Hong Kong –Disney Rolls the Dice Again

With the opening of Disneyland in Anaheim in1955 the notion of the modern theme park was born. The combination of the rides, various other attractions, and the Disney characters has remained irresistible. Tokyo Disneyland also proved to be a big success, making modest money Disney through licensing and major money for its Japanese partners. Three quarters of the visitors at the Tokyo park are repeat visitors, the best kind.
Then came EuroDisney. Dissatisfied with the ownership arrangements at the Tokyo park, the EuroDisney deal was structured very differently. Disney negotiated a much greater ownership stake in the park and adjacent hotel and restaurant facilities. Along with the greater control and potential profits came a higher level of risk.
Even before the park’s grand opening ceremony in 1992, protestors decried Disney’s “assault” on the French culture. The location was also a mistake – the Mediterranean climate of the alternative Barcelona site not chosen seemed much more attractive on chilly winter days in France. Managing both a multicultural workforce and clientele proved daunting. For example, what language was most appropriate for the Pirates of the Caribbean attraction –French or English? Neither attendance nor consumer purchases targets were achieved during the early years: Both were off by about 10 percent. By the summer of 1994 EuroDisney had lost some $900 million. Real consideration was given to closing the park.
A Saudi prince provided a crucial cash injection that allowed for a temporary financial restructuring and a general reorganization, including a new French CEO and a new name, Paris Disneyland. The Paris park returned to profitability, and attendance increased. However, the temporary holiday on royalties, management fees, and leases is now expired and profits are dipping again. Disney’s response was to expand with a second “Disney Studios” theme park and an adjacent retail and office complex at the Paris location. Again in 2005 the Saudi prince injected another $33 million into the park.
In 2006 Hong Kong Disneyland opened for business. The Hong Kong government provided the bulk of the investment for the project (almost 80 percent of the $3 billion needed). As in Europe, the clientele is culturally diverse, even though primarily Chinese. Performances are done in Cantonese (the local dialect), Mandarin (the national language), and English. Disney also inked a new joint venture agreement for online delivery of entertainment services to customers in China. Indeed, it will be quite interesting to follow Mickey’s international adventures in the new millennium!

STRENGTHS AND WEAKNESSES CHECKLIST

1.       Marketing

Product quality

Number of product lines

Product differentiation

Market share

Pricing policies

Distribution channels

Promotional programs

Customer service

Marketing research

Advertising

Sales force

2.       Research and Development

Product R&D capabilities

Process R&D capabilities

Pilot plant capabilities

3.       Management Information System

Speed and responsiveness

Quality of current information

Expandability

User-oriented system

4.       Management Team

Skills

Value congruence

Team spirit

Experience

Coordination of effort

5.       Operations

Control of raw materials

Production capacity

Production cost structure

Facilities and equipment

Inventory control

Quality control

Energy efficiency

6.       Finance

Financial leverage

Balance sheet ratios

Stockholder relations

Tax situation

7.       Human Resources

Employee capabilities

Personnel systems

Employee turnover

Employee morale

Employee development

Source from: Power, et al. (1986:37)

Counterfeit, Pirated, or the Original-Take Your Choice

Intellectual properties-trademarks, brand names, designs, manufacturing processes, formulas- are valuable company assets that U.S. officials estimate are knocked off to the tune of $300 billion a year due to counterfeiting and pirating. Some examples from China:

Design rip-offs. Estimates are that nearly 7 million of the 11 million motorcycles and scooters produced in China in one year were copies bearing the Yahama name. Some state-owned factories produce copies four months after a new model is launched.

Product rip-offs. Exact copies of products made by Procter & Gamble, Colgate-Palmolive, Reebok, and Nike are common throughout southern China. Exact copies of any Madonna album are available for as little as $1, as are CDs and movies. Bestfoods estimates that one-quarter of its Skippy Peanut Butter is pirated.

Brand name rip-offs. Bausch & Lomb’s Ray Ban sunglasses become Ran Bans. Colgate in the familiar bright red tube becomes Colgate. The familiar red rooster on Kellogg’s Corn Flakes appears on Kongalu Corn Strips packages that boast of “the trustworthy sign of quality that is famous around the world. “Bogus Budweiser is sold in 640-ml bottles. Yameha, Suzaki, and Hondea motorcycles appear on nearly identical models of Yamaha, Suzuki, and Honda.

