The Walt Disney Company - Continued Leadership Position in the Entertainment Industry - Case Study Example

Case Study- Walt Disney Executive Summary The investment of the Walt Disney Company in China is one expected to bring forth profits and grow the brand in the region. In this paper, the researcher has analysed the PEST of China alongside with the strengths of the company and prepared four scenarios using the scenario planning tool for the company in the next twenty years. The strategic business units of the company have been classified and ranked according to the Growth-share matrix. The diversification of the company’s business in Africa has been considered and strategies of growth and penetration in the continent have been prepared using the Ansoff’s matrix. Several findings and recommendations have been made in the paper for the Walt Disney Company. Introduction The Walt Disney Company is a leading international media and entertainment enterprise founded in the U.S by the late Walt Disney. The company operates five Disney segments namely Parks and Resorts, Media Networks, Disney Interactive, Disney Consumer Products and The Walt Disney Studios (Veness, 2009). The company is currently headed by C.E.O Bob Igler and as at 2012 recorded revenue of $42.278 billion with profits of $5.682 billion (Walt Disney, 2014). The company has 166,000 employees globally. Walt Disney’s main competitors are NBC Universal Media, Time Warner Inc., News Corp., and Viacom Inc. to mention but a few (Veness, 2009). The Walt Disney Company has been expanding globally and diversifying its brands and market. The entry of the company into the Chinese market was a promising move, however, one laden with a number of significant challenges and risks. The company needs to overcome these challenges so that it may ensure success in the volatile Chinese market. Strategic Plans for China The strategic plans for Walt Disney in China for the next 20 years are formulated by an analysis of the PEST and integration of scenario planning tools to come up with four scenarios that will aid in the preparation of the required strategy. By use of scenario planning, a classification of the knowledge about the Chinese market is done in two broad domains: elements the company perceives to have knowledge about and elements that are unknown and uncertain. The first component is comprised of the company’s current performance, trends and demand of the company’s products in the Chinese market. These demographic aspects are well known. The second component comprising of the unknown factors includes the indeterminable such as the future interest rates, policies, political environment and rates of innovation in the Chinese market. However, with a good analysis of the PESTLE environment, the uncertainties may be reduced. Figure 1: The Scenario Planning Tool Control (Internal Factors) Scenario one Scenario two Localisation of products to suit the needs of The Shanghai Theme Park the Chinese Market. Uncertainty Certainty Political crisis Piracy of Digital Content Scenario three Scenario four Absence of Control (external factors) Scenario One: Localisation of Products The Chinese market is characterised by a growing population of the middle class who have disposable income to spend on entertainment. Furthermore, the legal system of the country allows the citizens to have one child per family, meaning two parents support one child. With the finances, families can spend on entertainment. The Walt Disney Company can use the popular Mickey Mouse brand in the country to popularise their brands in the country. The main strategy shall be the blending of the known brand (Mickey Mouse) with local animated characters that depict the Chinese culture. The social Chinese setup is known to appreciate the Chinese culture and such a strategy will sell in the country. Over the next five years, the company can concentrate on building a Chinese brand of animation that the locals in china can relate with. By 2019, the localised brands will have been popular in the country and the remaining 15 years will be used by the company to strengthen their brands and name in China. Scenario Two: The Shanghai Theme Park The Shanghai Theme Park is set to open door to over 1 billion customers. With the theme park, the Walt Disney Company has an avenue of displaying and selling its products to this large population. Analysts expect the Chinese economy to continue growing strongly as the past five years have witnessed an annual growth rate of 10 percent. By using the theme park, the walt Disney company can benefit from this economic growth in the next five years. For example, the theme park can house American brands that are viewed in China as a social progression and development. In addition, the Chinese economy has sustained the growth as a result of foreign direct investment, and as such, these brands will be welcomed in the country. Scenario Three: Political Crisis The political atmosphere of a country is an external factor that affects businesses. The Walt Disney Company has little control over such political factors which may impact its performance in the country. For example, the Russian-Chinese alliance may affect the business relationship that China has with America. The American government may take drastic measures such as banning further investment in China. This may impact the American corporations stationed in China and Walt Disney may not have a chance of benefiting from their hefty investments in the country in the next 20 years. However, there lies hope for international corporations in China as the Chinese government