Hong Kong Disney Case Study

The Walt Disney Company has come along way from its beginnings as Disney Brothers Movie Studio making Alice comedies and cartoons starring a little mouse named Steamboat Willie. Today Disney is an international business powerhouse operating five successful business units. Those five units are Media Networks, Parks and Resorts, Studio Entertainment, Consumer Products and Disney Interactive. These operating units accounted for record revenues in fiscal 2013 of forty five billion dollars for TWDC and also had net income of more than six billion dollars. The Media Networks portion of Disney’s business had over twenty billion in revenue for Disney in 2013 with an earning increase of three percent to 6.8 billion. This part of the business is comprised of many different segments including broadcasting, publishing, digital media and radio in separated out into two divisions ESPN INC. and Disney/ABC television group. Disney also has an equity interest in the A&E television networks. Hulu and Fusion which helped with the record revenues.

Disney Parks and Resorts are a worldwide source of revenue for TWDC. This segment accounted for over 14 billion dollars in 2013, which is an increase of five percent over 2012. Operating income at DP&R increased seventeen percent to 2.2 billion dollars. This portion of the business consists of 11 theme parks and 44 resorts throughout the United States, Asia and Europe including Hong Kong Disneyland and Disneyland Paris. Also a part of WDP&R is the Disney cruise line, Disney Vacation Club and Adventures of Disney. The Walt Disney Company in 2013 had revenues of 6 billion dollars from the Walt Disney Studios division on which the company was founded more than 90 years ago. That was good for a three percent increase over 2012. Walt Disney Studios division is comprised of some very powerful names in the entertainment world. Some of the business units within are Walt Disney Studio Motion Pictures, Pixar Animation Studios, Disney Music Group, Touchstone Pictures, Marvel Studios, and Disneynature.

The Consumer Products segment of The Walt Disney Company is the fourth business unit posting revenue of 3.6 billion in 2013. Consumer Products is divided into three operating entities: Licensing, Publishing and Disney Store. Disney Licensing began with Mickey Mouse in 1932 and today is the world’s largest licensor of consumer products. The publishing division prints more than 700 million children’s books and magazines. It publishes digital products, magazines and books in more than 85 countries and 75 languages. Disney Store opened its first store in 1987 and now has over 300 stores in North America, Europe and Japan.

The stores act as a conduit to promote all of Disney’s core groups of characters but also it’s other stars from Lucas films and Disney Pixar Studios. Disney Interactive is the smallest of the five operating units as far as revenue with just over a billion in sales however it is the fastest growing with a twenty six percent increase over 2012. The growth of this department was due to the release of Disney Infinity which is an interactive gaming site starring some of Disney’s characters like Buzz Lightyear and Vanellaope. Disney.com is the number one kids entertainment destination.

What are the main challenges facing Hong Kong Disney? Brenda Despite all the effort and money that went into the development and opening of the park, Hong Kong Disneyland opened to a swirl of bad press, possible legal action from Hong Kong health inspectors, protests from environmentalists and human rights organizations, a flooded market of fake Disney goods in the city, anger in Hong Kong over plans to begin work on another China theme park right away (in Shanghai), and (perhaps worst of all) long lines of impatient visitors inside the park. The park opened on September 12 because Feng Shui experts declared that to be an auspicious day. In the days before the opening the park ran “rehearsal days” where visitors were allowed in to try the park. Despite being one of the three or four most densely populated places on earth, Hong Kong residents evidently weren’t used to standing in line for very long; Hong Kong Disneyland had visitors standing in line for as much as ninety minutes to buy food and board rides during the rehearsal days.

Among the other problems Disney faced in Hong Kong as it opened: Animal rights activists embarrassed Disney into taking Shark Fin Soup (a Chinese favorite) off of menus in the park. Accusations became public from a variety of sources that workers at some of the factories producing Disney products in mainland China were overworked and underpaid. Allegations that park workers are underpaid were highlighted near the park’s entrance with a protest that included Mickey in a cage. The park, a joint venture between Walt Disney and the Hong Kong government, was supposed to be Disney’s foothold in the potentially lucrative China market but has steadily lost money since opening in September 2005. The Hong Kong version of the Magic Kingdom is the smallest of Disney’s theme parks, and some visitors gripe that it’s too small to entice them back for a second visit. The park has a daily capacity of 34,000 visitorshttp://en.wikipedia.org/wiki/Hong_Kong_Disneyland – cite_note-2 — the least of all Disneyland parks. The park attracted 5.2 million visitors in its first year, below its target of 5.6 million.

