Beyond Tokyo: Disney’s Expansion in Asia Reflection Paper

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In-Depth Integrative Case 2.1 b

Beyond Tokyo: Disney’s Expansion in Asia

After its success with Tokyo Disneyland in the 1980s,
Disney began to realize the vast potential of the Asian
market. The theme park industry throughout Asia has
been very successful in recent years, with a range of
regional and international companies all trying to enter
the market. Disney has been one of the major participants,
opening Hong Kong Disneyland in 2005 and discussing
future operations in at least three other Asian cities.

Disney in China
After Disney ‘s success in Tokyo, China, in particular,
became a serious option for its next theme park venture in
light of the country’s impressive population and economic
growth throughout the 1990s. Successful sales associated
with the Disney movie The Lion King, in 1996, also con-
vinced Disney officials that China was a promising loca-
tion. However, consumer enthusiasm for theme parks in
China was at a low in the late 1990s. “Between 1993 and
1998, more than 2,000 theme parks had been opened in
China,” and “many projects were swamped by excessive
competition, poor market projections, high costs, and
relentless interference from local officials,” forcing several
hundred to be closed.1 Nevertheless, Disney continued to
pursue plans in both Shanghai and Hong Kong.

Shanghai, known as the “Paris of the Orient,” was an
attractive site for Disney officials because of its growing
commercialization and industrialization and its already
extant transportation access . The projected $1 billion
project was scheduled to be built across the Huangpu
River from Shanghai’s world-famous waterfront prom-
enade, the Bund, on a 200-square-mile expanse called
The Pudong New Area. The first phase of construction
included a Magic Kingdom park, while an EPCOT-style
theme park was to be added after at least five years of
operations. 2

A Disney theme park in Shanghai would be mutually
beneficial for the company and the nation of China. From

perspective, it would gain access to one of the
world’s largest potential markets (and also compete with
Universal Studios’ new theme park). From the perspective
of Chinese government officials, Disney’s park would be
a long-awaited mark of international success for a com-
munist nation. 3

Initially planners hoped to have a Disneyland operating
in Shanghai prior to the World Expo in 2010. However
the project stalled, and as of late 2006, “the chances of
Beijing approving the project have shrunk since Shanghai’s
254

Communist Party boss was implicated in a big corruption
investigation in September [2005] .” This led Disney to
consider other options for the construction of a new park.4

Hong Kong Disneyland
Plans in Hong Kong, which culminated in the opening of
Hong Kong Disneyland in September 2005, began after
the 1997-1998 Asian financial crisis. Despite the poor
economic condition of Hong Kong in the late 1990s,
Disney was still optimistic about prospects for a theme
park in the “city of life.” Hong Kong, already an interna-
tional tourist destination, would draw Disneyland patrons
primarily from China, Taiwan, and Southeast Asia.

The official park plans were announced in November
1999 as a joint venture between the Walt Disney Company
and the Hong Kong SAR Government. Unlike its experi-
ence in Tokyo, where Disney handed the reins over com-
pletely to a foreign company (the Oriental Land Com-
pany), Disney decided to take more direct control over this
new park. The park was built on Lantau Island at Penny’s
Bay, within the 6-mile stretch separating the international
airport and downtown. Hong Kong Disneyland was esti-
mated to create 18,000 jobs upon opening and ultimately
36,000 jobs. The first phase of the park was to include a
10 million annual visitor Disneyland-based theme park,
2,100 hotel rooms, and a 300,000-square-foot retail, dining
and entertainment complex. 5

In order to make the park “culturally sensitive,” Jay
Rasulo, president of Walt Disney Parks & Resorts,
announced that Hong Kong Disneyland would be trilin-
gual with English, Cantonese, and Mandarin. The park
would also include a fantasy garden for taking pictures
with the Disney characters (popular among Asian tour-
ists), as well as more covered and rainproof spaces to
accommodate the “drizzly” climate.6

Unfortunately, Disney soon realized that its attempts at
cultural sensitivity had not gone far enough. For instance,
the decision to serve shark fin soup, a local favorite,
greatly angered environmentalists. The park ultimately
had to remove the dish from its menus. Park executives
also failed to plan for the large influx of visitors around
the Chinese New Year in early 2006, forcing them to turn
away numerous patrons who had valid tickets. Unsurpris-
ingly, this led to customer outrage and negative media
coverage of the relatively new theme park.

Other criticisms of the park have included its small
scale and slow pace of expansion. Hong Kong Disneyland

In-Depth I n tegrative Case 2.1 b Beyond Tokyo: Disney’s Expansion in Asia 255

has only 16 attractions and “one classic Disney thrill ride,
Space Mountain, compared to 52 at Disneyland Resort
Paris [formerly Euro Disneyland].”7 However the govern-
ment has made plans to increase the size of the park by
acquiring land adjacent to the existing facilities. Likely
due to its small size and fewer attractions, Hong Kong
Disneyland pulled in only 5.2 million guests during its
first 12 months, less than the estimated 5.6 million.8 Fail-
ure to meet its projected levels of attendance and guest
spending could cause the park to look toward other
sources of fu nding for these expansions.

