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Samsung and theme park in Korea Essay

Name: Su Han
Program: M2 Luxury Management Food&Wine
Title of the case: Samsung and theme park industry in Korea

1) “Is the Global theme parks industry an interesting industry to be in?” a) Rivalry among existing competitors

Is the industry growing rapidly?
Yes,because of the increasingly fierce competition and the maturity of the market.

Do the 4 biggest players have together more than 80% of market share? Yes, because 4 biggest players which are The Walt Disney Company,Time Warner’s Six Flags Corporation, Paramount, Anheuser Busch and Cedar Fair have together more than 80% of market share.

Diversity of competitors
Are competitors all of approximately the same size?
No,because it depends on the land size and different regions

Are the competitors diversified rather specialized?
Yes. Theme parks generally have a global theme to propose. Diversity of competitors were getting more intense.

Product differentiation
Are there significant product differences and brand identities between the competitors? Yes,there was a variety of parks and attractions, each with a different approach to drawing crowds and showing them a good time. That are Cultural and Education Parks; Outdoor Amusement Park; Theme Parks were generally family-oriented entertainment complexes that were built around a theme;Water Theme Parks. That means theme is equal to brand.

Are products complex and do they require a detailed understanding on the part of customers? No, the rides and attraction are not require information.

Would customers incur significant costs in switching to a competitor? No,ticket prices for consumers is very cheap.

Excess capacity and exit barriers
Is the industry with no intermittent over capacity?
No. Important over capacity of extra staff during spring and summer

Is it hard to get out this business because there are specialized skills and facilities or long term contract commitments? Yes, it is.

Economies of scale and the ratio of fixed to variable costs
Are there economies of scale in this industry?

Yes, the economies of scale and scope were significant in the industry. Increasingly, Parks got larger and longer to generate more operating revenue. Also, companies had multiple parks to take advantage of the learning curve effects in the management of theme parks and the increased economies of scope. Most of the operating expenses for theme parks (about 75 per cent) were for personnel.

Are the fixed costs of the business a relatively low portion of total costs? No, because land development costs around 50% of investments and advertising campaigns around 10%.

b) Threat of new entrants

Capital requirements
Is a lot of capital needed to enter the industry?
Yes, because the theme park business required a large-scale initial investment, typically ranging from $50 million to $3 billion.

Is equipment expensive to acquire / to serve?
Yes, because land development costs, Amusement machinery costs, Working capital and Amusement equipment are all expensive to acquire.

Economies of scale
Do large firms have a cost or performance advantage in the industry? Yes, they have. Many parks periodically added new attractions or renovated existing ones to draw repeat customers. The parks typically reinvested much of their revenue for expansion or upgrading purposes.

Absolute cost advantages (“first mover advantage”)
Does experience help to continuously lower costs?
Yes, because large firm such as Walt Disney Company, its financial profile was generally used to assess the return on investment within the industry. The revenues for the theme parks segment of the Walt Disney Company were at US$2.042 billion in 1988 and grew to US$3.4 billion in 1993. Operating income was pegged at US$565 million in 1988 and US$747 million in 1993. With this clarification,large firms has enough experience to help to continuously lower costs,most of revenue to be reinvest for expansion purposes.

Does a newcomer have any problems in obtaining the necessary skilled people, materials or suppliers? Yes, they have. In some countries, where land was scarce, governments limited the area of the land that the developers could take up for theme parks. Park administration was dependent on the government for utilities such as power, gas and water. A typical period required for arranging government approval for a theme park could be as high as two to five years,depending on the country.

Product differentiation
Are there any proprietary product differences in the industry? Yes,because the theme park industry had three classes of inputs: the building and construction services that provided landscaping and architectural support; the hardware providers that supplied amusement machinery; and the software providers that supplied management know-how.

Are there any established brand identities?
Yes, because the park manager should work with tour operators and government tourist promotion boards to draw the tourist crowds to their parks. Theme parks spent about 10 per cent of their annual revenues for advertising.

Radio, newspaper, yellow page (telephone book) advertisements, family and group discounts, and direct mail were the most common promotional methods.

Do customers incur any significant costs in switching suppliers? No, because the customers don’t care about the price.

Access to channels of distribution
Does a newcomer to the industry face difficulty in accessing distribution channels? Yes, because theme parks spent about 10 per cent of their annual revenues for advertising. Radio, newspaper, yellow page (telephone book) advertisements, family and group discounts, and direct mail were the most common promotional methods.

