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4LTR Press uses a Student-Tested, Faculty-Approved process to meet the

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Learn Global Business YOUR Way with GLOBAL4! GLOBAL4’s easy-reference, paperback textbook presents course

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STUDENTS SAY Students taking Global Business told us they wanted relevant examples of how the course related to their lives and future careers. The students had a basic understanding of business concepts, but wanted a study tool that helped them apply these concepts with an international perspective.

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INSTRUCTORS REQUIRE GLOBAL4 allows instructors to introduce their students to the inner workings of actual global companies. Engaging examples, interactive applications via 4LTR Online and opening and closing cases in each chapter, will prompt students to think independently, master critical thinking skills and view today’s business challenges from a truly global view.

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THE GLOBAL SOLUTION

GLOBAL4 delivers all the key terms and core concepts for the Global Business course.

GLOBAL Online provides the complete narrative from the printed text with additional interactive media and the unique functionality of StudyBits—all available on nearly any device!

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GLOBAL3

Globalizing Business

Understanding Politics, Laws, and Economics

CHAPTER

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Globalizing Business

GLOBAL4

CORRECT

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INCORRECT

INCORRECT

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GLOBAL4 Mike W. Peng

Senior Vice President, General Manager: Erin Joyner

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iii

Mike W. Peng is the Jindal Chair of Global Business Strategy at the Jindal School of Mana­ gement, University of Texas at Dallas. He is also a National Sci­ ence Foundation (NSF) CAREER Award win­ ner and a Fellow of the Academy of Interna­ tional Business (AIB). At UT Dallas, he has

been the number­one contributor to the list of 50 top journals tracked by Financial Times, which has consis­ tently ranked UT Dallas as a top 20 school in research worldwide.

Professor Peng holds a bachelor’s degree from Winona State University, Minnesota, and a PhD from the University of Washington, Seattle. He had previously served on the faculty at the Ohio State University, Uni­ versity of Hawaii, and Chinese University of Hong Kong. He has taught in five states in the United States (Hawaii, Ohio, Tennessee, Texas, and Washington), as well as in China, Hong Kong, and Vietnam. He has also held visit­ ing or courtesy appointments in Australia, Britain, China, Denmark, Hong Kong, and the United States, and lectured around the world.

Professor Peng is one of the most­prolific and most­ influential scholars in international business (IB). Both the United Nations and the World Bank have cited his work. During the decade 1996–2006, he was the top seven contributor to IB’s number­one premier outlet: Journal of International Business Studies. In 2015, he received the Journal of International Business Stud- ies Decade Award. A Journal of Management article found him to be among the top 65 most widely cited management scholars, and an Academy of Management Perspectives study reported that he is the fourth­most­ influential management scholar among professors who have obtained their PhD since 1991. Overall, Professor Peng has published more than 140 articles in leading journals and five books. Since the launch of GLOBAL, he has not only published in top IB journals, such as the Academy of Management Journal, Journal of

International Business Studies, Journal of World Busi- ness, and Strategic Management Journal, but also in leading outlets in entrepreneurship (Entrepreneurship Theory and Practice), ethics (Journal of Business Ethics), human resources (International Journal of Human Resource Management), and engineering management (IEEE Transactions on Engineering Management).

Used in more than 30 countries, Professor Peng’s best­ selling textbooks, Global Business, Global Strategy, and GLOBAL, are global market leaders that have been trans­ lated into Chinese, Portuguese, and Spanish. A European adaptation (with Klaus Meyer) and an Indian adaptation (with Deepak Srivastava) have been successfully launched.

Truly global in scope, Professor Peng’s research has investigated firm strategies in Africa, Asia Pacific, Europe, and North America. He is best known for his development of the institution­based view of strategy and his insights about the rise of emerging economies such as China in global business. With more than 29,000 Google citations and an H­index of 69, he is listed among The World’s Most Influential Scientific Minds (compiled by Thomson Reuters based on cita­ tions covering 21 fields)—in the field of eco nomics and business, he is one of the only 70 world­class scholars listed and the only IB textbook author listed.

