Disney is considering entering the Chinese market by opening Disneyland Shanghai. Some key points: - Shanghai was chosen due to its large population, high GDP, and as a center for tourism and foreign direct investment in China. - The park will be a joint venture with a Chinese state-owned company, with Disney owning 43% shares. - Cultural differences between China and the US, as well as government restrictions, pose challenges for Disney. - An analysis of factors like demand, costs, risks, and cash flows indicates the project has a 17% IRR, making it financially viable.

1. MMS-B
GNIMS 2012-13
International Business
Prof. Harvinder Singh Chawla
Challenges in International
Business:
DisneyLand entering China
Group MeMbers
Charusheela Pawar
Jagjeet Kaur Saini
38
Rohit Ramnarayan
39
Shokin Salim
Darshan Shetty
48

3. About Disney
• The Walt Disney company
– Founded in1921.
– Produces and “unparalleled entertainment experience based
on the rich legacy of quality creative content and
exceptional storytelling”
• Company Financials
– G.P in the year 2010 of $ 6.73 billion and
– Total Assets of $ 70.95 billion

4. Cont..
• Want to get accustomed to European style
• Per capita GDP and Economic growth not an issue due to
target market of rich consumers.
• China is a leading destination in Asia and many people
anticipated that Disney would perform well and also move
forward its economy.

5. DISNEYLAND OVERVIEW
• A theme park located in Anaheim, California
• opened on July 18, 1955
• operated by the Walt Disney Parks and
Resorts
• re-branded in 1998

6. PESTEL analysis
• Political :
– Increasing Government Restraints
– Indigenous Innovations
– Change in Government Official
• Economical :
– Fastest Growing Economy
– Rising Labor Cost
– Trade Barriers
– Inability to gain access

7. Cont..
• Social :
– English as official language (3.1% speaks as first
language)
– 97.1% are literacy
• Technological :
– Good Infrastructure
• Legal : Licensing
• Environmental :
– Seems to be viable choice

8. STP
•
Segmentation - Local as well as international tourists
• Target Group - High income group families
•
Positioning - Amusement Park for children as well as adults

9. SWOT analysis
Strengths:
1. This is the oldest amusement park
2. This is the world’s most popular brand in the
category of amusement parks
3. It has a larger cumulative attendance than any other
theme park in the world (approx 16mil/yr)
4. Has a very wide range of offerings suitable for all
age groups
5. Strong brand equity and visibility, and strong brand
backing of Walt Disney

10. Cont..
Weaknesses :
1. It has a very diverse product portfolio with several different theme
parks and hotels, which makes centralized management and
monitoring very difficult.
2. Incidents and accidents over the years have been problematic
Opportunities :
1.Special offerings to tap tourists specially from the
emerging economies
2.The company’s ability to leverage on the huge popularity
of the brand also offers an excellent opportunity
3.A huge opportunity exists in the company’s ability to
build innovative new attractions

11. Threats :
1. Local competitor, Universal Studios is gaining huge popularity.
2. The various theme parks opening throughout the world have
the potential to steal away visitors. (eg. SeaWorld Park-USA,
Genting Highlands-Malaysia)
3. In the absence of constant innovation and up gradation, the
Disneyland runs the risk of losing its charm.

12. Why Disney in China?
•
•
•
•
•
Largest Population in the world.
1.3 Billion people
3rd largest country
3.7 million sq. miles
Amazing terrain
– Forest
– Mountains
– Deserts
– Coastlines

13. Background: Why Shanghai?
$1,600
$1,400
$1,200
$1,000
$800
$600
$400
$200
$0
• Shanghai leads in GDP and FDI in
China
– GDP US$4,512 (2001)
– 9% of total FDI in China
Urban
Rural
Urban
Rural
Disposable Income Per Capita (US$)
Average Consumption Expenditure (US$)
* 2000 figures
• Shanghai residents (2002)
– 18.4 M, including floating population
Shanghai
China
– Average household size is 2.9
• Tourist population (2000)
– 64.7 mainland domestic
– 1.5 million foreign overseas
– 0.5 million

