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Disneyland idea was present since 1955. The vision of Walt Disney was providing a magical park, where children and parents have fun together. The parks' original strategy was on 8 acres beside the Burbank studios which provide a relaxing atmosphere for his employees and families. New ideas and creations for the magical park were added during the World War II (Disneyland's History, (n.d.)). In 1953, a survey for 100-acre site was conducted by the Stanford Research Institute. Location is important as the magical kingdom "Disneyland" required space to include rivers, waterfalls, mountains, a fairy-tale castle, moon rockets, and scenic railway (Disneyland's History, (n.d.)). The rural Anaheim- California was the perfect location, Disney bought 160-acre orange grove close to the intersection of the Santa Ana Freeway (1-5) and Harbor Boulevard (Disneyland's History, (n.d.)).
Disneyland Parks are now operating nationwide; they are independently owned and operated in international markets. It is a good opportunity for Disneyland to open in Egypt, as Cairo is now the centre of attraction for many tourists, especially Arab tourists. Also, the fact that Egypt has a large number of population (Look at Table 1 in appendix), with a huge number of children and teenagers, could be an opportunity for increased sales.
However, before Disneyland could launch in Egypt, the company must consider the external organisation's environment especially the task environment, as well as size of the market, methods of marketing and distribution, managerial/labour climate and the financial viability of opening in Egypt. This thorough feasibility study is necessary in order to reduce uncertainty and risk (Social Housing Foundation, 2006).
External Organisation's environment:
The organisation's environments are a fundamental aspect that Disney needs to put into consideration, when it decides whether to open up in Egypt or not. The external environment is "everything outside an organisation's boundaries that might affect it" (Griffin, 2007, p.33). There are two distinct elements of external environment; the general environment which is "the set of broad dimensions and forces in an organisation's surroundings that determines its overall context", and the task environment "specific organisations or groups that affect that organisation" (Griffin, 2007, p.33). The internal environment of organisation "consists of conditions and forces within organisation" (Griffin, 2007, p.33).
As the effect of general environment is regularly ambiguous, inaccurate, and long term, nearly every company focus on task environment. Competitors, customers, suppliers, strategic partners, and regulators are part of the task environment. Despite the fact that task environment is also complicated, it supplies additional practical information than general environment, as executives can recognise environmental factors with certain interest to the firm, rather than dealing with the more abstract dimensions of the general environment (Griffin, 2007). The following figure shows the task environment of Disney. The diagram shows the task environment of Disney in France, Tokyo, China, and now Egypt markets. (See Appendix)
Competitors are one of the main components in the task environment which refers to "an organisation that competes with other organisations for resources" (Griffin, 2007, p.34). Customers' money is the most obvious resource which competitors compete for (Griffin, 2007). Disneyland will compete with theme parks in Egypt like Dream Park (Look at Case Study 1 in Appendix). Competition also takes place between substitute products, (Griffin, 2007), for instance Disneyland competes with American Express for vacation Egyptian pounds.
Another important component is customers who "pay money to acquire an organisation's products or services" (Griffin, 2007, p.35).
Suppliers are "organisations that provide resources for other organisations" (Griffin, 2007, p.35).
Strategic partners or strategic allies are elements of the task environment which refer to "two or more companies that work together in joint ventures or other partners" (Griffin, 2006, p.65). Disney has a long-term deal with McDonalds. Disney will build in the theme park McDonalds restaurants (Griffin, 2006).
The economic dimension of Disney's general environment is "the overall health and vitality of the economic system in which the organisation operates (Griffin, 2006, p.59). Inflation, interest rates, and unemployment are common examples for such dimension (Griffin, 2006). The Egyptian government started a comprehensive economic reform in the early 1990's, hoping to generate sufficient growth rate, improve the standard of living, decrease unemployment and bring inflation rate to a minimum level. The program was a success; it achieved macro-economic stability and increased foreign investment (American Chamber of Commerce in Egypt, 2009). In the year 2001, Egypt witnessed the implementation of a series of economic arena, one of them was the signed agreement with the EU and passing a mortgage law, some of the other plans that Egypt has is to push the growth rate towards 6% in order to open new job opportunities and improve the standard of living (American Chamber of Commerce in Egypt, 2009). One of the most fundamental challenges that Egypt is facing, is to try to recover from the financial crisis that is happening around the world. Egypt is developing strong macro-economic policies, accelerated structural reforms and diversification of exports. As for the development of Egypt's competitiveness some of the main keys points are the liberalization of trade, promotion of exports, as well as institutional development (American Chamber of Commerce in Egypt, 2009). As for the liberalization of trade that will benefit Disneyland because its main buildings like Fantasyland, and Mickey's land, Machines like ride vehicles as well as restaurant and cafes' like McDonald and Costa will be from abroad. As for the financial crisis it will be good that the country is trying to fix it, so foreign companies do not start panicking about the economic situation in Egypt, and start thinking whether they should open in Egypt or not, and if foreign business change their minds then the unemployment will increase and the economy will deteriorate.
Regulators are from components of the task environment which have "the potential to control, legislate, or otherwise influence an organisation's policies and practices" (Griffin, 2006, p.65). There are two distinct types of regulators, the first, regulatory agencies which are "created by the government to protect the public from certain business practices or to protect organisations from one another" (Griffin, 2006, p.66). Political/legal dimension refers to "the government regulation of business and the relationship between business and government" (Griffin, 2006, p.62). There are three reasons which make such dimension important as others, first, the legal environment which "defines what the organisation can or cannot do". The second one is pro- or anti business attitude of government which influence the business activity". Lastly, political stability, when Disney decides to enter new market it should look at the stability and clarity of trade relationship (Griffin, 2006, p.62). Interest groups are the second type, which are "organised by their members to attempt to influence organisations" (Griffin, 2006, p.66).