Visitor numbers fell 20% in the second year to 4 million, inciting criticisms from local legislators. Hong Kong Disneyland’s poor performance is not just a reflection of Chinese distaste for theme parks but also a result of the nearby competition. Just down the street in Hong Kong, local theme park Ocean Park has been beating up on Disney with more visitors—a record 4.92 million in 2006/2007 fiscal year, leading to a record surplus of $141 million, a 9 percent year on year increase. Government officials expect attendance at Ocean Park to increase to 5.8 million by 2012. What are some of the cultural mistakes that Hong Kong Disney made in running the park? Brenda Before Hong Kong Disney opened, planners carefully considered local customs. Disney officials brought in a master in the traditional Chinese art of feng shui to “maximize energy and guest flow,” convinced actor Jackie Chan to paint eyes on a lion costume – a Chinese symbol for luck – and tested local specialties for restaurants at the park.

Despite efforts to adapt to Chinese culture, the meeting of the Magic and Middle Kingdoms quickly turned rocky. An array of critics accused Disney of endangering the environment, disregarding local customs and unfairly profiting from the joint venture in the Hong Kong theme park. Disney had repair work ahead as it seeked to expand its media and merchandising businesses in China and looked at the possibility of building an even larger theme park near Shanghai. For Western companies, Disney’s challenges highlight the difficulties international brands face as they try to tap China’s lucrative and growing market. While there is strong support in Hong Kong for the Disneyland park overall, “management had some settling-in problems,” said John Ap, a theme park expert at Hong Kong Polytechnic University. A report by consulting firm Pricewaterhouse Coopers estimated that theme parks in China, excluding Hong Kong, would generate $1.8 billion in 2010, up from $1.3 billion in 2005. A theme park in Shanghai also would boost sales of Disney-branded products and movies, Haines said. The emphasis on building the mainland market has magnified the significance of problems at Hong Kong Disneyland.

The problems raise concerns about whether Disney management will meet even greater resistance on the mainland, where cultural differences are more pronounced. A Hong Kong group picketed the park’s opening and one-year anniversary, arguing among other things that Burbank, Ca.-based Disney had done too little to incorporate China’s cultural legacy. Environmentalists condemned a decision by Disney to offer shark’s fin soup in its restaurants. More importantly, average citizens were angered by what they perceived as an unfair deal between the Hong Kong government, which paid for most of the project, and Disney, which received an oversized portion of its shares. The Hong Kong government, which hopes the park will attract tourists to the city for many years, has spent more $2.9 billion on the project, about 82 percent of total costs, while Disney received 43 percent of the joint venture shares. A survey conducted by AP found that 56 percent of Hong Kong residents thought the financial deal with Disney was unfair while 70 percent said their “opinions toward Hong Kong Disneyland have become more negative” because of problems since its opening.

Since the survey was taken Disney has expanded the park and addressed ticketing problems, and local support may now be greater than previously. For mainland Chinese who visit the park, many of whom don’t speak English, a lack of cultural relevance may be more damaging. Some of the shows and rides at Hong Kong Disneyland are presented only in English and many older Chinese do not recognize Disney characters. “Younger Chinese like Mickey Mouse, but they should include traditional Chinese culture for adults,” said Zhu Yuan, a 64-year-old retired professor visiting Hong Kong Disneyland from China’s northeastern Tianjin City. While she enjoyed “Main Street USA” – a line of shops and restaurants built to look like the Missouri town where Walt Disney grew up – “I’d rather go to a park that has a Chinese town,” she said. But Wang Tingmei, 54, a businessman from China’s northwestern Heilongjiang province, said that a park would do well even if it simply copied American versions. “The rides are good and they manage the park better than Chinese theme parks,” he said, “so people will go.”