Professor Peng is active in leadership positions. He has served on the editorial boards of the AMJ, AMP, AMR, JIBS, JMS, JWB, and SMJ; and guest­edited a special issue for the JMS. At AIB, he co­chaired the AIB/JIBS Frontiers Conference in San Diego (2006), guest­edited a JIBS special issue (2010), chaired the Emerging and Transition Economies track for the Nagoya conference (2011), and chaired the Richard Farmer Best Dissertation Award Committee for the Washington con­ ference (2012). At the Strategic Management Society (SMS), he was elected to be the Global Strategy Interest Group Chair (2008). He also co­chaired the SMS Special Conferences in Shanghai (2007) and in Sydney (2014). He served one term as Editor­in­Chief of the Asia Pacific Journal of Management. He managed the successful bid to enter the Social Sciences Citation Index (SSCI), which reported APJM’s first citation impact to be 3.4 and rated it as the top 18 among 140 management journals (by citation impact factor) for 2010. In recognition of his significant contributions, APJM has named its best paper

ABOUT THE AUTHOR

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About the Author

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iv About the Author

award the Mike Peng Best Paper Award. Currently, he is a Consulting Editor at APJM.

Professor Peng is also an active consultant, trainer, and keynote speaker. He has provided on­the­job train­ ing to more than 400 professors. He has consulted and been a keynote speaker for multinational enterprises (such as AstraZeneca, Berlitz, Mass Transit Railway Hong Kong, Nationwide, SAFRAN, and Texas Instru­ ments), nonprofit organizations (such as World Affairs Council of Dallas­Fort Worth), educational and funding organizations (such as Canada Research Chair, Harvard Kennedy School of Government, US National Science Foundation, and Natural Science Foundation of China), and national and international organizations (such as the UK Government Office for Science, US­China Business Council, US Navy, and The World Bank).

Professor Peng has received numerous honors, including an NSF CAREER Grant ($423,000), a US Small Business Administration Best Paper Award, a (lifetime) Distinguished Scholar Award from the South­ western Academy of Management, a (lifetime) Scholarly Contribution Award from the International Association for Chinese Management Research (IACMR), and a Best Paper Award named after him. He has been quoted by The Economist, Newsweek, Dallas Morning News, Texas CEO Magazine, Smart Business Dallas, Atlanta Journal- Constitution, The Exporter Magazine, The World Jour- nal, Business Times (Singapore), CEO­CIO (Beijing), Sing Tao Daily (Vancouver), and Brasil Econômico (São Paulo), as well as on the Voice of America.

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v

GLOBAL4 M I K E W. P E N G

BRIEF CONTENTS

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Part 1: Laying Foundations 2 1 Globalizing Business 2 2 Understanding Politics, Laws, & Economics 20 3 Emphasizing Cultures, Ethics, & Norms 36 4 Leveraging Resources & Capabilities 52

Part 2: Acquiring Tools 66 5 Trading Internationally 66 6 Investing Abroad Directly 86 7 Dealing with Foreign Exchange 102 8 Capitalizing on Global & Regional Integration 120

Part 3: Managing around the World 138 9 Growing & Internationalizing the Entrepreneurial Firm 138 10 Entering Foreign Markets 152 11 Making Alliances & Acquisitions Work 168 12 Strategizing, Structuring, & Learning around the World 184 13 Managing Human Resources Globally 202 14 Competing in Marketing & Supply Chain Management 220 15 Managing Corporate Social Responsibility Globally 234

Endnotes 248

Index 252

Tear-out Cards

PengAtlas Maps

Brief Contents

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vi Contents

Part 1

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Laying Foundations 2-2 WHAT DO INSTITUTIONS DO? 23

