International Business - Slovak Republic - Essay Example

17 august 2008 International Business During the period of globalization, companies try to penetrate new markets in order to increase their global presence and establish a strong leadership position on the world. Disney is on of those companies which values global expansion and new markets development. Today, the main theme parks are Disneyland and Disney World, Tokyo Disneyland and Euro Disneyland. It is important to note that international marketing is proving to be of ever-increasing importance to companies of all sizes, to their customers, and to national economies. Worldwide, most companies are now selling to, using materials or equipment from, or competing with products from other nations. For many companies, including middle-size enterprises, international sales provide additional profits and are all that enable some companies to make any profits at all. International expansion is one of the best methods to sustain strong market position and increase sales. All the Disney theme parks are united by a common approach which distinguishes them from conventional amusement parks. The share prospectus for Euro Disneyland provides a good account of their thinking. The expansion of Euro Disney to Eastern Europe proposes great opportunities for Disney Corporation to enter a new market and attract millions of new visitors. The Region: Slovak Republic The Eastern Europe is one of the potential geographical regions for Disney to expend its activities and gain larger market share. The proposed country for Disney is Slovak Republic. This location was selected because Slogan Republic is an attractive tourist destination for many European tourists, so it would help Disney to attract wider target audiences in summer and in winter. SWOT Strengths Slovak republic and Eastern Europe do do have any theme park like those proposed by Disney. The liberation and democratization of the political system in many East European countries have proved to be a boon to dynamic retail companies from France, Germany, Belgium, Sweden, and Italy. Most East European countries have yet to create adequate infrastructure support for modern retailing to take root in the new environment (Slovak Republic Home Page 2008). There is little doubt that Western retailers will have unlimited opportunities to expand in this region through joint ventures, licensing, and limited-term management contracts. Eastern Europe, in spite of its initial problems, will offer a great growth opportunity to West European retailers for many years to come. Slovak Republic is one of the main FDI destinations in the region attracting potential investors by tourism and recreation industry (Dobson and Starkey 44). Weaknesses In general, the Eastern Europe is characterized by unstable economic situation and high inflation rates. The process of economic transformation in many East European countries, though holding great promise for the future, is currently proving painful and frustrating to the masses who have not yet found any material change in their economic well-being. The old public sector distribution system is functioning parallel to the newly introduced private distribution system in many East European countries (Slovak Republic Home Page 2008). To create a positive Western-style economic infrastructure and to hasten the process of industrialization, these countries have invited leading firms from the United States, Canada, and Western Europe to form joint ventures with local business firms. Existing company laws were amended and new laws passed in many East European countries to facilitate and promote the inward. Thus a favorable legal environment was founded to attract joint ventures and wholly owned subsidiaries from Western Europe to this region. The Eastern Bloc countries accounted for 17.4% of world GNP in 2007, with a 430 million-person market. Hungary, Czechoslovakia, and Poland alone have a combined GNP greater than that of China. With wage rates much lower than those in Spain, Portugal, and Greece, Eastern Europe represents an important new low-cost manufacturing opportunity (Slovak Republic Home Page 2008). Opportunities Slovak Republic has made a significant move in the direction of privatization. There are many examples of industries being nationalized, Hungary, Poland, and Czechoslovakia stand ahead of other nations in the Eastern Bloc in the matter of economic growth and level of industrialization. Though crippled by a high rate of inflation ( and a hefty deficit, Hungary was able to attract foreign investment amounting to $1.25 billion in 2000, which was more than what all other countries in the region attracted as a whole. More than two thousand new private businesses open in Hungary every month. In Poland, where the population is more than three times as high as in Hungary, the privatization of eight thousand industrial enterprises has proved to be a slow and difficult process (Slovak Republic Home Page 2008). The hold of socialist parties has considerably weakened in the politics of European countries over the past few years. In the united Germany, the Christian Democratic Union and the Free Democratic Party have ruled in coalition since 1990. The social democrats and the Green Party (representing ecologists) are the main opposition groups in Germany. The Single Europe, with the elimination of hundreds of cross-border regulations and restrictions, has turned out to be a highly fertile region for business expansion by European retailers. Threats Notwithstanding cultural diversities, there is a slow yet obvious trend of social and cultural homogenization within certain regions of member states, leading to the rise of what has been termed the Euroconsumer. Many affluent countries in Western Europe, like those in North America, have witnessed common demographic and lifestyle trends: decline in population growth rate, decline of population in younger age