14. Park Location is Key
Expo Site
and
Universal
Property
Significant infrastructure
development is occurring to
support the 2010 Expo

15. Comparative ratings on the basis of
Geert Hofstede theory
•
•
•
•
•
Power Distance Index (PDI)
Individualism (IDV)
Uncertainty Avoidance Index (UAI)
Masculinity (MAS)
Long Term Orientation (LTO)

17. Power Distance Index
• At 80 China sits in the higher rankings of PDI – i.e. a society
that believes that inequalities amongst people are acceptable.
• The subordinate-superior relationship tends to be polarized
and there is no defence against power abuse by superiors.
• Individuals are influenced by formal authority and sanctions
and are in general optimistic about people’s capacity for
leadership and initiative.
• People should not have aspirations beyond their rank.

18. Individuality
• At a score of 20 China is a highly collectivist culture where
people act in the interests of the group and not necessarily
of themselves.
• In-group considerations affect hiring and promotions with
closer in-groups (such as family) are getting preferential
treatment.
• Employee commitment to the organization (but not
necessarily to the people in the organization) is low.
• Whereas relationships with colleagues are cooperative for
in-groups they are cold or even hostile to out-groups.
• Personal relationships prevail over task and company.

19. Masculinity
• At 66 China is a masculine society –success oriented and
driven.
• The need to ensure success can be exemplified by the fact
that many Chinese will sacrifice family and leisure priorities
to work.
• Service people (such as hairdressers) will provide services
until very late at night.
• Leisure time is not so important.
• The migrated farmer workers will leave their families behind
in faraway places in order to obtain better work and pay in
the cities.
• Another example is that Chinese students care very much
about their exam scores and ranking as this is the main
criteria to achieve success or not.

20. Uncertainty Avoidance
• At 30 China has a low score on uncertainty avoidance.
• Truth may be relative though in the immediate social circles
there is concern for Truth with a capital T and rules (but not
necessarily laws) abound.
• None the less, adherence to laws and rules may be flexible
to suit the actual situation and pragmatism is a fact of life.
• The Chinese are comfortable with ambiguity; the Chinese
language is full of ambiguous meanings that can be difficult
for Western people to follow.
• Chinese are adaptable and entrepreneurial.
• At the time of writing the majority (70% -80%) of Chinese
businesses tend to be small to medium sized and family
owned.

21. Long Term Orientation
• With a score of 118 China is a highly long term oriented
society in which persistence and perseverance are normal.
• Relationships are ordered by status and the order is
observed.
• Nice people are thrifty and sparing with resources and
investment tends to be in long term projects such as real
estate.
• Traditions can be adapted to suit new conditions.
• Chinese people recognize that government is by men rather
than as in the Low LTO countries by an external influence
such as God or the law.
• Thinking ways focus on the full or no confidence, contrasting
with low LTO countries that think in probabilistic ways.

22. Porter's Five Forces
1.Rivalry
•Few competitors due to the high cost of infrastructure, capital and
reputation.
•Rivalry in the media and studios segment is high
•The rivalry for the theme park and product segments are low.
2. Threats of Substitutes
High threat of substitutes for the media, consumer products,
and studios segment.
Low threat of substitutes for the Disney experience at
the theme parks.

23. 3.
Buying Power
Consumer buying power is relatively low due to
differentiated strategy.
4. Supplier Power
low supplier power.

24. 5. Barriers to Enter
The infrastructure and other assets
needed are very high.