2-3 AN INSTITUTION-BASED VIEW OF GLOBAL BUSINESS 23

2-4 POLITICAL SYSTEMS 24

2-4a Democracy 25

2-4b Totalitarianism 25

2-4c Political Risk 25

2-5 LEGAL SYSTEMS 28

2-5a Civil Law, Common Law, and Theocratic Law 28

2-6 PROPERTY RIGHTS AND INTELLECTUAL PROPERTY RIGHTS 29

2-6a Property Rights 29

2-6b Intellectual Property Rights 29

2-7 ECONOMIC SYSTEMS 30

2-7a Market, Command, and Mixed Economies 30

2-7b What Drives Economic Development? 31

2-8 MANAGEMENT SAVVY 32

Closing Case: Carlsberg Confronts Political Risk in Russia 33

3. Emphasizing Cultures, Ethics, & Norms 36

Opening Case: Partying in Saudi Arabia and Xinjiang, China 37

3-1 WHERE DO INFORMAL INSTITUTIONS COME FROM? 37

3-2 CULTURE 38

3-2a Definition of Culture 38

3-2b Language 38

3-2c Religion 40

3-3 CLASSIFYING CULTURAL DIFFERENCES 40

3-3a The Context Approach 40

3-3b The Cluster Approach 41

3-3c The Dimension Approach 42

3-4 CULTURE AND GLOBAL BUSINESS 45

3-5 ETHICS 46

3-5a Definition and Impact of Ethics 46

3-5b Managing Ethics Overseas 46

3-6 ETHICS AND CORRUPTION 47

3-7 NORMS AND ETHICAL CHALLENGES 48

3-8 MANAGEMENT SAVVY 49

Closing Case: Monetizing the Maasai Tribal Name 50

1. Globalizing Business 2 Opening Case: Shanghai Disneyland 3

1-1 WHAT IS GLOBAL BUSINESS? 4

1-2 WHY STUDY GLOBAL BUSINESS? 6

1-3 A UNIFIED FRAMEWORK 7

1-3a One Fundamental Question 7

1-3b First Core Perspective: An Institution-Based View 9

1-3c Second Core Perspective: A Resource-Based View 10

1-3d A Consistent Theme 10

1-4 WHAT IS GLOBALIZATION? 10

1-4a Three Views on Globalization 11

1-4b The Pendulum View on Globalization 12

1-4c Semiglobalization 13

1-5 A GLANCE AT THE GLOBAL ECONOMY 15

1-6 ORGANIZATION OF THE BOOK 16

Closing Case: Two Scenarios of the Global Economy in 2050 16

2. Understanding Politics, Laws, & Economics 20

Opening Case: The Newest Transition Economy 21

2-1 UNDERSTANDING INSTITUTIONS 22

CONTENTS

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viiContents

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5-3 REALITIES OF INTERNATIONAL TRADE 78