Battle over Hong Kong Park
Expansion

Disney had plans to expand the size of the theme park in
Hong Kong by about a third and it had been trying to
obtain the local government’s financial support for these
plans since 2007. However, Disney’s Park in Hong Kong
had been performing well below the projected sales num-
ber in 2007- 2008, and the government, which is 57 per-
cent stockholder in this business, has expressed serious
doubts in the need to fund the further expansion. As noted
by Financial Times analysts, in one of the March 2009
reports, Hong Kong Disneyland has attracted about 15m
visitors since its opening in September 2005, or about
4.3m a year. That figure fell short of the original projection
of more than 5m a year.9 Although Disney did not release
financial figures to the public, Euromonitor estimated the
park had an operating loss of $46 million in the year ended
June 2006, and lost $162 million the following year.10

Disney’s officials have been trying to stress the impor-
tance of park expansion for the overall viability of the
project. So far, the park occupied 126 hectares and had
only four “lands”- Fantasyland, Tomorrowland, Adven-
tureland, and Main Street USA-and two hotels. Hong
Kong Disneyland Managing Director Andrew Kam said
expansion is vital to the park’s success. In one of the
September 2008 releases, Kam said the park had plenty
of room to grow, since it was only using half of the land
available. “Expansion is part of the strategy to make this
park work for Hong Kong,” he said. 11 An expansion could
cost as much as 3 billion Hong Kong dollars, or $387 mil-
lion, local media have reported. In December 2008, the
Sing Tao Daily newspaper in Hong Kong reported that
Disney, in what was deemed an unusual concession, might
give the ‘government a greater share in the project in
repayment of a cash loan of nearly $800 million that the
city had extended previously to the theme park. 12

Unable to come to agreement with the Hong Kong
government, Disney has indicated that it is putting on hold
long-awaited plans to expand the park. In a statement
from Disney’s Burbank (Calif.) office released in March
2009, the company said it was laying off employees in
Hong Kong after failing to reach an agreement with the

Hong Kong government to fund a much-needed expan-
sion. According to Disney, “The uncertainty of the out-
come requires us to immediately suspend all creative and
design work on the project.” Thirty Hong Kong- based
Disney “Imagineers” who helped to plan and design new
parks, will be losing their jobs.13 Business news sources
had noted that one reason Disney might be willing to end
negotiations with the Hong Kong government is the com-
pany’s progress in negotiations with Shanghai officials to
open a theme park there that would be much larger and
arguably a more exciting China project. This park is
expected to be easier for many Chinese families to visit.
However, the possible shift of mainland Chinese away
from Hong Kong to Shanghai could mean a drop of as
much as 60 percent in visitor numbers to the Hong Kong
park, according to Euromonitor’s estimates. 14

In June of 2009 Disney and Hong Kong’s government
finally reached a deal to expand the territories of the
Disneyland theme park at a cost of about $465 million.
Under terms of the deal, the entertainment giant will con-
tribute all the necessary new capital for construction as well
as sustaining the park’s operation during the building phases.
It will also convert into equity about $350 million in loans
to the venture to help with funding and will keep open a
credit facility of about $40 million. Hong Kong, which
shouldered much of the $3.5 billion original construction
cost, will not add any new capital. “Disney is making a
substantial investment in this important project,” Leslie
Goodman, a Disney vice president, said in a statement. 15

Disney Gets Green Light
for Shang hai Park

In spite of the global economic downturn, Walt Disney
Co. has revisited its plans to build a park in Shanghai,
China. In January 2009 Disney presented to the Chinese
central government a $3.59 billion proposal that outlined
the plans for a jointly owned park, hotel, and shopping
development. Shanghai Disneyland, if the project suc-
ceeds, would be one of the largest-ever foreign invest-
ments in China. 16 Though Disney had been unsuccessful
in its negotiations with the Chinese government a few
years earlier, and almost abandoned its plans of expansion
to Shanghai, the global economic crisis played a role
making the prospective creation of 50,000 new jobs amid
a cooling Chinese economy especially attractive, and gave
Disney the grounds to revisit its plans.17

The preliminary agreement signed in January repre-
sented a framework to be considered by China’s State
Council, the central government’s highest administrative
body. According to the proposal Disney would take a
43 percent equity stake in Shanghai Disneyland with
57 percent owned by the Shanghai government forming
a joint-venture company. 18 The park’s first phase would
include building a theme park, a hotel, and shopping

