The Walt Disney Company-a case study

					  The Walt Disney Company-a case study
The Walt Disney Company was funded in 1922, and has became a world leader in family
entertainment. Today, the company is operating on a multinational level, and has over
58,000 employees world wide, and over 189,000 share holders. What are the factors that
contributed to the company's successes and failures on its way towards becoming the
World's largest family entertaining company? I would like to answer the stated question
by analyzing the following four factors;
 (1) Disney's industry in relation to Porter's Five-Forces Model,
 (2) the strengths and the weaknesses and the opportunities and the threats that the
company is facing (a SWOT analysis),
 (3) the corporate-level strategy and finally, financial trend for the years 1989 through
1991.

In addition, I would like to deliberate on the strategic changes and tactical changes that
are needed to be made at the Walt Disney Company.

Porter's-Five-Forces Model focuses on the external environment that the company has to
be able to cope with. The first force to be discussed is the threat of new entrants. Since
the Disney company has been able to find a very distinctive niche in the industry, the
entrance barriers are relatively high. The company has been able to grow over a long
period of time, and has developed from within the departments of Research and
development, marketing, and finance. By relying on past experience, company officials
know to a large extent what the target customer wants. As Disney pretty much dominates
the family entertainment market, it will be very difficult for such a new organization to
develop brand recognition/identification, and product differentiation. Disney has focused
of market diversification for years and the company covers a wide array of products and
services. Being a market leader has made it possible for the company to practice effective
economies of scale in production. For example, over 500,000 copies of the Videocassette
"Pinocchio" was sold in only two months, and has 20-30 million visitors to its theme
parks every year. In addition, extremely large amounts of capital investment is required
for new entrants into the industry. The capital requirements are extremely high. For
instance, Disney spent USD3.6 billion in its European theme park (Euro Disneyland).
Only very large companies can meet such large capital requirement. Lastly, the
government policy towards the industry appears to be very favorable. The French
government invested USD 1.2 billion (40%) in Euro Disneyland, provided public
transportation facilities, provided a large tax relief (from 18.6% to 7%) on the cost of
goods sold.

The bargaining power of customers is high in the service and in the entertainment
industry. Since a large number of customers are needed to make Disney's operations run
smoothly, the customers have certain powers. For instance, if the price on a particular
home video is too high, customers may be reluctant to spending the money needed to
purchase the product. Another example is the entrance fee charged at Disney's theme
parks. It is stated in the case that the maximum amount of money that customers are
willing to pay is USD 33. Furthermore, the entertainment industry does not save the
buyer money. Instead it is designed in a way that it will make the buyer spend more. A
majority of Disney's product mix focuses on intangible returns on the buyer's money. The
case that some customers may not realize that they are getting such a return may increase
the bargaining power of the customers.

The bargaining power of suppliers is moderate. As the Disney company is operating in a
highly differentiated and unique industry with high switching costs associated with
operations, the suppliers are dominated by a few companies and is most probably very
concentrated. However, Disney is a unique and important customer of many of the
suppliers. Furthermore, the size of the company may certainly be a great advantage. By
being able to order large volumes of unique products from unique suppliers, will create a
dependency relationship in the industry.

The threat of substitute products or services is moderate to low. Obviously, other cartoon
figures, theme parks, and movies can penetrate the market in which Disney is operating
in, but I do not believe that this is representing a significant threat. The Disney company
has already placed price ceilings on many of its product lines, and should be able to
compete with new competitors. However, the threat alone of new entrants into the market
requires Disney to hedge against such risk by concurrently upgrading products and
services.

Jockeying among current contestants does not play a very important role in Disney's
external operational environment. It is true that the company's exit barriers are extremely
high (who would buy a huge theme/amusement park?). Furthermore, capacity is
augmented in extremely large investments. However, there are no close direct
competitors to Disney's operations. Competitors such as "Lonely Tunes" retail stores do
not appear to commit themselves to expensive advertising campaigns to obtain market
shares. Moreover, Disney's products are highly differentiated. The switching costs are
therefore quite significant.

A multinational corporation such as the Disney Company faces internal weaknesses and
strengths, which can to a certain extent be controlled. The external forces such as
opportunity and threats are more difficult to control, and Disney has to adopt and take
advantage to those forces. I would like to start-up focusing on the internal capabilities of
the company.

Disney's main strength is in its resources, experience in the business, its low-cost
strategy. Furthermore, the company clearly has developed a very strong and well known
"brand-name" over many years. The company has also been able to diversify its
operations and products to hedge against decreasing sales in product lines. In recent years
it has diverted into Home Video, Film, merchandise, Radio broadcasting, Net-work
television and in theme parks. It has also effectively globally diversified its operations
from USA to Japan and Europe. The main strengths in internal resources refer to human
resources and financial stability. Employees in the Disney studies appears to be
extremely innovative and in recent years they have produced several box-office
productions. A company without new ideas is doomed in today's competitive business
environment. The low-cost-corporate-strategy is a benefit for the company. The company
can control costs, and still produce quality goods and services. Financial risks have been
minimized by sharing initial investment costs with a maximum number of outside
participants.

