Walt Disney Co. started off as a cartoon maker in California in the year 1923. Having made a few mistakes at the start of his career. Walt and his brother, Roy, decided to change the name from the Disney Brothers Cartoon Studio to Walt Disney Studio. In 1932 he made his first piece of substantial business when he a man from New York offered him $300 to put Mickie Mouse on a pencil tablet. After the war had been, Walt Disney struggled to rekindle his place in the market, but after the productions of Treasure Island and “the return to classic animated features with Cinderella and the first Disney television show at Christmas time. The company was moving forward again”. (Disney History, 2013)
His first Disneyland resort opened in July, 1955. This theme-park brought much needed revenue in to Walt Disney Studio and resulted them in being able to purchase 28,000 acres of land in Florida. Within 16 years of further development, Walt Disney World was opened in Florida in 1971. This then ensured that the firm had a resort on both coasts in America. When the firm realised in the late 70’s that they could afford to branch out to Asia due to cheaper labour and material costs, production began for Tokyo Disneyland in Japan. This was their first foreign investment. They opened Tokyo Disneyland in 1983 and it was an instant hit. The Asian investment turned out to be a huge success as the “country had loved anything Disney” (Disney History, 2013).
After the instant success over in Japan, Walt Disney Co. thought they had mastered there foreign direct investment strategy and immediately started planning to expand over to Europe, as the films they produced were a much bigger hit in Western Europe than what they were over in America. They then decided to invest in a small suburb in France called Marne-la-Valle. They decided to do this whist France were in economic turmoil in the hope that the economy would balance itself out and the French currency at the time, the Franc, would stabilize itself and that they would profit from the increase in value. When they organized the expansion. They intended on employing 28,000 people in a town that had a 10% unemployment rate. This was a huge investment for France and Walt Disney, and they had estimated “labour cost would be 13% of their revenues” (Meltdown at the cultural, 1994). In 1992 the true figure was 24% and in 1993 it increased to a whopping 40%. A deal they also struck with the French government was that they would sell them land at a cut price of $7,500 an acre. They ended up buying 4,400 acres witht the intention This came with a price as there were huge protests by farmers as to why a foreign company were allowed their land for a massive cut in price. As Euro Disneyland was a public company “with 51% of equity owned by EC individuals and institutions (Anything but a 'Mickey Mouse', 1989). The other 49% of the shares are owned by the Walt Disney Company who maintains management control of the company (Grey, 1989)” (Burgoyne, 1995).
Thus, in France the Walt Disney Company bought far more land then it needed in order to eventually build 700,000 square meters of office space, a 750,000 square meter corporate park, 2,500 individual homes, a 95,000 square meter shopping mall, 2,400 apartments and 3,000 time share apartments (de Quillacq, 1994).
n fact, Disney budgeted for real estate to account for 22% of revenues in 1992, 32% of revenues in 1993, 40% of revenues in 1994, and 45% in 1995 (de Quillacq, 1994)
http://www.hiddenmickeys.org/Paris/English/LynEuroDisney.html
This was another area where the executives were wrong in their assumptions. In 1992 the true figure was 24% and in 1993 it increased to a whopping 40%. These labour cost percentages increased Euro Disneyland's deb
After much consideration, in May 1993, the Walt Disney Company changed its policy and allowed wine and beer in the Euro Disneyland theme park (Wentz & Crumley, 1993).
More specifically, the Walt Disney Company calculated that each guest would buy $33 worth of food and souvenirs per day. This did not happen. In fact, spending is about 12% less than predicted (Toy, Oster, & Grover, 1992).
Euro Disneyland made a huge mistake not considering the views of the French when developing their marketing strategies. The Walt Disney Company agrees there may have been marketing mistakes, but it blames the mistakes to lack of data on how Europeans would react to the "Disney Magic" (Euro Disney: The not-so-magic, 1992).
“The most fundamental question about FDI activity is why a firm would choose to service a foreign market through affiliate production, rather than other options such as exporting or licensing arrangements” (Blonigen, 2005). The reason they do this is down to two aspects, cost-related motives and revenue related motives. “MNC’s commonly consider foreign direct investment because it can improve their profitability and enhance shareholder wealth” (Madura, Fox and Fox, 2007).
