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The inevitable integration of markets, nation-states, technologies and knowledge resulting in growing economic interdependence among countries clearly demonstrated by the cross border flow of goods, services, capital and knowledge and in which the competition is on a world-wide basis creating an integrated global space is called globalization (T. Friedman, 1999; Govindarajan & Gupta, 1999; Porter, 1986; Robertson, 1992; Albrow, 1997). The IMF calls it the motor of worldwide economic growth and integration while many like Denton and Al Shamali agree that going global is needed for the survival of the companies. Traditionally globalization meant business expansion from developed economies to developing economies but now flow is both sides and also between developing nations (Bishop, sep 20th, 2008). Companies go international for one main reason of making more money. The companies upon going international tend to attain economies of scale due to the larger audience and also the brand name and brand value increases for the company if it is successful in its foreign venture. The reasons or the drivers for global pursuit varies and these include improved communications and information technology, distribution and transportation, cultural convergence, cheap labour and increasing disposable income of the global middle class, reduced trade barriers, extension of IP rights, privatization programs, development of international standards (Denton and Al-Shamali, 2000; Stonehouse et al., 2000).
In this note of globalisation, the following article reflects upon Walt Disney's venture into European market. It was named as Euro Disney and was one of the major investments made in 1992. This article reflects the international strategic mistake that was committed by Walt Disney and its subsequent change in the strategy that revived it. This incident is critically evaluated with the help of various strategic theories available and corresponding recommendations are made to Walt Disney for its current and future foreign ventures in the case of its theme parks and resorts.
The following part of the article gives a literature review of some of the major theories that govern international business which include the integration/responsiveness framework of Bartlett and Ghoshal, Yip's global drivers, Hofstede's cultural analysis amongst others. These act as the foundation for the analysis of the Euro Disneyland and its strategies.
International Business has become an integral part of the present business culture. Knowledge in the global activities is very crucial. Many scholars have contributed in the field of globalization and international business for a better understanding. The list includes the likes of Prahalad and Doz, Bartlett and Ghoshal, Porter, Ansoff, Hofstede, Edward Hall and many others who in their various contributions have given an insight into the various aspects of International Business. Porter's approach to the industry and the players in it is very mechanical and limited to the industry. According to him international business is the competition of the players in the international arena (Porter, 1986). This limited view and his five force analysis would limit the study of the industry to the particular country. It emphasises more on the strategy of the organization rather than the internationalization factors.
The contribution of Prahalad and Doz are crucial for the study of internationalization. Their Integration/responsiveness (IR) framework created a platform for the further study of global business. Bartlett and Ghoshal later improvised this framework and came up with 4 strategies that a company tends to follow. The 4 strategies are International, Global, transnational and Multidomestic approaches to the foreign market. Transnational is considered one of the most important approaches to international market which Bartlett and Ghoshal call a solution for the cross border business. A company follows transnational approach when the local responsiveness required is high and cost pressure is also high. It is increasingly the most predominant approach as the global competition is increasing by the day. Transnational company acknowledges the importance of global competitiveness and flexibility in international operations (Bartlett & Ghoshal, 2002).
Another important contribution in this field is the identification and classification of the drivers for globalisation into 4 sectors namely cost, market, government and competitive drivers (Yip, 2002). The classification gives a clear understanding of the industry and the foreign market.
Culture plays a pivotal role in deciding the nature of business strategy a company must follow in order to succeed. Hofstede, Edward Hall and Fons Trompenaars have been the pioneering contributors in the cultural aspect of international business. Hofstede's four dimensions give vital clue about the cultural differences between the host and the target locations. The four dimensions include power distance which speaks about the authority, individualism versus collectivism which speaks about group dynamics, uncertainty avoidance index which speaks about the risk taking nature and masculinity versus femininity which speaks about the extent of male domination in a given culture (Hill, 2007). The following article uses Hofstede's cultural analysis to evaluate Euro Disneyland.
Analysis of Euro Disneyland
Walt Disney Productions Ltd or popularly known as Disney is one of the world's largest players in the entertainment business. Disney ventured into the theme parks and resorts arena in 1955 with the opening of Disneyland in California. It was a huge commercial success. It has grown in the years and become one of the largest theme parks in the world. With success on its back, it went international by venturing into Japan in 1983 where it opened the Tokyo Disneyland via franchising. Upon the commercial success of Tokyo Disneyland which was a replica of the Disneyland in California it opened the Euro Disneyland in 1992 and Honk Kong Disneyland in 2005 (Disney). This article critically reviews the venture of Disney into Europe by opening the Euro Disneyland in Paris in 1992.
Disneyland when started in 1955 was targeted at both the children and the adult market. When viewed as a product, Disneyland is highly differentiated from its competitors in many ways. This gave it a significant advantage and led to its growth in the theme park business. There was an increase in the number of foreign visitors especially from Europe in the 1980s which gave the reason for Disney launching its theme park in Europe.
