Applying the Principles of Country Risk: Disneylands Current Situation and Strategy in Hong Kong - Case Study Example

Topic:' Applying the principles of country risk is an art , not a science". Discuss in relation to the case familiar to you. using Disneyland Hong Kong Definition Country risk is how likely any changes in the business environment will occur which leads to the reduction of the profitability of doing business in the country which can adversely affect the operating profits as well as the value of assets (John, 2009). Disneyland's Current Situation and Strategy in Hong Kong As to whether applying the principles of country risks is an art or science, we inquire into the principles of country risks in the case of Hong Kong Disneyland (HKDLD) that includes the identification of the current situation, its strategy used and the risks involved. Initially, in this partnership in 1999, the Hong Kong Government funded the works of land reclamation and other infrastructural works, and the private sector was responsible for construction and operation of facilities with the Government will own 57% of the shares in the company initially, while Disney will own 43% of the shares (Yin Shen, Platten, 2009). Currently, the company fails to reach an agreement with the Hong Kong government to fund a much-needed 301 acres of expansion and started to give employees the sack. HKDLD has been losing profits that leads to the present state of being. All creative and design works are halted leaving a "shell" of 10 member team after the stripping off the "imaginers" (Business Week, 2009). Walt Disney Company (WDC) may just walk away from the negotiation from the government to focus on the upcoming Disney Shanghai. Yet Disneyland is significantly a landmark and tourist attraction, the HK government can find no comfort zone in abandoning it or funding the business. The strategy is only to keep on improving it as a competitive edge over Disney Shanghai scheduled to open in 2014. This implies the need of constant influx of taxpayers' fund for HKDLD expansion to keep the economy on the road to recovery, even though the present spending hurts the country's expenditure with HKDLD's profit book in the red expectedly (NPR, 2009). Kind of Risks HKDLD Faced and the Measures Taken The nature of the existence of the risks of this Private-Public Partnership (PPP) project occurs due to the complexity and uncertainty of the interaction of factors that includes financing, taxation, technical details, market conditions and changes over the duration of the project (Yin Shen, Platten, 2009). Hence for the HKDLD project, the risks affecting the project expansion are identified with their preventive measures. To achieve the value for money in PPP projects, risk are allocated between this pair of private and public sectors in partnership. The risks should be allocated accordingly with respect to the type of risk and the ability of either sector to mitigate them. Based on this principle the risks are outlined alongside the preventive measures by means of allocations of identified risks. During the start of the expansion, site acquisition risk is present in land acquisition and or during retaining or demolishing existing buildings. The HK government is responsible for ensuring the acquisition of the HKDLD site and protecting the site from any intrusion and all land uses in surrounding areas. The operational private partner is responsible for the operational process of site protection or demolition of existing buildings or facilities. In all construction, the risk associate with adverse underground conditions is taken care of by the private partner since they are in charge of site survey particularly on the underground conditions that deals with the stability of foundation and supply of utilities. Polluted land and surroundings is a risk borne by both sides by the right legal disposal of construction waste and enforcement of good house keeping. Land reclamation runs the risk of delay of construction and is allocated to the private partner for adhering to the project deadline Volatility of market changes is always present with factors such as the change of facilities, population, inflation, technologies, risking the business performance of HKDLD. With regards to this problem, this risk is shared between the two bodies. The public sector has to cater to the risk of choosing inexperienced operational private partner who lacks expertise, financial health and quality. There are financial risks pertaining to the profitability from these financial expenditures due to the changes in interest rates, exchange rates, ownership and other factors. It is agreed that this type of risks is shared between the two parties (Maskin, Tirole 2007). There are risks during the operation of the project such as the changes in technologies, weather, variations in materials or components for maintaining and repairing the facilities that hinders the business growth. These operation risks are allocated to the business that is responsible for the day to day maintenance and operation of the project meaning the private partner are responsible for it. There occurs the risk of manpower movements by unionists or strikes from the employees who sabotage the smooth delivery of the project by halting all activities. The private partner need to handle their company's staff and assume this responsibility. Legislation and policy changes, like business tax, urban planning, environmental protection, and other such encounters can surface, reducing the profitability of the project (Legislative Council, 2009). The public sector has to step in, in this type of risks. The risk of earth's forces such as earthquake, flood and other types of natural calamities is a threat to the business flow and