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STRATEGIC PLANNING PERSPECTIVES TO SUPPORT VALUE CHAIN
MANAGEMENT IN TOURISM SECTOR (THE CASE OF KAZBEGI
MUNICIPALITY)
Giuli Keshelashvili, Doctor of Economics, Associated Professor, Department of Management and
Administration, Economics and Business Faculty, Ivane Javakhishvili Tbilisi State University, 0009-0007-2887-
3507
Babulia (Dodo) Mghebrishvili, Doctor of Economics, Associated Professor, Department of Marketing,
Economics and Business Faculty, Ivane Javakhishvili Tbilisi State University
Mariam Jibuti, Invited Lecturer, Department of Theoretical Economics, Economics and Business Faculty, Ivane
Javakhishvili Tbilisi State University, 0000-0001-6420-5791
e-mail: giuli.keshelashvili@tsu.ge, e-mail: babulia.mgebrishvili@tsu.ge, e-mail:
Mariami.Jibuti382@eab.tsu.edu.ge
Abstract
The article shows the results of the field research in one of the most popular tourist
destinations in Georgia, Kazbegi municipality. More specifically, the research assessed (1)
movement of population, goods, services and other flows related to tourism sector; (2) tourist
resources of the municipality; (3) characteristics of population and business sector
concentration.
The paper states that in order to achieve more rapid development of the municipality the
following strategic policy approaches should be implemented: (1) arranging infrastructure by
orienting to the centers of the municipality. For the development of the real economy sectors
in the municipality it is necessary to establish functional centers, such as "agricultural",
"forestry", "urbanized", "processing production" and others. These sectors should become
part of the value chain of tourism sector and create additional services and variety of
experiences for tourists; (2) strengthen the connection between Gudauri and Stepantsminda
during the summer season to reduce the seasonality of the resorts; (3) Connect "core areas"
with the centers of nearby territorial units. Those villages should become a source of creative
tourist activities, fresh organic products, experiences on farm, culinary master classes on
local cuisine, etc.
Key words: Tourism sector, management, core centers, planning
JEL: O20 Z32 Z39
Introduction
Companies decide where to start or develop their business activities considering many factors
that ultimately determine profitability. The profitability of economic activity for certain
sectors largely depends on the availability of raw materials and the minimization of costs
during the sale of final products. In such a case, the high value/price of the final product
compared to the raw material gives the business entity an incentive to make a decision in
favor of proximity to the sales markets. As a result, there is a tendency to concentrate
economic activity in densely populated areas. The limitation of resources and demand, low
access to services in rural areas, increase the price of starting a business in such places,
creating incentives to settle in the city, as a result of which populated cities gradually grow
and develop. This trend is an important challenge for promoting equal development of
territorial units. The problem is especially relevant in the highland regions, where the
population lives seasonally and their main source of income is the tourism sector. In such
territorial units, there is an acute problem of business diversification and population migration
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from non-tourist areas. In response to the problem, it is critically important for policy makers
to properly plan to promote the inclusion of all settlements in the process of value creation in
the field of tourism, to redistribute their roles and functions, and to create more connections
between settlements as well as between suppliers of tourism products and services.
Value chain connects the raw material producers, middlemen, processing enterprises, sales
markets, service providers and different parties, whose activities promote competitiveness of
one another at marketplace and its maintenance through introduction of innovations in the
processes of value chain. Value chain management is the instrument of strategic business
analysis and planning that is used for coordination of the value chain components and
resources. Effective management of value chain directly affects profitability of the involved
stakeholders and satisfaction of consumers (Keshelashvili, 2018). The local and central
government stakeholders should be focused on supporting development on value chain is
tourism sector through involvement of central and peripheral settlements.
Methodology
The research objective was to show the perspectives of strategic planning and the
opportunities for various settlements to benefit from the tourism sector by developing the
value chain, using the results of the qualitative research conducted in Kazbegi municipality.
In order to achieve the objective various research methods were implemented: analysis,
synthesis and comparison methods; “case study”, quantitative (questionnaire survey) and
qualitative research tools (semi-structured in-depth interviews and focus group meetings).
In order to evaluate the existing economic relations between the settlements, as well as the
directions of movement of population, goods, services and other flows, and to identify
development opportunities in Kazbegi municipality, we conducted a quantitative and
qualitative field research. In the process of the research, the opinions and assessments of the
local population and business entities were studied. Representatives of local self-government
and non-governmental organizations, representatives of the Ministry of Regional
Development and Infrastructure of Georgia, various government departments and agencies
involved in the tourism development policy, industry experts, etc. were interviewed.
Results and discussion
In order to analyze these processes, we studied Kazbegi municipality. We evaluated (1) the
direction of movement of population, goods, services and other flows; (2) municipal
resources; (3) characteristics of population and business sector concentration.
Kazbegi Municipality is located in the extreme northern part of Georgia. In total, there are 47
villages in Kazbegi municipality, however, more than half of them are not inhabited by
permanent residents. In some villages, the population returns only during the summer season.
