Walt Disney Company Analysis - Essay Example

? Disney Background Brief history of organization The Walt Disney Company is a renowned in the entertainment industry. On October 16, 1923, Walt signed a contract with M.J. Winkler to create and produce a series of Alice Comedies and both Walt Disney and Roy Disney, known as Disney Brothers began their work on the project. At that time, they named the company with the label of “Disney Brothers Studio. However, in 1926, both brothers decided to change the company name from Disney Brothers Studio to Walt Disney Studio (Gitlin and Inge, 2010, p. 42). Subsequently, The Disney brothers developed and created Mickey Mouse cartoons in the year of 1928 (Gomery and Pafort-overdunin, 2011, p. 191). At that time, the film industry, movies did not have sound; Mickey Mouse was supposed to make his first appearance in silent film called “Plane Crazy” (Richardson, 2004, p.19). Since then, the Company has a diversified international investment in a range of industries; it has five business segments i.e. parks and resorts, media networks, consumer products, studio entertainment and interactive media (Company Overview, n.d.). In the year of 1955, Walt Disney opened Disneyland. Subsequently, it converted into The Walt Disney Parks and Resorts (WDP&R) as one of the leading facilitators of leisure experiences and family travel. Currently, there are five vacation destinations with 11 theme parks having 43 resorts in North America, Asia and Europe and sixth destination is under construction in mainland China’s Shanghai province. WDP&R also provide the Disney Cruise Line along with its four ships i.e. Disney Wonder, Disney Magic, Disney Fantasy and Disney Dream; Disney Vacation Club along with 11 properties and more than 5, 00,000 participants as members are the main services offered by the company. Mainly, it is the contribution of the Walt Disney Studios that has provided the strong foundations to the Walt Disney Company. The Walt Disney Studios are also part of the Walt Disney Corporation. The Walt Disney Studios provide movies, stage plays and music. Various movies are released under the banners: Marvel Studios, Disneynature, and Disney, encompassing Walt Disney Animation Studios and Pixar Animation Studios and Touchstone Pictures. Under the Touchstone Pictures’ label, live-action movies from the production services of DreamWorks Studios are distributed throughout the world. The Disney Theatrical Group issues licenses to and produces live events, encompassing Disney on Ice, Disney on Broadway and Disney Live. Subsequently, the Disney Music Group includes the Hollywood Records and Walt Disney Records and Disney Music Publishing. Disney Consumer Products (DCP) is the major business segment of the company. The DCP sells products such as home decor, books, stationary, beverages, foods, electronics and fine arts. Currently, DCP, which was formally launched in 1987, operates in North America, Japan and Europe through various retail chain stores under the label of the Disney Store. In the year of 2008, the company launched its new business segment with the label of Disney Interactive, which entertains families, kids through the products compatible with all sorts of digital media platforms including social and console games and blockbuster mobile. Situation analysis Environmental trends Macro Analysis Macro analysis can be carried out by PESTEL analysis of the Chinese market. PESTEL stands for Political, Economic, Social, Technological, Environmental and Legal aspect of market. The acknowledged benefit of using the PESTEL analysis as macro analysis tool is to understand the strategic position of an organization within a macro environment. In the following parts, macro analysis would mainly focus on the Chinese macro environment particularly relevant to Shanghai Disneyland. Political The Chinese government has put in place a considerable number of regulatory conditions applicable to both domestic and foreign companies operational in China. For instance, the land in China remains under the ownership of Chinese government but the land control is accessible to the private companies (Zhu and Xu, 2010, p.51). Currently, the government policy is to offer land usage against payment of land rent. Based on the payment of land rent, the private companies become entitled to use the Chinese land for the business purposes. Consequently, Shanghai Disney would not be able to avail the level of economic freedom being enjoyed under the United States’ constitution. For example, In Florida, the Disneyland owns a large unutilized land area and the company intends to use them for their future projects and plans. The Shanghai Disneyland should have strong policy that ensures land access for the future operations. Economic The Chinese economic situation is fastly improving and is experiencing a rapid growth in the recent years. The Chinese economy has not only increased its economic base but also has put registered strong economic growth and development in the recent years. However, its Gross Domestic Product (GDP) per capita is $ 5,445 and the United States of America has $ 48,442 in the year of 2011 (The World Bank, n.d.). When comparing GDP per capita of China with the GDP per capita of the United States of America, average Chinese do not enjoy the level of economic prosperity being enjoyed by ordinary American. Based on this assessment, it would be much appropriate that Shanghai Disneyland should lower entrance fee with an aim of increasing the number of Chinese consumers. In addition, some economists contend that the cost of doing business in China is relatively much lower than the cost of doing business in any other country. As a result, the Shanghai Disneyland would be considerably in a position to lower the entrance rates. Social Chinese are known for their hard working and they prefer to enjoy less and work more. This could be a challenging