Funding the Future: How a DMO Could Transform Miri’s Tourism Industry (Part 2)

By Prof. Andreas H. Zins

The importance of funding in establishing a DMO

In our previous article (Part 1), we explored the potential benefits of establishing a Destination Management Organization (DMO) in Miri. We discussed how a DMO could coordinate efforts, manage resources, and promote the city to the world, unlocking Miri’s full potential as a tourist destination. However, the establishment of a DMO is not without its challenges. One of the most significant of these is funding, which is closely related to the question of finding the appropriate governance structure.

Establishing and running a DMO requires significant resources. From hiring staff to developing and executing marketing campaigns, there are many costs associated with a DMO. These costs can be substantial, particularly in the early stages of establishing the organisation. Without adequate funding, a DMO may struggle to get off the ground, let alone achieve its objectives.

Funding plays a crucial role in ensuring the success of a DMO. It provides the resources needed to carry out the organisation’s activities, from promoting the destination to managing its tourism resources. It also provides the financial stability needed for the DMO to operate effectively and sustainably. Without adequate funding, a DMO may struggle to fulfill its role, potentially undermining the development of the tourism industry.

In this article, we will delve into the issue of funding for a DMO. We will explore potential sources of funding, discuss the challenges associated with securing funding, and provide insights into how these challenges can be overcome. Stay tuned for more insights into this critical aspect of establishing a DMO in Miri.

How are DMOs typically funded?

Funding a DMO is a multifaceted task, typically involving a mix of public and private sources. The exact composition of these funding sources can vary widely depending on the specific context and structure of the DMO, but there are several common sources that many DMOs rely on.

1. Government Funding: Many DMOs receive funding from local, regional, or national governments. This funding can come in the form of direct grants, subsidies, or allocations from tourism taxes. Government funding is often a crucial source of support for DMOs, particularly in the early stages of their development.
2. Membership Fees: DMOs often operate on a membership model, where local businesses in the tourism industry pay a fee to become members of the DMO. These membership fees can provide a steady source of income for the DMO and can help ensure that the organisation is responsive to the needs of local businesses.
3. Private Sector Sponsorships and Partnerships: Many DMOs also seek sponsorships or form partnerships with private sector businesses. These partnerships can provide additional funding and can also help the DMO leverage the resources and expertise of the private sector.
4. Revenue from Tourism-Related Activities: Some DMOs generate revenue from tourism-related activities, such as the sale of merchandise, the operation of tourist attractions, or the provision of tourism services. This revenue can help support the DMO’s operations and can also help ensure that the organisation is closely aligned with the needs and interests of tourists.

Around the world, DMOs have implemented a variety of successful funding models. For instance, in Luzern, Switzerland, the DMO is funded through a combination of a city government service contract (only 3.4 per cent of the annual DMO budget), 90 per cent of the local tourism tax revenues, membership fees, and revenue from tourism-related activities. This diversified funding model has helped ensure the organisation’s financial stability and has allowed it to effectively promote Luzern as a tourist destination with a current annual budget of SFR 16 million per year.

What DMOs really need for sustainable funding depends on their assigned tasks and responsibilities. Commonly, the funding follows the dependency on overnights generated, or  alternatively, the lifecycle stage of the destination. More than 20 years ago, Bieger and Laesser developed some recommendations for local DMOs in Switzerland operating in different markets:

• Domestic markets with approximately 300,000 overnights: approximately 700,000 EUR budget for the DMO
• International markets with approximately 600,000 overnights: approximately 1.5 million EUR budget for the DMO
• Global markets with approximately 1 million overnights: approximately 2.5 million EUR budget for the DMO.

According to a study by Isabel Carrillo-Hidalgo and Juan Ignacio Pulido-Fernández (2021), DMOs in the most visited cities in the world are financially dependent on the public sector, which contributes 49 per cent of their budgetary resources. The rest of the financing is shared between private financing (29 per cent) and self-generated resources (22 per cent).

Another study, “Destination Governance: Using Corporate Governance Theories as a Foundation for Effective Destination Management” by Pietro Beritelli, Thomas Bieger, and Christian Laesser suggests that the governance structure of a DMO can significantly impact its funding model. The authors argue that a DMO’s funding model should be aligned with its governance structure to ensure the organisation’s financial stability and effectiveness.

In conclusion, while the number of overnights can provide a useful benchmark for determining the budget of a DMO, it is important to consider a variety of other factors as well. These can include the specific goals and structure of the DMO, the characteristics of the destination, and the available sources of funding.

The benefits of a mixed funding model

A mixed funding model, which combines both public and private funding sources, is often the most effective way to finance a DMO. This approach brings several advantages, not only to the DMO itself but also to the local economy and community.

1. Diversification of Revenue Streams: Just as a diversified investment portfolio can reduce risk, a mixed funding model can provide a DMO with a more stable and reliable source of income. By drawing from both public and private sources, a DMO can mitigate the risk of funding shortfalls and ensure it has the resources it needs to operate effectively.
2. Leveraging Private Sector Expertise and Resources: Private sector businesses, particularly those in the tourism industry, can offer valuable expertise and resources that can help a DMO achieve its goals. By forming partnerships with these businesses, a DMO can leverage these resources and potentially reduce its operational costs.
3. Boosting the Local Economy and Creating Jobs: A well-funded DMO can play a crucial role in promoting tourism and attracting visitors to the area. This can boost the local economy by increasing spending at local businesses and can also create jobs in the tourism industry and related sectors.
4. Encouraging Public-Private Collaboration: A mixed funding model can foster a spirit of collaboration between the public and private sectors. This can lead to more effective decision-making and can ensure that the DMO’s strategies and initiatives are aligned with the needs and interests of both sectors.
5. Promoting Community Engagement: By involving both public and private stakeholders in its funding model, a DMO can encourage greater community engagement in its operations. This can help ensure that the DMO’s activities reflect the needs and interests of the community and can also foster a sense of ownership and pride in the local tourism industry.

