Disney’s Attempt at Foreign Corporate Expansion
Many companies throughout the United States and beyond are resorting to developing their business abroad. This is due to numerous factors such as the ability to cut costs through cheaper building material or labor, which leads to increg their revenues, functioning with more advantageous tax and labor laws, and expanding their market, just to name a few.
Disney Company was one of those many American organizations to expand on foreign soil. Its first foreign venture proved to be so successful that the decision was made to further expand abroad. This next foreign expansion experience, named Euro Disneyland did not prove to be the successful venture that had been anticipated by its creators.
Euro Disneyland a theme park comprised of an updated, state of the art Disney's Magic Kingdom, is a subsidiary of the Walt Disney Company located outside Paris, France, and has experienced numerous complications from its inception. Because the Walt Disney Company executives were determined to adhere to American philosophies, they did not thoroughly investigate all aspects of the European environment. This failure to do adequate research caused the Walt Disney Company executives and visionaries to construct their
American dream theme park on foreign soil with little if any regard for the practical reality of the physical, financial, and/or cultural environment of their chosen site. More specifically, the Walt Disney Company's "...biggest mistakes were its overambitious plans to develop the site, plus Euro Disneyland's financial structure itself, which depended on a highly optimistic financial scenario with little room for glitches" (Gumbel & Turner, 1994, p. A 12). These massive oversights were contributing factors to the problems faced at Euro Disneyland.
As a company planning on expanding abroad, it is helpful to study the history of companies which previously have developed in other countries. For example, studying the Walt Disney Company's venture into France will allow other companies to learn from the Walt Disney Company's experiences. Recognizing, understanding and avoiding their mistakes will allow a company entering a new country increased opportunity to succeed. Reviewing the Euro Disneyland venture from the site research investigation to the present day operation will be beneficial to a company considering expansion abroad.
THE HUMAN RESOURCE CONNECTION
The human resource professional often is involved in determining the optimum site for a business and is responsible for many other aspects of an international expansion, such as cultural evaluation of the site, employee selection, training, development, compensation, and evaluation, just to name a few. Thus, as a human resource professional it is pertinent to research companies which have succeeded and those which have not, in order to better prepare. Furthermore, human resource professionals must comprehend the laws, traditions, culture, and people of a country in order to minimize problems which can occur.
In order to understand the issues involved in the Walt Disney Company's international expansion in Europe it is pertinent to review the background of Euro Disneyland. This can be done by looking at how the site, Paris, France, was chosen, at the signed agreement, at the risk management issues, and at the opening.
The Walt Disney Company choose Paris, France, as the site of Euro Disneyland for many reasons. On April 15, 1983, the Walt Disney Company opened in Tokyo, Japan, their first theme park outside the United States. This theme park, Tokyo Disneyland became an instant hit. In fact, since the Walt Disney Company executives believed they learned so much about operating a theme park in another country, and since Tokyo Disneyland was an instant success, they began immediately to search for a site for a fourth park (Scimone, 1989).
To find a site for their fourth theme park, the Walt Disney Company looked to Europe where Disney films historically have done better than in the United States. Because of this film success, the Western European audience already was familiar with Disney entertainment and merchandise (Scimone, 1991). From 1983 through 1987 the company searched for sites in the United Kingdom, France, Germany, Spain, and Italy. Finally the possibilities were narrowed down to Costa del Sol in Spain and Paris in France. Although Spain had the edge due to its climate, France had a larger population and a spectacular transportation network (Scimone, 1989). The Walt Disney Company executives believed since Tokyo Disneyland located in a cold-weather climate and virtually the same latitude as Paris, was so successful, they would be able to operate in similar weather conditions in Paris. In fact, Disney executives admit that "...without the cold-climate (Tokyo) Disneyland success, they would never have picked Paris, which has the same or worse weather than Tokyo" (Anything but a 'Mickey Mouse', 1989). Thus, Paris was selected to be the site of their fourth theme park.
