Case Study
Hong Kong Disneyland
The fifth Disney Park-to add to those in Orlando, Anaheim, Tokyo, and Paris-is due to
open in Hong Kong in 2005 or 2006.
The cost of building the park will exceed US$3 billion. However, Disney itself is
only investing around US$314 million, for which it will receive a 43% share in the
park (Far Eastern Economic Review, 23 January 2003). In other words, it will not
have a controlling interest in the new park.
The development of the new park comes at a difficult time for the Disney
Corporation. Attendances at its US theme parks fell substantially in the wake of the
Sep. 11 terrorist attacks, and the general economic downtown in the USA.
The Hong Kong Park is planned to be followed by another park in Shanghai, China.
However, this project has suffered setbacks and will not open now until after 2008.
Until a deal is actually in place, doubts may remain as to whether this park will ever
be built.
While Hong Kong is an important first step into the Chinese market for Disney, it is
not the only country where the company is looking for new projects. It is also
interested in the lucrative market potential of India.
Hong Kong seems to be an obvious choice for a theme park as a leading destination
in Asia. However, the company is looking for most visitors to come from Hong Kong
and mainland China rather than relying on inbound foreign tourists. Data from the Far
Eastern Economic Review in Jan. 2003 seems to indicate that this may be correct. For
example, it states that
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6.5million mainland Chinese tourists visited Hong Kong in 2002, compared to
4.4 million in 2001, a growth rate of nearly 50%;
50% of mainland Chinese tourists in Hong Kong visited the destinations’ existing
theme park, Ocean Park;
42% of the Chinese tourists to Hong Kong came from the neighboring province
of Guangdong; these people would be unlikely to visit a Shanghai-based park
instead;
Mainland Chinese tourists spent, on average HK $5169 in 2001, more than any
other market.
However, it is interesting to note that Ocean Park made a large loss in 2000-2001 and
even with the rapid growth of Chinese tourists in 2001-2002 only managed a very
modest profit.
Furthermore, other theme park operators looking for new projects have ignored
Hong Kong in favor of Shanghai. Vivendi Universal Parks and Resorts is due to open
a new movie theme park in Shanghai in 2006.
Disney appears to be modest in its ambitions for its Hong Kong Park. It expects to
earn around US$100 million per annum from its involvement in the park, around 3%
of all the revenues of the corporation (Far Eastern Economic Review, 23 January
2003).
If Disney is being product and cautious with its new Hong Kong park, its partner,
the Hong Kong Government is very enthusiastic about the whole project. It has its
own web site promoting the new park, and it is investing much more in the project
than the Disney Corporation itself.
According to this web site, the government is investing some HK$22.45 billion in
the project, as follows:
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$3.25billion in equity in the project;
$5.6billion loan to be repaid over 25 years with interest;
$13.6billion in land works and infrastructure costs.
Furthermore, the government provided a site foe the park, some 180 hectares of land
at Penny’s Bay on Kowloon Island, near the new airport.
The government seems very happy to be making this novel of investment in a
commercial venture by a foreign corporation. Its web site explains some of the
benefits the government expects HK to receive that justifies this level of public
investment, as follows:
1. It has been estimated that the project will inject around HK$148 billion into the
local economy over a 40-year period, including all the multiplier effects such as
salaries, employees spending, extra business for local enterprises, and so on.
2. Around 6000 jobs will be created directly by the construction of the park at a time
when HK’s unemployment rates were reaching relatively high levels.
3. Once open, it is believed that the park will employed around 18000 people
directly and indirectly, again a major contribution to employment in the era.
4. The forecast is that HK Disneyland will attract around 3.4 million in bound
tourists in its first year, of whom 1.4 million will be additional tourists who would
not otherwise visit HK. It is suggested that after 10 years these figures will have
risen to 7.3 million and 2.9 millions, respectively.
At the same time it is clear that the HK Special Administrative Region(SAR)
Government believes that having a Disney theme park in the era will have broader
benefits for HK. In 1999, the Hong Kong Tourism Commission noted some of those
other benefits, including the following:
1. The idea that Disney’s reputation for creatively and customer service could have
a beneficial effect on other local enterprises and thus raise the quality of customer
service in the era as a whole.
2. HK Disneyland will not just be a benefit for tourists but will also, the government
suggested, add to the quality of life for HK residents. It will give them the chance
to experience a world-class leisure experience without having to travel.
3. To quote the official web site ‘HK Disneyland will no doubt enhance the
international image of HK as a vibrant cosmopolitan city, and specifically
enhance the statues of HK as a key tourist destination in Asia’. This is important
in a region with many competing destinations such as Singapore and, increasingly,
Shanghai and Beijing. There is a general feeling, too, that Disney will make HK a
stronger leisure tourism destination to complement its reputation as a business
tourism destination. As the web site, again, stated in 1999, about the Disney park,
‘One thing missing has been an attraction that would make families sit down
together to plan their holidays, think of HK as a good destination. We will now be
filling that gap in our tourism product’.
