Kidzania: Spreading FunAround the World Case Solution And Analysis, HBR Case Study Solution & Analysis of Harvard Case Studies

Kidzania: Spreading FunAround the World Case Study Help

Economical:

Kidzania, Kuwait generates Gross Domestic Product per Capital income of $48927, which is greater as compared to GDP per Capita income of other regions where Kidzania operates. This suggest that the business’s decision to expand its operations to Doha will be beneficial. On the other hand, the Currency of Mexico, which indicates that the currency of Kidzania is depreciating against the U.S dollars, affecting the business’s profitability and financial stability. Similarly, other economic factors, such as: tax rates, employment rates, and inflation rates also affect the company’s growth and operations.

Social:

The social factors such as high internet penetration, usage of social media, Mobile Apps and games have shifted the children’s focus from visiting local parks to spending times on their devices. This has affected the organization’s business domestically and internationally. In addition to which, the children’s needs and preferences have changed from visiting local parks to visiting theme and amusement parks, such as: Disney.

Technological:

Promoting and incorporation innovation in its business model have been the key success factors for the organization. The business highly believes in bringing new services and introducing new activities in order to engage and attract the children. Similarly, the business is considering to introduce an online platform to market its services to the customer at lower cost.

Legal:

Kidzania is a highly diversified business, therefore, it is highly subjected to discrimination laws pertaining to employee’s recruitment, respecting the cultural differences and offering cultural related activities. Similarly, the business is exposed to high compliance with healthy and safety laws in relation to providing protected and safe environment to customers and labor force. In addition, the business has an obligation to comply with laws pertaining to establishment of park considering the physical and emotional safeguard.

Environment:

The business is subjected to environmental laws as establishment of national parks, resulting in soil erosion, causing a disturbance to wild life as well as an increased noise pollution. In addition, the national parks are subject to other environmental issues, such as water shortage, climate change and tourists attraction.

Proposed Strategies:

In order to grow the business and maintain the company’s financial stability, following alternatives were considered by the executive team of Kidzania

Alternative 1- Growth in Number of Parks:

Considering, higher growth prospects for entertainment industry in North America, it was proposed to develop six to eight parks in 15 metropolitan cities of America at a cost of 30 million for each park. From quality perspectives, the strategy seems viable considering greater revenues will be generated as result of operating in large cities as compared to the smaller markets. Similarly, the business has an extensive experience in building larger parks in metropolitan cities.However, the business does not have any experience of operating in America,therefore thisstrategy appears to be risky.

Alternative 2- New Formats (Entering into Small markets):

This strategy involves theconstruction of small parks in small cities with higher GDP growth and population, such as: Doha. Although, this would result in smaller revenues as compared to operating in larger cities and requires less investment.Growth will be achieved as compared to other parks as limited activities will be availed considering the small size of the park, which will enable the customers to visit again to avail other services.

Alternative 3- Interactive Digital Platform:

The proposed strategy involves the introduction of an interactive digital platform for the purpose of strengthening the relationship with children by providing physical experience of the park in a virtual world. Considering thefact of high penetrationofinternet and usage of phones and electronic gadgets, the business will be able to attract maximum number of customer through this strategy.

Alternative 4- Content Development:

The strategy involvesoffering educational content to the children using interactive role plays and producing content for films. The strategy will ensure that the business achieves its core objective of providing educational and learning environment to the children. Considering higher growth prospects in the film industry, the strategy appears to be a viable option.However the initial investment required for the project requires to be kept under consideration. Similarly, the strategy might not be acceptable by the business considering the fact that the international growth and presence will not be achieved by employing this strategy.

Financial Evaluation of Alternatives:

In order to assess the financial viability of each alternative, cash flow projection for a period of ten years has been conducted.

Alternative 1- Growth in Number of Parks:

It is estimated that the project will achieve internal rate of return of -2% and 4% and NPV of -1725 million and $-65 millionin Mexican Peso and dollars. As the presentation currency of Kidzania is Mexican Peso, the NPV in dollars was converted into Mexican Peso to assess the viability of project. The IRR and NPV has been determined assuming 8 parks will be developed in 15 American cities at a cost of $30 million and the project will last for a period of ten years. Similarly, it is projected that the revenue will grow by three percent each year, which is based on the actual revenue growth achieved in the year 2013-2014. An average price of $42.37 is assumed, which is based on the average of the existing price per children and adult given in Exhibit 5 of the case. The average attendance of customers in Park is estimated to be 0.39 million which is based on the average of the attendance in the year 2015. Other general assumptions which has been used to evaluate the alternatives, including the discount rate of 10%, depreciation rate of 3%, EBITDA margin of 21.8% and tax rate of 15%.

Alternative 2- New Formats (Entering into Small markets):

The business will achieve IRR of -6% and -0.5% and NPV of -1074 million and -50 million in Mexican Peso and dollars. The negative NPV and IRR of the project indicates that expanding business by targeting smaller markets is not a feasible option.

Alternative 3- Interactive Digital Platform:

The business will achieve IRR of 30% and 38% and NPV of 864 million, and 92.6 million in Mexican Peso and dollars. This suggests that from financial perspectives, the strategy appears to be profitable and has the potential to provide greater returns. However, the strategy will require an investment of $45 million, which is higher as compared to other alternatives.

Alternative 4- Content Development:

The business will achieve IRR of 33% and 41% and NPV of 1105 million and 115 million in Mexican Peso and dollars. The project requires initial investment of 45 million in Mexican Peso therefore, it might be difficult for the business to finance the project considering the declining profits due to an increased competition and currency devaluation.

Recommendations

Based on the analysis performed in the report, it will be recommended to the business to employ the fourth strategy i.e. grow the business by investing into content creation in order to improve customer experience. The strategy is financially viable as it is estimated that maximum IRR and NPV will be generated through this project as compared to other alternatives. Similarly, due to an increased threat of new entrants as well as an intense rivalry among competitors, entering into larger cities will not be beneficial for the company.

Action Plan:

In order to implement the strategy of building content creation, the business would be required tohave partnership with renowned businesses involved in content creation. These content creators will build the content on the websites considering, the educational need, changing preferences of children and cultural factors and factors of local customers. The business can also purchase established content from potential content suppliers, such as: Walt Disney, which will ensure operational efficiency is achieved, operational costs of the business is reduced and customer engaging content is created.........................

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