5-3a Tariff Barriers 79

5-3b Nontariff Barriers 81

5-3c Economic Arguments against Free Trade 82

5-3d Political Arguments against Free Trade 82

5-4 MANAGEMENT SAVVY 83

Closing Case: The China Trade Debate 84

6. Investing Abroad Directly 86 Opening Case: Nordic Multinationals 87

6-1 UNDERSTANDING THE FDI VOCABULARY 87

6-1a The Key Word Is Direct 88

6-1b Horizontal and Vertical FDI 88

6-1c FDI Flow and Stock 88

6-1d MNE versus Non-MNE 89

6-2 WHY DO FIRMS BECOME MNEs BY ENGAGING IN FDI? 89

6-3 OWNERSHIP ADVANTAGES 91

6-3a The Benefits of Direct Ownership 91

6-3b FDI versus Licensing 91

6-4 LOCATION ADVANTAGES 92

6-4a Location, Location, Location 92

6-4b Acquiring and Neutralizing Location Advantages 92

6-5 INTERNALIZATION ADVANTAGES 94

6-5a Market Failure 94

6-5b Overcoming Market Failure Through FDI 94

6-6 REALITIES OF FDI 95

6-6a Political Views on FDI 95

6-6b Benefits and Costs of FDI to Host Countries 96

6-6c Benefits and Costs of FDI to Home Countries 99

6-7 MANAGEMENT SAVVY 99

Closing Case: FDI in the Indian Retail Industry 100

7. Dealing with Foreign Exchange 102

Opening Case: The All-Mighty Dollar 103

7-1 WHAT DETERMINES FOREIGN EXCHANGE RATES? 104

7-1a Basic Supply and Demand 104

7-1b Relative Price Differences and Purchasing Power Parity 105

7-1c Interest Rates and Money Supply 106

7-1d Productivity and Balance of Payments 107

7-1e Exchange Rate Policies 108

7-1f Investor Psychology 109

4. Leveraging Resources & Capabilities 52

Opening Case: LEGO’s Secrets 53

4-1 UNDERSTANDING RESOURCES AND CAPABILITIES 54

4-2 RESOURCES, CAPABILITIES, AND THE VALUE CHAIN 55

4-3 WHEN AND WHEN NOT TO OUTSOURCE 56

4-4 FROM SWOT TO VRIO 59

4-4a The Question of Value 59

4-4b The Question of Rarity 60

4-4c The Question of Imitability 60

4-4d The Question of Organization 61

4-5 MANAGEMENT SAVVY 62

Closing Case: The Rise of Alibaba 63

Part 2

5. Trading Internationally 66 Opening Case: Why Are US Exports So Competitive? 67

5-1 WHY DO NATIONS TRADE? 68

5-2 THEORIES OF INTERNATIONAL TRADE 70

5-2a Mercantilism 70

5-2b Absolute Advantage 70

5-2c Comparative Advantage 71

5-2d Product Life Cycle 73

5-2e Strategic Trade 74

5-2f National Competitive Advantage of Industries 75

5-2g Evaluating Theories of International Trade 76

Acquiring Tools

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viii Contents

7-2 EVOLUTION OF THE INTERNATIONAL MONETARY SYSTEM 109

7-2a The Gold Standard (1870–1914) 109

7-2b The Bretton Woods System (1944–1973) 110

7-2c The Post–Bretton Woods System (1973–Present) 110

7-2d The International Monetary Fund 111

7-3 STRATEGIC RESPONSES 111

7-3a Strategies for Financial Companies 113

7-3b Strategies for Nonfinancial Companies 115

7-4 MANAGEMENT SAVVY 116

Closing Case: Bellini Do Brasil’s Foreign Exchange Challenges 117

8. Capitalizing on Global & Regional Integration 120

Opening Case: Brexit 121

8-1 INTEGRATING THE GLOBAL ECONOMY 122

8-1a Political Benefits for Global Economic Integration 122

8-1b Economic Benefits for Global Economic Integration 123

8-2 ORGANIZING WORLD TRADE 124

8-2a General Agreement on Tariffs and Trade: 1948–1994 124

8-2b World Trade Organization: 1995–Present 124

8-2c Trade Dispute Settlement 125

8-2d The Doha Round: “The Doha Development Agenda” 125

8-3 INTEGRATING REGIONAL ECONOMIES 126

8-3a The Pros and Cons of Regional Economic Integration 126

8-3b Types of Regional Economic Integration 127

8-4 REGIONAL ECONOMIC INTEGRATION IN EUROPE 128

8-4a Origin and Evolution 128

8-4b The EU Today 128

8-4c The EU’s Challenges 129

8-5 REGIONAL ECONOMIC INTEGRATION IN THE AMERICAS 131

8-5a North America: North American Free Trade Agreement (NAFTA) 131

8-5b South America: Andean Community, Mercosur, USAN/ UNASUR, and CAFTA 132

8-6 REGIONAL ECONOMIC INTEGRATION IN THE ASIA PACIFIC 133

8-6a Australia–New Zealand Closer Economic Relations Trade Agreement (ANZCERTA or CER) 133

8-6b Association of Southeast Asian Nations (ASEAN) 133

8-6c Asia–Pacific Economic Cooperation (APEC) and Trans– Pacific Partnership (TPP) 133