Disney entered the European market by Foreign Direct Investment (FDI). Disney opened its wholly owned subsidiary Euro Disneyland in Paris. Such a venture is known as Greenfield venture (Hill, 2007). Euro Disneyland opened with a huge media propaganda and hype. However it failed for the first four years due to several reasons. This article reviews the reasons for the initial failure of Disney in its foreign venture.
Disney's entry mode into Europe as mentioned above was FDI. The deal given by the French government and the centralised location of Paris with respect to European wealth concentration were a few primary reasons for Euro Disneyland's location in Paris. The entry mode followed by Disney was a high control entry mode as the tacit component was more when it came to the understanding of the European customers. It is along the lines of one of the nine propositions of entry mode given by Hill. Such an entry gave Disney an advantage in terms of transferring products and know-how easily which would have taken a longer time in the case of joint ventures or take-overs (Hill, 2007).
The choice of the location was very crucial and is often criticised. The majority of the foreign visitors to Disneyland in California were British nationals (Spencer, 1995). The perception of the Americans that Paris would be the best option was proved wrong when they opened it. The question still looms large over the choice of France over Britain for its European venture.
Euro Disneyland was a replica of the Disneyland in California. The entire theme park, its organisational structure and the rides were the same as Disneyland. The parent company's strategy was implemented and the knowledge developed was at the centre in California which made it a company following Global strategy in Bartlett and Ghoshal's view. The same is represented in fig 1. However, this caused Euro Disneyland a huge upset as there was a huge cultural gap between the European customers and the American customers.
Fig 1: Integration/Responsiveness Framework (Adapted from Bartlett & Ghoshal, 1989) - Disney's postion upon entering Europe.
The strategy of Euro Disneyland when it started is as shown in fig 1. Clearly the assumptions by Disney included low local responsiveness and high global integration due to the lack of major competition. However this proved expensive for Disney as the need for local responsiveness was very high due to the cultural differences between the French and the Americans.
The primary reason for the initial failure of Euro Disneyland was the cultural differences. Clearly, the Disney management's assumptions that products successful in the US would be successful in Europe were wrong. Disney management showed high levels of self reference criterion (Rodrigues, 2009) at that time which resulted in a loss to Disney.
Culture played a crucial role in Euro Disneyland's performance in all the frontiers. For the customers, they were not allowed to take in their own food, and alcohol was restricted inside the park which agitated the French who loved wine with food. Also Europeans who were more passionate about smoking than their American counterparts had to compromise on the fact that there were no shops selling cigarettes inside the park. Another major reason for the customer dissatisfaction was that the French unlike the Americans did not like standing in long queues (Popkin, 92). All these factors affected in the overall sales of the Euro Disneyland which resulted in a huge blow to its cash flow leading to it borrowing $175 million in 1993 just to keep it running (Spencer, 1995). Their annual reports declared a loss of FFr339 Million in 1992 and FFr 6.3 Billion in 1993 (Curwen, 1995).
There was an ill-feeling about Euro Disneyland among the French who were fumed by the American approach to France which translated as measuring the frenchness in the French and the French considered it cultural imperialism. The French started addressing Euro Disneyland as cultural Chernobyl (Popkin, 92). This can be attributed to the ethno centric view of both the French and the Americans who both think they are superior (Hill, 2007). Such an ethnocentric view hinders the relationship with the customers as well as the employees.
From the employee perspective there was a huge difference in management styles of the French and the Americans. This reflected in the Euro Disneyland as well. Euro Disneyland was managed by the Americans who differentiated less among the employees and expected the employees to do the jobs without being explicitly told to do so. This can be explained using Hofstede's power distance dimension. The power distance index for the Americans was less in his survey and this was demonstrated again by the Disney management. On the contrast the French expect explicit rules from their managers and differentiation among people is high reflecting the high power distance index score of the French in Hofstede's research (Hill, 2007).
Smoking was banned for the employees and the dress code and hair styles were strictly maintained (Bryman, 1995). French being a bit more casual in their approach did not approve of this and this resulted in a very high employee turnover. It was reported that 50% of the people who joined Disney had left by mid 1993 (Bryman, 1995).
The French and the other Europeans unlike the Americans are not big spenders. They liked to spend economically and have a longer vacation rather than a short high spending vacation which the Americans do not mind (Spencer, 1995). This can be related to Hofstede's uncertainty avoidance index where the French tend to be safer when it came to their spending. The study also reflects the same where French have a very high score as on comparison to the Americans (Rodrigues, 2009).
Another aspect of cultural difference was the sense of timing. The French unlike the Americans were very peculiar about their timing. They would enter when the park is about to close, they would leave the park early if they felt it was too sunny and mainly they were very keen on education thereby avoided missing school to go to Disneyland (Spencer, 1995). All these factors resulted in reduced sales to Euro Disney. Such an attribute can be related to Fon Trompenaars' orientation towards time dimension of the cultural analysis. Clearly there was a huge difference between the American expectation and the French behaviour with respect to the time (Rugman, A. M. and Hodgetts, R. M., 2003).