The site for Euro Disneyland is a "...parcel of prime suburban real estate in a mushrooming region called Marne-la-Vallée" (Tully, 1986, p. 172). In fact, the land is one-fifth the size of Paris itself (Scimone, 1991). When the French government used its right of eminent domain to sell Disney the 4,400-acre (1,943-hectares) site at a fraction of its market value for approximately $7,500 an acre, there were bitter protests by the local farmers whose sugar beet fields had been farmed by the same families for a hundred years or more (Tully, 1986; Toy, Maremont, & Grover, 1990). The Walt Disney Company worked with the local farmers to avoid any potential problems. Their efforts were successful. The farmers were proud of the fact that people from many nations would be coming to their area of the world (Tully, 1986; Toy, Maremont, & Grover, 1990).
Marne-la-Vallée is located in an ideal geographic location since it is 20 miles (32 kilometers) due east of the center of Paris and is halfway between the two international airports of Orly and Roissy-Charles-de-Gaulle. The French railway regional express network connects Marne-la-Vallée with the Paris metro system, and major highways are nearby (Scimone, 1989). In fact, of more than 350 million Western Europeans, 17 million can reach the Euro Disneyland resort within two hours by car (Scimone, 1991) and 310 million can fly creating a "...denser market than the United States" (Toy, Maremont, & Grover, 1990, p. 61). With the scheduled opening (which took place May 1994) of direct rail links to Great Britain via the English Channel there were countless additional potential guests. Thus, due to its transportation availability, Paris offers Euro Disneyland a wealth of potential guests and employees (Grey, 1989).
On March 23, 1987, the Walt Disney Company signed a contract with the French national, regional and local governments, which promised Disney: favorable loan terms; that the rapid transit railway system would be extended to the theme park from Paris; that two interchanges would be built to link Euro Disneyland with a main highway; and that a special station for high-speed trains would be constructed at the park (Shapiro, 1989; Introducing Walt d'Isigny, 1992). Unlike the Walt Disney Company's wholly-owned American theme parks, and Tokyo Disneyland where Disney receives license fees from Mitsui and Oriental Land Corporation, Euro Disneyland is 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).
The Walt Disney Company promised new jobs and contracts for local suppliers which resulted in red carpet treatment from France. More specifically, Euro Disneyland planned on hiring 12,000 new Cast Members (employees). About 6,000 would work in Euro Disneyland's Magic Kingdom, 5,200 in hotels on the property, and the remainder in recreation and support facilities. The area was suffering high unemployment at the time and the Walt Disney Company executives believed the economic benefits to the region would be great since they would employee so many local citizens and since tourism generates revenue without requiring such costly social services as schools and hospitals (Scimone, 1989).
Once the Walt Disney Company executives chose Paris, France, as the site for their fourth theme park, they had to integrate American risk management techniques into a French environment. This integration of differing management techniques is typical with any company doing business abroad (Shapiro, 1989). However, a great deal of time, patience, understanding,
education, and willingness to accept and/or compromise are needed from all parties involved in order to make this integration successful. The Walt Disney Company has been known for their strict construction and risk management requirements which they wished to impose upon the French workers. Likewise, the Walt Disney Company had to cope with language barriers and an unfamiliar French legal framework derived from the Napoleonic code (Shapiro, 1989). Thus, this joint venture caused many conference sessions to determine how to best integrate American and French risk management practices covering a multitude of diverse risks (Euro Disneyland combines American, 1989). It was important to each side for them to join their philosophies and requirements into a system which would work for Euro Disneyland.
A good example of the blending of two different systems is the difference in insurance laws in France and the United States. A ten-year owner/contractor insurance policy that covers property damage and third-party claims stemming from construction-related defects was required by French law. The Walt Disney Company would have preferred to purchase a three-year contract as would be allowed by American standards, but could not since they were developing in another country (Shapiro, 1989). Instead, the Walt Disney Company had to abide by the laws of France.