8-7 MANAGEMENT SAVVY 135

Closing Case: What If NAFTA Goes Away? 136

9. Growing & Internationalizing the Entrepreneurial Firm 138

Opening Case: Sriracha Spices Up American Food 139

9-1 ENTREPRENEURSHIP AND ENTREPRENEURIAL FIRMS 140

9-2 INSTITUTIONS, RESOURCES, AND ENTREPRENEURSHIP 140

9-2a Institutions and Entrepreneurship 140

9-2b Resources and Entrepreneurship 142

9-3 GROWING THE ENTREPRENEURIAL FIRM 143

9-3a Growth 143

9-3b Innovation 143

9-3c Financing 144

9-4 INTERNATIONALIZING THE ENTREPRENEURIAL FIRM 145

9-4a Transaction Costs and Entrepreneurial Opportunities 145

9-4b International Strategies for Entering Foreign Markets 146

9-4c International Strategies for Staying in Domestic Markets 148

9-5 MANAGEMENT SAVVY 148

Closing Case: Boom in Busts: Good or Bad? 150

10. Entering Foreign Markets 152

Opening Case: Coca-Cola Pours into Africa 153

10-1 OVERCOMING THE LIABILITY OF FOREIGNNESS 154

10-2 WHERE TO ENTER? 155

10-2a Location-Specific Advantages and Strategic Goals 155

Part 3 Managing around the World

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ixContents

10-2b Cultural/Institutional Distances and Foreign Entry Locations 158

10-3 WHEN TO ENTER? 159

10-4 HOW TO ENTER? 160

10-4a Scale of Entry: Commitment and Experience 160

10-4b Modes of Entry: The First Step on Equity versus Nonequity Modes 161

10-4c Modes of Entry: The Second Step on Making Actual Selections 163

10-5 MANAGEMENT SAVVY 165

Closing Case: Thai Union’s Foreign Market Entries 166

11. Making Alliances & Acquisitions Work 168

Opening Case: Etihad Airways’ Alliance Network 169

11-1 DEFINING ALLIANCES AND ACQUISITIONS 169

11-2 HOW INSTITUTIONS AND RESOURCES AFFECT ALLIANCES AND ACQUISITIONS 170

11-2a Institutions, Alliances, and Acquisitions 171

11-2b Resources and Alliances 172

11-2c Resources and Acquisitions 174

11-3 FORMATION OF ALLIANCES 176

11-4 DISSOLUTION OF ALLIANCES 177

11-5 PERFORMANCE OF ALLIANCES 178

11-6 MOTIVES FOR ACQUISITIONS 178

11-7 PERFORMANCE OF ACQUISITIONS 179

11-8 MANAGEMENT SAVVY 181

Closing Case: Fiat Chrysler: From Alliance to Acquisition 182

12. Strategizing, Structuring, & Learning around the World 184

Opening Case: Launching the McWrap 185

12-1 MULTINATIONAL STRATEGIES AND STRUCTURES 186

12-1a Pressures for Cost Reduction and Local Responsiveness 186

12-1b Four Strategic Choices 187

12-1c Four Organizational Structures 189

12-1d The Reciprocal Relationship between Multinational Strategy and Structure 191