Corporations always have internal weaknesses. Disney's main weaknesses are the
following; A very large work force, frequent change in top-management, and high
overhead expenses. In 1991, the company has 58,000 employees. This fact represent
possible communications problems, and a high bureaucracy level within the corporation.
By diversifying into more businesses and niches, the company's work force will grow
even larger, and the organizational structure has to be able to support an expansion of the
work-force. The fact that the company very frequently changes its corporate officers
makes the corporate structure even more complicated. There are many positive things
that accompany changes, but change is also associated with resistance, and large
expenses.

Large overhead costs are usually direct effects of a large work-force and a large number
of fixed assets. For instance, ticket prices should not be able to exceed USD 33 for
entrance to Walt Disneyworld. Customers are not prepared to spend more money than
that. Therefore, we can conclude that overhead costs should be closely monitored to
match the price that customers are willing to pay for the goods and services offered.

External opportunities should be recognized, analyzed, and responded to in a very early
stage. The Disney company is facing several external opportunities, however, presently I
believe that the external threats facing the company are out-numbering the opportunities.
Opportunities includes the following; Positive government attitudes towards its
operations, Barriers of entry are significant, and the entertainment industry itself.

Legal and legislative forces are usually identified as being negative external factors to a
company. Ironically, in Disney's case, the French government contributed greatly in the
Euro Disneyworld project. The French government invested over USD 1.2 billion in the
project, built communication facilities, and gave Disney tax relief's on cost of goods sold
accounts. In addition, since the barriers of entry into the highly specialized industry in
which Disney is operating, competition will find it difficult to penetrate the company's
highly diversified product/service mix. Furthermore, large initial capital investments are
required to enter the industry.

Major threats to the Disney company include the following; Over saturated markets,
politics and economic aspects from a global perspective, and foreign competition. As the
supply of services and products in the entertainment industry is starting to saturate the
markets, competition will be more intense, and only the most powerful companies will be
able to survive. I believe that Disney has leveraged this risk to a certain extent as it has
diversified and globalized its operations, but still, the company is in the
service/entertainment business. Some of its operations, such as the Network-television
division may not be able to handle the pressure from the Cable-giants such as Turner
Broadcasting Systems (TBS).

World politics and the state of the global economies are related to the market capacity. In
1991, the sales revenue of Disney decreased due to a decrease in travel caused by the
Persian Gulf War. Furthermore, economic depression could make it too expensive for
people to utilize the services and the products offered. Once again, I have to point out that
the company has hedged itself to the macroeconomics forces, as it has diversified its
business worldwide. If there is a depression in Europe, Euro Disneyland may operate on a
loss, meanwhile, the operations in Japan would be able to cover-up the losses by boosting
operating revenues. It is known that economic depressions very seldom strikes the whole
world economy at once.

Competition is always a threat to a company. Even though that the entrance barriers are
relatively high in the niche in which the company is operating in, the threat of new
competition cannot be excluded. The movie business and the Network-television
departments are extremely risky. In those two areas of operation, Disney is the intruder,
and there are several very powerful rivals. A less significant threat comes from new
cartoon characters. New cartoon figures appears every-day in television shows, and in
movie theaters overseas. Will "Mickey and the Gang" be able to beat the war of the
limited market shares internationally and domestically? Only the future generation
cartoon lovers can answer that question, but tendencies in the market should be very
carefully monitored.

Disney's corporate level strategy is based on a horizontal and decentralized and informal
management approach. Ideas are born from within the departments and are worked-up
throughout the relatively low hierarchy, where the final decisions are made. The
management focuses on group creativity and in team-work. For instance, the most
creative employees usually met every Sunday in the purpose of coming-up with new
ideas and new business concepts/strategies. The Sunday meetings are referred to as
"Gong Shows", where all participants have to come-up with a unique idea. As seen in this
example, a large emphasis is placed on employee participation, especially on the most
talented employees. Furthermore, the company is frequently refreshing its top
management with new executives. "Top-flight" managers from the entertainment and the
financial business bring with them new ideas and concepts which can be applied in the
Disney Company. There is however a significant increase in expense attached to luring
the very best to join the company. This increase in expense is directly related to special
perk-packages, higher bonuses and escalated salaries that are offered to the top-
executives.

Another interesting approach is the emphasis that is placed on expansion of the business.
Again the corporate policy is to grow slowly and not to "impress anyone". It is important
for the company to meet demand with an adequate supply of goods and/or services. This
can be accomplished by effective distribution channels and effective marketing. This
leads us to another corporate policy, efficiency and restraint. Recent trend towards rapid
increase in costs in the movie industry have a direct effect on the profitability of the
company. By cutting back on the costs involved in making and marketing Disney films,
less expensive and more profitable movies can be produced. Efficiency, enforced by tight
budgets and expected high returns, have surely made it possible for Disney to produce
less expensive movies than its competitors.

