Evaluation of a Planned Market Economy Strategy as a means to develop Tourism in the Republic of Georgia

MSC Hospitality with Tourism Management Birmingham College Birmingham Validated by: The University of Birmingham

Irakli Morgoshia

March, 2010

Abstract

This research examines the conditions in planned and market economies for tourism development in the Republic of Georgia. The study presents a comparative analysis of the process of its development during previous and current stages by analyzing infrastructure formation during the USSR and post-Soviet period of independent Georgian development. Here the effective influence on the business sphere and merge of the laws of market economy and methodological basis of planned procedures is discussed. The study then considers

contemporary global factors and evaluations of tourism development in the 21 st century and their influence on Georgian perspectives. Essentially a development plan is necessary which can be defined as achieving results by management, which can be reached (if properly planned and managed) or not (if the planned business ways are ineffective). The research is secondary based and draws on a variety of sources which allow for an in depth analysis and critical comparison of how economic models contribute towards the development of potentially valuable sectors to emerging markets such as the tourism industry. The study concludes that it is essential to consider suitable economic plans as a way to achieve goals in advance and that the existing political and social context is also of paramount consideration.

Table of contents
Graphs and figures Abbreviations - 4 - 5

Chapter. 1. General information Rationale Research Aim and Objectives Introduction - 6 - 12 - 13 - 14

Chapter 2. Literature Review 2.1 2.2 2.3 2.4 2.5 General issues of tourism management Tourism development in Soviet Georgia Tourism market problems in the transitional period Tourism business in the conditions of market economy Tourism during planned and market economy conditions Conclusions of the Chapter 2 - 17 - 29 - 34 - 36 - 39 - 41

Chapter 3. Tourism management combining planned and market approaches 3.1 3.2 3.3 3.4 3.5 Usage of planned approach at the tourism market Market mechanisms in tourism sector Planned market economics~ (tourism example) Global factors acting in the world Obligatory and assisting factors for tourism development Conclusions of the Chapter 4 - 42 - 59 - 65 - 69 - 72 - 75

Chapter 4.

General conclusions References

- 76 - 80

Appendix 1 Appendix 2

- 88 103

Graphs and figures

Picture. 1. Physical map of Georgia and its borders Source: Georgian Soviet Encyclopedia. Georgian , page. 96. Picture. 2.

(present

state).

Joint offer curve in various market conditions (Campbell R. McConell.1992).

Scheme 1. Comparative scheme of certain parameters of economic development of Georgia and USSR. (1980-%- 1975) Scheme 2. Structure of Sport tourism development in Georgia (1980).. Scheme 3. Dynamics of recreational sanitary infrastructure development in Georgia Scheme 4. Dynamics of Georgian economy in transitional period. Scheme 5. Average annual food consummation per capita (in kg) Scheme 6. Marginal parameters of Georgian economic security by year 2000 Scheme 7. Dynamics of foreign tourists flow at the Georgian borders Scheme 8. Seasonal Effect in tourists flow in Georgia. Scheme 9. Seasonal Effect in tourists flow in Georgia. Scheme 10. Structure of transport usage. Scheme 11. Comparative schedule of tourism in planned and market economy Scheme 12. Results of marketing research of Georgian tourism market.

Abbreviations

USSR Union of Soviet Socialist Republics SP Short-term plan (up to 1 year) AP Average term plan (2-3 years) LP Long-term plan (5-10 years) UNO United Nations Organization TRACECA Transport Corridor Europe Caucasus - Asia CPSU Communist Party of the Soviet Union GOELRO USSR Electrification State Program ZAHES Zemo-Avchala Hydroelectric Station

Chapter 1
General information
Georgia is a small, mountainous country. It is located in the Southern part of the main gorge of the Caucasus Mountains and the Eastern sea shore of the Black Sea. Its northern neighbors are Russia, southern Turkey and Armenia, and it border with Azerbaijan from the east. Georgia has more intrinsic advantages for development of tourism than any other exSoviet country. It has a good climate, with terrain ranging from subtropical to Alpine. It has varied topography in comparatively small space. It has unique combinations of archaeological and historical sites. It is one of the worlds most ancient Christian countries with a rich ecclesiastical culture which is still flourishing. It has a traditional of civilized life: art, literature, drama, music, beautiful handicrafts. It has a varied and broadly appealing cuisine and vineyards that produce an endless variety of high-quality wines.

(www.agbdc.com/publications/paulhenzetourism.doc) Georgian geopolitical peculiarity is represented by its geographic location. On one side, this is critical Eastern margin of the mainland, by which Asian countries have possibility to reach the sea. Due to this during the centuries here ended one part of the so called Great Silk Road. This circumstance had significantly increased trading interest towards Georgia. This trading route needed service food, health care, security, transport means of that period (horses, camels, donkeys) also needed care. This fact assisted rising of offer and represented significant source of
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income for the local population.

The first sovereign entity on the Georgian territory was created in 2 000 BC. This was a South-Eastern region of Georgian called Diaokha (Taokha, Tao) and Colkha (Colkhis) kingdoms. Its wealth and power is immortalized in the ancient mythology which keeps till nowadays the stories of Colkhian Princess Medea, Odysseys Greek Argonauts, and the Golden Fleece. At that time, the rapid development of Georgia was being witnessed by the facts that among 6000 languages and dialects that exist in the world three belong to Georgia, and of the 13 existing modern writings of world civilization one is belongs to Georgian culture.

Picture. 1. Physical map of Georgia and its borders (contemporary location). source : (Georgian Soviet Encyclopedia.1981. page. 96) Due to this existence of numerous historical monuments can be named as the third factor, can be assisting in development of tourism.

Another assisting factors of tourism development in Georgia can be named numerous mineral water springs of Georgia, healthy mud, SPA, climatic belts, skiing and hiking alpinist, sea and mainland tourism corresponding landscapes and so on; therefore, health care and recreation places were functioning on the small territory of Georgia even in ancient times as both local and incoming tourists received necessary treatment for their illnesses.

At the end of the 20th century at the date of regaining sovereignty Georgia, compared to the other regions of the USSR had better living standards and higher tempo of development (appendix, scheme 1) sector economy branches average annual growth tempo here reached 35,4%, which was higher than average USSR numbers by 10,3%.

High living standards in Georgia were determined by simultaneous effect of several factors. Among them, the following can be noted: 1. Exceptional nature and climate conditions create less expense for winter season. This decreases costs of production and increases total economic effectiveness. 2. For the same reason certain plants which grew only in Georgia and nowhere in the whole territory of the USSR and represented exotic had created special demand (like, citrus, tea, partly grapes, greenery, fruit, vegetables). 3. Big number of resorts and SPAs located in the natural climatic zones of Georgia has transformed the country into the place of attraction for the whole population of the USSR, personified `Soviet Eden~. The population from the northern region of the USSR tried to

enter the country as organized tourists or wild explorers. They found there sunny weather, sea and traditional Georgian hospitality. The USSR government due to political reasons was interested in closing doors to Georgia for democracy-oriented people to leave it due to its geopolitical location as a main closed barrier for Central Asian republics, Azerbaijan and Armenia towards independent contacts with Europe. For the same reason the USSR was

isolated from the international markets by the so-called Iron Curtain. The population in the northern regions of the USSR was extremely limited in choosing the resorts to recover their health by restriction to travel to the international resorts. Therefore, Georgia became a health smithy for the whole Union (USSR). The best conditions to entertain and recreation were constructed here. During those years the tourist flow reached 4,5-5,0 million people per year. All of them needed food, accommodation, medical, transport, communication, information and other services.

On May 20 th 1921, the government of Georgia has declared all existing recreation and healthcare institutions state property by the Decree of Revolutionary Committee (Georgian Soviet Encyclopedia.1981). During the critical economic and political problems such an attention towards resorts and above-mentioned decision cannot be considered as taken by chance. There were about 200 resorts and up to 1400 mineral water springs in Georgia, total annual debit of which made up 81,0 million GEL (Georgian Lari). The characteristics given in the scheme # 2 reflect development of health care recreational tourism infrastructure in the 20th century Georgia. At the same time, different landscape and contrasts, rich nature, flora and fauna, sea and mountains, forests and rivers,
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ancient history and traditional Georgian hospitality, big number of historical architectural and archeological monuments, rich art and spiritual wealth altogether assisted in so called wild explorers i.e. unorganized tourism and hiking tours.

There is an archive information about the first official tourist hiking tour (Georgian Soviet Encyclopedia. Georgian SSR, page. 166), where 145 persons have participated. In 1924, The Geographic Society of Georgia was founded, where the department of hiking and alpinism was in charge of Mr G. Nikoladze, who was asked to develop tourism in the country. It was the first organized structure of tourism, which dealt directly with this task. Later this organization was reformed. Further development of tourism in Georgia continued in 1936-1940, when instead of the above mentioned tourist organization a new structure was formed Republican Committee of Sport and Physical Culture. (appendix, Scheme 2) Georgian nationalists contended that Georgias role in the division of labor among Soviet republics was unfairly assigned and that other republics, especially Russia, benefited from the terms of trade set by Moscow. Georgian agricultural goods were sold at very low prices in other republics. At the same time Georgia paid high prices for machinery and equipment purchased elsewhere in the Soviet Union and in Eastern Europe. Despite Georgias popularity as a tourist destination, the republic obtained few benefits because most hard currency earnings from tourism went to Moscow and because Soviet tourists paid little for their state-sponsored vacation packages. Georgia, however, benefited from energy prices that were below world market levels. (www.mongabay.com. 16.11.2009)
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The Georgian Rose Revolution of November 2003 opened a new chapter in the history. The post-revolution government, led by Mikhail Saakashvili, attained a number of successes in areas such as reducing corruption, increasing state budget revenues, enhancing the national economy and setting up effective cooperative relationships with the international financial institutions. But it made some mistakes regarding its relationship with Russia and its excessive exposure to Russian investments. The countrys policies need to be fine-tuned in order to protect its democracy and promote further economic growth. (Papava.V 2006)

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Rationale
The Republic of Georgia is a new destination in the international tourism market and has not yet been fully explored by tourists beyond those visitors from a few nearby countries. In addition there is a lack of academic research with respect to Georgia, its tourism products and its current position in the market. As such, the dissertation presents the stages of the tourism area lifecycle. The study also considers examples of successful and less successful decisions regarding and planning with a view to evaluating how a developing country like Georgia could develop as a successful tourism destination. Therefore, this study was undertaken to fill the gap in the research and to consider an essential issue- the ability of a destination to compete successfully in the context of a changing operating environment, namely political and economic.

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Research Aim and Objectives

AIM

The aim of this study is to evaluate a planned market economy strategy as a means to develop

tourism in the Republic of Georgia

OBJECTIVES To achieve this aim the following objectives have to been set: To provide a comparative analysis of Georgian business; tourist infrastructure and its functioning issues in its planned, transnational and market stages. To determine the evaluation principles for market force of definite objects and business, tourism market borders To evaluate business, tourism market marketing research information to form short, average and long term plans To determine the optimal variants of choosing methods for alternative market instruments for regulation in the process of competitive management To analyze global tendencies and factors affecting Georgian business, tourism development.

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Introduction

The main idea of market economy does not consider the wishes of the managing body. It determines only those objectives laws, which act on the market irrespective of the fact of whether they are known to the managing body or not. Therefore, if the managing body does not consider the applications of these laws in practice these goals presumable will not be reached. However, if they are considered then the goals could be reached in short period of time and with minimal resources. Therefore, or what can now be termed as what needs to be done and what results will be received by the viewpoint of the managing body, however, it gives no guarantees. As a market economy prompts the entrepreneur about the possible results that may occur after action and what could be the result on the market (in reality) in case of that action. Thus, a planned economy is more oriented towards the starting positions of the current processes of the market, on the nomination of the beginning conditions, whilst the other side of the market economy concentrates on the actual tendencies of the economic processes. The planned economy places goals, the ways to reach them and names the resources, but no guarantees are given, that the named goals are real. The market economy does not consider the wishes of the planning and reflects real processes. It is armed with self regulatory skill, and for this reason the goals considered by objective laws early or late will be reached by all means, though not always in an optimal way. Therefore, one can conclude that planned economy and market economy mechanisms do not contravene each other. On the contrary, a planned economy is extremely effective if it is oriented towards achieving real goals, which are determined by the lows of market activity
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acting in the definite competitive market economy conditions. It enables optimal usage of resources. At the same time, in the case of wrong goals, without considering the laws

objectively acting at the market in the conditions of imperative planning its shows worse results than self-regulating market economy. In relation to the economic conditions in the Republic of Georgia, this conclusion is strengthened with the fact that Georgian society is not acquainted with completely free market relations or a country with 100% planned economy. Each country uses an annual state budget plan to consider future expenses, in other words, economy development and tax income oriented plan prognosis depend on it. Any company uses plans to manage current corporate activities. (Economika. 1970) It is hard to find an example of a country with a completely planned economy regime. Possibly, the closest was the USSR, which was mainly agricultural economy with a turnover, more than a half of which belonged to collective farming (Kolkhoz) or in modern terminology, equal to limited liability company, whose property were not all state owned. A share of private cooperation in the state trade turnover was rather high 29% - (Georgian Soviet Encyclopedia.1981.page. 149, scheme .2), completely consumer cooperation turnover, or share of cooperation in retail turnover made up 31% (Georgian Soviet Encyclopedia.1981.page. 149, scheme 1), in fact, 100% production in so the so-called collective (agricultural) bazaars (7% of retail product turnover- , page. 149, scheme .2) and was also a share in turnover that was dependent on market relations. Thus, cooperative and Kolkhoz trade shares in total product turnover compiled 36%, - more than one third in total turnover. A form of cooperative (private) firms was also very widely spread in construction business during the Soviet period.