groups, aging of the population, rise in the number of working women, rise in household income, concern for health and environment, and increased interest in travel and leisure activities. These countries have also experienced a severe recession, high rates of inflation, and unemployment. The Single Europe Act brought harmonization of legal and regulatory systems throughout the European Community. All these developments contributed to consumer convergence and the rise of the Euroconsumer. They encouraged business firms to expand their cross-border operations and adopt a region-centric approach to international business (Slovak Republic Home Page 2008). Euro Disney in Paris: Problems and Thetas Before entering the new region, Disney should take into account threats and problems faced by Euro Disneyland located in Paris (Jackson 62). Critics admit that even before the parks opening, articles began to appear in newspapers questioning its viability. Articles typically focused on the receptivity of Europeans to such an icon of American culture, the problem of the weather, and whether Europeans could be made to conform to the Disney way of doing things. On the other hand, attendances were generally lower than expected and more importantly there were concerns about numbers in the cold, wet autumn and winter months. Also, there was growing evidence that the park was going to make a substantial loss because of poor merchandise sales and hotel occupancy. Within four months of opening, Euro Disneyland announced that it would close one of its hotels because of poor bookings. In November, a net loss of £23 million for the year to 30 September was announced, along with a warning that it was not expected to make profits in the first full year of operation (Jackson 67). Fleet Street was again in its element with the following headlines. Over the winter, there were rumours of attendances as low as 3,000 on some days, but as spring approached there was some optimism. During these months of analysis about the parks failure and speculation about its future, the following themes were recycled time and time again: poor weather meant that off-season attendances were too low; admission prices were pitched too high; hotel, food and merchandise prices were also too high; the proximity of Paris and of cheap hotels coupled with good road and rail links meant that the profitable resort hotels were underused; the predominantly French staff would not throw themselves into their roles as smiling hosts; poor value for Europeans compared with the cost of a trip to Disney World; and cultural resistance (Jackson 62). In other words, it was in the wrong place and it was too expensive, Financial analysts were increasingly being quoted as wondering whether the whole Euro Disneyland project was fundamentally flawed, since although it had not failed catastrophically in meeting its attendance targets (around 9.5 million against a projected 11 million for the first year) it was still haemorrhaging money. It was becoming increasingly apparent that an injection of money and a preparedness for the banks and Disney to reschedule its debts and even to write some of them off were a sine qua non of its survival. Coincidentally, Disney seemed to keep itself very distant from the parks troubles and was quoted as taking a hard line on the parks problems, such as when Eisner was reported at the end of 1993 as saying that he would do nothing that would endanger the parent companys health. By February 1994, it was apparent that losses were deepening. However, in March 1994 Disney and the banks agreed a deal in which the former agreed to forgo £220 million of revenue and royalties for five years and the banks waived a large proportion of interest due to them. Disney also agreed to put up extra credit and to buy certain assets from Euro Disneyland (Gomery 89). A rights issue of shares would finance the restructuring, with Disney taking up 49 per cent and the banks underwriting the remainder. But on 1 June there was an announcement that Prince al-Waleed bin Talal bin Adulaziz, a member of the Saudi royal family, would buy up to 24 per cent of Euro Disneyland shares from its bankers and would invest $100 million in a convention centre at the park. The deal was seen as providing the park with a lifeline and security. However, in August 1994, doubts about the parks viability resurfaced due to suggestions that there had been a decrease in patronage during the year and to a growing belief that its attendance targets were unrealistic(Galbraith 45). Figures released in November 1994 showed a sharp reduction in losses, but this was due to cost-cutting rather than to an increase in the number of visitors or their per capita expenditure, both of which were in fact down on the previous year. One of the chief problems for Disney and its European operation in all of this was not just the parks survival, but the maintenance of fantasy. During this period, Euro Disneyland almost became a byword for a flop, but just as importantly the preoccupation with numbers of visitors, financing, prices, and so on diminished the sense of fantasy that the company is always at pains to create (Gomery 88). The financial problems were damaging, not just because they threatened the parks future but because the publicity focused too much attention on the park as a business organization to the detriment of the sense of fantasy the company is at pains to create. Such considerations may have been behind the decision toward the end of 1994 to rebrand Euro Disney land as Disney land Paris in advertising and publicity (Gomery 82). Market Entry Strategic Alliance4 The best strategy for Disney in Slovak Republic is a strategic alliance with a local company specialized in tourism and recreation activities. This strategy will help Disney to overcome problems and threats faced by Euro Disney in Paris and adapt its theme parks to local demands and cultural values. A