Contemporary Destination Governance: A Case Study

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Passeiertal/Val Passiria
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 Case 12

PASSEIERTAL/VAL PASSIRIA

Abstract: The case of Passeiertal/Val Passiria illustrates how typologies of

governance forms help to differentiate cases with concentrated authority
from cases with an even distribution of power. In particular, it exemplifies
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how the interplay between DMOs and powerful private businesses can
improve the competitive position of a destination. First, Passeiertal/Val
Passiria has managed to develop a common strategy in collaboration with
the biggest private player. Second, the whole destination is positioned
with the themes driven by the player. The case also shows that property
rights theory and principal agent theory may provide useful explana-
tions as to how sustainable destination governance can be improved in
situations of significant power asymmetries. Keywords: Passeiertal/
Val Passiria, resort, property rights, principal agent

INTRODUCTION

Governance is a multidimensional concept. Although government can never

be completely pushed aside, independent local governance implies a steering
mode with reduced hierarchical control, reduced predictability, and
increased stakeholder involvement (Ruhanen et al., 2010). To cope effec-
tively with this increased variety, researchers have focused on the identifica-
tion of dimensions and typologies (Pechlaner et al., 2010c) and proposed a
series of categorizations of governance forms. Two approaches that have
received wide acceptance are the dichotomy of the corporate compared
to community models as elaborated by Flagestad and Hope (2001) and

Contemporary Destination Governance: A Case Study Approach

Bridging Tourism Theory and Practice, Volume 6, 149 159
Copyright r 2015 by Emerald Group Publishing Limited
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ISSN: 2042-1443/doi:10.1108/S2042-144320140000006030
 150 Contemporary Destination Governance

the classical differentiation between market, hierarchy, and network promi-

nent in transaction cost economics (Raich, 2006). Flagestad and Hope
(2001) distinguish between community-based destinations characterized by
many small actors and corporate-based destinations characterized by the
lead of one single actor. Both forms differ with respect to leaders, power,
success factors, resources, process orientation, customer orientation, and
organizational structure and functioning. Other categorization attempts to
build on social network analysis (Bodega et al., 2004). d’Angella et al.
(2010) offer an additional taxonomy of governance models. Applying the
two criteria of governance functions and coordination mechanisms, they
distinguish between normative, leading firm, entrepreneurial, and fragmen-
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ted governance (Figure 1).

The case of Passeiertal/Val Passiria is a good example of the form of
“leading firm model.” A large resort dominates the destination and exerts
significant power over the other actors, not least because it has succeeded in
reducing its reliance on them to a minimum. Beritelli et al. (2007) suggest
that in such constellations, when significant power asymmetries are evident
in the destination, property rights theory and principal agent theory provide
useful frameworks for judging the ecological and economic sustainability of
the governance form. Property rights theory highlights the close relationship

Figure 1. Archetypes of Destination Governance (d’Angella et al., 2010, p. 68)

 Passeiertal/Val Passiria 151

between externalities and property rights and proposes the latter as a means
of reducing the former (Coase, 1960; Demsetz, 1967). Following Demsetz
(1967), the primary function of property rights is to achieve internalization
of externalities. However, a trade-off exists between a detailed regime of
property rights on the one hand, and transaction costs mainly arising out of
negotiations about the allocation of property rights on the other. Thus, the
core argument emphasizes the critical role of transaction costs: lower trans-
action costs in the negotiations between actors make the establishment of
clearer property rights possible, which in turn promotes the internalization
of externalities.
The centrality of transaction costs is also underlined by principal agent
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theory (Jensen & Meckling, 1976). Generally, principal agent constellations

arise whenever the welfare of the principal is dependent on the actions of
the agent. These constellations are problematic because of information
asymmetries between the two and because of opportunism on the side of
the agent. In order to avoid such problems arising from principal agent
constellations, the so-called agency costs of monitoring and bonding must
be accepted. Thus, the objective is to increase information on the side of the
principal in the most cost-saving manner (Jensen & Meckling, 1976).
Building on Beritelli et al. (2007), the case of Passeiertal/Val Passiria high-
lights that property rights theory and principal agent theory are useful
perspectives for evaluating the appropriateness of the tangible leading firm
constellations of destination governance. Therefore, through an examina-
tion of Passeiertal/Val Passiria from these two views, the approach of
d’Angella et al. (2010) can be enriched with some insights of established
governance theories.