256 Part 2 The Role of Culture

outlets on about 1.5 square kilometers (371 acres) site
near Shanghai’s Pudong International Airport. 19 The pre-
liminary agreement outlined a six-year construction period
for the first phase with the projected opening of the park
in 2014. Disney will likely pay $300 million to $600 mil-
lion in capital expenses for the park in exchange for
5 percent of the ticket sales and 10 percent of the conces-
sions.20 Shanghai Disneyland will incorporate Chinese
cultural features as well as attractions built around tradi-
tional Disney characters and themes. The ownership struc-
ture will contain some aspects of Disney’s Hong Kong
joint venture agreement. But the details of the Shanghai
project will need to be further negotiated and the actual
contract will have to be approved by the central govern-
ment. According to The Wall Street Journal, a newly
formed Shanghai company named Shendi will hold the
local government’s interest in the park. Shendi is owned
by two business entities under district governments in
Shanghai, as well as a third company owned by the
municipal government’s propaganda bureau.21

After almost a year of negotiation, in November 2009,
Disney finally received an approval from the Chinese gov-
ernment to proceed with its Shanghai park plan.22 The new
park planned for the Pudong new district of China’s finan-
cial capital will take years to contribute to a company that
takes in more than $30 billion in annual revenue. But
analysts see the move a an important step forward for
Disney and other Western media firms to make inroads
into the vast and untapped Chinese media and entertain-
ment market.

“They’ve been laying the groundwork for a park for
many years by exposing the population to Disney proper-
ties, film, TV and merchandising,” said Christopher
Marangi, senior analyst with Gabelli and Co in New York.23

There are certain public concerns that the new Shanghai
park, which would be Disney’s sixth, will inevitably affect
the Hong Kong park. The main concern is that Hong Kong
park’s revenue may be cannibalized which will make the
financial perspectives of this underperforrning park even
sadder looking. However, Disney thinks that both parks
will complement each other rather than be competitors.
Disney’s main points are that Shanghai is close to a num-
ber of other major cities within easy driving distance,
including Nanjing, Suzhou, and Hangzhou, and that
Shanghai ‘s own population of around 19 million, com-
bined with tens of millions more within a three-hour driv-
ing radius, would provide a more-than-ample base of local
users for the park. There are analysts, like Paul Tang,
chief economist at Bank of East Asia, who share this opti-
mism, projecting that “visitors from Guangdong and
southern China will still find Hong Kong more conve-
nient, while Shanghai will attract visitors from northern
and eastern China.”24

The critics of the Shanghai park on the other hand
are convinced that this project is a bigger threat to the

Hong Kong park than anybody can imagine. According to
Parita Chitakasem, research manager at Euromonitor
International in Singapore, who specializes in theme
parks, “Disneyland Shanghai will have two big features
which will make it more attractive than its Hong Kong
counterprut: Although it is still early days, Disneyland in
Shanghai will probably offer a much better experience for
your money than Disneyland in Hong Kong- initial plans
show that Shanghai’s Disneyland will be six times bigger
compared to the current size of Hong Kong Disneyland,
which is very small (only 16 attractions) . Also, for visitors
from mainland China, it will be much easier to travel to
Disneyland in Shanghai, as there are no visa/cross border
concerns to take care of.”25

While the public is debating the project, Disney is not
wasting time and moves on with getting all other neces-
sary approvals and documents that are needed for the park
construction, which still may take long to obtain. In April
2010 the company received approval for the land. Author-
ities have also confirmed that 97 percent of residents have
been already relocated, and the land would be transferred
over to Disney in July. Over 2,000 households and 297
companies have to be relocated to make way for the first
phase of construction. The head of Pudong New District
where Shanghai Disney will be sited informed the public
that the first phase of the project, including a theme park
and supporting facilities, will span four square km with
the theme park covering one square km. The project
would take five to six years to finish .26

Other Asian Ventures

The Walt Disney Company has also looked into building
other theme parks and resorts in Asia. Based on its suc-
cessful operation of two theme parks in the United States
(at Anaheim and Orlando), Disney believes that it can
have more than one park per region. Another strategically
located park in Asia, officials agreed, would not compete
with Tokyo Disneyland or Hong Kong Disneyland, but
rather bring in a new set of customers.

