Case Study Disney

.. 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.

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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 Marketing and Advertising.