Loading...

Euro Disney Paris as the largest single foreign direct investment in France: The location decision of the Walt Disney Company and its impact on regional infrastructures

Bachelor Thesis 2006 75 Pages

Business economics - Business Management, Corporate Governance

Excerpt

Contents

Preposition

A Introduction
1. Entertainment
1.1 Entertainment Industry
1.1.1 Definition
1.1.2 Supply and Demand
1.1.2.1 Prerequisites on the demand side
1.1.2.1.1 Motivation
1.1.2.1.2 Time
1.1.2.1.3 Income
1.2 Location-based Entertainment
1.2.1 Definition and History
1.2.2 Financial operating characteristics
1.2.2.1 General issues
1.2.2.2 Key variables and interdependences
2. The Walt Disney Company and the Euro Disney S.C.A
2.1 The Walt Disney Company
2.1.1 The business
2.1.2 Economies of scale and competition
EXCURSUS: Character licensing
2.2 Relations between TWDC and Euro Disney S.C.A.
2.3 The Euro Disney S.C.A.
3. The region
3.1 Introduction
3.2 Seine-et-Marne
3.3 Marne-la-Vallée
4. A summarizing prospect

B Main Part
1. Euro Disney in France: The location decision
1.1 Background
1.2 Introduction
1.3 Foreign Direct Investment and Multinational Enterprises
1.3.1 Reasons for Foreign Direct Investment
1.3.2 Expansion alternatives
1.4 Expectations and incentives on two perspectives
1.4.1 The perspective of the MNE
1.4.2 The perspective of the host country
1.4.2.1 Incentives
1.4.2.2 Reasons and expectations
1.5 European market and subsidy game
1.6 Final decision
1.7 Agreement on the Creation and Operation
2. Impact and infrastructural development
2.1 Projections
2.2 The Vision
2.3 Strategic planning
2.4 Development
2.4.1 Fundamentals
2.4.2 Opening and struggling
2.4.3 Signs of recreation
2.4.4 Entourage extension
2.4.4.1 The Resort
2.4.4.2 The real estate strategy
2.4.5 Opening and struggling, the second
2.4.5.1 The Second Theme Park and financial crisis
2.4.5.2 Val d’Europe extension
2.4.5.3 Expansion of train network
2.4.5.4 External linkages
2.4.5.5 Financial restruction

C Conclusion
1. Infrastructure today
2. Résumé and perspectives

Appendix

Glossary

References

Preposition

Before being immersed into the subject, a first thematic and structural overview helps to get familiarized with the scope of this thesis and its general aim. Fundamental reasons for the relevance of the treated subject also serve to spoke to potential interested parties. Furthermore, some advices for the handling should simplify reading.

Generally, this thesis occupies on location decisions for Foreign Direct Investment and its particular impact on regional structures. Against the background of the entertainment industry and regarding the specific case of Euro Disney, expectations and reasons for locating an economic activity as well as the examination of the effect for the region are pointed out. In particular, the focus goes to the analysis of the location decision made by The Walt Disney Company and its impact on regional infrastructures.

The Introduction is divided in three parts among the general aspects of the entertainment business presenting economic basics, the presentation of The Walt Disney Company, its French pivot and a presentation of the region. The idea here is almost simple, general indispensable aspects of the entertainment industry lead to the presentation of both entertainment companies treated during this thesis. The option for the specific region in France in turn leads to the regional observation. Finally, a summary prepares with the most important facts. The Introduction therefore provides basic knowledge and background information in regard to the following examinations.

The Main Part is divided in two parts, the location decision and the impact on regional infrastructures. The location decision copes at first with the special aspect of Foreign Direct Investment, thereby especially expectations of the host country and the foreign investor considering the incentive package and other location factors. Further, the subsidy game between the potential European locations leads to the final decision and the adjacent agreement. Therefore, the location analysis provides the fundamentals for the observation of the infrastructural impact. To what extent the region has been influenced is especially concentrated on infrastructural changes whereas certain external and internal circumstances are taken in account. During this part, geographical clustering and concentration aspects occupy an important role.

Finally, the Conclusion serves to summarize the main aspects by presenting the infrastructural situation nowadays and some key figures concerning the region in general. Furthermore, it tries to evaluate certain developments and focuses then on future perspectives.

Aim is to show how an individual incentive package and especially the provision of key infrastructure can influence the location decision of potential investors particular in business with high infrastructural awareness. Further, the case of Marne-la -Vallée is an excellent example for an observation how Foreign Direct Investment can help to advance regional development. Especially caused by the specific characteristics of the theme parks and resort business, the focus to the location decision in particular view to the infrastructural development seems to be interesting. Nevertheless, the successful operation of a theme park highly depends on the location and infrastructural network connecting the site in all directions.