25. Business strategy -Diversification
• Began very Early
 First Cartoon Mickey mouse – 1928
 Pencil Tablet – 1929
 Mickey Mouse Club – 1932
 Film Production – During the war
 Diversification to music – 1949


Diversified towards Television

26. PLACE
Disneyland - California, USA (1955)
Walt Disney World Resort - Florida, USA (1971)
Tokyo Disney Resort – Japan (1983)
Disneyland Resort Paris - France (1992)
Hong Kong Disneyland Resort – (2005)

27. DIFFERENTIATING FACTOR
Customer’s decision to buy is made first with emotion and
second with logic
Disney has masterful understanding of the emotional
connection between its products and customers
Customer’s family would spend hundreds of dollars for the
pleasure of spending time in Disneyland where they will most
certainly face hour long lines for the most popular
rides and additional expenses on food.

28. The driving force behind success is the understanding of
customer engagement.
Customer engagement is comprised of how the
company makes the customer feel.
In Disneyland customers definitely feel that
they are valued
If an issue arises, customer believes that
Disneyland will work diligently to satisfy them

29. Disney’s Interest in China
• Long-term
– Consistently searching for areas of expansion
where there are un-captured markets
• Current
– Government relations established through the
Hong Kong Disneyland project indicate easier
entry into the mainland
• Competitive
– Universal-Vivendi’s land purchase in
Shanghai and proposed expansion into
Beijing

30. Target Market
Target Local Market
(million)
By Income Level (yuan)
30,000 – 60,000
2.44
60,000 – 90,000
1.62
> 100,000
1.14
Total Local Market (based on income)
Tourist Market
Domestic (Mainland)
Overseas - Foreign
Overseas - Domestic
Total Target Market
* Based on 2008F Population numbers
5.20
(million)
64.7
1.5
0.50
71.90

31. Modes of Entry
• Disneyland Shanghai will be a joint venture between
Disney and the Shanghai Shendi Group,100% stateowned Chinese company.
• As part of the agreement, Shanghai Shendi Group
will hold 57% of the shares and Disney the remaining
43%.
•Although it is mandatory by law to enter the
Chinese market with a joint venture with a
local company, the selection of a JV makes
sense from several perspectives given the
great differences between both cultures.

32. Project Structure
• 1.27 Billion US$ total capital investment
• 60% Debt
– 80% Government
– 20% Commercial
• 40% Equity
– 43% Disney
– 57% Government
•10.6 Million Visitors in its first full operating year
and average annual growth of 1.5%
•Corporate tax rate of 30%, with tax loss carryforwards permitted for five years

33. Operating Cash Flows
Revenues
• Admissions (50%)
• Food and beverage
(24.5%)
• Merchandise (24.5%)
• Main entrance (1%)
Costs
• Park labor and overhead
• Maintenance materials
• Entertainment
(costuming, labor, etc.)
• Food and beverage
COGS
• Merchandise COGS
• Support labor
• Miscellaneous

34. Risk Analysis - Sovereign
• Currency risk is not mitigated by this project since the
majority of cash inflows and outflows are in local currency
• Expropriation risk is mitigated some with the government
taking a controlling equity stake
• No other commercial or multi-lateral agency partners are
involved in the project
•Because the project is in the tourism industry and
involves an American cultural icon, the susceptibility
to strikes or terrorism is slightly higher than average
•The project’s location in Shanghai reduces the overall
risk of natural disasters when compared to country
averages

35. Risk Analysis – Operating
and Financial
• The technology for this project will be provided by Disney
and is proven in other locations
• Potentially lengthy negotiations with the Chinese
government increases start-up risks slightly
• Given the project is very service oriented, there is some
risk associated with the level of control assumed by the
government, but this is difficult to quantify
•There are no financial mitigating factors ― rather,
this project is closely tied to the government
•Real option: A minor amount of cannibalization
from the Hong Kong property may be expected

36. Cost of Capital
• ICCRC
16.10%
– U.S. Risk Free
4.00%
– U.S. Risk Premium
4.00%
– China’s Country Credit Rating
58.9
– Anchored to U.S. cost of equity
• Adjustments
– Industry beta adjustment

