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907M13
HONG KONG DISNEYLAND
Michael N. Young and Dong Liu wrote this case solely to provide material for class discussion. The authors do not intend to
illustrate either effective or ineffective handling of a managerial situation. The authors may have disguised certain names and other
identifying information to protect confidentiality.
This publication may not be transmitted, photocopied, digitized or otherwise reproduced in any form or by any means without the
permission of the copyright holder. Reproduction of this material is not covered under authorization by any reproduction rights
organization. To order copies or request permission to reproduce materials, contact Ivey Publishing, Ivey Business School, Western
University, London, Ontario, Canada, N6G 0N1; (t) 519.661.3208; (e) cases@ivey.ca; www.iveycases.com.
Copyright © 2007, Richard Ivey School of Business Foundation
Version: 2014-02-04
September 12, 2006, marked the one-year anniversary of the opening of Hong Kong Disneyland (HKD).
Amid the hoopla and celebrations, media experts were reflecting on the high points and low points of
HKD’s first year of operations, including several controversies that had generated some negative publicity.
At a press conference and interview to discuss the first year of operations, Bill Ernest, HKD’s executive
vice-president, acknowledged that the park had learnt a lot from its experiences and that the problems had
made it stronger. Ernest also announced that HKD attendance for the year had been “well over” five
million visitors. Still, this figure was short of the 5.6 million visitors that had earlier been projected by park
officials. Ernest stated that the park was on sound financial footing but would not release the details.1 He
also announced the appointment of two non-executive directors; Payson Cha Mou-sing, managing director
of HKR International, and Philip Chen Nan-lok of Cathay Pacific would be joining the board of directors
in a move calculated to counter charges of a lack of transparency. The criticisms were, in part, coming
from members of the Hong Kong Legislative Council as HKD was 57 per cent owned by the Hong Kong
Government, which had invested HK$23 billion.2
Since plans for the high-profile HKD project were first announced, there had been criticisms of a lack of
transparency from Hong Kong government officials, the Consumer Council and members of the public.
The dissatisfaction was reflected in a survey conducted by Hong Kong Polytechnic University in March
2006.3 Although 56 per cent of the 524 respondents believed the government’s HK$13.6 billion (about
US$1.74 billion) investment to be of a “fair” value, 70 per cent of respondents had a negative impression
of the public investment in HKD. This response was a considerably more pessimistic result than previous
surveys. It was in the interests of HKD to turn this situation around.
HKD was the third park that Disney had opened outside of the United States, following the Tokyo Disney
Resort and Disneyland Resort Paris. The Tokyo Disney Resort was the most successful of all of the Disney
1
Linda Choy and Dennis Eng, “5 Million Visit Disney Park, Short of Target,” South China Morning Post, electronic edition,
September 5, 2006, available at http://scmp.com, accessed December 3, 2006.
2
In 2006, the Hong Kong dollar was pegged to the U.S. dollar at approximately US$1 = HK$7.80.
3
May Chan, “Disneyland’s Image Has Soured Since Its Opening,” South China Morning Post, p. CITY3.
This document is authorized for use only by Hussain Alfakhr in Management FA ’16-1-1 taught by Professor Burke, Dominican University – Illinois from August 2016 to February 2017.
For the exclusive use of H. Alfakhr, 2016.
Page 2
9B07M013
parks worldwide, and indeed one of the most successful theme parks in the world; the Disneyland Paris
Resort was much less successful.4 Pundits had begun to wonder whether the outcome of HKD would more
closely resemble that of its successful Far Eastern Japanese cousin or whether it would more closely
resemble that of the French park. That outcome depended in part on how well Disney would be able to
translate its strategic assets, such as its products, practices and ideologies, to the Chinese context.
COMPANY BACKGROUND
The Walt Disney Company (Disney) was founded in 1923, and was committed to delivering quality
entertainment experiences for people of all ages. As a global entertainment empire, the company leveraged
its amazing heritage of creativity, fantasy and imagination established by its founder, Walt Disney. By
2006, Disney’s business portfolio consisted of four major segments: Studio Entertainment, Parks and
Resorts, Consumer Products and Media Networks. Exhibit 1 summarizes the details of the company’s
holdings and their respective financial performance in 2005.
