International Business

Universal Studio
Universal Studio is one of the most successful companies in the entertainment industry. It origin from the film production and later enter into theme park industry by using figures from its successful films. In this assignment, two countries are analyzed in order to expand it business to new locations. The choices of the country are Brazil and South Korea. Brazil is recorded for extraordinary economic growth and they have high potential to become the new global economic leader. South Korea is one of member of Organization for Economic Co-operation and Development. Moreover South Korea has the stable economy growth, higher social environment and disposable income. Each country is analyzed using PESTLE analysis.

Waion Paing Soe, Student ID - 08021263, Program -BBS

TABLE OF CONTENTS

Company background Universal studio ............................................................... 4 Country overview - Brazil ...................................................................................... 6 Country background - Brazil .................................................................................. 7 Country overview South Korea ........................................................................... 8 Country background South Korea ....................................................................... 9 Policital and legal Environment ........................................................................... 10
Political Stability ................................................................................................................................ 10 Business FreeDom ............................................................................................................................. 11 Trade Freedom ................................................................................................................................... 13 Taxation policies ................................................................................................................................ 14 Effectiveness of Legal Environment ........................................................................................... 15

Economic Environment ....................................................................................... 17

General Economic Indicators ........................................................................................................ 17 Economic Freedom ........................................................................................................................... 19 Tourism Economy ............................................................................................................................. 21

Social Environment ............................................................................................. 23

Ethic Groups and Education .......................................................................................................... 23 Households ........................................................................................................................................... 26 Consumer Behaviour and Lifestyle trends .............................................................................. 27

Choice of Country ............................................................................................... 31 Entry Strategy ..................................................................................................... 36 Conclusion .......................................................................................................... 39 Bibliography and References ............................................................................... 40

LETTER OF APOLOGY

Due to unfortunate circumstances and events, I was unable to submit the assignment at the deadline. I deeply apologies for my failure action and I promise to fulfill requirement in the future.

Moreover, I would like to apologies for not conducting full PESTLE analysis. Although total word count limit is 5,000 words, my assignment was exceeding 10,000 words (exclude references). Due to this reason, I decided to exclude unimportant part, which is technological environment. My technological environment analysis, emphasize on country infrastructure and technological readiness such as availability of electricity, Internet and latest technology which is essential for the business. After the analysis both country have the almost identical result. From my prospective, I think that it dont have much to discuss thus, therefore I decided that the technology environment is not important. I would like to apologies if my decision went wrong from your prospective.

INTRODUCTION
COMPANY BACKGROUND UNIVERSAL STUDIO

Universal Studios is the one of the most successful company in the global entertainment industries. Aside from the film production, company operates four theme parks under Universal Studio theme park in Florida, California, Japan and Singapore (Chavis, n.d). All the theme parks have thrill rides, shows and family entertainment. Many of the Universal Studios attractions are based on classic and familiar Universal movies. Though four Universal Studios parks, they each offer their own selection of rides, and they are different experiences. The history of Universal Studios theme parks began during the early part of the 20th century. Tours at Universal Studios Hollywood began in 1915. The founder of the studio, Carl Laemmle, decided to leverage the public interest in the film industry. The Hollywood location was purchased by MCA in 1962 (Kelly, n.d). Within two years, the company expanded its tour practices with tram rides and staged demonstrations of special effects. Soon, the staged stunts became the primary feature of the theme park. The most successful location in the network of Universal Studios theme parks opened in Orlando, Florida, in 1990. The Orlando location was designed to focus on the tourist element in an effort to rival Walt Disney World (Kelly, n.d). A Japan location opened in 2001 and became one of the most successful attractions in the country, prompting the company to expand into new locations (Kelly, n.d). After brief analyzing several countries, Brazil and South Korea have most attractive emerging market for Universal Studios Theme park.

COMPARATIVE ANALYSIS BRAZIL VS SOUTH KOREA

COUNTRY OVERVIEW - BRAZIL

Key indicator, 2010 estimated Population - million Surface area square kilometer GDP trillion (US$) GDP per capita (US$) Real GDP growth (percent) 203.9 8,514,877 2.172 10,800 7.5

Source; Above this data are acquire from The World Factbook, https://www.cia.gov/library/publications/the-worldfactbook/geos/br.html

HIGHLIGH AREAS
1. Brazil is a Host country for upcoming of both 2014 FiFA world cup and the 2016 Olympic games. 2. Under ministry of tourism, Plan watercolor 2020 is in progress and expected to increase in tourism industry. 3. Current president Dilma Rousseff is emphasizing on Brazils taxation policies might result in increase share price in some sectors such as steel, TEXTILES and electronics.

TRAVEL AND TOURISM INDICATORS, 2010 ESTIMATED Percent of Total Travel and Tourism Industry GDP US$ millions Employment 1000 jobs Travel and Tourism Economy GDP US$ millions Employment 1000 jobs 1,464 25 11.5 13.4 4.5 2.9 258 6 2.0 3.2 4.6 2.7 Annual growth (% Forecast)

Source; Above this data are acquire from The Travel and Tourism Competitiveness Report 2011, http://www.weforum.org/issues/travel-and-tourism-competitiveness

COUNTRY BACKGROUND - BRAZIL

Brazil is the largest and most powerful country in South America and has become one of the world's most attractive emerging markets in recent years (Mozee, 2008). Brazil accounts for almost half of South America's total population and landmass and has established itself as the dominant power in South America (Central Intelligence Agency, 2011). Moreover, Brazil's rapid economic diversification is allowing it to transform itself into a modern economy, playing a key role in a variety of industries). Brazil is a founding member of the United Nations, the G20, Mercosul and the Union of South American Nations, and is one of the BRIC Countries. Brazil is also home to a diversity of wildlife, natural environments, and extensive natural resources in a variety of protected habitats (BBC News, 2011). In the Global tourism market, Brazil is ranked 1st out of all countries for its natural resources and 23rd for its cultural resources, with many World Heritage sites, a great proportion of protected land area, and the richest fauna in the world (World Economic Forum, 2011) The Brazilian tourism industry was enjoying exceptionally good health until 2001. Starting from late 2002, Brazilians lost buying power as a result of a series of financial crises, and the slowdown in the countrys economy and it become the trouble time for tourism market (Slob & Wilde, 2006). According to indexmundi.com, Brazils GDP grew by a mere 0.5% in 2003. Brazil economy showed the first sign of recovery in 2004. The country GDP grow 5.3 percent in first quarter of 2004 compared to the same period of 2003. Fortunately, Brazils economy remained in strong health for 2004 - 2009 (Central Intelligence Agency, 2011). Its estimated growth rate in 2010 is 7.5 percent, which is the highest for two decades. The expected average annual growth is 4.1% for year 2011 and 3.6% for 2012 (Ragir, 2011). The greatest driving force for Brazil economy and its tourism industry, is Brazils forthcoming hosting of both the 2014 FIFA World Cup and the 2016 Olympic games.

