Cases on International Business and Finance in Japanese Corporations

1 - Tokyo Disneyland: Licensing versus Joint Venture

1 Tokyo Disneyland: Licensing versus Joint Venture A theme park that materializes the “Kingdom Never Ending Dream and Magic.”1 — Walt Disney In 1997, the senior executives of the Japanese Oriental Land Corporation (OL), known to many as the Japanese version of Disneyland,2 were on a roller-coaster ride. They were at once anxious to grow their existing company through a new project as well as make Walt Disney Productions (WD) a risk-taking partner through direct investment in Japan’s second theme park. This was to be a precondition to participating in the new project being proposed.3 Although the partnership between OL and WD was a prominent success story of foreign investments in Japan by a US company, the partnership (see Exhibit 1) floundered as differences between the two companies about management philosophies and decision-making techniques had created tensions, resulting in mixed feelings toward the new project. In preparation for the negotiation, the net present value (NPV) of the two potential partnership models — the existing licensing method and a joint venture Name Oriental Land Group Date of Establishment July 11, 1960 Paid-in Capital US$534 million Sales US$1.5 billion Income before Tax US$237 million President Toshio Kagami Directors and Officers 28 Employees 2,493 (full-time) 6,355 (part-time) Address 1-1, Maihama, Urayasushi, Chiba-ken, Japan Main Banks Industrial Bank of Japan Mitsui Trust Bank Major Shareholders Mitsui Real Estate Corp. 20.48% Keisei Electric Railway Corp. 11.20% Tie-up Company Disney Enterprises Inc. (US) Source: Yukashoken Houkokusho (Annual Reports), Oriental Land Corp. 1996–2001. See also www.olc.co.jp/en/company/profile/index.html (accessed June 30, 2005). Exhibit 1 Basic Oriental Land Data (1997) ch_01(11-28).indd 11 2007/9/27 11:30:48 AM Cases on International Business and Finance in Japanese Corporations 12 (JV) method in which WD would share some risks — were compared and evaluated. With both companies holding on to their own agenda, it was a tough job for senior executives on both sides to resolve the differences and clear the obstacles in order to arrive at a mutually beneficial agreement. OL’s Diversification Plan Since 1983, OL had operated Tokyo Disneyland under a license (at a fee of 7%) with WD.4 It took both companies four and a half years to arrive at the agreement. The primary reason for the delay was the ongoing negotiations for the reduction of the license fee and contract terms.5 In the spring of 1997, 37 years after OL had been established (1960), senior executives, who until then had enjoyed the success of this stable and grounded company, began to ponder the timeliness of embarking on a new business endeavor to fuel growth and enhance OL’s earning capability. Although senior executives of OL were uneasy about the risks of initiating new ventures when the general economy was not faring well, they also recognized the need for new investments to maintain visitors’ interests.6 Their initial enthusiasm, however, was tempered by two factors: (1) the amount of investment needed would be large; and (2) the number of visitors would eventually diminish. They knew that approximately 75% of OL’s customers were repeat visitors.7 The question was whether, after two or three visits, they would come back for a fourth time. They were concerned that customers would eventually get bored with the existing attractions and facilities, resulting in a decline in the number of visitors. OL’s staff forecasted that the number of visitors in 1998 would drop by 4% compared to that in 1997 (see Exhibit 2 for actual attendance from 1983 to 1997).8 Furthermore, Year Attendance 1983 9,933,000 1984 10,013,000 1985 10,675,000 1986 10,665,000 1987 11,975,000 1988 13,382,000 1989 14,752,000 1990 15,876,000 1991 16,139,000 1992 15,815,000 1993 16,030,000 1994 15,509,000 1995 16,986,000 1996 17,368,000 1997 16,686,000 Source: Yukashoken Houkokusho (Annual Reports), Oriental Land Corp. 1996–2001. See also www.olc.co.jp/en/company/guest/index.html (accessed June 30, 2005). Exhibit 2 Tokyo Disneyland Attendance (1983–1997) ch_01(11-28).indd 12 2007/9/27 11:30:48 AM Tokyo Disneyland 13 the number of shareholders had increased after the company had been listed on the Tokyo...