is forming great alliance with many countries and investing heavily in Africa. The returns of such investments are to be enjoyed in China by the citizens as the economy grows. The Walt Disney Company will benefit from this economic growth in the next ten years as the country gets its return on investment and grows its local economy. Scenario Four: Piracy of Digital Content The inability of China to safeguard intellectual property rights has limited the number of companies dealing with high end products entering the Chinese market. The choice of the Walt Disney Company to invest in China is one that comes with a lot of risk as the country has high cases of piracy of DVDs and CDs. An example of this rampant piracy in the country is depicted by Baidu, a Chinese search engine that offered an MP3 toolbar that allowed individuals to download MP3 songs regardless of whether the songs were posted to the websites illegally (Rapoza, 2013). Piracy damages established brand names. The entertainment industry looses a lot of money to pirates every year (approximately $5 billion). To combat this challenge, the Walt Disney company may leverage on the advanced technology in use around the country. Instead of producing their movies in conventional DVDs, the company can focus on selling online digital media content to users through mobile phone applications, smart TV applications and through their websites. With such a strategy, the company can sell its content to users at lower prices and create an assurance of the quality and authenticity of the products to the customers. Once again, the company will use the popular Mickey Mouse brand to implement this strategy over the next twenty years. Summary China provides a big market and untapped growth opportunity for the Walt Disney Company. The Shanghai Theme Park is expected to serve more than a billion customers (Yu & Michel, 2013). This is a huge market and if Disney plans to make an impact and retain the market, then it has to do it right from the beginning. Localisation of products, training of local animators, partnering with local businesses and use of English language centers are examples of scenarios that the company may use to impact and retain the Chinese market. These scenarios should, however, go in line with the company’s vision and mission statement. The company’s mission is to be one of the leading producers and providers of entertainment while its vision is to make their products and services creative and unique as well as profitable while doing so. The Chinese market provides the company an avenue of achieving both the vision and mission based on the large population of individuals and prospective target market in the region. Global Business Portfolio The Walt Disney Company operates five Disney segments namely Parks and Resorts, Media Networks, Disney Interactive, Disney Consumer Products and The Walt Disney Studios (Zibart, 2010). These segments are managed by the company using a set of strategies that ensured the company maintains business excellence and magical experiences which are associated with the Disney brand. The global business portfolio of the company is characterised by successful endeavors in over 167 countries (Miller, 2010). The company’s strategic business units may be analysed using the growth-share matrix (Becker, 2003). Cash cows are the business units that have very high market share thereby generating a lot of cash, but with low growth prospects, therefore, low needs for cash inputs (Groucutt, 2009). These are often in mature industries that are close to declining. The cash cows are regarded as boring and staid in mature markets and a majority of corporations would be thrilled to have as many as possible due to the low investment and high return nature of such business units (Groucutt, 2009). Studio entertainment falls in the cash cow bracket. This is because Disney recorded an increase of 75 percent in the operating income from studio entertainment to record profits of $409 million (Walt Disney, 2014). Dogs are units with low market shares in a mature and slow-growing industry (Groucutt, 2009). These units are typically those that break even generating barely enough cash to support the business market share (Groucutt, 2009). However, a business owning a break even unit provides the social benefits by providing possible synergies that assist other businesses and creating job opportunities for locals (Groucutt, 2009). Such a business unit is, however, worthless when viewed from an accounting perspective as it does not generate any cash for the company. Such units usually depress the return on assets ratio of a profitable company (Groucutt, 2009). Dogs are normally used by investors to judge the management and performance of a company and it is the opinion of a majority of investors that dogs should be sold off. Globally, no business unit from Disney falls in this category. Question marks are business units that operate in high growth markets, but have low market share (Groucutt, 2009). These are usually a starting point for many businesses. Question marks usually have the potential of gaining market shares and becoming stars, and eventually cash cows when the growth in the market slows down (Groucutt, 2009). The failure of question marks to become market leaders after years of cash consumption results into them becoming dogs when the market growth declines. A company must analyze question marks carefully to establish whether such business units are worthy of the required investment to grow market share. The Walt Disney Company has been in existence for a very long time