Impacts of globalisation on Walt Disney

Globalization is a process where there is increasing of connectivity and mobility of the world’s markets as well as businesses where they are expanding from domestic to international ones. Since the last two decades, advancement of technology has speed up the process to make travelling, communicating and business globally much more easily. The two major driving forces of globalisation are advances in telecommunications infrastructure and internet. As economies are more connected to each other, opportunities increase as well as competitions. Nowadays, most of the company in the world adapted globalisation to secure their position within the competitive market, for example, The Walt Disney Company (TWDC), yet there are still negative impacts on the company.

http://www.investorwords.com/2182/globalization.html

Walt Disney is one of the largest media and entertainment corporations in the world in term of revenue which is originally known as the Disney Brothers Cartoon Studious. It is founded by Walter Elias Disney on October 16, 1923 and his brother Roy Disney. It is the leading diversified entertainment and media multinational enterprise with five business segments worldwide which are media networks, parks and resorts, studios entertainment, consumer products and interactive media. The company’s key products and services are as follow: http://corporate.disney.go.com/investors/index.html

Media networks:

Domestic broadcast television network

Television production and distribution

Domestic television stations

Cable and satellite networks and international broadcast operations

Domestic broadcast radio networks and stations

Internet operations

Parks and Resorts:

Walt Disney World Resort

Disney Cruise Line

Disneyland Resort ESPN

Zone Disneyland Resort

Hong Kong Disneyland

Tokyo Walt Disney Resort

Disney Imagineering

Studio Entertainment:

Theatrical distribution

Home entertainment distribution

Television distribution

Audio products and music publishing

Consumer Products:

Character merchandise and publications licensing

Books and magazines

Buena Vista games

The Disney Store

Disney Catalog and disneydirect.com

Interactive Media:

Disney Interactive Studios

Disney Online

In this assignment, we will be concentrated more on Disney Theme Parks and Resorts and touch a little bit on its other business segments:

Disneyland Resort in Anaheim California.

Walt Disney World Resort in Orlando Florida.

Tokyo Disney Resort in Tokyo.

Disneyland Resort Paris in Paris. (Formerly EURO-Disney)

Hong Kong Disneyland Resort in Hong Kong.

In order to expand its business, Disney chooses countries with high Disney awareness and affinity, large population centres with stable economies and people having disposable income to spend on leisure. The most important are the market size where it has to be large to guarantee a steady flow of visitors, and level of real income of consumers to have a certain spending power to enjoy leisure activities. The availability of infrastructures as well as skill levels in the host economy and other resources must take into account too follow by other aspects like political, trade policies and macroeconomic stability. To see whether a theme park operation is successful or not, it is highly depends on the stability of political and economical circumstances in the host country to avoid any negative impacts on its business.

The characteristics of globalisation are there is an increase in foreign sales, foreign direct investment, expanding market size, communications, global competition, rapid increase and expansion of technology, liberalisation of cross border movement, development of supporting services, etc.

Foreign Direct Investment

Globalisation leads to increases foreign direct investment of a company from its country of origin into other countries. According to Stephanie Rohac (2006), foreign direct investment is the international flow of capital by creating or expanding a subsidiary in another country. It may be made through established a new enterprise or acquisition of an existing entity. A firm becomes multinational in the case of establishing in two or more countries business enterprises through FDI. Foreign direct investment provides job opportunities, and increase in transfer of skills as well as technology.

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The headquarter of The Walt Disney Company is located in United States, in order to expand its theme park and resort businesses, Disney develops its foreign markets by doing foreign direct investment in California, Tokyo, France and Hong Kong. After the success of its first venture of Disneyland in Anaheim, California, The Walt Disney Company (TWDC) continue to expand into Asian fields with Tokyo Disney in Tokyo. Nearly twenty years later, the company decided to do its expansion into the European market and here come Euro Disney which is now known as Disneyland Resort Paris. The theme park Euro Disney was expected to bring $600 million in foreign investment into France every year and it is the largest single Foreign Direct Investment ever in France. Lastly, back to Asia again, followed by Hong Kong Disneyland.

