Benefits That Walt Disney Derived From France Theme Parks - Essay Example

With its population and economic status, France was a new source of demand. Disney had many parks in the USA and hence low customer potential and thus not a good place to expand. Given that Any US citizen can easily access the park already established parks in California and Florida and therefore Europe became a better option. Having built its reputation, Disney expected that it can easily penetrate the European market. Although there were other theme parks in Europe, the company’s reputation makes customers lack close substitutes. As matter of fact, Disney's entrance into France, not only deployed the monopolistic advantages that existing companies but also increased competition in the region hence improving quality.

The tourism industry in the USA is always negatively impacted by the strengthening of the dollar. A reduction in several tourists reduces Disney’s revenue significantly. To counter this, Disney opted to enter the European market. Research has shown that the euro and dollar strengths counter each other hence Disney can still capture their customers during dollar peaks. In a nutshell, Disney aimed at capturing tourists who are not willing to visit the USA. Another motivating factor might be reduced costs of production.

Although the cost of French labor may not differ from US labor, capital is relatively cheaper. Moreover, France ought to be the best European country of their choice due to the availability of government subsidies on land. 

Question 2a. By using the spot rate, the firm converts the initial capital outlay to pesos, $1 = 14 MXPThus $ 300000 = 300000 *14 = 4,200,000 MXPSince Blustream Inc. is risk averse, it hedges the initial capital in the forward contract. Suppose the firm gets the contract, then it will convert MXP to dollars: Hence capital at hand: which implies earnings of $50000Total cash inflows (in $) = 50,000 + = $ 434615.38 = $ 68318.12b. The company is endowed with an initial capital of $ 300,000.

If the company hedges it with the forward contract, it will have $ 350,000 (calculated in a. above)The excess, is $50,000 = 50,000 * 13 = 650,000 MXPHence total cash inflow = 650,000 + 3,000,000 = 3650,000 MXP PV of cash inflow = MXPNet cash outlay = 300000* 13 = 390000 NPV = -806779.66Question 3In an effort to reduce US imports from Japan, the US government threatened to impose a quota. The aim was to discourage the Japanese from exporting to the US and in response invest directly into the US economy, informing of FDI.

On the contrary, japan decided to withdraw their imports instead, hence making the US economy suffer. By 1981, there was a great demand for cars in the US. For that reason, demand exceeded supply hence the need for importation. After Japan’s withdrawal, the US experienced a shortage in car supply that made the prices rise. Given that the US economy was not in the capacity to produce a level that curbs demand, their economic growth was altered.US expectations were that japans companies would suffer from reduced demand and thus consider FDI to the US as an option.

However, given the high production costs in the US, (especially the cost of labor), Japanese companies were better off without USA‘s market, as compared to FDI. Although japan suffered some loss in sales, the companies could also cut production and maintain profits with other markets. The US represented a proportion of their market base.