Walt Disney - Essay Example

1. Executive Summary Undeniably, Walt Disney is capable of expanding operations in the suitable places around the world. As a market leader, the company has been emulated and used as benchmarking partners by emerging firms. One of the plans was to extend Disneyland to Hong Kong where a vast and growing market has been detected. Actually, Walt Disney has had previous investments in other countries. Disneyland in Japan, though owned by another firm was successful. With all the benefits being reaped by the operating company, Walt Disney decided to test the waters on its own by establishing Paris Disneyland. Unfortunately, the initial performance was far beyond the expectations of the company. Because of the missed opportunities and failed chances, Walt Disney has again released the news regarding its plan to expand to China. As soon as the negotiations were started, several suggestions were introduced. Instead of being aggressive, previous results have made Walt Disney more practical and systematic in making decisions. This resulted to the assessment of the feasibility study and subsequently revealed more pressing concerns. Definitely, Walt Disney has to weigh its position before making decisions The analysis of the position of Walt Disney was conducted using the traditional SWOT analysis. Assumptions were made based on the characteristics of the company that is work discussing. The analysis also included the discussion of some crucial situations. The eventual goal of the analysis is to provide schemes for Walt Disney to implement that will ensure that the benefits are maximised and the risks are minimised once Disneyland Hong Kong starts to unfold. 2. Analysis In making the key decisions, it is imperative to state the big picture and dissect the details to determine the best course of actions. Although there are several methods provided in analysing the situation, it is logical to select a model that will guide the entire process of assessment. Part of such procedure is the identification of the major assumptions. The assumptions are based on the prevailing circumstances and the observations that were made as result of the performance of the company during the previous operations. This section highlights the importance of using the strengths, weaknesses, opportunities, and threats that are innate in Walt Disney. Combining all these aspects will create better perspectives that can be used for future decision-making. First, the marketing capabilities of Walt Disney are a critical asset that translates short-term and long-term benefits. In particular, the brand name Walt Disney is considered as one of the most recognisable names in the market. It has been observed that the company has successfully attracted the market composed of consumers aged 12 years old and below. Indeed, the strategy of enticing children is an effective instrument in expanding the market. For instance, parents are likely to go with their children in acquiring the services offered by Walt Disney theme parks. Second, the decision to expand the operations of Disneyland to Hong Kong has some perceived weaknesses. As mentioned previously, Walt Disney has suffered consecutive setbacks in its overall operations. Despite the growth in the theme park sector, the company is still burdened by the lack of financial flexibility caused by the decline in revenues. Third, the market in Hong Kong provides several potentials including the possibility of encompassing the market in Mainland China. With its sheer population, China has the capacity to improve the attendance in Disneyland. In addition, the clients based from other Southeast Asian countries make the proposition more lucrative. The projected annual increase in attendance will assure growth revenues. Apart from the ticket sales, Walt Disney merchandises including the other products will be easily sold. The strength of the market of China and the improving economy will eventually boost the spending power of Chinese and will result to increase in visitors. Finally, establishing Disneyland in Hong Kong has some complicated risks. It has been observed that Asians are generally inclined to save instead of allocating money for recreation. Although this is just part of the cultural realities, the greater threat comes from the area where the proposed project will be constructed. Definitely, Walt Disney has become more reluctant because of the early failures experienced in Disneyland Europe. Part of the deal in establishing Disneyland in Hong Kong is the partnership that has to be established between Walt Disney and the Hong Kong government. In truth, such potential cooperation leads to more uncertainties. Walt Disney is more inclined to minimise the risk and maximise the benefits. Previous experiences have caused the firm to be conservative in assessing the potentials of investment possibilities. Although the notion appears to be a paradox, some companies were successful in taking advantage of situations and mitigating possible risks. The maximisation of advantages and reduction of risks depends on the assessment of the company's strengths, weaknesses, opportunities, and threats that influence the firm's existence. 3. Discussion 1995 1996 1997 1998 1999 Attendance (in millions) 10 17.37 17 17.45 - Recurring Profits (million Yen) 21,657 28,076 28,134 25,832 29,315 Total Sales (in million Yen) 153,923 171,502 180,165 175,471 187,772 Earlier, it was assumed that the brand name of Disneyland is a vital advantage that Walt Disney has. The figures presented above best explain the assumption that Disneyland is a powerful brand name. Based of the operational summary reported by the management of Disneyland Tokyo, the attendance has consistently increased. Although the attendance in 1997 dropped, the decrease roughly affected the performance of the company. The recurring profits and total sales in 1997 managed to increase compared with the previous years. In 1999, the company posted all time highs in recurring profits and revenues. Because of the monumental increase it is presupposed that the number of attendance in 199 also improved compared with the past years. The positive trend suggests that better numbers will be registered in the next years. It means that the performance of Disneyland will continue to improve in the future. The important point that the numbers show is that despite the lack of control of Walt Disney over Disneyland Tokyo, the company has managed to succeed. This proves that the brand of Disneyland is highly marketable and is lucrative among consumers. Disneyland no matter who owns the theme park will be a major attraction and revenue generator. Before discussing the specific weakness that Walt Disney, it