Governmental and legal barriers
Are there any license, insurance of qualification which are difficult to obtain? Yes, because the licence and insurance of qualification are all difficult to obtain, because government regulations were quite strict because of the extensive land use and security. Licensing requirements and methods of ascertaining operational expertise to ensure visitors’ safety varied from country to country.

Can a newcomer expect strong retaliation on entering the market? Yes, because the insurance premiums were extremely high in some parts of the world. Given the likelihood of accidents in the amusement parks and the possibility of serious injury, 100 per cent insurance coverage was a must in the industry.

c) Threat of substitutes

Has the customer no real substitutes?
No, there are Various substitutes for customers : other modes of entertainment

Propensity/willingness of buyers to substitutes
Is the customer unlikely to substitute?
No, customers can easily substitute, because they want to try something new, something different, cheaper, safer, better or more convenient.

Will the customer incur costs in switching to a substitute?
Yes, because they meet more complex needs. Free admission parks and beaches, camping trips, or even video-movies at home were competing options for leisure time. It means if customers have enough leisure time while the price is lower than theme park or have the same type of entertainment, they were probably change their mind.

Price/performance characteristics of substitutes
Have substitutes performance limitations which do not completely offset their lowest price – or – is the performance advantage of substitutes not justified by their higher price? Yes, It was the availability of leisure time and a high discretionary income that drove the commercial recreation industry. Like video-movies at home, customers cost little even though they can’t go out for fun.

Is it difficult to perceive performance differences between industry products and substitutes? No, because Theme Parks industry do not fit well with High tech image of Samsung.

d) Bargaining power of buyers

Buyers’price sensitivity

1) Importance of the item as a proportion of their total cost Are customers not highly sensitive to price?
Yes, because in a good economy, customers do not have a great deal of bargaining power within the theme park industry. Although the entertainment facilities as a proportion of their total cost, customers just focus on the rides themselves,it shows that buyers’price sensitivity are not highly.

2) Level of differentiation
Is the product unique to some degree or has accepted branding? Yes, like
special simulators for amusement purposes using proprietary technology were being developed by technology-intensive companies.

Does the customer face any significant costs in switching suppliers? No, because the customers are not affected by suppliers
3) Level of competition between buyers
Are customers’ businesses/activities/finance profitable?

Yes, because to handle the admissions revenue a centralized ticket system was generally preferred. An all-inclusive admission price entitled customers to as many rides and shows as they desired. This approach led to longer stays at parks resulting in increased food and beverage sales. 4) Importance of the sold product to the quality of the buyer’s product/service Yes, successful park managers used extensive marketing research to understand their customers and also spent a lot of effort in promoting the park. To reach the diverse groups, parks emphasized increased beautification and the range of entertainment and food services offered.

Relative bargaining power

1) Size and concentration of buyers relative to suppliers
Is there a large number of buyers relative to the number of firms in the business? Yes, there are local families,children’s groups,the evening market,corporate groups and tourists. Is there a large number of customers, each with relatively small purchases? Yes, each customer just buy one ticket.

2)Buyer’s information
Does the buyer need a lot of important information to properly buy? No, they don’t need any information to buy a ticket.

3) Ability to enter the other party’ business through vertical integration Is there anything which prevents the customer from taking supplier’s function in-house? No, there isn’t anything to prevent the customer from taking supplier’s function in-house.

e) Bargaining power of suppliers

Sensitivity to suppliers’ price

1) Importance of the item as a proportion of total cost
Have cost of purchases no significant influence on overall costs? No, significant for landscaping, machineries (hardware) and know-how (software).The amusement equipment required for the park was expensive, most of it going from $1 million to $50 million. The software charged huge licensing fees which were over 10 per cent of the revenues.

2) Level of differentiation
Are inputs (materials, labor, supplies, services) standard, rather than unique and differentiated? Yes, because these inputs provided by the supplier that the value constitute a larger proportion in the total cost of the product of the buyers, that is to say bargaining power of suppliers will increases greatly.

Is it possible to switch between suppliers quickly and cheaply? No, the amusement machinery industry had grown over the years. Because most of the large drives which has a solid market position, they have many buyers so that not controlled by the market competition of firms.

3) Level of competition between suppliers
Are suppliers’ businesses profitable?
Yes, because admission fees constituted over 60 per cent of the total revenues of a theme park, while the rest came primarily from food, beverage, and merchandise sales. 4) Importance of inputs to the quality of product/service

Yes, because customers expect high level of quality along all areas of the theme park. Users also expect adventures and experiences in an artificial environment at a calculable risk.