COUNTRY OVERVIEW SOUTH KOREA

Key indicator, 2010 estimated Population - million Surface area square kilometer GDP trillion (US$) GDP per capita (US$) Real GDP growth (percent) 48.75 99,720 1.459 30,000 6.1

Source; Above this data are acquire from The World Factbook, https://www.cia.gov/library/publications/the-worldfactbook/geos/br.html

HIGHLIGH AREAS
1. South Korea industries trends are moving toward medical tourism and 1
st

Asia

Medical tourism and global Healthcare congress was recently took place in Seoul. 2. The Economist Intelligence Unit (EIU) STATES that South Korea economic outlook will remain relatively stable for until 2015, with the forecast GDP Growth rate of 3.8 to 4.1 percent annually throughout the five year forecast period. 3. South Korea government policies are aiming at aiding a steady structural adjustment of the economy, which include channeling funds into renewable energy resources and negotiating free -trade agreements

TRAVEL AND TOURISM INDICATORS, 2010 ESTIMATED Percent of Total Travel and Tourism Industry GDP US$ millions Employment 1000 jobs Travel and Tourism Economy GDP US$ millions Employment 1000 jobs 70,795 1,910 7.1 8.1 4.6 1.5 16,237 561 1.6 2.4 3.4 0.9 Annual growth (% Forecast)

Source; Above this data are acquire from The Travel and Tourism Competitiveness Report 2011, http://www.weforum.org/issues/travel-and-tourism-competitiveness

COUNTRY BACKGROUND SOUTH KOREA

South Korea's economy ranks 15th in the world by nominal GDP and 12th by purchasing power parity (PPP) (Central Intelligence Agency, 2011). The South Korean economy depends heavily on international trade, and in 2009, South Korea was the eighth largest exporter and tenth largest importer in the world (BBC News, 2011). South Korea's major industries include shipbuilding, production of armaments, foreign and domestic construction, and production of Automobiles. South Korea has advanced into a developed economy to eventually attain a GDP per capita of $30,000 in 2010, almost thirteen times the figure thirty years ago. The whole country's GDP increased from $88 billion to $1,460 billion in the same timeframe (Central Intelligence Agency, 2011). In 2009, South Korea officially became the first major recipient of official development assistance (ODA) to have ascended to the status of a major donor of ODA. Between 2008 and 2009, South Korea donated economic aid of $1.7 billion to countries other than North Korea. South Korea's separate annual economic aid to North Korea has historically been more than twice its ODA. South Koreas tourism industry measured in terms of tourism arrivals has expanded by 8.8% and 9.6% for the years 1998 and 1999. Despite the Asian financial crisis in 1998, the tourism industry had a very good impact on South Koreas crisis-hit economy. The industry foreign exchange earnings amounted to 85.5% of gross domestic product in 1999, which is much higher than the electronic industrys average of 69.1 percent (Korea National Tourism Organization, 2001). The Korea National Tourism Organization (KNTO) began in 1962 as a government-invested corporation to assist the promotional efforts of the tourism industry and local governments. . In 2007, South Korea was ranked 36th of the most visited countries in the world with an estimated 6.4 million foreign tourists visiting that year. Incheon International Airport was rated the best airport worldwide consecutively since 2005 by Airports Council International.

POLICITAL AND LEGAL ENVIRONMENT

The political areas have greater impact on the international business. Depend on the type of the industries and fields of the business; various types of political factors are needed to analyze. In this analysis, each country of political stability, business freedom, trade freedom and tax policies will be compare. Legal Environment analysis will include effectiveness of respective countrys law and regulation regarding tax, labor, property rights and strength of legal protection for foreign investors. Measuring the countrys legal effectiveness is extremely difficult and uncertainty of result is also high. Depend one the individual prospective, the result might be infinite. Therefore, analysis and comparison will base on ranking from Global Competitiveness Report 2011, Travel and Tourism Competitiveness Report 2011 and 2011 index of Economic Freedom.

POLITICAL STABILITY Political stability index - 2010 Indicators Underlying Vulnerability Economic Distress Index Sore Previous Score (2007) Global Rank 165 countries
Sources; Above data are acquire from ViewsWire, http://viewswire.eiu.com/site_info.asp?info_name=social_unrest_table&page=noads&rf=0

Brazil 5.8 5.0 5.4 4.4 105th

South Korea 4.2 6.0 5.1 2.0 117th

Political stability index is arrange from 10 highest to 0 lowest political risk. Compare to the 2007 score, both countries political risk was increased in 2007. The wall street journal stated that Brazilian political system was vulnerability because of the election in 2010 and countrys currency will continue to fluctuate (Lyons, 2010). During the global financial crisis 2008, Brazil commodity price were declined and the stock market had declined approximately by 30% and but overall economy are remain stable (Knowledge@Wharton, 2008) Therefore, increasing the political risk by 1 point 10

is acceptable. However South Korea political risk was increased by 3.1 compare to 2007 since country by itself is facing ongoing geo-politic issues with North Korea. Moreover, Korea economic distress value is larger than Brazil, which is result from 2008 global financial crisis. During 2008 2009 crisis, Korea experience a sharp reduction in its credit lines, a decline in equity markets and a dollar shortage in foreign exchange. Moreover, country face largest export decline, which was -34.5 percent in January 2009 (KEI, 2010). Therefore it is safe to assume that Brazil have the more resistance in economic compare to South Korea. It is indeed South Korea is the winner in overall ranking however, Brazil is recommended because of the economic durability and its emerging market potential.

