Walt Disney Company - Assignment 2 PDF

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WALT DISNEY COMPANY

, 300342874

TUTOR: NAGHMEH KARGOZAR TUTORIAL TIME: MONDAY, 11:30 – 12:20 WORD COUNT: 2,200

Executive Summary This report discusses The Walt Disney Company’s (Disney) success in China and the international business strategies implemented to overcome risks and seize opportunities in China’s business environment. Disney is the most successful independent mass media and entertainment company in the world, realising $173.4 billion market capital [ CITATION And18 \l 3081 ]. With multiple business segments operating, Disney’s empire continues to grow and expand internationally. This report seeks to understand how the nature of China’s business environment can influence a company’s success, how Disney’s strategies enabled them to appeal to the Chinese market and outdo its competitors and recommendations to ensure Disney’s future improvement.

Introduction Disney is a world leader in the animation industry; known for bridging reality and fantasy to bring happiness to people world-wide through storytelling. Crucial to a company’s international success is its ability to manage the international business environment (IBE). Disney has mastered this by entering multiple international markets through launching their theme parks, movies, merchandise and operating their media networks in 164 countries. Disney’s global presence emphasises the concept of globalisation; the convergence of consumer preference and creation of a global market place, enabling Disney to outdo its competitors, NBCUniversal and Warner Media.

Disney is a successful company because of its ability to cater to a specific market through the use of Transnational, International Entry and Differentiation strategies. This enables Disney to operate multiple business segments such as Studio Entertainment, Consumer Products, Disney Interactive, Media networks, the Disney Cruise ship line and Theme parks and Resorts. However, this prompts the questions: how Disney succeeded beyond American screens and how effective were their internationalisation strategies specifically in China.

Strategic Issue Disney had faced challenges especially in China before it was successful in its markets. The key to Disney’s success was strategic mitigation of threats and seizing opportunities from the IBE as it would determine their success in the market. As Disney became a household name and Micky mouse became a symbol of joy and happiness, the company began to grow

extremely popular. Disney established a successful media presence in China but faced a major challenge endorsing western values and experiences through theme parks and media content. Despite the economic environment in China providing many opportunities for Disney, initial cultural and political risk factors hindered success in China.

Strategic Issue Analysis International Business Environment Advantages and Opportunities China’s legal and political environment presents an opportunity for Disney as the local government established a public policy which incentivised the development of civic amenities by reducing land prices [ CITATION Ada18 \l 3081 ]. Despite 2,700 theme parks operating in China only 10% of which were profitable; there was a lack of high quality and safe theme parks [ CITATION Ada18 \l 3081 ]. Resultantly competitors flooded the market, but Disney’s positive brand image and theme park development experience was an advantage. The opportunity to purchase large quantities of land for development and expand at low cost was unpassable. China’s removal of their one-child policy is also advantageous despite the effects of the change not being seen immediately as Disney’s primary target market are families [ CITATION AFP15 \l 3081 ]. China’s cultural environment provides potential for Disney even with clear cultural differences. Disney markets its products and services to families through fun, exceptional customer service and family values. This is advantageous because notwithstanding American influences Disney is promoting values that are relatable across cultural barriers [ CITATION Rob14 \l 3081 ]. Disney has an advantage because it has established a positive presence amongst the younger generation in China through the popularity of movies such as Mulan, Kung Fu Panda, The Avengers and Star Wars. Disney is able to draw on nostalgia to attract older generations and offer locals the chance to experience something untainted by their own culture, which appeals to some Chinese whom want an authentic American experience without traveling overseas which works to Disney’s advantage [ CITATION Rob14 \l 3081 ]. Disney would benefit from China’s economic environment as spending on leisure activities in households had increased by 56% [ CITATION Yus15 \l 3081 ]. China’s economy boasted

many demand opportunities for Disney, being the second largest economy in the world, households having more disposable income, lower infrastructure and labour costs. China has an unemployment rate of 6.9% which offers an opportunity for Disney to provide jobs to replenish the Chinese market; enforcing the concept of globalisation. As China expands ‘its entertainment industry beyond its borders’ and moves away from a strictly mercantilist mindset, China would be more likely to form partnerships. Thus, providing an opportunity for Disney to penetrate the market and meet demand with support of the government [ CITATION Cha16 \l 3081 ].