COOPERATION IN LEADING FIRM DESTINATIONS

The destination Passeiertal/Val Passiria is situated in the western part of

South Tyrol, Italy (Figure 2). It is a 50 km-long valley reaching from Meran
in the South to the Austrian border in the north and encompasses the com-
munalities of Kuens, Riffian, Moos, St. Leonhard, and St. Martin. The val-
ley has a total of 10,500 inhabitants (ASTAT, 2011a). Tourism (especially in
the summer season) and agriculture (mainly livestock farming) are the most
important business sectors of the valley. Of less importance are handcrafts
and retailing (ASTAT, 2011a). Overall employment has increased by 13%
over the last 10 years. In the tourism sector, however, it doubled during
 152 Contemporary Destination Governance

the same period (ASTAT, 2011b). Micro-sized and small family-run busi-
nesses of all types characterize the accommodation sector. In 2011 there
were 244 accommodation businesses with approximately 4,800 beds. Half of
them are para-hotels, mostly offering farm holidays (WIFO, 2011). The
other 50% are regular hotel businesses. Most are two- and three-star hotels.
Seven businesses are four- or five-star ones.
In addition to the high number of micro- and small-sized businesses, the
destination also encompasses Sport and Wellness Resort Quellenhof with a
total of 550 beds. It is a family-run hotel resort that combines sports, well-
ness, and family under the theme “for body, mind, and soul.” It includes
five four-star hotels and a variety of complementary offers and
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Figure 2. Locating Passeiertal/Val Passiria

 Passeiertal/Val Passiria 153

infrastructures. They include a 5,000 m2 spa, a horse-riding center, tennis

courts, a golf course, a driving range, a putting green, mountain bikes and
motorcycles for rent, a kids’ club, conference rooms, and others. The whole
resort is managed under the umbrella brand Sport and Wellness Resort
Quellenhof. Each business is marketed as a subbrand. Marketing, sales,
and booking are managed centrally. 76% of the guests of the resort visit
periodically. The major source markets at the time of survey were Germany
(60%), Switzerland (30%), and Italy (8%). In 2011 the destination achieved
666,206 overnights, 81% of which occurred during the summer season
and 19% in winter. Therefore, Passeiertal/Val Passiria is focused on being
a summer destination (ASTAT, 2011b). It recorded 131,196 arrivals in
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2011. The destination offers a wide range of tourism services and infrastruc-
tures such as restaurants, various entertainments, and skiing areas. The
Passeiertal/Val Passiria DMO was formed through a consolidation of the
local tourism associations and nowadays represents the whole valley. It is
integrated in the holiday region of Meran and its environs, and constitutes
one of the 11 holiday regions of South Tyrol. As with every local DMO
within the holiday region, Passeiertal/Val Passiria DMO is a member of the
regional DMO “Meran Marketing Organization”.

Historical Background and Development

As is true for most South Tyrolean destinations, Passeiertal/Val Passiria’s

tourism development started in the late 1960s. The destination was known
for its cheap prices and its closeness to the 19th century spa town Meran/
Merano. Statistics show that an increase in beds and accommodation facil-
ities occurred until the 1980s and that the number of accommodation busi-
nesses increased by nearly 36% from 279 in 1972 to 428 in 1981. Also, the
number of beds nearly doubled in the same period. Thereafter, during the
1980s and the early 1990s, development stagnated. The period from 1991
to 2011 was characterized by a decline in the bed number and accommo-
dation businesses. The number of beds decreased by 15%, and the number
of businesses fell by 35%. Substantial changes have also occurred in the
accommodation structure. Perhaps most remarkably the number of four-
and five-star hotels grew from one business in 1990 to seven in 2011. In
contrast, the accommodations in the lower segments decreased significantly
(ASTAT, 2011b).
The most important development was the formation of the Sport and
Wellness Resort Quellenhof. The resort developed out of a single family
driven hotel. Over the last three decades the family bought accommodation
 154 Contemporary Destination Governance

facilities in the neighborhood and started to integrate their offer. Each busi-
ness had its own positioning, a clear target group, and also a different price
level. In the last step they formed an umbrella strategy for all businesses.

Products, Services, and Market Situation

The destination offers tourists a wide variety of services and infrastructures.

They range from all types of accommodation facilities, differing sport facil-
ities (e.g., swimming pool, golf course, rafting tours, tennis court), restau-
rants, cultural sights, and other attraction points accessible via a cable
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railway. However, the traditional core themes of the destination

Passeiertal/Val Passiria are culture, history and tradition, active holidays
and sports, the local cuisine, local products, organic food, and wellness.
The destination adjoins the nature park Texelgruppe, and therefore hiking
and biking are also important themes in Passeiertal/Val Passiria. The valley
is also known as holiday destination for children. The Sport and Wellness
Resort Quellenhof owns the bulk of the infrastructure. The main themes of
the resort are hiking, golf, wellness, and family recreation. In 2009 the med-
ical spa was added and quickly gained importance (Figure 3). The resort
has now taken a leading role in this segment in South Tyrol.
The main driver for tourism development in Passeiertal/Val Passiria
has been differentiation. In marketing the destination, all businesses have
sharpened their profiles and positioning in relation to the different accom-
modation facilities, their uniqueness, and the resort as a whole. The resort