In the city of Christchurch, New Zealand, the DMO has formed strategic partnerships with private sector businesses, leveraging these partnerships to secure additional funding and resources. This approach has not only provided the DMO with the funds it needs to operate but has also helped it foster a collaborative relationship with the local business community, promoting community engagement and boosting the local economy.

Challenges in Securing Funding for a DMO

Securing funding for a DMO is a complex task that requires careful planning, negotiation, and management. There are several challenges that can arise in this process, and overcoming these challenges is crucial for the success of the DMO.

1. The Need for Cooperation and Trust Among Stakeholders: A DMO typically relies on a mix of public and private funding sources. This means that the organisation must build strong relationships with a wide range of stakeholders, including government agencies, local businesses, and community groups. Building these relationships requires a high degree of cooperation and trust. Stakeholders need to be confident that their contributions will be used effectively and that the DMO will deliver on its promises. This can be particularly challenging in situations where stakeholders have different interests or priorities.
2. The Importance of Transparency and Accountability in Managing Funds: Transparency and accountability are crucial for maintaining trust among stakeholders and ensuring the effective use of funds. This means that the DMO must have robust systems in place for tracking and reporting on its financial activities. Stakeholders need to be able to see how their contributions are being used and what results are being achieved. This can be a complex task, particularly for larger DMOs that have multiple funding sources and a wide range of activities.
3. The Challenge of Securing Stable and Sustainable Funding: Securing stable and sustainable funding can be a major challenge for DMOs. Government funding can be subject to political changes and budgetary constraints, while private sector funding can be influenced by economic conditions and business performance. This means that DMOs must constantly work to maintain and diversify their funding sources.
4. The Need for Effective Financial Management: Effective financial management is crucial for the success of a DMO. This includes not only securing funding but also managing it effectively. DMOs need to ensure that they are using their funds efficiently and that they are achieving a good return on investment. This requires careful planning, monitoring, and evaluation.

Conclusion: The Future of DMO Funding in Miri

Securing funding for a DMO in Miri is a complex task, but it’s one that holds immense potential for transforming the city’s tourism industry. A well-funded DMO can play a crucial role in promoting Miri as a tourist destination, attracting visitors, boosting the local economy, and creating jobs. It can also help to manage the impact of tourism on the community and the environment, ensuring that Miri remains a great place to live, work, and visit for years to come.

The potential impact of a well-funded DMO on Miri’s tourism industry cannot be overstated. By effectively promoting the city’s attractions, coordinating the efforts of various stakeholders, and managing the city’s tourism resources, a DMO can help to increase visitor numbers, extend the tourist season, and increase visitor spending. This can lead to job creation in the tourism industry and related sectors, boost local businesses, and generate additional tax revenue for the city.

However, securing funding for a DMO is not a task that can be accomplished overnight. It requires careful planning, negotiation, and management. It also requires the cooperation and trust of a wide range of stakeholders, including government agencies, local businesses, and community groups. Transparency and accountability in managing funds are crucial for maintaining trust among stakeholders and ensuring the effective use of funds.

The next steps in securing funding for a DMO in Miri will involve building relationships with potential funding sources, developing a clear and compelling case for investment in the DMO, and putting in place robust systems for managing and reporting on the use of funds. It will also involve engaging the community in the process, ensuring that the DMO’s activities reflect the needs and interests of the community, and fostering a sense of ownership and pride in the local tourism industry.

In conclusion, while the task of securing funding for a DMO in Miri is a challenging one, it is also an opportunity to transform the city’s tourism industry, boost the local economy, and ensure that Miri remains a vibrant and attractive destination for years to come. The journey may be complex, but the potential rewards are significant. Stay tuned for the next article in this series, where we will delve into the operational aspects of running a successful DMO in Miri.

Andreas H. Zins is a Professor of Tourism Management, the Director of the Regenerative Living Lab of Sustainable Tourism, and the previous the Dean of the Faculty of Business at Curtin University Malaysia. Prior to this appointment, he was Programme Director of a dual-degree programme and Full Professor of Tourism Management at MODUL School of Tourism and Hospitality Management Nanjing (affiliated to Nanjing Tech University Pujiang Institute), Adjunct Full Professor of Tourism Management at MODUL University Vienna, and Adjunct Associate Professor of Marketing at University of Economics and Business, Vienna, Austria. He served as Programme Director (Vice-Dean) for Business Administration study programmes at WU Wien and Academic Director for Certificate Programmes for the Tourism Academy Austria and the WU Wien Executive Academy. He has published five books, edited four other books, contributed 32 book chapters, 30 scientific articles in peer-reviewed journals, 48 contributions in refereed conference proceedings, 71 peer-reviewed conference presentations, 24 invited conference presentations, and 68 research reports. From 2013 to 2016, he served as editor-in-chief of the International Journal of Culture, Tourism and Hospitality Research. He is now editor-in-chief of the International Journal of Business Events and Legacies.