strategic alliance refers to a loose partnership or grouping among competing business firms in a given industry. The main purpose of forming such a partnership is to complement individual resources or exclusive strengths in order to exploit an existing market opportunity rather than lose time in building new strengths individually. Thus, a group of international retailers may agree to form an alliance to perform jointly one or more functions such as procurement and buying of merchandise, development and promotion of private labels, and so on. The alliance enables its members to secure better deals from suppliers/manufacturers and to derive economies of scale in common functions like procurement and shipping. Forming international alliances and joint ventures is a widely used growth strategy in manufacturing and service sectors such as banking, insurance, and communications. In wholesale and retail trade sectors, however, this type of international cooperation has started only recently, and mainly in Europe (Kotler and Armstrong 192). An alliance is a collaborative, not a transactional body. There should not be transactions between members. An alliance does not give rise to a new business entity. An alliance is a horizontal relationship in a channel; thus, if two members in a channel are vertically allied, it is not a strategic alliance. It is a vertically integrated system. An alliance is formed to fill gaps in skills, strengths, and resources, and to gain access to new markets. Need for alliance is particularly felt when companies encounter a highly competitive environment and are unable to build strengths in all areas due to lack of resources and environmental uncertainties. Euro Disney in Slovak Republic will follow focused market entry strategy based on aggressive advertising and promotion campaigns. Focused entry strategy is something that the company is geared for. For Euro Disney, theme parks could be viewed as being its own special niche, and on this basis the company dominated the market in most countries, though national requirements varied. Focused strategy implies potentially better prices, high quality, but lower volumes. Numerous niches could be identified which neither Euro Disney not its competi­tors had yet addressed; but the necessary product development and distribution strategies would take time and tie up limited resources (Kotler and Armstrong 195). Using the market research, Euro Disney can navigate the new business environment and adapt new products for existing markets. The advantage of product originality will allow Euro Disney to create a strong brand image. Brand loyalty will also be important factor in increasing the costs for customers of switching the products of competitors. Using mar­ket development strategy, Euro Disney will capture a larger share of a market for current products through market saturation and market pene­tration (McDonald and Christopher 52). As a new market entrant, Euro Disney can raise the level of competition. In order to compete on this market and remain profitable, Euro Disney should introduce aggressive advertising campaign informing potential consumers about new products and their benefits. To get the message different types of media will be used in accordance with particulate audience. “If deeper penetration into the same target market, for example, is required, then vertical advertising in the media that reach the same target market will be sought” (McDonald 2002, p, 98). For new services, Euro Disney can use advertising on commercial television and press. The Internet could help to reach wider target audience and can be used as a promotion tool. Low cost of the services can help Euro Disney to achieve better differentiation in market segments. Tech­niques used here include: temporary price reductions; extra value offers, including offers relating to future purchase; premium offers (incentives), including free mail-in premiums, banded free gifts. Often a critical determinant to estimating demand is the availability of information. The obtaining of such information can be extremely difficult and costly in many countries, particularly developing countries (McDonald 2002). Focusers, like Euro Disney, may be able to achieve better differentiation or lower cost in market segments, but they may also lose to broadly targeted competitors when the segments uniqueness fades or demand dis­appears (McDonald and Christopher 52). Cultural issues will include impact of product design and marketing mix (advertising message and promotion activities). Using these techniques, Euro Disney should take into account cultural, gender and age differences. It means that, in contrast to the US- based companies, media has a different impact on the viewer. In some countries, Internet facilities are limited, so the response from this technique can be much lower (McDonald 2002). On the other hand, some foreign companies do not use to purchase through Internet (banner advertising and e-mail sales will not work in these countries). For this reason, the main focus in marketing mix should be made on local press, direct sales and radio (Drejer 72). Marketing Mix Price Pricing decisions will influence Euro Disney in Slovak Republic forcing it to find new ways to reduce costs. Euro Disney can use flexible cost-plus pricing to ensure that prices are competitive in the context of the particular market environment. “Even if you decide not to charge for a service, it is useful to realize that this is still a pricing strategy” (The Marketing Mix, 2007). The customer evaluates services in terms of its total expected costs, i.e. acquisition price plus any necessary additional expenses associated with an item: it can be installation, running and maintenance costs, all discounted to the present time in order to take account of cash flows over a period of time. For instance, a company realizes that the rigid cost-plus approach can result in severe price