This thesis may be interesting for regions willing to attract investors and for potential investors as well. Certain businesses such as the theme park and resort one are highly dependent on excellent infrastructural connection, besides all fiscal and financial incentives, infrastructure often is presumed as self-evident. But in reality, the availability of an infrastructural network stays one of the deciding elements for the location decision in favor for one specific region. Even rural regions like Marne-la-Vallée can be attractive for potential investors if the host country provides incentive packages tailored to the investor’s needs and expectations.

At least, some advices for the reading of the thesis: French expressions and words have been italicized for a better differentiation. This mostly is due to the fact that in case the English translation may not reflect the original meaning. Some abbreviations and the according explanations can be found annexed in the Glossary and may help to reveal the relevance of certain expressions or names.

A INTRODUCTION

1. Entertainment

Once, Disney’s CEO[1] Michael Eisner commented the entertainment business with these words: „Fantasy is very hard work. To make something fun, is hard. It’s gratifying. It’s satisfying. But fun? No.”[2]

The fun industry, the amusement business or the entertainment industry, however one calls this business segment, the terms fantasy, fun, or amusement may remind one of Disney and its famous entertainment parks, Disneyland in California, Disney World in Florida and Tokyo Disney. Then, perhaps one also reminds the European version, firstly known as Euro Disney and yet, after a change of name, Disneyland Resort Paris. The single major Disney facility in Europe has been constructed near to the French capital Paris. Within a relatively rural region, one can find a large entertainment complex and might have asked why Disney opted for this location amidst sugar beet fields and small villages. Further, no matter from where to get there, if one has already visited the site, he might have remarked that the accessibility to the location is splendid. Regardless from which direction one comes, the infrastructural connection should not be the problem. Exactly these observations lead to the subject of this thesis.

Beneath several other reasons, the location decision of The Walt Disney Company[3] for the rural area Marne-la -Vallée was mainly influenced by infrastructural incentives provided by the host country. Consequently, the option for that specific region could be seen as the initial force for the regional development and thereby especially the construction of an infrastructural network.

The process from first negotiations to the initial decision and the infrastructural development until nowadays always is covered with expectations of the investor and the region. There are reasons for which TWDC decided to build up a large entertainment complex some kilometers in the East of Paris. Thereby, the aspect of Foreign Direct Investment incentives plays a key role in regard that a multinational company must have had some specific expectations from the location for that large investment. Surely the host country and the region were targeting the regional development because beneficial external effects might be evoked by the project. To raise their attractiveness, the region concentrated on a specific incentive package among the availability of key infrastructure. Connecting the site in all directions, how this provision has been realized and which effects on the region are observable. The construction of an infrastructural network may also provide important benefits for the investor, moreover may be a prerequisite for the successful operation of a theme park situated in a rural region. Further, perhaps an area that is not already well infrastructural connected might provide the possibility to create and establish an entire entertainment complex for the investor.

Shortly, the core analyses are reasons and expectations for the location and in which way one of the deciding incentives, the provision of key infrastructure, has prevented beneficial effects for the investor and the region. Therefore, it is necessary to not only concentrate on the result, the situation today, in regard to a complete understanding the gear goes to the whole development process.

1.1 Entertainment Industry

Some general aspects concerning the entertainment industry should introduce to the topic before presenting the company and the region.

As this thesis occupies on the business of the amusement industry especially considering theme park economies the out pointing of what has to be considered as entertainment business is important. After centralizing dimensions of the term “entertainment industry” and a look on the supply and demand curve for entertainment, the psychological aspect of motivation for entertainment serves to introduce further general aspects concerning the consumption of entertainment goods and services. This overview is followed by the specific consideration of Location-based Entertainment with some historical aspects and financial operating characteristics.

1.1.1 Definition

Generally, entertainment is the act of diverting, amusing, or causing a person‘s time to pass agreeably. Entertainment are things that divert, amuse or occupy the attention. In a primary regard, all things stimulating, encouraging or in another way generating a condition of pleasurable diversion could be called entertainment. The basic reason for the demand or the consumption of entertainment products and services is the human need for activities that people enjoy or look forward to. Either hearing, seeing or doing something changing to every day life and its burdensome duties causes the desired psychological state, happy and satisfied. This effect can be achieved in an active or passive way.[4]

An industry, in turn, is considered as a department or branch of a craft or manufacture, a division of productive or profit-making labor, especially one that employs a large personnel and capital or a group of productive or profit-making enterprises or organizations that have a similar technological structure of production and that produce or supply technically substitutable goods, services or sources of income.[5]

Thus, the entertainment industry consists of profit-making enterprises or organizations devoted to the diversion and amusement of the consumer. Several subindustries concentrate on certain forms of entertaining, these are going to be introduced later. This general definition now leads to the basic economic analysis of supply and demand according to the entertainment industry.