An issue which the French were against was the installation of sprinklers in the hotels (McIntyre, 1990b). Such an installation is not mandated by French law. The French believe the sprinklers are not necessary since "...their hotels are built with superior construction, building materials and compartmentalization, and are equipped with smoke alarms that would quickly summon firefighters" (McIntyre, 1990b, p. 143). 2 Thus, since Euro Disneyland was a French Company, the French did not believe they needed to install sprinklers. The Walt Disney Company believed in such sprinkler installation and embarked on an education program to explain why they wanted the French contractors to install the sprinkler system. Once the Walt Disney Company presented a film on fires depicting how quickly flames can spread, explained about potential delays in firefighters arriving at a hotel, and discussed the difficulties in finding the location of the fire, the French approved the installation of the sprinklers.
These are only two examples of many situations which were discussed by the Walt Disney Company and the French during their risk management meetings. In a wrap-up meeting of risk management issues in the construction of Euro Disneyland Stephen M. Wilder, director of corporate risk management at The Walt Disney Company believed, "The result of compromise and learning is a program that is far superior to what an American company or a French company would have done in isolation" (McIntyre, 1990a, p. 141).
On April, 12, 1992, despite a few protests, the Walt Disney Company's fourth theme park, Euro Disneyland opened its doors to the public with essentially the same attractions as in the other Disney theme parks in California, Florida, and Japan (Introducing Walt d'Isigny, 1992). Euro Disneyland executives hoped to attract 11 million guests a year, more than twice the number that visit the Eiffel Tower (Introducing Walt d'Isigny, 1992). Half of the guests were excepted to be French. Euro Disneyland was confident that with its superior investment, professionalism and French government assistance, it would succeed. If it did not, it would most likely be the fault of the weather and not of any French cultural chauvinism (Introducing Walt d'Isigny, 1992). Unfortunately, the dream of succeeding did not become a reality and eventually Euro Disneyland brought in new management and made other changes in order to save Euro Disneyland (Gumbel & Turner, 1994).
Although Disney believed they had hit a "gold mine" by developing their fourth theme park just outside of Paris, in time they would learn this was not the case. Euro Disneyland's target of 11 million guests in the first year was met, but revenues did not roll in as had been planned. In fact, Euro Disneyland reported a $905 million loss for the fiscal year that ended in September 30, 1993 (Sterngold, 1994), and by December 31, 1993, Euro Disneyland had amassed cumulative loss of 6.04 billion French francs or 1.03 billion US dollars (Gumbel & Turner, 1994).
It should be noted, Euro Disneyland's first chairman, Robert Fitzpatrick, an American, won kudos for setting up the park, yet he stumbled over day-to-day operations. Fitzpatrick spoke French, knew Europe well and his wife was French. But he seemed to be "...caught in the middle and quickly came to be regarded with suspicion by some on both sides" (Gumbel & Turner, 1994, A 12). Numerous times he attempted to warn Disney executives that France should not be approached as if it were Florida, but his warnings were ignored. He was replaced in 1993 by Frenchman Philippe Bourguignon. The all-American enterprise suddenly had raced to put on a European face. ourguignon was responsible to "...ensure the park goes native without losing the American feel that is its main draw" (Sasseen, 1993, p. 26).
Although there was a change in the head of Euro Disneyland there are problems which it faced with the old management and still faces problems with the new management. Among these problems are included their optimistic assumptions, staffing and training, cultural issues, interest rates, marketing, communication, and convention business.
The Walt Disney Company, overly ambitious in their venture, made several strategic and financial miscalculations. In addition it gambled, incorrectly, that the 1980's "...boom in real estate would continue, letting it sell off assets (discussed below) and pay down the debt quickly" (Gumbel & Turner, 1994, p. A 1). Further, it relied too heavily on debt when the interest rates were beginning to increase. Another costly assumption was that Disney believed it could change certain European habits.