BUSINESS FREEDOM Business Freedom Comparison Chart 2007 - 2011

Sources; Below data are acquire from Economic Freedom, http://www.heritage.org/index/ranking

100 90 80 70 60 50 40 30 20 10 0

84.3

84.1

90.4

91.9

91.6

54.2

54

54.4

54.5

54.3

2007

2008

2009

2010

2011

Brazil

South Korea

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Business Freedom Score Index - 2011 Country Brazil South Korea Score 54.3 91.5

Sources; Above data are acquire from Economic Freedom, http://www.heritage.org/index/ranking

SOUTH KOREA After the 2008 global financial crisis, South Koreas business freedom grows strong and serves as a source of vibrant economic growth (The Chosunilbo, 2010). The competitive regulatory framework facilitates dynamic entrepreneurial activity. Business formation and operating rules are efficient and allow innovation. Bankruptcy proceedings are relatively easy (eStandardsForum, 2010). BRAZIL The main barrier in Brazil for the business freedom is their excessive regulations. As for the foreign organization, this regulatory inflexibility cause unnecessary delay in order to start the business (World Economic Forum, 2011). Despite some progress in Brazil, organizing new investment and production remains cumbersome and bureaucratic. It is costly and time-consuming to launch or close a business.

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TRADE FREEDOM Trade Freedom Comparison Chart 2007 2011

72 71 70 69 68 67 66 65 64 63 2007 69.8 69.2

70.8

71.6 70.2 69.2 66.4 70.8 69.8 70.8

2008

2009

2010

2011

Brazil

South Korea

Sources; Below data are acquire from Economic Freedom, http://www.heritage.org/index/ranking

Business Freedom Score Index - 2011 Country Brazil South Korea Score 69.8 70.8

Sources; Above data are acquire from Economic Freedom, http://www.heritage.org/index/ranking

SOUTH KOREA South Koreas weighted average tariff rate was 7.7 percent in 2009 (Heritage Foundation, 2011). However, nation by itself is straggling with energy crisis and therefore government recently impose some prohibitive tariffs, import and export restrictions, services market access barriers, import taxes, use of adjustment tariffs and taxes, burdensome and non-transparent standards and regulations, and subsidies add to the cost of trade (World Economic Forum, 2011). 13

BRAZIL Mostly, Brazil and South Korea Trade Freedom are the same. However, cost of trade which is relatively higher south Korea, are Import bans and restrictions, market access barriers in services, high tariffs, border taxes and fees, restrictive regulatory and licensing rules, subsidies, complex customs procedures, and problematic protection of intellectual property rights (World Economic Forum, 2011).

TAXATION POLICIES Tax Rate Comparison Index 2011 Indicator Income Tax Corporate Tax Tax Burden %GDP Brazil 27.5 34.0 34.4 South Korea 38.5 24.2 26.6

Sources; Above data are acquire from Economic Freedom, http://www.heritage.org/index/ranking

SOUTH KOREA In South Korea, a foreign corporation is liable to pay corporation tax only on the income derived from sources within Korea. However, no corporation tax is levied on the liquidation income of a foreign corporation. According to Marco-Economic Data that available from Heritage.org, South Korea foreign direct investment corporate rate is 24.2%. Taxation policy in Korea is politically not very important since South Korea is the one of the OECD (Organization for Economic Co-operation and Development) country with the lower Tax burden, low share of income tax revenue, fixed local tax rates and lenient tax administration (OECD, 2011). However, due to recent Asia financial crisis and increasing governments welfare expenditure, income tax will be increase to 9.2% until 2013 and tax burden also expected to rise in future (Xinhua, 2009)

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BRAZIL Brazil's combined corporate tax rate for 2011 is 34%. The tax consists of a basic tax of 15%. There is also a surtax of 10% for annual income of over BRL 240,000, about US$ 110,000. Additional 9% are added for social contribution on net profits. The worst aspect of the Brazilian tax system from the standpoint of a foreign investor is extreme complexity (Melo et al., 2010). During the 2010 election, Jose Serra from PSDB (Partido Da Social Democracia Brasileira) stated that Brazil has highest tax burden in the developing in the world and current president Rousseff supported his statement (Ottens, 2010). There are approximately 52 separate taxes, imposts, duties, compulsory loans, withholdings and other charges and fees imposed by federal and municipal governments (Melo et al., 2010). After the 2010 presidential election, it was surprised that the issue of tax reform has a very low profile in the agendas of president.

EFFECTIVENESS OF LEGAL ENVIRONMENT Effectiveness of Legal Environment 2011 Global Ranking Brazil 59
th

Indicators Strength of Investor protection Protection of Minority Shareholders interests Property right Efficiency of legal Framework Intellectual property protection Legal right index Burden of customs procedures Burden of government Regulation Number of procedures required to start a business Time required to start a business

South Korea 59 th 102 nd 54 th 87 th 44 th 39 th 47 th 108 th 73 th 52 th

64 th 72 th 71 st 89 th 103 th 122 nd 139 th 132 th 135 th

Source; Above data are acquire from Global Competitiveness Report 2009 - 2010, http://www.weforum.org/s?s=Global+competitiveness+report

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SOUTH KOREA In Overall ranking, South Korea is the legal environment is relatively stronger than Brazil. Global competitiveness report 2011 state that property right is secure and expropriation is highly unlikely but the justice system can be inefficient and slower than Brazil. Although intellectual property protection ranking is higher than Brazil, 2011 index of Economic Freedom suggest that the protection of intellectual property rights need to be improved, as piracy of copyright materials is significant. According to Travel and Tourism Competitiveness Report 2011, South Korea ranks a dismal 124th with respect to labor market flexibility and business leaders express dismay at the difficulty of hiring and firing employees because of the Korea labor law. The World Bank estimates that the average severance pay for dismissing an employee is equivalent to 91 weeks worth of salary (The World Bank, 2011). This leads companies to resort extensively to temporary employment, thus creating precarious working conditions and giving rise to tensions.

BRAZIL 2011 index of Economy point out that, Brazils judiciary is inefficient, subject to political and economic influence, and lacks resources and staff training (Heritage Foundation, 2011). Court decisions and legal processing for business cases can take years, and judgments by the Supreme Federal Tribunal are not automatically binding on lower courts. Moreover, most of the politicians have greater influence on its judicial system. Protection of intellectual property rights has improved compare to 2008, but piracy of copyrighted material persists (Heritage Foundation, 2011). Legal barrier to the foreign direct investment are the taxation and labor law. The worst aspect of the Brazilian tax system from the standpoint of a foreign investor is extreme complexity. There are approximately 52 separate taxes, imposts, duties, compulsory loans, withholdings and other charges and fees imposed by federal and municipal governments (FIAS, 2001). The Brazilian labor law tends to be generous to employees and paternalistic. Firing an employee will almost inevitably lead to a lawsuit seeking back pay for overtime, alleging failure to pay equal remuneration for equal work, etc. (FIAS, 2001). Therefore, The present structure imposes rigidities and high labor costs to investors, making it difficult to employ Brazilian workers.