profitability. For such occurrences, performance from running the project can be disastrous, and parties have the both sides are responsible for it. Competition risk deals with the lure of traffic to a Disney theme park in Shanghai would inevitably affect Hong Kong Disney; the impact would, however, be moderate, since each are unique in their market positioning and operating methodology cum facilities. Considering the population of China's mainland, these two Disneylands will be sufficiently supported. Yet since Shanghai Disney is newer in build and a larger competitor in, HKDLD must bring up their competitiveness advantage of its own signature theme park, and enhanced theme park program to be distinctively different from that of Shanghai Disneyland. Hong Kong must embark on a whole new campaign strategy targeted at raising the brand image of Hong Kong's Disneyland in major target markets and luring more China mainland visitors. Hong Kong should also engage attractive promotional strategies to collaborate with travel agencies in the China mainland to aggressively promote Hong Kong Disneyland tours (Consultancy study, 2008). There is a definite need to resume the construction of the expansion of the present Disneyland and to gain the public confidence, a higher commitment from the government in the form of shares purchase and holding or the input of more funds to HKDLD. Laying-off employees and halting of expansion only shows an act of self annihilation of HKDLD. To regain the hearts of tourists, laying-off employees should be reversed with the re-employment of staff and a suitably increased of salary. Moreover, there is no magical feeling which undermines the very substance of what Disneyland is supposed to offer. Magical feeling includes instant happiness and joy throughout the time at the place. Whereas Disneyland in other places such as the ones in Tokyo and United States manage to give enchanting moments to the tourists. The employees are able to lighten peoples' hearts with their gestures and actions. Therefore the training for such skills can be considered as an important attribute towards the success of the Disneyland in Hong Kong. Conclusion The adoption of PPP in developing public sector projects has been a collaborative effort of achieving multiple project objectives and mitigating project risks. With PPP, opportunities for the upgrading of private partner's expertise in managing an enterprise are created. Private companies that seek to improve the effectiveness in mitigation of operation risks in running public sector projects are well capable to do so. For example, by partnership, both have sufficient time to develop project specifications before the construction of a project, thus reducing if not eliminating the design faults which could become very costly and a hindrance during the construction stage. By referring to the practice in Hong Kong Disneyland, we examine the current situation of this particular PPP project, its risks and mitigation in the implementation process. These major risks in summary are generally found in the arena of the project, government, client, design, contractor, consultant, and market. When PPP approach is adopted in implementing HKDLD project, these risks are identified, controlled and managed effectively by allocating them between the both partners in collaborative efforts. HKDLD project demonstrates how various major risks in committing to a PPP project are allocated or shared effectively between both factors. In this typical PPP project, it is found that allocation of site acquisition risks, inexperienced private partner risks, legislative and policy risks to the public sector is appropriate. Also, allocation of the design and construction risks, operation risks and manpower action risks to the private sector, and market risks, financial risks and earthly forces risks between the two parties is important. These results present valuable lessons for both the practitioners and researchers in application of PPPs to identify and manage risks in delivering public sector projects in other countries and regions. With reference to the event of such schemes concerning HKDLD, it is felt that applying the principles of country risks involves a high capacity of intuitive felt sense of knowing what the risks are and mitigating them. At the same time, the underlying solutions require certain systematic formulation methods to deliver them through. Still at the end of it all, such application feels to me an art more than science. References: 1) John Reis 2009, Country Risk Definition, Viewed 3 May 2009, 2) Business Week 2009, Hong Kong Disneyland's Future Is In Danger, Viewed 3 May2009, 3) NPR 2009, Expansion Plans On Hold At Hong Kong's Disneyland, Viewed 3 May2009, < http://www.npr.org/templates/story/story.php'storyId=101986506> 4) Ho,R.C.T., Hong Kong University, How can we capitalize on the concept of PPP' 5) Li-Yin Shen, Andrew Platten, X.P.Deng, Science Direct 2009, Role of public private partnerships to manage risks in public sector projects in Hong Kong, Viewed 3 May 2009, < http://www.sciencedirect.com/science> 6) Eric Maskin, Jean Tirole 2007, 'Public-private partnerships and government spending limits', International Journal of Industrial Organization, 26,vol. 26, no. 2, pp. 412-420, Viewed on 3 May 2009, < http://www.sciencedirect.com/science> 7) Legislative Council 2009, Legislative Council Meetings, Viewed on 3 May 2009, < http://www.legco.gov.hk/yr05-06/english/counmtg/agenda/cmtg1109.htm> 8) Teamone Economist Limited 2008, Consultancy Study on Social, Economic and Political Developments in the Mainland, with Particular Emphasis on Regional Developments and the Guangdong Province, viewed 3 May 2009, < http://www.cpu.gov.hk/english/documents/new/press/2008guangdong03.pdf> Read More