When companies like Walt Disney Co. think of investing in a different country, a major influence in their final decision is how much cheaper is it to operate in that country compared to their home country. One motive might be that they will fully benefit from economies of scale which one would assume they would achieve as much of the costs associated with planning a theme park have already been incurred. Also, the sales of Disney toys will increase, allowing for additional economies of scale in production.
“When Walt Disney Co. decided that they wanted to open a resort in Paris, there was a “significant distortion of income sharing to the detriment of wage earners, a restrictive fiscal policy and, consequently, weak growth and rising unemployment from 1983 to 1987.”(Artus, 2012)
in France. This can be seen as cost related motive for Walt Disney Co. as France at the time were desperate for investment and an economic boom. This can be proven from the graph titled “total business investment (as % of real GDP).” Even though that the graph shows the difference between France and Germany, we can see that France’s % was really low until 1987, coincidently the year that Walt Disney Co. made an agreement with the French authorities in order to open a resort there. “Euro Disneyland was expected to generate up to 28000 job, proving measure of relive for an area that suffered 10% unemployment rate” (Rahman, 2016). “At that time, the French government called it “the largest investment in recent history in France”. (Liu and Wong, 1999). Wage demands and cost of foreign material would’ve cost less for Walt Disney Co. in France than what it would’ve in America due to their financial and economic difficulties. The price of land would’ve also interested Walt Disney Co.’s interest they would’ve needed to purchase a substantial number of acres which in total was 4,400 acres. This can be seen as a foreign factors of production motive, and would’ve appealed due to it lowering the cost of their expenses;
“The final deal that Eisner and Chirac signed on March 24, 1987 gave Disney 4,400 acres of Marne-la-Vallee land at a bargain price, a $700 million French government loan at below market interest rates, $400 million of financing of key infrastructure, France’s promise to construct a TGV stop at the Resort’s front entrance and to expand the A-4 freeway, and other valuable benefits.” (Newell, 2013).
Another motive might have been that they could benefit off reacting to exchange rates in France at the time. They might anticipate that once they establish a subsidiary in France, the value of the Franc would strengthen over time. They could possibly look at participating in a joint venture in order to learn about a production process or other operations which could be defined as using foreign technology, though this is a motive, I’m unsure that Walt Disney Co. would consider this as a possible reason to invest in this project
The second motive group are relative related. These are motives that will hopefully boost revenue. “Even if it faces little competition, its market share in its home country may already be near its potential peak. Thus, the firm may consider foreign markets where there is potential demand” (Madura, Fox and Fox, 2007). By the late 1980’s, Walt Disney Co. had 3 resorts across 2 different continents. 2 were based in America, Disney Land Resort in California, west coast, and Walt Disney World Resort in Florida, east coast. This basically covered America’s demand as people didn’t mind travelling to the locations. The third resort, known as Tokyo Disney Resort, is situated in Japan. The next logical thing to do would be to attract new sources of demand. One market that they had not yet penetrated was Europe, and they were in dispute to decide on Alicante, Spain or Marne-la-Valle. Eventually, Alicante “lacked reliable phone service and was a considerable distance from central Europe, which meant a Spanish Resort would likely attract only summer tourists.”(Newell, 2013). Marne-la-Vallee was also a better destination as it “put the park within 4-hours’ drive for around 68 million people, and 2 hours flight for a further 300 million or so” (Solarius, 2006). Another motive was that there were limited amount of competition, though there were a couple of companies that had proven that there was a market for Disney over in France. Some of these were Parc Asterix, as well as Futuroscope. This ensures that they are entering in to a profitable market in a foreign country as other companies are doing well there. Which can be considered as a revenue related motive. What Disney Co. had though that the competition didn’t was an international status. This gave them a monopolistic advantage. Monopolistic advantage can be described as a firm having a slight edge over their competition due to advances that they have made and results they have seen in similar cases before. In this case, Walt Disney Co. knew that there company could be a success anywhere in the world due to their success