http://books.google.com.my/books?id=9PqwNoOJagoC&printsec=frontcover&dq=foreign+direct+investment+of+disney&source=bl&ots=Yap4ZathyB&sig=Dkmc0vKm5ajWEuErX5x_E93osq0&hl=en&ei=hCP_TJjSCcLirAfyyt2ACA&sa=X&oi=book_result&ct=result&resnum=10&ved=0CFQQ6AEwCQ#v=onepage&q&f=false

Mergers and Acquisitions

According to QuickMBA.com, merger is the combination of assets and also liabilities of two companies to form a single entity while acquisition is when a larger firm took over the small ones. http://www.quickmba.com/finance/mergers-acquisitions/ According to Paul R. La Monica (2006), Disney bought over Pixar which is owned by Apple and led by Steve Job, a deal that worth $7.4 billion. The deals included Steve Job becoming one of the board members of Disney and 2.3 shares of Disney’s will be issued for each Pixar share. Merger of these two companies will bring higher quality of films to the people around the world as well as generates higher profit.

http://money.cnn.com/2006/01/24/news/companies/disney_pixar_deal/

Actual Impacts of globalisation on Walt Disney

Political

Positive impacts

According to Stephanie Rohac (2006), France government has reduced 18.6% of value-added tax on Euro Disneyland’s ticket sales to only 7%. Besides that, 20 years loan of $960 million at low and subsidized interest rates of 7.85% is provided too. Variety of investment incentives are offered by the host governments to encourage foreign investors to invest into their country. The main issue of France government facing at the time was its unemployment rates increased by 10%. The opening of Euro Disneyland can actually solve the problem where it creates more than 30,000 new construction jobs, 12,000 on-site positions and 30,000 jobs in off-site serving.

Economical

Positive impacts

Brand recognition worldwide

The Walt Disney Company markets itself worldwide, creating huge revenues and further establishing itself as a global brand. As the business globalised, Disney brand is known by people globally and merchandising has played an important role in establishing the Disney brand.

Market size

Due to globalisation, company increases its market size from domestic to international market. By investing into various countries of its theme park and resort business as well as exporting its products to other countries, Disney has enlarged its market size at the same time. According to James Ketterer (2010), the very first Disney Store was opened 28th March 1984 in Glendale, California. The Disney stores are located worldwide, throughout the US, UK, Spain Italy, Japan, and France. Since May 1st 2008, the Walt Disney Company owns all Disney stores in America, Canada and Europe, however the stores in Japan are owned by the Oriental Land Company, for example, Disneyland Tokyo. In the year 2004 alone, merchandise has made $2.5 billion for the company, a figure that shows how globally successful Disney really is.

http://www.suite101.com/content/disney-and-globalisation-a196391

Financial

Revenues by country of origin:

The US and Canada, Walt Disney’s largest geographical market, accounted for 76% of the total revenues in the year 2009. Revenues are generated through other countries of origin: Europe (17%), Asia Pacific (5%) and Latin America and other (2%).

Revenues

Operating Income

(in millions)

2009

2008

2007

2009

2008

2007

Country of origin:

United States and Canada

$ 27,508

$ 28,506

$ 27,286

$ 4,923

$ 6,500

$ 6,052

Europe

$ 6,012

$ 6,805

$ 5,898

$ 1,158

$ 1,423

$ 1,192

Asia Pacific

$ 1,860

$ 1,811

$ 1,732

$ 430

$ 386

$ 437

Latin America and Other

$ 769

$ 721

$ 594

$ 161

$ 175

$ 156

Total

$ 36,149

$ 37,843

$ 35,510

$ 6,672

$ 8,484

$ 7,837

The data above is obtained from Walt Disney 20009 annual reports. Regardless the financial performance of Walt Disney, try to imagine what would be the revenues and operating income of Disney if it has never globalise. Globalisation helps Disney to gain its revenues from all over the world instead of only from its host countries, United States. The total revenue in year 2007 was $35,510 million. The total revenues increased by 6.6% to $37,843 million in 2008. However, the total revenues dropped by 4.5% to $36,149 million in 2009.