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ECONOMIC ENVIRONMENT

Analyzing the countrys economic is much more complex than other factors from Marco-environment. Form the business prospective, countrys economic is the major player in PESTLE analysis since it have the greater influence on countrys political, social, Technology, even countrys legal system. As for instance, when a country facing economy downturn, direction of its politic, consumer spending pattern, technology development, and its regulations and certain law have to be adjust. Brazil politic directions are heading to energy investment due to global energy crisis. South Korea government is promoting medical tourism due to the shift in economic direction. Therefore, economic environment is complexity because of the interrelationship with other factors. Moreover, analysis result may be infinite depend on what type of topic is choose to be analyze. This analysis will try to include as many factors as possible such as general economic indicators, economic freedom and tourism economy. Each country consumer behavior and spending pattern will discuss more in social environment.

GENERAL ECONOMIC INDICATORS General Economic Indicators 2010 EST. Indicator

GDP - trillion GDP Growth Rate GDP Per Capita US $ FDI Contribution to its GDP Inflation Rate Unemployment Rate GDP Composition by Service Sector Labor Force - million Labor Force in Service Sector

Brazil
2.172 7.5% 10,800 18.5% 4.9% 7% 67.5% 103.6 66%

South Korea
1.459 6.1% 30,000 28.7% 3% 3.3% 57.6% 24.62 68.4%

Sources; Above data are acquire from The World Factbook; https://www.cia.gov/library/publications/theworld-factbook/

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SOUTH KOREA At the initial development of South Korea economy, Living standard and the individual income was almost the same with poorer countries of Africa and Asia (Central Intelligence Agency, 2011). After 1960s, South Korea had gained a remarkable record of economic development after adopting the high-tech industrialized economy. In 2004, South Korea total GDP was exceed over trilliondollar, and entering into the world's 20 largest economies (KEI, 2010). Initially, a system of close government and business ties, including directed credit and import restrictions, made this success possible. The government promoted the import of raw materials and technology at the expense of consumer goods, and encouraged savings and investment over consumption (KEI, 2010). The Asian financial crisis of 1997-98 exposed longstanding weaknesses in South Korea's development model including high debt/equity ratios and massive short-term foreign borrowing (Central Intelligence Agency, 2011). GDP plunged by 6.9% in 1998, and then recovered by 9% in 1999-2000. Korea adopted numerous economic reforms following the crisis, including greater openness to foreign investment and imports (KEI, 2010). Growth moderated to about 4-5% annually between 2003 and 2007. With the global economic downturn in late 2008, South Korean GDP growth slowed to 0.2% in 2009 (KEI, 2010). In the third quarter of 2009, the economy began to recover, in large part due to export growth, low interest rates, and an expansionary fiscal policy, and growth exceeded 6% in 2010 (Central Intelligence Agency, 2011). The South Korean economy's long-term challenges include a rapidly aging population, inflexible labor market, and overdependence on manufacturing exports to drive economic growth.

BRAZIL Brazil economy showed the most significant development among South American nations, characterized by large and well-developed agricultural, mining,

manufacturing, and service sectors. Although country itself is full with colorful economic history, Brazil has steadily improved its macroeconomic stability, building up foreign reserves, and reducing its debt profile by shifting its debt burden toward real denominated and domestically held instruments after 2003 (BBC News, 2011). In 2008, Brazil became a net external creditor and two ratings agencies awarded investment grade status to its debt (Central Intelligence Agency, 2011). After record 18

growth in 2007 and 2008, the onset of the global financial crisis hit Brazil in September 2008. During the recession, as global demand for Brazil's commoditybased exports dried up and external credit was vanished (Bloom, 2009). However, Brazil was one of the first emerging markets to begin a recovery. Consumer and investor confidence revived and GDP growth returned to positive in 2010, boosted by an export recovery (BBC News, 2011). Brazil's strong growth and high interest rates make it an attractive destination for foreign investors. Large capital inflows over the past year have contributed to the rapid appreciation of its currency and led the government to raise taxes on some foreign investments (Central Intelligence Agency, 2011). President Dilma ROUSSEFF has pledged to retain the previous

administration's commitment to inflation targeting by the Central Bank, a floating exchange rate, and fiscal restraint.

ECONOMIC FREEDOM

There is no definite definition on the economic freedom, however, in general some evidence show that there are strong relationships between economic freedom and quality of life (EcnomicFreedom.org, 2011). Countrys economic freedoms are determined by inflation and income per person. As for an instance, most free countrys economy provides better income level, better civil right, lower corruption, and lower unemployment rate.

SOUTH KOREA According to 2011 index of economic freedom, South Koreas have the 35th freest economy in the world with the economic freedom score of 69. Moreover South Korea is ranked 8th out of 41 countries in the AsiaPacific region. Inflation rate is stable at 3% and unemployment rate is relatively as low as 3.3%. According to The World Fact Book 2011 index, South Korea standard of living is high with the approximately US $ 30,000 income per capital. South Koreas dynamic economy successfully survived the global economic recession and demonstrated a considerable level of its economy strength. In order to promote as one of the worlds premier trading nations, 19

the country recently signed a free trade agreement with the European Union (KEI, 2010). South Korea is attractive place for entertainment industries due to the existence of higher-level quality of live. However, rigidity of the labor market and lingering corruption continue to hold back overall economic freedom (The World Bank, 2011).