The municipality occupies a strategic place, close to the Russian Federation in terms of
conducting trade and tourist flows. Vladikavkaz is only 45 kilometers away from
Stepantsminda.
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The main large employers of the population are: local self-government bodies and state
organizations providing public services. In the municipality, we find large, small and
medium-sized hotels, cafes, bars and restaurants, shops, small-sized, often family-owned
firms providing tourist services.
The main part of business entities registered in Kazbegi municipality operates in the territory
of Stepantsminda and Gudauri, which is caused by high tourist activity in these territorial
units. In addition to business entities involved in the tourism sector, trade businesses are also
distinguished by their concentration in central areas. This is due to the number of local
residents along with tourists: highly populated areas generate high demand, and opening trade
facilities seasonally is profitable whereas in less populated areas opening such places is
unprofitable.
Kazbegi municipality has a distinct advantage of being close to the capital. The highest
demand from the tourists in the capital is for Kazbegi tours, which should reflect the
economic situation of the local population. A concentration of incomes and standard of living
of local people are as concentrated as business entities. Residents of settlements located
nearby but not in tourist centers are less involved in the process of receiving benefits from the
tourism activities.
On-site research showed that the most populated areas of the municipality are located near the
central road and have access to connect with other populated areas. It is possible to connect
two main touristic towns (Stefantsminda and Gudauri) in such a way that other settlements are
also involved in economic activities. As a result, the settlements nearby the road from
Stepantsminda to Gudauri will benefit.
34 business sector representatives and 71 local people were interviewed with the
questionnaire. Among other relevant topics, the questions aimed to identify the degree of
cooperation between the local population and the business sector.
The field study in the municipality showed:
Despite the fact that touristic sightseeing are scattered all over the municipality,
tourists mostly use hotels in Stepantsminda and Gudauri as a place to spend the night.
Residents of other settlements receive very little benefit from the development of tourism in
the municipality and their involvement in the sector is alsovery low. 78% of the surveyed
population who do not live in tourist centers indicated that they did not benefit from the
development of tourism at all.
The population that returns seasonally to Kazbegi municipality spends the off-season
in the capital. A certain part of the population moves to Stepantsminda township for
temporary residence, but there are more frequent cases of population moving to the capital.
Main business facilities in the municipality (hotels, shops and stores, café-restaurants,
etc.) mainly buy their products from outside the municipality, in most cases from the capital
through distribution. This tendency applies to agricultural products as well, since farmers
cannot provide them with proof of standards and proper financial papers.
4
30% of the population stated that they have the opportunity to buy the necessary food
products in the same settlement where they live, for the 56% of the respondents, the main
place of purchase is another settlement, but within the municipality. 62% of the interviewed
representatives of the business sector noted that the capital is the main place to purchase the
products they need. In some cases, they purchase products themselves, and in most cases
(hotels and restaurants), distributors supply from Tbilisi. The region itself cannot provide the
supply of raw materials to the Kazbegi municipality in appropriate quantities and under
acceptable conditions. Only 12% of the surveyed business sector representatives would
purchase a product within the region, in the case of the same settlement where the business
operates, this number is even lower and is only 6%. Thus, the movement of commodity flows
to the municipality is more typical from the capital in the direction of the municipal centers
and less typical within the municipality or from other centers of the region to the municipal
centers.
The main part of the population that is involved in the production of agricultural products has
expressed the willingness to reduce agricultural activity and be engaged more in tourism
sector.
Their main desires were to set up a family guesthouses, and provide the most common tourist
services (transportation, guide), open bakeries, etc. Such a desire was expressed not only by
the part of the population that has difficulty selling locally made products, but also by those
who are more or less able to sell what they produce. There are some cases when the owner of
the guesthouse has a farm and provides tourists local products, mainly agricultural ones, but
the share of such product in the whole amount of goods they use daily in most cases does not
exceed 20%, if that.
Less than 6% of the surveyed locals involved in agricultural activities stated that they sell
their products to HoReCa sector. It is expected that this number will further decrease along
with the decrease in the number of the population involved in agricultural activities. The
desire of the population to switch to the tourism sector is clearly revealed, because they
consider this sector more profitable and less time and labour-intensive. Therefore, production
activities will be replaced with tourism oriented services. Without a targeted policy and right
intensives, the result will be too high competition between the service providers of the main
tourism services, decreased prices, increased flow of goods between the capital and municipal
centers. Merchandise flows have mainly one-way direction and move from the capital in the
direction of the municipality centers.
The low level of business cooperation between local businesses and residents is due to many
reasons. The representatives of the interviewed business sector expressed their desire to
cooperate with the locals and offer tourists locally produced products. However, this process
is hindered by various factors. Among them, the most important factor were: (1) to provide
sufficent financial and standardisation documents; (2) unstable supply and difficulties to
maintain the same quality. Under the influence of these factors and other small farm related
difficulties, the local population involved in the production of agricultural products is not a
favorable supplier for the large business sector. Therefore, active involvement of policy
makers on the local and central government level is crucial.