Other Disney Parks and Resorts
Disney opened the first Disneyland, Disneyland Resort, at Anaheim, California, in July 1955. The
company’s second theme park, Walt Disney World Resort, was opened at Lake Buena Vista, Florida, in
1971. After the establishment of these two large theme parks in the United States, Disney sought to expand
internationally. Disney’s international expansion strategy was straightforward, consisting of “bringing the
original Disneyland model to a new territory, and then, if feasible, adding a specialty theme park.”5 Tokyo
Disney Resort was Disney’s first attempt at executing this strategy.
Tokyo Disney Resort
Disney opened its first non-U.S. park in Tokyo, Japan, in 1983. The scope and thematic foundation of the
Tokyo park was modeled after the Disney parks in California and Florida. The US$1.4 billion cost to
develop Tokyo Disney Resort was financed solely by Oriental Land Co., a land-reclamation company
formed under a joint-venture agreement between Mitsui Real Estate Development Co. and Keisei Electric
Railway Co.6 Disney did not assume any ownership of Tokyo Disney Resort to minimize risks. The
contract signed in 1979 spelled out Oriental Land as the owner and licensee, whereas Disney was
designated as the designer and licensor. Although Disney received a US$100 million royalty every year,
this amount was less than would have been the case if Disney were the sole owner or even a co-owner of
Tokyo Disney Resort. By 2006, the 23-year-old Tokyo Disney Resort, along with the addition of Tokyo
DisneySea, at an additional cost of US$3 billion in 20007 was a huge success, with a combined annual
attendance of more than 25 million visitors and an operating income of ¥28,957 million (about US$245.47
million) generated in 2005 alone.8
4
Mary Yoko Brannen, “When Mickey Loses Face: Recontextualization, Semantic Fit, and the Semiotics of Foreignness,”
Academy of Management Review, October 2004, pp. 593–616.
5
Sara Bakhshian, “The Offspring,” Amusement Business, May 2005, pp. 20–21.
6
Eva Liu and Elyssa Wong, “Information Note: Tokyo Disneyland: Some Basic Facts,” Research and Library Services
Division of the Legislative Council Secretariat, Hong Kong, 1999, retrieved March 10, 2006 from www.legco.gov.hk/yr990/english/sec/library/990in02.pdf.
7
Ibid.
8
Oriental Land Co., 2005 Annual Report, retrieved March 10, 2006 from
http://olc.netir-wsp.com/medias/1656486483_OLCAR2005final.pdf.
This document is authorized for use only by Hussain Alfakhr in Management FA ’16-1-1 taught by Professor Burke, Dominican University – Illinois from August 2016 to February 2017.
For the exclusive use of H. Alfakhr, 2016.
Page 3
9B07M013
Tokyo Disney Resort was well received by the Japanese, owing in part to the Japanese interest in Western
cultures and the Asian love of fantasy and costume. The secret underlying this success was to provide the
visitors with “a slice of unadulterated Disney-style Americana,” proclaimed Toshio Kagami, president of
Oriental Land Co. Tokyo Disney Resort had attracted wide support from the local Japanese, who
accounted for more than 95 per cent of the annual attendance. Moreover, around 15 per cent of the total
visitors had visited the park 30 times or more, making Tokyo Disney Resort one of the world’s most
popular theme parks in terms of annual attendance.9 The Tokyo Disney Resort also had the highest sales of
souvenirs of all the Disney land resorts, in part, because it was the only Disney property to give special
admission just for the purpose of purchasing souvenirs.
Disneyland Resort Paris
France was the largest consumer of Disney products outside the United States, particularly in the area of
publications, such as comic books.10 However, this status did not provide much help to Disneyland Resort
Paris (formerly named Euro Disney), Disney’s second attempt at international expansion. Disneyland
Resort Paris came into operation in 1992, after two-and-a-half years of negotiations with the French
Government. Disney was determined to avoid the mistake of forgoing majority ownership and profits as
had been the case with Tokyo Disney Resort. Thus, Disney became one of the partners in this project.
Under the initial financial arrangement, Disney had a 49 per cent stake in the project. The French
Government provided cash and loans of US$770 million at interest rates below the market rates, and
financed the majority of the US$400 million infrastructure.