One such strategic location is the state of Johor in
Malaysia. Malaysian officials wanted to develop Johor in
order to rival its neighbor, Singapore, as a tourist attrac-
tion. (Two large casinos were built in Singapore in 2006.)
However, Disney claimed to have no existing plans or dis-
cussions for building a park in Malaysia. Alannah Goss, a
spokeswoman for Disney’s Asian operations based in
Hong Kong, said, “We are constantly evaluating strategic
markets in the world to grow our park and resort business
and the Disney brand. We continue to evaluate markets but
at this time, we have no plans to announce regarding a
park in Malaysia.’m

Singapore, in its effort to expand its tourism industry,
had also expressed interest in being host to the next
Disneyland theme park. Although rumors of a Singapore
Disneyland were quickly dismissed, some reports

In-D epth I ntegrative Case 2.1b BeyondTokyo: Disney’s Expansion in Asia 257

suggested there were exploratory discussions of locations at
either Marina East or Seletar. Residents of Singapore
expressed concern that the park would not be competitive,
even again t the smaller-scale Hong Kong Disneyland. Their
primary fears included limited attractions (based on size and
local regulations), hot weather, and high ticket prices.

Disney’s Future in Asia

Although Disney i wise to enter the Asian market with
its new theme parks, it still faces many obstacles. One is
finding the right location. Lee Hoon, professor of tourism
management at Yanyang University in Seoul, noted,
“Often, more important than content is whether a venue
i located in a metropolis, whether it’s easily acces ible
by public transportation.” Often tied to issues of location
is the additional threat of competition, both from local
attractions and those of other international corporations.
It seems that Asian travelers are loyal to their local attrac-
tions, evidenced by the success of South Korea’s Everland
theme park and Hong Kong’s own Ocean Park (which
brought in more visitors than Hong Kong Disneyland in
2006)?8 The stiff competition of the theme park industry
in Asia will center on not only which park can create a
surge of interest in its first year but also which can build
a loyal base of repeat customers.

Despite its already large size, the Asian theme park
industry is still developing. Disney officials will need to
be innovative and strategic in order to maintain sales.
After Universal Studios in Japan witnessed a 20 percent
drop in attendance between 2001 and 2006 and Hong
Kong Disneyland failed to meet its estimated attendance
level in 2006, Disney officials might want to think twice
about building additional parks in Asia.29

In spite of underperformance of some theme parks, and
a recent world economic crisis, Asia is still viewed by
many as the most attractive region for the entertainment
industry. Attendance may be stagnating in some parts of
the world, but a growing middle class with disposable
incomes to match is making the Asia-Pacific region a
prime target for investors and theme park owners. “China
will lead the way,” said Kelven Tan, Southeast Asia’s rep-
resentative for the International Association of Amuse-
ment Parks and Attractions, an industry group. “The
critical mass really came about with the resurgence of
China. You need a good source of people; you also need
labor you need cheap land.”30

That’s what the people behind the just-completed Uni-
versal Studios in Singapore are betting. Developers aim
to tap the wallets of Singapore’s 4.6 million residents and
9.7 million tourists a year and its proximity to populous
areas of Indonesia and southern Malaysia. After opening

in spring of 2010, it will be the island nation’s first bona
fide amusement park. Outside this and other foreign
brands like Legoland, which plans to open a park in Johor,
Malaysia, for 2013, home-grown companies like Genting
in Malaysia and OTC Enterprise Corp. in China are
aggressively looking to take advantage of the burgeoning
market in their backyards.31

Overall spending on entertainment and media in Asia
Pacific is set to increase 4.5 percent each year, jumping
to $413 billion in 2013 from $331 billion in 2008, accord-
ing to PricewaterhouseCoopers, with places like South
Korea, Australia, and China posting the biggest increases.
“It’s an up-and-coming market, and growing quite fast,”
said Chri tian Aaen, Hong Kong- based regional director
for AECOM Economics, a consulting firm that specializes
in the entertainment and leisure industries. MGM Studios
and Paramount, too, are scouting around Asia for future
projects. PricewaterhouseCoopers predicted the region’s
market will be worth nearly $8.5 billion by 2012, up from
$6.4 billion in 2007.32

In light of these optimistic projections, it is reason-
able to assume that Disney may consider expansion to
other Asian countries such as Malaysia, South Korea, or
Singapore, where it appeared to have seriously considered
a park. Given that the Hong Kong park expansion and
Shanghai park construction are on track, Disney now has
the experience and motivation to further penetrate the
Asian region. In this regard, Disney announced in mid-
2010 a comprehensive plan to develop and operate Eng-
lish language schools throughout China.33 Such a move
could constitute a broader push by Disney to establish a
strong Asian presence across its businesses and brands, a
move that would undoubtedly involve the theme park
operations as a central component.

Questions for Review
1. What cultural challenges are posed by Disney’s

expansion into Asia? How are these different from
those in Europe?

2. How do cultural variables influence the location
choice of theme parks around the world?

3. Why was Disney’s Shanghai theme park so controver-
sial? What are the risks and benefits of this project?

4. What location would you recommend for Disney’s
next theme park in Asia? Why?

Source: This case was prepared by Courtney Asher under the supervi-
sion of Professor Jonathan Doh of Villanova University as the basis
for class discussion. It is not intended to illustrate either effective or
ineffective managerial capabi lity or administrative responsibility.