BRAZIL Brazils economic freedom score is 56.3, making its economy the 113th freest in the world (Heritage Foundation, 2011). Brazil is ranked 21st out of 29 countries in the South and Central America/Caribbean region, and its overall score is below the regional and world averages. Inflation rate is higher than South Korea, which is stable at 4.9% for past two year (Central Intelligence Agency, 2011). Unemployment rate is 7% and income per person is US $ 10.800. Overall quality of live is significantly lower than South Korea. The Brazilian economy has been expanding with the help of booming commodity exports. Over the past decade, economic growth has averaged around 4 percent, accompanied generally by low inflation (Ragir, 2011). Brazil has a large agricultural and industrial base, but a growing services sector has accounted for over 60 percent of GDP in recent years (Central Intelligence Agency, 2011). The global financial and economic turmoils impact has been moderate. The states role in the economy has been heavy and even increasing. However, the efficiency and overall quality of government services remain poor despite high government spending as a percentage of GDP (FIAS, 2001). Barriers to entrepreneurial activity include burdensome taxes, inefficient regulation, poor access to long-term financing, and a rigid labor market (IFC, 2011). The judicial system remains vulnerable to political influence (possible high corruption).

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TOURISM ECONOMY Tourism Economy Indicator - 2010 est. Percent of Total Travel and Tourism industry Korea GDP US$ millions Employment 1000 jobs 16,237 258 561 6 Travel and Tourism Economy GDP US$ millions Employment 1000 jobs 70,795 1,464 1,910 25 8.1 13.4 7.1 11.5 1.5 2.9 4.6 4.5 2.4 3.2 Brazil Korea 1.6 2.0 0.9 2.7 Brazil Korea 3.4 4.6 Brazil Annual growth (% Forecast)

Source; Above this data are acquire from The Travel and Tourism Competitiveness Report 2011, http://www.weforum.org/issues/travel-and-tourism-competitiveness

SOUTH KOREA South Korea travel and tourism economy alone contribute 79,795 million to its GDP. According to travel and tourism competitiveness report 2011, South Korea rank 15th out of 50 countries for the premium international arrivals (World Economic Forum, 2011). Annual forecast growth is expected to 4.6% for up coming year because of the aggressive promotion on medical tourism. South Korea is emerging as a popular destination for medical tourism especially among the tourists from the US, Japan and China, says a new research report Emerging Medical Tourism in South Korea by RNCOS. In 2008, the country received around 25,000 foreign medical tourists, an impressive increase of more than 56% from year 2007 (RNCOS, 2010). It is expected that the medical tourist arrivals in South Korea will grow at a CAGR of around 42% during 2011 to 2012. Medical tourists prefer South Korea not just for the 21

lower costs of treatment, but also for its advanced technology and better healthcare infrastructure.

BRAZIL Compare to South Korea, Brazil tourism economy is the significantly smaller. However, 2014 FIFA World Cup is set to be a huge draw for visitors and the addition of the 2016 Olympics in Rio de Janeiro will further boost the industry (Exact Invest, 2010). In January 2010, the government said it would invest 1 million Brazilian reals to improve facilities throughout the country before of the World Cup. Inbound visitor numbers had been growing but the industry could benefit from greater stability. While arrivals rose from 4.7 million in 2001 to 7.2 million (about a 65% increase) in 2008, the report estimates a fall in that number in 2009 because of the impact on developed countries of the global financial crisis (Exact Invest, 2010). The recovery should be relatively quick, with a forecasted increase of tourist arrivals of 9.2 million by 2014. The number of Brazilians looking to travel within their own country and that can afford to do so is growing. According to Instituto Brasileiro de Turismo (Embratur) president Jeanine Pires, the revenue generated by tourism in 2008 was nearly 17% higher than in 2007, which was the best year on record (Exact Invest, 2010). Sector growth appears to be building up momentum as the global economy recovers. Renovations are a positive area for investment in Brazils tourism infrastructure. A lack of infrastructure has held the sector back to date but this looks set to change as investment increases over the coming years.

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SOCIAL ENVIRONMENT

Social Environment analysis will briefly discuss about each country demographic, consumer behavior, trends and culture. Culture is the main factors for behavioral practice affecting on business. Depending on the culture different, consumer behavior and lifestyle trends are different in each country (D. Daniels et al., 2011).

ETHIC GROUPS AND EDUCATION

SOUTH KOREA Demographic (2011/2010 est.) Indicator

Population Urban Population Urbanization Rate per annual Ethic Groups Religions Christian Buddhist None Literacy Male Female 26.3% 23.2% 49.3% 97.9% 99.2% 96.6% 48.7 million (2011 est.) 83% 0.6% Homogeneous

Sources; Above data are acquire from The World Factbook; https://www.cia.gov/library/publications/theworld-factbook/

It is important to understand the national ethic groups in order to identify the requirement of countrys social environment. Nature of Universal Studio Themes Parks business model require higher living standard. Literacy rate is one of the 23

factors that contribute to living standard. The higher the literacy rate, the higher the living standard will be (D. Daniels et al., 2011). The Ethic groups of South Korea are homogeneous where culture and language are concerned except for about 20,000 Chinese. All South Koreans speak the same language and share a common cultural heritage (CIA, 2010). Literacy rate of the South Korea is 97.9%, which is relatively higher than Brazil. Education is highly regarded by the South Korean government and supported by the parents. According to the CIA World Fact Book, in 2010 South Koreans attended school on average for 17 years. The average for males is 18 years, while for females is 15 years. English is widely taught in junior and high school.

BRAZIL Demographic (2011/2010 est.) Indicator

Population Urban Population Urbanization Rate per annual Ethic Groups White Mulatto (mixed White and Black) Black Others Unspecified None Religions Roman Catholic Protestant Spiritualist Bantu/Voodoo Others Unspecified None 73.6% 15.4% 1.3% 0.3% 1.8% 0.2% 7.4% 203.4 million (2011 est.) 87% 1.1% 2000 Census 53.7% 38.5% 6.2% 0.9% 0.2% 7.4%

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Literacy Male Female

88.6% 88.4% 88.8%

Sources; Above data are acquire from The World Factbook; https://www.cia.gov/library/publications/theworld-factbook/

Due to the ethnic diversity, need, wants and consumer preferences may vary across country. It is important to understand those peculiarities in order to better identify niche markets and target consumer groups. Races and ethnicities vary across Brazil. Most Brazilians are descendants of colonial settlers, with strong Portuguese paternal ancestry. In the late nineteenth and early twentieth centuries, after numerous multiracial marriages between settlers, native Indians, Spanish, Italian, German, Japanese and Black Africans, the Brazilian population developed unique characteristics (Instituto Brasileiro de Geografia e Estatsticas, 2007). The Southeastern area, which includes highly populated cities such as Sao Paulo and Rio de Janeiro, concentrates people with European, Black African and native Indian backgrounds. In 2011, the population of Brazil was composed of 53.7% whites, 6.2%% Black Africans, 38.5% Mulatto, and 0.9% others (Central Intelligence Agency, 2011).

