Disneyland, Case Study Example

During 1997 spring, Tokyo Disneyland, after 14 years of operation, expanded its business operations in the corporate world. The company’s executives at Japanese Oriental Land Corp. (OL), which is familiar to majority as the firm that introduced Disneyland to Japan, were enjoying the benefits of the well-established business, and they started venturing into new business opportunities that would allow for expansion and promote OL’s earning ability (Teece, 2003).

The first problem encountered during negotiations by the two companies, was on terms of contract. The OL Corporation was very critical to all the negotiation deals with WD where they did not agree on the duration of contract. In the meeting between the Japanese and American companies in 1978, the OL’s top management opposed the terms of the contract. The management believed that the contract did not cater for the next 10 years and such a contract was a servile agreement that needed unwarranted revenue from Japan via license fees. Therefore, the company had significant interest in the new DisneySea Park Project and WD speculated similar revenue accrued for Tokyo Disneyland, and acted as if it were a principle and main investor. The two firms could come to a consensus on the next move concerning the contract and the relation between the two companies became unharmonious (Sackmann, 1997).

The second issue during negotiation by the two companies was the aspect of license fee. Initially, WD had demanded that they needed a 10% in form of license fee, which was strongly opposed by OL Corporation. This, according to Japanese company, OL, affect their strategies of making profit. In there side ,WD was not satisfied by the OL’s suggestion of license fee lower than 5% ,which caused the Japanese company to distrust them (Teece, 2003).

The third problem during the negotiation sessions by was the aspect of risk-sharing. At the commencement of the project in 1978, the OL Company had assured the project borrowing up to 48% of the venture but no more, whereby the remaining part will be met by WD Company. OL senior management team led by their president maintained that this was a decision arrived during the board meeting and there was no element of personal decision since they viewed the contract as being humiliating. The OL’s top management, vehemently rejected the licensing fee structure. They said that this was like paying a royalty fee in excess annually, thus it was unfair for an American company to take no risk and use the land for free without any financial returns to Japan (Sackmann, 1997).

The idea of optimizing shareholder wealth was practical both in theory and in reality in the Anglo-American markets. The Americans had to struggle to optimize the return to company’s shareholders, as evaluated by the total of cash flows, dividends and capital gains, for given type of risks. On the other hand, Japanese markets worked by the theory that their main objective was to optimize corporate wealth. This was to ensure that they retained more corporate wealth to benefit the stakeholders, whereby the scope of corporate wealth was wider than financial wealth, hence it included firm’s market and human resources (Teece, 2003).

The divergence in the capital budgeting between the American and Japanese companies reflected diverse corporate governance. The NPV principle was most applicable to American firms, where the NPV rule to them meant to be owned by its shareholders, which emerged from implementation of investment, and accruing a positive NPV. This principle would adversely influence Japanese corporate governance, since optimizing shareholder’s wealth was not the main objective of management in Japan (Sackmann, 1997).

Eventually, WD believed that they had created a gross mistake by subjecting OL under such strict conditions. Consequently, WD altered its policy after its encounter with Tokyo Disneyland and DisneySea to violently expand into foreign markets, with the slogan, “Never repeat the mistake of Tokyo Disneyland” (Teece, 2003).

To resolve the issues that arose from negotiations, there was the need for top management to restructure the planning department to capitalize on the aspect financial analysis. The financial analysis was the appropriate tool for resolving the conflict that arose from negotiations. The financial analysis should demonstrate a greater aspect of prospective revenue that will convince the stakeholders from two companies to subscribe to the new project.

There is also the need for the two companies to ensure they provide vital information concerning the company and its past operations, especially the aspect of business feasibility. This will enable the two companies to analyze the financial position of each company to ascertain the viability of any possible venture (Sackmann, 1997).

References

Sackmann, S. (1997). Cultural complexity in organizations: inherent contrasts and contradictions. New York, NY: Thousand Oaks

Teece, D. (2003). Technological and organizational factors in the theory of the multinational enterprise: The growth of international business. London: George, Allen and Unwin Press.