for the Shanghai Disneyland. The Chinese people do not allow much freedom to their kids for fun or other entertainment as the kids are under immense pressure from their education. In addition to that, Chinese people do not prefer to spend much time for entertainment and other fun-related activities. It would be naive to expect the response similar to the one provided by the United States’ consumers. Consequently, Shanghai Disneyland needs to develop and adopt different marketing strategy by keeping in view the social context of the Chinese consumers. Technological Theme parks require high quality entertainment tools and equipment to attract and retain a considerable number of visitors. As a fast developing state, China can provide requirement type and number of theme part tools and equipment. Additionally, the inexpensive labor and suppliers can further save considerable money and time for the company. Environmental Hong Kong Disneyland was opened in 2005 (Katemopoulos, n.d.) and has remained a very successful venture for Walt Disney. The Shanghai Disneyland is under process project and it has been estimated that it would be completed in 2015. Based on the success of Hong Kong Disneyland, the environment of Shanghai Disneyland would not be hindering the frequency of potential visitors as there is no much environmental difference between these two Chinese Provinces. Legal The legal issues are not the new or rigid in China. In comparison with the European and American legal structure, the Chinese legal framework is considerably similar. Additionally, speedy justice is another attractive feature that can be considered as a convincing factor to expect success of the Shanghai Disneyland venture similar to the Hong Kong Disneyland. The speedy justice can be considered as a source of supporting business activities. Theme park industry analysis in China Walt Disney is known for developing and making imaginative and animated movies and creating theme parks (Ungson and Wong, 2008, p. 107).Since 1990, Chinese theme park industry is experiencing considerable expansion. There are various theme parks that were already working even before the entry of Disneyland. In the Chinese city of Suzhou, a city nearby Shanghai has a theme park with the name of “Suzhou theme park and water world”. In addition to that, some amusement parks are already offering entertainment services to the customers. For example, Jingjiang amusement park is one of them to offer entertainment services. Also, cinemas, theatres, internet bars should be considered as competitors in the Chinese entertainment industry. Micro Analysis Strengths Diverse Portfolio The Walt Disney has four major strategic business units: consumer products, theme parks, television (cable and ABC) and movies (including Touchstone and Miramax) (Daft, 2008, p.265). and Disneyland is generally considered to be the premier park of the premier company in the amusement park industry (Sayre, 2008, p.465) The company has added a vast variety to its portfolio. Along with the Disney’s remarkable collection of new adaptations of classics such as Sleeping Beauty, Robin Hood, Alice in Wonderland and Peter pan; the Company has remained considerably successful in creating various characteristics such as Minnie Mouse, Mickey Mouse, Pluto, Donald Duck, Simba, Chip & Dale, Belle, Buzz Lightyear, and Aladdin. The diverse portfolio is one of the biggest strengths of the company. Diversification Diversification is also strength of Walt Disney. Basically, the company created and developed cartoons and some of the renowned names are mentioned in the above paragraph. The company produced a wide range of cartoons through its production studios and produced numerous original feature films in the early history. In 1951, the company launched its first theme park; this change shifted it from a media-oriented company to an entertainment-based company. This enabled the company to allow some of the cartoons to perform in the theme parks and generated a considerable attention from the visitors. Along with these diversifications, the company purchased various media outlets and currently it owns several media broadcasting television networks, radio stations, and online hosts and so on. More recently, in 2006 the company acquired the Pixar Animation Studios. Previously, both were working collectively for different film projects. With this inclusion along with the launch of Disney Store, the company has considerably strengthened its base in the global entertainment industry. Weaknesses Higher cost of business operations The company faces the risk and challenge of higher cost of business operations. It is an accepted reality that to produce a quality feature film or the one liked by the majority remains the biggest challenge. In the case of flop film, the entire cost of producing the film would be wholly solely borne by the producer. Under such a risky business climate, the Walt Disney faces the risks of inherent business risks and higher cost of business operations. Frequent requirement for creative material Creativity is the backbone of the entertainment industry. It is not something that can be purchased from market. It is not a commodity that can have any features available in the market. Script writers and creative crew remain constantly under pressure to work and develop creative but attractive and popular material. This sort of work is not an easy task. Opportunities Expanding music industry In the recent past, music industry has greatly expanded. Previously, singers more than 18 years of age were the main component but the start of singer such as Justin Bieber has considerably reshaped the entire structure of the music industry. In addition to that popular television programs such as America’s Got Talent and American Idol have also contributed into the expansion of music industry. This opportunity and its vitality can be authenticated by