Budget - Breakers
The Walt Disney Company wanted to build a state of the art, as near to perfect as possible, theme park. In order to meet this goal the company frequently attempted to build and rebuild, with no regard for the "bottom-line" construction cost. Michael Eisner, the Chief Executive Officer of the Walt Disney Company, ordered several last-minute construction changes, known as budget-breakers, which further increased Euro Disneyland's debt (Gumbel & Turner, 1994). For example, one cold day before Euro Disneyland opened Eisner warmed himself by a Paris hotel lobby fireplace and ordered more than a dozen wood-burning fireplaces for Euro Disneyland despite the added construction cost and upkeep (Solomon, 1994). Another example of an Eisner budget-breaker was his decision to remove two steel staircases from Euro Disneyland's Discoveryland. He wanted them removed because they blocked a view of the Star Tours ride. It was estimated the cost to remove the staircases was approximately $300,000 (Gumbel & Turner, 1994).
Euro Disneyland executives and advisors failed to see the signs of the approaching European recession. "Between the glamour and the pressure of opening and the intensity of the project itself, we (the executives) didn't realize a major recession was coming" (Gumbel & Turner, 1994, p. A 12). As the recession began to develop the French real-estate market tumbled (discussed below), thus, destroying Euro Disneyland's hopes of selling their assets and receiving revenues. In addition, the recession caused French and European disposable incomes to shrink, causing families to think twice about taking an expensive trip to Euro Disneyland (France: Disney gears up, 1992).
Furthermore, Euro Disneyland did not realize the magnitude of the impending recession and when given numerous opportunities to sign partners who would share the risk or buy the existing hotels, Disney refused. Euro Disneyland did not want to give up any of the potential revenues once the recession was over (Gumbel & Turner, 1994).
Real Estate Market
The Walt Disney Company executives involved in the development of Euro Disneyland were determined they would not repeat two mistakes which they had made in past ventures. One mistake was allowing other companies to build lucrative hotels surrounding their theme park, as happened at Walt Disney World in Orlando, Florida, where the Walt Disney Company owns only 14% of all hotels. The other mistake was in letting another company own a Disney theme park, as in Tokyo, Japan, where Disney just collects royalties from an immensely profitable attraction (Solomon, 1994). 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).
Euro Disneyland planned to develop the land and then sell it to prospective buyers, making a large profit. In addition, this would allow Euro Disneyland stringent control over designing and building of future areas within the resort and then the ability to sell off the completed commercial properties in due course and at a large profit. In 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). Euro Disneyland executives must have known rather rapidly that the financing structure for the resort was in trouble. Unfortunately, this revenue generating plan never really "got off the ground" due to the collapse of the real-estate market which, in turn, caused the demise of the planned development around the theme park (Turner, 1993, December; de Quillacq, 1994). Thus, Euro Disneyland did not receive revenue from property development as had been anticipated.
There were numerous errors made regarding the overall operation of Euro Disneyland. For example, from its American experience the Walt Disney Company thought Monday would be the light day for guests and Friday a heavy one, and allocated staff accordingly. In reality the reverse was the case. In fact to this day, the company still struggles to find the right level of staffing at a theme park where "...the number of visitors per day in the high season can be 10 times the number in the low season" (Gumbel & Turner, 1994, p. A 12). Furthermore, to add to the operation problem is the difference in employee acceptance of conditions of employment. In Orlando Cast Members are accustomed to and have learned to accept being sent home if they are not needed. However, in Paris, French Cast Members feel extremely irritated by and have a very difficult time accepting the inflexible scheduling (Gumbel & Turner, 1994).
Another example of operational assumptions at Euro Disneyland involved the bus drivers. The Walt Disney Company built the French bus parking spaces much too small. Bus drivers were unhappy as they had a very difficult time fitting their busses into their designated spots. In addition, the Walt Disney Company provided only 50 restroom facilities for bus drivers and on peak days there would be 2,000 drivers (Gumbel & Turner, 1994).
