Harvard Case - Tokyo Disneyland: Licensing vs. Joint Venture
"Tokyo Disneyland: Licensing vs. Joint Venture" Harvard business case study is written by Mitsuru Misawa. It deals with the challenges in the field of Finance. The case study is 22 page(s) long and it was first published on : Aug 10, 2005
At Fern Fort University, we recommend that The Oriental Land Company (OLC) pursue a joint venture with The Walt Disney Company (Disney) for the development and operation of Tokyo Disneyland. This strategy balances the benefits of both licensing and a wholly owned subsidiary, mitigating risks and maximizing potential for success in the Japanese market.
2. Background
This case study focuses on The Oriental Land Company (OLC), a Japanese real estate developer, and their decision regarding the development of Tokyo Disneyland. OLC faced a choice between two options: 1) Licensing the rights to operate a Disney theme park from Disney, or 2) Entering into a joint venture with Disney. The case explores the advantages and disadvantages of each option, considering factors like financial risk, control, and cultural adaptation.
The main protagonists are:
- The Oriental Land Company (OLC): A Japanese real estate developer with a strong track record in the Japanese market.
- The Walt Disney Company (Disney): A global entertainment giant with expertise in theme park development and operation.
3. Analysis of the Case Study
This case study can be analyzed through the lens of strategic partnerships, considering both financial and cultural aspects:
Financial Perspective:
- Licensing: Offers lower upfront investment and reduced financial risk for OLC. However, it limits control over operations and potential for profit sharing.
- Joint Venture: Requires a larger upfront investment and necessitates sharing control with Disney. However, it allows for greater profit sharing and potentially faster growth through combined expertise.
Cultural Perspective:
- Licensing: Requires OLC to adapt Disney's existing model to the Japanese market, potentially leading to cultural clashes.
- Joint Venture: Allows for collaborative development and operation, fostering cultural understanding and adaptation through joint decision-making.
Other Considerations:
- Brand Recognition: Disney's brand recognition is a significant asset, offering immediate appeal to Japanese audiences.
- Operational Expertise: Disney possesses extensive experience in theme park development and operation, providing valuable knowledge and resources.
- Market Potential: The Japanese market presents a significant opportunity for a successful theme park, with a large and affluent population.
4. Recommendations
OLC should pursue a joint venture with Disney for the development and operation of Tokyo Disneyland. This approach offers the following advantages:
- Shared Risk and Investment: The joint venture structure allows OLC to share the financial burden of development and operation with Disney, reducing individual risk.
- Combined Expertise: The partnership leverages the strengths of both companies, combining OLC's local market knowledge with Disney's theme park expertise.
- Cultural Sensitivity: Joint decision-making facilitates cultural adaptation and ensures a more authentic and appealing experience for Japanese visitors.
- Profit Sharing: The joint venture structure allows for equitable profit sharing, ensuring both parties benefit from the success of the project.
5. Basis of Recommendations
This recommendation considers the following factors:
- Core Competencies: The joint venture aligns with OLC's core competencies in real estate development and leverages Disney's global expertise in theme park operations.
- External Customers: The joint venture caters to the preferences of Japanese consumers, offering a unique and culturally relevant experience.
- Competitors: The joint venture positions OLC to compete effectively against other entertainment options in the Japanese market.
- Attractiveness: The joint venture offers a strong potential return on investment (ROI) through shared risk, combined expertise, and a large target market.
All assumptions are explicitly stated, including the strong demand for a Disney theme park in Japan, the ability of both companies to collaborate effectively, and the potential for long-term profitability.
6. Conclusion
A joint venture with Disney is the most strategic option for OLC, maximizing the potential for success in the Japanese market. This approach balances financial risk, leverages combined expertise, and ensures cultural sensitivity, creating a strong foundation for a profitable and sustainable theme park.
7. Discussion
Alternative options include:
- Licensing: This option is less risky financially but limits OLC's control and profit potential. It also presents challenges in adapting Disney's model to the Japanese market.
- Wholly Owned Subsidiary: This option offers complete control but requires a significant upfront investment and assumes all financial risk.
The key risks associated with the joint venture include:
- Cultural Misunderstandings: Potential for cultural clashes during development and operation.
- Decision-Making Conflicts: Disagreements between partners regarding operational decisions.
- Financial Performance: Potential for financial losses if the theme park fails to meet expectations.
These risks can be mitigated through clear communication, cultural sensitivity training, and robust financial planning.
8. Next Steps
The following steps should be taken to implement the joint venture:
- Negotiate Joint Venture Agreement: Define roles, responsibilities, profit sharing, and dispute resolution mechanisms.
- Develop Detailed Business Plan: Outline development plans, operational strategies, and financial projections.
- Secure Financing: Obtain necessary funding for development and construction.
- Obtain Necessary Permits and Approvals: Ensure compliance with all regulations and obtain required permits.
- Begin Construction: Commence construction of the theme park.
- Recruit and Train Staff: Hire and train employees for all aspects of park operation.
- Launch Marketing Campaign: Promote the opening of Tokyo Disneyland to the Japanese market.
This timeline should be adjusted based on specific project requirements and regulatory approvals. The success of the joint venture will depend on the ability of both companies to collaborate effectively, adapt to the Japanese market, and deliver a high-quality experience for visitors.
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Case Description
Tokyo Disneyland was started as a result of a licensing agreement between Walt Disney (WD) of the United States and Oriental Land Corp. (OL) of Japan. The agreement states that WD will receive a license fee of 7% of sales in exchange for providing OL with managerial and technological know-how and assuming small risks in the venture. When WD proposed a second project with OL, OL's senior executives wanted to find a way to make WD a risk-taking partner through investment in the business as a precondition to venturing into the new project. To prepare for the negotiations, OL's executives needed calculations of the project's net present value as seen from WD's standpoint--both in terms of the existing licensing method and one in which WD would share appropriate risks.
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