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In-Depth Integrative Case 2.1 b Beyond Tokyo: Disney's Expansion in Asia After its success with Tokyo Disneyland in the 1980s, D i sney began to r...

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In-Depth Integrative Case 2.1 b Beyond Tokyo: Disney's Expansion in Asia After its success with Tokyo Disneyland in the 1980s, Disney began to realize the vast potential of the Asian market. The theme park industry throughout Asia has been very successful in recent years, with a range of regional and international companies all trying to enter the market. Disney has been one of the major participants, opening Hong Kong Disneyland in 2005 and discussing future operations in at least three other Asian cities. Disney in China After Disney's success in Tokyo, China, in particular, became a serious option for its next theme park venture in light of the country's impressive population and economic growth throughout the 1990s. Successful sales associated with the Disney movie The Lion King, in 1996, also con- vinced Disney officials that China was a promising loca- tion. However, consumer enthusiasm for theme parks in China was at a low in the late 1990s. "Between 1993 and 1998, more than 2,000 theme parks had been opened in China," and "many projects were swamped by excessive competition, poor market projections, high costs, and relentless interference from local officials," forcing several hundred to be closed. 1 Nevertheless, Disney continued to pursue plans in both Shanghai and Hong Kong. Shanghai, known as the "Paris of the Orient," was an attractive site for Disney officials because of its growing commercialization and industrialization and its already extant transportation access. The projected $1 billion project was scheduled to be built across the Huangpu River from Shanghai's world-famous waterfront prom- enade, the Bund, on a 200-square-mile expanse called The Pudong New Area. The first phase of construction included a Magic Kingdom park, while an EPCOT-style theme park was to be added after at least five years of operations. 2 A Disney theme park in Shanghai would be mutually beneficial for the company and the nation of China. From perspective, it would gain access to one of the world's largest potential markets (and also compete with Universal Studios' new theme park). From the perspective of Chinese government officials, Disney's park would be a long-awaited mark of international success for a com- munist nation. 3 Initially planners hoped to have a Disneyland operating in Shanghai prior to the World Expo in 2010. However the project stalled, and as of late 2006, "the chances of Beijing approving the project have shrunk since Shanghai's 254 Communist Party boss was implicated in a big corruption investigation in September [2005] ." This led Disney to consider other options for the construction of a new park. 4 Hong Kong Disneyland Plans in Hong Kong, which culminated in the opening of Hong Kong Disneyland in September 2005, began after the 1997-1998 Asian financial crisis. Despite the poor economic condition of Hong Kong in the late 1990s, Disney was still optimistic about prospects for a theme park in the "city of life." Hong Kong, already an interna- tional tourist destination, would draw Disneyland patrons primarily from China, Taiwan, and Southeast Asia. The official park plans were announced in November 1999 as a joint venture between the Walt Disney Company and the Hong Kong SAR Government. Unlike its experi- ence in Tokyo, where Disney handed the reins over com- pletely to a foreign company (the Oriental Land Com- pany), Disney decided to take more direct control over this new park. The park was built on Lantau Island at Penny's Bay, within the 6-mile stretch separating the international airport and downtown. Hong Kong Disneyland was esti- mated to create 18,000 jobs upon opening and ultimately 36,000 jobs. The first phase of the park was to include a 10 million annual visitor Disneyland-based theme park, 2,100 hotel rooms, and a 300,000-square-foot retail, dining and entertainment complex. 5 In order to make the park "culturally sensitive," Jay Rasulo, president of Walt Disney Parks & Resorts, announced that Hong Kong Disneyland would be trilin- gual with English, Cantonese, and Mandarin. The park would also include a fantasy garden for taking pictures with the Disney characters (popular among Asian tour- ists), as well as more covered and rainproof spaces to accommodate the "drizzly" climate. 6 Unfortunately, Disney soon realized that its attempts at cultural sensitivity had not gone far enough. For instance, the decision to serve shark fin soup, a local favorite, greatly angered environmentalists. The park ultimately had to remove the dish from its menus. Park executives also failed to plan for the large influx of visitors around the Chinese New Year in early 2006, forcing them to turn away numerous patrons who had valid tickets. Unsurpris- ingly, this led to customer outrage and negative media coverage of the relatively new theme park. Other criticisms of the park have included its small scale and slow pace of expansion. Hong Kong Disneyland