Figure 3. Themes of the Destination and the Resort

 Passeiertal/Val Passiria 155

has also been able to achieve synergies and economies of scale through joint
marketing and organization. In the expansion of the resort and creation of
new attractions, local entrepreneurs have been strongly oriented to the needs
of guests. The resort comprises typical services along the service chain of the
alpine holiday experience such as hiking and mountain biking, as well as
special offers for certain target groups such as golfers, riders, and young
people.
The activities and offers are organized in a way that targets different
groups, so that they do not interfere with one another. Another success fac-
tor of the resort has been the focus on the personal treatment of guests,
which may also be due to the size of the individual businesses. Passeiertal/
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Val Passiria is part of the holiday destination Meran and environs, which is
known for the unique countryside and climate, ranging from Alpine to
Mediterranean. For this reason, the area is also known for themed
offers and health treatments. Current markets are Germany, Italy,
Switzerland, and Austria. In the future, the destination will also concentrate
on Belgium and the Netherlands. The destination depends on its closeness
to Meran and is characterized by rural and family-based tourism. Its main
target customers are families, as well as other types of tourists who wish to
stay near the city but also save money.
The Sport and Wellness Resort Quellenhof and few other businesses
have managed to reposition themselves and now offer high quality tourism
for wealthy, young and active people, as well as for families. This develop-
ment seems beneficial to the entire destination, because the image created
by these businesses fills the gaps in the limited marketing capacities of the
local DMO and of smaller actors. Particularly important is the direct mar-
ket communication of the resort, which also operates with the destination
name Passeiertal/Val Passiria and thus indirectly raises awareness and
strengthens the brand of the whole destination.

Governance

As indicated above, d’Angella et al. (2010) distinguish between normative,

entrepreneurial, fragmented, and leading firm governance. Essentially, their
approach to the categorization of destination governance forms rests on
various questions regarding the kinds of involvement different destination
stakeholders have in the DMO. These questions include which stakeholders
are involved in the DMO, how they participate, what contributions they
make, and what kind of relationships do the stakeholders and the DMO
create.
 156 Contemporary Destination Governance

The normative form implies centralized agency and rigid governance reg-
ulations, whereas the entrepreneurial variant is based on scattered but
strongly connected actors. The third theoretical model, fragmented govern-
ance, is characterized by a lack of strategy at the destination level and by
coordination mechanisms that are limited to promotional activities. Finally,
the leading firm model evidences a centralized coordination form, which is
based on a single local firm or institution. This central actor is of major
importance for the destination, while the involvement of other stakeholders
is quite low.
Passeiertal/Val Passiria can be described as evidencing a leading firm
model of governance. According to more general categorizations, it shares
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common features with typical corporate models (Flagestad & Hope, 2001).
It is characterized by a series of micro- and small-sized businesses, as well
as a few larger ones. First, the Sport and Wellness Resort Quellenhof in
itself can be considered a destination, governed according to the corporate
model. Second, the otherwise community-oriented destination as a whole
has been somewhat affected by the centralization of power. Indeed, power
in the destination is concentrated in the hands of only a few actors.
These actors can exert power and influence due to their reputation, market
power, size, and formal position in the destination. However, given its
autonomy and self-sufficiency, difficult situations occur, particularly when
the resort lacks the incentive to make an effort to promote cooperative
action. As one hotelier noted, “There are only few people who cooperate in
the development of the valley. The owners of the bigger businesses have to
cope with it.”
One of the most important actors is the central DMO, which represents
all three municipalities of the valley. It has more than 400 members, mostly
accommodation facilities. Businesses in other sectors are also included. The
consolidation of the valley’s different tourist associations in 2008 was an
important step for the destination. The consolidation meant that the desti-
nation was organizationally unified and that the different parts of the valley
started to work on the same themes and promote the destination in a uni-
form manner. At present, the main goal of the DMO is to rejuvenate the
destination and raise the occupation and overnight stay rates.

Before the foundation of the new DMO each hotelier concen-

trated on their own business and actual problems. There was
no common strategic planning or development. Over the
last few years there has been an attempt to find a common
strategy—always in cooperation with the Sport and Wellness
 Passeiertal/Val Passiria 157

resort Quellenhof—and to elaborate strategic plans for the

next four to five years (DMO).

