Case Submission 3

Samsung and the Theme Park Industry

Background of the Case

The case is set in 1994, where Her Tae-Hak, President of Samsung’s Joong-Ang Development Company is
faced with the question of whether or not to revamp Yongin Farmland, their amusement complex. They
are planning to invest nearly USD 300 Million across a water-park, a global fair and expansion of the
existing zoo and parks which is to be funded by the Samsung group. This is done with the aim of creating
the prototype destination resort of the world. Its mission is to provide a better quality of life through
healthy open-air leisure activities.

Industry Analysis: Her wants to do a comprehensive analysis of the theme park industry to ascertain the
profitability of this industry.

The theme park industry was characterized by uncertainty due to seasonality- due to holiday seasons or
weather conditions. This led to high expense vis-à-vis the hiring and firing of personnel to meet sudden
demand. A sudden economic downturn could also quickly and adversely affect the entire industry.

Porter’s Five Forces:

a) Rivalry among existing competitors: Moderate

There were six major rivals for Farmland in Korea. The most notable of these were Lotte World
and Seoul Land. Lotte world’s clients were different in that they had shorter visits and it was an
indoor amusement park. Seoul Land is the main competitor to Farmland and focuses on the
same target segment. Of the lot, Farmland had the highest growth rate in terms of footfall year-
on-year. Globally there was high competition among the different players- Walt Disney being the
market leader. However, globally there were signs of declining profitability, especially in the US
market, with increasing number of competitors.
b) Bargaining power of Suppliers: High
Park management expertise was not commonly available. Although Walt Disney provided
educational programs it was too sophisticated for local players to emulate. This increased their
bargaining power. There were very few suppliers (less than ten) who could manufacture good
quality park machinery and they were concentrated in Japan, Europe or the US. Special
Simulators made use of proprietary technology which could be developed only by tevh-intensive
companies.

c) Bargaining power of buyers: High

The customers have no say on the pricing of the entrance fee, ride fee or the food and beverages
available inside the park but they some say regarding the pricing model - pay-as-you-go” or “pay-
one-price”. Further, the cost of switching to the other parks or other leisure activities like
watching movies is very low.

d) Threat of New Entrants: High

Theme Parks require a large amount of initial investment ranging from $50mn to $3bn for land,
transportation and equipment. The Businesses having in-house land development expertise or
equipment technology had better control of these costs and hence had an advantage.
 Government regulations for licensing and approvals act as a big hindrance in this industry. Large
insurance payments also were a pain point for small players. There was also the emerging threat
of interactive theme parks with Virtual Reality technology.

e) Threat of substitutes: High

Only 22.2% of the population prefer theme parks while the rest (77.8) prefer other recreational
activities like fishing, visiting historic places etc. Further, because of heavy traffic, the time taken
to reach the parks is very high due to which customers prefer to visit the nearby places as they
anyways face heavy traffic for five and a half days a week.

Assumptions: The percentage of overseas customers for the year 2000 is considered to be the same as
for 1993 (25%).

Final Conclusion:

We can see from industry analysis that theme park industry is very attractive in South Korea. Key driving
factors are strong economic growth of the country, high urban population and rising
entertainment/leisure quotient. Though there are good number of competitors, industry is poised to do
well. Overall revenue pie of industry is expected to increase from current level.

Theme and Nature are two areas where residents want to spend their time and Farmland has plans to
invest additional $275 million in these two segments for existing park. Samsung is very large group in
Korea and it can use its technology to reap competitive advantage and generate synergy by this
expansion.

Recommendations:

Samsung group should go ahead for the $300 million investment to revamp Farmland.