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2 Tokyo Disneyland and the DisneySea Park: Corporate Governance and Differences in Capital Budgeting Concepts and Methods between American and Japanese Companies In the spring of 1997, it had been 14 years since Tokyo Disneyland opened its doors for business. Company executives at Japanese Oriental Land Corp. (OL), known to many as the company that brought Disneyland to Japan (see Exhibit 1) were enjoying the success of their well-established company and began looking at new business endeavors that would allow for further growth and enhance OL’s earning capability. Exhibit 1 Basic Oriental Land Data (1997) Name Oriental Land Corp., Ltd.(Check edit) Date of Establishment July 11, 1960 Paid-in Capital ¥63 billion (US$0.53 billion) Sales ¥180 billion (US$1.53 billion) Income before Tax ¥28 billion (US$0.24 billion) President Toshio Kagami Members of Board 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. For the company profile, see www.olc.co.jp/en/company/profile/index.html. While there was an undoubted need for growth and expansion, the timing and approach of any new endeavor would be critical. Management knew that most of OL’s customers were repeat visitors. However, while customers were expected to return two or three times, it was not clear if they would come back for a fourth visit. There was concern that customers would eventually get bored with the existing attractions and facilities, ch_02(29-48).indd 29 2007/9/27 11:31:17 AM Cases on International Business and Finance in Japanese Corporations 30 resulting in a severe shortage of customers. The company forecasted that the number of visitors in 1998 would be 4% lower than the year before. Some years before, OL had received an inquiry from their licenser, the Walt Disney Company (WD), to consider the idea of constructing a new entertainment park, the DisneySea Park project. The conditions of this new joint project would be similar to the conditions of the original — OL would pay WD a licensing fee for the continuous use of the name “Disney,” and, in return, WD would provide OL with valuable technical advice and management support for the new project. OL’s directors had to make a tough decision. As a licensee, WD had its own agenda, and negotiations with them had been hard in the past. Meanwhile, OL had a number of stakeholders it had to please, including the parent company, the main bank, landlords, and shareholders, all of whom had their own representatives on OL’s board of directors. The relationship among these parties determined and controlled the firm’s strategic direction. OL’s management had to incorporate all of these various interests in their decision-making process to come up with an optimal decision. The first step would be a thorough financial analysis of the new project, which could be presented to the various parties. The Original Tokyo Disneyland In April 1979, 19 years after OL’s establishment, the company signed a license agreement with WD, concerning the design, construction, and operation of Tokyo Disneyland.1 In December 1980, the construction of Tokyo Disneyland began in Maihama District, in the village of Urayasu (currently Maihama, in the city of Urayasu). Less than three years after construction had begun, Tokyo Disneyland opened its doors for business in April 1983. Tokyo Disneyland was a smashing hit. The first year it drew 10.3 million visitors, in line with WD’s expectations. After the opening year, the number of visitors never went below 10 million, reaching 13.38 million by the fifth year. The number of visitors peaked in 1998, at 17.45 million, and the park’s attendance figures never dropped below 16 million in the years that followed. A prediction that the initial enthusiasm would wear off was proven wrong (see Exhibit 2). According to a visitor analysis conducted by OL in 1988, the percentage of repeat customers was 75%,2 far above US Disney’s 50%. Some 70% of the park’s visitors were from the neighboring Kanto area, near Tokyo, although a large number of repeat visitors from other regions also contributed to the park’s success. Visitors spent an average of¥7,000 (US$59...

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