Relative bargaining power

1) Size and concentration of suppliers
Are there many potential suppliers?
No, like special simulators for amusement purposes using proprietary technology were being developed by technology-intensive companies such as Sega Japan and Simex Canada. Is there no major dominant supplier(s) ?

Yes, the amusement machinery industry had grown over the years. Most of the large drives, such as the Hurricane or the Giant Wheel, were manufactured in Japan, Europe or the United States. 2)Information

Is it easy to compare suppliers’ offer?
Yes, because there were fewer than 10 suppliers who were capable of developing quality machinery, such as DOGO of Japan, HUSS of Germany, and ARROW of the United States. 3) Ability to enter the other party’ business through vertical integration Would it be easy to enter the business of suppliers?

No,because most of these suppliers worked globally, and the machinery were custom designed and made to order to fit the particular market and environment conditions. Summary – Overall industry rating

Intensity of rivalry among competitors

Threat of entry

Threat of substitutes

Bargaining power of buyers

Bargaining power of suppliers

2) “More specifically, will the idea of theme parks work in Korea ?”

Yes, because there is an increase of Theme Parks’ demand in Korea that is creating a booming in leisure domains, leading to a potential very profitable if running in this business. The theme park industry was still in its early stages in Korea, and had a history of less than two decades. However, indications were that the industry was growing globally, with more players entering. Rivalry between established competitors

the Korean market is becoming mature with 33% of worldwide Theme Parks are based in Asia. In Korea, around the Seoul area , there were six themes parks. The most notable player in these region are : Lotte World , Seoul Land and Yongin Farmland. Each of these firms offers theme parks with varying experiences, always trying to debut the newest and best experiences in order to stay ahead of one another. A great example of this can be seen by looking at these three major theme parks. New attraction and technology can attractive customers.

Lotte World has a series of their own entertainment, Seoul Land is more of a entertainment place for short visit,Farmland planned to revamp its theme park with addition of the water park, a global fair and the expansion of the existing zoo. Every year new attractions, restaurants, entertainment, and hotel offerings are announced in order to influence people to attend the various parks. This rivalry also affects the profits of these theme parks as they typically see a good return on their investment year over year. Other forms of competition comes from free admission parks, beaches, camping trips. These are either free or cheaper than paying for a trip to the theme park. Threat of entry

The threat of new entrants of theme park in Korea is particularly high. Theme parks around the world need a large scale initial investment from $50 million to $3 billion. Land development cost ,amusement machinery cost and working capital are the main component of the capital investment. Another reason is land use, Seoul where land is scare. The land requires for building or expanding a theme park normally involved considerable large land plot. The government often gives firms long periods of approval. Theme parks always have a large economic of scale in order to attract much more customers because of the rides and services which need satisfy customers’ demand. Threat of substitute

Farmland plan to develop a resort town in Yongin with luxury hotels, golf courses and resort accommodations catering to customers with families and spend longer time in Farmland. The challenge for Farmland is finding ways to entice customers to spend their vacations with them as opposed to trips to the beach, admission parks, camping trips or staying at home and watch video-movies. Bargaining power of buyers

In a good economy and during the holiday seasons, the buyer bargaining power is low where there are many patrons to the theme park. Since the Koreans do not have many vacation leave and Korea is a temperate country , the only time for Koreans to go out with their family will be during the mid –summer to mid autumn period. These will be the peak period for most of the theme parks and it is term the high seasonality. When the high seasonality period is over, the customer’s bargaining power will be high and the theme parks must start their promotional activities or special events to attract customers to visit the theme park. Bargaining power of suppliers

the suppliers to the theme park industry have a lot of bargaining power. DOGO of Japan, HUSS of Germany and ARROW of the United States are just a few of the major companies who create the attractions found in most of the theme parks throughout the world. Every year,the IAAPA hosts a convention where the newest technology is put on display for the consumers (theme parks). In an effort to keep customers excited year after year, theme parks have the opportunity at this convention to see the newest technologies first hand and decide what to bring to their theme parks in the future. This can negatively affect the profit level of theme parks, however, as they bid against one another as they vie for the best technology, driving up the prices and reputation of the suppliers. 3) “ Should Samsung invest in the proposed Master Plan ($300 million investment)?” Yes, but should be more because theme park developers chose land sites in a central area which was relatively expensive in Korea and several important criteria are missing in this plan to be complete and realistic. For example, the fact that Farmland is going to build new attraction and extend some others to make them more attractive is a point that required the whole advertising campaign to be reconsidered entirely, and also more impacting by focusing on all those novelties. This is an important operation that will raise a budget corresponding to more than 10% of the revenue in the group, plus other unexpected extra costs.

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