the fact that the company has experienced considerable success with its films such as Camp Rock and High School Musical. As the Disney’s main customers belong to young adults from ages 10 to 18, it has an opportunity to develop such programs and television shows that increase the customer base of the company. Untapped areas Currently, Disney’s resorts and parks (in California, Florida, Paris, Hong Kong and Tokyo) are built near to populous areas. The problem with such locations is that the tourists find it difficult to trace the actual locations and besides the local population face discomfort when noise and other interruptions increase drastically. This increases the chances of legal proceedings. In contrast, the new approach constructing resorts and theme parks away from the populous areas do not offer such sort of problems and not only tourists but also local visitors would appreciate and increase their visiting frequency toward the resorts and parks. Radio Operations expansion Currently, Disney owns ABC Radio and Radio Disney. The company uses online, satellite and terrestrial formats for broadcasting. Keeping in view the entire population of the United States, the company may consider this as an opportunity to expand its radio operations. Simultaneously, China has become one of most attractive investment destinations in the world. The company should consider this as an attractive opportunity and should establish its radio operations. However, for this purpose, the company would be required to use local languages. Such aspects would be difficult when contemplating the level of probable returns by investing in the Chinese market. Threats Dynamic Technology and Media Industry To keep pace with the change in the media and technology has become one of the biggest threats ever faced by the technology and media industry. Everyday new inventions in technology, media and entertainment industry are taking place. Before the inception of the Internet, radio remained the effective source in the media and technology industry. Now with the onslaught of internet and the biggest problem of piracy has threatened the groups working in the media and technology industry. The producers, competitors, and other members in both industries have been forced to develop new methods to tackle the threats in the shape of piracy and technological requirements. Unstable global economy The global economy has not fully recovered from the onslaught of 2007 global financial crisis. The 2007 global financial crisis affected almost every economy, forcing private and public companies to cut production, reduce workforce and avoid taking risk. The impact of so huge that many corporations not only defaulted but also bankrupted. This situation was not limited to the United States but permeated to every country including China and European countries. Some companies were forced to reduce new investment and others found it reasonable to disinvest. Undoubtedly, the entertainment industry was worst hit by the effects of the crisis as people did not have much to spend on entertainment and other fun related activities. The severity of the impact can be understood from the fact that even after five years, the global economy has been unable to regain its pre-crisis position and it is struggling and unstable till this point of time. Analysis of strategy Customer profiles There can be two potential customer profiles that can be used within the context of the Chinese culture. Customers below the age of 18 and above the age of 18 remain the main customers that could be targeted as potential customers for the company. The Hong Kong Disneyland is currently serving customers occurring in both groups from the mainland China, Hong Kong and the South East Asia. In order to attract their target customers, Hong Kong Disneyland is not only offering various kinds of entertainment and fun services in the park to both under and over 18 years of customers but also using different promotion campaigns in the targeted areas across Hong Kong and China as well. Market segmentation Source: (Zhu and Xu, 2010, p.48) The above mentioned graph provides different market data related to Disneyland’s investment and different market segments. The table provides that Disneyland has divided the entire Chinese market with two different segments i.e. Shanghai and Hong Kong. Currently, Hong Kong Disneyland having capacity of Magic kingdom and Theme Park-Phase I Plan serves more than 35,000 visitors everyday and 12,775,000 annually. Shanghai Disneyland would be able to serve more than 50,000 visitors or customers everyday and around 18,250,000 per year would be served in the Phase I. In the Phase II in 2011, the expected total visitors for Hong Kong Disneyland would be around 5 million. The projections clearly indicate the attractiveness in the Chinese market. Target market(s) The company has adopted localized marketing and business strategies. For example, the company has hired local people to serve in Hong Kong Disneyland. In addition to that, the company is focusing to enable the employees to speak and understand English language besides Chinese language. This enables the employees to appropriately communicate with foreigners coming to visit Hong Kong Disneyland for fun and entertainment. Additionally, English and Chinese speaking employees would also guide visitors and this would put a positive impression on the local and foreign visitors who are not familiar with Hong Kong Disneyland. Subsequently, Hong Kong Disneyland has established links with a wide array of companies. For instance, Chow Sangsang, who is the famous jewelry dealer, designs special jewelry featuring different Disney characters and sell his collection in Hong Kong Disneyland. Similarly, Hong Kong Disneyland has allowed Mexican company to cater food inside the theme park. Source: (Zhu and Xu, 2010, p.47) Disneyland has considerably invested in the Chinese