Disadvantages and Risks Entering China’s economic environment poses risks for Disney due to the uncertainty of the market which could negatively impact profits or increase costs, devaluing the U.S. dollar [ CITATION Nan18 \l 3081 ]. Economic downturns would lead to a lack of attendance and spending on Disney products, as profit is dependent on the economic market’s condition. China’s market is risky to enter as Disney’s media and consumer products are threatened by the market of counterfeit products and media piracy; as Disney delayed local releases due to government censorship which allowed competitors to distribute movies resembling Disney’s for cheaper [ CITATION How13 \l 3081 ].

Disney is subject to China’s laws and faces risks due to the uncertainty of the legal environment and its enforceability, which can impact Disney’s management of its media and theme parks. Costs may be incurred in order to comply to China’s laws and to ensure Disney’s intellectual property is safeguarded [ CITATION Nan18 \l 3081 ]. China’s political environment is tense given the mercantilist, protectionist and nationalistic culture that fears that Chinese culture is being eroded by western values, which doesn’t favour Disney. Eden Woon the Chief Executive of Hong Kong General Chamber of Commerce stated “China is always conflicted between accepting foreign things and trying to maintain its own culture” [ CITATION Kei06 \l 3081 ]. A major developer in China, Wang expressed the same sentiment, advocating to build attractions that celebrated China [ CITATION Ada18 \l 3081 ]. China’s cultural environment poses a risk to Disney notwithstanding the very different language and culinary habits, a tension exists because of the view that Disney’s western imperialism threatens Chinas heritage [ CITATION Cha16 \l 3081 ]. Hofstede’s analysis

supports that there is a high cultural distance between America and China, especially because of China’s collectivistic culture [ CITATION Car11 \l 3081 ]. Disney as a ‘symbol of US cultural imperialism’ would not be welcomed given China’s communist government. Furthermore, Disney faces major risks as Chinas political leaders’ express concerns of youth becoming ‘disinterested and unfeeling’ towards Chinese culture because of Disney’s growing appeal at a young age [ CITATION Cha16 \l 3081 ].

Implemented Strategies and Effectiveness After experiencing initial failure in China following the opening of Disney’s theme park in Hongkong due to low park attendance, public relation issues, protests and dislike over the small size of the park. Disney decided to use the following corporate level-strategies to seize opportunities, minimise cultural, political and economic risks to increase profitability [ CITATION Jon09 \l 3081 ].

Transnational and Glocalization Strategy Faced with competitor’s success Disney intended to reform their Transnational strategy to avoid further cultural and political risks. A Transnational strategy is appropriate when pressures from local responsiveness and cost reductions are high, however Disney’s main pressure originates from local responsiveness (Figure 1). Disney focused on local responsiveness by implementing a variation of Transnational strategy that encompassed the concept of ‘Glocalization’. This involved the unification of the global and local through comprehensive product differentiation, ‘emphasising that relocating a product or service has a greater chance of success when adapted to local culture’ [ CITATION Jon09 \l 3081 ]. Disney achieved this by ‘reducing prices’ and incorporating peak and off-peak ticket prices to account for crowding and affordability[ CITATION Jon09 \l 3081 ]. Disney adapted to local customs by incorporating local attractions such as ‘Fantasy Gardens’ and providing seasonal entertainment such as ‘Disney Chinese New Year’. Disney ensured that all staff spoke English, Cantonese and Mandarin, while also providing local Chinese cuisine and dressing characters in traditional clothes[ CITATION Jon09 \l 3081 ]. Guides were provided to familiarise guests with the theme park and better labour practises implemented to account for China’s conservative culture[ CITATION Jon09 \l 3081 ]. The Chinese discipline of Feng

shui was adopted through the reorganization of the park to allow the flow of chi and Chinese versions of live performances were held[ CITATION Jon09 \l 3081 ].

Disney’s efforts were successful, they welcomed 6.2 million guests and revenues increased by 8% [ CITATION Lan18 \l 3081 ]. Which emphasised Disney’s successful ‘Glocalization’ strategy and their ability to meet market preference, given they needed to act quickly to respond to pressures from competitors. Disney’s choice of strategy was justifiable to ensure its success and mitigate cultural and political risks.