But Disney must also balance keeping Chinese customers happy with maintaining its international reputation, a dilemma highlighted by management indecision over whether to serve shark’s fin soup. When environmental groups first protested Disney’s plan to serve shark’s fin at wedding banquets, saying that shark species are threatened because of China’s appetite for their fins, Disney said it would offer the food to be respectful of Chinese culture and ensure that all fins came from legal harvests. But after increasing pressure Disney replaced the dish with lobster bisque. Because many Chinese consider shark’s fin soup a delicacy, Disney may have lost business by pulling it from their menus. “If shark’s fin is not served at a banquet, many Chinese believe their hosts are cheap,” he said. The culture clash was reminiscent of protests in France when Disney opened Euro Disney, later renamed Disneyland Resort Paris, in 1992. Among other things, some French were upset by Disney’s decision not to serve wine, a staple of French culture, and in 1993 Disney added alcohol to its menus. What were some of the things Disney should have learned from France and Japan?

Amy The official tagline for Disneyland is “The Happiest Place on Earth”. However, some of Disney’s newest sites have not been too happy and Disney has experienced challenges and successes with international expansion. The Disney themed Japanese park has been a rousing success, aiding Disney’s education in how to expand internationally. Disney was confident going in to European expansion given their success in Japan; however the expansion in to Europe has not been as successful. There are numerous factors that contributed to dismal financial results at Disneyland Resort Paris including human resources practices, cultural differences, and Disney’s asset practices. Disneyland Resort Paris opened 1992 and was the symbol of American culture. The Disney belief was that what it sells in the U.S. and Japan would sell just as well in Europe. Disney did not take in to account the European reaction to their American human resource practices and policies would not be popular with the French people.

For example, Disney had a dress code policy that the French viewed as unacceptable and a court even ruled the dress code was against labor laws. Also, recruitment processes and training practices were not suitable to the French culture. However, these practices were the cultural norm in Japan which equated to far less worker dissatisfaction in the Japanese Disney Park. The varying human resource practices and implementation of HR policies taught Disney to spend a greater amount of effort understand the local hiring, training, and worker treatment customs. Another major factor contributing to the poor performance was poor understanding of the market place and cultural adaptation. Disney promoted Disneyland Resort Paris as a piece of American culture in Europe. Everything about the park was American and cultural differences completely neglected. One area of dissatisfaction for Europeans was Disney’s ban on alcohol in its parks as wine with meals is expected in European culture. The ban on alcohol resulted not only in negative experiences by customers, but also in a heavy load of criticism from the intellectual segment of France, which traditionally did not have good relations with ‘Americanism’.

Disney later lifted the ban on alcohol due to the wine loving culture. Also, the choice of France as its location was questionable as it is widely known Americans are not popular with the French. The Japanese reaction to the American theme park was quite different as the Japanese are fond of the American culture and have a love of fantasy and costume. The polar opposite cultural reactions were a key learning for Disney to examine local culture and customs closely before building a multibillion dollar theme park. Disney’s asset practices were also a key learning with international expansion. In the United States Mickey Mouse has a squeaky-clean image, in Japan he is used to sell money market accounts, and in France is a cunning, street-smart detective. Mickey is a quintessential part of the Disney brand; however he is viewed negatively in the European market.

Also, the souvenir markets vary greatly in comparison with the U.S., Japan, and France as Americans and Japanese are apt to buy souvenirs while the French think they are a waste of money and are tacky. This negative view by the French accounts for lower merchandise sales at Disneyland Resort Paris in comparison to other parks. Through these differences and experiences, Disney has learned to examine local culture for asset practices, branding, and merchandising. Disney had numerous opportunities to learn from their Japanese and French theme parks. In some areas Disney learned a great deal and was able to implement appropriate practices at Hong Kong Disney. In other areas, Disney was slow to learn and these things were apparent with the implementation of Hong Kong Disney. Current State of Hong Kong Disney: BIll

Hong Kong Disneyland has seen its share of troubles since opening in September of 2005 but times are changing with HKDL reporting a profit for the first time in fiscal year 2012. An even better indicator of the continued rise of HKDL is that attendance rose to 6.7 million guests and occupancy of their hotel and resorts was at a fill rate of 92% for the year as well. This can be attributed to the strong push by their sales and marketing team to attract visitors from Mainland China. A dedicated workforce of more the 4500 full time and 2200 part time team members helped HKDL become one of Hong Kong’s largest employers as well improving guest satisfaction to over 90% at the theme park and its surrounding resorts. All of these major accomplishments have been the result of long term planning and expansion of HKDL. The opening of new attractions like Toy Storyland, Grizzly Gulch and Mystic Point recently has increased customer spending and occupancy at the resorts.