However, cost overruns pushed overall construction costs to US$5 billion — five times the previous
estimate of US$1 billion. This increase was due to alterations in design and construction plans. This higher
cost, coupled with the theme park’s mediocre performance during its initial years of operation and other
factors, caused the park severe difficulties between 1992 and 1994. The park did not report a profit until
1995, which was largely due to a reduction of interest costs from US$265 million to US$93 million and the
rigorous financial re-engineering efforts in late 1994.11
Despite poor results between 1995 and 2001, Disney added a new park, Walt Disney Studios, which
brought Hollywood-themed attractions to the French park. At its opening in 2004, the second park attracted
only 2.2 million visitors, 5.8 million short of its original projections. At the end of the fiscal year on
September 30, 2004, Disneyland Resort Paris announced a loss of €145.2 million (about US$190
million).12
Part of the problem with the Paris resort was the resistance by the French to what they considered
American cultural imperialism. French cultural critics claimed that Disney would be a “cultural
Chernobyl,” and some stated publicly a desire for the park’s failure. For example, critic Stephen Bayley
wrote:
The Old World is presented with all the confident big ticket flimflam of painstaking fakery
that this bizarre campaign of reverse-engineered cultural imperialism represents. I like to
9
James Zoltak, “Lots of Walks in the Parks the Past Year,” Amusement Business, December 2004, pp. 6–7.
Mary Yoko Brannen, “When Mickey Loses Face: Recontextualization, Semantic Fit, and the Semiotics of Foreignness,”
Academy of Management Review, October 2004, pp. 593–616.
11
James B. Stewart, Disney War, Simon & Schuster, New York, 2005.
12
Jo Wrighton and Bruce Orwall, “Mutual Attractions: Despite Losses and Bailouts, France Stays Devoted to Disney,” Wall
Street Journal, January 26, 2005, p. A1.
10
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For the exclusive use of H. Alfakhr, 2016.
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think that by the turn of the century Euro Disney will have become a deserted city, similar
to Angkor Wat [in Cambodia].13
Disney had to assure the French government that French would be the primary language spoken within the
park. Even the French president, Francois Mitterand, joined in the fray, declining to attend the opening-day
ceremony, dismissing the expensive new investment with Gallic indifference as “pas ma tasse de thé”
(“just not my cup of tea”).14
Robert Fitzpatrick, the first chairman of the Disneyland Resort Paris, was a French-speaking American
who knew Europe quite well, in part because of his French wife. Fitzpatrick did not, however, realize that
Disney could not approach France in the same way as it had approached Florida when setting up its second
theme park. For example, the recruitment process and training programs for its staff were initially not welladapted to the French business culture. The 13-page manual specifying the dress code within the theme
park was apparently unacceptable to the French; the court had even ruled that imposing such a dress code
was against the labour laws.
The miscalculations of cultural differences were found in other operational aspects as well. For instance,
Disney’s policy of banning the serving of alcoholic beverages in its parks, including in California, Florida
and Tokyo, was unsurprisingly extended to France. This restriction outraged the French for whom enjoying
wine during lunch and dinner was part of their daily custom. In May 1993, Disney yielded to the external
pressure, and altered its policy to permit the serving of wines and beers in the theme park. With the
renaming and the retooling of the entire theme park complex to better appeal to European taste, Disneyland
Resort Paris finally began to profit in 1995.
Why Such Different Outcomes for Tokyo and Paris?
Why was Disney so successful in Tokyo but largely a failure in Paris? Professor Mary Yoko Brannen
maintains that it may in part have been due to the way that Disney’s strategic assets — such as products,
practices and ideologies — were translated to and interpreted in the Japanese and French contexts.15
According to Brannen, the “Americana” represented by Disney was an asset in Japan, where a trip to
Disney was seen as an exotic, foreign-like experience. However, this association with the pure form of all
things American was a liability in France, where it was seen as a form of reverse cultural imperialism. The
result was a “lost-in-translation” effect for many of Disney’s most valued icons and established business
practices. For example, Mickey Mouse was seen as a squeaky-clean all-American boy in the United States,
and he was viewed as conservative and reliable enough to sell money market accounts in Japan. However,
in France, he was seen as a street-smart detective because of the popularity of a comic book series Le
Journal Mickey.
Likewise, Disney’s service training, human resource management (HRM) practices and training required
to achieve the “happiest place on earth” were quite easy to implement in Japan, where such practices
represented the cultural norm. In France, however, the same training practices were perceived as invasive
and totalitarian. Exhibit 2 summarizes how other strategic assets of Disney were recontextualized to the
Japanese and French environments.
13
James B. Stewart, Disney War, Simon & Schuster, New York, 2006, p. 128.