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The most clearly outlined market relations were forming within a hidden economy, which existed in reality (its turnover was equal to the turnover of legal economy). The most attractive in this fact of soviet reality is not only that it was illegal and carried criminal nature (according to the acting laws of that period), but that it existed and has impact on the legal economy. The problem was not in the fact that planned economy bodies rejected the market as it was, but that this unbreakable managing system could not react to the market requirements and demand on time and could not monitor and collect information to analyze it. It had not enough calculating force and methodological support. At the end of the 80s the USSR produced over 25 million kinds of products. This was a country located within a sixth of the planets territory with a population of 250 million people. The managing structures of this country appeared technically and methodologically unprepared to solve real management problems. It was one of the main reasons that caused split of this giant country into the smaller units that were easy to manage. Thus, ` ... Comparative analysis of the planned and market economics is not choosing which is better and faultless among them, but creation of a new postindustrial economics by their merge, which will receive positive elements from both economic systems and will reject negative components (Campbell R. McConell.1992. page 6) Tourism development subject considered in the qualifying dissertation is based on the inner logic of combined usage of these two approaches within one united planned market economy concept. Positive elements of these two findings will unite in common postindustrial development model frames. Therefore this creates a balanced, firm and prognoses preconditions
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of development depended on the market laws.

Chapter 2. Literature Review.

2.1 General issues of tourism management.
Until the recovery of state sovereignty Georgia was included in the USSR total managing scheme, which was named planned economy (Georgian Soviet Encyclopedia. 1981). The difference between market and planned economics is analyzed in detailed in many literary sources, however, the viewpoint of the experts expressed there also differs from the ones published in mass media and views of the common people. According to the ideas of the authors of the famous textbook `Economics~ (Campbell R. McConell. 1992. page16) `there is no economic system without faults. ... centralized planned economics as well as free market economy represent incomplete economic instruments, which simultaneously have advantages and faults.~ Also they recite Robert Dall and Charles Lindblom(1999) prognosis, which noted that. it becomes harder and harder for a thinking person to make alternative choice between capitalism and socialism, plan and market economy, regulation and free competition, as in reality such choice is not simple and unilateral. Based on this authors conclude (Campbell R. McConell. 1992) that the aim is to find such a unification of capitalism and socialism which will support viability and
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corresponding effectiveness of economics within historical cultural traditions of the given country. According to this source, clear capitalism (unconditional rivalry) is characterized by private property of resources, using markets and price systems in its economic activities and its management. As its opposite we consider an alternative imperative, planned economy which is characterized by public property of resources and collective decisions on economic issues using centralized economic system. Existing economic systems are located between these two opposite poles. For example, in the citadel of free economy the USA, state owned share in economics is greater than 20%, whereas in the Soviet economics the institutions of non-governmental sector were widely presented, like kolkhoz, consumer cooperation, small businesses, which managed were according to the laws of market relations. The private sector of fascist Germany was 100% regulated by state (`authoritarian capitalism~) and socialist Yugoslavia had an economy based on market principles (`market economy~). By economic development it was equal to a middle European country. Generally, a plan can be evaluated as an regimented or non-regimented wish of the owner - managing body of the state to reach definite entrepreneurial aims. This plan, as well as all other corporative plans, is not always realistic (sometimes private structures go bankrupt?!). When compiling plans the state also can be objective or subjective. Thus, planned economy may be considered as a big player in the international market a state internal corporate planning form with its aim of optimal usage of the resources. According to such vision, planned economy does not contradict market relations, on the contrary, it fill them
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in. Fulfillment of plans is depended not on the corporation manager, but on the adequacy of plans and factual market conditions. Unlike other sectors of economics, tourist market of the USSR was almost 100% directed to the development of local tourism. For this reason, tourist market prices fulfilled social political aims of the country (satisfaction of population demand). Income of the business was planned, mainly, to cover the expenses and to receive minimal margin of income. In the conditions of planned and market economy to analyses specific features of tourism, one needs to clearly outline , which economic activity can belong to tourist and in what period of time compile and outline various stages of tourism development in Georgia. Since 1993 the UN Statistic Commission has taken one more wide definition tourism is human activity of traveling out of their usual areal for no more than one year for recreation, business or to implement other aims. There are many other explanations which reflect the bilateral nature of tourism. On one side tourism is traveling with all its necessary components such as transportation; food; hotels; information centers; communication service and security, etc. On other side, it is a segment of economics busy with tourist service. Usually, tourism is divided in two big groups: 1. Recreation tourism: health care (seaside, climatic, mineral waters, etc); educational (excursions, religious, nostalgic, etc.); sport (mountainous - skiing, auto, moto, bicycle, horse riding, etc) 2. Business tourism:
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business - tourism; MICE - tourism;

Each of them on its side can be divided by forms of: transport (auto, moto, bicycle, avian, horse riding and others), type of tourist flow (youth, scientific, medical, etc), by border crossing sign (local, out), organization (organized, unorganized) and other similar criteria. In the birth of mass tourism an essential role is played by industrial development and scientific technical progress. Peoples travelling and communication have significantly enhanced. The expenses went down. The travelling became affordable for all layers of population. In general, the word tourism is of French origin (Kekushev V.P, Sergeev V.P., Stepanitskij V.B) (tourism, tour) and means travelling at free time (hiking), active recreation. It should be stated that various aspects of tourism development are in the centre of attention in different literary sources, including (Babkin .V. 2008), where structural and contextual analysis of specific tourism types are given. Namely, we consider such types of tourism as religious, business, health care, ecological, mountainous skiing, extreme, cruise, etc. Emelianov B.V provides an analysis of one of the most important components - theme of excursions organization. An author reflects in details all stages of this process in the details and preparation rules. The second paper (Zorin I.V. 2002) considers tourism more widely. The author starts describing tourism as a main attachment of human economic activities history, according to its importance modern civilization existence, further, it considers activities of all institutional subjects of tourism in details and requirements towards corresponding infrastructure. Based on this, it shares particular recommendations of tourism effectiveness growth.
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According to the viewpoint of another author (Kvartalnov V.. 2002) tourism needs to be considered as a communication means between different cultures, which assists in bringing them together and better understanding. It explains its growing role and positive dynamics of tourist flows, which is noticed in the whole world. Also, with the global importance of tourism in general, separate papers (Marinin .. 2004) more particularly consider pragmatic issues, like, for example, tourist security theme. An important circle of modern tourism is a hotel, therefore (Tourism and hotel business. 2005) accentuates exactly the analysis of this issue, namely, requirements of various types of tourism towards the specifics of requirements formation regarding hotels , about the tendencies existing in the world and problems of this business. Bogoliubov (2005) introduces research materials of tourism growing development. This theme has aroused in the world now or long time ago, therefore an aspect of growing development of tourism is insufficiently reviewed in the literature. In A. Barters paper we read the proposed laws and hypothesis on tourism growing development are presented together with his view on the future tendencies and recommendations in this field. Kozireva .V. emphasizes her attention on tourism expenses issues, decrease of which creates a precondition to the success of this business. He reviews expenses monitoring, analysis and optimization of particular goals solving techniques. For example, he introduces during the process of capital expenditure , in (accounting of marginal expense) to use method of so called direct costing, he shows positive and weak points of this method, specifics and spheres of presumable usage. Papirian G. (2000) considers theory and practical issues of international tourism.
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Namely, here we see analysis of various theories absolute, relative advantage, factor ratio, living cycle of the product, theories of countries resemblance, currency exchange impact on commercial effectiveness of the tourism. Statistics brought here show a direct correlation connection between standards of living and tourism dynamics in both developing and developed countries. Soboleva .. Introduces detailed financial economic analysis methods. He shows database vertical and horizontal analysis methods peculiarities. He offers division into two groups for corporate activities parameters of effectiveness current activity and according to corporate resources evaluation indexes. The final goal of tourist business is satisfaction of the needs of tourists, which are, in principle, endless. Also, this task has to be solved by every company by using limited resources, thus, there is a problem of optimal usage of resources here. To his mind, this is exactly the reason why is it necessary in tourist activity to go deeper into the issues of optimization. (Frolova .) Kvartalnov V. (1999) proved an analysis on general tourist companies is using three main strategies of development: - development of existing service within the frames of existing tourist direction; - expansion of geography of new tourist zones and

- an opposite tourist activity development by founding new companies.

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- He reviews every direction in details and considers reasonable to fulfill 5 procedures of optimal management: 1. 2. 3. 4. 5. Placing aims of development. Adapting their own strategy in accordance with the changed market conditions. Keeping priority direction and development of new if it precedes competition. Evaluation of new activity alternative. Refusal for decreasing dynamics activity and directing resources towards new business.

To continue the topic, the author emphasizes (Kvartalnov V.. 1999) a long term planning and optimal forms of strategy. To authors point of view, one of strongest instruments is - innovational technology usage in tourism (Novikov V.S. 2007)and objective evaluation of their expediency. Namely, they review theories of cycle changes of economic conjuncture, (a 60 year cycle theory of long waves after N. Kondratjev). Here we read about a modernized version of this theory of waves after the disciple of this great scientist - I. Shumpler, according to which the main reason of producing cycles is technique and technology progress. Papirian G.A studies reasons of usage of various market instruments to improve effectiveness of tourist business. Unlike this the author concentrates on (Papirian G.A) tourist sector rather narrow segment hotel and restaurant business, their theoretical and practical aspects. Special attention is paid to improvement of market research in strengthening corporative sub-divisions work, with historical examples of reaching significant success using their recommendations.
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. Stepanovas describes in details a less studied theme, the formation of public opinion in the tourism sphere. Here, using Turkish history and based on a reliable statistics he states the high commercial importance of this issue and gives particular recommendations on its effective usage. Kekushev V.P, Sergeev V.P., Stepanitskij V.B (2001) discusses fundamentals of ecological tourism management in this paper. Its systemized development is accentuated, especially when tourism represents a whole, inseparable and organic part of national economics. Statistics on tourism role in the world economy is brought as an example, by which its share in the world national product makes up 6%, in the international investments 7%, tax income 5%, according to vacancies 6%, service expenses 11%. The author prolongs (Khrabovchenko V.V. 2003) discusses the theme of tourism security. Possible reasons of risk are shown regarding tourists and tourist companies and their preventive blocking events. Zazgarskaya I.B. is interesting for its resemblance between Georgian natural climatic conditions and The Carpate Mountains tourist complex development various aspects analysis and recommendations on usage of its potential. The second paper (Process of recreational expansion of the region. 1998) demonstrates resort zone development planning and deep analysis of definite issues of a multispectral approach. All these recommendations are made regarding other tourist objects, but contain useful proposals all of which could be adapted to suit needs of the Georgian tourism industry. Glushko .., Sazikin .. to the geography of the tourism and corresponding statistics analysis. They consider assisting factors of tourism and methods of their activation regarding various tourist zones of the world. This material is useful related to the planning of international

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tourism development in Georgia. Labor analysis serves same reasons (Rogach P.I., Kosiakov N.I., Garkavaja V.G., Lukjanchik S.V. 2003) which relates to wide specter of theoretical/ practical issues of the developed countries state institutions functioning. The subject of study of the author (Aleksandrova .J. 2002) is international tourism, its history, existing situation and development tendencies. There is an organic merge. There is an organic merge of deep theoretical research, empirical statistical data and practical recommendations. The second author (Maksimenko S.V.) emphasizes the legal support of international tourism, namely, about the international institutions existing in the world and acting legal regulations. The author (Petrasov .I.) considers the stable development concept of

international tourism and issues related to its practical realization. Petrasov I. (1990) reviews global changes taking place in international tourism development, which effect all tourist structures since 90s of the pervious century till today. The paper is rich in statistic materials and graphical illustrations. Sakun L.V. (2004) considers tourism personnel training theoretical and practical aspects. The paper perfectly presents experience of the countries with a developed tourist industry, and outlines the main problems and proposes some solution. Godfry Harris and Kennet .tz also addresses international experience, which starts with descriptions of tourist product concludes with market research. He gives innovational activity description, issues of planning and peculiarities of their fulfilling. In another paper (Agamirova .V.) there is a personnel

management analysis for tourist objects. According to the authors conceptual view there are examples of detailed consideration of plans implemented by particular companies. A similar issue is considered by Borodina. V.V. with examples of hotels and catering
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objects(caf and restaurant).

