Pro Academia Help

Beyond Tokyo: Disney’s Expansion In Asia Reflection Paper

Select a case, review the case, and then prepare a Reflection Paper. Which details appear to be significant about the case?

Here are more details about a Reflection Paper. After you finish reading the case you select, reflect on the concepts and write about them. What do you understand completely? What did not quite make sense? The purpose of this assignment is to provide you with the opportunity to reflect on the case you finished reading and to expand upon those thoughts.  Can you apply the concepts toward your career or your experiences? How?

In-Depth Integrative Case 2.1 b

Beyond Tokyo: Disney’s Expansion in Asia

After its success with Tokyo Disneyland in the 1980s, Disney began to realize the vast potential of the Asian market. The theme park industry throughout Asia has been very successful in recent years, with a range of regional and international companies all trying to enter the market. Disney has been one of the major participants, opening Hong Kong Disneyland in 2005 and discussing future operations in at least three other Asian cities.

Disney in China After Disney ‘s success in Tokyo, China, in particular, became a serious option for its next theme park venture in light of the country’s impressive population and economic growth throughout the 1990s. Successful sales associated with the Disney movie The Lion King, in 1996, also con- vinced Disney officials that China was a promising loca- tion. However, consumer enthusiasm for theme parks in China was at a low in the late 1990s. “Between 1993 and 1998, more than 2,000 theme parks had been opened in China,” and “many projects were swamped by excessive competition, poor market projections, high costs, and relentless interference from local officials,” forcing several hundred to be closed.1 Nevertheless, Disney continued to pursue plans in both Shanghai and Hong Kong.

Shanghai, known as the “Paris of the Orient,” was an attractive site for Disney officials because of its growing commercialization and industrialization and its already extant transportation access . The projected $1 billion project was scheduled to be built across the Huangpu River from Shanghai’s world-famous waterfront prom- enade, the Bund, on a 200-square-mile expanse called The Pudong New Area. The first phase of construction included a Magic Kingdom park, while an EPCOT-style theme park was to be added after at least five years of operations. 2

A Disney theme park in Shanghai would be mutually beneficial for the company and the nation of China. From

perspective, it would gain access to one of the world’s largest potential markets (and also compete with Universal Studios’ new theme park). From the perspective of Chinese government officials, Disney’s park would be a long-awaited mark of international success for a com- munist nation. 3

Initially planners hoped to have a Disneyland operating in Shanghai prior to the World Expo in 2010. However the project stalled, and as of late 2006, “the chances of Beijing approving the project have shrunk since Shanghai’s 254

Communist Party boss was implicated in a big corruption investigation in September [2005] .” This led Disney to consider other options for the construction of a new park.4

Hong Kong Disneyland Plans in Hong Kong, which culminated in the opening of Hong Kong Disneyland in September 2005, began after the 1997-1998 Asian financial crisis. Despite the poor economic condition of Hong Kong in the late 1990s, Disney was still optimistic about prospects for a theme park in the “city of life.” Hong Kong, already an interna- tional tourist destination, would draw Disneyland patrons primarily from China, Taiwan, and Southeast Asia.

The official park plans were announced in November 1999 as a joint venture between the Walt Disney Company and the Hong Kong SAR Government. Unlike its experi- ence in Tokyo, where Disney handed the reins over com- pletely to a foreign company (the Oriental Land Com- pany), Disney decided to take more direct control over this new park. The park was built on Lantau Island at Penny’s Bay, within the 6-mile stretch separating the international airport and downtown. Hong Kong Disneyland was esti- mated to create 18,000 jobs upon opening and ultimately 36,000 jobs. The first phase of the park was to include a 10 million annual visitor Disneyland-based theme park, 2,100 hotel rooms, and a 300,000-square-foot retail, dining and entertainment complex. 5

In order to make the park “culturally sensitive,” Jay Rasulo, president of Walt Disney Parks & Resorts, announced that Hong Kong Disneyland would be trilin- gual with English, Cantonese, and Mandarin. The park would also include a fantasy garden for taking pictures with the Disney characters (popular among Asian tour- ists), as well as more covered and rainproof spaces to accommodate the “drizzly” climate.6

Unfortunately, Disney soon realized that its attempts at cultural sensitivity had not gone far enough. For instance, the decision to serve shark fin soup, a local favorite, greatly angered environmentalists. The park ultimately had to remove the dish from its menus. Park executives also failed to plan for the large influx of visitors around the Chinese New Year in early 2006, forcing them to turn away numerous patrons who had valid tickets. Unsurpris- ingly, this led to customer outrage and negative media coverage of the relatively new theme park.