As for the political climate in Egypt for a foreign business to open; it's motivating because the Egyptian government made increasing the foreign investment in Egypt their main goal, and for that reason the ministry of investments (MOI) was established in 2004 and its main job is to handle privatization of state-owned enterprises (U.S Commercial services in Egypt, 2009). Some of the main ideas that help in governing foreign investment are:
1) Investment Incentives law 8 of 1997: this law allows 100% foreign ownership of investment projects and guarantees the right to send the income earned in Egypt back home. Some of the other key points include; guaranteeing against confiscation and nationalization (A Country commercial Guide for U.S Companies.(n.d)). Under the Investment Incentives law qualify investments in various fields are approved effectively and somewhat faster than before. This law makes investment in Egypt promising because Disneyland does not have to have a partner and it can keep all its profits. Also it's under no treat that the government will take their company or nationalize it.
2) Companies law 259 of 1981: this law permits automatic company registration upon presentation of an application, to the general authority for free zone and investment (GAFI), however there are some exceptions to that; where they can refuse the business for example if the founder did not comply with the law in the past or if the founder was not qualified to run a business. If Disneyland will open, it will need to get its papers straight away and start its' business. Companies do not have to worry about delays.
3) Public enterprise law 203 of 1991: it allows for the sale of several wholly or partially state-owned enterprises including construction, petroleum, telecommunication and chemicals sectors. If a company wants diversification in its products it can own a part of a different industry so that if one industry went down the other will help financially so the company would not go bankrupt.
The technological dimension of Disney's general environment is the second component, which "refers to the methods available for converting resources into products or services" (Griffin, 2006, p.60). The general environment provides the organisation with the forms and availability of the technology, despite the fact that it's applied within the organisation (Griffin, 2006). Link to Egypt.
Another dimension is socio-cultural which includes "the customs, mores, values, and demographic characteristics of the society in which the organisation functions" (Griffin, 2006, p.61). It is very important as they determine the products, services, and standards of behaviour that society is probable to admire (Griffin, 2006). Marketers should be aware that cultures might have different meanings for the same gesture, saying or conduct (Delphos, 1994). Disney should take into consideration certain issues when dealing with other countries things differ (Look at Table 2 in Appendix) which shows how culture in USA, Japan, China, France, and Egypt differs.
Country Specific Issues:
After analysing the organisation environments, Disney might put the following factors into consideration when they decide to enter Egyptian markets.
The translation of Disney Comics in the Arab World shows how passionate the Arabs about the Disney characters.
Managerial and Labour Market
The literacy rate in the modern Egyptian society is about 71%. In the education system in Egypt the kids have to go to school from the age of 6 through 15. After that it is up to the parents to take their children to schools until they graduate, as for university it is for free.
There are certain tools that need to be covered for making the financial viability of Disneyland project in Egypt. Before looking at them Disneyland has to consider the currency translation from the Egyptian pounds to the US dollars where 1 Egyptian pound equals approximately $5.6. (FX Converter, 2010) the currency translation helps Disneyland to coordinate between different financial results produced from foreign operations.
After looking at the currency translation, Disneyland identifies the major tools which cover the financial viability of Disneyland; first the Return on Investment (ROI) which evaluates the efficiency of Disneyland investment in Egypt (Assessing Financial Viability, 2005). ROI of Disneyland is calculated as follows;
ROI = (Net Income / Cost of Investment) x 100
(Return on Investment, (n.d))
Cost of investment equal = 500,000,000 L.E
Gain from investment = 700,000,000 L.E
Net Income = 700,000,000 - 500,000,000 = 200,000,000 L.E
Estimated ROI = (200,000,000 / 700,000,000) x 100 = 28.57%
The calculation of ROI shows that the investment of Disneyland in Egypt is financially viable, as ROI is greater than the cost of investment (Assessing Financial Viability, 2005). Another Important tool is the Break Even Point (BEP) which shows at what amount of sales of tickets by Disneyland will lead to neither profit nor loss. BEP indicates the Risk involved for Disneyland investing in Egypt (Assessing Financial Viability, 2005). BEP of Disneyland is calculated as follows;
Average months fixed running costs
= break-even point (number of units to sell)
(Unit selling price - cost to produce)
(Cash-flow forecast and break-even point, 2007).
Ticket price = 800 L.E
Cost of service = 620 L.E
Average months fixed running costs = 500,000 L.E
Estimated BEP = 500,000 / (800-620) 2,778 tickets
The Calculation of BEP shows that Disneyland should sell more than 2,778 tickets in order to gain profit. According to ROI the estimated gains from investment is 875,000 tickets per year, dividing it quarterly, we can get the estimated number of tickets sold which equals to 218,750. Therefore Disneyland ice cream is a healthy profitable investment. Look in appendix for the graph 1 of the BEP of Disneyland.
The estimated development and operational cash flow projections for Disneyland is another important part that needs to be covered where it shows "actual cash receipts and payments for every month, quarter, or year". The purpose of cash flow projections is to highlight any cash crises that may occur, as well as helping in overcoming it. It will look as follows; (Project Financial Viability Studies, 2006). Look in Appendix for graph 2 of the Estimated Cash flow projection of Disneyland.
Risk analysis is another important part in the financial viability of Disneyland as it includes "projections into an uncertain future, based on past and current trends and assumptions". Risk analysis answers the "What if" questions, which includes some of the following variations; initial rental structure, operating expenses, and time frames, each variation is analyzed sensitively in three scenario optimistic, realistic, and pessimistic. (Project Financial Viability Studies, 2006).