1.1.2 Supply and Demand

The observation of the supply and demand curve for entertainment provides a basis for further closer examinations.[6]

More leisure time availability is related to the rising productivity of economy and influences the side of supply. The long- term growth of the entertainment industry is a function of the rising trend in output per person-hour and depends on the rate of technological development throughout the company. Technological advances such as new capital equipment and the availability of better skilled labor make it possible to produce in less time or by fewer workers.[7]

On the demand side, either the consumer has the possibility to use free time for recreational purposes, inclusive entertainment activities or he attends it to generate additional income. The supply and demand curve illustrates this conflict. When the price per unit rises, normally the demand will decrease and the supply will increase. Further assuming an openly competitive market, the equilibrium of price and quantity will be achieved in the intersection of both curves.[8]

1.1.2.1 Prerequisites on the demand side

1.1.2.1.1 Motivation

To strive out at what time or in which moment a consumer has the desire of being entertained, a basic psychological theory may help.

When considering human needs and consumer behavior, it seems sense to point out Maslow’s Theory of Motivation. The heart of the theory could be defined as a set of basic needs that serves as a motivating force for behavior. These needs are organized in five categories: physiological needs, safety needs, belongingness needs, esteem needs and self-actualization.[9] Maslow arranges these five categories in a hierarchy while their fulfilment follows a fixed sequence. The physiological needs are filled first, such as water, air, sufficient calories and nutritients to live. Once these are nearing complete satisfaction, effort is allocated to the next level and so on for each of the higher needs. The reach of the need self-actualization motivates the individual as a consumer to make a maximum use of individual gifts and interests. Interest may be different in higher categories.[10] The expression of the needs into behavior is thus object to the influences of learning, tradition and cultural mores and constraints.[11] The presumption is that desire for entertainment arises when the basic human needs are satisfied and the consumer aspires towards self-actualization.

1.1.2.1.2 Time

Another prerequisite besides consumer motivation for consumption of entertainment goods and services is the so-called free time. Leisure has its origin in the Latin expression “licere” which means “to be permitted” or “to be free”. “Free time” could be defined as the hours left after subtracting time for subsistence, mainly eating and sleeping, for work and for related activities. Free time is used to do things or go to places in order of recreation in the meaning of refreshment of strengths or spirit after toil. These activities may be physical or mental.[12]

Considering the definition of entertainment and the latest approach to free time it is obviously that entertainment is subordinate to that of leisure. The concept of entertainment thus describes more specifically the primary psychological and emotional effects.[13] The theme of the International Association of Amusements Parks and Attractions approves the focus on the emotional impact. “Heart & Soul - connecting to your guest from the inside out” aims to emphasize “the importance of emotion, and its presence at destinations, for attracting guests to the thrilling amusement and attractions industry and to keep them coming back for more”.[14] Shortly, free time is a fundamental prerequisite for enjoying entertainment.

1.1.2.1.3 Income

The third prerequisite is that the total amount to spend on leisure is limited by the income. By assuming that consumers tend to substitute less expensive goods and services with more expensive ones, higher wage rates may then initiate the individual to increase his leisure. Consequently, the net effect will depend on the relative strengths of the income and price elasticises.[15]

Consumer motivation, the availability of free time and a certain amount to spend on leisure play a key role for the industry and affect the operation of entertainment profoundly. Because of that importance, each of them will remerge during this thesis. As one of the various forms of the amusement industry, the concept of Location-based Entertainment follows.

1.2 Location-based Entertainment

As there are multiple variations in entertainment, it is necessary to classify the theme park business. Movies, television, music, broadcasting, cable, publishing and new media and toys and games are media-dependent entertainment, whether the counterpart live entertainment consists of gaming and wagering, sports, arts and culture and amusement/theme parks.[16]

An amusement park as one kind of live entertainment has a certain specify described by the term Location-based Entertainment. For use in further explanations, it is necessary to reveal its signification and historical development.