37. Cash Flow Analysis
2003
2004
2005
2006
2007
2008
2009
Admissions
Merchandise
Food & Beverage
Main Entrance
Hotel Revenues
Total Revenue
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$283,179,483
$53,532,494
$53,532,494
$500,000
$13,687,500
$404,431,972
$296,060,956
$55,967,619
$55,967,619
$515,000
$14,098,125
$422,609,319
Park Operating Expenses
Hotel Operating Expenses
Start Up Costs
Royalty Expenses
Total Opertaing Expenses
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$133,951,636
$8,896,875
$20,000,000
$20,221,599
$183,070,109
$138,405,572
$9,163,781
$0
$21,130,466
$168,699,819
EBIT
Depreciation
EBITDA
$0
$0
$0
$0
$6,350,000
($6,350,000)
$0
$20,637,500
($20,637,500)
$0
$42,862,500
($42,862,500)
$0
$57,150,000
($57,150,000)
$221,361,863
$63,500,000
$157,861,863
$253,909,500
$63,500,000
$190,409,500
Interest on Debt
Taxable Income
Adjusted Taxable Income
$0
$0
$0
$0
($6,350,000)
$0
$0
($20,637,500)
$0
$0
($42,862,500)
$0
$0
($57,150,000)
$0
$46,908,093
$110,953,769
$0
$50,028,135
$140,381,366
$124,335,135
Less: Taxes
Less: Debt Principal
Less: Capital Expenditures
Plus: Depreciation
Free Cash Flow
$0
$0
$0
$0
$0
$0
$0
$0
($50,800,000)
$6,350,000
$0
($50,800,000)
$0
$0
($114,300,000)
$20,637,500
$0
($114,300,000)
$0
$0
($177,800,000)
$42,862,500
$0
($177,800,000)
$0
$0
($114,300,000)
$57,150,000
$0
($114,300,000)
$0
($75,679,404)
($50,800,000)
$63,500,000
$0
$47,974,365
($37,300,540)
($72,559,362)
($38,520,000)
$63,500,000
$0
$55,501,463
PV FCF
$0
($43,759,152)
($84,811,864)
($113,644,212)
($62,931,341)
$22,752,817
$22,674,387
Less: NWC
through 2029
NPV * Cash flows analyzed $19,242,097 (per Disney, typical 20-25 year financial analysis time horizon)
IRR
17%

38. Real Options
• Option to wait until Universal Studios opens
– Already losing any first mover advantage
– Universal’s track record at opening resorts is not on par with
Disney’s ― lessons learned from Universal may be minimal
• Build a resort hotel in conjunction with the park
• Build a “Downtown Disney” entertainment center adjacent
to park
•Build another gate after several years of operation (double
park size)

39. Recommendation
• Begin negotiations with Chinese government
– Government equity stake and debt provisions
– Land and infrastructure provisions
• Disney must make the argument that a
Shanghai Park would not substantially
damage Hong Kong
•Escalating political tensions on the Korean
peninsula could change the risk assessment

40. Ticket Price Projection
Source: http://www.time.com/time/europe/magazine/article/0,13005,901020325-218398,00.html
All Currency in USD
Ave Annual Temperature (F)
Population (2000) in Millions
2002 Attendance in Millions
% of Attendance vs. Local
Ticket Price (1 Day 1 Park Adult)
No Tax Included
Ticket Price Base MultiDay
Ticket Price Premium MultiDay
Ticket Price (Annual Pass) No
Percentage of 1D1P to Annual
Annual Income (2000)
Annual Disposable Income
DI % of Annual Income
1D1P % of Disposable Income
Annual Pass % of Disponsable
Orlando
72.4
0.185984
33
17743%
$
$
$
$
$
$
50
192
307
369
14%
42,148
25,939
61.54%
0.19%
1.42%
Paris
67
2.1
12
571%
$
$
$
$
$
Anaheim/Los
Angeles
73
3.7
39.7
1073%
39 $
106 $
$
248 $
16%
32,660 $
5,128 $
15.70%
0.76%
4.84%
47
119
166
225
21%
42,148
25,939
61.54%
0.18%
0.87%
Tokyo
Hong Kong Shanghai
60.1
73
60
28
7.116
13.216
0
0%
0%
0%
$
$
$
$
$
$
Potential 1D1P Price
Potential Annual Park Price
Potential Attendance (in Millions)
Average Attendance Per Day
46
81
143
332
14%
37,661 $
3,924 $
10.42%
1.17%
8.46%
20,832 $ 5,542
13,244 $ 1,400
63.58%
25.26%
155.25
1,120.44
0.00
0
16.41
118.45
7
19178

