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EURO DISASTER OR EURO DISNEY

 

Brief introduction and profile of the company

When Michael Eisner, chair and chief executive officer (CEO) of the Walt Disney Company, and Frank Wells, its president, came to Disney in 1984, they concentrated predominantly on expanding Disney’s domestic market. They were able to revive a stagnating company, increasing annual revenues from $1.5 billion in 1984, to $8.5 billion a decade later, during the same period, the value of Disney’s stock increased 1,500%. The challenge in the early 1990s was to expand the business internationally. Disney realized that foreign markets represented the highest potential for growth for the company’s three businesses: theme parks, filmed entertainment, and consumer products. By 1994, Disney had established 16 offices serving 45 countries worldwide.

Disney’s Consumer Products division, which oversaw licensing, retail, publishing, and recordings, had also made major strides into foreign countries by 1994. There were 268 Disney sores worldwide, and the company planned to open at least 70 new stores every year. The Disney store on the Champs-Elysees in Paris was the company’s top grossing store worldwide. The company’s animated films had also proven to be an enormous success in foreign markets, with many of Disney’s releases dubbed in 25 languages.

Plans for a European Disneyland, the first Disney theme park in Europe, had begun more than a decade earlier. Western Europe was selected to setup state of the art Disney theme park. A master agreement between Euro Disney and the government of France was finalized in 1987 to setup the park in France.

 

Brief of the Euro Disney Success factors and problems

When Euro Disney opened April in 1992 its top management pinned high hopes about the success of the company. Its top price had more than double from its original price of French franks 72 at which it was first offered in late 1989. All parties involved in Euro Disney projects accpected instant success in the European market.

However, in its first three years operation the park suffered a series of set bags causing multiple problems for the company. Some of the set bags faced by the company or mentioned hereunder:

  1. Europe worst recession since World War II.
  2. Properties slump and depressed real estate.
  3. Low hotel occupancy rate.
  4. Over pricing of French currency.
  5. Initial cost over run by 30%.
  6. Disney laborer discontent due to strict dress code long working hours and low wages.
  7. Financial concerns like heavy debt, combined with reality and management fees and operating losses.
  8. Culture imperialism i.e attack on French culture by the forces of American imperialism.

After the huge losses of the first year of operation the stake of company was found to be in severe danger. The park was facing serious shortages in cash and risk of bankruptcy.

Strategic Direction

Initially when the Euro Disney was setup in Europe the strategic direction of the company was regional expansion in westerns Europe to capitalize on following opportunities in this region:

  1. West European were already familiar with Disney entertainment and Disney merchandise.
  2. Tens of thousands of Europeans visited Orlando, Florida, every year to vacation at Walt Disney World.
  3. Disney’s animated films had traditionally done better in Europe than in the United State.
  4. Image Power Study (Lauder Associates, San Francisco, 1988) found that the Disney name ranked sixth in the world in public esteem, trailing only such commercial icons as Coca-Cola, McDonald’s, Toyota, Sony, and Levi Straus.

However, after suffering huge set bags and operational losses during first year of operations the company is following retrenchment strategy by converting its debts to equity, cutting cost and restructuring for reducing debt to manageable level.

VISION STATEMENT

“Euro Disney is committed to provide genuine value to the company’s stakeholders.  In support of that commitment, Euro Disney aspires to grow globally and pursue leadership positions in entertainment through THEME PARKS”

MISSION STATEMENT

“To achieve and enhance clear leadership, worldwide, in the existing  and new Theme Parks categories for bringing happiness Universally to our worthy customers”

CURRENT OBJECTIVES

  1. Arrange means of cheaper financing.
  2. Restructuring of debt.
  3. Cut cost.
  4. Improve cash flows.
  5. Address workers discontentment.
  6. Avoid Bankruptcy.

External Environmental Factors

  1. Deep economic recession.
  2. Over value of French currency resulting by power of foreign customers.
  3. Low hotel occupancy rates.
  4. Effect of American cultural imperialism.
  5. Properties slump and depressed real estate.
  6. General hatred of French public like, criticism for selling of prime French land to Disney and not acceptance of Euro Disney massage i.e universal happiness.

Internal Environment

  1. Disney laborer discontent due to strict dress code long working hours and low wages.
  2. Ethnocentric approach of Disney management i.e Disney will remain Disney. Attention should have been paid to the French perception of cultural attack by the Disney.