1.2.1 Definition and History

Location-based Entertainment[17] describes technologically sophisticated away-from-home attractions such as the major theme parks. As the term already explains, the difference to other entertainment institutions such as a circus is the immovable site. The origin of this concept goes back to the 17th century when pleasure gardens with fountains and flowers were diverting the society mainly in France or Great Britain,[18] these pleasure gardens as outdoor amusement resembled to those of today. One century later, circus acts and fairs with mechanical rides like the famous Prater in Vienna were en vogue whether in Great Britain nearby taverns and inns also became common. In 1804, the first Roller Coaster existed in Paris, France,[19] while in the USA, first steps were picnic groves to attract weekend riders and this was not until the late 1800s. The World’s Columbian Exposition in Chicago 1893 is seen as the pioneer for American amusement park’s essential elements. Major facilities such as Coney Island in New York registered stark attendance, and although many of these parks existed until the 1920s, the development of movies, television and automobiles led to a great depression. In the year of the opening of the first Disneyland in Anaheim, California, in 1955, an amusement park containing themed areas, this business was in the fledgling stages.

By the financial help of bank loans supplemented by borrowing on his life insurance policies and the sale of confession rights, Walt Disney succeeded to open Disneyland in Anaheim, California in 1955.[20] It might be seen as the pioneer for other Location-based Entertainment concepts. This time already, Walt Disney recognized the psychological and emotional effects: “[…] what I want Disneyland to be the most of all, is a happy place - a place where adults and children can experience together some of the wonders of life, of adventure and feel better because of it […]”.[21] The successful first Disneyland led TWDC to construct the heart of Disney World in the swamps of Florida in 1971.[22] Later, the American concept of LBE was exported back to Europe and the rest of the globe as Japan or Korea.[23]

1.2.2 Financial operating characteristics

The concept of LBE was spread all over the world. In regard to an economic analysis of the business, some special financial characteristics have to be stressed out.

1.2.2.1 General issues

The operation of a theme park is very much like operating a small city. Police, fire and health departments should be on site and available at all moments. Streets should be held clean and in very good condition, sewer and sanitation systems have to be invisible but efficient. Because of the grand surface and to comfort the sojourn of the visitor transportation systems such as bus or railway services are necessary. Bigger theme parks mostly provide extensive accommodation possibilities like hotels. Shopping facilities round up the visitor’s stay while his car is cared in one of the parking stations.[24]

Obviously, a theme park depends on largely unskilled seasonal workforce seeing that extreme fluctuation differences in park attendance and hotel occupancy are provoked by changing weather patterns or vacation dates. This makes the business more vulnerable, it depends on a few key months with peak attendance. If these crucial periods are disturbed by bad weather or other outside influences like the change of fuel prices or other economic worries like competing amusement events, the impact on annual profit is sometimes inevitable.[25]

Consistent profits are prerequisite to amortize the investment of construction and maintenance. Mainly during the opening phase, companies are financially affected caused by the high initial investment. Costs of labor, electricity, insurance and other expenses remain relatively fixed. Once the break-even point is reached, every additional admission ticket sold implicates a high marginal profit.[26] That situation persists until the park is overcrowded. Masses of visitors surge throughout the park terrain in order to catch first places in the queue of the most famous attraction or restaurant. Consequently, the opportunities for impulse spending are reduced and the mood of the visitor has hit rock bottom. Furthermore, additional labor and material is needed. Marginal-profit curves as a function of attendance illustrate that problem.[27] Moreover and with attention to the mentioned marginal-curve illustration, a theme park operation depends on certain key variables influencing the turnover and therefore the profit profoundly.

1.2.2.2 Key variables and interdependences

The operating profits depend on two key variables: visitor days as attendance equivalent to the number of separate visitors times the number of days of operation and average per-capita spending.

Only minimal changes of variables can affect the profit profoundly. This operating leverage can be shown by a little example[28]: Assuming 25,000 visitors in average per day and an attendance of 2,500,000 with a per capita spending of $20.00, total annual revenues come up to $50,000,000. Subtracting the operating expenses of $30,000,000, operating profits arise to $20,000,000. When the number of visitors, the attendance and the per capita spending each increases by 20 per cent to 30,000 visitors per day, an attendance of 3,000,000 visitors and a per capita spending of $24.00, annual revenues of $72,000,000 result. Subtracting the operating expenses, the operating profit will rise to $42,000,000 that is a gain of 110 per cent in comparison to the first situation.[29] Shortly, this example serves to show that increasing profits are affordable as an effect of economies of scale, each additional sold ticket reduces the costs per capita. Nevertheless, the operating leverage stands in concurrence to the marginal-profit curve.

Key operating indicators are the total amount of guests and the spending per capita in the theme park and concerning the hotels, the occupancy rates and the spending per room.[30] An interesting difference between the theme parks in the United States and in Europe can be observed in length of stay. While Disney visitors in the U.S. spend one week in average, the visitors in Europe only rest 2.5 days in average[31] that may result in higher per-capita spending in the U.S. theme parks.