41. Demand Projections
Captured 2008 Market (million)
30000 - 60000
60000 - 90000
>100,000
Captured Market Based on Income Level
Market From Tourism
Local - Domestic Tourists
Overseas - Foreign Tourists
Overseas - Domestic Tourists
Total Captured 2008 Market for Disney-Shanghai
1.83
1.30
0.97
4.09
1.84
1.23
0.86
3.94
6.47
0.075
0.005
10.64
7.764
0.075
0.005
11.78
1.14
Total 2008 Market (million)
30000 - 60000
60000 - 90000
>100,000
Total Market Based on Income Level
Market From Tourism
Local - Domestic Tourists
Overseas - Foreign Tourists
Overseas - Domestic Tourists
Total 2008 Market for Disney-Shanghai
2.44
1.62
1.14
5.20
64.7
1.5
0.50
71.90

42. Revenue Projections
Revenue Assumptions
Year
Expected Demand (Mil)
Admissions ($ Mil)
Merchandise ($ Mil)
Food and Beverage ($ Mil)
Main Entrance ($ Mil)
Total Revenue
F&B Per Cap
Merch Per Cap
2008
0
10.64
$283.18
$53.53
$53.53
$0.50
$390.74
2009
1
10.80
$296.05
$55.97
$55.97
$0.52
$408.50
2010
2
10.96
$305.49
$58.51
$58.51
$0.53
$423.04
2011
3
11.13
$315.31
$61.17
$61.17
$0.55
$438.19
2012
4
11.29
$325.50
$63.95
$63.95
$0.56
$453.96
2013
5
11.46
$336.10
$66.85
$66.85
$0.58
$470.39
2003 USD 2008 USD
$4.34
$5.03
$4.34
$5.03
- Assume Expected Demand Grows 1.5% Annually (Based on Attendance Figures at Other Disney Parks)

43. Operating Costs
Operating Expenses
Park Labor (Salaried & Hourly)
Costs Associ. w/ Park Labor
Maintenance
Entertainment
F&B
Merchandise
Support Labor
Miscellaneous
Total Expenses
Park Labor (Salaried & Hourly)
Costs Associ. w/ Park Labor
Maintenance
Entertainment
F&B
Merchandise
Support Labor
Miscellaneous
Total Expenses
USD (Millions)
Adjusted (2003 Dollars) Adjusted (2008 Dollars) % Revenue
$50.00
$20.00
$23.19
$25.00
$25.00
$28.98
$15.00
$15.00
$17.39
$25.00
$24.30
$28.17
$10.62
$9.77
$11.33
21.16%
$17.55
$14.48
$16.78
31.35%
$5.00
$2.00
$2.32
$5.00
$5.00
$5.80
$153.17
$115.55
$133.95
2008
$23.19
$28.98
$17.39
$28.17
$11.33
$16.78
$2.32
$5.80
$133.95
2009
$23.88
$29.85
$17.91
$29.02
$11.84
$17.55
$2.39
$5.97
$138.41
2010
$24.60
$30.75
$18.45
$29.89
$12.38
$18.34
$2.46
$6.15
$143.01
2011
$25.34
$31.67
$19.00
$30.78
$12.94
$19.17
$2.53
$6.33
$147.76
2012
$26.10
$32.62
$19.57
$31.71
$13.53
$20.04
$2.61
$6.52
$152.70