Book rip-offs. Even the rich and powerful fall prey to pirating. Soon after My Father, Deng Xiaoping, a biography written by Deng Rong, daughter of Deng Xiaoping, was published, thousands of illegal copies flooded the market. The true owners also sell original versions of the products mentioned above in China.

            In an attempt to control counterfeits, China passed a law that allows customers to demand a double refund for fake merchandise sold in department stores. This has led to bootleg “Vigilantes” who knowingly buy knockoffs and take them back demanding the double refund for violating the law. Wang Hai claimed to have made more than $10,000 buying bogus phones  and fax machines and then getting a double refund “I couldn’t believe it, every major department store was selling rip-offs,” commented Wang, “If I had more money, I would have emptied out every store in Beijing. “The Wang Hai phenomenon, as it is called, is spreading throughout China.

The Consortium Goes Corporate- Bad News for Boeing?

The partners in Airbus Industrie jacked up the competitive pressure on Boeing by turning heir consortium into a corporation and officially starting to sell the A380 superjumbo jet. The announcement by the consortium companies came only hours before three of them launched the initial public offering of their merged company, the European Aeronautic Defence & Space Company (EADS), through which they planned to raise 3.5 billion euros.

Airbus was run by four companies-one French, one Spanish, one German, and one British. The four built planes as allied but independent companies and marketed them through their Airbus Industrie joint venture. Under the new agreement, they combined all their individual Airbus production assets and the joint venture (EADS) into a new French-registered company, the working name of which is Airbus Integrated Company (AIC).

The partners had said that creating the AIC was a prerequisite to launching the 550-seat A380. Developing the jet, which would be the world’s largest passenger plane, will cost $12 billion, and the partners had said that the complex consortium structure was too inefficient to support such a large project.

The A380 has already drawn interest and orders from at least eight airlines, among them Quantas, Singapore Airlines, and Air France. The superjumbo jet will compete with Boeing’s 400+-seat 747 jumbo jets, a major source of profit for the Seattle company because it had a monopoly on building the biggest jets. The consolidation of Aibus should make it more nimble and profitable as well as help it compete against Boeing. The A380 project should break even within 10 years on sales of 250 planes. Airbus already has booked orders for half  that number. Are they sleepless in Seattle?

Crossing Borders (In developing Countries, Opportunity Means Creating It)

There is an old story about two shoes salesmen from different companies sent to Zimara, an imaginary developing country, scouting for new markets. One cables headquarters, “Coming home tomorrow. No possibilities in Zimara. The natives don’t wear shoes.” The other cables home, “Fantastic sales opportunity!! Natives are all barefoot! Everyone here needs shoes.”
Flexibility, patience, commitment, innovation, the right attitudes, and the willingness to go the extra mile will often result in vast rewards in emerging markets. After 13 years of talks (patience), Nestle was finally invited to help boost milk production in China. When Nestle opened a powdered milk and baby cereal plant, it faced an inadequate source of milk and an overburdened infrastructure. Local trains and roads made it almost impossible to collect milk and deliver the finished product efficiently. Nestle’s solution was to develop its own infrastructure by weaving a distribution network knows as the “milk roads” between 27 villages and the factory collection points (the extra mile). Farmers pushing wheelbarrows, pedaling bicycles or working delivered their milk and received payment on the spot, another innovation for China.
Suddenly the farms had an incentive to produce milk, and the district herds grew from 6,000 to 9,000 cows in a matter of months. To train the farmers in rudimentary animal health and hygiene, Nestle hired retired teachers who were paid commissions on all sales to Nestle (incentive).The result? Business took off. In three years, Nestle factory production rose from 316 tons of powdered milk and infant formula to 10,000 tons. Capacity has tripled with the addition of two factories.
Seventeen years after talks began, Nestle’s $200 million sales were just barely profitable. However, a year later they had risen to $250 million (patience). Nestle has exclusive rights to sell the output of its factories throughout China for 15 years (reward), and now sales of milk in China are more than $1 billion.