Other criticisms of the park have included its small scale and slow pace of expansion. Hong Kong Disneyland



In-Depth I n tegrative Case 2.1 b Beyond Tokyo: Disney’s Expansion in Asia 255

has only 16 attractions and “one classic Disney thrill ride, Space Mountain, compared to 52 at Disneyland Resort Paris [formerly Euro Disneyland].”7 However the govern- ment has made plans to increase the size of the park by acquiring land adjacent to the existing facilities. Likely due to its small size and fewer attractions, Hong Kong Disneyland pulled in only 5.2 million guests during its first 12 months, less than the estimated 5.6 million.8 Fail- ure to meet its projected levels of attendance and guest spending could cause the park to look toward other sources of fu nding for these expansions.

Battle over Hong Kong Park Expansion

Disney had plans to expand the size of the theme park in Hong Kong by about a third and it had been trying to obtain the local government’s financial support for these plans since 2007. However, Disney’s Park in Hong Kong had been performing well below the projected sales num- ber in 2007- 2008, and the government, which is 57 per- cent stockholder in this business, has expressed serious doubts in the need to fund the further expansion. As noted by Financial Times analysts, in one of the March 2009 reports, Hong Kong Disneyland has attracted about 15m visitors since its opening in September 2005, or about 4.3m a year. That figure fell short of the original projection of more than 5m a year.9 Although Disney did not release financial figures to the public, Euromonitor estimated the park had an operating loss of $46 million in the year ended June 2006, and lost $162 million the following year.10

Disney’s officials have been trying to stress the impor- tance of park expansion for the overall viability of the project. So far, the park occupied 126 hectares and had only four “lands”- Fantasyland, Tomorrowland, Adven- tureland, and Main Street USA-and two hotels. Hong Kong Disneyland Managing Director Andrew Kam said expansion is vital to the park’s success. In one of the September 2008 releases, Kam said the park had plenty of room to grow, since it was only using half of the land available. “Expansion is part of the strategy to make this park work for Hong Kong,” he said. 11 An expansion could cost as much as 3 billion Hong Kong dollars, or $387 mil- lion, local media have reported. In December 2008, the Sing Tao Daily newspaper in Hong Kong reported that Disney, in what was deemed an unusual concession, might give the ‘government a greater share in the project in repayment of a cash loan of nearly $800 million that the city had extended previously to the theme park. 12

Unable to come to agreement with the Hong Kong government, Disney has indicated that it is putting on hold long-awaited plans to expand the park. In a statement from Disney’s Burbank (Calif.) office released in March 2009, the company said it was laying off employees in Hong Kong after failing to reach an agreement with the

Hong Kong government to fund a much-needed expan- sion. According to Disney, “The uncertainty of the out- come requires us to immediately suspend all creative and design work on the project.” Thirty Hong Kong- based Disney “Imagineers” who helped to plan and design new parks, will be losing their jobs.13 Business news sources had noted that one reason Disney might be willing to end negotiations with the Hong Kong government is the com- pany’s progress in negotiations with Shanghai officials to open a theme park there that would be much larger and arguably a more exciting China project. This park is expected to be easier for many Chinese families to visit. However, the possible shift of mainland Chinese away from Hong Kong to Shanghai could mean a drop of as much as 60 percent in visitor numbers to the Hong Kong park, according to Euromonitor’s estimates. 14

In June of 2009 Disney and Hong Kong’s government finally reached a deal to expand the territories of the Disneyland theme park at a cost of about $465 million. Under terms of the deal, the entertainment giant will con- tribute all the necessary new capital for construction as well as sustaining the park’s operation during the building phases. It will also convert into equity about $350 million in loans to the venture to help with funding and will keep open a credit facility of about $40 million. Hong Kong, which shouldered much of the $3.5 billion original construction cost, will not add any new capital. “Disney is making a substantial investment in this important project,” Leslie Goodman, a Disney vice president, said in a statement. 15

Disney Gets Green Light for Shang hai Park

In spite of the global economic downturn, Walt Disney Co. has revisited its plans to build a park in Shanghai, China. In January 2009 Disney presented to the Chinese central government a $3.59 billion proposal that outlined the plans for a jointly owned park, hotel, and shopping development. Shanghai Disneyland, if the project suc- ceeds, would be one of the largest-ever foreign invest- ments in China. 16 Though Disney had been unsuccessful in its negotiations with the Chinese government a few years earlier, and almost abandoned its plans of expansion to Shanghai, the global economic crisis played a role making the prospective creation of 50,000 new jobs amid a cooling Chinese economy especially attractive, and gave Disney the grounds to revisit its plans.17

The preliminary agreement signed in January repre- sented a framework to be considered by China’s State Council, the central government’s highest administrative body. According to the proposal Disney would take a 43 percent equity stake in Shanghai Disneyland with 57 percent owned by the Shanghai government forming a joint-venture company. 18 The park’s first phase would include building a theme park, a hotel, and shopping



