International Business The WritePass Journal

International Business Abstract International Business ) Also, as the industrial progress and the continuous economic growth of China continues, the standards of living of the huge Chinese population also continues to increase which only translates to increased purchasing power and increased demands for amenities. In particular, the entertainment spending of middle class Chinese people would create an explosive growth opportunity for the amusement industry. Social Factors Social factors should also be assessed before any investment venture. China has a huge population in the middle aged segment. Currently the population segment in the range of 15 and 64 represents the majority in China. (Banister et.al, 2010) A significant number of Chinese people are still in their twenties and middle age which is the target population for the theme parks. Also, traditionally Chinese are a nuclear family and hence theme parks are usually visited as a family. Also the huge population of China implies that the aging population does not create an economic stagnation as retiring workforce is rapidly replaced by skilled workers. (Banister et.al, 2010) Technological Factors China is a technologically advanced economy and hence there is immense scope for innovation in the amusement market. Even in the local amusement market there is a constant surge of innovative amusement themes and new facilities to entertain the public. There would be no dearth of talent and lack of scope for the application of technology into the development of the theme parks. Only last year an international ‘Theme parks expansion Summit’ was organized in the country and several new technologically innovative solutions were disclosed. For instance, Nanotron technologies, one of the main sponsors of the conference introduced the ‘Child Loss Protection System‘(CLOPS) and spoke about its introduction into the Chinese Theme parks, while another company, Dynamic Motion Rides, introduced the 4D simulation effects into the Theme parks. (Blooloop, 2011)   So the Chinese theme park industry is a technologically thriving and competitive industry. SWOT analysis Strengths Financial Might Disney has a powerful financial base and there fore could invest significantly for innovative attractions and features in the proposed Theme park. Disney already has a dedicated channel in China which it could utilize for marketing purposes. Already the company has proposed to invest as much as $3.8 billion for setting up its Shanghai theme park. (Rapoza, 2012). Disney’s huge experience (almost 80 years) in the entertainment industry is one of it’s main plus points. (De Groote, 2008) Brand Recognition Disney is a well established brand across the world. Even in China Disney’s Mickey Mouse and Donald Duck characters are well known among the public. Disney could capitalize on its brand value to attract public to its theme park. For a new entrant into the Chinese market, Disney’s brand recognition would definitely ease the difficulties which any new and unrecognized brand would face.   One other advantage for Disney is the qualified and educated workforce that it employs. Disney also has a variety of attractions and thematic features that would help bring more people into the theme parks. (De Groote, 2008) Opportunities Globalization and the easing of barriers of entry in many countries provide Disney the ideal opportunity for expansion and with its financial muscle Disney can easily carve a niche market for its amusement parks in the global arena. Since China has already given the green signal and allowed Disney to enter the market it is the ideal time for the company to establish itself and gain a significant share of the growing Chinese amusement industry. Its diversified products and established brand power give it a clear advantage compared to any other international entrant into China. Weaknesses Disney is known to suffer from management problems. Its international diversification has furthered its management woes. Managing over 1, 37,000 employees across the world is not an easy job and it leads to communication problems and administrative bottlenecks. (De Groote, 2008) With the proposed expansion in China there will be a significant addition to the workforce which would complicate the management still further. Corporate officers are frequently shuffled across which also contributes to management difficulties.   Chinese customers though they are huge in numbers and willing to pay could not be expected to spend as much as American customers would.   