One major component of TWDC has always been their social responsibility to the communities where they operate and it continues in Hong Kong. They are dedicated to providing for underprivileged kids and promoting volunteerism. A few programs that HKDL is involved are the “Give a Day. Get a Disney Day” which generated more than one million service hours over the past 3 years as well as funding over 200 local scholarships to promote the industry. The future of HKDL is bright with more expansion of attractions and resorts including building at least three new hotels and resorts as well as a new Marvel attraction, which would be the first of its kind in a Disney Park. It has come along way in nine years and appears in a good financial position to increase the profits and enhance the guest experience at HKDL. Key Learnings: Amy

Throughout Disney’s international expansion there were a number of key learning’s they could utilize should they further expand around the globe. One key learning was the importance of location. Also, Disney learned about appropriate merchandising and branding policies, pricing practices, and human resource practices. Location, location, location! Disney’s most successful theme parks are located in popular tourist areas within the United States and Asia. However, Disney’s European location may not have been the best possible choice. The location of Disneyland Resort Paris was chosen primarily due to government funding; however Spain was also in the running. The climate of the possible Spanish location was similar to that of Florida, while the climate of the French location was very cool in the winters limiting possible attendance. Not to mention, the French typically travel abroad when on holiday and do not stay in country. France won out, and ticket sales and the French attitude reflected this was not the best possible location for the Disney theme park.

Hong Kong Disney was located in a popular tourist area, and even utilized feng shui practices to ensure the park was pleasing to the local visitors, demonstrating Disney learned the importance of park location. Another key learning for Disney was their merchandising and branding practices. Mickey Mouse has a squeaky-clean image in the United States, is so trust worthy in Japan he is used to sell money market accounts, and in France is a cunning, street-smart detective. Mickey is a quintessential part of the Disney brand; however he is viewed negatively in the European market. Also, the souvenir markets vary greatly in comparison with the U.S., Japan, and France as Americans and Japanese are apt to buy souvenirs while the French think they are a waste of money and are tacky. This negative view by the French accounts for lower merchandise sales at Disneyland Resort Paris in comparison to other parks. Hong King Disney got it right with their merchandising and branding practices, even going as far to not sell green hats as they represent infidelity in the Chinese culture.

Learning the variations in branding and buying practices throughout the U.S., France, and Japan helped Disney have greater success with merchandising at their Hong Kong location. Pricing was learning for Disney, whose parks in the United States, Japan, and Europe have high entry prices. However Hong Kong Disney had a pricing strategy that Disney felt more closely aligned to the local economy, with its highest price of admission being $45USD on weekends and peak days. While this pricing strategy seemed reasonable, it did not fully align to local economics considering most visitors were from mainland China where salaries are lower and expectations are higher. Hong Kong Disney lowered pricing on more than one occasion before they settled on a final price. Disney learned a great deal about adapting their Human Resource practices to the local culture from their experiences at Disneyland Resort Paris.

The Human Resource practices and policies widely accepted in the U.S. and Japan were not popular with the French people, particularly Disney’s dress code policy that the French viewed as unacceptable. A court even ruled the dress code was against labor laws. Varying human resource practices and implementation of HR policies taught Disney to spend a greater amount of effort understand the local hiring, training, and worker treatment customs. This came to fruition with Hong Kong Disney as Disney held career fairs matching applicants to jobs there were best suited for. HKD workers did have issues with Disney’s HR practices, however Disney continues to learn and grow in this area. The Disney organization learned a great deal through their international expansion in to Europe and Asia that can be used for further expansion around the globe. Disney learned that location truly matters, merchandising and branding must be tailored to the local cultures and customers, and pricing and human resource practices need to match the local economy and culture as well.

References

About.com, 2014
Bloomberg Business Week March 17, 2009
Wikipedia, 2014
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The Ledger.com February 11, 2007
Wall Street Journal Feb 13, 2013
ahongkongdisneyland.disney.go.com
www.thewaltdisneycompany.com