Negative impacts

Global Recession

According to Jason Garcia (2009), during the global recession in year 2009, despite the favourable timing of the busy Easter holiday, Walt Disney Parks and Resorts suffering from downfall of its operating profit and total revenues by 19% and 9% respectively. Disney’s profit and revenues in United States have declined by 26% and 7% to $954 million and $8.6 billion respectively. Although Walt Disney World is having the same amount of visitor compared with the previous year and 10% more guests in Disneyland, Disney does not make any profit as it gives out discounts and special deals to uphold the attendance level of visitors. http://articles.orlandosentinel.com/2009-07-31/news/disney_1_walt-disney-disney-world-disney-parks

Financial Crisis

According to Wu Jin (2009), during 2009 global financial crisis, Hong Kong Disneyland left with no choice and plan to raise its entrance ticket prices by nearly twenty percent. The decision was made after numbers of market surveys have been conducted where the tourist visits are not affected by prices but seasonal factors. However, Hong Kong Disney have been threatened and boycotted by local travel agencies and public dismay, hence, it adjusted its price strategy again.

http://www.china.org.cn/travel/news/2009-02/05/content_17226206.htm

Global competitions

A company at first have its own competitors in its domestic market, however, due to globalisation, there are more competitors as it has to face global competitions with international competitors. Company tends to strive to be better in order to compete with its competitors.

Walt Disney Company has its own competitors in each and every one of its business segments locally and internationally. However, its major competitors are CBS Corporation (CBS), News Corporation (NWS) and Time Warner Incorporation (TWX). They compete directly with Disney in various business lines which is shown in the chart below:

Disney

CBS

News Corp.

Time Warner

Films

Theme parks

Cable networks

Broadcast networks

Television stations

Radio

Internet

Social

Positive impacts

Consumer Spending

Source: http://bigpicture.typepad.com/comments/2005/11/why_the_focus_o.html

The table above shows where United States people spent their money. And it shows that most of their spending is on entertainment: publishing industries, motion picture and sound recording industries, broadcasting and telecommunications as well as amusements, gambling and recreation. This is favourable to Disney as it business focuses on those entertainments.

Negative impacts

Cultural Differences

As every country have different cultural practices, Disney need to add local attractions to attract local consumers. For example, in Hong Kong Disneyland, a Mickey Mouse mascot is wearing a bright red Mao suit while Minnie Mouse mascot is wearing a cherry blossom red dress. http://www.nytimes.com/2008/01/22/arts/22arts-ACHINESEMAKE_BRF.html

Besides that, employees in the theme parks have to know different languages in different Disneyland theme parks, in Hong Kong Disney land, they speak both English and local dialects like Cantonese and Standard Mandarin. Their brochures and maps are printed in those languages too with additional Japanese language. And the most special one, they actually included shark’s fin soup in their menu. http://www.springerlink.com/content/h6335466636hw877/

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Technology

Positive impacts

Nowadays, technology has become a very increasingly important tool to compete with rival companies and industries. The development of technology like video editing software, high definition and 3D have a strong impact on film producer like Walt Disney to helps them in producing the film efficiently. According to Bloomberg (2010), the latest Walt Disney animation movie which is named “Alice in the Wonderland” which comes with 3D resolution have hit 210.3 million ticket sales in worldwide and 116.3 million in United States. The improvement of technology brings better sales to Walt Disney.

http://www.businessweek.com/news/2010-03-07/disney-s-alice-in-wonderland-makes-116-million-sets-records.html

Negative impacts

Before the existence of internet in year 1955, consumers purchased entertainment products such as music CDs from entertainment outlets. As technology advances, entertainment industry has been affected with the existence of Peer-to-peer (P2P) architecture which implemented worldwide. According to Sammy Khayat (2004), P2P is the distributed computing network where people directly shares files or resources from computer with others without going through central server, for example Napster. Hence, people no longer buy CDs from the shops anymore. According to the Recording Industry Association of America, the number of CD’s shipped in United States feel 15% from 940 million to 800 million between year 2000 and 2002 which brought to dropped in sales about $2.5 billion. Copyright infringement is expanding as people often do file sharing over internet which allows them to download free music and then send to their friends which is a great threat to Disney’s entertainment business. Other than that, pirated CDs, DVDs and soft toys give big impacts to Disney as well.