12-2 HOW INSTITUTIONS AND RESOURCES AFFECT MULTINATIONAL STRATEGY, STRUCTURE, AND LEARNING 191

12-2a Institution-Based Considerations 191

12-2b Resource-Based Considerations 193

12-3 WORLDWIDE LEARNING, INNOVATION, AND KNOWLEDGE MANAGEMENT 195

12-3a Knowledge Management 195

12-3b Knowledge Management in Four Types of Multinational Enterprises 195

12-3c Globalizing Research and Development 197

12-4 MANAGEMENT SAVVY 198

Closing Case: Moving Headquarters Overseas 198

13. Managing Human Resources Globally 202

Opening Case: IKEA Manages Human Resources in the United States 203

13-1 STAFFING 204

13-1a Ethnocentric, Polycentric, and Geocentric Approaches in Staffing 204

13-1b The Role of Expatriates 207

13-1c Expatriate Failure and Selection 207

13-2 TRAINING AND DEVELOPMENT 208

13-2a Training for Expatriates 208

13-2b Development for Returning Expatriates (Repatriates) 209

13-2c Training and Development for Host-Country Nationals 210

13-3 COMPENSATION AND PERFORMANCE APPRAISAL 210

13-3a Compensation for Expatriates 210

13-3b Compensation for Host-Country Nationals 211

13-3c Performance Appraisal 212

13-4 LABOR RELATIONS 212

13-4a Managing Labor Relations at Home 212

13-4b Managing Labor Relations Abroad 213

13-5 INSTITUTIONS, RESOURCES, AND HUMAN RESOURCE MANAGEMENT 213

13-5a Institutions and Human Resource Management 213

13-5b Resources and Human Resource Management 215

13-6 MANAGEMENT SAVVY 215

Closing Case: Chicago versus Shanghai 217

14. Competing in Marketing & Supply Chain Management 220

Opening Case: Marketing Aflac in the United States and Japan 221

14-1 THREE OF THE FOUR Ps IN MARKETING 222

14-1a Product 222

14-1b Price 224

14-1c Promotion 224

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x Contents

14-2 FROM DISTRIBUTION CHANNEL TO SUPPLY CHAIN MANAGEMENT 225

14-3 TRIPLE As IN SUPPLY CHAIN MANAGEMENT 226

14-3a Agility 226

14-3b Adaptability 226

14-3c Alignment 228

14-4 HOW INSTITUTIONS AND RESOURCES AFFECT MARKETING AND SUPPLY CHAIN MANAGEMENT 229

14-4a Institutions, Marketing, and Supply Chain Management 229

14-4b Resources, Marketing, and Supply Chain Management 230

14-5 MANAGEMENT SAVVY 231

Closing Case: Online Shop Number One 232

15. Managing Corporate Social Responsibility Globally 234

Opening Case: Foxconn 235

15-1 A STAKEHOLDER VIEW OF THE FIRM 236

15-1a A Big Picture Perspective 236

15-1b Primary and Secondary Stakeholder Groups 237

15-1c The Fundamental Debate on CSR 237

15-2 INSTITUTIONS, RESOURCES, AND CORPORATE SOCIAL RESPONSIBILITY 240

15-2a Institutions and Corporate Social Responsibility 240

15-2b Resources and Corporate Social Responsibility 244

15-3 MANAGEMENT SAVVY 245

Closing Case: The Ebola Challenge 245

ENDNOTES 248

INDEX 252

TEAR-OUT CARDS

PENGATLAS MAPS

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1 Globalizing Business

L E A R N I N G O B J E C T I V E S After studying this chapter, you will be able to . . .

1-1 Explain the concepts of international business and global business.

1-2 Give three reasons why it is important to study global business.

1-3 Articulate the fundamental question that the study of global business seeks to answer and the two perspectives from which to answer it.

1-4 Identify three ways of understanding what globalization is.

1-5 Appreciate the size of the global economy and the strengths of multinationals.

1-6 Understand the organization of this book.

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CHAPTER 1 Globalizing Business

E M E R G I N G M A R K E T S / E T H I C A L D I L E M M A Opening Case: Shanghai Disneyland

On June 16, 2016, the world’s biggest Disneyland opened in Shanghai with a great deal of fanfare. It

features a supersize castle that is 200-feet tall. In comparison, the height for similar castles in Anaheim,

California, and Orlando, Florida, is 77 feet and 180 feet, respectively. Approximately 80% of the Shanghai rides, such as the Tron Lightcycle Roller Coaster, are unique. Chinese elements are extensively found. The flagship restaurant, the Wandering Moon Teahouse, has sections representing different regions of China. Some old staples found in other Disney parks, such as Main Street USA, Jungle Cruise, and Space Mountain, have been banished—in fear of criticisms for cultural imperialism. “Authentically Disney and distinctly Chinese” is an interesting tagline coined by Robert Iger, chairman and CEO of The Walt Disney Company (“Disney” hereafter). More than 330 million people live within a three-hour drive or train ride. Disney is eager to turn them into lifelong customers not only for the $5.5 billion theme park, but also for movies, games, toys, clothes, books, TV programs, cruises, and resorts.

Mickey’s journey to the Middle Kingdom has been a tortuous one. The two-decade courtship started in the late 1990s, when Jiang Zemin was president of China and Michael Eisner chairman and CEO of Disney. At that time, Disney was starting to have some success in China, with its cartoon series aired on Sunday evenings by major TV stations. Then Disney launched a movie about the exiled Tibetan spiritual leader the Dalai Lama, Kundun, which attracted the wrath of the Chinese government. “All of our business in China stopped overnight,” Eisner recalled. Out of desperation, Disney hired as a consultant former Secretary of State Henry Kissinger, who spearheaded American efforts to establish diplomatic ties with China in the 1970s and was regarded as a trustworthy friend by the Chinese. The Chinese government only agreed to reopen China after intense lobbying by Kissinger and humiliating apologies by Eisner, who admitted Kundun was “a stupid mistake” in meetings with Chinese officials. Financially, Kundun was indeed a stupid mistake. It burned through a $30 million budget to reap only $5 million box office receipts.