The increasing fixed costs which directly relates with expansion and the increasing operating costs due to its large workforce imply that Disney has to spend considerably with any new venture. Furthermore, in the case of Disneyland in Paris the French government contributed over a billion dollars to help out Disney during the initial struggling phase. The same could not be expected from the Chinese government if Disney ventures alone. (De Groote, 2008)   Its main threats are from a growing number of Chinese theme parks that are more culturally oriented and cater to the tastes of the local population. Disney has to modify its themes to make them appealing to the cultural tastes of the Chinese people. The Chinese currency value fluctuation is one other major issue to be considered. Strategic Entry Entry into the Chinese market involves huge amounts of investment. As already indicated, Disney plans to invest as much as $3.8 billion into the Chinese venture. Though Disney has the financial might to bear the expenses by itself it would be a prudent risk management strategy to involve a large number of outside participants to cover the initial investment costs. In fact, Disney employed such a strategy when it entered the European market. The Saudi Prince Alwaleed owned 10% of the company stocks while the 50.2% were owned by others while Disney itself owned 39.8% of the stocks. (De Groote, 2008) In the case of Disney in Japan it was a Licensing agreement between Walt Disney and Oriental Land Corporation of Japan with Disney getting 7% of the sale proceeds in exchange for transfer of technical and managerial knowledge. (Misawa, 2005) Unlike the retain industry or the energy industry , the Chinese government is not opening up for a 100% FDI in the entertainment industry and has so fa r only agreed to a joint venture. This is however, a welcome opportunity for Disney as not only the cost is shared but also a joint venture with the State owned ‘Shanghai Shendi Group’   would definitely guarantee the government support and remove any possible administrative hurdles that would otherwise hamper any new business investment in a foreign land. (Bloomberg, 2010) With risk sharing also divided between the two, Disney can look forward to capitalizing on the great market prospects that China promises. Disney’s entry into the blooming Chinese amusement park industry with the government backing (as a joint venture) would be an ideal entry strategy for the Company.    Conclusion Walt Disney is a well diversified amusement company with global presence.   China is a blooming market and the global economic engine. With the theme park business in both the US and Europe already saturated, and a dwindling number of visitors affecting the profits, it is an opportunistic moment for Disney to enter China, the economic powerhouse of the world. As indicated by both the PEST analysis as well as the SWOT study, Disney is well poised for a successful venture into china. Since 100% FDI is not permitted in the Chinese entertainment industry, the proposed joint venture with the Chinese State owned firm, is a good entry strategy for Disney in China. Such an approach shares the investment costs, promotes equal interests in the operation and removes any possible administrative hindrances as well as contributes to equal risk sharing. The prevailing climate of political stability, economic viability and significant growth prospects that China offers and the comparative economic stagnation in US and Europe, offer strong economic reasons for Disney to venture into China which holds great possibilities for future business growth. References Bloomberg (2010), Walt Disney signs joint venture to build first mainland China Theme Park, viewed march 28th 2012, bloomberg.com/news/2010-11-05/disney-signs-joint-venture-contract-with-shanghai-for-first-park-in-china.html com, (2011), China Theme Park Expansion Summit : A Shanghai Success, viewed Ma 28th 2012, blooloop.com/Article/China-Theme-Park-Expansion-Summit-a-Shanghai-Success/287 Lam Hing Kok, (2009), Walt Disney employees training participation and its effect of employees’ intrinsic motivation, job satisfaction and affective commitment. Viewed March 26th 27th 2012, http://libproject.hkbu.edu.hk/trsimage/hp/06018661.pdf Frank Holmes, (2011) Four Examples of China’s amazing growth, viewed March 27th 2012, http://articles.businessinsider.com/2011-04-14/markets/30026243_1_chinese-government-china-last-year-gdp-growth Judith Banister, David E. Bloom, and Larry Rosenberg, (2010), Population Aging and Economic Growth in China, PGDA Working paper no 53. Kennet Rapoza, (2012), Shanghai Disneyland driving foreign investment into the city, viewed March 28th 2012, forbes.com/sites/kenrapoza/2012/03/21/shanghai-disneyland-driving-foreign-investment-into-city/ Mitsura Misawa, 2005, Tokyo Disneyland, Licensing vs. Join Venture, University of Hong Kong, Harvard Business Online Patrick De Groote, (2008), Globalization of Commercial Theme Parks Case: The Walt Disney Company, Agroinform Publishing House, Budapest. Viewed March 28th 2012, http://ageconsearch.umn.edu/bitstream/104660/2/2_Parick%20Globalisation_Apstract.pdf Steven Hill, (2011), China’s tentative steps towards democracy, viewed March 27th 2012, guardian.co.uk/commentisfree/cifamerica/2011/jan/19/china-barack-obama cn (2009). Disney: five theme parks in a different operating condition. Viewed November 4, 2009, smgbb.cn/zixun/shishi/2009-11-04/342208.html Nick Edwards, (2012), China FDI fall puts potential policy response in focus, viewed March 27th 2012 , reuters.com/article/2012/03/15/uk-china-economy-fdi-idUKBRE82E05S20120315 Invest in China, (2012), Statistics about utilization of Foreign investment in China from Jan to Dec 2012, viewed Mar 28th 2012, fdi.gov.cn/pub/FDI_EN/Statistics/FDIStatistics/StatisticsofForeignInvestment/t20120119_140572.htm Xiaojun Cui, (Nov 2009), In depth analysis of PC industry in China, International Journal of Business and Management, Vol 4, no 11,