escalation, with the unintended result that exports are priced at levels above what customers can pay. In case of Euro Disney, the traditional market for entertainment is not in maturity one, and today it offers a limited opportunity for high profits, so it sets about developing products that are both distinc­tive and could be sold at a premium price (Johnson, Scholes, 77). The original mission has made it clear that it is in the relatively unexploited adult sector that Euro Disney sees its clear­est opportunity for innovation. Price decisions in Euro Disney are affected by seasonal purchases and international demand. Place “The place is where you can expect to find your customer and consequently, where the sale is realized. Knowing this place, you have to look for a distribution channel in order to reach your customer” (Marketing Mix, 2005). Euro Disney has to spend its own resources in order to meet the requirements focusing on technological efforts, security and internet support. Euro Disney follows a strategy of withdrawing from small markets with limited potential for its core products and to look for markets in countries with a major growth potential for entertainment services. Product Strong market position of Euro Disney is based on brand loyalty and high quality of product range. The likely decision process of the target market is the quality and unique taste that appeals to the consumers minds with offer­ings. “A good product makes its marketing by itself because it gives benefits to the customer” (Marketing Mix 2005). Product positioning is characterized by establishing trustworthiness, confidence, and competence for customers. This strategy is supported by the buying process and the pricing, and as the most important high quality of all products. An insight into possible consumer reaction to product and packa­ging was obtained by arranging for big groups, drawn from the relevant market segments, to meet in a social setting where reactions could be observed and impressions and comments recorded. Euro Disney will set out to create a range of high-quality (Drejer 71). Promotion Promotion “includes advertising, personal selling (eg attending exhibitions), sales promotions (eg special offers), and atmospherics (creating the right impression through the working environment” (The Marketing Mix, 2007). Euro Disney should use brand image and promotion techniques to attract potential customers. Publicity and active international activity are the main tools applied by Euro Disney to inform customers and stakeholders about recent changes and future trends. They use on-line type of promotion, outdoor posters and taxi sides (Crawford 2003). Charity and sponsorship are also employed by Euro Disney to increase brand awareness and brand recognition. Euro Disney uses systemic and repeat marketing to achieve company’s objectives (The Marketing Mix, 2005). Recommendations and Conclusion The new business environment requires careful analysis of target audience and their buying behavior. Focused market entry strategy will help to enter the market and create a core of loyal consumers who value quality and brand image. Therefore, the use of information gathered needs to be treated with great sensitivity and considered in the light of cultural norms and acceptance. For Euro Disney, flexibility is the most important marketing requirement, which is essential for the expansion of opportunities, and plays an important role in making and breaking the competitive positioning on the foreign market. Thus the standards aim to give customers an assurance that the quality of goods and services supplied to them meets their requirements, by spec­ifying and regulating all the procedures which contribute to or affect quality. The objectives for market entry are to initiate co-operative marketing with medical centers and hospitals in the big cities around the country. It can be difficult to enter this competitive segment, but strong brand image and quality of products, marketing development and unique advertising message will help Euro Disney to enter this new market environment. To remain competitive, Euro Disney should take into account buyers preferences and demands and cultural differences which affect both a product image and advertising appeal (Dobson and Starkey 62). Conclusion The character of entertainment industry in Eastern Europe will change from extensive transatlantic to concentrated intra-European. To Euro Disney, growth opportunities will expand significantly within Europe though transatlantic retailing may continue to remain a haven of investment opportunities. Entertainment companies from outside will continue to seek strategic positions within Europe to expand internally and also establish linkages with Eastern Europe for supplemental growth. Much will also depend on how overseas retailers perceive the homogenized ecopolitical environment in Europe. Some may still consider it unpalatable and inhibitory to growth with little incentive for active involvement, especially in the wake of alternative opportunities. Works Cited Dobson, P., Starkey, K. (The Strategic Management: Issues and Cases. Blackwell Publishing, 2004. Drejer, A. Strategic Management and Core Competencies: Theory and Application. Quorum Books, 2002. Jackson, K. M. Introduction Walt Disney: Its Persuasive Products and Cultural Contexts. Journal of Popular Film and Television, 24 (1996): 50-60. Johnson, G., Scholes, K. Exploring Corporate Strategy. Hemel Hempstead: Prentice Hall, 1998. Galbraith, J.K. The Culture of Contentment, New York: Houghton Mifflin, 1992. Gomery, D. Disneys business history: a reinterpretation, in E. Smoodin (ed.), Disney Discourse, New York: Routledge, 1994. McDonald M., Christopher M. Marketing: A complete Guide. Palgrave Macmillan, 2003. Kotler, Ph., Armstrong, G. Principles of Marketing. Prentice Hall; 11th edition, 2005. The Marketing Mix, 2005. Slovak Republic Home Page. 2008. Read More