A final example of the operational errors made by Euro Disneyland involved the computer stations at the hotels. Euro Disneyland executives assumed guests would stay at the park for several days (Treichler, 1991). This in fact did not happen. Many guests arrived early in the morning, spent the day at the park, checked into the hotel late that night, and then checked out early the next morning before heading back to the park. Since there were so many guests checking-in and checking-out, additional computer stations had to be installed at the hotels in order to decrease the amount of time the guests stood in line.
Before the opening of Euro Disneyland executives had estimated labour cost would be 13% of their revenues (Meltdown at the cultural, 1994). 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 debt.
Staffing and Training
Before Euro Disneyland opened the Walt Disney Company built offices in Marne-la-Vallée in order to recruit their Cast Members. In just 12 months 12,000 Cast Members had to be recruited, hired, trained, and housed (Bakos, 1991). This is a challenge for any company, "...but it is more complex for Disney, whose employees (Cast Members) become more like members of a theater troupe" (Bakos, 1991, p. 102). Euro Disneyland recruited through job fairs, a popular European recruiting technique. In two days, 1,000 applied. However, since the Walt Disney Company's requirements for employment are so high, for every 10 candidates interviewed only one was hired (Bakos, 1991). To complicate the hiring process, there were language requirements since the official languages of Euro Disneyland are French and English. Preferences were given to trilingual applicants because it was hoped that the park would draw guests from all over Europe.
Once the candidates were hired Euro Disneyland's challenge was to train the Europeans, half of them French, to be Disney Cast Members (Toy, Maremont, & Grover, 1990). "Every employee goes through human resource training, then additional training in requirements of specific jobs" (Bakos, 1991, p. 102). The success to Disney parks' repeat guest visits is the employee-customer rapport. Thus, the largest challenge Euro Disneyland encountered was implanting a "have a nice day" mentality and teaching 12,000 European employees to smile the "Disney smile" all day (Anything but a 'Mickey Mouse', 1989).
Throughout training and employment ALL Cast Members learn they must adhere to the company's strict 13 page manual of dress codes, known to Cast Members as the "Disney Look." The Europeans did not understand this "Disney Look" (Toy, Grover, & Maremont, 1992; Phillips, 1993). The "Disney Look" is a rigid code of Cast Member appearance that imposes a well-scrubbed, all-American look. It details the size of earrings to the size of finger nails to the no tolerance rule regarding facial hair and dyed hair. It is difficult for the Europeans to adhere to an "American look" since they are not American and they believe this requirement has stripped them of their "individualism" (Leerhsen & Gleizes, 1992, p. 67). Furthermore, the French "...were hardly specialists in service" (Solomon, 1994, p. 36). In December 1994 Euro Disneyland was taken to French court contesting the Walt Disney Company's strict dress code. The Europeans believed the dress code violated French labor law (Du Bois, 1994). As a result Euro Disneyland restructured their French dress code. However, the French believed that the Walt Disney Company just instituted a new policy not as a result of being taken to court but in an attempt to patch up the rocky labor relations at the theme park.
Although European public acceptance of the theme park itself has not been a problem for Euro Disneyland there has been a different type of cultural clash. Most Europeans believe there is cultural imperialism (Turner, 1993, November). Europeans have not taken to the "...brash, frequently insensitive and often overbearing style of Mickey's American corporate parent" (Gumbel & Turner, 1994, p. A 1). Disney executives' contentious attitudes exacerbated the difficulties it encountered by alienating people with whom it needed to work. "Its answer to doubts or suggestions invariably was: Do as we say, because we know best" (Gumbel & Turner, 1994, p. A 1).
Cultural Operational Errors
There were various errors made in the operations of Euro Disneyland which affected the French culture. An example if this is the Walt Disney Company's policy of serving no alcohol in its parks in California, Florida, and Tokyo which it extended to France. This caused astonishment and rebellion in France where a glass of wine for lunch is a given. 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).
