Disney’s Attempt at Foreign Corporate Expansion
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
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7 July 2014