In addition, the corporate strategy is clearly focusing on diversifying its products and
services. Rapid expansion overseas, and an increase in the product and service mix has
created an umbrella effect. Thus, risks have been minimized. If one product line fails,
other product lines will cover-up for its losses.

While examining a corporation it is important to analyze the internal financial capabilities
and policies of an organization. By the use of a trend analysis, the economic health of the
company can be determined and educated forecasts can be made concerning the financial
future of the company. This trend analysis of the Disney Company is for the years 1989
through 1991. The following financial ratios will be used; profitability, liquidity, leverage
and finally activity ratios. .

Profitability ratios indicates how effectively the total firm is being managed. As indicated
in graph #1, the return on sales has decreased over the years. However, the return is still
acceptable, as the American industry average is approximately 5 percent (0.05). In 1991,
the return on sales ratio was 0.07, or 7 percent. This can be compared to the 10 percent
ratio which was achieved one year earlier (1990). Obviously, sales are not keeping-up
with the net earnings of the corporation, and there is a significant decrease, but I do not
think that a one-year fluctuation is anything to worry about. This decrease could be
explained by temporary business problems, and external sources such as economic
depression. Furthermore, the return on investment decreased from 0.10 in 1990 to 0.07 in
1991. That show us that the company should try to work on its efficiency and try to
optimize the usage of assets.

Another interesting ratio that can be used to determine the financial position of a
company is liquidity. Liquidity ratios are used as indicators of a firm's ability to meet its
short-term obligations. It is recommended that the current ratio should be a ratio of two to
three. Disney may have a problem here as its current ratio was 1.12 in 1991, and 1.08 in
1990. I believe that ratio is too low, and perhaps a bit too risks. However, the company is
making efficient use of its assets (the ratio is almost equal to one). It is a good sign that
the ratio increased from 1990. Moreover, the quick ratio for 1991 was 1.01, which is very
close to the typical level of 1.0 for American companies. This ratio was 0.98 in 1990.

The company leverage ratio of total debt to total assets has increase from 0.57 in 1990 to
0.59 in 1991. This ratio show us that 59 percent of Disney's funds is provided by debt. A
total debt-total assets ratio higher than 50 percent is usually considered to be safe only for
firms in stable industries. Since the entertainment industry is moderately stable, we can
conclude that Disney's total debt to total assets is slightly too high and because of
financial risk, the ratio should be lowered to 50 percent or below.
Activity ratios indicate how effectively a firm is using its resources. The company is
facing a decrease in efficiency to 0.65 in 1991 from 0.73 in 1990. That is not very good,
as one of the corporate strategies is to improve efficiency. Therefore, it may be
interesting to determine what departments that are decreasing the over-all efficiency of
Disney. The theme parks and resort division has the lowest efficiency of all the divisions.
In 1991 the ratio was only 0.55, that can be compared to the ratios of the film
entertainment division (1.38) and the consumer products division (2.06). Please refer to
graph #1.

Graph 1




All of the departments except from the film division have faced decreases in efficiency of
total assets. However, as the theme parks and resort division should be improved, as a
result of its devastating low efficiency levels. By improving that particular division,
Disney should be able to improve company activity ratios.

Strategic changes and tactical changes that are needed in the Disney company have been
mentioned throughout the paper. However, in this section, I would like to summarize
some of the changes which I believe are necessary for keeping-up the profitability of the
company.

First, I would like to focus on organizational changes. The frequent changes of corporate
officers should be stopped. It is true that a new leader not requited from within the
organization will bring with him/her new ideas and concepts. But, such a person also
bring a foreign corporate culture to Disney's organization. That fact may lead to
communication, efficiency, and moral problems within the organization. By promoting
from within, employees will know the new corporate officers, and understand the new
rules of the game.
Second, Disney's market diversification is excellent, but what is the point of licensing
product ideas? I believe that it would be more profitable for the company to produce, sell
and market consumer products itself rather than to a large extent relying on licensing, and
percentages of revenues. For instance, the company did sacrifice too many profits while
negotiating the Tokyo deal. Furthermore, there is a possibility that the company is
loosing its original purpose of being if it continues to get into various market segments.
Disney should always place a very specially emphasis on its theme park division and its
film entertainment division. The company's original mission was to "nurture the
imaginations of children around the world as well as to celebrate American values." I
certainly believe that the company is drifting away from its original purpose of existence.
Moreover, it could be very dangerous by entering into markets which are totally unrelated
to the products/services that the customers directly associates with the Disney company.

