EU Recommendation 2003/361/EC

[44] (Frankfurter Allgemeine Zeitung GmbH , 2004, pp. 14,15)

[45] (Campbell, Rising Agency Fees Reflact Post-Commission Reality, 2003)

[46] (American Express One, 2003)

[47] (Lavabre, 2009, p. 48)

[48] (American Express One, 2003)

[49] Author’s design. Based on American Express One, 2003

[50] (Carroll, 2006, S. 28)

[51] (Campbell, Most Midmarket Cos. Soon To Own Self-Booking Tools, 2003, p. 10)

[52] (American Express One, 2003)

[53] (Churchill, 2003)

[54] (American Express One, 2003)

[55] Author’s design. Based on VDR, 2008, p. 8

[56] (Verband Deutsches Reisemanagement e.V. (VDR), 2008, p. 14)

[57] (American Express One, 2003)

[58] (American Express One, 2003)

[59] (Engelmann, 2000, p. 11)

Details

Pages
99
Year
2009
ISBN (eBook)
9783640577682
ISBN (Book)
9783640577897
File size
1.5 MB
Language
English
Catalog Number
v147007
Institution / College
International University of Applied Sciences Bad Honnef - Bonn
Grade
2,0
Tags
Small and medium-sized enterprises Travel Management Tools Business Travel Cost reduction Geschäftsreisen TMC Travel Policy Reisekosten Travel Management Company Travel Management Business trips SME Klein- und Mittelständische Unternehmen KMU Tourism Tourismus Reisen Travel

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Title: Potential reduction of corporate travel expenditures