http://www.personal.psu.edu/sbk142/disney.htm

Environment

Negative impacts

Bad weathers like rain and thunderstorm decreases entrance tickets sales of Disney theme parks as consumers will be taking the consideration under the hazardous weather. Take Gold Coast theme parks as example, the wet weather at south-eastern Queensland had affected the revenue of the company to fall.

http://www.smh.com.au/business/wet-weather-means-less-fun-for-theme-park-profits-20101102-17cd3.html

Legal

All Disney’s cartoon characters like Mickey Mouse are trademarked, hence other people cannot use them without authorization. There was a case back in year 1989 where there were three day-care centres in Florida painted Mickey Mouse and other Disney cartoon characters on their wall and Disney took legal action against them. The rival, Universal Studios replaced with its cartoon characters after Disney’s were removed. http://www.snopes.com/disney/wdco/daycare.asp Besides that, technology advancement has led to pirated products such as soft toys which cannot be controlled by the company as it goes worldwide in huge numbers.

Potential impacts of Globalisation on Walt Disney

Lifestyle influences

Nowadays, people are so stressful to face their problems at workplace, school and even at home. Tensed lifestyle is favourable to Disney’s business which is concentrate on entertainment sector as people tend to spend their money on entertainments just to make themselves feel more comfortable and relax. This can actually lead to increase in Disney’s sales and revenues.

Technology advancement

As the technology advances, Disney can cut its labour costs. For example, in Disney theme parks, people can buy their tickets from ticket machines where there is no need ticket booths that require workers to sell the entrance tickets. Operators are no longer requires if the theme park is fully computerized, where the roller coasters, marry-go-round, etc, will automatically run when consumers are ready to go.

Besides that, future technology can makes Disney films more interesting, maybe it will be in 4D or 5D where people can experience new things and they are willing to spend their money for new kind of entertainment. Disney can also be innovative in their theme parks and come out with new kind of games, gadgets and amusement rides to attract more consumers. In this way, Disney can generate more revenue due to its new technology.

Strategy

China is having a population of 1.26 billion people which is equivalent to 20 percent of the world’s total population. With the humongous population and established relationship with Chinese Government, it’s foreseen by the Walt Disney Company that there is high demand for entertainment and the fourth Disney theme park, Hong Kong Disneyland can generates revenue by entering the country. Besides that, the labour cost in China is two third lower than Disney’s other theme parks where lower costs generate higher profit. Disney can actually expand more of its businesses into China as it is having very huge and potential market. With one child policy in China, the grandparents as well as parents are pampering their child and they are willing to spend money on entertainment that their child wanted like theme parks and movies. The adults who are facing problems simply need entertainments just to relax themselves.

The demand for entertainment is very high in China, however, due to their lower incomes, they may not afford to pay for it. Disney should have brought down its selling prices and hence generates more sales. Besides that, Disney has to understand their cultural practices and try to adapt local custom by doing more market researchers, interview and questionnaires, so that the company can roughly have an idea on what the local people prefer.

There are a lot advantages for China if Disney to expand its businesses at China where the business can helps to raise its technology level, provide job opportunities for its people and increase its economic growth. In my opinion, the barrier for Disney to enter China should not be a problem.

Source: http://www.indexmundi.com/china/unemployment_rate.html

The table above shows the unemployment rate in China from year 2004 to 2010, the data is for urban areas only, including migrants may boost total unemployment to 9%, substantial unemployment and underemployment in rural areas. If Disney further expands its business in China, it can help to reduce China unemployment like how it helps France’s.

The Walt Disney Company is having a strong brand name and reputation in this world, it should keep it up and achieve its mission all the time which is to make everyone happy. I believe that Disney will never fail in its business and always stay at the top level.