256 Part 2 The Role of Culture

outlets on about 1.5 square kilometers (371 acres) site near Shanghai’s Pudong International Airport. 19 The pre- liminary agreement outlined a six-year construction period for the first phase with the projected opening of the park in 2014. Disney will likely pay $300 million to $600 mil- lion in capital expenses for the park in exchange for 5 percent of the ticket sales and 10 percent of the conces- sions.20 Shanghai Disneyland will incorporate Chinese cultural features as well as attractions built around tradi- tional Disney characters and themes. The ownership struc- ture will contain some aspects of Disney’s Hong Kong joint venture agreement. But the details of the Shanghai project will need to be further negotiated and the actual contract will have to be approved by the central govern- ment. According to The Wall Street Journal, a newly formed Shanghai company named Shendi will hold the local government’s interest in the park. Shendi is owned by two business entities under district governments in Shanghai, as well as a third company owned by the municipal government’s propaganda bureau.21

After almost a year of negotiation, in November 2009, Disney finally received an approval from the Chinese gov- ernment to proceed with its Shanghai park plan.22 The new park planned for the Pudong new district of China’s finan- cial capital will take years to contribute to a company that takes in more than $30 billion in annual revenue. But analysts see the move a an important step forward for Disney and other Western media firms to make inroads into the vast and untapped Chinese media and entertain- ment market.

“They’ve been laying the groundwork for a park for many years by exposing the population to Disney proper- ties, film, TV and merchandising,” said Christopher Marangi, senior analyst with Gabelli and Co in New York.23

There are certain public concerns that the new Shanghai park, which would be Disney’s sixth, will inevitably affect the Hong Kong park. The main concern is that Hong Kong park’s revenue may be cannibalized which will make the financial perspectives of this underperforrning park even sadder looking. However, Disney thinks that both parks will complement each other rather than be competitors. Disney’s main points are that Shanghai is close to a num- ber of other major cities within easy driving distance, including Nanjing, Suzhou, and Hangzhou, and that Shanghai ‘s own population of around 19 million, com- bined with tens of millions more within a three-hour driv- ing radius, would provide a more-than-ample base of local users for the park. There are analysts, like Paul Tang, chief economist at Bank of East Asia, who share this opti- mism, projecting that “visitors from Guangdong and southern China will still find Hong Kong more conve- nient, while Shanghai will attract visitors from northern and eastern China.”24

The critics of the Shanghai park on the other hand are convinced that this project is a bigger threat to the

Hong Kong park than anybody can imagine. According to Parita Chitakasem, research manager at Euromonitor International in Singapore, who specializes in theme parks, “Disneyland Shanghai will have two big features which will make it more attractive than its Hong Kong counterprut: Although it is still early days, Disneyland in Shanghai will probably offer a much better experience for your money than Disneyland in Hong Kong- initial plans show that Shanghai’s Disneyland will be six times bigger compared to the current size of Hong Kong Disneyland, which is very small (only 16 attractions) . Also, for visitors from mainland China, it will be much easier to travel to Disneyland in Shanghai, as there are no visa/cross border concerns to take care of.”25

While the public is debating the project, Disney is not wasting time and moves on with getting all other neces- sary approvals and documents that are needed for the park construction, which still may take long to obtain. In April 2010 the company received approval for the land. Author- ities have also confirmed that 97 percent of residents have been already relocated, and the land would be transferred over to Disney in July. Over 2,000 households and 297 companies have to be relocated to make way for the first phase of construction. The head of Pudong New District where Shanghai Disney will be sited informed the public that the first phase of the project, including a theme park and supporting facilities, will span four square km with the theme park covering one square km. The project would take five to six years to finish .26

Other Asian Ventures

The Walt Disney Company has also looked into building other theme parks and resorts in Asia. Based on its suc- cessful operation of two theme parks in the United States (at Anaheim and Orlando), Disney believes that it can have more than one park per region. Another strategically located park in Asia, officials agreed, would not compete with Tokyo Disneyland or Hong Kong Disneyland, but rather bring in a new set of customers.

