mgmt 7.8

Lazalde 10

Marissa Lazalde

Instructor – Anna Phillips

October 30, 2020

Management 3900 – Principles of Strategy

Learning Objectives for Chapters 7 and 8

Media Research Paper

Articles Used:

Chapter 7 – Strategies for Reaching Global Markets

Chapter 8 – To Diversify or Not To Diversify

Media Research Paper - The Walt Disney Company

In these two chapters, chapter seven – Strategies for Competing in International Markets and chapter eight - Corporate Strategy Diversification, work together to show you different aspects of strategies. In chapter seven we take a look at many different strategies used by huge, successful companies that compete in international markets. In chapter eight we take a look at why corporate strategy shouldn’t be linear, they need diversification to succeed in any market and help the company gain a competitive advantage.

Chapter 7 - Strategies for Competing in International Markets

Learning Objective #1 - The primary reasons companies choose to compete in international markets.

There are at the very least five main reasons why a company would chose to compete in the international market. The five main reasons are; to gain access to new customers and meet current customer needs, to further exploit core competencies, to gain access to resources and capabilities located in foreign markets, to gain access to lower-cost inputs of production, and to achieve lower costs through economies of scale, experience, and increased purchasing power. I’m going to focus on three that The Walt Disney Company utilizes.

1. To gain access to new customers and meet current customer needs

Once a company has started in their country and has become a success with a vast amount of income, their next move is to evaluate whether going international will work for their company or not. The one thing you have to remember about going international is that it is not for every business/company. Some business succeed very well in their origin of country for many reasons, such as, resources, culture, community, and the value of currency. Once a company has decided to go international, a company needs to look into different strategies, one that will benefit them and their company.

2. To gain access to resources and capabilities located in foreign markets

A company can only grow so big as long as it maintains access to resources in its place of origin. When a company goes international and moves into a foreign market they usually do so to gain more access to new consumers but also for more and new resources and capabilities. In 1953 The Walt Disney Company bought a 160 acres for $879,000, in today’s value it would be $8,568,768.54. In the 1960s for 27,400 for a little over 5 million, in today’s value it would be $53,615,730.34. But in 1982, The Walt Disney Company built Tokyo Disneyland. It was only 11 years after Walt Disney World's Magic Kingdom, it was their first international theme park ever. In the 1980s they bought 200 acres and paid $1.4 billion for the land, in today’s value it would be $13,647,640,449.44. These statistics only go to show that while the land may not have been cheaper going international was a guaranteed risk that proved to be immensely profitable.

3. To further exploit core competencies

The core competencies are what define a company’s capability and or advantage that sets it apart from its competitors. A company’s core competencies can be further exploited by the company, which means a company utilizes and plays toward its advantages. The Walt Disney Company doesn’t only deal in the media and entertainment, it deals in quite a grand variety of other industries which gives the company its competitive edge against its competitors. One of The Walt Disney Company’s best move to exploit their core competencies was to take their company international, they became the first company from the United States to go international with their theme parks. They successfully currently have four international theme parks that operate successfully and maintain the company’s high standards in every way.

Learning Objective #4 - The three main strategic approaches for competing internationally

There are three main strategic approaches for competing internationally; Multi-Domestic Strategy, Global Strategy, and Transnational Strategy. All three of these are used by major corporations that do business internationally and are also successful on the international market.

1. Multi-Domestic Strategy

A multi-domestic strategy is used when a company offers a variety of its own products and or services. The company also aims for competitive edge from country to country as an effective way to be responsive and ever changing to fit the buyers’ preferences and the market’s conditions. This strategy is quite different from the others and quite interesting because it’s a think-local and act-local type of strategy but it’s still an international strategy. This strategy also clears the path for decision making that disperses to the local level. This strategy is definitely not utilized by The Walt Disney Company, all their actions tend to be thought out on an international level.

2. Global Strategy

A global strategy is used to build a global brand on an international level. A brand and or company using a global strategy aims to sell a standardized product and it also works to establish efforts across country boundaries. A company with a global strategy also strives to establish a strong and independent headquarters to maintain its global activities. Global strategies are an extremely appropriate choice for a company when is in need of a specific product and or service and can be found in different countries without many differences. “This strategy is most definitely utilized by The Walt Disney Company. It is an international company that needs to make its products and or services attractive and ones that have competitive edges no matter what country they are offered in (Ward).”

3. Transnational Strategy

A transactional strategy is a think-global based strategy, with an act-local approach. It incorporates multiple elements of both multi-domestic and global strategies. Companies with a transactional strategies try to balance aspirations for effectiveness with the ability to adjust local preferences within a vast variety of countries. “Even though this seems impossible, it is actually perfectly doable when taking the whole value chain into considerations. Transnational companies often try to create economies of scale more upstream in the value chain and be more flexible and locally adaptive in downstream activities such as marketing and sales (International Business Strategy EXPLAINED with EXAMPLES: B2U).” This strategy is also not utilized by The Walt Disney Company because being an international they cannot afford to take any approach from a local point of view.

CHAPTER 8 - Corporate Strategy Diversification

Learning Objective #1 - When and how business diversification can enhance shareholder value.

There are three tests of corporate advantage that a company can use to determine when and how a business diversification can enhance shareholder value; Industry Attractiveness Test, the Cost of Entry Test, and the Better-Off Test.

1. Industry Attractiveness Test

The Industry Attractiveness Test asks the question of the industry, “Are the industry’s profits and return on investment as good or better than present business(es) (Thompson)?” To use this test, the industry it’s used for needs to be entered through diversification but it must also be structurally attractive, by the mean of the Porter’s Five Force Model. The five forces of this model includes; competitive rivalry, supplier power, buyer power, threat of substitution, and threat of new entry. This test is not used often at The Walt Disney Company because they are already established in their many different industries. Although the most recent time would have to be when they decided to construct their own streaming service.