in Asia and America, which meant they had experience. Though it’s fair to say that their competitors also had experience, yet they didn’t have it on an international scale. This was somewhat proven when “eighty-five percent of the French population supported the deal, despite the fact that their taxes paid for much of it.” (Newell, 2013). Another motive would to diversify internationally. This would be a good motive as “economies of countries do not move perfectly in tandem over time, net cash flow from sales of products across countries should be more stable that comparable sales of the products in a single country”(Madura, Fox and Fox, 2007). By diversifying sales and production internationally, Walt Disney Co. can make its net cash flows less volatile, and therefore means that the chances of a liquidity deficiency would be less likely. Another possible motive from diversifying internationally would be that they would enjoy a lower cost of capital as “shareholders and creditors perceive the MNC’s risk to be lower as a result of more stable cash flows”(Madura, Fox and Fox, 2007)
A subsidiary is a ‘daughter company’ of another company. In this case Disney Paris is the daughter company of Walt Disney Co., and even though they carry out business under different names, it’s Walt Disney Co. that carries the financial burden of Disney Paris. A decision must be made by Walt Disney Co. on what to do with the profit made in Disney Paris. They have two options; the first option would be to re-invest the money that the company would need for the following year to cover expenses, and put the rest of the profit in to Walt Disney Co., or they could re-invest all of the profit back in to Disney Paris and use that as capital to expand the subsidiary and its maximum capacity. Eventually, Walt Disney Co. will then decide which company needs it most
A decision to re-invest in the daughter company can be influenced in the current state of the subsidiary’s country. When Walt Disney Co. decided to open Disney Paris, France were going through an economic crisis where the Franc’s exchange rate took a significant dive. At the time, the parent company might’ve thought that eventually the economy would balance out, and that they wouldn’t need to heavily invest in the resort, and that they’d make large profits. The economy didn’t balance for a long while, and therefore, to consider if the project deserved to be re-invested in, all of the FDI factors would have been periodically evaluated. Some would say that Walt Disney Co. don’t have a choice but to keep investing in to Disney Paris if they intend on reaching the European market. Disney Paris wasn’t the success that everybody expected as they’d built their resort under an American cultured mind and hadn’t anticipated how offended the French would be, and how unpopular the resort would be in its first couple of years. On their opening day they expected to open to 500,000 people, and on their opening day in April 1992, only 50,000 people turned up. Within the first couple of years of operations, Walt Disney Co. threatened the banks with closure to the resort which would leave them with a theme park that was effectively worthless. Fortunately they came to the conclusion that if Walt Disney Co. kept on re-investing in to the subsidiary, they would re-arrange what they owed the bank. “In return the Walt Disney Company wrote off $210m in unpaid bills for services, and paid $540m for a 49% stake in the estimated value of the park, as well as restructuring its own loan arrangements for the $210m worth of rides at the new park.”
1994 can be viewed as the year that Walt Disney Co. saw the light at the end of the tunnel when Disney Paris is concerned. That year they had finally struck a deal with the banks that favoured them much more than the banks, though it wasn’t all good news as they had a total net loss valued at 1,797 million French Francs. In the following two years, they registered a net profit of 114 million in 1995 and a net profit of 202 million in 1996. (Disney Paris accounts, 1996).
Over the past decade, Disney Paris’s attendance from the general public has declined dramatically, and in a hope to rejuvenate the resort, in 2014, their parent company had decided to re-invest 1.3 billion dollars in order to re-store the store to its former glory days of the late 90’s/early 2000’s. “Disney’s theme parks, closely watched as an informal barometer of discretionary spending in the broader economy, provided the biggest boost, although one park — Disneyland Paris — continued to slump”(Barnes, 2013). This then increased the pressure on Walt Disney Co. to re-invest, and that’s exactly what they have done. “Walt Disney rescues Euro Disney with $1.3 billion funding deal” (Walton and Abboud, 2015). Although this may seem like a project that may coming to an end, Walt Disney Co. still believe in the project and insist on re-investing in order to be able to reach their European demands, and to be able to have a stake in the European market.