Also, the centre of attention is systematization for economic

process of this business and organizational issues, necessity of their group solution, possible problems and the ways of their solution, first of all for small and big enterprises. Egerton C. (1999) is a practical person. He shares his rich experience in the restaurant business with the reader. Due to concentration on this narrow segment of the issue he reveals a deep consideration of all details of this sphere of such activity, the recommendations given by him in this sphere will be a significant contribution to any other company of such kind, namely while compiling a company development plan. Makarenko S.N., Saak .I (2003) Consider history of tourism as a means of forming conceptual approach already mentioned here and working out a concentrate of world experience. Ganopolski V.I., Beznosikov .Ja., Bulatov V.G (1987)consider different directions of certain organizational issues of sport tourism, consideration of which will be useful in making their development plans of tourist objects to increase their competitiveness. For example, the author (Popchikovski V.Ju. 1987) focuses on a generalized experience of wide range of specialists in organizing tourist hiking excursions. To a certain point this material can be considered as a recipe of organizing tourist service, separate items of which can be used on tourist objects of any specialization. Ustinovski N.N. (2000) focuses on providing tourist security. Also, this article considers this theme very widely and related to various types of tourism. Part of recommendations given in the paper can be used at the state regulatory level; one part of them belongs to the category of corporation security, another part deals with personal security. One more review of these issues is given in the chapter (Strumer Ju..1982). This useful advice can be used also at any level of

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tourist development level. Malish N.(2003) studies key stages of economic science development and economic thinking correction general tendencies in the direction from wild capitalism towards regulated market economy. The second same type of the paper (Zverev Ju.. 2000) represents modern professional view on current macroeconomic processes of the world, on the working factors and the result of their impact on the single economic subject level. Here, a more detailed description of the main schemes of the international economic relations and their forcing powers is discussed. According to Mescon M., Michael A., Franklin H(1997) view despite the variety of commercial companies, their key managing principles are unchanged like the negative outcome received by the entrepreneurs as a result of ignoring them. There are recommendations that need to be considered by any company provide stable institutional and systematic development. The same theme is reviewed by the author (Tailor F.W); where in a more generalized form one can study optimal management strategy. Cherniavski .D (2000) considers the three the most important theories of the 20 th century (namely; relativity; quantum physics and chaos) the last of which relates to the major part of humanity. Any critical situation around us in final represents result of someones unconscious or conscious action, which is not known to us in advance. Here anti-crisis management is considered not only as a major force, rare and enforced action, but as one of the possible alternatives of the expected development of actions, a standard component of normal functioning. Lee J (2001) is considered as a typical representative of a successful entrepreneur, whose
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organizational talent is recognized all over the world. His view on the rational management of a company can be considered instrumental in achieving highly effective management. A continuation of this theme is given by Gridchina .V (2004), who focuses on company financial flow management and underground stones of this process. Therefore, effective financial management can be considered as an obligatory condition for successful business, the replacement of which by other factors is very seldom. In the centre of attention of the authors is an innovational management. It represents a precondition of a stable company development. The author gives a detailed set of recommendations of the innovational portfolio formation and criteria of optimal innovational strategy forming of the company. (Ilienkova S.D. 1997) Dajnovski Ju. (1998) contains theoretical and practical argumentation of marketing instruments used in tourist company activity. Mironov Ju.B (2007) continues the same theme by analyzing tourism advertising aspect. Thus, the above mentioned short literature review shows that tourist service is not a simple activity of travelling by rich tourists just to spend time. It is an important component of modern civilization lifestyle; level of effectiveness is directly connected with the vital interests of population living on our planet.

2.2 Tourism development in Soviet Georgia. In the USSR tourism was developing through trade unions and health care prophylactic institutions and resorts of organizations, also creation of temporary seasonal pioneer (young communists) camps and also through sport tourism. In the 80s tourism growth tempo slowed down and it became more differentiated. In the conditions of market relations which existed in
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the market and planned economics, tourist business development is possible the in case of using 5 obligatory components in complex: 1. 2. 3. 4. 5. Existence of demand. Capital, investment resource. Complex of technology (hotel, ways, transport, etc). Professional staff. High potential of recreation resources.

During the period of planned economy Georgia was recognized as most recreational among all other republics of the USSR. It needs no comments to mention that 25% of all USSR mineral water springs were located in Georgia, which constituted 0,3% of all territory of the USSR. Here were also the most recreational seaside resorts which benefitted from a sunny and dry climate. Depending on a tourists wish, within one or two hours a person could change from a sunny beach to a alpine skiing track or icy peak of a mountain. Limitless resources of the USSR was easily invested into the recreational infrastructure development, as the demand for tourism vacations to accommodate their 250 million population in the northern region was largely unsatisfied. Together with recreational infrastructure neighboring branches were also developing. In the more simple and natural climatic conditions of Georgia this does not require big investments as it could be in the extreme northern zones of Russia in conditions of never drying dumps and minus 60 grades below Celsius frost. In reality, Georgian recreational potential was managed by USSR government, which has
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divided by card system(similar with underwriter system) recreational tours to the best workers and farmers (kolkhozniks) (for free or with enormous discount).The main expense was taken by trade union, factories, manufactures or institutions and partial financing was implemented by the USSR centralized state fund. Thus, ideal conditions were created for the development of the tourist business unlimited demand, unlimited financing, well developed tourist and neighboring spheres infrastructure, professional staff, who had traditionally grew up with a hospitality code due to the culture of this region and which is the most important, excellent natural- climatic recreational resources, which are gifted to Georgia by Mother-nature in great number. In the conditions of planned economics, the tourism sector in Georgia was developing according to the following scheme. The whole infrastructure of resorts and sanatoriums belonged to various industries, including: 1. Tourist objects listed in the Department of Resorts were under the aegis of Cabinet of Ministers of Georgia. 2. Similar objects being listed under the management of the USSR government. 3. Tourist objects listed under the aegis of Georgian Trade Unions. 4. Similar objects listed under the aegis of the USSR trade Unions. 5. Resorts and sanatoriums listed under the aegis of Georgian industries. 6. Similar objects listed under the aegis of the USSR industries. 7. Recreational Houses and sanatoriums of certain Georgian organizations and institutions. 8. Recreational infrastructure organized by individuals, local residents (in their private houses), which were used for service of unorganized tourists.
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The above mentioned infrastructure considering property rights were also divided into organized and unorganized segments. Despite the fact that the number of beds of organized and unorganized segments did not differ much from each other, the object of consideration will be an organized tourism sector, as statistic material for this subject exists. Arriving tourists often created demand using their own money in the neighboring spheres (catering, transport, entertainment, etc). They became a source of cash income for Georgia. Most part of it found safe place in the hidden market sector, increased untaxed income of the population. According to thus people how were living in that time saying that extremely large amounts were flowing from unorganized tourists, the number of which was equal to the number of organized ones. They created a demand for food, accommodation, transport service, entertainment. In some recreation areas, illegal practices took place where the any requirement of unofficial guest was fulfilled quickly. For example, at the seaside resorts of the Black Sea the local population rented their houses to receive additional income. In the period of the planned economy Georgia was a developed country even by western standards, where the science and culture, sport and art was respected and valued. It provided 100% jobs (jobless was sentenced by legislation, penalize by national low) and one month holiday pay. All these circumstances positively influenced in Georgian tourism sector development in a

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background of unsatisfied domestic market demand. It was stable and guaranteed. Moreover, due to the Iron Curtain, the majority of the population could not afford to engage in tourism and holidays abroad, whereas biggest parts of recreational tours were reimbursed by the trade unions or the industrial institution where the person worked. It also needs to be considered that the USSR political regime, due to its ideological doctrine, experienced a level of existing prices in the country which were very low compared to the western countries. This meant that existing prices and salaries were two to three times lower than in developed industrial countries. Part of the population demand was financed from the State Central stimulation funds, which was three to four times higher than the corresponding salary. The structure of population expenses differed contextually. There were very low or absolutely no expenses provided on apartment purchase; pension provision, medical service, education, entertainment or sport, but medicine was very cheap and also books, municipal service and food (meat cost 3 USD per kg, wheat bread 0,5 USD per kg, electricity 0,03 USD per KW/hr, litter cleaning, residential elevators, education, medical treatment were free , etc),

transportation and petrol expenses were very low (subway 0,08 USD, petrol 0,16 USD/l, air ticket Tbilisi Moscow 61 USD). The average monthly net salary was 330 USD. At the same time, the good quality clothing; furniture; electrical devices; cars; vodka; furs and jewelry cost a lot more. It was also impossible to purchase other types of goods (airplanes, ships, trucks and computers etc). To avoid speculation, the country was obliged to close the borders. The influence of this closure on the tourist market was shown by the fact that 250 million of the population was
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obliged to receive satisfaction by local tourist offer (offered by Propkavshirs similar of tour operators nowadays), namely at the best Georgian resorts of the USSR. This has encouraged development of the Georgian resort potential development.
1.

Unusual natural climatic conditions, variety of landscapes, up to 400 recreational

locations and up to 1700 mineral water springs, well known Georgian hospitality attracts a lot of tourists into the country. An indicated situation is clearly confirmed (Peoples Farming of Georgian SSR. CSD of GSSR. Statistics Annual Report. Tbilisi. Publishing House Sabchota Sakartvelo 1981 p. 263). By statistic characteristics, which reflect Georgian recreational potential (appendix, scheme 3). In addition to the development of recreational tourism, various kinds of sport tourism were also developing in Georgia. This was encouraged by the wide praxis of organizing various sport gatherings between different sport organizations of the USSR and northern regions in Georgia. This can be seen by the USSR and Republican Sport Federations of different organizational bodies, which gathered least once a year in Georgia. It should be noted that during this period sport activities were state supported. In Georgia only, with its five million population, there were approximately 6800 sport teams, involving 1,3 million sportsmen, 400,000 of whom were women. The hard to achieve title of the USSR Sport master was awarded to 612 sportsmen. There were functioning 83 stadiums, 1234 soccer fields, 56,000 basketball, handball playgrounds and tennis courts. Wide variety of nature, mountains, coast, forests and rivers, caves and icy peaks attracted thousands of tourists through organized as unorganized visits. In addition, several attracting zones could not serve all tourists and special written arrangements were needed to get there. For
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example, the Athoni Cave on the Abkhazian coast could only be accessed by prior written arrangement. There are a lot of undeveloped locations with bigger potential which are not yet fit to mass tourism sightseeings necessities. For example, the surroundings of the Skuri resort includes a 27 km long underground caves complex, which were identified French speleologists as among the first three biggest underground caves in the world.