From a sociological standpoint, ethnicity plays an important role in influencing consumers expenditure and spending pattern. Historically, the spending pattern in Brazil developed through the influence of colonial settlers and has undergone transformations as the different ethnicities commingled. Due to the diverse cultural and ethnic backgrounds, Brazilians have an innovative and inquisitive attitude toward new products and services. Brazilians are open to try both new products and services (Instituto Brasileiro de Geografia e Estatsticas, 2007).

Brazilians are becoming more educated, which have an impact spending patterns. Higher education is usually associated with the higher income. Instituto Brasileiro de Geografia e Estatsticas (2006-2007) indicate that the level of education has increased overall in Brazil and that the literacy rate increased 0.4% between 2006 and 2007. Current literacy rate is 88.6% with the average of male 88.4 % while female is 88.8% (Central Intelligence Agency, 2011). Female have higher levels of education, especially those residing in urban areas (Instituto Brasileiro de Geografia 25

e Estatsticas, 2007). Ernst & Young forecasts that by 2030 the level of education of the Brazilian workforce will increase by 30%, going from 7.8 years to 11.3 years of schooling.

HOUSEHOLDS

SOUTH KOREA

Statistics Korea (2009) indicates that while the number of ordinary households1 has
increased from 6.6 million in 1975 to 14.3 million in 2000 and 15.9 million in 2005, the average number of household members has decreased from 5.0 in 1975 to 4.5 in 1980, 3.1 in 2000 and 2.9 in 2005. This is expected to further decrease to 2.7 persons by 2020. The number of households with less than 3 persons will increase, while those with more than 4 will decrease. The biggest change is expected to see in the number of one-person households, which are forecast, to account for one out of every five households in 2015 (Park, Kim and Ko, 2002). Two-generation households still remain the most common type. One-generation or one-person households are rapidly increasing, while the number of three-generation households is declining steadily. Euro-monitor International attributes some of this change to higher divorce rates. Its data indicates that the number of divorced persons increased by almost 59% between 2000 and 2007 (Euro-monitor, January 2009). The changes in household structure are also affected by a trend towards later marriage. South Koreans are waiting longer to marry for the first time the average age of women was 27.9 years in 2007 increasing from 25.4 years in 1995, while men were 30.7 years of age in 2007 up from 28.4 years in 1995 (Euromonitor, January 2009).

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BRAZIL

The country is experiencing a decrease in the birth rate. In 2007, there was an average of 3.4 persons per household (Instituto Brasileiro de Geografia e Estatsticas, 2007). The number of single-person households in Brazil is increasing, representing 11.1% of the total households or 6.7 million people in 2007. Factors influencing that change in household composition include a decrease in the rate of mortality and an increase in life expectancy, especially for women. In 2007, a great proportion of those individuals living alone (40.8%) were 60 years old or older (Instituto Brasileiro de Geografia e Estatsticas, 2007). Brazil is seeing a reduction in the number of residents per household and an increase in single-person households, which is likely to have an impact on entertainment industry as smaller families and singles demand more relaxation environment.

CONSUMER BEHAVIOUR AND LIFESTYLE TRENDS

SOUTH KOREA

Not only are household sizes declining, but also lifestyles are becoming increasingly busy. Before 2004, South Korean countrys policies are mainly emphasized on economic growth where by result in less leisure time spending on family. However, starting in 2004, the government began shortening the official worked form six days to five in all the enterprise with 50 or more employees. The future policies are to apply in all companies by 2011 (Lee, 2007). However, there are not many companies who would like to adopt the changes quickly. According to Datamonitor Consumer Surveys (April/May, 2009), only 26% of South Koreans were satisfied with their worklife balance and amount of leisure time, compared to a global average of 43% and 49% in the U.S. According to statistic South Korea 2009, annual spending on entertainment and cultural form households with two or more members, are approximately 107,000 won in 2008. Comparing to expenditure on housing which is 27

72,000 Won per annual, most of the South Korean spend more on entertainment industries because of their stress related issue. Moreover, Referring to 2004/2005 Global Retail & Consumer Study from Beijing to Budapest, Continuous

westernization of South Korea lead to increased interest in fashion, well-being, shopping, time for and expenditure on leisure actives. Therefore, it is not surprising that for 52% of South Koreans, theme parks are viewed as a major consideration in their choice of destination for their leisure time (Datamonitor, September 2009).

BRAZIL

2010 estimated GDP per capita for Brazil is $10,800. Income per capita in Brazil has increased during the past years and is expected to continue to grow in the medium term, as a result of the expected economic growth (Central Intelligence Agency, 2011). GDP per capita varies by regional. Some of the researcher suggest that purchasing power of Brazil will also grow as a consequence of the decrease in the interest rates and of credit expansion (World Economic Forum, 2011). According to research conducted by Instituto Target/FGV (2009), in the next 5 years the Brazilian s to grow its share in the consumer market by 5.6 points, from 60.8% 66.4% of the total consumption. For this research, middle class is defined as having household/family income between BRL 2,230 and BRL 3,750 per month, in addition to other characteristics such as level of education, consumption pattern, occupation, etc. The number of urban households among middle class is expected to increase by 7.9% over 2012. Except from 87% of the Brazilians live in urban areas, this apparent uniformity does not reflect homogenous consumption habits. Population below poverty line in 2008 is 26%, which is relatively higher than South Korea. Moreover, gap between income and consumption by percentage his high, which is 1.1% lowest and highest 4.3% (Central Intelligence Agency, 2011). Those facts reflect the inequality between populations. As for large country, income distribution also varies depend on different regional setting. As stated above, a result of a historical inequality in income distribution, different classes of consumers are encountered in the Brazilian consumer market, as for instance, the typical basic needs patterns in lower income classes, where household spending is higher on food 28

and beverage items, or the ascendant middle class pattern that normally shows an increase in the participation of expenditure in transport and communications. Upper classes reveal an increase in the share of goods and services, like durable goods, leisure activities, education and healthcare, and expenditure with luxury items (K. Miller, 2009). The entertainment industries currently target each of these groups in the Brazilian consumer market, as long as they are sizeable and have a significant consumption potential likely to grow both in volume and value (A. hudson, 2009).