Another example is the Walt Disney Company's belief that it understood European breakfast norms (Gumbel & Turner, 1994). Disney was told Europeans did not eat sit-down breakfasts. This resulted in Disney downsizing their restaurants before Euro Disneyland opened. Once it opened the restaurants were bombarded with breakfast eaters. In fact, they were "...trying to serve 2,500 breakfasts in a 350-seat restaurant at some of the hotels" (Gumbel & Turner, 1994, p. A 12). Further, guests wanted bacon and eggs rather than just coffee and croissants. Disney reacted quickly with prepackaged breakfasts delivered to rooms and satellite locations (Gumbel & Turner, 1994).
In much the same vein, the Walt Disney Company had difficulty realizing that the Europeans were accustomed to eat at a set time every day (Solomon, 1994). Where Americans are content to wander around the parks with lunch in their hands, a large majority of the European guests would converge on the restaurants at 12:30 p. m. expecting to be seated for a leisurely lunch. This caused the lines to be very long. To complicate matters further, once the Europeans reached the front of the line they were told they could not have wine or beer with their lunch (Solomon, 1994). Thus, the Europeans did not have a positive "Disney experience" while eating their meals. In addition, it was difficult for Euro Disneyland's managers to staff for these one or two hour "rush hours."
A final example of a cultural error is the Europeans approach to vacation time. The Europeans are reluctant to take their children from school for a vacation in mid-session whereas Americans do it frequently. Also, the Europeans prefer a few longer holidays rather than several short breaks. The Walt Disney Company was convinced that it would be able to "Americanize" the European habits. Unfortunately for the Walt Disney Company, this was not the case.
There also were miscalculations made by the executives regarding the per-capita spending of the guests at Euro Disneyland. The Walt Disney Company had assumed that guests visiting Euro Disneyland would spend large amounts of money as they did in the United States and Tokyo (Turner, 1993, December). 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 then predicted (Toy, Oster, & Grover, 1992). Further, Europeans' per-capita income is lower than the Japanese, and they are likely to spread their money over long vacations, not four-day spending sprees (Solomon, 1994).
European guests came to the theme park paying the steep entry fees ($43 for adults and $30 for children), but spent less per-capita on food and merchandise than Americans (Wentz & Crumley, 1993). This may be due in part to the fact that many guests spend as much time on the rides as possible because of the high admission price (30% more than Disney World in Florida) and less time shopping for souvenirs (Euro Disney: The not-so-magic, 1992). American and Japanese consumers do not leave the theme parks empty handed, whereas Europeans do. This resulted in lower-than-expected revenue by Euro Disneyland (Coleman & King, 1994).
The total construction cost of Euro Disneyland was $4 billion. Disney put in just $170 million in equity capital, while public shareholders, who own 51% of the shares put in $1 billion in equity capital. Thus, the remaining $2.9 billion was borrowed, at high rates running as much as 11% (Gubernick, 1994). "Thus, from the start, the project was highly leveraged" (Gubernick, 1994, p. 42). To further complicate the matter, due in part to Michael Eisner's budget-breakers (as discussed above), there was an additional necessity to borrow more money. This second set of loans increased the amount of money owed which is what ultimately "...handcuffed Euro Disney" (Gumbel & Turner, 1994, p. A 12). With high interest rates, large loans, and lower than expected revenue Euro Disneyland was in financial trouble.
Euro Disneyland was marketed with the assumption that it was "...a complete vacation destination that offers enough to keep a family happily occupied for a week" (Scimone, 1991, p. 18). This marketing strategy was obsessed with depicting the park as large and completely eliminating the emotional aspect of the park (Wentz & Crumley, 1993). As discussed above, French guests only stayed at the resort for a night or two and did not stay a week. Instead of marketing the park in the American-style appeal of "...bigness and extravagance" (Wentz & Crumley, 1993, p. I 23), Euro Disneyland should have concentrated on the emotional aspect, marketing that guests would have a unique, extraordinary family experience they would never forget. The American-style bigness approach insulted Europeans (Crumley & Fisher, 1994).
