Thomas Cook and the death of going it alone in China

The travel company is tapping into Chinese tourism through a joint venture with conglomerate Fosun.

by Rachel Savage
Last Updated: 25 Jan 2016

Some would say Thomas Cook is a bit late to the Chinese game, what with the Far Eastern economy’s mega-growth slowing. But while the travel company almost going bust in 2011 probably has something to do with it waiting until now, its tie-up with conglomerate Fosun is also evidence of western companies’ increasing – and sensible - aversion to going it alone in China.

The joint venture will be 51% owned by Fosun, a £13bn, Hong Kong-listed conglomerate that bought a 5% stake in Thomas Cook in March after snapping up Club Med in January. It isn’t too financially risky either – both are putting roughly equal shares into a £1.6m pot.

The tie-up will target ‘domestic, inbound and outbound tourism activities for the Chinese markets’ under Thomas Cook’s brands, all potentially enormous sectors, with Chinese tourism booming even as the wider economy has started to slow. The number of Chinese tourists going abroad rose almost 20% to 107 million last year, according to official figures.

While around half of those went to Hong Kong, the swelling middle class are also venturing further afield to European cities like Paris, London and Moscow. Meanwhile, domestic tourists spent 2.6trn yuan (£270bn) in 2013 and the Government wants to more than double that to 5.5trn yuan by 2020.

‘Today, there is a lack of innovation and differentiation in the travel product offerings for Chinese tourists in China and abroad, presenting an excellent opportunity for our new joint venture to gain a competitive advantage,’ said Qian Jiannong, the president of Fosun’s tourism and commercial group.

Western consumer-facing companies from Kingfisher and L’Oreal to Burberry and Diageo have struggled in China, due to a lack of understanding of the market on the one hand and a crackdown on Government excess and corruption on the other. So organisations from universities to carmakers are turning to joint ventures (or have been bought by the Chinese, in the case of House of Fraser).

That doesn’t make cracking China inevitable: Tesco’s joint venture is still loss-making, while a local tie-up didn’t stop Jaguar Land Rover from having to recall cars over allegedly faulty gearboxes. But Thomas Cook must be feeling more confident about this venture than it is about its reputation in the UK recovering anytime soon, after its botched handling of the deaths of two children.

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