Finally, efficiency has to increase in the theme parks and resort division. The asset
turnover ratios are far too low in this division in comparison to the other divisions.
Furthermore, as the liquidity ratio appears to be a bit too low for the corporation, I would
suggest the company to increase current asset requirements and keep current liabilities
under strict control. Under no circumstances should the current liabilities be allowed to
increase in a greater rate than the current assets.
EXECUTIVE SUMMARY Disney Company - one of the world
leaders in media entertainment, company branded consumer
goods, and theme parks and resorts - signed the agreement with
Hong Kong concerning the opening of a Disneyland amusement
park in Hong Kong in the year 2005. This case study only
concentrates one of the business fields explored by the Disney
Company - theme parks and resorts. The Disney Company
occupies a strong position developed in the international
business world over the years. Their outstanding success is
based on several internal principles. One of them is Disney
culture, whereby the company relies heavily on its heritage and
traditions, ensures the company's quality standards,
demonstrates the former two in their behavior. Another one of
the principles is the so-called performance excellence as regards
the company's responsibilities towards its clients, its employees,
and its shareholders and other businesses. Yet another important
factor contributing to the company's success is their marketing
policy. The Disney company has a wide range of products and
services of an exceptionally high quality, which allows them to
employ premium pricing and promotion strategies. These
factors, as well as the fact of having had several experiences on
the international market, allows the Disney company to be
confident of their intention to go abroad again. Hong Kong,
which has become a part of China after 150 years of British
ruling, is monitored to be one of the largest and most active
economies in Asia and in the world. The analysis on Hong
Kong's economy show convincing figures of stable growth and
development. These facts make Hong Kong a highly attractive
market for Disney's expansion with the aim of bringing the
vision of happiness to the whole world. Furthermore, Hong
Kong is considered to be a major international trading, financial
center in the world, and the most famous tourist destination in
Asia. A highly favorable taxation system that exists in the
country, and the absence of direct competitors for a theme park
like Disney's, add to the factors that are important for the
Disney company in order to achieve their objectives. The set-
backs of the Hong Kong market exploration are mainly of
political nature and are concerned with the relationship between
China and the USA. However, the people's perception of
western ideology is said to be strongly positive. This is advised
to be used as a theme for the promotion campaign conducted by
Disney on the Hong Kong target market. The latter is to be the
people who are young or young in heart, where the western
tendencies are in particularly affective. Thus, the company is
advised to adopt its promotion policy to suit the new market
better in order to achieve better results and avoid confusions.
The media to be used in the promotion activities are
recommended to act in consensus with the company's overall
image, thus being highly perceived TV channels, local and
international magazines and newspapers. The marketing costs
are therefore budgeted to be quite high and are expected to be
covered while employing the objective-and-task promotion
budgeting method, which is viewed to be affordable for the
Disney company. Other aspects of the marketing strategy do not
need to be changed/adopted, since considered to be
internationally successful, as well as control systems, which
include certain standard procedures that the company employs
all over the world. 2. INTRODUCTION I1. INTRODUCTION
In 1928, Walt Disney started as an animator drawing short
black-and-white cartoons. Today, Disney's main businesses are
television, cinema entertainment, and theme parks. Disney owns
national TV channels and radio stations that broadcast all
around the USA. Since 1991 Disney cooperates with Pixar, a
company specialized in computer animation, and together they
produce and publish exclusively animated movies (e.g. Toy
Story). In 1945 its first theme park Disneyland was opened in
Anaheim, California, USA, followed by Walt Disney World in
Orlando, Florida, USA, in 1971. In 1983, the first international
Disneyland opened to the public in Tokyo, Japan, and in 1992,
the corporation expanded its business to Paris, Europe.
Furthermore, Disney operates a theme Cruise Ship since 1998.
The company has been very successful with its theme park
business. However, Disney was confronted with a major crisis
in its past when first operating its EuroDisney park near Paris.
Insufficient knowledge of the European culture and the buying
behavior of potential visitors of the theme park led to an
overestimation of the number of visitors and their spending in
the park. In addition, operating costs turned out to be higher
than expected. The company was able to overcome this crisis.
The park now operates under the name Disneyland Paris and its
operating income contributes to the high success of the theme
park business. In November 1999 the Walt Disney Corporation
and Hong Kong signed the first agreements concerning the
opening of a Disneyland amusement park in Hong Kong in the
year 2005. The undertaking will be a joint venture between the
Walt Disney Company and the Hong Kong Special
Administrative Region Government. Disney will own 43% of
the shares and Hong Kong 57%. Both parties are optimistic that
this co-operation will result in a win-win situation. Hong Kong
is going to invest a high amount of money in the venture both
directly and indirectly. Directly by investing in the construction