2.3 Tourism market problems in the transitional period.

The radical change of Georgias political economic situation started in the early 90s with the announcement of its state sovereignty. The declaration of Georgian sovereignty can be considered as the finale of the previous years underground political processes preparation and the start of the following years of chaos and anarchy. Due to this, it is impossible to establish with chronological exactness the transfer from the planned epoch to the market regulations( it is market based economy). Its provoking events and results of their end are displayed stage by stage one after another. Despite this with sufficient exactness and argumentation we can name the 1985 as the starting period of this stage, in other words, coming of the USSR new leader M.Gorbachev into power. Liberal change of direction announced by him has assisted to destruction of directive government system and the disintegration of certain USSR republics into sovereign states. (appendix, schemes 4-5-6) In the transitional period (1993) the de-nationalization of state property has started. Redirecting of tourist objects to private owners enabled them to attract their own and credit resources to keep and develop these objects. This invited flow of tourists, competition has started, standard offer packages of the financial, labor and other resources have started operation
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and all these encouraged the recovery of tourist service volumes. Dynamics of the tourist flow was very assuring; together with all negative aspects of the transitional period, it was the fact of privatization that became a precondition of transforming tourism business up into a new advanced step. Until the end of the transitional period the government of the country has recognized tourism as the priority direction of economic development. For this reason, in 1996 the

Parliament has received the Law of Georgia on Tourism and resorts (Process of recreational expansion of the region (Crimea example). Simpheropol. 1998). According to the Law, tourist is a physical person, who travels on his own wish out of the place of his residence for recreation, business or other reason during no less than 24 hours and no more than 1 year and whose travel is not reimbursed by the temporary residential location resource. According to the Law, the division of the resorts according to recreational resource and their specialization is determined in accordance with the Ministry of Health care and plenipotentiary managing body of tourism and resorts. The treatment procedures are determined by the Ministry of Health care. To defend and rationally use recreational resources, it is decided to create around the recreation location sanitary defense zones. This project is prepared by the state management body of the business branch and is approved by the President of the country. Tourist and recreation institutions have right to take service license, general standardization of tourist and recreation activity, certification and licensing is regulated by a corresponding law and other standardization acts according to the accepted rules. State Register is being compiled for tourist and recreational activity licensing subject, responsibility on the correctness of the information kept in this register is completely goes to the state body authorized
36

to manage corresponding sphere. Today this body is named Georgian tourism and resorts Department and it represents sub structure of the Georgian Economic Development Ministry. The Department uses in its operations the above mentioned Law, up to 20 Presidential orders and other Legislature, standardization acts. The website of the Department is www.dotr.gov.ge

2.4 Tourism business in the conditions of market economy

Due to 100% privatization of tourist infrastructure in Georgia the state cannot manage imperatively certain tourist objects, but it uses market instruments of indirect regulation in this case. It is essential to concentrate resources at the state regulated roads, communications, municipal and other infrastructures recreation zones. The closer attention is paid to the public order in these zones. The state uses administration resource to advertise recreational potential in other countries. There can be emphasized the following aspects of tourism development in market economy conditions:

Strong points. Quality of industrial freedom and level of flexibility if tourist object in branch and corporation development, possibility of their adaptation to the changing conditions of the market;

37

 Effectiveness of using short time resources in the condition of a strong personal interest, skill to transform these resources into profit; Client oriented principle `Client is always right~; Insignificant interference of the state into the formation of the rules and conditions of definite activities of the entrepreneur; Unlimited ways of attracting tourists in conditions of open borders; High solvent tourists flow, entrepreneur chooses on his own the most effective base circle for the client; Possibility of using any effective management scheme in tourist business management, which may increase the profit margin; Weak points: Limited level of using existing resources compared to the planned economics; Limiting role of tourist service supplier due to the priority of the client; Tourist flow imparity caused by seasonal and tactical fluctuations; Higher level of commercial risks, no state behind the entrepreneur; Problem of attracting a client, necessity of organizing corresponding advertising campaign and paying expenses for it; Strict requirements towards the personnel qualification, i.e. high professional skills in management and sales.

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Perspectives and possibilities: Offering Georgian seaside and mountainous resorts service to the tourists of any

country of the world; Freedom of creativity;

Using any form of service in situation of demand;

Possibility of maximal development of Georgian natural climatic and historical archeological tourist potentials. Risks and dangers: Strong dependence of tourist flow on the non-commercial factors (political stability, popularity, risk if epidemics, force major, gossips, etc); In the conditions of high personal interest in market economics, well developed tourist sector strongly affects national mentality and leads to degradation, transforming into servant nation; Growth of crime rate, spreading epidemics and danger of losing national identity (which can become critical for a nation of 4,4 million of population); Easy money made in tourism business corrupts population, losses their balanced development stimulus, prevents development of high technological economy, decreases motivation towards education. For the reason of state politics documented formation Georgian department of tourism and resorts is systematically making marketing research of the tourist market. The results of
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these researches are available for the representatives of the private sector of this business. This material is necessary to make activity planning of tourist objects. The roll call shows the situation on the market and tourists requirements considering which increases tourist attraction of the country. After the end of the transition period the tendency of growth of foreign tourists flow becomes obvious. (Appendix, Schemes 7, 8, 9, 10)

2.5 Tourism during planned and market economy conditions To analyze assisting factors of the tourist sector development in the planned and market economy conditions, it is necessary to define correct criteria for comparison. Their quantities evaluation is impossible due to theoretic and statistic difficulties, but we can compare them at qualitative level. Indicated scheme confirms that in the conditions of market economy potential of tourism development is increasing together with its market volume and entrepreneurial freedom, Also, the level of professionalism necessary for success is growing together with possible risks. It is much simpler to work in the conditions of the planned economics. Much less problems need urgent solving. Relativity of possible difficulties is, as the essential problems are formation of demand, attraction of tourists, regulation of payment procedures, acquisition of resources and meeting tourists and a lot of other problems are solved at the state level, having legal power according to the plan without interference of local management. (Appendix, scheme 11)

40

Working in this regime limits creative potential of tourist object management and motivation. Management is obliged to operate exactly according to the planned requirements without any creative deviations. According to this points of view, management of the tourist objects working in this planned economics regime looks like a huge international company functioning rules where the lowest structures working rules are strictly controlled by the upper corporate structures. As an example we can name a fast food network of Mc Donalds, where the system of sales is hitting the highest ranks based on unprecedented standardization level. Technology of food processing in the network, assortment, politeness of personnel, dress code, trading procedures are repeated exactly in every. . . . but the lowest circle has no right to change anything in the working rule confirmed by the head office. Unlike the planned economy, in market relations an entrepreneur is obliged to solve a lot more problems. He can provide service to a bigger volume of tourist market, due to this he is obliged to adapt very quickly to different demands. In the market conditions no one will advertise service for an entrepreneur. He will be obliged to take responsibility on income misbalance produced by flow fluctuations, to think about optimal price, personnel motivation and preparation, acquisition of resources, control of their quality, organization of entertainment and a big number of various issues. Also, even in the tensest working conditions he will not be sure in success, as their competitors do the same and maybe doing better than he. This unfinishing competition struggle makes human relations very tense, but in case of success this is compensated by higher motivation. It is equivalent to a human freedom. Creative freedom is no less important. In competition there are no dogmas; - Success is reached by

41

creative people only, if a little bit of commercial fortune, a lot of hard work and knowledge is added. Chapter 2 conclusions. Natural climatic conditions of Georgia, its historical past, architecture, tourist infrastructure, total level of economic development in the country and national mentality objectively create favourable environment for tourist business development in the country. During the period of the planned economics, the infrastructure of tourism business is created, neighboring spheres economic growth is stimulated, rich traditions of tourist service are formed. This has determined formation of intensive circular tourist flow (4,5-5,0 million tourists) and recognition of the country as the most recreational republic of the USSR. During the transitional period in the hardest social economic and political cataclysms, criminal chaos, all possible crisis and hyper inflation, civil war and separatism, occupation of several regions of Georgia, tourism in Georgia practically disappeared. At the same time, in the transitional period privatization of state-owned tourist objects has started and simultaneously corresponding legislation was formed. To encourage stable development of tourist sector in Georgia several legal norms were adopted (2 laws, up to 20 presidential orders, legal regulatory industrial acts etc). This necessary legislation has enabled development of sub sphere. Tourism at the state level has been accepted as priority direction of economic development. Transition into the market sector and based on the activation of the private initiatives factor, a developed complex of tourist service has been created in the country; it grows with
42

characteristic technologies and traditions. Margins achieved in the tourist sphere have to be considered as a preparatory stage of further development of this sphere. Activation of complete potential existing in the resort and recreation locations within the country is far from being finished and neighboring countries competition is not a difficult barer to overcome.

Chapter 3. Tourism management combining planned and market approaches

3.1 Usage of the planned approach at the tourism market As a starting thesis we can take the main value of the planned economy possible calculation of the best alternative option for optimal and balanced usage of the existing resources, that gives significant saving of time and resources . . . if their results will be determined by the most subjective factor of market relations on the basis of a human being as the model of regulation object (consumer and service provider, buyer and seller, planner and worker). On its side, market relations can be considered not as refusal of the plans, but as the union of objectively acting. Their reality is not depended on the evaluation of managing team of the object. The plan can be fulfilled or not, objective laws of nature are working all the time and are fulfilled. Therefore, the only way to fulfill the plan is to compile it based on the acting laws of

43

the market relations Laws of the market relations always provide optimal balance movement towards the balanced price. Despite this they have several serious defects (Campbell R. McConell. 1992), when this skill of theirs is blocked: Effectiveness is quickly decreased together with limits of competition, also in the condition of globalization, the competition decreases; Market economy is using ineffectively its resources for goods that are classified as luxury items and prestigious service. Due to this, service content becomes less important and the consumer impression on this service decides its value; Market system does not consider separate items and service priority and expenses if they are given for the market by means of outer factors. Recreational treatment is useful for everyone, but this can afford only solvent tourist; Market economy considers only entrepreneurial subject interests and not the necessities of the whole society. For example, Gudauri resort owner will invest in skiing track renovation (reinvesting in his own property) but will not reconstruct the roads to it; Market economy is a dynamic system. It tries to balance price and service, but fails to do so, because of the non-flexibility and unduly information of market members. This causes the cyclic character of its development, when economic increase from time to time is substituted by depression and crisis. Due to the abovementioned defects in 21 century market economy more and more acquires a regulated economic system character. This confirms once again the necessity of planned and prognoses economic processes. Especially, it is clearly seen this necessity during 2008-2009
44

global crisis when the majority of the developed countries have actively interfered into the operations of private sector through direct regulation, donations and forms of tax indulgence. Despite the difference in views between various specialists, we can differ two main groups who express opposing approaches towards state regulation. To study the reasons, let us consider the Curve of the offer in various levels of market deficit conditions (Campbell R. McConell.1992).

Price

Q1

Q2

Offer

Picture. 2. Joint offer curve in the conditions of various markets (Campbell R. McConell. 1992)

sector O-Q1 characteristic to deficit market (effect of price is less than production volume, `canesian~ sector); sector Q1-Q2 characteristic to a lesser deficit market (effect of price grows over the production volume, transitional stage);

sector >Q2 - characteristic for developed market (price closely correlates with volume of offer, - a sector of classical theory).
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In the conditions of the planned economics Georgian tourist market development stage (within the USSR) was characterized by market defeicit. It was well declared in the Cainsean theory on state regulation effectiveness (sector O-Q1). At this stage Georgian tourist infrastructure did not satisfy existing local demand (due to `the iron wall~). For tourists themselves the tour were cheap or free. Distribution of the tours was made in centralized way. Also the same way their service expenses and resources were planned and were received by tourist objects within the corresponding limitation of the distribution. This was a well constructed system where tourist infrastructure functioned at its possibility margins but still could not manage to satisfy existing demand (an ideal situation for the provider). Accordingly, the main requirement of the planned economics spending of the given resources within the plan; it was not so difficult and did not require high professionalism of management, especially in the conditions of decades of growing and stable demand. The situation has changed dramatically during the period of transition from the planned towards the market economy when due to a number of circumstances the directing institutions were blocked simultaneously at one and the same time whereas market mechanisms have not started working yet. Also, there was an addition of: 1. Sudden seizure of distributing resources. 2. Sudden malfunction of the demand/distribution system, blocking of transport ties with the tourist flow formation regions. 3. Physical destruction and robbery of tourist infrastructure. 4. Increase of crimes rate in recreation zones (and in the whole country), start of the civil was on the 50% of the territory of the country.
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5. Paralyzing operation of all types of transport. 6. Serious obstacles and switching off energy supply. 7. Hyperinflation and accompanying stagnation etc. As a result, a demand on one side and offer on the other, have dramatically decreased and the business has terminated. Despite paralysis of resort infrastructure since 1993 market relations have started formation and infrastructure also gave signs of recovery. However, Georgian tourist infrastructure still does not fully use even 50% of its present potential, i.e. it stays in the zone 1 of the picture. 1 graphics. In case of further development of the business and intensive usage of tourist infrastructure (80-85% throughput capacity) the activity of market relations is revealed more actively, however after reaching 2 points, their action becomes more essential. Today, clear outline of market laws and relations is noticed only at the peak of tourist season, when the tourist infrastructure is heavily loaded. Considering the abovementioned we can state that at the given stage Georgian tourist market throughput capacity is not fully used (except hot tour season), whereas effectiveness is far from effective maximum. In this condition the most clever management strategy will be concentration on competition increase events and tourist flow attraction transforming into the central goal of the business sphere. This should become the aim of tourist objects corporate and calendar and long term plans, their technique of working out was well developed while their operation in the planned economy regime. Based on the prognosis the detailed plan of possible expenses is prepared and their
47

correctness towards the profit. It is very important to classify exactly the expenses according to the groups of service to find out their exact purpose, aim and necessity. We divide these expenses into two groups: Direct expenses i.e. expenses that can be directly classified as service, tourists. For exactly, expenses on food, hotel service, skiing track elevator fee, transport fee, etc. when service is doubles the expenses double too. Indirect, constant expenses cannot be classified towards service or territory. For example, rent or amortization expenses, building security and renovation expense, administration personnel salaries, all types of VAT expenses, internet, and advertising. etc.

While compiling the plan one has to analyses all types of expenses:

Tourist throughput capacity and character which one of them is the most profitable? According to the territory of sales what country tourists service is the most profitable? According to the capacity of sales what discounts on sales are more effective and profitable?

Share of each tour agency in the profit who shows more profit? According to service package share of each in the profit, etc.

According to the tourist object size, the analysis is prepared using the usual analytical schemes (let us say in Excel) and also in special analytical software Avision.