Of course, operating expenses will rise along with attendance and per capita spending will tend to decrease as attendance rises to near capacity. This substantial operating leverage is still visible in today results. Most of the parks analyze their daily attendance and with that, data norms for average daily attendance in dependency to specific circumstances like weather or price elasticises can be achieved.[32] Because park operations depend on so much different conditions, each park has to develop its own standards.

This first approach to the entertainment industry was the definition, the observation of supply and demand and prerequisites on the demand side. The presentation of the LBE concept including historical facts and special financial operating characteristics guides now to the next passage concentrating on the presentation of TWDC as the investor and a further introduction of its French pivot company established for operating the European theme park.

[...]


[1] Common abbreviation for Chief Executive Officer.

[2] Huey, Eisner explains everything, in: Fortune, 1995, p. 58.

[3] In case abbreviated with TWDC.

[4] Vogel, Entertainment Industry Economics, A guide for financial analysis, p. xvii.

[5] Vogel, Entertainment Industry Economics, A guide for financial analysis, p. xvii.

[6] Vogel, Entertainment Industry Economics, A guide for financial analysis, p. 11, Figure 1.5, q.v. Appendix, Figure 1, Supply and Demand Curve, p. VII .

[7] Vogel, Entertainment Industry Economics, A guide for financial analysis, p. 9.

[8] Vogel, Entertainment Industry Economics, A guide for financial analysis, p. 11.

[9] Seeley, Human needs and Consumer economics: the implication of Maslow’s theory of motivation for consumer expenditure patterns, in: Journal of Socio-Economics, 1992, p. 303 et sqq.

[10] Hagerty, Testing Maslow's hierarchy of needs: national quality-of-life across time, in: Social Indicators Research, 1999, p. 250.

[11] Seeley, Human needs and Consumer economics: the implication of Maslow’s theory of motivation for consumer expenditure patterns, in: Journal of Socio-Economics, 1992, p. 303.

[12] Vogel, Entertainment Industry Economics, A guide for financial analysis, p. 4.

[13] Vogel, Entertainment Industry Economics, A guide for financial analysis, p. 4.

[14] "Heart & Soul - Connecting to Your Guest From the Inside Out" is the theme of the International Association of Amusement Parks & Attractions' European Conference at the Port Aventura Theme Park Resort in Salou, Spain, May 26- 27, 2005.

[15] Vogel, Entertainment Industry Economics, A guide for financial analysis, p. 11.

[16] Vogel, Entertainment Industry Economics, A guide for financial analysis, p. 31 et sqq.

[17] In case abbreviated with LBE.

[18] Vogel, Entertainment Industry Economics, A guide for financial analysis, p. 299 et sqq.

[19] Vogel, Entertainment Industry Economics, A guide for financial analysis, p. 301, Figure 13.1.

[20] Vogel, Entertainment Industry Economics, A guide for financial analysis, 1998, p. 300 et sqq.

[21] Euro Disney S.C.A., Annual Report 2003, p. 1.

[22] Krugman/Obstfeld, International Economics, Theory and Policy, p. 239 et sqq.

[23] Vogel, Entertainment Industry Economics, A guide for financial analysis, p. 302.

[24] Vogel, Entertainment Industry Economics, A guide for financial analysis, p. 302 et sqq.

[25] Vogel, Entertainment Industry Economics, A guide for financial analysis, p. 302 et sqq.

[26] Vogel, Entertainment Industry Economics, A guide for financial analysis, 1998, p. 304.

[27] Vogel, Entertainment Industry Economics, A guide for financial analysis, 1998, p. 304, Figure 13.2., q.v. Appendix, Figure 2, Profit as a function of attendance, p. VII.

[28] Assumed is an operating season of 100 days caused by climatic factors.

[29] Vogel, Entertainment Industry Economics, A guide for financial analysis, theme park operating leverage, p. 305, Figure 13.4.

[30] Euro Disney S.C.A., Annual Reports 1992-2004.

[31] Wachholz, Disneyland Paris: Serving up to 150,000 Meals per day, in: Food Service Europe, 2002, p. 43.

[32] Vogel, Entertainment Industry Economics, A guide for financial analysis, p. 305.

Details

Pages
75
Year
2006
ISBN (eBook)
9783638585415
ISBN (Book)
9783638711449
File size
1 MB
Language
English
Catalog Number
v67211
Institution / College
Leipzig University of Applied Sciences
Grade
1,0
Tags
Euro Disney Paris France Walt Company

Share

Previous

Title: Euro Disney Paris as the largest single foreign direct investment in France: The location decision of the Walt Disney Company and its impact on regional infrastructures