of the park itself, and indirectly by renewing the infrastructure
of the city to the park and investing in a new tourism strategy,
that enhances the city's attractiveness as an international tourist
destination. In return, Disney will market the new effectively.
Hong Kong expects this East-meets-West attraction to bring the
tourism to a new boom. Especially visitors from the mainland of
China are predicted to visit Hong Kong and the park. Disney
claims to have enough experience to open another theme park
outside the United States. Failures and successes while
expanding their amusement park business to Tokyo and Paris
helped them to make more accurate predictions on the new
project. This win-win situation has led to an agreement about
Disneyland Phase I (which will include a Disney theme park, a
Disney theme resort hotel complex, and a retail, dining and
entertainment centre). 3. INTERNAL ANALYSIS 3.1.
MISSION STATEMENT We will deliver magical and
memorable entertainment experiences which create a sense of
joy and wonderment for our Guests and consistently exceed
their expectations. We will continue to be recognized globally
as the premier entertainment and hospitality organization by
mobilizing our team spirit to perfect our talents and abilities,
and to perpetuate our rich Disney legacy. This will be evident to
our Guests, fellow Employees, shareholders, and community
and business partners through our words and deeds. It is the
company's mission to provide a reasonable return to their
shareholders, and to increase the value of their investment. At
the same time, Disney must be sure to protect the business and
reputation of the company, so that it can meet the expectations
of the shareholders, guests, customers, employees and
employees. 3.2. OBJECTIVES Disney's idea is to attract more
than five million tourists to the park within the first year of
business, which is expected to rise to 10 million per year after
15 years. The company intends to provide Hong Kong with a
net economic benefit of up to $148 billion over 40 years.
Additionally, the park will create thousands of jobs, enrich the
quality of life, and enhance Hong Kong's international image.
3.3. INTERNAL ORGANIZATION 3.3.1. The Disney Culture
The company has its own Disney Culture consisting of a rich
heritage, traditions, quality standards, and values that create a
unique environment. This specific culture is an important factor
to its success. A Disney employee needs to commit himself to
these characteristics when going to work every day, in order to
make the experience of a magical vacation possible for the
visitors. The company believes that the success in the family
entertainment business is directly attributed to the individual
contributions of the entire team of employees. Performance in
this context stresses the entertainment, and Excellence the
company wants to be synonymous for Disney. 3.3.2.
Implementation of Disney's mission & culture In order to
provide a perfect show every day the employees have to realize
that they are part of the entertainment. Disney places great
emphasis on the personal commitment of each and every
employee to the company's mission. A person employed by
Disney is not only supposed to identify himself with the
company, he is also supposed to feel welcome and comfortable
at his working area and important for the organization. Another
significant aspect is the Disney look, which is a very strict
guideline that the cast has to follow. In order to make a
professional impression there are rules about the personal
appearance when going on-stage. The policy include the
prohibition of tattoos, certain hairstyles, and conspicuous
jewelry, regulations about make up, deodorant, and the length of
fingernails and skirts, and it is even mentioned that Employees
are required to wear appropriate undergarments at all times.
Employees always wear name tags in order to personalize a
conversation. Disney is well aware of the fact that a great
success in the past does not guarantee a great success in the
future, especially if a company is not open to changes.
Therefore the company measures their guests' satisfaction on a
regular basis, and asks employees to come up with suggestions
on how to make the business more efficient. Disney puts great
emphasis on recognition for suggestions and high effort on the
job. To facilitate the upward communication, every member
within the organization may be addresses by his/her first name.
Additionally, the company hands out evaluation forms
regarding work, management and suggestions. Furthermore, the
Disney corporation is very open towards diversity and to show
respect for the individual. In practice this means that Disney
employs people freely not considering race, age, religion, sexual
orientation or any other job-unrelated reason. Business partners
are considered to be an essential part of the company's team.
Disney expects its employees to compete aggressively, but
fairly, in each of the markets in which they operate. Very
important for the company is to be active in the communities in
which it operates. It works with community leaders and
members to improve the surrounding. It encourages its
employees to participate in local activities that address the needs
of the communities in which they reside and work. So does
Disney for instance sponsor the Give Kids the World program,
where wishes are fulfilled for terminally ill children, such as
spending a week in Orlando with the entire family and to get
free admission into all the parks. Part of Disney's mission is to
expand its market. When going abroad the Disney corporation
promises to keep following in mind: As we expand our
operations abroad, we encounter new challenges as a result of
cultural differences and unfamiliar practices. While we are
bound by U.S. laws and regulations as well as Company policy,
we must recognize that in many cases we are introducing our
culture and methods of conducting business into different