market. The above table mentions that the allocation of land for hotels, theme parks, retail and entertainment centers, roads and support facilities for Hong Kong and Shanghai Disneyland. Although Shanghai Disneyland has been delayed due to various reasons, Disneyland intends to open Shanghai Disneyland in 2015 or 2016. Currently, Hong Kong Disneyland has successfully completed its both phases and facilitating its customer base with different types of fun and entertainment activities. International Issues Various local and international issues directly or indirectly affect the international reputation of the companies. On April 17, 2009, a 17-year-old worker died by a paper crushing machine. The victim was Liu Pan, who had worked in the Yiuwah Stationary Factory for more than 2 years. The factory is located in Dongguan, Guangdon province in China. In a report titled “Shattered Dreams: Underage Worker Death at Factory Supplying to Disney, Other International Brands” highlighted that the machines are outdated and the factory has severely violated China’s Labor Law in terms of wages, working hours and labor contracts (China Labor Watch, 2009). The Yiuwah Stationary Factory was supplying material to Hong Kong Disneyland. When the Yiuwah accident caught public attention to the labor miseries in Chinese factories, particularly those supplying for international companies such as Disneyland, Hong Kong Disneyland ceased new orders of any Disney products (China Labor Watch, 2010). Summary of marketing lessons learned Lessons from effective marketing strategies Localization Disney has localized itself. The company has adopted and used the local rules, customs, traditions, and languages as marketing and business tools to pursue and obtain its strategic marketing objectives. For instance, the company has hired local people and encourages them to learn and speak English language. This enables the company and its employees to satisfy different visitors. It is an established fact that the visitors become more comfortable when they know that someone is there to understand them in their language. Consequently, this will benefit the company in the long run. Cultural understanding Marketing gives considerable importance to local customs and culture. In the paper, it has been highlighted that the Chinese do not use much time for leisure activities and they prefer to work more and relax or enjoy less. It is not limited to people of particular area but it is commonly found in the habits of Chinese people. By understanding the nature of the local culture, companies can devise very effective marketing strategies. This will result in retaining strong customer base. Expansionary approach within the music and entertainment industry Disneyland has expanded considerably. Fundamentally, the company was related to cartoons. With the passage of time, it developed the concept of theme parks, resorts and also penetrated into online world as well by launching its various websites. Additionally, the company has opened many television and radio channels and Disney stores are the latest expansion. This give a lesson that companies should not be limited to one particular aspect of the business but it should adapt itself with the changes occurring in the taste and choice of customers. Based on the taste and choice of customers, companies should be revamped accordingly. International standards Disney ceased supply from The Yiuwah Stationary Factory when the latter was involved in labor-related issue. Although Disney was not legally under pressure to do so but it considered its moral obligation to cease supply from the stationary factory. The positive aspect is that customers attach considerable significance to such issues. They find zero tolerance for activities and they expect that the companies involved in such practices should not be forgiven and those who are doing business with them should fulfill their moral responsibility by discontinue doing business with them. Lessons from the absence of effective marketing strategies Absence of means to tackle higher cost of business operations This remains weaker side of Disney. Globally, cost of doing business is constantly increasing. Many international companies did not survive and collapsed when they failed to maintain considerable difference between inflows and outflows. This lesson should be learnt by Disney as currently it has no effective plan or strategy to tackle the higher cost of business operations. If it is unable to appropriately deal with this issue, in the long run the company would be face decreasing gap between inflows and outflows. Ultimately, this would discourage company to continue expanding and may encourage company to reduce its global operations. Additionally, there is strong rationale to believe that the company might face such consequences as entertainment and music industries are not as important for customers as food companies; customers may not avail entertainment music or enjoy but they would consume food. Based on this rationale, this company should understand its vulnerability in comparison with other industries. Dearth of creative material planning Disney has no strongly established base for producing creative material. Creative material is mostly used for cartoons, films, and television and radio programs. It is the quality of the creative material that attracts and entertains Disney lovers. If the customers continue to receive entertaining material and services from the different segments of Disney, they would not reduce their customer loyalty toward Disneyland. Under the presence of strong competition from the competitors, it is difficult to understand why the company has not developed any such institution, which must be there to provide basic assistance and provide creative material for the current and upcoming different projects. No policy for geographic expansion or searching out new markets