The plan, as well as the prognosis, requires constant control and correction upon request.
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The frequency of checks depends on the company (once in a month or in a quarter). Compiling the plans is not a onetime task; it is a constant, permanent and endless process. To compile a plan one needs:

Expenses on the plan should not exceed the saving achieved after its implementation; The plan should be flexible it should not limit the speed of reaction of the company; The plan should outline only general goals of the company; The plan should not increase real demand on resources; While planning company spends money that is not received yet; The plan cannot be better than its basis, better than prognosis.

The structure of the plan is not strictly regulated but often the detailed plans include:
1. 2. 3.

The goals of the budget period. Sales prognosis and goals details according to the tourist zones. Service plan according to the service types which include the following plans on main personnel, materials, purchase, VAT expenses, etc.

4. 5.

Expenses plan for tourist service sales. Administration expenses plan.

Sales prognosis and service plan are both evaluating income, the rest plans are expense evaluation. To regulate this process the top management of the company makes a list of rule on plan compilation. It formulates total outline of company goals according to income and profit, volume of prognosis sales and net profit, necessity of investment, characteristics of
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competitability. In the same documents we can find economic environment of the country and market situation forecast, also a short analysis provides market volume evaluation, competitors potential evaluation, state programs and politics affect on entrepreneurial activity, etc. After the study of the abovementioned document the managers of all sub departments of the company compiles department action plans, reflecting demand on resources, purchase of materials, total volume of finances, presumed income, and other characteristics description. These plans are forwarded to the planning structure to study and correct. It needs emphasizing that from the sales prognosis is the starting point of compiling plans. This prognosis usually, is done according to the time, territory, product, department of the market, as in monetary form so in natural dimension. Usually, three months sales plans are more detailed than quarterly plans of the following period. Prognosis of expenses is more difficult than of revenues. The number of expense categories is much higher than number of revenue sources. A special attention and analysis is needed to plan capital expenditure expenses. One has to consider always an existence of alternative expense options. For example, rent instead of purchase, repair rather than investment into the new equipment, etc. The main items of operating expenses are purchase of materials, salaries and VAT expense. Main company profit and loss report is calculated by multiplying service volume on standard expense that is why this calculation always starts with sales forecast. Profit and loss report is compiled in every department. Their variety and number is characteristic, than based on these characteristics, a summarized schedule is compiled. It is detailed with the types of
50

activities, totals are calculated, income forecast and possible profit. Permanent expenses never stay really permanent; however changing expenses are rare proportional to the volume of the produced goods (service). That is why, in optional plans the margins are indicated where permanent expenses are calculated as permanent. As a rule, this optional plan considers 10% of the plan of production, division on 20% changing zones. For the reason of visual illustration of the above mentioned it is reasonable to define volume of service of zero profitability company or minimal volume of profitable company. This will define the extreme margins where everything below it is unprofitable activity. Simultaneously, its low value tells us of its strength against risks and seasonal fluctuations. Revenue and total expenses lines crossing point abscissa defines zero profitability point. Operating program which is higher than equivalent program provides profitable commercial activity, otherwise, - losses are inevitable. The aim of the plan is:

to attract attention of the manager towards this or that side of the company activity; to compile purchase, expenses control rational politics; to make optimal planning of financial flows; to implement choice of the most reasonable prices and discounts; to evaluate new service types and technologies expediency.

Role of direction in expenses control can be outlined in the following issues:

Compiling company expenses control system; Analysis of the scheme of company management organization (every position should

51

give more than the expenses on it);

Company organizational politics analysis (forms, calculations); Study of service provision system, including:
-

analysis on material receiving, storehouse analysis, service-zones technological research, food and service other functions analysis, repair and supporting service analysis, reporting schedules preparation, controlling financial expenses.

Financial report is a means of management but does not substitute management. A plan is an instrument of the management but it is not its substitute. The best financial report can be useless, if it is not fulfilled. This will happen in case of simple and clear restrictions to reach plans increased effectiveness:

Administration will believe financial reporting and will implement it exactly; If company organizational structure is effective; If accounting and expense list are real; If reporting is rational and effective; If financial reporting is sufficiently flexible for changes.

Financial reporting is planned in the advertising, as certain percentage of service volume

52

or profit. As a rule, new companies spend more on advertising than traditional companies. This issue is especially vital during foreign tourists attraction and the tourist market of the world is very competitive and it has a lot of alternative, and Georgian resorts are considered as a new subject there. Sometimes expenses on advertising are determined by the amount, given for one service package. In other cases while determining advertising expense usually special research is being performed. To achieve successful result, company usually spends 10 % reserve of its income on advertising. Clever management of finances means where, how and when should existing capital be used to achieve maximum effect. How and where depends on company strategy and management plans. When depends on plan indication and level of effectiveness of every department. General plan of the company is formed as the summary of all its department plans. Long term expenses plan is used for control and evaluation of the big investments long term effectiveness evaluation. Current operations plans (no more than one year, sometimes one week, month, quarter) is used to plan operational activities. A tourist company can use a long term (2-3 years and more) plans for advertising activity, for creation of new routs and service zones or expansion, for a long term projects (construction, roads, skiing tracks and alpine routs, etc.). Current operational plans often start from sales forecasts and include service zones operating plans, realization expenses and administration expenses plans. Financial plans can be divided into cash plan (financial flows) and long-term investment

53

plans. Planning period usually lasts for one year and is determined by sales forecast. If company uses permanent planning method, issue of periods is never discussed. Indicated approach is used in case of a quick changing situation and is reviewed from time to time depended on the results achieved. The most widely spread form is compiling plans from time to time, for example, once in a week or month or for every 1000th tourist. Using several variants of the plans company determines its activity for various levels on manpower and materials requirements (optimistic, realistic, pessimistic and situational forecasts). The plans are based on inexact forecasts. Correspondingly, it is considered reasonable to compile several variants of plan. Works organized to compile the plan according to the terms make up from 1 to 3 months period. By the order of a manager a person in charge is named who prepares statistics and plans himself. In big companies to make a plan for operating personnel, budget references are being prepared. This reference book is prepared by a director in charge of planning. It contain all necessary instructions and information on presumed sales, presumed profit, presumed demand, presumed increase of personnel, etc In case of existing a budget group, the reference indicates their rights and it is a counseling body. Operational plans enable to make operational and trading storage coordination based on sales forecast. This is company volume outline during the budget period for satisfaction of sales demand. On its side, it contains main personnel, materials, purchase and VAT expenses plans. Starting operational draft plan, as a rule, shows only volume of service, which is necessary

54

to satisfy existing demand. It is not shown from the point of view of expenses. In small tourist companies operating plans is made up personally by a manager, in big companies operating plan is made by a budget group, all interested and competent persons are participating. During quarterly annual detailed planning it is often prepared for a more long term period (3-5 years), especially research, capital investment, personnel preparation, equipment, planned in the sphere of reorganization of the company. According to working service zones the evaluation of expenses becomes their current operational plans. Working service zones joint evaluations prepares department and separate objects plans. A simplified service plan for X period on one type of tourist service contains:

service volume according to sales forecast; desired storage for the end of planning period; demand of the served tourists in necessary quantity of resources; resources remain minus the starting planned period. A more detailed operational plan contains:

quantity of working days per month; necessary level of everyday service volume; Usage of operational powers intensity in the planned period; Number of personnel (sometimes direct and indirect working expenses of hours per week, month, quarter);

Power of Equipment Park and vehicles working time in hours according to the definite service type.

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Materials plan is a document which shows definite materials, (food, hygienic materials, wood) considering demand on time and service type. The same way a purchase plan is prepared. The same way is sales forecast prepared. But the expenses are not considered here either. Usually, materials are divided into 2 categories main and supporting. Main materials represent necessity of the service, supporting serve additional technological processes. Purchase plan is formed based on the materials plan (what needs to be bought, how many, at what price and when). It is essential, that besides the quantity, this document indicates purchase time and probable price. This way the main materials cost is considered, which together with the direct labor expense creates about 5% of production cost. Direct labor expense plan (cost and hours considering qualification) is formed to define the requirements to hire personnel. Labor cost is divided on direct and indirect labor expenses. This plan is formed by the service department together with the HR and accounting department. Salary expense is determined according to the norms. A VAT expense plan reflects distribution of these expenses and is usually is made in direct proportion to the main manpower costs or direct labor cost registration (per hours). Also, the distribution is made according to main personnel and materials, working vehicle-hours, etc. Service sales expense plan represents sales, until the tourist service expense. This plan is detailed according to the territories and countries where the tourist flow is created. Administration expense plan registers all expenses except service implementation and sales expense. As a rule, it often represents a stable, permanent expense that is why we are using previous reporting period to determine its factual expenses level.

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Cash (cash flows) or finance plan, is considered a basic mean of cash turnover. Some time ago it was normal when company kept significant financial reserve fund. But, improper planning can cause unpredicted expense neglecting by the majority. This will enable more amounts activated in the turnover. These decreases unused reserve remains of cash, and enable its using for other reasons. In the Cash plans all income and expenses forecasts are registered, as a rule, based on the sales forecast. Company prepares income registers and reporting period balance sheets. Predicted and factual income and balance sheets look like one another, though their content is different. According to the comparison of expected balance actives and passives in calendar aspect considers possible income and expense of cash, credit, or on the contrary, placing cash on the favorable growing bank account. Quarterly annual amounts plans evaluation requires more than comparison of factual and plans. It contains:

reporting in certain format which reflects all expenses;

rational program for frequent change/ repair of equipment; detailed plan for capital expenses, with annual saving calculation; determining effectiveness of factual investment.

The planned period usually compiles one year and is determined by service sales forecast. If a company uses a permanent planning method, this issue is not considered at all. Permanent planning is ised in case of quickly changing situations. During this period every month plans are corrected according to the factually received results.
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Periodic compilation of plans is mostly accepted. Cash plan period usually is shorter than general plan. Expenses plan has better forecast than income forecast. If in any period the deficit of respires is expected, then it is necessary to consider credit line arrangement, in case of overflow placing the resources on the growing bank account. Capital investments plans are often long term, investment plans are short stage by stage (often monthly) accompanied by reporting. Various reporting periods are used - monthly, quarterly, annual, 5 year. Usually, the planned period concedes with the financial year. Financing movements planning main foundation is cash plan. This is related mainly, with the demand planning in the financial actives. Any moment company must be solvent, i.e. liquid. Also, capital turnover contains current actives over short term obligations, in comparison:

current actives are cash and bank accounts remains, debit accounts minus dead debts, other short term obligations and accepted accounts by the debtors (minus reserves), trading remains etc.;

short-term obligations contain accounts ready for transfer, amounts, payments during payment period, long term obligations, payment deadline of which happens at the current year, dividends ready for transfer etc.;

As liquidity is a company possibility to pay financial obligations any moment, it represents its image, hope, stability, possibility to have certain discounts with the creditors, chances to take quick loans.

The most effective means of control of the fulfillment of a plan is analysis of amounts movement, or factual and planned comparison of expenses according to the sources and types of

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expenses. To compare these characteristics usually income and expense registers are used with indications of sources. Cash flow plan is often used in management of financial flows. If factual parameters do not coincide with the planned characteristics, then expenses rules or plans are corrected. Often daily cash flow plans are used for this purpose and better analysis. Usual mistake is made when expenses are registered as capital investments or main funds instead of usual operating expenses. In such cases, main funds are increased, but expenses are decreased, i.e. income tax is increased. At the same time, registering capital investments to the operating expenses can become a reason for tax inspection penalties. From financial point of view capital investment analysis goal is to avoid un necessary capital expenditures. A well compiled investment program (plan) needs to satisfy the following requirements: Analysis of necessity of existing main funds. For example, not so often the equipment needs replacing earlier than it can physically stop working, due to its amortization;

Existence of investment capital to avoid worsening of current financial situation; Beefier equipment replacement or repair, its technical condition needs to be studied and etc.

As a result of such analysis the foundation for replacement of fixed assets is prepared expensive repairing, old technology, insufficient power of the equipment, low quality of service etc. company can formulate its investment politics with a formula: equipment

replacement/renovation once in every X year. Main criteria of company successful performance

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evaluation are its sales and income growth tempo. If the sales and income do not grow, it is not qualified as successful. That is why it is necessary that company management needs to plan growth and needs to grow itself together with it.