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In-Depth Integrative Case 2.1 b Beyond Tokyo: Disney's Expansion in Asia 255 has only 16 attractions and "one classic Disney thrill ride, Space Mountain, compared to 52 at Disneyland Resort Paris [formerly Euro Disneyland]." 7 However the govern- ment has made plans to increase the size of the park by acquiring land adjacent to the existing facilities. Likely due to its small size and fewer attractions, Hong Kong Disneyland pulled in only 5.2 million guests during its first 12 months, less than the estimated 5.6 million. 8 Fail- ure to meet its projected levels of attendance and guest spending could cause the park to look toward other sources of funding for these expansions. Battle over Hong Kong Park Expansion Disney had plans to expand the size of the theme park in Hong Kong by about a third and it had been trying to obtain the local government's financial support for these plans since 2007. However, Disney's Park in Hong Kong had been performing well below the projected sales num- ber in 2007- 2008, and the government, which is 57 per- cent stockholder in this business, has expressed serious doubts in the need to fund the further expansion. As noted by Financial Times analysts, in one of the March 2009 reports, Hong Kong Disneyland has attracted about 15m visitors since its opening in September 2005, or about 4.3m a year. That figure fell short of the original projection of more than 5m a year. 9 Although Disney did not release financial figures to the public, Euromonitor estimated the park had an operating loss of $46 million in the year ended June 2006, and lost $162 million the following year. 10 Disney's officials have been trying to stress the impor- tance of park expansion for the overall viability of the project. So far, the park occupied 126 hectares and had only four "lands"- Fantasyland, Tomorrowland, Adven- tureland, and Main Street USA-and two hotels. Hong Kong Disneyland Managing Director Andrew Kam said expansion is vital to the park's success. In one of the September 2008 releases, Kam said the park had plenty of room to grow, since it was only using half of the land available. "Expansion is part of the strategy to make this park work for Hong Kong," he said. 11 An expansion could cost as much as 3 billion Hong Kong dollars, or $387 mil- lion, local media have reported. In December 2008, the Sing Tao Daily newspaper in Hong Kong reported that Disney, in what was deemed an unusual concession, might give the 'government a greater share in the project in repayment of a cash loan of nearly $800 million that the city had extended previously to the theme park. 12 Unable to come to agreement with the Hong Kong government, Disney has indicated that it is putting on hold long-awaited plans to expand the park. In a statement from Disney's Burbank (Calif.) office released in March 2009, the company said it was laying off employees in Hong Kong after failing to reach an agreement with the Hong Kong government to fund a much-needed expan- sion. According to Disney, "The uncertainty of the out- come requires us to immediately suspend all creative and design work on the project." Thirty Hong Kong- based Disney "Imagineers" who helped to plan and design new parks, will be losing their jobs. 13 Business news sources had noted that one reason Disney might be willing to end negotiations with the Hong Kong government is the com- pany's progress in negotiations with Shanghai officials to open a theme park there that would be much larger and arguably a more exciting China project. This park is expected to be easier for many Chinese families to visit. However, the possible shift of mainland Chinese away from Hong Kong to Shanghai could mean a drop of as much as 60 percent in visitor numbers to the Hong Kong park, according to Euromonitor's estimates. 14 In June of 2009 Disney and Hong Kong's government finally reached a deal to expand the territories of the Disneyland theme park at a cost of about $465 million. Under terms of the deal, the entertainment giant will con- tribute all the necessary new capital for construction as well as sustaining the park's operation during the building phases. It will also convert into equity about $350 million in loans to the venture to help with funding and will keep open a credit facility of about $40 million. Hong Kong, which shouldered much of the $3.5 billion original construction cost, will not add any new capital. "Disney is making a substantial investment in this important project," Leslie Goodman, a Disney vice president, said in a statement. 15 Disney Gets Green Light for Shang hai Park In spite of the global economic downturn, Walt Disney Co. has revisited its plans to build a park in Shanghai, China. In January 2009 Disney presented to the Chinese central government a $3.59 billion proposal that outlined the plans for a jointly owned park, hotel, and shopping development. Shanghai Disneyland, if the project suc- ceeds, would be one of the largest-ever foreign invest- ments in China. 16 Though Disney had been unsuccessful in its negotiations with the Chinese government a few years earlier, and almost abandoned its plans of expansion to Shanghai, the global economic crisis played a role making the prospective creation of 50,000 new jobs amid a cooling Chinese economy especially attractive, and gave Disney the grounds to revisit its plans. 17 The preliminary agreement signed in January repre- sented a framework to be considered by China's State Council, the central government's highest administrative body. According to the proposal Disney would take a 43 percent equity stake in Shanghai Disneyland with 57 percent owned by the Shanghai government forming a joint-venture company. 18 The park's first phase would include building a theme park, a hotel, and shopping
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