4. The reputation of Disney for staff training would hopefully focus the attention of
many enterprises in HK on the importance of this aspect of human resource
management and en courage an increase, and improvement in the quality of stuff
training throughout HK.
5. Disney’s emphasis on high environmental quality in its sites, it is thought by the
government, would raise environmental awareness throughout HK which should
ultimately lead to environmental improvements throughout the era, in due course.
6. Finally, the government thought, its deal with Disney sent an important message
to the global business community. It showed the HK could do deals with comical
operators. This was an important message just after the return of HK to China
from UK control, when foreign investors had feared the new government might
not be business friendly. With this deal the HK SAR Government proved it could
be trusted by investors.
Due to its desire to win the project for HK, the government has provided an excellent
deal for Disney. In addition to the financial contribution noted earlier, the government
has also helped HK Disneyland in a number of other ways, including the following:
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Providing the land on a 50-year lease on reasonable terms, plus a right to renew
the lease for a further 50 years;
An option 20years to buy the adjoining site in case the park should wish to
expand with a second phase of development;
A right of ‘first refusal’ on a third site adjoining the second site, in case even
further growth was envisaged;
A restriction on the height of new buildings developed around HK Disneyland to
en sure that the site was not overlooked by any other developments, thus reducing
its visual impact;
Agreement in principal to restriction on flights over the site the or the mooring of
vessels in the waters around the site;
A new rail shuttle from the nearest existing ‘Mass Transit’ rail station to the site;
New roads to make the site accessible;
The creation of a new police post to ensure any major incidents at the park are
handled effectively; however, on-site security will remain the responsibility of
Disney’s own security staff.
There is no doubt that the HK SAR Government has done an enormous amount to
ensure the future success of Disneyland in HK.
Key issues
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Disneyland in HK will be the company’s fifth park worldwide and its second in
Asia.
Disney clearly wants to gain a foothold in the rapidly growing Chinese market
and HK is a first step in this strategy. However, it has also been pursuing a site in
Shanghai, so it clearly believes there is the potential for at least two Disney parks
in China.
The company believes that the new park will not affect visitor numbers at the
Tokyo Disneyland. This may be because the company states that around 92% of
visitors to the Tokyo park, in fact, come from the Tokyo area.
The Disney Corporation financial involvement in the new park is relatively small,
at around 10%. It will focus on managing the attraction and licensing of
merchandise from which it will receive up to US $100 million per annum.
Most analysts believe that the return on its investment for Disney in China will be
modest compared to those received from the Tokyo Park. This is partly because
Disney movie and television products are less well established than in Japan and
the pirating of merchandise may be a real problem in China.
Unlike Disney, the HK SAR Government is making a massive contribution to the
project in terms of an equity stake and infrastructure.
The government has given Disney such a good deal because, as we have seen, it
believes that having a Disney park in the area will bring many wider benefits to
the economy and business culture in HK.
It also believes that the park will help keep HK ahead of its Asian competitors as
a tourist destination, by broadening its product portfolio.
Interestingly, these are similar motives to those which underpinned the assistance
given by the French Government in the development of Disneyland Paris,
through the building of road and rail links for instance. There are other
similarities between the two projects in tourism terms, for both Paris and HK are
major tourist destinations but both have not been seen as family oriented
destinations, generally. Still, many would argue, Paris and Disneyland are two
separate adjacent but different destinations with parallel, mutually exclusive
markets. It will be interesting to see if the new Disney park in HK becomes fully
integrated into the city and makes it a more child-friendly destination, or not.
Within China, HK must be pleased that it has managed to do a deal with Disney
for a new park ahead of Shanghai, its major rival. However, Shanghai could still
overtake HK if Disney eventually opens its park there and Universal opens its
new Movie theme park, as planned, there in 2006.
An interesting dimension of this project in terms of benefits over a very long time
period. This is in contract to most commercial organizations that are primarily
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concerned with only the current financial year, usually.
Finally, all reports of the new HK Park reflect a subtle shift of emphasis in terms
of the parks name, compared to Disneyland Paris. The new park will be known as
HK Disneyland, reflecting, perhaps, the relative contributions of the two partners,
the HK Government and the Disney Corporation.
Conclusion
Hong Kong Disneyland is being developed during one of the most difficult periods in
the history of the tourism industry, with the effects of terrorism, war, and the SARS
virus, still evident ever day. It is an interesting joint venture between a major
corporation and the government of Hong Kong in which the greatest risk is being
taken by the latter. It is a milestone, whether it is successful or not ultimately, in the
development of tourism in Hong Kong specifically, or in China as a whole.
Discussion points and exercises
1. Critically evaluate the reasons why the Hong Kong SAR Government has been
prepared to invest billions of Hong Kong dollars in the Disneyland project.
2. Discuss the argument, for and against, locating a new Disney park in Hong Kong.
3. Discuss the extent to which the new Disney Park in Hong Kong will help the
destination attract more leisure tourists.
4. Discuss the potential risks for the Disney organization of entering into a joint
venture with the government to develop the new park in Hong Kong.