2. Cost of Entry Test

The Cost of Entry Test asks the question of the industry, “Is the cost of overcoming entry barriers so great as to long delay or reduce the potential for profitability (Thompson)?” The cost of entry on any new market for any new company can range and it also can cause a company to take huge risks. Sometimes companies need to take risks, the greater the risks, the greater the reward. It’s always hard to break into a new industry for any company but especially new companies. The cost of entry for The Walt Disney Company when it was first founded in 1923 was immense and they were not for certain how to handle it. To quote Walt Disney himself from an interview conducted by Tony Thomas in 1959, “My brother was here, and in effect, the government helped subsidize us. And I’ll explain that to you. My brother was a veteran of the First World War and he had been hospitalized and things and so he was receiving a certain disability compensation. It amounted to about $85 a month. And we lived on that while we established the studio (Korkis).”

3. Better-Off Test

The Better-Off Test asks the question of the industry, “How much synergy (stronger overall performance) will be gained by diversifying into the industry (Thompson)?” When a company plans to diversify into a new business, the new business must offer amass potential for the company’s existing business and or businesses. The new business and or businesses the company plans on taking on has to work copacetic together under a single corporate umbrella. A corporate umbrella is a large and most times a successful brand name that oversees smaller companies belonging to the same corporation. When a company is opened under a corporate umbrella it gives the new startup company credibility and structure even though the company is a startup. The Walt Disney Company is most definitely a corporate umbrella and you would be surprised at the long list of assets they own.

Learning Objective #5 - What four main corporate strategy options a diversified company can employ for solidifying its strategy and improving company performance? (slide 72)

The four main corporate strategy options that a diversified company can employ for solidifying its strategy and improve their performance are; stick closely with the existing business lineup, broaden the diversification base, divest some businesses and retrench to a narrower diversification base, and restructure the company's business lineup through a mix of divestures and new acquisitions. I’m going to focus on three that highly apply to The Walt Disney Company.

1. Stick closely with the existing business lineup

One of the most sure-fire things a company can do to solidify its existing strategy and improve their performance is to stick closely with the existing business lineup. The strategy option is safe but not very diversified. To stay with this decision usually leads to an undiversified firm. On the other hand, this strategy options makes perfect sense for business when the lineup offers alluring growth opportunities. With already established growth opportunities it sets up to generate added value for current, new, and future shareholders. The Walt Disney Company tends to stick to what they know best but on rare occasions they will venture out into new things.

2. Restructure the company's business lineup through a mix of divestures and new acquisitions

This strategy option seeks to in a way refresh a company’s business lineup. It is used usually in the case that the business’s current lineup isn’t providing attractive growth opportunities. This strategy opts to use diversification by mixing up their lineup and also by acquiring new acquisitions. The Walt Disney Company has recently diversified its company ever so slightly by starting their own streaming service Disney+, which went live November 12, 2019. Their streaming service has been doing extremely well for multiple reasons. One being that the streaming service has exclusive shows and movies made especially to be aired on the service. The second is that Disney has been pulling all of their television shows and movies from other streaming services and exclusively made them available for their own streaming service.

3. Broaden the diversification base

This strategy option is solely to broaden the diversification base, this is done by acquiring more businesses. In doing so, the company can build positions in new related and unrelated industries, this will add alluring growth opportunities. “This strategy option will add businesses that will complement and strengthen the market position and competitive capabilities of businesses in industries where the firm already has a stake (Thompson).” The Walt Disney Company has stepped out of its comfort zone and have bought many new businesses to broaden their diversification base. In the past three decades they have acquired major businesses such as; ABC and ESPN both in 1995, Muppets in 2004, Marvel in 2009, LucasFilm in 2012, and 21st Century Fox in 2019.

Conclusion 3 Key Findings

My first main finding was from the “Strategies for Reaching Global Markets” article which informed me about the many different business deals that The Walt Disney Company conducts internationally. My second finding was from the “Tony Thomas Interviews Walt Disney January 1959” article/transcript of an interview. The interview with Walt Disney was a refreshing take on researching the company and the man himself because the words came directly from him. It gave me a new insight on the way this huge, successful company started off so rough and small. My third finding was from the “To Diversify or Not To Diversify” article from which I learned that even if a business is successful, if they never diversify their company then their success will in most cases fizzle away. Diversification brings new attractive growth opportunities.

My Opinion

Both of these article gave me a great insight on the way The Walt Disney Company does business and what strategies they use on an international level. This company simultaneously thinks, acts, and does business on a national and internationally level and tend to succeed almost all the time. The Walt Disney Company is one of the most successful company that started in the United States and went international they achieved them great success as well.

Work Cited

Administrator. “International Business Strategy EXPLAINED with EXAMPLES: B2U.” Business, 22 Mar. 2020, www.business-to-you.com/international-business-strategy/.

Korkis, Jim. “Tony Thomas Interviews Walt Disney January 1959.” MousePlanet, 17 June 2015, www.mouseplanet.com/11052/Tony_Thomas_Interviews_Walt_Disney_January_1959.

Markides, Constantinos C. “To Diversify or Not To Diversify.” Harvard Business Review, 1 Aug. 2014, hbr.org/1997/11/to-diversify-or-not-to-diversify.

Thompson et al. “Crafting and Executing Strategy.” Mc Graw-Hill Publishing. Web. 28 Apr. 2020.

Ward, Christion. “Strategies for Reaching Global Markets - Walt Disney By Christion Ward.” Google Sites, sites.google.com/a/email.vccs.edu/walt-disney-by-christion-ward/home/strategies-for-reaching-global-markets.