Consumer behaviors are unstable due to the technology shock. Rapid changes in technology and culture such as globalization, communication and Internet have unstable impact in consumer habits. In Brazil, trends connected with the principles of quality of life, convenience, price-consciousness, brand loyalty and others are very present in the market (Developers Diversified Realty, 2010). In fact, many companies in Brazil already provide products and services that meet the consumer needs derived from those trends. For instance, Nestl has announced another new unit in the North of the country, for the demand of the lower income (C/D/E) classes, which will probably include the development of new products to meet their specific needs (K. Miller, 2009). Shopping is definitely integrated into the lifestyle of the Brazilian urban population, as a usual and necessary activity and as an entertainment programmed. Shopping malls, outlets, hypermarkets, supermarkets and convenience stores have been designed to fit the profile of the relevant customer (Developers Diversified Realty, 2010). Regardless of whether the consumers profile is of high or low consumption, quality-service or price-oriented, or attracted to branded or private labels, in most developed cities it is possible to find places that best meet these characteristics. Many of these places are designed to offer a wide range of services (for example, restaurants, coffee shops, fitness centers, beauty parlors, shoe repairs, post offices, bank services and dry-cleaners among others) and to provide some entertainment with cinemas, cyber-cafs and play areas for children. The Brazilian consumers distinguish products by the brand, associating them with concepts of high quality, trust, loyalty and status (Developers Diversified Realty, 2010). The Brazilian consumer market has plenty of examples of local or 29

international brands that have historically maintained a significant market-share. Despite the fact that Brazilian consumers recognize distinct brands, they are influenced by those brands in their purchasing decisions, and eventually contribute as opinion makers to attract new consumers to the brands, it is important to point out that there has been a real increase of price-conscious customers in Brazil. Most of the entertainment industries, such as cinema and resort have been decisive in stimulating this consumer behavior, through an aggressive implementation of discount format and by expanding the portfolio of private label products and services.

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CHOICE OF COUNTRY

Country Competitiveness Score Indicator

Global Ranking (out of 139) Global Competitiveness Index Basic Requirements 1st pillar: Institutions 2nd Pillar: Infrastructure 3rd Pillar: Macroeconomic Environment 4th Pillar: Health and Primary Education Efficiency Enhancers 5th Pillar: Higher education and training 6th Pillar: Goods market efficiency 7th Pillar: labor market efficiency 8th Pillar: Financial Market development 9th Pillar: Technological readiness 10th Pillar: Market Size Innovation and Sophistication factors 11th Pillar: Business sophistication 12th Pillar: Innovation 4.0 4.5 3.5 4.4 4.3 3.7 4.1 4.4 3.9 5.6 4.8 4.8 4.8 4.3 3.6 4.0 4.0 5.5 4.8 5.4 4.5 4.3 4.0 5.0 5.6

Brazil
58

South Korea
22 5 5.4 4.0 5.6 5.8 6.3

Sources; Above data are acquire from The World Economic Form; Global Competitiveness Report (2010-2011,). Note; Score are arrange form 1 to 7, the higher the number is the higher the rank will be.

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The most problematic factors for doing business in Brazil Indicator

Tax regulations Tax Rate Inadequate supply of infrastructure Restrictive labor regulation Inefficient government bureaucracy Corruption Access to financing Inadequately educated workforce Crime and theft Foreign currency regulations Policy instability Poor public health Inflation Poor work ethic in national labor force Government instability

Brazil
19.3 17.7 13.8 12.9 11.3 6.9 5.6 5.1 2.2 1.7 1.7 0.8 0.5 0.5 0.2

South Korea
8.1 3.9 5.5 12.7 15.3 5.9 15.3 7.7 0.3 2.4 15.2 0.2 3.7 2.4 1.5

Sources; Above data are acquire from The World Economic Form; Global Competitiveness Report (2010-2011,). Note; Higher score is most problematic Remark; According to world economic form, above 15 factors conducted based on domestic population. Therefore domestic population based factors may varies from global prospective.

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Country competitiveness Charts The most problematic factors

Government instability Poor work ethic in national labor force Inflation Poor public health Policy instability Foreign currency regulations Crime and theft Inadequately educated workforce Access to financing Corruption Inefficient government bureaucracy Restrictive labor regulation Inadequate supply of infrastructure Tax Rate Tax regulations 0 5 10 15

Korea Brazil

20

25

It is obvious that South Korea have the higher global ranking comparing to Brazil. However, global ranking alone cannot determine the country potential for the Universal Studio business. It is necessary to determine the future potential and some certain aspects that related to the companies business. After the analysis, it was find out that both countries have their own weakness and strength for business. In case of tax regulations and tax rate, South Korea is much more attractive and flexible than Brazil. Restrictive on labor regulation is almost the same for both countries. According to global competitiveness report 2011, Brazil has more efficient government bureaucracy than South Korea (World Economic Forum, 2011). 33

Moreover, South Korea has a little troublesome foreign currency regulation than Brazil. In term of policy stability, Brazil is a winner however South Korea has more government stability and low corruption compare to Brazil. Upcoming FIFA and Olympic is the great opportunity to introduce Universal Theme Park and Resort in Brazil. However, weak government support on tourism industries and burdensome rules and regulations are the problematic factors to do business in Brazil. Compare to Brazil, South Korea have less opportunity. Strong government support on medical tourism, flexible rule and regulations are the attractiveness factors to do business in South Korea. Strength and Weakness of Brazil and South Korea Brazil Efficient Government Bureaucracy Strength Foreign Currency Regulation Policy Stability Tax Regulation Weakness Tax Rate Corruption Government Stability Strength Weakness South Korea

