1. 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.
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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.
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Or, he that originally pushed for real African elephants, not mechanical props, to animate his Cruise ride in Disneyland For that matter, how many young visitors touring Walt Disney Resort in Orlando, Fla. , or Disneyland in California even realize that Walt Disney was a living, thinking inventor - the creator of Mickey Mouse and a slew of imaginary worlds from Fantasy Land to Frontier Land "We ...
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.
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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.
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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.
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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
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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