and has ensured a series of maturity of its business units thus no business unit falls in the question mark category. Stars are business units that possess high market share in fast growing industries. Stars are usually graduated question marks with a niche leading trajectory (Groucutt, 2009). For example, in a high-growth sector, a star may be amongst the market share front runners, having monopolistic characteristics and dominance with fortuitous and burgeoning proposition drives. The hope in every company is that star business units eventually develop into cash cows. Stars require high funding and investment to maintain the growth rate and fight competition (Groucutt, 2009). Stars become cash cows when the industry grows and such business units remain in niche leadership position. Low relative market share results to stars becoming dogs. The maturity and reduced growth of a particular industry results into business such business units becoming either cash cows or dogs (Groucutt, 2009). The eventual halt of market growth results into stars becoming cash cows while, at the end of a cycle, a cash cow turns into a dog. Media networks, parks and resorts, consumer products and Disney interactive fall in the star category. These business units have a strong industry presence and may turn into cash cows in the event that the market growth declines and Disney is able to maintain a leadership position among its competition. Disney interactive recorded an increment in profit by 19 percent to record income of $55 million (Walt Disney, 2014). Consumer products registered profits of $ 430 million which were equivalent of 24 percent increment (Walt Disney, 2014). Parks and resorts recorded a profit of $ 671 million which was equivalent of 16 percent increment while the income from media networks was $ 1.5 billion an equivalent of 20 percent increment (Walt Disney, 2014). In china, the most viable business unit in line with the penetration strategy of the Chinese market is the development of parks and resorts. The company can use the theme park to increase the growth of customers in the next five to seven years as the Shanghai Park is expected to serve over 1 billion customers (Reingold, 2012). With the park in place, the Walt Disney Company can ensure that their brand is developed well into the new Chinese company. Furthermore, the park offers a very good opportunity for the company to nurture the English language training centers which are expected to produce very good returns for the company (Reingold, 2012). The park can also be use to grow the Disney brand in the country alongside other American brands that will be located in the park. Tourists and businessmen visiting Shanghai may visit the park for various entertainment purposes. Disney will enjoy the growth of the company’s brand in China based on the good performance of the Chinese economy and forecasted improvement of the economy in the next five years. Strategic Plan for Africa The Walt Disney Company can diversify its operations in Africa (Coverly, 2013). The firm has a vast deposit of resources and may use this in the entry and penetration of the African market. In Africa, the company may consider a market penetration strategy of creating a subsidiary in the region. The Walt Disney Company faces little competition in the African market and thus may gain a lot from the diversification into the continent Coverly, C. (2013). The Ansoff’s Matrix may be a good focal point for the company to use in the penetration strategy into Africa. By use of the matrix, the Walt Disney Company can harness a number of growth strategies. In the Ansoff matrix, a classification of different growth strategies is done by the company (Luxinnovation, 2008). The matrix is usually used by companies that have a strategy of specialization or a growth target. The four strategies offered by the Ansoff matrix for the achievement of objectives are diversification, new products, extension of the market and penetration of the market (Luxinnovation, 2008). The Ansoff tool which crosses markets and products of a company is usually used to facilitate the decision making process in a company (Luxinnovation, 2008). By using the tool, the company, however, needs to consider the golden rules in their penetration strategy into Africa (Luxinnovation, 2008). These golden rules are risk and opportunity. The matrix will not only provide the Walt Disney company a chance to expand into the African market, but also a chance to withdraw from the market or find new markets if the first consideration does not prove useful. Each strategy used by the company will have a risk level. This risk level is expected to increase proportionally with the level of change. Diversification may prove to be riskier in Africa than increasing the penetration of an existing product in the market. The Walt Disney Company has already set up shop in South Africa. This country, a big consumer of entertainment products may be used as the cornerstone of the company’s penetration into the entire African market. The penetration of the marketing strategy, as proposed by the matrix, will enable the company expand its sales in the existing South African market. The existing products will be sold to the existing customers. The products may not undergo any modification as the company will be after increasing the revenues by repositioning and promoting its products in this market (Luxinnovation, 2008). Ultimately, the company will use the established links to grow and penetrate into the African market. The company can also increase its penetration of the African market by ensuring