Strategic Management

Case Analysis: Samsung and the theme park industry in Korea

Friday, 02 September 2011

Submitted by:
PGP/14/260 NITESH KUMAR GUPTA PGP/14/290 RAHUL MITTAL PGP/14/280 MAHTAAB KAJLA PGP/14/313 VINNY ARYA

Group V
PGP/14/287 PRACHI CHAWLA PGP/14/315 VISHAD DUBEY

Case facts
Yongin Farmland an amusement complex, Mission: To provide a better quality of life through healthy open-air leisure activities Theme park industry all over the world on a high growth trajectory Industry revenue break up Admission/Ride fees 60% Food, Beverages, Merchandize 40% Changing demographics leading to broader market segments Seasonal and Intermittent nature of the business Less number of vacation days restricts the growth of theme parks Subway coming up facilitating transport to Yongin Parking will be a bottleneck in case expansion happens Customer satisfaction level lagging behind Lotte world Name to be changed to a more appropriate one in line with the new facilities to be provided

Strategic Management

Group V

Environment Analysis
General Environment Demographics: Changing demographics were causing theme parks to broaden their target market segment
Categorization of population Teens, Preteens and young adults Working class Old age group <20 21-50 >50

Primary resident market expected increase by 5.2% by 2000 AD Economic Economic growth rate expected to be 8-9% Major driving force in theme park industry growth Per capital GNP increase from $4210 in 1989 to $7513 in 1993 Global Global theme park industry growing at a very high rate Yongin farmland has 25% customers who are foreigners
Strategic Management Group V

Environment Analysis
Technology For developing heavy and quality machinery only 10 suppliers were catering to amusement machinery industry. The park management expertise i.e. software was not easily available leading companies charge hefty licensing fees (over 10% of revenues Political/Legal Government Approval takes around 2-5 years 100% insurance coverage high insurance premiums Park administration was dependent on government for utilities Licensing requirements and methods of ascertaining operational expertise to ensure visitors safety was there

Strategic Management

Group V

The Investment Decision

Samsung should invest in the amusement industry, following are the criteria in support of statement Industry growth is pushed by overall economic growth Rise in per capita GNP from US$ 4210 in 1989 to US$ 7513 in 1993 Growth rate expected in 2nd half of 90s was 8-9% Urbanization rate - 74.4% Seoul Land, was a major competitor to Farmland not Lotte World, as they focus on segment different from Farmland Even the industry had competition, still Farmland had the highest growth rate with in industry. Highest monthly attendance in Farmland(1993) as compared to Lotte World and Seoul Land

Strategic Management

Group V

Profitability Analysis
All these general environment factors affect the porters 5 forces affecting the viability/profitability of firms in the industry Threat of New Entrants Due to the high initial investment required, its really very difficult for new entrants to enter the industry Government regulations for licenses/approval acts as a big hindrance as well Economies of scale/scope is a huge advantage for the incumbent firms Heavy marketing and advertising budgets Large insurance premiums often drove small players away Bargaining Power of Suppliers Only 10 suppliers are capable of developing quality machinery This brings a lot of power in the hand of suppliers to bargain in terms of price of machinery Expertise in park management is not easily available
Strategic Management Group V

Profitability Analysis
Bargaining power of Buyers Visitors in Groups are charged less People come with a mind set of relaxing from the chaos of day to day life and are willing to pay the price Threat of Substitutes Virtual reality theme parks Because of 5.5 days of work people usually go for other means of entertainment Rivalry among competitors Seasonal factor affects all competitors Total of 5 competitors Lotte World indoor theme park Seoul Land 23rd in top 50 amusement parks worldwide(Table 1) Looking at the forces explained above, it can be realized that it will be conducive for Samsung to go ahead with the expansion plans
Strategic Management Group V

Opportunities/Threats
Opportunities Threats

Theme park industry is bound to grow in the future owing to the economic growth and favorable customer preferences With new Subway coming up to Yongin, the number of customers visiting the park should increase Scope to increase Merchandize sales

Management expertise required takes a long time to develop

Seasonal fluctuations effect the profitability of business Theme parks does not fit well with the High Tech and Global image of Samsung company Less stay time because of traffic congestion

Scope of market expansion With the new CEO, Mr. Her Tae-Hak, having worked in Hospitality sector will be a great strength when it comes to focusing on Customer Satisfaction
Strategic Management

Issues from farmers

Group V

Recommendations
We recommend going ahead with the Expansion plans based on the following criteria: Owing to the industry growth rate and the prospects of Subway coming to Yongin, the expected number of visitors are bound to increase Due to changing demographics, most of the theme parks are trying to target broader market segments and farmland will lose market share if we dont keep up with the trend The old theme of healthy open-air leisure activities do not appeal to the young generation and a revamp of the image is required The underlying forces affecting the profitability in this segment look promising with high barriers to entry (Samsung with its financial muscle should be OK in this aspect), low bargaining power of consumers etc

Strategic Management

Group V

Other Recommendations
Organizational change is required to make it more consumer oriented which the new CEO is more than capable of handling Parking revamp should be done to be able to handle the extra load during peak hours
New mission has already formulated: To create a zeal for long lasting life that is combined with the harmony of nature And if further investment is done they should excel in access based positioning which is possible when subway is created, thus becoming prototype destination resort town.

Strategic Management

Group V

Q&A

Strategic Management

Group V