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Both tourist centers of Kazbegi municipality are characterized by seasonality and less
developed connections with each other. Stepantsminda town is crowded with tourists during
the summer season, whereas number of tourists in winter season is quite low. Gudauri Resort
is overcrowded during the ski season in winter time that creates opportunities for
Stepantsminda and nearby settlements; however the capital still turned out to be more
convenient place for most tourists to spend the night at. The capital, unlike Stephantsminda,
offers them better infrastructure, a variety of leisure and entertainment activity options, a
social environment where they can meet new people and explore culture. The proximity of the
Gudauri resort to the capital is the challenge for Stepantsminda town that should be addressed
by creating unique cultural experience locally. During the summer, almost nothing happens
here, why would tourists come only for the snow-covered mountains?" There is no way to
have evening entertainment in winter, not even in summer. In winter, snowy, muddy and
sometimes icy roads make the place even more uncomfortable for tourists. Summer is the only
season here," said the owner of the family guest-house from Stepantsminda. In order for
Stefantsminda to take advantage of its proximity to Gudauri during the winter season, it
should focus on offering special cultural products and services in addition to overnight
accommodation and transportation.
Conclusion and Recommendations
Limited resources and agglomeration effect show that in order to achieve rapid development,
it is necessary to focus on creating core centers and support connections between such centers
and other surrounding settlements. In order to achieve rapid and sustainable growth at the
municipality the following points should be addressed by the local and central policy makers:
Setting up the infrastructure by focusing on the centers of the municipality and
establishing functional areas: During the planning phase of projects implemented by local
self-government and non-governmental organizations, it is necessary to cooperate with each
other and give priority to those projects that will have a noticeable impact on the
improvement of the investment environment of the municipality. Central and local state
institutions are concentrated in Stepantsminda town. Local ski resort is Gudauri. For the
development of the real economy in the municipality, it is necessary to establish other
functional centers, for example: "agricultural", "forestry", "urbanized", "processing
production" etc. Functional centers may be more specialized, for example, "milk and dairy
products manufacturing", "mineral water manufacturing", "concentrated with construction
business", "medical-recreational service provider" and others. The separation of such
functional centers will contribute to both the diversity of economic activities and the
emergence of an agglomeration effect, which over time will attract relevant investments to the
entire territory of the municipality.
Connecting Gudauri with Stepantsminda town during the summer season in order to
reduce the seasonality of the resort. Gudauri has the potential to offer tourists various tours in
the direction of Stefantsminda and its surrounding area. Such tours can be: bicycle tours, local
culinary tour, farm tours, daily fitness exercises with different views and others. The same
way, Stepantsminda has an ability to offer local gastro, cultural, pilgrimage, educational,
6
recreational etc. experience during the winter season. The establishment of a theme park or
other tourist infrastructure between Stepantsminda town and Gudauri resort would help to
connect these two centers together and involve the surrounding settlements in the field of
tourism.
Promotion of tourism activities during the winter season in Stepantsminda towns. First
of all, it is necessary to arrange the road infrastructure in the town so that tourists can walk
around comfortably and safely. The development of the Stepantsminda town center is one of
the foundations for the growth of both the population and the activity of tourists in the town.
In addition to offering stunning views, town residents should create more various
entertainment and recreational activities that will encourage longer durations of tourists’ trips.
Some possible ideas for such activities are: sledding (including dog sledding), snow bike
tours, organized transportation to Gudauri resort providing appropriate equipment and lunch
packages, hiking tours, etc. Building connection between the centers of the municipality
during the winter season requires the development of proper infrastructure to enable the
transportation of tourists by using different snow transports.
The benefits generated by the development of the centers will have an impact on other areas
as well, such as Truso Valley, Sno, Juta, Gweleti, Khada Valley and their surrounding
settlements. In order to connect the territorial units, it is necessary to promote cooperation
between the locals and business entities, develop appropriate infrastructure and promote
migration more in the direction of the municipality centers than to the capital. This can be
achieved only by increased demand for labour force in the centers of the municipality and
established stability of employment opportunities throughout the year. The town of Gudauri is
already characterized by the process of urbanization, which has been started for years due to
the high demand for real estate in the resort. In Stepantsminda town, this process is relatively
slow. Alongside the urbanization process, it is necessary to take into account the cultural
characteristics and touristic attractiveness of newly built real estate.
Thus, the development potential of the municipality is foreseen by fostering establishment of
core centers and functional areas, strengthen connection between them and with other
settlements. In order to support engagement of other villages in tourism sector, they have
ability to provide various cultural, entertainments, leisure, sport services and become part of
the value chain. Local farmers have ability to collaborate with each other and establish
production, marketing or service cooperatives, in order to become more stable and desired
partners for local HoReCa sector.
The above mentioned approach will provide an opportunity for relatively rapid growth and
reduction of the seasonality of the population's income. Replacing the local policy vision of
"doing at least something in every settlement" with a focus on building strong municipal
centers will have better effect on every settlement. The local economy can benefit from
specialization and attract investments by establishment of functional areas.
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