Moreover, South Korea is the attractive place to invest from country economic point of view. Unlike Brazil that has the double unemployment rate (7%), South Korea unemployment rate is only 3.3%. According to D. Daniels et al., 2011, unemployment account in major factors that depress the economic growth. Although unemployment factors alone cannot project the countrys economic growth, it possible to consider as the fraction of countrys insurance for business in economic environment while comparing between two countries. In overall quality of life, living standard and tourism economy, South Korea showed the better result than Brazil. South Korea economy future potential is the medical tourism. Although Brazil shows the significant lower result, it has the ongoing potential as an emerging market and one of the BRIC countries. Unemployment rate is significantly higher than South Korea. However, another factors to consider are the size of the 34

countrys population while comparing unemployment rate. The total population size of Brazil is three times bigger than South Korea. As for large and spawning population rate, unemployment rate 7% is acceptable. Unlike South Korea which majority of service sectors is matured, Brazil service industries are still growing and less competitive. Brazil is the more suitable for the organization that can withstand first mover disadvantages. As stated in the previous section, nature of universal business require higher social environment. In general, it is possible to assume that higher density of population refer to larger market size. However, some other factors need to be considering, such as poverty rate, inequality, income distribution, tourism economy and national economy. As a large country, Brazil has the obvious advantages on population on South Korea. However, the gap between social standard is high and so do in income distribution. According to research conducted by Instituto Target/FGV (2009), higher income level family only represent 47.6% of Brazil population. Therefore, the volume of Brazil consumer halved to half of its total population. Unlike Brazil, South Korea has advantages in lower inequality, well-distributed income and higher living standard compare to Brazil. Although the countrys population is lower than Brazil, South Korea has significant potential in both consumer value and volume. Another factors need to be considering is the future potential of inflow and out flow of tourism economy. Both countries have the future potential in tourism economy. The only different between two countries is stable and dramatic tourism. Brazil tourism will have dramatic tourism due to up coming Olympic and FIFA events. However, tourism economy may unstable due to the result of after effect. For example, one country has to push forward not only their infrastructure but also the social standard if there is up coming dramatic changes. Especially while consideration tourism economy, rapid change of government rules, regulation and its policy. After the dramatic change, country will have to face adjustment periods or exhausted stage. Dramatic investment in country infrastructure and social standard may have negative effect on national savings and countrys debts. Moreover, inequality and income distribution may disturb by regional setting. During exhausted stage, citizens spending pattern may change or disposal income may decline. Unlike Brazil, South Korea is likely to have the steady growth in tourism economy because of the nature of medical tourism. Above of all reasons, South Korea should be the choice of the country for Universal Studio. 35

ENTRY STRATEGY

ENTRY MODE Entry method into the South Korea should consider joint venture in order to overcomes the ownership restrictions and cultural distances. Although South Korea consumers are homogeneous, Datamonitor Consumer Surveys (April/May, 2009) stated that most of the consumers in consumer are favorable to local brand. It is the great risk for a company to use the direct investment methods. By adopting the Joint Venture methods, company will benefit from the certain advantages such as less investment, potential for learning about domestic market, reduce political risk and viewed as insider. Although, Knowledge spillovers, manage and control difficulty are disadvantages for the company, the benefit of the advantages outweigh the disadvantages.

DEALING WITH CONSUMER DIVERGENCE As for a local brand oriented country, consumer preferences, culture, consumption pattern may vary from Universal Theme Park business model. Current popular figure of the Universal Studio theme park is Harry Porter however, adopting its as the figure for theme park model might result as the Euro Walt Disney. Korea entertainment industry becomes widely popular in Asia especially in movie and music production. Integration Universal film production with local entertainment industry may necessary for future potential of all the theme park in Asia.

36

ANSOFF MATRIX STRATEGY Ansoff Matrix Strategy enables four options for Universal Studio while company seeks for increasing sales and creating growth at Korea (Ansoff, 1957). The four options are market penetration, product development, market development and diversification. As for Universal Company, it will be suitable to adopt market penetration and diversification strategy. Market penetration strategy is suitable to use when product or services and its market already exists. Diversification strategy stands apart from the other three strategies. The first three strategies are usually pursued with the same technical, financial, and merchandising resources used for the original product line, whereas diversification usually requires a company to acquire new skills, new techniques and new facilities. As mention in suppressing consumer divergence, it is necessary for a company to develop new figure for Universal Studio Theme Park.

Existing

Products/Services New

Market penetration

Product Development

Existing

Market

Market Development

Diversification
New

New

37

MARKET PENETRATION Among the four options, Universal Studio intends to enter into new markets, which is South Korea, by using penetration strategy. Company will need to create new value to the competition to increase sales and capture new market shares in Brazil (Kotler, et.al. 2009; Richards & Media, 2011). The penetration strategy will allow the company to attract customers from the new market as well as help the company to reduce or eliminate risk to internationalize its business (Ansoff, 1957). The main reason of conducting this strategy is to secure its target market for Universal Studio. However, the company cannot only rely on this strategy for its sustainable growth.

DIVERSIFICATION Diversification is a form of corporate strategy for a company. It seeks to increase profitability through greater sales volume obtained from new products and new markets (Ansoff, 1957). Under diversification, there are different types of strategies such as concentric diversification, horizontal diversification etc. Horizontal

diversification is suitable Universal Studio. Horizontal diversification is mainly use when company adds new products or services that are often technologically or commercially unrelated to current products but that may appeal to current customers. In a competitive environment, this form of diversification is desirable if the present customers are loyal to the current products and if the new products have a good quality and are well promoted and priced. Moreover, the new products are marketed to the same economic environment as the existing products, which may lead to rigidity and instability. In other words, this strategy tends to increase the firm's dependence on certain market segments. For example, Universal Studio may add the new figure from Korea cultural Aspect instead of using only on its original figure. However, adopting diversification strategy may require the attractiveness test and the cost-entry test

38

CONCLUSION

Attractive country for Universal Studio has a choice of expanding into Brazil and South Korea. Both countries have certain weakness and strength. The

characteristics of Brazil are that they record extraordinary economic growth and that they have high potential to become the next global economic leaders. However, unique requirement of business model match in South Korea rather than Brazil. For example, requirement of social standard, disposal income, etc. Thus, it is very important for Universal Studio to gain a foothold in markets and for future sustainable growth. Upon tourism analysis, it was found that South Korea have is a more stable tourism economy for investment in the long term. Certain factors such as policy instability and inefficient government bureaucracy are most problematic factors to start the business in South Korea. Those factors may result in delay of construction, difficulty in acquisition of land, delay of approval from government bureaucracy while starting the business. However, it is safe to assume that certain advantages such as tax rate, tax regulations and access to financing outweigh its advantages. With South Korea chosen as the destination, the entry method will be via joint venture with a local partner. Furthermore, market penetration strategy will be initially adopted, followed by diversification strategy.

39

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