One such strategic location is the state of Johor in Malaysia. Malaysian officials wanted to develop Johor in order to rival its neighbor, Singapore, as a tourist attrac- tion. (Two large casinos were built in Singapore in 2006.) However, Disney claimed to have no existing plans or dis- cussions for building a park in Malaysia. Alannah Goss, a spokeswoman for Disney’s Asian operations based in Hong Kong, said, “We are constantly evaluating strategic markets in the world to grow our park and resort business and the Disney brand. We continue to evaluate markets but at this time, we have no plans to announce regarding a park in Malaysia.’m

Singapore, in its effort to expand its tourism industry, had also expressed interest in being host to the next Disneyland theme park. Although rumors of a Singapore Disneyland were quickly dismissed, some reports



In-D epth I ntegrative Case 2.1b BeyondTokyo: Disney’s Expansion in Asia 257

suggested there were exploratory discussions of locations at either Marina East or Seletar. Residents of Singapore expressed concern that the park would not be competitive, even again t the smaller-scale Hong Kong Disneyland. Their primary fears included limited attractions (based on size and local regulations), hot weather, and high ticket prices.

Disney’s Future in Asia

Although Disney i wise to enter the Asian market with its new theme parks, it still faces many obstacles. One is finding the right location. Lee Hoon, professor of tourism management at Yanyang University in Seoul, noted, “Often, more important than content is whether a venue i located in a metropolis, whether it’s easily acces ible by public transportation.” Often tied to issues of location is the additional threat of competition, both from local attractions and those of other international corporations. It seems that Asian travelers are loyal to their local attrac- tions, evidenced by the success of South Korea’s Everland theme park and Hong Kong’s own Ocean Park (which brought in more visitors than Hong Kong Disneyland in 2006)?8 The stiff competition of the theme park industry in Asia will center on not only which park can create a surge of interest in its first year but also which can build a loyal base of repeat customers.

Despite its already large size, the Asian theme park industry is still developing. Disney officials will need to be innovative and strategic in order to maintain sales. After Universal Studios in Japan witnessed a 20 percent drop in attendance between 2001 and 2006 and Hong Kong Disneyland failed to meet its estimated attendance level in 2006, Disney officials might want to think twice about building additional parks in Asia.29

In spite of underperformance of some theme parks, and a recent world economic crisis, Asia is still viewed by many as the most attractive region for the entertainment industry. Attendance may be stagnating in some parts of the world, but a growing middle class with disposable incomes to match is making the Asia-Pacific region a prime target for investors and theme park owners. “China will lead the way,” said Kelven Tan, Southeast Asia’s rep- resentative for the International Association of Amuse- ment Parks and Attractions, an industry group. “The critical mass really came about with the resurgence of China. You need a good source of people; you also need labor you need cheap land.”30

That’s what the people behind the just-completed Uni- versal Studios in Singapore are betting. Developers aim to tap the wallets of Singapore’s 4.6 million residents and 9.7 million tourists a year and its proximity to populous areas of Indonesia and southern Malaysia. After opening

in spring of 2010, it will be the island nation’s first bona fide amusement park. Outside this and other foreign brands like Legoland, which plans to open a park in Johor, Malaysia, for 2013, home-grown companies like Genting in Malaysia and OTC Enterprise Corp. in China are aggressively looking to take advantage of the burgeoning market in their backyards.31

Overall spending on entertainment and media in Asia Pacific is set to increase 4.5 percent each year, jumping to $413 billion in 2013 from $331 billion in 2008, accord- ing to PricewaterhouseCoopers, with places like South Korea, Australia, and China posting the biggest increases. “It’s an up-and-coming market, and growing quite fast,” said Chri tian Aaen, Hong Kong- based regional director for AECOM Economics, a consulting firm that specializes in the entertainment and leisure industries. MGM Studios and Paramount, too, are scouting around Asia for future projects. PricewaterhouseCoopers predicted the region’s market will be worth nearly $8.5 billion by 2012, up from $6.4 billion in 2007.32

In light of these optimistic projections, it is reason- able to assume that Disney may consider expansion to other Asian countries such as Malaysia, South Korea, or Singapore, where it appeared to have seriously considered a park. Given that the Hong Kong park expansion and Shanghai park construction are on track, Disney now has the experience and motivation to further penetrate the Asian region. In this regard, Disney announced in mid- 2010 a comprehensive plan to develop and operate Eng- lish language schools throughout China.33 Such a move could constitute a broader push by Disney to establish a strong Asian presence across its businesses and brands, a move that would undoubtedly involve the theme park operations as a central component.

Questions for Review 1. What cultural challenges are posed by Disney’s

expansion into Asia? How are these different from those in Europe?

2. How do cultural variables influence the location choice of theme parks around the world?

3. Why was Disney’s Shanghai theme park so controver- sial? What are the risks and benefits of this project?

4. What location would you recommend for Disney’s next theme park in Asia? Why?

Source: This case was prepared by Courtney Asher under the supervi- sion of Professor Jonathan Doh of Villanova University as the basis for class discussion. It is not intended to illustrate either effective or ineffective managerial capabi lity or administrative responsibility.

Call to Action

Calculate Price

Price (USD)