Furthermore, the marketing was flawed in emphasizing glitz and size over attractions (Crumley & Fisher, 1994). There was little showcase of the exciting adventures and characters explaining to the guests what they could do and see in the park. Rather the French saw Euro Disneyland as "American imperialism-plastics at its worst...It showed tremendous arrogance on Disney's part" (Crumley & Fisher, 1994, p. 39).
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).
Investors believe they are victims of Euro Disneyland since the Walt Disney Company poorly communicated its difficulties. For example, as of July 1994 the Walt Disney Company executives were communicating to the investors they still planned on building Phase II, a second theme park at Euro Disneyland. That following November the executives reported a $905 million loss and Disney itself took a $350 million write-off (Gumbel & Turner, 1994). Shortly after that announcement and to the total astonishment of the investors, Eisner casually mentioned in a French magazine interview that Euro Disneyland might close due to its losses.
Additionally, communication with the media has been very poor by the Euro Disneyland executives (Crumley & Fisher, 1994). Those managers who dealt with the media would not return phone calls, much less answer questions. Realizing they made a huge error, it has become Euro Disneyland executives' goal to improve their reputation with the media.
According to Turner & Coleman (1994), one of the few pieces of good news about Euro Disneyland is that its convention business exceeded expectations from the beginning. In fact, convention space at Euro Disneyland's themed New York Hotel, located adjacent to the park, was overbooked and more capacity was needed. Euro Disneyland did not anticipate the success of its convention facilities. Had it done so, it could have increased its conference groups and revenue. Euro Disneyland is now frantically trying to increase its convention facilities.
Much has happened with Euro Disneyland since its opening. Although there have been successes at Euro Disneyland the high debt incurred along the way has caused the financial problems to become the number one priority. In order for the park to remain operational the debt must be lowered.
Disney's Rescue Package
On March 14, 1994, Walt Disney Company proposed a restructuring "rescue" plan which would decrease the amount of Euro Disneyland's debt. The centerpiece of the plan is a 6 billion francs rights issue where 51% would be underwritten by 61 banks and the rest taken up by Walt Disney, which has a 49% stake in Euro Disneyland (Euro Disney's wish, 1994; Euro Disney creditors, 1994). A rights issue is an offering which allows rights to purchase shares, usually at below market prices, to existing shareholders in the same proportion as their present ownership. Thus, the banks would spend about $500 million and make other concessions for their 51% shares, where as, the Walt Disney Company agreed to spend about $508 million to bail out its 49% shares as well as buy certain Euro Disneyland park assets for 1.4 billion francs (about $240 million) and lease them back at terms favorable to Euro Disneyland (Coleman & King, 1994).
In return, the Walt Disney Company agreed to waive royalty and management fees for five years, saving Euro Disneyland about 450 million francs a year. Following the five years, the original royalty fee will be cut in half (Euro Disney's wish, 1994). The plan would lower Euro Disneyland's debt to about 10 billion francs (about $1.69 billion), from the current 20 billion francs. In addition, the bank agreed to forgive 18 months of interest payments on the debt and would defer payments for three years saving Euro Disneyland about 1.9 billion francs. This plan increases Walt Disney Company's tie to the theme park since its initial investment in Euro Disneyland was just $160 million (Coleman & King, 1994).
It should be noted that at the time the "rescue" plan was instituted, the Walt Disney Company continued to own 49% of the shares. At that same time the Walt Disney Company was discussing with Prince Al-Walid bin Talal bin Abdul-Aziz Al-Saud, from Riyadh,
Saudi Arabia, the option of investing about $500 million in Euro Disneyland and buying as much as 24% of Euro Disneyland shares of stock (Rossant, Harbrecht, & Grover, 1994). In January 1995, Brian Coleman wrote that the Walt Disney Company now owned 40% of Euro Disneyland shares, indicating that the parties had completed the deal (Coleman, 1995, January).