It looks that the company has no aggressive plan to identify new markets particularly in the developing countries. There are many countries including China, Brazil, India, who have been considerably successful in uplifting the living standards of ordinary citizens. Although the company has invested in the Chinese market but it is insufficient when considering the success and diversification owned by the company Conclusions and Recommendations Conclusion The Walt Disney Company has considerably expanded into the Chinese entertainment industry. The PESTEL analysis clearly indicates that the company has adopted effective strategic marketing to capture and retain the Chinese market. Politically, the company is required to adhere to the local rules and regulations, which require that any company would not be allowed to own Chinese land but can obtain its use. Economically, Chinese economy is growing and per capita is rising as well. However, when compared with the United States’ per capita income, the Chinese are far behind. Consequently, the company is required to maintain a very moderate pricing policy. Socially, the Chinese are known for their hard work and give less time for leisure activities. Based on this assessment, the company is required to make relevant marketing strategies which must be in accordance with the provided social context. Technologically, the company is well-positioned to avail the benefit of cheap labor and affordable cost of doing business in China. This would save money and time for the company. Environmentally, Hong Kong Disneyland has become a successful venture and the similar expectations can be made from the Shanghai Disneyland. Legally, speedy justice is common feature and this can be positive factor as it would directly or indirectly support the business activities in the country. Competition is common in the theme park industry. Suzhou theme park and water world is one of the competitors and Jingjiang amusement park, cinemas, internet bars and theatres should be considered competitors in the Chinese entertainment industry. Disney has various strengths, weaknesses, opportunities and threats. The threats include diverse portfolio and diversification. The weaknesses are comprised of frequent requirement for creative material and higher cost of business operations. The opportunities are expansion into music industry, radio operations expansion and untapped areas. The threats include dynamic technology and media industry and unstable global economy. The analysis of strategy includes customer profiles, market segmentation, target market and international issues. And the lessons learnt include localization, cultural understanding, expansionary approach within the music and entertainment industry and international standards. And the lessons from the absence of effective marketing strategies encompass the absence of means to tackle the higher cost of business operations, dearth of creative material planning and no policy for geographic expansion or searching out new markets. Recommendations The company should actively invest and launch its entertainment services in Brazil, India and other parts of China as well. In the recent years, Brazil, India and China have become one of the lucrative markets as they have developed and stabilized their economies. The major focus should be on the China and Brazil. China has comparatively lower cost of doing business. This would enable the company to reduce its cost and utilize them where needed. Currently, the company faces higher cost of business operations as mentioned in the weaknesses. India may not be lucrative investment destinations due to the fact that legal structure, rampant corruption in government-controlled institutions may become a problem for the company. However, there are still many companies who are willing and interested to invest in India. Brazil is the new emerging market and it should be considered as well. Before going to embark upon investing into the new international markets, it would be worthwhile to assess the market strength, customer profiles, i.e. number of current and potential customers based on the corporate objectives. This screening process would enable the company to select only those international markets that look promising in terms of customer base and their purchasing power. References Daft, R.L. (2008). New Era of Management. (2nd ed.) Ohio: Thomson. Gitlin, M. (2010). Walt Disney: Entertainment Visionary. Minnesota: ABDO Publishing Gomery, D., Pafort-Overduin, C. (2011). Movie History: A Survey. (2nd ed.). Oxon: Routledge. Richardson, A. (2004). The Story of Disney. Minnesota: Smart Apple Media. Sayre, S. (2008). Entertainment Marketing & Communication: Selling Branded Performance, People, and Places. New Delhi: Pearson. Ungson, G.R., & Wong, Y.Y. (2008). Global Strategic Management. New York: M.E. Sharpe. Zhu, L., Xu, D. (2010). Marketing Strategic Change in Expansion of Disneyland: Cases Study of Disneyland’s Overseas Expansion in Shanghai. Master Thesis in Business Administration. Jonkoping: Jonkoping International Business School Electronic Sources Company Overview, (n.d.). The Walt Disney Company. Retrieved http://thewaltdisneycompany.com/about-disney/company-overview Katemopoulos, M. (n.d.). History of Disneyland in Hong Kong. Retrieved http://traveltips.usatoday.com/history-disneyland-hong-kong-14987.html The World Bank, (n.d.). GDP per Capita (Current US$). World Bank. Retrieved http://data.worldbank.org/indicator/NY.GDP.PCAP.CD Reports China Labor Watch, (2009).Shattered Dreams: 17 Year Old Worker Mutilated by Machine While Working in Unsafe Conditions. China Labor Watch. Retrieved http://www.chinalaborwatch.org/investigations/2009_04_30/4-29%20Liupan.pdf China Labor Watch, (2010). Code of Conduct is No More than False Advertising, Disney Suppliers Continue Exploiting Chinese Workers. China Labor Watch, Report No. 100404E. Read More