Other important players in the industry include the owner of the Sport
and Wellness Resort Quellenhof and his family who also own the five-star
Golf and Spa Resort Andreus. The resort itself offers the most important
infrastructures and services and thus could operate independently of the
rest of the destination. Indeed, most of its activities are performed indepen-
dently, but there is also some cooperation with the DMO. This cooperation
is based on the entrepreneur’s formal position in the DMO’s steering com-
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mittee, in the municipal administration, and in the local hoteliers associa-

tion. The other actors in the destination also perceive the owner of the
resort and the DMO as central players. Because most businesses are micro-
sized, they have difficulties devoting resources to strategic decisionmaking
and planning. These businesses rely on the decisions and the knowledge of
the central players. Therefore, a small group of actors exerts a strong influ-
ence on destination development and management. The Sport and Wellness
Resort Quellenhof plays an important role in the promotion of the destina-
tion, although the popularity of the resort in the main markets tends to be
higher than the brand awareness of entire Passeiertal/Val Passiria. One
hotelier commented, “The resort is not perceived as a part of the destina-
tion Passeiertal. If you transferred it to another location, it would operate
the same way. This is due to the fact that all activities, events and services
are offered in the resort.”
Individual behavior dominates the destination and is an important driver
in the various associations, as well as in the decisionmaking process. Group
behavior is much less prevalent in the destination, even though efforts are
made to improve this situation. The local actors try to enhance cooperation
among themselves and with the resort, though they have had little success
so far. Strategic decisions are first made by a couple of important actors
and are then supported by the rest of the destination. Consequently, a small
circle of actors controls the tourism offerings and guarantees the success of
the destination.

CONCLUSION

The Sport and Wellness Resort Quellenhof dominates the destination and
thereby produces mostly positive effects such as promotion and, to a lesser
 158 Contemporary Destination Governance

extent, negative external effects such as traffic congestion for the other tour-
ism actors. However, from a property rights theory perspective, an all-
inclusive resort tends to reduce the amount of externalities, because it
increases the delineation of property rights in tourists’ movement and
experience space. Because the resort provides most of the facilities required
by tourists, they perform many activities within the resort’s spatial bound-
aries. This reduces both negative and positive externalities generated by the
resort. The positive externalities are reduced because the resort seeks to
internalize tourist spending within the resort (Stanton & Aislabie, 1992). As
such, the economic links between tourists and the host communities are lim-
ited (Jenkins, 1982; Wall, 1997).
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Given that most tourism activities occur within the resort, bargaining
about the different returns these activities yield is rendered unnecessary
(Coase, 1960). Regarding the activities that still have impacts on people and
resources outside the resort, direct negotiations are the best solution in
order to contain transaction costs (Coase, 1960; Demsetz, 1967). The DMO
offers a natural framework for such negotiations and can be a means to
keep the transaction costs low. Its potential in this regard depends largely
on the design of its communication and decisionmaking processes. Two
aspects are decisive. The DMO should account for the importance of the
resort. It should also include the other actors and provide them at least
with some fundamental controlling rights.
In the Passeiertal/Val Passiria case, most stakeholders endorse the lead-
ing role of the resort, because they also make a profit out of it. Since most
actors lack the resources and, to some extent, also the necessary knowledge
to effectively collaborate in destination development, the resort has to lead
and push forward strategic decisionmaking. To a great extent, this situation
is reflected in the factual working procedures of the DMO. It does well in
respecting the leadership of the resort and keeping it willing to cooperate,
but has some deficiencies in monitoring the effects of the entrepreneur’s
activities on other stakeholder interests. Therefore, as property rights and
principal agent theories suggest, it is possible to increase the sustainability
of destination development by promoting a stronger community involve-
ment in making important decisions.
The recent consolidation of the various local tourism associations into a
single DMO and its widespread membership are promising steps in the
advocated direction. Among other moves, increased community involve-
ment could help to tackle a major challenge for Passeiertal/Val Passiria,
that is, the difference in quality, price level, and offerings between the resort
and the other businesses. Most of the smaller businesses lack innovation
 Passeiertal/Val Passiria 159

and investments. In case these differences should become too large, the stra-
tegies and decisions of the central actors would no longer be suitable for
the small businesses, which puts at risk the competitiveness of the whole
destination—a scenario with little appeal even to the largely independent
resort.

QUESTIONS
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1. Do you find the arguments in favor of increased stakeholder involve-

ment put forward by property rights theory and principal agent theory
convincing?
2. Could other theories be helpful to underscore the necessity of stake-
holder involvement in leading firm constellations?
3. Do other arguments exist that contest the assumption that extensive sta-
keholder involvement is a necessary condition for a sustainable develop-
ment of destinations?
4. Imagine you are the provider of the large—and largely independent—
resort. How could you benefit from engaging in cooperative action invol-
ving the wider destination and its different actors?
5. Imagine you are an operator of a smaller hotel near to the big resort.
How could you increase the willingness to cooperate on the part of the
big resort while avoiding becoming too independent from your larger
neighbor? What would you call for, and what can you offer in return?