As of January 25, 1995, Coleman (1995, January) reported Euro Disneyland's "rescue" plan had sharply narrowed its losses for the fiscal first quarter due to financial restructuring and higher revenues which gave a large boost the theme park. During that same time period, the theme park had a 3% rise in its revenue from 828 million francs to 854 million francs. For the fiscal year ended in 1994, Euro Disneyland reported a net loss of 1.8 billion francs (Coleman, 1995, January). Furthermore, on July 26, 1995, Coleman (1995, July) reported that Euro Disney posted its first profit. During Euro Disneyland's third quarter its profit was $35.5 million.
Euro Disneyland unofficially changed its name in September 1994 to Disneyland Paris in order to adapt to "...European tastes and turn around continued losses and reported slumping attendance" (Crumley, 1994, October, p. 2). Through the emphasis on the name recognization of Paris, Disney executives hoped to capitalize on its proximity to the French capital (Euro Disney mulls renaming park, 1994). It was hoped that this would result in increased attendance and revenues.
In order for Euro Disneyland to hold down costs and increase revenues it has cut 950 administrative posts, or 8.6% of its overall work force (Euro Disney plans to slash, 1993). In addition, responding to complaints regarding high entrance fees and hotel prices, Euro Disneyland has broken a Walt Disney Company taboo by introducing cut-rate entry and room rates for the off-season (Sasseen, 1993). Another first is that it is offering a lower-priced 'After 5' evening entrance ticket (Sasseen, 1993).
The Walt Disney Company is changing its marketing philosophy in order to expand its efforts to countries such as Israel and Africa. Rather than market Euro Disneyland as vacation destination for a period of time, the Walt Disney Company decided to market it as one of many stops on a month-long European itinerary (Euro Disney weathers fickle, 1993). Furthermore, Euro Disneyland executives believe it is pertinent to turn consumer attention away from its balance sheets and back to Disney characters and attractions so they are down playing the financial difficulties and emphasizing what to see and do at the park (Crumley, 1994, March).
To end numerous labour disputes over long-hours and poor pay, Euro Disneyland has "...shifted away from imported American working practices and towards a more French approach" (Sasseen, 1993, p. 27). This new approach set a maximum working week and annualized hourly work schedules. In addition, it reclassified jobs using the French method which allowed French citizens the ability to recognize their standard French job classifications. As a result, Euro Disneyland won greater acceptance and willingness to be flexible from its work force (Sasseen, 1993).
The Walt Disney Company's venture of Euro Disneyland is an excellent source of study, training, and learning for human resource professionals involved in possible foreign expansion. Although Euro Disneyland is located in Europe, the lessons learned and experiences gained can apply to any country on the globe. For example, the Walt Disney Company failed to properly understand the eating habits of the Europeans. The
lesson learned is that any meal providing company contemplating expansion into any foreign market should be intensely indoctrinated on all aspects of the eating habits of people in and near that country. On the other hand, not all lessons learned are based on Disney's negative experiences. The human resource professional could profit by studying the methods used by the Walt Disney Company and the French in their integrating different risk management procedures into one, resulting in a far superior program. The astute human resource professional can learn from this process and apply these newly acquired skills in similar situations anywhere in the world.
A move by any company to any foreign market should not be made without an extensive, in-depth study based on exhaustive research into every applicable aspect of the economy, laws, culture, climate, interests, customs, life-style habits, geography, work habits, just to name a few. The list could go on and on with one area leading to another.
In order to determine the best way for a business to enter a new foreign market it should review past business experiences which have settled in that particular market. Through these past experiences the business contemplating entering the market would have the ability to increase its chances of success as well as decrease its chances of failure.
In the case of Euro Disneyland a new business entering the European market would learn various problems the Walt Disney Company encountered during negotiations, construction, and operation of the theme park. The human resource professional can use this increased knowledge regarding Euro Disneyland's problems in conjunction with the other businesses which entered the European market in order to optimize his/her business chances of succeeding. Furthermore, the information from Euro Disneyland and other companies will allow the human resource professional the ability to make adjustments and have an edge in his/her negotiations, construction, and operation in order to decrease potential problems and increase financial revenues.
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