3.2 Market mechanisms in tourism sphere Price is the most important characteristic of tourist service. As a rule, thisis the first question, that a potential tourist usually asks. All types of prognosis finally are connected with the offer price. Service provider is interested in not only information on how many services will be sold in the given market and given period of time. A service provider is interested to receive an answer on the price of offer. This where the revenues flow, operating expenses and labor, energetic and other many other prognosis are concluded. Thus, pricing problem is directly connected with the company current activity planning. The price should not be lower than costs or higher than solvency of the market. This circumstance will create financial problems for a company. In the first case, the reason will be bigger volume of the planned expenses than revenues (losses), in the second case, decrease of factual revenues (goods were not sold) and permanent planned expenses share increase in the expenses structure. Correspondingly, this will cause zero profitability of service volume margin level growth; it is possible, losses, if factual tourist flow appears less that this level. Every moment, any market object can always be given a certain optimal price, which gives
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maximum total profit volume. However, we should noted a certain circumstance of market fluctuations and its influence on price, whose optimal meaning always changes or it has a very dynamic character. The skill of the entrepreneur is in constant monitoring of the current situation on the market and as a result, investigates; notice and/or prognoses on time this changes. Produce a new optimal price to it. Determination of price according to analogy is mostly spread, according to other resorts pricing. It is difficult to speak about optimal option in such a case as competition and in equal prices case sometimes it is more profitable to decrease price. To grow competitability of your own service such steps increase additional tourist flow attraction. Such strategy decreases profit norm on one type of good. At the same time sales growth can not only balance but bring additional summarized profit in case of correct pricing and organizing simultaneously (or earlier) corresponding advertising campaign. Two factors limit choice of price formation strategy: from below costs of the offer, from above level of consumer solvency. To maximize profit, Tour Company will try to decrease its costs as much as possible or increase the price. The costs are known to an entrepreneur in advance, often this parameter is used to define the price. In such a case a fixed amount is added to it (profit target strategy) or (more often) certain percent (strategy of receiving target profit norms). Sometimes tourist object tries to define the price according to the presumed service profitability or by certain percent of profit received by a customer. When forming a new offer, usually two opposed strategies are used:
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If a market receives the new offer positively, then additional investments are made (strategy of skimming milk); If new service sale is developing slowly and the customers doubt this service then on the contrary, then to stimulate the sales it is necessary to decrease the prices. In such a situation the special importance is given to determination of a model of a dominant customer, which could be:

a novator (2-5%), who will purchase a new service first, even at risk of his reputation or health; a fashion follower (10-15%), who is at his environment a person who dictates taste to public opinion. He creates fashion for this service, increases its publicity; a progressive (25-35%), who tries to keep in step with fashion and provides mass sales at the stage of sales growth to vital stage of a service; a sceptocal guy (35-45%), who will try to follow the accepted tendency of fashion and provides vital circle of the sales in the stage of expansion; traditional. a conservator (12-18%) reacts the new product only when it becomes a

In case of monopolist will try to implement: o growing price strategy, when average quality service is introduced to the market at considerably high price; o strategy of outer luxury, when a considerably low service is offered to the market at the price

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of average quality; o robbery strategy, when low quality product is offered to a customer at high price (air company Airzena tickets, certain restaurants at Chardin street in Tbilisi, bakery stores at Perovskaya street in Tbilisi, etc.).

Price formation in the conditions of market economy is the strongest instrument of regulating competitability, which can be used in various ways. Namely, the discount is: For a cash payment method (5%); For a quick bank transfer (0,5% for one week); For the big volume of purchase (up to 10%), for example, in case of group order often the additional service is offered and not a price decrease; For the purchase in an unfavorable season (up to 30%); In case of accrues service (up to 40%) a flexible discount is offered for constant clients. It should be noted that, for an adequate reaction of a consumer on price increase can be considered farceuse of sales on the above mentioned increase of prices, on the contrary decrease of price increases sales. This rule does not concern only a so-called GOFEN product, i.e. luxury and image service. For example, Gudauri resort is becoming more prestigious show off which for one and the same service the prices are higher here than in Bakuriani. Price influence on the sales volume is increased according to the flexible prices criteria, which are equal to the ration between price change (%) demand change (%). For example, if the price increases by 15%, and demand decreases by 30%, then flexibility equals to -2 (this is quite high level of flexibility).

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The real evaluation of elasticity is easy, if retailer service price changes in small limits from time to time (by 5-10%) by its simultaneous registration of its sales volume. When the flexibility is known it is easy to calculate, how the price should change to receive maximum level of profit. The same way is determined cross flexibility which in case of price (%) change for certain product is equal to a ration to other product sales (%) change. This approach is very practical in the tourism sphere, as the change of the competitors price acts for all participants flow. By this monitoring we can fix a cross flexibility level. If this ratio is positive then we have a case of mutual substitution, if negative mutual compiling, if 0 there is no connection between them. In case if the product can be compiled, a seller can decrease the price for the product of this pair (relatively cheap), in order to receive, as a result, the second (more expensive) product sales growth. For example, the price of the tour can be decreased and the catering price is increased. While practicing policy of equal prices, company loses certain part of profit, as solvent and motivated tourist is ready to pay, in fact, a higher price than balanced one. To decrease this loss to minimum and tourists of various solvencies will be offered one and the same product at various prices than such market needs to be segmented. It is implemented in several ways. 1. o tourists; o sex principle less price for women in the hotel night bar and club (or Discrimination of a tourist: age principle less price for children and aged then for a middle aged

free) compared to a man;

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income principle at the unorganized market a Free entrepreneur sells

service according to his own understanding (considering solvency). 2. False variation of product prices according to pseudo categories. For example, many similar drinks prices are regulated by resorts restaurants by the etiquette. 3. Differentiation of the prices according to the location. For example, a cup of coffee from the automatic device may cost 0,5 GEL, in the hotel caf 1 GEL, on Tourist rout 1.5 GEL, in the restaurant 2,0 GEL, in casino 2,0 4,0 GEL etc. 4. Price differenciation in time. For example, all products and service at day time costs cheaper than in the evening and at night. During the season peak the seaside rent is 3-5 times higher than after the end of the season. 5. Introducing the offer through coupons and cards. As a result of price discrimination to receive the effect there should be several conditions: demand; cheap service segment consumer should not have possibility to sell the same market should become easily segmented according to the intensity of solvency

service for higher price at the other segment taken by the same company in the market; Competitors should not have possibility to sell its service cheaper where the given

company sells it at higher price; To implement discrimination the expenses spent should not exceed additional

revenue flow; The form used for discrimination should not contradict the Law.

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It is very essential that a tourist understands the price as fair, especially in case of high price. To assure in this sometimes it becomes necessary to describe the expenses of the company. On the basis of fixed price and well organized sales forecast it is possible during a definite period of time to plan company total income. Due to constant expected changes of the prices the exactness of such forecast is the highest for one month, less for 3 months and approximate for one year period.

3.3 `The planned market economy~ (tourism example)

According to the planned and market economic combined concept the basis of planning represents: Analysis of existing marketing situation monitoring results:

placing exact and realistic goals

according to development

by calendar (weekly,

monthly, quarterly), short term (1 year), middle (2-3 year) and long term (5-10 years); Choice of the alternative options to reach the placed goals. In the process of usage

investment effectiveness parallel and succession evaluation (at first long term, then middle term and at last short term); To everyone of them the best business strategy choice and control signs fixing. Also, as a

joint result of 1-2 middle term planning period the long term tasks signs are considered, and 2-3 short term periods summarized result represents a middle term period signs; For every short term and middle term periods we implement complex planning and

simultaneous forecast of tourist object economic power changes ;

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Ending of reporting periods and by factual comparison with the calculator we make

decisions on continuation of the earlier compiled plan or its correction; In case of correction planning and monitoring process repeats.

This way we receive a permanent planning process, forming of its separate plans and their corrections are based on the objective acting laws of market relations. By the given scheme the basis of the planned market economy is permanent monitoring of the real action plan. By its results we can judge effectiveness of the management procedures performed in earlier period and on the most influential effective points of future action strategy. As an example we can consider year 2008 May June Plan transformation schemes. The above mentioned questionnaire is performed for Georgian tourist market research. There were 1012 foreign tourists interviewed. The length of interview lasted for 20-25 minutes. The locations were Tbilisi International air port (501), Sarpi Border Crossing (211), Red Bridge Border Crossing (198), Sadakhlo Border Crossing (87), Lagodekhi Tsodna (52), Batumi Port (5), Poti Port (5), Vale Border Crossing (3). The results of the interview showed the following. (Appendix, scheme 12)

Special meaning is given to the period when such research is done with the assistance of the tourists who express their evaluation, comments and recommendations. This evaluation is rather high (according to the expected or higher 97,8%, unsatisfied 2,2%). It is confirmed by the answers of the tourists who are eager to share their recommendations to visit Georgia with their

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friends who wish to come for holidays (95,3%) and who are ready to return to Georgia once again (88,8%). Despite this, unsatisfied tourists reasons should become a subject of study to eliminate their preconditions A special attention should be paid to the tourists recommendations on tourism development actions. Part of these materials can be included directly into the tourism

development program due to its detailed advice. For example, road renovations are asked by 6,9% of tourists, catering service improvement 6,4%, using inscriptions in Latin more widely 5,0%, more information regarding tourist locations and sightseeings 4,9%, cheap hotels 4,5%, improvement of hygienic issues 4,2%, knowledge of survival English by personnel 3,7%, increasing advertising in foreign countries 3,5%, using internet more widely 2,1% . It is important that tourists evaluated subjectively all acting prices for local price formation reasons. 45,5% of tourists considers that acting prices are higher than in other countries, 38,6% - consider then equal, however 13,3% - are surprised with their low values. These evaluations are depended on the countries of origin of tourists, but together with information on tourist flow citizenship structure this is a good orientation mark for price correction according to the separate objects. The results of mentioned research reflect real tourist business situation in Georgia. This statistics can be considered as a starting point of its basic calculation. Corresponding characteristics from this base showing this or that direction in the managing process can: 1. 2.
3.

Be planned using approach described in the previous chapters. Be registered in a form of statistics of expenses and received results. Be evaluated from the point of view of flexibility of prices.
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4.

Be used in the following reporting period for more significant investments.

The planned approach that is used represents a good instrument that enables plans, compiled from limited resources in a balanced time, and according to executor, well organized, detailed projects implementations. While practical implementation of these projects factual influence

of permanent monitoring results on real market relations are used in corrections of business plans. Union of these two approaches creates methodology of the planned market economy management which is based on non directive but indication planning. Such type of plan is used as an indicator, orientation sign for taking management decisions and not as a necessity. Praxis of such indication planning exists in Georgia as in industrial so in macroeconomic level. (Program of Economical Development and increase of living standards, Tbilisi. 2003)

3.4 Global tendencies acting in the world

After leaving USSR Georgia was not developing in isolation. Destruction of Iron wall has finished comfortable conditions of development. The country has opened the doors to the world and correspondingly, the events happening in the world have poured into the country. They have influenced social and economic processes taking place in Georgia, including tourism segment of its economics. In 2008-2009 global financial crisis proves cardinal changes happening in the world, which

69

have forwarded other new priorities and has changed the power balance of economic political centers in the world. It can be stated that for many countries this crisis became a border line between the past and the future. After this it is impossible to live like before. Everything is connected with each other in the world. Everything changes everything develops. These tempos of development differs within the countries due to various factors. Accordingly, outsiders of yesterday try to push the vanguard positions today, the leaders of yesterday try with all their resources to keep their positions. Besides, a number of global processes develop in the world whose influence spreads on global scale. Their consideration is vital for every country, especially for such small countries like Georgia. It is especially

important to consider the circumstances of such processes in such sensitive sphere like tourism. One of such global factors is already indicated global financial crisis, which has once again de facto proved the end of wild capitalism stage and its start of the regulated stage of its development. The crisis has revealed world economics weak points and showed real distribution of powers between the main players in the world market.
1. Global warming factor has caused Oceans and Greenlands icy cover melting. On

its side this decreases contain of salt in the ocean waters. As a result, warm ocean gulfstream stops its movement towards the North earlier. Due to this warming natural giant stove which increases average annual temperature by 8-90 C, weakens its positional influence. As a result the instability of weather increases, the variety of typhoons and natural catastrophes grows, it is expected that in North America and European countries winter frost will increase; summer will get shorter and etc. in economic sphere it is an increase of expenses related to cold

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weather, decrease of agricultural crops amount decrease, worsening foreign trade balance and population living standards growth will stop, i.e. competitability will fall down. 2. Developed industrial countries natural resources stocks are almost empty. European economics faces development problems. As a way out of this problem two ways are analyzed import of natural resources from far away locations or transfer of manufactures closer to them. Concluding from Kyoto Agreement (quoting exhaustion gas by countries), approximately the accent will be made on transfer of factories near the locations of resources to Africa and. or Central Asian countries. The last is creating reanimation of TRACEKA to the East and is a precondition of dramatic increase of transport corridor turnover through Georgia. 3. Export of certain resources to Europe will be necessary. Among these the most necessary resource in the nearest years there will be drinking water that becomes a deficit already today. The biggest renewable stock of drinking water is located in South Caucasus (Georgia), and for these reason the international importance of an exporter of such a vital resource will grow , namely in a form of tourists flow growth. 1. High living standards of European population determines high prices for

operating expenses. On the contrary, same expenses of the developing countries are less, which decreases costs of the company and increases profit norms. In Asia and South Caucasia there is a transport infrastructure, which will join European railway network through the undersea tunnel going under Bosporus. As a result, from Western seashore of England cargo

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will travel CIF Baku, Azerbaijan without transit reloading, or by raft to cross Caspian Sea or its Northern part to reach Central Asia and Chinese Eastern seashore. 2. An believable development of internet enables possibility to manage companies

from distance, which significantly eliminates problem of control of distant companies. 3. Old political unions of the world have competitors, including a so-called BRIC

(Brazil, Russia, India, China). According to the opinion of experts from the famous investment bank Oldman Stozk this union will exceed share of the G7 in the global economy. By main resources these 4 countries occupy much more shares of the global resources. Three of these four is located in the Central Asian countries and around Caspian region. This means that the vector of future global political economic interests will be directed towards Asia (via Georgia). 4. This conclusion is based on the arguments that the most significant part of the

current remaining leading global energy providers (gas and oil) is located exactly in this zone countries of Caspian region, which have already saved a huge storage of oildollars and have created financial potential of business partnership with the Western companies.