44. Capital Structure
Capital Structure Assumptions
Investment Schedule
Park Investment
Hotel Investment
Total Investment
% Debt
% Equity
$1,200,000,000
$70,000,000
$1,270,000,000
60%
40%
Debt
$508,000,000
43%
57%
Total
$127,000,000
$285,750,000
$444,500,000
$285,750,000
$127,000,000
Debt
$76,200,000
$171,450,000
$266,700,000
$171,450,000
$76,200,000
Equity
$50,800,000
$114,300,000
$177,800,000
$114,300,000
$50,800,000
$762,000,000
Equity
% Disney
% Government
Year
Percent
2004
0.1
2005
0.225
2006
0.35
2007
0.225
2008
0.1
On-Going Capital Expenditures
Assumptions:
Disney Equity
Government Equity
$218,440,000
$289,560,000
-US Parks spend approximately $100 Million every 3 years for new attractions
-Assume 10% is local labor
-Labor costs are 1/3 of US
-Estimate Shanghai Disneyland will spend approximately $93 Million every 3 years (Current Dollars)
-With inflation, translates to $37.02 Million for 2009, Grow at rate of inflation
-Assume hotel will have $1.5 Million in Cap Ex every year beginning in 2009, Grow at rate of inflation
-Total Cap Ex in 2009 is $38.52 Million

45. Depreciation
Year
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022
2023
2024
2025
2026
2027
Cap Ex
$120,000,000
$270,000,000
$420,000,000
$270,000,000
$120,000,000
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
2004 Cap Ex
$6,000,000
$6,000,000
$6,000,000
$6,000,000
$6,000,000
$6,000,000
$6,000,000
$6,000,000
$6,000,000
$6,000,000
$6,000,000
$6,000,000
$6,000,000
$6,000,000
$6,000,000
$6,000,000
$6,000,000
$6,000,000
$6,000,000
$6,000,000
$0
$0
$0
$0
2005 Cap Ex
$0
$13,500,000
$13,500,000
$13,500,000
$13,500,000
$13,500,000
$13,500,000
$13,500,000
$13,500,000
$13,500,000
$13,500,000
$13,500,000
$13,500,000
$13,500,000
$13,500,000
$13,500,000
$13,500,000
$13,500,000
$13,500,000
$13,500,000
$13,500,000
$0
$0
$0
Depreciation Expense
2006 Cap Ex
2007 Cap Ex
$0
$0
$0
$0
$21,000,000
$0
$21,000,000
$13,500,000
$21,000,000
$13,500,000
$21,000,000
$13,500,000
$21,000,000
$13,500,000
$21,000,000
$13,500,000
$21,000,000
$13,500,000
$21,000,000
$13,500,000
$21,000,000
$13,500,000
$21,000,000
$13,500,000
$21,000,000
$13,500,000
$21,000,000
$13,500,000
$21,000,000
$13,500,000
$21,000,000
$13,500,000
$21,000,000
$13,500,000
$21,000,000
$13,500,000
$21,000,000
$13,500,000
$21,000,000
$13,500,000
$21,000,000
$13,500,000
$21,000,000
$13,500,000
$0
$13,500,000
$0
$0
2008 Cap Ex
$0
$0
$0
$0
$6,000,000
$6,000,000
$6,000,000
$6,000,000
$6,000,000
$6,000,000
$6,000,000
$6,000,000
$6,000,000
$6,000,000
$6,000,000
$6,000,000
$6,000,000
$6,000,000
$6,000,000
$6,000,000
$6,000,000
$6,000,000
$6,000,000
$6,000,000
Total
$6,000,000
$19,500,000
$40,500,000
$54,000,000
$60,000,000
$60,000,000
$60,000,000
$60,000,000
$60,000,000
$60,000,000
$60,000,000
$60,000,000
$60,000,000
$60,000,000
$60,000,000
$60,000,000
$60,000,000
$60,000,000
$60,000,000
$60,000,000
$54,000,000
$40,500,000
$19,500,000
$6,000,000

46. THANKYOU