environments. When conducting business in other countries, it
is imperative to be especially sensitive to foreign legal
requirements and cultural differences, and make every effort to
integrate Disney culture as smoothly as possible. 3.4.
CURRENT MARKET POLICY The theme park business
consists of both providing services and selling consumer goods,
including food and beverages, and merchandise. In general,
Disney uses the same marketing mix and strategy for both
physical goods and services. Marketing Mix: 1) Product Core
Product: amusement, joy, fun, pleasure, prestige Basic product:
roller coasters, attractions, shows, Disney characters, food,
drinks, toys, clothes Expected product: safety, excellent service,
very high quality Augmented product: exceeding guests
expectations, e.g. by having the sections of the parks be
consistent with certain themes (e.g. the Space Mountain-roller
coaster- ride is in the Future Land), by providing immediate
guest service recovery (if a customer receives a product that
does not meet his expectations, he can exchange it without
problems) or by promising a magical experience that the guest
will never forget. This experience is supposed to last during the
whole voyage to the park. For instance in Orlando Disney
spends a lot of money on maintenance of the airport of Orlando
and of the streets leading to the parks and resorts. 2) Price
Premium pricing: Disney would like to stay being the quality
leader in the amusement park business world-wide and therefore
chooses for a high price that is perceived to go along with
premium quality. In addition Disney's general policy is not to
cut prices. This means that the parks are not offering low-season
discounts on the entrance tickets or offer merchandise on sale
inside the park. However, Disney decided to make an exception
with the park in Paris. Due to a lower-than-expected number of
visitors during winter months, the company offers low-season
prices and all-inclusive-packages for a less expensive entrance
fee. 3) Promotion The company has a high budget to spend on
advertisement, therefore Disney can use efficient media tools,
such as television, high quality magazines, newspapers, adds
and posters at popular locations (like buses, advertising columns
and travel agencies) and they put a lot of emphasis on the
quality of their advertising material. Furthermore the company
wants to stay in touch with the communities that it operates in
(by e.g. sponsoring competitions). 4) Place The Disney theme
parks are located in Anaheim (California, USA), Orlando
(Florida, USA), Tokyo (Japan) and Paris (France). Disney puts
a lot of emphasis on easy accessibility to the theme parks. All
theme parks can be reached by public transportation, private
shuttles or taxis. The Disney parks have their own highway exits
that lead the guest coming by car straight to the Disney owned
parking area. On the Disney property there is a company-owned
transportation system, which is free of charge, that brings hotel
and resort guests to any location within the Disney property.
3.5. FINANCIAL POSITION AND DEVELOPMENT As can
be concluded from the financial statements of Disney (see
Appendix), the theme park and resort business counted for USD
1,446 million of operating income in the year 1999. This is
about 45% of the total operating income of the company and
therefore one of the company's most important sources of
income. One reason for the company to be able to keep costs
relatively low is the fact that the company has strict salary
regulations. In the park in Florida, for instance, a low-educated
full-time worker generally earns USD 6.25 per hour, which is
the minimum wage required by the government. (The fact that
the company offers a high number of jobs that require no or
hardly any education (such as maintenance or attraction host)
also has the advantage that there is a low unemployment rate in
the area around the theme parks.) 4. EXTERNAL ANALYSIS
4.1. OVERVIEW Situated at the south-east tip of China, Hong
Kong is ideally positioned at the Centre of East Asia, one of the
worlds most dynamic regions. With a land area of only 1.097
square kilometres, Hong Kong is one of the most densely
populated places in the world. The population density was 6330
people per square kilometres at end 1998. The annual growth
rate in population over the past decade averaged 1,9 %. Hong
Kong has an industrious population of 6.7 million. A
hardworking, flexible and well-educated workforce of 3 million
coupled with entrepreneurial flair, is the bedrock of Hong
Kong's productivity and creativity. Since 1850 Hong Kong has
grown into a world-class financial trading and business centre.
It is the world's 8th-largest economy and the ninth-largest
exporter of services. Hong Kong's economy is supported by a
government policy of maximum support and minimum
intervention. Its taxes are low and simple. Hong Kong became a
special Administrative Region of the people's Republic of China
on 1 July 1997 after a century and a half of British
administration. Under Hong Kong's constitutional document the
Basic Law, the existing economic, legal and social systems will
be maintained for at least 50 years after 1997. 4.2. MARKET
DEFINITION The potential market for a theme park like the
Disney parks is every person in the world that is interested in
spending time out and consider to spend this time in an
amusement establishment, including all ages, income, and no
matter where they are from. The available market are the people
with an interest in amusement parks that have a level of income,
which allows them to afford the premium prices Disney
charges. This includes people living around the parks as well as
people with an income high enough to afford the travel costs to
the parks, and still includes people of all ages. The target groups
are thus people of all ages, preferably families with children,
with an at-least-average income level. 4.3. ACHIEVEMENTS
OF HONG KONG IN THE WORLD ECONOMY 4.3.1. A