From the above mentioned we can make conclusion that vector of development of global economics is directed towards Central Asia, Caspian region. Together with oil dollar storage these countries form a precondition of the huge economic centre of the 21 century. In case of implementing this scenario the role of South Caucasus, namely Georgia will intensively grow related to transport energy informational corridor between Europe and Asia. Increased turnover of cargo and transport, travelling service assists general economic
72

development of the country and particularly, recovery of tourist business. In the difficult natural climatic conditions of Central Asian countries western personnel will need some vacations to cool from Southern heat. This can be offered in a nearby Georgian recreation resorts, where tourist can get by plane in one hour.

3.5 Obligatory and assisting factors for tourism development

An obligatory condition of development of tourist sector of the Georgian national economy is political stability and keeping strong legislation environment. Form this point of view separatist regions (Abkhazia, Tskhinvali zone) where the central governmental jurisdiction is not spread are rather problematic. The main reason for this is an assistance of Russia for these marionette leaders of separatist governments, who for many reasons tries to keep in the South Caucasus its influence and 100% control. Small potential of Georgia, its main southern political opponent compared to possibilities of Russia stays clear that the indicated problem does not carry regional character. It relates to the bigger, global geopolitical centers (USA, Europe, Russia) opposing scale. In this matter the theme of Georgia must be considered as a small issue on which big bosses can trade between each other. In such a situation, unilateral choice of Georgia towards western values (despite its fairness) and ignoring Russian interests can end only by stopping the development of the country and its resources. i.e. blocking tourist potential or losing independence. In the country with low economic potential the social opposition spirit is strong, which causes political instability. Besides, in the zone of military political opposition it loses any perspective to discuss tourism
73

development and invitation of guests. Thus, if Georgian central government fails to regulate its relations with Russia, tourist business and (generally all economics) have no future. Correspondingly, the obligatory condition for tourist development in Georgia is regulation of its relations with Russia and provision of political stability in the country. Without these conditions tourism business in Georgia will not develop.

Among the assisting factors of tourism development we can outline two groups of factors: - What country has from Mother Nature

- What needs to be done for the development of the sector. Subject of natural climatic attraction of this country for tourist business and its big potential has been already discussed in this paper, and it is unnecessary to repeat them again. As for the conditions that need solving by the professional of this field of business, we have to emphasize the following: 1. stimulation of tourist demand within the country and out of its borders: a. well thought and targeted advertising campaign; b. competitability of separate tourist objects in the market and permanent

monitoring and regulation of offer correspondence; c. Systematic analysis of tourist flow recommendations and consideration in the

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development plans. 2. Systematic information of tourist market subjects on the processes taking place in the

country and results of the research performed in tourism sphere. 3. 4. Adaptation of neighboring branches of economics to tourist business demands. Provision of embassies and other foreign representations concentrated in the Ministry of

Foreign Affairs of the country with advertising informational brochures and tourist references. 5. More active usage of internet to increase tourist attraction of the country.

For practical usage of the above mentioned recommendations it is expedient to prepare indicative forecast of all tourist objects and based on them to create correspondingly long term (5 yrs), middle term (2-3 yrs) and short term (1 yr) development plans, decided on quarterly and monthly calendar periods. According to factual situation based on monitoring it will be necessary to

correct all these plans permanently and to adapt constantly to changing market situation..

Conclusions of Chapter 3:

It is advised to use the planned economics approach towards commercial structures functioning in the market economy regime. It is based on market tendencies forecast and adaptation to them by the way of creation of the operating calendar plans oriented on complex, balanced usage of resources.
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Compiling of prognoses is based on results of marketing research of real market, growth of expectations received by several methods of forecasting and modeling of business processes based on Weber Fechtner Laws of psycho physiological reactivity of human beings.

The results of marketing research of definite tourist market are shown and based on them possible options of short, middle and long term plans are compiled.

As a result of market study the structure of expenses disclosed connects tourist service volume characteristics with corresponding financial flows. It can become a foundation for certain projects business plans financial profitability calculations.

Global factors taking place in the world are assisting in development of tourism in Georgia and stimulate increase of European tourists flow to Georgia. Also, it should be noted that without regulation of Georgian - Russian relations and change of our country foreign political orientation towards western countries for a more moderate one, economic perspectives of the country development, namely tourism, is unclear.

In case of solving main problems of tourist development, to increase its speed and effectiveness, it is necessary to work out and correct permanently long term, middle term and

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short term programs at tourist market by constant monitoring of current processes.

By marketing analysis of tourist market of the country, we received the following information on its development reserves, which activation needs increase of professional interference into this sphere simultaneously considering the planned and market relations basic issues.

Chapter 4. General conclusions. Natural Climatic conditions of Georgia, rich historical past and architecture, tourist infrastructure, general level of economic development of the country and traditions of hospitality create favorable environment for tourist business development. In the planned economy

conditions a developed infrastructure for tourist business has been created in Georgia, several neighboring branches have been stimulated towards economic growth, rich traditions of tourist service has been formed. This has attracted and formed quite a big tourist flow (4,5-5,0 million tourists) and becoming a recreational country again.
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To support internal tourism special information posters in Georgian and in foreign languages are prepared for different Georgian regions and selected tourist and resort centres, in particular: Borjomi region council, in cooperation with the Department of Tourism and Resorts designed and printed an information brochure on Borjomi region, including Bakuriani; It is planned to print digital map of Kakheti region in nearest future. The map will include information about resorts, historical and cultural heritage of the region, general infrastructure etc. Similar maps of Mtskheta-Mtianeti and Imereti regions are being prepared. Establishment of tourist information centres is being comleted in Mtskheta-Mtianeti, Kakheti and Imereti. It is foreseen to established centres in Tbilisi. The centres will support development of internal tourism and individual tourism in Georgia. (IMF country report No. 06/360 October 2006).

Tourist market limits determination is outlined based on its compatitability level considering geographical, pricing, exclusivity and other acting factors position, when priority of any factor compared to an average market level does not exceed 20%. Regulation of tourist flow serves In addition, optimal usage of investment resources in tourist infrastructure, goals to increase or decrease. A tourist as an object of managed procedures and decision maker is represented as a model of human psycho-physiological reactivity law of Weber Fechner.

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The just of the optimal management algorithm equals to tourist object infrastructure compatitability factual level and provision of constant equality of its potential. Use of planned economics approaches are offered for the structures operating in the regime of market economy. It is based on market tendencies forecast and adaptation for them and optimal usage of complex, balanced resources formed on the plans. Here, the results of certain tourist market research and based on them possible options of short term, middle term and long term plans.

As a result of market study the structure of expenses has been revealed, which joins tourist service volume parameters with corresponding financial flows and can become a foundation for evaluation of certain projects business plans financial expediency. Current global factors happening in the world assist tourism development in Georgia and stimulate increase of European tourists to this country.

The decisive factor of tourist market of the country is provision of political stability. It is impossible to solve it without reconstruction of Georgian central government jurisdiction in the separatist regions (of Abkhazia, Tskhinvali zone). On its side this requires to regulate relations with Russia who is assisting these regimes. Due to this, Foreign political direction of the country with western-oriented vector needs necessary corrections.

To enhance tourism development in Georgia it is necessary to permanently create a long

79

term, middle term and long term programs and perform their systematic correction along with the permanent monitoring of the current processes on tourist market. It is evident that there is great potential for tourism development in Georgia but it needs to be conducted carefully perhaps with a focus on key niche market development (properly organised cultural tourism; spa tourism etc) attracting markets from surrounding countries rather than concentrating on international or mass tourism. Possibly the countrys infrastructure at present is not developed enough to accommodate any type of tourism on a big scale even from potentially influential markets such as Russia and Turkey. In this respect, developing tourism based on its rich natural resources and geographic isolation could be its relative saving. Georgia also needs to keep an eye on the tourism development of destinations of a similar geographic and political stage so as not to make any similar over-development mistakes. In addition, a direct, even aggressive marketing strategy to define the country positively and confirm its image as a safe but exciting destintation to visit is a priority for potential visitors.

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Appendix 1

Scheme 1. Comparative scheme of certain parameters of economic development of Georgia and USSR. (1980- % - 1975)

94

Characteristic Territory MPopulation

Measurem USSR ent Dozen of 22402 sq km Million persons 1975 % 1975 % 1975 % 1975 % 1975 % 1975 % 273,8 124 109 129 128 124 122,8

Georgia 69,7 5,2 141 134 136 137 129 135,4

% 0,31 1,90 113,7 122,9 105,4 107,0 104,0 110,3

1 2 3 4 5

Industrial production Agricultural production Average annual capital investments Main Funds participation Retail trading turnover Average growth tempo characteristics

Source: (Georgian Soviet Encyclopedia, Book.8, 582) (Peoples Farming of Georgian SSR.1981. page.22)

Scheme 2. Structure of Sport tourism development in Georgia (1980).

# 1

Characteristic s total, members

partici pants 10146 0

montainei ous 772

wat er 40

skii ng 351

bicyc automob mot spale le ile o o 465 178 161 24

total

1034 51

95

2 3 4

Recovered rout Hiking Participants

146 11257 25661 2

14 88 687

3 1 12

1 3 249

4 26 378

2 29 898

17 27 625

187 1143 1 2594 61

Source: (Georgian Soviet Encyclopedia. 1981. Page.167) Despite the social economic cataclysms taking place after recognition of Georgian sovereignty, today there are about 400 operating resorts, several hundred hotels and several thousand family style guest houses (Source: www.welcome.ge). Despite this, the earlier tourist parameters of tourists flow (4,5-5,0 million tourists per year) so far need to be considered as marginal goal.

Hotels infrastructure in Georgia is well developed. According to the following site data (www.hotel.ge) in Tbilisi, the capital of Georgia (1,3 million people) there are over 120 hotels, 3250 rooms (with the average price per person is 105 US $ per night) and in Batumi province (120,000 people) 30 hotels with 700 rooms (with the average price of 50 US $ per person per night). There are also unorganized guest rooms of private individuals and family type guest houses widely available.

Scheme 3. Dynamics of recreational sanitary infrastructure development in Georgia

96

# 1

Characteristics Sanatoriums, resorts, total in thousands: Number of beds Used by X thousand people

1970 250 47,6 709,0 92 18,5 204,6 28 2,4 24,2 21 1,0 8,9 61 15,4 246,9 37 3,3 7,0 3,9 9,4 195,0 71,8

1975 284 60,5 957,9 101 20,8 240,4 32 3,1 32,3 19 0,8 9,7 54 15,1 221,6 40 2,8 13,1 70 21,4 435,5 94,6

1980 360 85,1 1289,0 110 23,1 279,3 31 2,8 30,7 21 1,2 15,0 68 21,4 328,0 87 9,2 50,7 74 30,2 565,0 127,4

1985

24 hour treatment sanatorium . Number of beds Used by X thousand people

Including children resorts Number of beds Used by X thousand people

Sanatorium - prophilactorium Number of beds Used by X thousand people

Holiday homes and boardinghouses Number of beds Used by X thousand people

Recreation base Number of beds Used by X thousand people

Tourist bases Number of beds Used by X thousand people Pioneer camps (like scout camps) Used by X thousand children

Source: (Peoples Farming of Georgian. 1981)

97

Scheme 4. Dynamics of Georgian economy in transitional period.