Competitive Advantage

  1. Strong and efficient management.
  2. Strong image.
  3. Backing from parent company i.e. Walt Disney.

Core Competency

  1. Long experience of similar operations i.e. previous success in Tokyo.
  2. Strong management.

 

SWOT ANALYSIS

Strengths

  1. Long experience of similar operations i.e previous success in Tokyo.
  2. Strong management.
  3. Strong image.
  4. Good location for operations.
  5. Strong market for theme parks.
  6. Financial support from French government and local donors at cheaper rates.

Weaknesses

  1. Ethnocentric approach i.e lack of adoptability according to customer demands.
  2. Heavy debt combined with royalty and management fee.

Opportunities

  1. Strong market demand of theme parks in westerns Europe.
  2. Large market size for theme parks.

Threats

  1. Economic recession.
  2. Over value of French currency effecting buying power of foreign customers.
  3. French public hatred and perception of cultural attack by American Cultural Imperialism.

 

Matching of Strength Opportunities

The company capitalized on its strength of strong image, strong management and long experience of operating theme parks by opening a new theme park in Western Europe (France) having the matching opportunities of strong customer demand and large market size for theme parks.

Matching weaknesses with threats

Matching internal weaknesses with external threats was not given due consideration by the company because of which it suffered huge operating losses during first year of its operations.

Matching Strengths with Threats

Strength of obtaining loans at cheaper rates was matched with the threat of prevailing recession but the effect of recession was so strong that obtaining loan at cheaper rates could not prevent the company from reaching at the state of near bankruptcy.

Matching Weaknesses with Opportunities

Matching weaknesses with opportunities was not given due consideration by the company. The ethnocentric approach (weakness) of the management was major hindrance in fully capitalizing on the opportunity of large market size and demands. The company should have matched the weaknesses of ethnocentric approach correctly by addressing the concern of customers regarding cultural attack and hence fully capitalized on the opportunity of large market size and demands.

Avoiding Threats

  1. By cutting cost and reducing prices.
  2. By addressing the concern of customers regarding cultural attacks.

Over Coming the Weaknesses

  1. Change ethnocentric approach to polycentric i.e. adopt according to the taste, demand and desires of local customers.
  2. Restructuring of loan.

Current Corporate Level Strategy

Current corporate level strategy of the parent company i.e. Walt Disney is international growth in three businesses theme parks filmed entertainment and consumer products.

Business Level Strategy

Business level strategy of Euro Disney company is regional expansion in theme parks business in Western Europe to capitalize on large market size and demand.

Success Factors of Corporate level Strategy

  1. Potential for international growth in theme parks filmed entertainment and consumer products.
  2. Long experience of such businesses.
  3. Strong image.
  4. Strong Management.

Success Factor of Business level Strategy

  1. Large Market size in Western Europe.
  2. Large Market demand in Western Europe.
  3.  Support from parent company.

Weak Aspects of Corporate level Strategy

  1. Hostile perceptions of customers towards American cultural imperialism.
  2. Ethnocentric approach of management.

Weak Aspects of Business level Strategy

  1. In appropriate debt to equity ratio.
  2. Disproportionate payment of royalty and management fee to the parent company.
  3. Poor planning to counter economic recession.
  4. Failure to foresee the effect of exchange rates on the affordability of traveling to France.
  5. Failure to take into account the cultural preferences of Europeans.

Strategy to Capture forth coming Opportunities

Company is not well poised to capitalize on forth coming opportunities due to ethnocentric approach of its management. Concerns of the customers especially perception about cultural attack must be addressed by company management.

Suggested New Strategy

The company should go for a joint venture with the local firm. The management should also be handed over to local Managers. The company should also take steps to address the concerns of its customers regarding cultural attack. The company may change its name like “FRENCH DISNEY” or “PARIS DISNEY” to give a local touch and sense of being a European rather than American company. The company should change offensive labor rules reduce prices and be more culturally conscious. By adopting such measures company can improve its financial position and can address concerns of customers in a better way.

Main Assumption for new Strategy

  1. A local firm is ready to have joint venture with Euro Disney.
  2. The parent company i.e. Walt Disney is agreed for joint venture.

Other Significant Issues

  1. Central location of the park convenient to local / foreign visitors.
  2. Decision of Walt Disney Company for having 49% stake in Euro Disney.
  3. Wrong perception of revenue generation through development of surrounding land around Euro Disney Theme park.
  4. No planning for risk factors like recession and Exchange Rates .

Term / Phrases

  1. Stagnating          –       Calm, inactive
  2. Coincidence                   –       Occurring at the same time
  3. Recession          –       A period of economic inactivity
  4. Phenomenal                  –       Significant
  5. Skepticism          –       Uncertainty
  6. Lobbied Vigorously –       Campaigned Dynamically
  7. Syndicate          –       Association