Apart from these cultural differences, Disney had many others reason for its initial hiccup. This included the wrong timing. Euro Disneyland began its operations when Europe entered recession there by reducing the number of customers that Disney had projected resulting in a blow to the cash flow. The pricing structure was also wrong. Disney charged a higher price in Europe than in US. The cheap packages offered by airlines in France and Italy made visit to Disneyland in California a lucrative option (Spencer, 1995). All these resulted in a huge loss to Disney which had to be bailed out for $12 billion dollars of which $6 billion was paid by Walt Disney and the remaining by the consortium of 60 banks which held shares in Euro Disneyland.
Upon realising the mistakes, Disney took a series of corrective measures which included renaming Euro Disneyland to Disneyland Paris in 1995. The management approach was changed and the products offered were more localised than before. The prices were reduced by 22% and plans were made for additional investment in the opening of Space Mountain (Curwen, 1995). All these corrective measures resulted in the change of strategy followed by Disney from Global to transnational in Bartlett and Ghoshal's perspective. The same is demonstrated in fig2.
Fig 2: Integration/Responsiveness Framework (Adapted from Bartlett & Ghoshal, 1989) - Disney's postion after corrective measures.
As shown in fig 2, Disney became a transnational company due to its high local responsiveness and change in management style. After a few years of hiccup it finally had a European lead its team in Europe. The ideas from the French were implemented, the americanisation of the staff was reduced and more freedom was given to the staff which reduced the employee turnover. The products were loacally tailored to suit the complex European market.
A huge cultural adaptation took place beginning with the renaming of the Euro Disneyland into Disneyland Paris. The product strategy as classified by Keegan was changed from standardised product/ customized message to customized product/customized message (Rodrigues, 2009). This resulted in an increased appeal to the European customers who felt less Americanised. With the introduction of additional features such as the Space Mountain and other attractions Disney was able to meet its estimated sales figures.
The share price of the Euro Disneyland summarises the situation of Disneyland since its listing in 1989 till 1995. Fig 3 shows the graphical representation of the share price fluctuations that occurred for Disney's shares.
Fig3: Euro Disney Share price (P) (Source: Datastream as shown in Curwen, 1995).
The share price found a steady fall from 1991 after the announcement of the company's annual report. This was the case till the bailout of $12 billion in 1995 and the subsequent opening of the Space Mountain resulted in a positive response from the European audience which reflected in the company's sales and its share prices. The adaptation of European culture and the drastic changes in its management style led to its subsequent success till date.
Disney has been successful for over 90 years now. It has 5 main theme parks and resorts around the globe. Disney has created many mistakes with each of them. For instance the idea of Franchising Disney in Tokyo cost them a lot of money as the response was overwhelming and Disney was just getting 10% of the profit. In case of Europe as discussed before Paris was not the perfect location. Disney has been learning from its mistakes but prevention is always better than cure. Critics have gone to the extent of asking whether Disney would ever get it right when it comes to making location decisions (Spencer, 1995). It is thus recommended that Disney should make better choice of locations. The decisions seem to be driven by the bargaining power of the host nation like in the case of France where a lot of subsidies were given to Disney. This might save Disney the initial money but may lead to a huge loss later if it does not get the required sales.
The entry modes seem to vary between the locations. Even though it gets the first entry advantage, the risks are very high. In such a state it is common for companies to have a tight control over the activities. This would work fine for a regular industry but Disney being in the entertainment world, the necessity for the local touch is very high. This was clearly demonstrated in the Euro Disneyland. Even the pricing matters as the holiday packages offered by various agencies around the globe are very lucrative making it target for substitution. Hence it is recommended that Disney should be a transnational company there being locally responsive and cost effective.
Also the management should be regio-centric than ethno centric in its approach which makes it easier for human resource management. The ethno centric approach in Euro Disney resulted in high employee turnover.
International business is a lucrative option for both growth and profits but the risks involved are high as well. A careful planning along with detailed study of the potential market is required before venturing into unknown territories. Disney on its part got the first person advantage when it ventured into Europe but its ethnocentric approach caused it a huge loss.
An ethno centric approach is workable when the product is highly standardised and the home company has pioneered the know-how of the products. Such a standardised product will go along into the market initially by following the international strategy and later the global strategy according to Bartlett and Ghoshal's classifications. This is because the local responsiveness required is minimal and the initial cost concern is less at the time of entry. However the indigenous companies may get the technical know-how and may result in cost pressures. Hence transition from international in the time of entry to global strategy.
A more regio-centric approach with clear attention to the cultural differences as mentioned by Hofstede combined with a transnational approach would be ideal for a company which has a high pressure on pricing strategy along with the high local responsiveness. This would have been an ideal approach for Disney instead of the traditional global approach with ethno centric view because of the nature of its products and the industry as a whole.
Culture plays a vital role in deciding the location, entry mode, strategy of the business venture in an international arena. An in-depth knowledge about the cultural differences and the cultural needs and wants of the potential market would surely be an advantage and may prove vital for the success of the organisation's international venture.