Characteristics Total internal product Total industrial product Total agricultural product Capital investment Turnover

1988 100 100 100 100 100

1994 27,8 15,6 49,2 2,8 33,3

1995 28,7 13,6 55,6 2,9 19,6

1996 31,9 14,2 58,9 3,4 8,7

1997 35,5 15,4 64,8 6,3 12,1

1998 36,5 15,0 59,6 13,4 20,9

1999 37,6 15,8 62,9 15,7 18,1

Source: (Chitanava. N. 2001)

Scheme 5. Average annual food consummation per capita (in kg)

Characteristics Bread / bakery products Potato Vegetables Fruit, berries, grapes Sugar

1980 190,0 46,0 79,0 60,1 44,8

1990 184,6 37,3 71,7 48,3 17,0

1995 153,5 26,8 55,8 36,7 6,0

1996 161,3 42,0 85,6 66,3 21,0

1997 154,2 44,7 81,2 60,2 23,0

1998 151,0 47,3 48,2 57,8 21,8

1999 141,1 47,7 55,2 43,5 21,8

98

Meat/ meat products Milk/ Dairy products Eggs, ea Fish/ Sea products Source: (Chitanava. N. 2001)

43,0 309,0 135,0 7,8

36,5 311,3 140,0 8,0

12,5 97,9 66,3 0,6

14,6 178,4 105,0 1,3

15,6 217,6 107,7 1,4

20,5 212,5 122,5 1,8

19,8 209,0 124,6 2,1

In a worse situation appeared its economics, electricity was not enough even for lighting. Manufacturing has decreased 6 times, agriculture 2 times, construction has stopped completely, transport could not work, and hyperinflation was at its peak. There could be no discussion on tourism as tourists do not visit countries with military actions, being at war. After the finish of the transitional period, security issue was a problem number one. (Scheme 7).

Scheme 6. Marginal parameters of Georgian economic security by year 2000

Characteristics # 1 2 3 4 5 Decrease level of the total internal product, % Decrease level of industrial manufacturing, % Population below living standards, % Unemployment level % Foreign debt, %

Margin 30 30 10 7 25

Factual 61,7 82,2 51,4 15,2 60,0

99

6 7 8

Expenses on science, % Life expectancy Crime level (one/10000 person)

2 70 500

0,2 72,6 1000

Source: (Chitanava. N. 2001)

Scheme 7. Dynamics of foreign tourists flow at the Georgian borders

Country

2000

2001

2002

2003 313, 4 282, 7 8,7 3,0

2004 368, 3 342, 4 11,2 5,0

2005 560, 0 533, 7 14,8 3,2

2006 983, 1 935, 7 19,4 13,7

2007 1056, 8 1009, 7 16,9 9,4

2008 1290,1 1243,8 17,5 9,5

100

Total (except 387, CIS) 3 Europe America East Asia/Oceania 347, 4 10,8 7,2

302,2 398, 5 276,6 268, 5 7,3 5,2 8,2 6,9

East South Asia Africa countries Azerbaijan Byelorussia Turkmenistan Moldova Russia Armenia Tajikistan Uzbekistan Ukraine Kazakhstan Kyrgyzstan

2,2 6,1 0,3 CIS 221, 7 55,2 1,2 3,9 2,9 64,7 72,2 0,2 1,4 18,1 1,6 0,4

1,3 3,8 0,7

1,3 5,8 0,6

1,8 4,5 0,3 174, 0 42,8 1,1 0,2 2,8 46,7 61,4 0,1 1,5 15,4 1,4 0,7

1,6 3,5 0,8 218, 6 63,7 1,2 0,2 1,8 61,4 71,3 0,1 1,7 14,7 1,7 0,9

1,0 6,6 0,4 366, 1 153, 5 1,2 0,7 1,6 90,3 100, 5 0,3 1,2 12,4 2,8 1,6

2,1 10,0 0,8 634, 4 244, 4 1,6 1,0 1,5 104, 1 245, 2 0,3 1,3 29,2 4,4 1,6

2,5 10,9 0,9 655,7 281,6 1,6 0,5 1,2 91,4 243,1 0,2 1,5 29,0 5,1 0,8

3,3 13,5 0,7 789,5 344,9 2,0 0,5 1,3 114,5 282,0 0,2 1,5 33,0 4,5 0,8

184,1 176, 4 56,9 1,0 0,2 2,4 32,7 75,4 0,1 1,0 13,1 1,1 0,4 52,1 1,0 0,2 1,9 41,4 62,0 0,1 0,8 15,6 1,0 0,5

Source: www.dotr.gov.ge In tourist service sphere the seasonal effect is quite outlined (scheme 9). Scheme 8. Seasonal Effect in tourists flow in Georgia

II

III

IV

VI

VII

VIII

IX

XII

XII
101

2006 34,8 51,0 44,8 52,3 2007 64,7 52,9 67,3 74,4

57,9 75,9

75,3 86,7 1124, 2

81,7

94,8

132, 6 100, 0 95,9

102, 0 97,6 103, 0

139, 5 83,3 107, 0

116,4 107,0 114,9

112,0 129, 9 158,8 121, 2

2008 77,5 79,6 96,5 103,2 108, 2 Source: www.dotr.gov.ge Scheme 9. Structure of transport usage Air 2006 2007 2008 178,7 161,0 192,2 Sea 50,4 41,0 48,0 Railway 62,6 31,4 29,1

Automobile 691,4 818,4 1020,9

Source: www.dotr.gov.ge

Scheme 10. Structure of foreign tourists flow according to the reasons of their visit # 1 2 3 4 5 Reason of the travel Business and professional activity Inviting friends and acquaintances Vacations and recreation Trading Education/Trainings 2008 39% 26% 20% 3% 2%
102

6 7 8 9

Treatment Jobs, employment Transit Other

2% 2% 4% 2%

Source: www.dotr.gov.ge

Scheme 11. Comparative schedule of tourism in planned and market economy

# 1 2 3 4

Authors Quality of operating freedom Skill to adapt for changing market conditions Level of market competition Real acting risk level

Planned Low Low Low High +

Market High + High + High + Low -

103

5 6 7 8 9 1 0 1 1 1 2 1 3 1 4 1 5 1 6 1 7 1 8 1 9 2 0 2 1

Assortment variety of the offered service Long term effectiveness usage resources Short term effectiveness usage resources Employment level of local population Personnel motivation level Management motivation level Owner motivation level Professionalism level for effective management Consumer status Entrepreneurial status State regulation level Tourist attraction market volume New tourists attraction difficulty Tourist flow misbalance Tourist flow solvency Advertising campaign expenses Profit margin of entrepreneurial activity Total :

Low High + Low High + Low Low Low Low Low High + High + Low Low Low Low Low Low 5+

High + Low High + Low High + High + High + High + High + Low Low High + High + High + High + High + High + 16 +

104

Scheme 12. The Results of Marketing Research of Georgian Tourist Market. # Result of research 1 Men constitute 2 Age structure: 16-24 yrs old. 7,2%; 2534 yrs old. 25,9%; 35-44 30,6%; 45-54 yrs 24,9%; 55-64 yrs old. 9,4%; >65 yrs old. 2,0%. 3 Structure according to Strengthening of linguistic service for Turkish speaking tourists and decreasing age misbalance in tourist flow structure and exploring old. accentuating of advertising tourist flow on increasing of this age group share; yrs old. based on study, expansion of younger and the aged tourists service Possible planned action increasing service oriented on masculine interests; study of women motivation additionally; increase actions of women attraction; orientation of advertising towards increasing women share; reaching gender balance in tourist flow structure. young/ middle aged tourists service element increase; teenagers and aged tourists shortage reasons study;

74,9% of tourists

assortment to attract bigger flow;

older aged more solvent segment.

citizenship: considering changes in catering menus;

105

Turks, Azeri, 17,018,0%, Russians, Germany Armenians, USA, 5,0-

comparison of certain countries tourist potential with tourists factual share;

Qualified study of the reasons of difference; elimination of the reasons discovered and strengthening of tourists

7,0%, Ukraine, UK, Litvenia,

France, potential assisting elements in these countries; accentuating advertising campaign considering on factors of influence discovered by this research; organizing target advertising for tourist attraction in definite countries; balancing tourist flows structures on the countries share with their

Israel, Denmark 2,5-3,0%, the rest < 2,5%

potential. 4 Longevity of tourist holidays in Georgia: < 5 days 60,1%; 610 days 20,8 days; 11-15 days 7,6%; 16-20 days 1,3%; 21-25 days 1,5%; 26-30 days 1,9%; > 30 days 6,9% accentuating of advertising company on long acting effect of the natural climatic conditions of the country; increase of tourists average stay in Georgia by 30% during the increasing short term tours share; additional research of the impact factors on period of stay of the tourists in the country; working out and performing actions for prolongation of tourists stay

in the country based on the discovered factors;

following 5 years.
106

5 According reason: Business,

to

the

increasing service element for the unorganized tourists flow service; study of a considerably low share of the tourists arriving for rest / recreation and health care;

professional activity 35,9%; visiting

organizing tourist objects health care. recreation attractiveness

increase events based on the research results; accentuating advertising of Georgian recreational potential exclusivity; increase of tourist flow structure reasons by 25 % arriving for recreation and 5 year period.

friends relatives 24,4%; rest/

recreation 18,5%; transit 4,1%; -

employment 2,2%, healthcare shopping 2,2%;

during

education/ trainings 2,4%; health care 2,2%; 0,7%, trading

elections

observation 2,4%, other 5,4%.

6 Transport types: air transport 50,1%; bus 23,3%; private car 20,6%; rented car 2,8%; railway

increase of tourist service in the airports; expansion of private cars garages and technical service workshops; detailed study of marine and railway transport low share;

107

 1,4%, sea transport 1,0%, by foot 1,6 %, bicycle 0,2%

increase of turnover of automobile service workshops by 20%; accentuating advertising campaign on existence of additional service forms for the car tourists; increase of advertising in the airports and buses; implementation of preparation works to perform service for the

tourists structure arriving by railway and sea. 7 Accommodation: bringing hotel service quality closer to the family comfort, increase

hotel 54,3%; flat of of family hotels share increase; relatives/friends study of the reasons for renting homes, spending nights in airports and railway stations; attraction of hotels by making service cheaper; accentuating advertisinf campaign on the variety of offered hotels; exclusion of the reasons of spending nights in airport and railway

39,5%; railway train 3,2%, camperairport, station

2,2%; railway

0,2%; rented flat 1,0%; 0,1% 8 Source information of hospital

station by tourist flow structure. increase of the tourists share arriving based on their previous visit

on impressions using tourist flow information and a flexible system of price

Georgia: friends and discounts; relations 56,3%; partner organization 12,1%; preparation of informational tourist booklets by the entrepreneurs
108

professional

study

of

internet

and

tourist

agencies

low

effectiveness reasons;

impressions previous 11,8%; visit internet

of -

for their business partners; using the factors discovered while research in the planning process; spreading advertising- informational booklets for free in an appropriate form among the foreign citizens; accentuating the advertising on Georgian tourist potential, its informational transparency indicating internet sources and links; increase of internet and tourist agencies share in the informational

9,4%; media 2,5%, tourist 2,2%. agency

sources 2 times in the following 5 years.

Appendix 2

The following vital aspects of tourism in the planned period can be outlined: Strong points. Clear perspective of the sphere and each object in the 5 year period, existence of balanced plans, detailed description of procedures and standardization; Demand is clearly greater than supply, recreation tours and invitation to visit became deficit;
109

 No attempts to sell service all recreational tours were decided according to the plan and were reimbursed from the payable resources; In the conditions of complex industrial planning tourism infrastructure development plans were coordinating neighboring spheres development (transport, communications, catering, medical service, security, etc,) themes through the Communist party structures of local regional government; Tourism sphere interests coincided with regional and industrial development public interests, - on one side, and local population private interests, on the other side; Necessary elements of tourism development (demand, investments, technology, staff and recreation potential) with variety of offer coinciding with unsatisfied demand; Using progressive matrix schemes in tourist business management (industrial and regional management).

Weak points: Due to obligatory plans there was a limited ability of adaptation to the changing environment; Using ineffective forms of motivation towards the personnel of recreation object; Price regulation limits of existing tourist flow after the seasonal hot tours period; Wide expansion of shadow economics in recreation business sphere and deformation of the planned market relations; Perspectives and possibilities:
110

 Creation of Georgia into the Black Sea side complex of recreation zone, however in other parts, upgrading all the resorts to a world standard level; While the growing demand on tourism, increasing development of possibilities of neighboring spheres (like, hotels, transport, catering, medical service etc); In case of opening borders acceptance of large amount of investments in tourism business operation and transforming into a new source of new technologies installation. Risks and dangers: Unilateral tourism orientation of the country decreases independence of its economics in other spheres;; Tourist business high sensitivity towards force major situations and political stability situation; Stimulation of tourism worsens criminal statistics, increases spread of epidemics and danger of losing national ethnicity, which may become critical for a nation with 4,5 million population; Easy money made through tourism business corrupts the population, losses their development stimulus in prevents harmonious development.

Under the conditions of planned economics, tourism development analysis essentially needs a definition of corresponding periodical limits. After the stage of the planned development of a country, the transitional stage starts. It is then followed by a market relations stage. But these transitions did not happen in one day and followed a
111

slow transformational process.

112