Schedule

1. Schedule • 8-1 Euro Disney • 8-5 P&G • 8-6 P&G Cont. Summary Evaluations • 8-7 ClipIt! discussion • 8-8 Presentations • 8-12 Final in Class

2. CH-ZWA645-005jsmGB Entry Strategies and Euro Disney James Oldroyd Kellogg Graduate School of Management Northwestern University j-oldroyd@northwestern.edu 801-422-7888 650 TNRB

3. Euro Disney Case Summary • Euro Disney illustrates: • The importance of the location decision (e.g., the sequence of where to take your product/service first). With a global strategy you need to select new locations that are most similar to where you have been successful in the past. • Successful companies can get into trouble basing future success too heavily on past performance without making appropriate adjustments for the new country and culture. • The importance of mode of entry: each mode may be more appropriate under different circumstances; the choice regarding mode of entry can strongly influence the success of international expansion.

4. Enter (Establish in country operations) JV (with company currently operating within the country) License (product or technology to in market company) Export Entry Strategies High Responsiveness Customization Low Control Required Investment Low High

5. Advantages Minimizes risk, investment Speed in entering market Maximizes scale, utilization of existing facilities Disadvantages Trade barriers, tariffs (5%+) Transportation costs Limits access to local information Company viewed as outsider Market Entry MechanismsExporting • Conditions favoring exporting • Limited sales potential in target country; little product adaptation required • Good available distribution channels; close to existing production plants • High target country production costs • Liberal import policies; high political risk

6. Advantages Minimizes risk, investment Speed in entering market Able to circumvent trade barriers High return on investment Disadvantages Lack control over use of assets Licensee may become competitor Potential for knowledge spillovers Return is for limited period Market Entry MechanismsLicensing/Contracting • Conditions favoring licensing/contracting • Import and investment barriers that increase cost, limit FDI • Institutional environment that secures legal protection • Tangible or intangible assets can be fairly priced • Low sales potential in target country; large cultural distance • Licensee lacks ability/resources to become competitor

7. Market Entry MechanismsJoint Ventures/Alliances • Conditions favoring joint ventures/alliances • Similar to sole ownership plus: cultural distance is large • Government restrictions on foreign ownership • Local company can provide complementary skills • Local knowledge, resources, distribution, brand name, etc. • Advantages • Overcome ownership restrictions and cultural distance • Combines resources of two companies, potential for learning • Viewed as insider • Reduces investment • Disadvantages • Difficulties in managing j/v • Dilution of management control • Greater risk (than export, license) • Partner may become competitor; potential for knowledge spillovers

8. Advantages Greater knowledge on local market and customer Increases ability to appropriate specialized skills Minimizes knowledge transfers Can be viewed as insider Disadvantages Most risky and expensive way to enter a market (investment, resources, commitment) Inability to manage in local resources in local market Market Entry MechanismsInvestment/Sole Ownership • Conditions favoring investment, sole ownership • Import barriers that increase import costs • Tangible or intangible assets can’t be fairly priced • Cultural distance between home/host countries is small • High sales potential in target country

9. Update on Disneyland Paris • Less than nine years after its opening, Disneyland Paris entered the new millennium by welcoming its 100 millionth visitor on January 10, 2001, an event that highlighted the popularity and success of Disneyland Paris, Europe's leading tourist destination. • During the summer season, Disneyland Paris welcomed Disney's Toon Circus, an all-new show featuring a troupe of zany and irrepressible Toons led by Mickey Mouse. Three rolling stages set the scene on Main Street U.S.A., while 50 clowns, jugglers, artists and a host of Disney characters took to the street three times a day to "enter-toon" the audience. • The ongoing development of Disneyland Resort Paris and its surrounding area continues in 2002. The addition of a second theme park, opening in March, along with the ongoing expansion of Val d'Europe, the urban project developed by Euro Disney S.C.A. and third-party companies that creates the environment of a modern small town, demonstrates the continuing growth potential of this premier European resort. • The construction of three new hotels at the Disneyland Resort Paris also will begin in 2002. They will be financed, built and operated by Six Continents PLC, Airtours plc and Groupe Envergure. The hotels, with a total of 1,100 rooms, are expected to open in spring 2003.

10. Visitors France United Kingdom Belgium / Luxembourg Other Germany Spain / Italy 40% 18% 16% 10% 8% 8%

11. Disney’s Performance

12. Update Capital Structure Hotel occupancy rates

13. Earnings * income before lease rental expenses and net financial charges