Case2: Disneyland in Europe
Between 1988 and 1990 three $150 million amusement parks
opened in France. By 1991 two of them were bankrupt and the third
was doing poorly. Despite this, the Walt Disney Company went ahead
with a plan to open Europe’s first Disneyland in 1992. Far from
being concerned about the theme park doing well, Disney executives
were worried that Euro Disneyland would be too small to handle the
giant crowds. The $4.4 billion project was to be located on 5,000
acres in Seine-et-Marne 20 miles east of Paris. And the city seemed
to be an excellent location; there were 17 million people within a
two-hour drive of Euro Disneyland, 41 million within a four-hour
drive, and 109 million within six hours of the park. This included
people from seven countries: France, Switzerland, Germany,
Luxembourg, the Netherlands, Belgium, and Britain. Disney officials
were optimistic about the project. Their US parks, Disneyland and
Disneyworld, were extremely successful, and Tokyo Disneyland was so
popular that on some days it could not accommodate the large number
of visitors. Simply put, the company was making a great deal of
money from its parks. However, the Tokyo park was franchised to
others—and Disney management felt that it had given up too much
profit with this arrangement. This would not be the case at Euro
Disneyland. The company’s share of the venture was to be 49 per
cent for which it would put up $160 million. Other investors put in
$1.2 billion, the French government provided a low-interest $900
million loan, banks loaned the business $1.6 billion, and the
remaining $400 million was to come from special partnerships formed
to buy properties and to lease them back. For its investment and
management of the operation, the Walt Disney Company was to receive
10 per cent of Euro Disney’s admission fees, 5 per cent of food and
merchandise revenues, and 49 per cent of all profits. The location
of the amusement park was thoroughly researched. The number of
people who could be attracted to various locations throughout
Europe and the amount of money they were likely to spend during a
visit to the park were carefully calculated. In the end, France and
Spain had proved to offer the best locations. Both countries were
well aware of the park’s capability for creating jobs and
stimulating their economy. As a result, each actively wooed the
company. In addition to offering a central location in the heart of
Europe, France was prepared to provide considerable financial
incentives. Among other things, the French government promised to
build a train line to connect the amusement park to the European
train system. Thus, after carefully comparing the advantages
offered by both countries, France was chosen as the site for the
park. At first things appeared to be off to a roaring start.
Unfortunately, by the time the park was ready to open, a number of
problems had developed, and some of these had a very dampening
effect on early operations. One was the concern of some French
people that Euro Disney was nothing more than a transplanting of
Disneyland into Europe. In their view the park did not fit into the
local culture, and some of the French press accused Disney of
“cultural imperialism.” Others objected to the fact that the French
government, as promised in the contract, had expropriated the
necessary land and sold it without profit to the Euro Disneyland
development people. Signs reading “Don’t gnaw away our national
wealth” and “Disney go home” began appearing along roadways. These
negative feelings may well have accounted for the fact that on
opening day only 50,000 visitors showed up, in contrast to the
500,000 that were expected. Soon thereafter, operations at the park
came under criticism from both visitors and employees. Many
visitors were upset about the high prices. In the case of British
tourists, for example, because of the Franc exchange rate, it was
cheaper for them to go to Florida than to Euro Disney. In the case
of employees, many of them objected to the pay rates and the
working conditions. They also raised concerns about a variety of
company policies ranging from personal grooming to having to speak
English in meetings, even if most people in attendance spoke
French. Within the first month 3,000 employees quit. Some of the
other operating problems were a result of Disney’s previous
experiences. In the United States, for example, liquor was not sold
outside of the hotels or specific areas. The general park was kept
alcohol free, including the restaurants, in order to maintain a
family atmosphere. In Japan, this policy was accepted and worked
very well. However, Europeans were used to having outings with
alcoholic beverages. As a result of these types of problems, Euro
Disney soon ran into financial problems. In 1994, after three years
of heavy losses, the operation was in such bad shape that some
people were predicting that the park would close. However, a
variety of developments saved the operation. For one thing, a major
investor purchased 24.6 per cent (reducing Disney’s share to 39 per
cent) of the company, injecting $500 million of much needed cash.
Additionally, Disney waived its royalty fees and worked out a new
loan repayment plan with the banks, and new shares were issued.
These measures allowed Euro Disney to buy time while it
restructured its marketing and general policies to fit the European
market. In October 1994, Euro Disney officially changed its name to
“Disneyland Paris.” This made the park more French and permitted it
to capitalize on the romanticism that the word “Paris” conveys.
Most importantly, the new name allowed for a new beginning,
disassociating the park from the failure of Euro Disney. This was
accompanied with measures designed to remedy past failures. The
park changed its most offensive labor rules, reduced prices, and
began being more culturally conscious. Among other things, alcohol
beverages were now allowed to be served just about anywhere. The
company also began making the park more appealing to local visitors
by giving it a “European” focus. Ninety-two per cent of the park’s
visitors are from eight nearby European countries. Disney
Tomorrowland, with its dated images of the space age, was
jettisoned entirely and replaced by a gleaming brass and wood
complex called Discovery land, which was based on themes of Jules
Verne and Leonardo da Vinci. In Disneyland food services were
designed to reflect the fable’s country of origin: Pinocchio’s
facility served German food, Cinderella’s had French offerings, and
at Bella Notte’s the cuisine was Italian. The company also shot a
360-degree movie about French culture and showed it in the
“Visionarium” exhibit. These changes were designed to draw more
visitors, and they seemed to have worked. Disneyland Paris reported
a slight profit in 1996, and the park continued to make a modest
profit through to the early 2000s. In 2002 and 2003, the company
was once again making losses, and new deals had to be worked out
with creditors. This time, however, it wasn’t insensitivity to
local customs but a slump in the travel and tourism industry,
strikes and stoppages in France, and an economic downturn in many
of the surrounding markets.
Questions
What is Walt Disney Company shown as multinational enterprises
(MNE) characteristics?
Disney instead of licensing some other firm to build and
operate the park and settling for a royalty, it takes wholly
ownership strategy in the firm, why?
Are Walt Disney and Euro Disney indicate the same strategy of
MNE?
Before going ahead with Euro Disney, was there an external
environmental analysis from Disney? Clarify.
answer about 800
words.