major international trading and financial centre Hong Kong has
firmly established itself as a major international trading and
financial center and has the world's freest market. · The 3rd
most competitive economy in the world in 1999 after Singapore
and the United States. · The 9th largest trading entity in goods in
the world in 1998. Hong Kong's stock market is also the 10th
largest in the world and the 2nd largest in Asia after Tokyo. ·
The 2nd largest stock market, in terms of capitalization, in Asia
behind Japan. At the end of September 1999 Hong Kong's stock
market capitalization was HK$ 3,469 billion. · 8th largest
banking transactions volume. 4.4. GENERAL ECONOMIC
FIGURES The per capita GPD is among the highest in Asia,
after Japan. It is more then 15.000 US$, which is comparable to
that figure in European countries. Table 3: Gross Domestic
Product by Major Economic Activities 1980 (in %) 1999 (in %)
Wholesale, retail and import / export trades, restaurants and
hotels 21,4 25,4 Financing, insurance real estate and business
services 23 26,2 Community, social and personnel services 12,1
17,9 Transport and storage 7,4 9,1 Manufacturing 23,7 6,5
Others 12,4 14,9 Total 100 100 There has been a shift in Hong
Kong's economy from manufacturing towards services. The
contribution of services to GDP increased from 68% in 1980 to
85% in 1999. Over the years, Hong Kong has developed a
efficient wholesale and retail network to cater for the growing
consumption needs for a more affluent population. Financial
and business services, including banking, insurance, real estate
and wide range of professional services have developed rapidly.
Hong Kong's tax system is simple and relatively inexpensive to
administrate. The tax rates are: · Salaries tax: 15 % maximum ·
Profits tax: o 16 % for corporations o 15% for unincorporated
business Table 5: Inflation rates in Hong Kong Year 1992 1993
1994 1995 1996 1997 1998 Years-on-year inflation rates 9,6 8,8
8,8 9,1 6,3 5,8 2,8 Table 6: Unemployment Rates Year 1993
1994 1995 1996 1997 1998 Unemployment rate 2 1,9 3,2 2,8
2,2 4,7 4.5. TRADE, INDUSTRY AND TOURISM 4.5.1.
General Information From January - July 1999, 65% of Hong
Kong's trade and 11% of is top 20 trading partners were from
Asia-Pacific Region. The Mainland of China is Hong Kong's
largest trading partner accounting for 38% of Hong Kong
overall trade value in January - June 1999. China has become
the largest supplier and market for Hong Kong's imports and
domestic exports accounting for 43% of total imports and 30%
of domestic exports in January - June 1999 and Hong Kong is a
major service-centre for the Mainland. The United States of
America is Hong Kong's second largest trading partner. In
January - July 1999 total trade with the US accounted to USD
29.1 billion, down 5.7% over January - July 1998. The
European Union is the third largest trading partner. Between
January - July 1999 the total volume of transactions with the EU
accounted to USD 24.3 billion, a drop of 11.7% over January -
July 1998. In January - July 1999 imports totalled USD 98.2
billion, a 10.1% decrease over the same time in 1998.The total
exports to Japan rose by 0.9% in real terms in January - July
1999, compared with 1998. 4.5.2. Incoming Visitors to Hong
Kong (Figures from Hong Kong Tourist Association) Hong
Kong was the most popular tourist destination in Asia in 1998.
The total tourism receipts in 1998 (in whole Asia) amounted 7,1
billion and in the first half of 1999 amounted 3.2 billion. There
were 9.57 million visitors arriving to Hong Kong in 1998, an
8% decrease over 1997. From January - end of August 1999
there were 6.9 million visitors arrivals, an 11% increase over the
same period in 1998. Graph 1: Visitors in Hong Kong (x
1,000,000) 4.5.3. Radio and Television Hong Kong has two
commercial television licenses. Television Broadcasters Limited
and Asia television Limited. Each provides one Chinese and one
English language channel. On average they transmit more than
550 hours of programming weekly, reaching more than 6
million viewers, or more than 1.9 million television
householders. Also Hong Kong has 13 radio channels broadcast
by three operates - seven by Radio Television Hong Kong and 3
each by Hong Kong Commercial Broadcasting Company
Limited and Metro Broadcast Corporation Limited. 4.5.4.
China's view of the USA There is a contradiction between the
official policy of the government and the people's opinion about
the western influence in the country. On the one hand the
government is open for free trade with western nations,
including the USA. On the other hand the influence of the
western society in their Asian country is not liked to be seen.
The population, however is more likely to be open about the
western culture and tends to be enthusiastic about American
products and the American philosophy and the western way of
life. 4.6. DEMAND ANALYSIS 4.6.1. Demand development
The estimated number of visitor to the Hong Kong the me park
in the first year of operation. This figure will gradually rise to
around 10 million a year after 15 years, which is the full annual
capacity. 4.6.2. Product classification The experience to go to a
theme park is non-durable (even though the company claims to
offer durable memories). Disney's theme parks are specialty
products, and people are willing to travel far and pay a lot of
money to experience the magic. 4.6.3. Segmentation analysis
Disney expects visitors from all over the world: · The mainland
of China - 27% · Taiwan - 19% · Japan - 10% · South and
Southeast Asia - 12% · The USA - 8% The majority of the
expected visitors are families with children. And, as mentioned
before, the income level of the expected visitors is at least
average. The company has to consider different life styles when
segmenting the market. There are numerous potential customers
that do not like the idea of an artificial perfect world. 4.7.
INDUSTRY AND COMPETITION ANALYSIS In order to