is imperative to report the current financial position of the company. As a whole, the company stated that that the net income was reduced by 30%, which is approximately US$ 1.3 billion. Some of its business segments have declined causing massive rehabilitations and closures. Observers contend that the growth in the theme park sector is enough to balance the equation. Such occurrence, however, only reveals the weakness of Walt Disney as a result of the slump. Actually, there are two problems that the company will encounter because of the current financial inflexibility. With this predicament, the company has to determine ways on how to transform the disadvantage to benefits. Since the revenues of the company were lessened, the liquidity of Walt Disney will also be reduced. Since the company is planning to push through with the investment in Hong Kong, short-term loans are necessary. The liquidity of the company is used as an instrument to serve as collateral in acquiring fast loans. Because the situation suggests otherwise, Walt Disney will be obliged to look into other options other than short-term borrowings. In facilitating the perceived construction of Disneyland in Hong Kong, the company has to have adequate resources to support the initiatives and to assist the process of establishing the theme park. Moreover, the loss in revenues will likely affect the negotiations between the Hong Kong government and Walt Disney. As part of the deal, the government will provide loans to further boost the construction. One aspect that the government evaluates is the capacity of the company to pay for the loans. Indeed, the decrease in the revenues will affect the capabilities of Walt Disney to settle the debts once the maturity period has been reached. Local residents 2005 2006 2007 2008 2009 Annual attendance 1,930,094 1,984,652 2,040,508 2,097,689 2,156,225 Total tourists 14,898,671 15,864,105 16,892,099 17,986,707 19,152,246 Base tourists (non-business) 10,429,070 11,104,873 11,824,469 12,590,695 13,406,572 Annual attendance 1,909,615 2,033,358 2,165,119 2,305,419 2,454,810 Business visitors 4,469,601 4,759,231 5,067,630 5,396,012 5,745,674 Annual attendance 178,784 190,369 202,705 215,840 229,827 Induced tourists 1,698,448 1,840,236 1,993,268 2,158,405 2,336,574 Annual attendance 1,953,216 2,116,272 2,292,258 2,482,166 2,687,060 The table clearly projects the positive growth of visitors from 2005 to 2009. The five year forecast delivers a message that investing in Disneyland Hong Kong will make Walt Disney better. The annual attendance translates ticket sales and the domino effect will be at hand. Once inside the theme parks, customers will avail of the merchandises sold by the park. Also, Walt Disney is planning to construct hotels to provide ample lodging alternative to visitors. In addition, there are products that the company will introduce as the number of visitors increase. The inevitable success of Disneyland Hong Kong will improve the financial state of Walt Disney. Undoubtedly, the possibility of being a partner with the Hong Kong government reveals some critical concerns. Although having the government as partner is a significant edge, the situation gives opportunities for problems to arise. It is expected that the government will take a direct and indirect responsibility in establishing Disneyland in Hong Kong. The threat that is aligned with government intervention can decide the fate of the investment. Thus, it is important to ascertain the possible detriments that the government will cause. Such strategy will aid Walt Disney in making contingency plans that will mitigate the adverse effects of having the government as an influential entity in operating Disneyland. The economic situation of Hong Kong is a relevant driver to pursue foreign investments. The government is in-charge of ensuring that the economic conditions are favourable to the individuals. Once the economy of Hong Kong develops, the income of families will increase. As a result, the number of households with the financial capacity to spend for recreation will increase. Moreover, the growth in the economy of Hong Kong will attract more visitors and investments. In contrast, poor economic contrast dampens the potentials of the project. The direction that the government takes in terms of economic growth is a main threat to success. Furthermore, the government is a policy making body and is capable of providing debt services. As part of the partnership, the government will shoulder some of the investment cost through the provision of loans. In reality, the fiscal policy of the government will affect the revenues of the firm. Since the government prioritises the welfare of the people, policies concerning empowerment are always made. At times, these policies become additional burdens than aiding tools. 4. Conclusion and Recommendation After discussing the salient points that were assumed, it is important to provide a solution to the main problem. As stated, the concern of Walt Disney before pursuing the investment is on risk minimisation and benefit maximisation. The analysis of the strengths, weaknesses, opportunities, and threats sums up the suggested methods. In maximising the benefits of the project, it is important to consider the strengths and opportunities of the company. The brand name that Walt Disney has nurtured will be conspicuous once the investment is manifested. Identification is the first step towards recognition and experimentation. Similarly, the potentials of the forecasted increase in attendance have to inspire Walt Disney to expand its services and embrace the other needs of the customers in theme parks. In minimising the risk, Walt Disney has to be adept in translating the weaknesses and threats to positive drivers. First, the lack of financial flexibility has to drive the company towards securing better financial loans and advantageous partnerships. Without the needed resources, the company can still make the investment possible through efficient allocation of resources. Second, the impending threat caused by the government can be neutralised by forging win-win deals with the government. This has to be done without curtailing the function of the government to protect the consumers. With some positive forecasts and government intervention, Disneyland Hong Kong is only a few years away. Contrary to the popular notion, the presence of potentials provides no guarantees to success. In fact, the situation becomes more complicated and thorough and critical analysis of the situation is required. Reference: Su Han Chan and Ko Wang. "Hong Kong Disneyland (A): The Walt Disney Perspective." The University of Hong Kong, Asia Case Research Centre. July 2006. Read More