Ibid.
15
Mary Yoko Brannen, “When Mickey Loses Face: Recontextualization, Semantic Fit and the Semiotics of Foreignness,”
Academy of Management Review, October 2004, pp. 593–616.
14
This document is authorized for use only by Hussain Alfakhr in Management FA ’16-1-1 taught by Professor Burke, Dominican University – Illinois from August 2016 to February 2017.
For the exclusive use of H. Alfakhr, 2016.
Page 5
9B07M013
In 2006, it remained to be seen how Disney’s strategic assets would translate to, and be interpreted in, the
Chinese culture of Hong Kong, the topic to which we turn next.
Mickey Mouse Goes to China
We know we have an addressable market just crying out for Disney products.
—Andy Bird, Walt Disney International president, discussing China’s potential16
The Chinese “have heard so much about the parks around the world, and they want to experience the same
thing,” said Don Robinson, the former managing director of HKD. Chinese consumers wanted to connect
with the global popular culture and distance themselves from their previous collective poverty and
communist dictate. Kevin Wong, a tourism economist at the Hong Kong Polytechnic University, remarked
that the Chinese “want to come to Disney because it is American. The foreignness is part of the appeal.”
The Chinese needed Disney, and Disney needed China. For example, Ted Parrish, co-manager of the
Henssler Equity Fund, an investment fund house, said, “If Disney wants to maintain earnings growth in the
high teens going forward, China will be a big source of that.”17
Because the Chinese economy was booming, Disney thought it would be a good time to set up a new
theme park there. China’s infrastructure was still substandard by world standards. In addition, the Chinese
currency, the renminbi, was not fully convertible. These and other factors increased the attractiveness of
Hong Kong — a Special Administrative Region of China since the handover of sovereignty from the
United Kingdom in 1997. Hong Kong had world-class infrastructure and a reputation as an international
financial center. Most importantly, Hong Kong had always been a gateway to China. These factors gave
Hong Kong an edge as a location for Disney’s third international theme park.
THE HONG KONG TOURISM INDUSTRY
Hong Kong, with its unusual blend of East and West, of Chinese roots and British colonial
heritage, of ultramodern sophistication and ancient traditions, is one of the most diverse
and exciting cities in the world. It is an international city brimming with energy and
dynamism, yet also a place where peace and tranquility are easily found.18
Tourism was one of the major pillars of the Hong Kong economy. In 2005, the total number of visitors was
more than 23 million, a new record and approximately a 7.1 per cent increase over 2004 (see Exhibit 3).
Visitors came from all over the world, including Taiwan, America, Africa, the Middle East and Macao (see
Exhibit 4). Mainland China was the biggest source of visitors, accounting for 53.7 per cent of the total in
2005.19 The dominance of this group was, in part, supported by the Individual Travel Scheme20 introduced
in 2003.
16
Jeffrey Ressner and Michael Schuman, “Disney’s Great Leap into China,” Time, July 11, 2005, pp. 52–54.
Paul R. La Monica, “For Disney, It’s a Small World after All,” CNNmoney.com, September 12, 2005, retrieved March 10,
2006 from http://money.cnn.com/2005/09/12/news/fortune500/hongkongdisney/.
18
Hong Kong Tourism Board, www.discoverhongkong.com, accessed August 17, 2007.
19
Hong Kong Census & Statistics Department, “Hong Kong Monthly Digest of Statistics,” Hong Kong Census & Statistics
Department, Hong Kong, March 2006.
20
The Individual Travel Scheme was a policy that permitted urban residents from selected cities in Mainland China to apply
for visas from the Public Security Department to visit Hong Kong. In 2006, the Scheme covered 38 mainland cities. Until the
implementation of this policy, mainlanders could only visit Hong Kong through business or travel groups.
17
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For the exclusive use of H. Alfakhr, 2016.
Page 6
9B07M013
Local Attractions
Popular tourist attractions in Hong Kong included, but were not limited to, Victoria Peak, Repulse Bay,
open-air markets and Ocean Park. Hong Kong’s colonial heritage provided several attractions, such as
Cenotaph, Statue Square and the Government House. Traditional Chinese festivals, such as Tin Hau
Festival, Cheung Chau Bun Festival and Temple Fair, added local flavor. Visitors often took part in the
celebration of these annual festive events during their stay. The Hong Kong Tourism Board had designated
2006 as � …
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