an extension of the market. In this approach, the company will be after increasing the sales of its products in the new African market by introducing new products into this market. A range of products by the company may be introduced into the market but without any modification. The existing products will be sold directly to the new market by exportation. However, it is important that the company takes into account various demographic influences of the African market such as the existing cultural differences. This may necessitate that the products undergo minor changes to suit the needs of the African market. The company can increase its sales and penetration in the African market by introducing a mix of new and modified products into the African market (Sehlinger et al, 2014). The African market just like the Chinese market is characterised by piracy of digital and media content. The main advantage that the company may have in this market, however, is the unavailability of strong competitors. With new products such as the English language centers, the company can successfully penetrate the African market since English is a second language in the continent prompting parents to embrace the education of the same for their children (Cochran, 2009). The company can also consider the diversification of their products as they enter the African Market (Luxinnovation, 2008). In this case, the company will be launching new products for the new customers by considering a number of diversification strategies such as concentric, vertical, horizontal and diversification by conglomerate. By using horizontal diversification, the company may develop new products that satisfy the new clientele regardless of the technological independence of the new products to the existing products. With vertical diversification, the company will consider producing its products from the needs of the customers. Concentric diversification by the company will entail the development of new products by using complementary technology on the existing products. Such a diversification strategy is geared towards attracting a new set of customers. Lastly, through diversification by conglomerate, the Walt Disney Company may introduce different products for different markets. This will be facilitated by the firm settling down in areas around Africa where it has no previous experience but aims to attract new customers. The Disney Company may ensure successful entry into the African market by considering the demographics of the market. While animated characters such as Mickey Mouse are celebrated across the continent, it may be important that the company considers a different approach into the continent (Sehlinger et al, 2014). Sports, especially athletics, football and rugby attract large crowds from a majority of the African countries. South Africa and Kenya for instance have a strong affiliation to ruby. Ethiopia and Kenya are renowned athletic champions while Ivory Coast and Nigeria have strong football teams. This strong affiliation to sports across the continent may provide the Disney Company a good entry point into the country. With this regard, the company may use its sports channel ESPN to spearhead entry into the continent. Through sports, the company is expected to gain large audiences. However, the company will have to deal with competition from other sports channels such as Super Sport. ESPN will be used by the company to gain in-depth understanding of the African market in the onset. After establishing ground in many countries, the company can then periodically introduce its line of animated products and superhero productions in the continent. Localisation of the products will help a great deal in attracting new customers and making sales in the African markets as consumers in these regions prefer purchasing products that depict their culture and beliefs. Figure 2: Sample Ansoff’s Matrix Model for use in Africa Market Development Strategy Diversification Strategy Market Penetration Strategy Product Development Strategy Existing Products New Products Conclusion The Walt Disney Company has held a continued leadership position in the entertainment industry. The company’s vision is as simple as making people happy and making profit while doing so. Recently, the company has focused on diversifying its products and services into China to tap the great market niche in the region. The company has, however, been facing a majority of challenges, such as piracy, since the Chinese market is characterised by a number of volatile conditions and diverse demographics. Through research and development, the Walt Disney Company has, however, devised an effective strategy of penetrating the Chinese market by using the popular company brands such as Mickey Mouse and the demographic information to its advantage. The global performance of the company is still good with the company maintaining a strong global presence. Options for diversifying its business into Africa include the opening of a subsidiary in the continent and using ESPN as the African market loves sports. With time, however, the company can consider the promotion of other products and business units in Africa after understanding the demography and needs of the African market. References Becker, J. (2003). Process management: a guide for the design of business processes. Berlin, Springer. Cochran, J. (2009). Pauline Frommers Walt Disney World and Orlando. Hoboken, John Wiley & Sons. Retrieved from: http://public.eblib.com/EBLPublic/PublicView.do?ptiID=448875. Coverly, C. (2013). 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