Figure 1. Four Basic Strategies [ CITATION Hil171 \l 3081 ]

International Entry Strategy Disney decided on a joint venture (JV) partnership strategy upon entering China; both Shanghai and Hong Kong were JV partnerships that Disney had a 43% and 47% stake in respectively. Unlike Tokyo, where Disney decided on a licencing agreement, it’s strategic decision to enter into a JV with the Government because of China’s tense economic and political environment was beneficial. Disney’s decision was influenced by the concept of Guanxi, defined as the forming of relationships as ‘a complex social construct that encompasses elements of trust and mutual obligation’ [ CITATION Bed11 \l 3081 ]. A JV was a beneficial option despite the government being the majority shareholder and Disney being dependent on the government for major decisions; this emphasised the theory of Guanxi and the necessity of building and earning trust [ CITATION Car11 \l 3081 ].

The JV strategy worked in Disney’s favour, gaining the support of the government eased political and cultural tensions which enabled Disney to learn about local customs and build a trusting relationship with China’s government. Resultantly, China’s government spent $2.9 billion on land for the park, roads and rail links[ CITATION Kei06 \l 3081 ]. While also working to stop the counterfeit of Disney products by terminating copycat hotels and stores, thus eliminating their economic risks [ CITATION Nei15 \l 3081 ]. To reciprocate and ensure the continuation of their partnership, Disney invests in the Chinese community by ‘donating trees, giving away tickets and collaborating with tour companies.’ To ensure a successful partnership, Disney needs to relinquish more control and adhere to the Chinese government in order to the avoid issues that were experienced in Hong Kong.

Growth and Differentiation Strategy Disney’s growth and differentiation strategy has ensured its continued success in China. Disney’s core competency is providing goods, services and ‘experiences’ that cannot be imitated. Disney achieved this by capitalising on creative storytelling through developing products, media and theme parks. Disney’s multigenerational target market find value in these stories and experiences that competitors cannot surpass. To ensure growth, Disney uses a differentiation strategy using its core competencies by expanding current products, franchises or theme parks. Each expansion impacts profitability in other segments, thus profitability is achieved in multiple business segment. For instance, Disney is expanding its Shanghai and Hong Kong theme parks with new exhibits based on Frozen, Toy Story, The Avengers and Moana[ CITATION Man16 \l 3081 ]. The expansion in Hong Kong totalling US$1.4 billion is set to be completed in 2020 and will include Frozen, Marvel and Iron Man themed exhibits upon the release of the films [ CITATION Rob16 \l 3081 ]. Disney ensures growth by launching new services and product lines such as its English Language centres that teach material based on ‘local fables and songs’ which now operate in 10 cities across China [ CITATION How13 \l 3081 ]. This is a successful strategy because Disney earns profits long after movies have been released; by expanding its theme parks Disney is able to maintain a steady stream of demand and profits in later years; profiting from Chinas economic environment.

Recommendations Evidently, through Disney’s strategies and its ability to exploit China’s economic and cultural environment it has become a success in China. Disney’s success is attributed to their implemented strategies which enabled them to ensure that the Disney ‘experience’ such as the characters, the infamous castle and rides remained at the core while also successfully differentiating services and products to cater to local preferences. Disney’s ability to work with the Chinese government allowed them to alleviate the tension expressed by Chinas political environment and ease the concerns regarding western imperialism. With the support of the government and their developing relationship, Disney is able to continue to expand and grow within China, benefiting Disney as well as China’s economy and community. If Disney wishes to ensure success in China and in other international endeavours, they need to relinquish more control to host countries. Disney failed to relinquish control in Hong Kong which caused the theme park to fail initially, due to the underestimation of demand, which could have been prevented if better market research and alliances were made. More attempts should be made by Disney to form partnerships and better accommodate local workers and communities so that long-lasting relationships can be formed which will benefit the expansion of Disney in the future.

Conclusion Disney is the most successful media and entertainment conglomerate in the world because of its ability to expand and differentiate its intellectual property to better suit target markets. Its global appeal and success in China stem from its strategies that enable the company to overcome failure and work with local government to benefit both the economy and Disney’s profitability. If Disney continues to maintain these strategies, form long-lasting relationships and contribute to the community, they will ensure international growth and the preservation of their brand.

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