Tourism is currently one of Taiwan’s fastest-growing industries. In fact, a record 7.31 million travelers visited Taiwan in 2012, a 20% increase from the previous year. That rate of growth was doubly impressive when you consider that the average for the Asia-Pacific region was just 6.8%.

Given the growing number of visitors, it’s hardly surprising that hotel industry investment is also on the rise. According to the Tourism Bureau of the Ministry of Transportation and Communications, investors have poured some NT$100 billion into the industry since September 2008, opening 482 hotels and more than 30,000 new rooms in the period. Meanwhile, nearly 1,000 older hotels have spent some NT$20 billion on makeovers for their facilities.

Kaohsiung’s Single Inn has received high praise from backpackers for its design, which takes cues from the sauna it used to be.

Wayne Liu, deputy director-general of the Tourism Bureau, notes that while mainland Chinese tourists now account for the bulk of travelers to Taiwan (roughly 35%), our visitor base is becoming more diverse, with growing numbers coming from Hong Kong, Macao, the US, Europe, and Japan. For example, the number of Japanese visitors to Taiwan has grown very quickly over the last two years. With some 1.43 million Japanese visiting Taiwan last year, Japan was our second-largest source of tourists.

It used to be that 60% of visitors to Taiwan came here on business. Nowadays, 60% come for tourism and the average length of stay has increased to 6.9 days (2012).

The diversification of our visitor base together with changes in the reasons for their visits are prompting hotels to position themselves for particular market segments. That said, Taiwan has basically three categories of hotel: high-end international, budget, and bed-and-breakfast.

Room rates at Taiwan’s roughly 109 international hotels run US$200–250 per night. These hotels are concentrated in Taipei and target business and independent travelers. Taipei itself is a hub for government, business, and transportation with abundant tourism resources. As such, some 90% of visitors to Taiwan choose to stay here.

The high frequency of travel and economic exchanges between Taiwan and mainland China in recent years, together with the important role Taiwanese businesses play in the mainland economy, strongly suggests that the flow of business travelers, precisely the tier of traveler that international hotels pursue, is only going to increase.

Taiwan’s higher-end “budget” hotels have room rates in the US$100–150 range. The facilities tend to appeal to mid-tier business travelers, and, increasingly, tourists from Japan and Southeast Asia visiting on their own self-guided tours. Still less expensive budget hotels offer rooms for US$70 or less per night. The most rapidly growing segment of our hotel industry over the last few years, these hotels largely cater to mainland Chinese groups touring the island.

As for bed-and-breakfasts, Liu says there are currently something over 3,700 of them throughout Taiwan, many of them on leisure farms and in scenic areas. Their owners tend to be involved with handicrafts or have their own personal design aesthetic, which is appealing to backpackers from Hong Kong, Macao, Singapore and Malaysia. The Tourism Bureau is currently promoting a “1,000 B&Bs” program aimed at helping tourists experience the pleasures of really outstanding B&Bs.

Rooms near scenic hot spots are often hard to come by on holidays. Do we have too few hotels?

Liu says there’s no lack of hotels, and argues that we just need to upgrade the quality of those we have. Noting that hotel guests tend to congregate in Tai­pei and a few other popular destinations, he suggests that our strategy should be to distribute demand for lodging by encouraging visitors to explore other areas.

Setting aside quantity, the Tourism Bureau has been seeking across-the-board improvements to the quality of Taiwan’s hotels. It introduced a star-based rating system in 2009 in an effort to achieve that very end. According to the bureau, as of late March 2013 the system had awarded stars to 376 hotels: three stars to 134 hotels, four stars to 27, and five (the highest rating) to 63.

The star system draws inspiration from that of AAA (formerly the American Automobile Association) in the US. Review committees first look at 10 important “infrastructural” items, including the overall appearance, restaurant, and room amenities. Hotels receiving 301 or more points in this preliminary evaluation earn three stars and the right to request a second review. It is this second review, in which anonymous guests examine service quality, that potentially raises a hotel’s rating to four or five stars.

Liu says that the Tourism Bureau is most focused on helping “ordinary” hotels upgrade their facilities to a “stellar” level. Hotels operated by major conglomerates don’t need the bureau’s help because they have the backing of a business group concerned about its own image. And standards among the international chains are even higher.

Liu says that the operators of many older hotels have little to no marketing know-how. Still worse, many owner-operators have simply let their businesses run on autopilot. These older hotels are often located near train stations in Taiwan’s second-tier cities, which makes them very accessible. They also tend to be quite large (often more than 50 rooms). This means that such establishments can often be made competitive with only a physical makeover. The bureau is therefore offering them discounted loans and design subsidies to help them upgrade and potentially win a star rating.

Liu emphasizes that while different numbers of stars indicate different standards of service and market position, neatness, cleanliness, and friendly service are prerequisites for receiving any at all. “If it’s got stars, it’s a good hotel!”

These incentives have clearly triggered a wave of renovations. Take Kao­hsiung budget chain Riverside Hotel Esthetics, for example. The chain was founded by a group of young people who persuaded the operators of older hotels in the downtown Kao­hsiung area to lease them their hotels, refurbished them, and then reopened them as fashionable inns. With the help of some marketing, the hotels now have occupancy rates above 80%.

Stanley Yen, the godfather of the domestic hotel industry, has said that the strengths of Taiwan’s industry versus that of the economically booming mainland are our relative wealth, our leisure culture, which allows people to relax, and our industry’s ability to provide discerning consumers with an experience that integrates elements of local culture.

Yen, who has in recent years gotten involved in slow travel and the B&B experience in the Hua­lien–Tai­tung area, says that Taiwan doesn’t need more luxury hotels. He believes that we should instead be encouraging people who cherish the land to attract still more international travelers in an environmentally sustainable fashion.

Michael Liao, president of Howard Hotels, observes that for all that investment has been flowing into hotels over the last couple of years, what the industry really needs is professional managers who can appropriately position their hotels. This is especially true for new hotels, which always struggle to get their businesses established and need to create positive word of mouth.

With the smokestack-free tourism industry now one of the drivers of Taiwanese economic growth, the hotel industry is becoming a key force in the reinvention of our service sector, one that is helping Taiwan win the friendship of people the world over.