Eisner then introduced Iger, Disney’s international president at that time, to be in charge of negotiations for a theme park. The negotiations were slow and painful. Looking back, Iger, who succeeded Eisner as CEO in 2005 and as chairman in 2012, recalled in a New York Times interview that he had “engaged with three [Chinese] presidents, a few premiers, a number of vice premiers, a number of [Communist] Party secretaries, and five or six mayors of Shanghai.”

By 2009, the Chinese government finally gave its blessing, but only after Disney agreed to be a minority partner. Disney took a 43% stake in the Shanghai Disney Resort. Shanghai Disney Resort would not only include the flagship Shanghai Disneyland, but also two additional theme parks, two themed hotels,

shopping malls, and entertainment facilities—when completed it would be three times the size of Hong Kong Disneyland. Disney’s joint venture (JV) partner, the state-owned Shanghai Shendi Group controlled by the Shanghai government, owned a 57% stake. In the management company that actually ran the property, Disney gave up a 30% piece. In comparison, the Hong Kong government gave a 48% share to Disney for the JV that owned Hong Kong Disneyland, and the government itself took 52%. Disney gave up no management control in Hong Kong.

Why was Disney so eager to go to China? Although China’s pull in terms of market size and potential is obvious, Disney is also pushed by its lackluster performance in other areas such as cable, movies, and some of its other theme parks. In April 2011, Shanghai Disneyland broke ground, with Iger and Chinese officials scooping up loose dirt, Mickey and Minnie Mouse frolicking in Chinese costumes, and a children’s choir singing When You Wish Upon a Star—in Mandarin. Despite such hoopla, there was no guarantee that Disney’s high-profile entry would be profitable. Exhibit A: Disneyland Paris, which opened in 1992, is still struggling to reach profitability.

For Shanghai Disneyland, the attention to detail was meticulous. In addition to the tremendous efforts to showcase local responsiveness, with 80% of the rides being uniquely tailored to local interests, Iger also pre-tasted the food (such as Donald Duck-shaped waffles) and decided which characters would appear in the parade. When first unveiled in March 2016, Shanghai Disneyland’s website registered 5 million hits within 30 minutes. The first two weeks of tickets sold out in hours.

Yet as Shanghai Disneyland celebrated its first Chinese New Year in January 2017, disappointing news came. In its first six months ending on December 31, 2016, 5.6 million guests came. Although impressive, these numbers fell far short of rosy initial projections of an estimated 15 million visitors for the first year. If attendance continued at its current pace, then the first full-year result would barely reach over 10 million. In the Disney universe, 10 million visitors in the first year would not be too bad, as Hong Kong only attracted seven million in 2015—its 11th year. In comparison, in 2015, Tokyo reported 17 million; Anaheim 18 million; and Orlando 19 million. Although these sister parks are a lot more established, Shanghai Disneyland clearly has a long way to go. As the Magic Kingdom embarks on its residence in the Middle Kingdom, one thing is clear: this China business is not going to be Mickey Mousy.

Sources: “Disney gets a second chance in China,” Bloomberg Businessweek, 18 April 2011: 21–22; “Middle Kingdom v Magic Kingdom,” Guardian, 15 June 2016: www.theguardian .com; “How China won the keys to Disney’s Magic Kingdom,” New York Times, 14 June 2016: www.nytimes.com; M. W. Peng, “Mickey goes to Shanghai,” in Global Business, 4th ed. (Boston: Cengage, 2017) 339–340; “Shanghai Disneyland welcomes 5.6 million visitors in first six months, is kind of a disappointment,” Shanghaiist, 17 January 2017: www.shanghaiist.com.

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