analyse the forces that influence the competitiveness of the
Disney park in Hong Kong, Michael Porter's 5-forces-model
will be used: Direct competitors: Since there is no western-
oriented amusement park in Hong Kong and around, there is no
direct competitor for the Disney park in Hong Kong. Indirect
competitors: · Substitutes: There are a lot of possibilities to
spend the free time. In Hong Kong there are a lot of museums,
parks and restaurants. Besides, one could stay at home, visit
friends or relatives, do sports, watch TV, play games or simply
enjoy yourself. · Potential entrants: A theme park requires high
investment. Since the Disney parks are the most popular in the
world, a company deciding to open another amusement park in
the surrounding of Hong Kong will have a hard time (high entry
barriers). However, famous park operator like the Universal
Studios or Bush Gardens have enough financial power to enter
the Asian market. · Suppliers: Naturally the park will depend on
Asian suppliers of e.g. food and beverages and on the prices
they are setting. However, brands like Coca Cola are
international companies and have been operating with the
Disney company for numerous years, and will not ask for a
price that will surprise Disney. In the park, Disney will hardly
sell any specialty goods, so that the company will not depend on
a certain supplier. For the most part Disney will sell company-
manufactured merchandise and therefore this will not be a
threat. · Buyers: Disney depends on the people visiting the park.
As already experienced with the park opened in Paris, a lot o
studies on the buying behaviour of the visitors has to be
conducted. It showed that European visitors tended to bring
their own food to the parks and did not spend as much money
on souvenirs as expected. In addition the Europeans were
obviously not as excited about the park itself or more price
sensitive as former considered, which resulted in a lot lower
park attendance than estimated. The park was in high debt and
almost had to be closed. 5. SWOT ANALYSIS STRENGTHS ·
famous worldwide · 55 years of experience in the theme park
business, 17 of which in the international/Asian market · high
quality of service and products · ability to attract a high amount
of tourists · ability to create a high amount of jobs for all levels
of education WEAKNESSES · low payment for a majority of
the employees - difficult to keep stuff ( high employees
turnover) · managers are not experienced enough to work in
Hong Kong *** · Difficult to persuade managers to move to
Hong Kong OPPORTUNITIES · after being successful with
Phase I of the park (Disney theme park, a Disney themed resort
hotel complex, and a retail, dining and entertainment centre) an
expansion of the park is possible · the population of China is
said to be enthusiastic about western culture · Hong Kong was
occupied by Great Britain and is therefore influenced by and
open for the western culture · low taxes (simple taxation system)
THREATS · politics: o China as a communistic nation o
relationship USA/China · economical situation in the country
(Asian crisis in 1997) · low unemployment rate in Hong Kong
(difficulties to find enough/right educated staff) · possibility that
the population of Hong Kong and/or China does not accept/like
or is not enthusiastic about the park/the American culture
represented by the park · possibility of an unexpected low
attendance in the park (compare the Paris scenario) due to
unforeseen factors (such as underestimated costs) · big famous
amusement park companies (such as Universal Studios) might
follow Disney's example and expand to Asia 6. PROBLEM
DEFINITION Disney would like to expand internationally by
targeting new markets. By doing this Disney would attract more
new or recurring visitors to its parks, and therefore increase the
revenues. Disney has to find an attractive and feasible market
open to the Disney concept and culture. 6.1. Analysis 6.1.1.
Alternatives Disney chose to enter the Hong Kong market with
a joint venture, but other possiblities exist to enter a foreign
market: · Franchising · Subsidiary 6.1.2. Evaluating alternatives
When evaluating the alternatives, we have to look at the things
that are important to Disney. Disney wants: · Control · Good
infrastructure · Average risk · Knowledge of the local market A
high investment is not that important to Disney, because they
are confident that they will be able to cover the costs with their
operating income. Control Risk Infrastructure Market
knowledge Costs Franchising reasonable low medium medium
low Subsidiary Very high Very high medium high Extremely
high Joint venture high high Very high high high As you can
see from the table a joint venture would be the best solution for
Disney. They still have control and reduce the risk and costs,
because they share it with a partner. Because the partner is
native, they have access to expertise and contacts in local
markets. In this case, the best partner for Disney is the
government of Hong Kong, because they can help them
improve the infrastructure. 7. STRATEGIES 7.1. GROWTH
STRATEGIES After opening the park Phase I (Disney theme
park, a Disney themed resort hotel complex, and a retail, dining
and entertainment centre) in 2005 the company will continue to
develop their property and build new attractions, new resort
hotels and other sorts of tourist destinations depending on the
success of the Disneyland in the first years. 7.2.
SEGMENTATION STRATEGIES Disney will mainly target
families with at-least-average income. The company will aim
for the young and young in heart, try to reach children, and
appeal to adults' memories of their childhood. 7.3.
POSITIONING STRATEGIES Disney will continue to
premium position its Hong Kong theme park. There is no need
in lowering the perceived quality. Disneyland Hong Kong is
supposed to be the happiest place on earth, just as the already
existing parks. Th Word Count: 4804

				
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