Case study

Assessment 2 BUSN3001
Assessment type: Case study
Assessment mode: Individual
Length: 2000 words
Weighting: 60%
Due: 11 pm AEST Sunday Week 6
Assessment details
Read the below case studies and apply relevant concepts, models, tools, and theories from the unit to
support and justify your answers to the given questions. Note, every model we have covered may not
be relevant to the cases. Part of the assignment is for you to judge what the questions are asking for,
and which tools and techniques will help you answer these questions.
Please do not misuse/waste words summarising/repeating the case or part of the case. Having said
that, you can refer to the relevant sections of the case to explain and justify your statements,
conclusions, and any recommendations you might make.
Case study 1. The advertising industry
In the second decade of the new millennium, advertising agencies faced a number of unanticipated
challenges. Traditional markets and industry operating methods, developed mainly in North America
and Western Europe following the rise of consumer spending power in the twentieth century, were
being radically reappraised. The industry was subject to game-changing forces from the so-called
‘digital revolution’ with the entry of search companies like Google, Bing and Yahoo as rivals for
advertising budgets. Changing patterns in global consumer markets impacted both industry dynamics
and structure. Budgets spent through traditional advertising agencies were squeezed as industry
rivalry intensified.
Overview of the advertising industry
Traditionally, the business objective of advertising agencies is to target a specific audience on behalf
of clients with a message that encourages them to try a product or service and ultimately purchase it.
This is done mainly through the concept of a brand being communicated via media channels. Brands
allow consumers to differentiate between products and services, and it is the job of the advertising
agency to position the brand so that it is associated with functions and attributes which are valued by
target consumers. These brands may be consumer brands (e.g. Coca-Cola, Nike and Mercedes Benz)
or business-to-business (B2B) brands (e.g. IBM, Airbus Industrie and KPMG). Some brands target both
consumers and businesses (e.g. Microsoft and Apple).
In addition to private companies, governments also heavily advertise public-sector services such as
healthcare and education or influence individual behaviour (such as ‘Don’t drink and drive’). For
example, the UK government had an advertising budget of £289m (€347m, $433m) in 2014. Charities,
political groups, religious groups and other not-for-profit organisations also use the advertising
industry to attract funds or raise awareness of issues. Together, these account for approximately three
per cent of advertising spend.
Advertisements are usually placed in selected media (TV, press, radio, internet, mobile, etc.) by an
advertising agency acting on behalf of the client brand company: thus, they act as ‘agents’. The client
company employs the advertising agency to use its knowledge, skills, creativity and experience to
create advertising and marketing to drive consumption of the client’s brands. Clients traditionally have
been charged according to the time spent creating the advertisements plus a commission based on
the media and services bought for clients. However, in recent years, larger advertisers such as CocaCola, Procter & Gamble and Unilever have been moving away from this compensation model to a
‘value’ or results-based model based on a number of metrics, including growth in sales and market
share.
Growth in the advertising industry
Money spent on advertising has increased dramatically over the past two decades and, in 2015, was
over $180 billion (€166bn, £126bn) in the USA and $569 billion worldwide. While there might be a
decline in recessionary years, it is predicted that spending on advertising will exceed $719 billion
globally by 2025. Over 2014–15, the Dow Jones stock price index for the American media agencies
sector (of which the leading advertising agencies are the largest members) rose about 15 per cent
ahead of the New York Stock Exchange average (sources: bigcharts.com and dowjones.com).
The industry is shifting its focus as emerging markets drive revenues from geographic sectors that
would not have been significant 5 to 10 years ago, such as the BRICS countries and the Middle East
and North Africa. This shift has seen the emergence of agencies specialising in Islamic marketing,
characterised by a strong ethical responsibility to consumers. Future trends indicate the strong
emergence of consumer brands in areas of the world where sophisticated consumers with brand
awareness are currently in the minority.
Regarding industry sectors, three of the top 10 global advertisers are car manufacturers. However, the
two major FMCG (fast-moving consumer goods) producers, Procter & Gamble and Unilever, hold the
two top spots for global advertising spend. Healthcare and beauty, consumer electronics, fast food,
beverage and confectionery manufacturers are among the top 20 global advertisers. The top 100
advertisers account for nearly 50 per cent of the measured global advertising economy.
Competition in the advertising industry
Advertising agencies come in all sizes and include everything from one- or two-person ‘boutique’
operations (which rely primarily on freelance outsourced talent to perform most functions), small to
medium-sized agencies, and large independents to multinational, multi-agency conglomerates
employing over 190,000 people. The industry has gone through a period of increasing concentration
through acquisitions, thereby creating multi-agency conglomerates. While these conglomerates are
mainly headquartered in London, New York and Paris, they operate globally.
Large multi-agency conglomerates compete on the basis of the quality of their creative output (as
indicated by industry awards), the ability to buy media more cost-effectively, market knowledge,
global reach and the range of services. Some agency groups have integrated vertically into highermargin marketing services. For example, Omnicom has acquired printing services and
telemarketing/customer care companies. Other agency groups have vertically integrated to lesser or
greater degrees.
Mid-sized and smaller boutique advertising agencies compete by delivering value-added services
through in-depth knowledge of specific market sectors, specialised services such as digital and by
building a reputation for innovative and ground-breaking creative advertising/marketing campaigns.
However, they might rely more on outsourced creative suppliers than larger agencies.
Many small specialist agencies are founded by former employees of large agencies, such as the senior
staff leaving Young & Rubicam to form the agency Adam + Eve. In turn, smaller specialist agencies are
often acquired by large multi-agency conglomerates to acquire specific capabilities to target new
sectors or markets or provide additional services to existing clients, like WPP’s acquisition of a majority
stake in the smaller ideas and innovation agency AKQA for $540m ‘to prepare for a more digital
future’.
Recent years have seen new competition in this industry as search companies such as Google, Yahoo
and Microsoft Bing begin to exploit their ability to interact with and gain information about millions
of potential consumers of branded products. Sir Martin Sorrell, CEO of WPP, the world’s largest
advertising and marketing services group, has pointed out that Google will rival his agency’s
relationships with the biggest traditional media corporations such as TV, newspaper and magazine,
and possibly even become a rival for the relationships with WPP’s clients. WPP group spent more than
$4bn with Google in 2015 and $1bn with Facebook. Sorrell calls Google a ‘frenemy’ – the combination
of ‘friend’ and ‘enemy’. Google is a ‘friend’ allowing WPP to place targeted advertising based on
Google Analytics and an ‘enemy’ where it does not share these analytics with the agency and becomes
a potential competitor for the customer insight and advertising traditionally created by WPP.
With the development of the internet and online search advertising, a new breed of interactive digital
media agencies, of which AKQA is an example, established themselves in the digital space before
traditional advertising agencies fully embraced the internet. These agencies differentiate themselves
by offering a mix of web design/development, search engine marketing, internet
advertising/marketing, or e-business/e-commerce consulting. They are classified as ‘agencies’
because they create digital media campaigns and implement media purchases of ads for clients on
social networking and community sites such as YouTube, Facebook, Flickr, Instagram and other digital
media.
Digital search and mobile advertising budgets are increasing faster than traditional advertising media
as search companies like Google and Facebook generate revenues from paid search as advertisers
discover that targeted ads online are highly effective. By 2015, Google had a 55 per cent market share
of the $81.6 bn spent on online search advertising globally, with Facebook also increasing its share.
Mobile ad spending on sites such as YouTube, Pinterest and Twitter continue to increase at the
expense of desktop, taking a bigger share of marketers’ budgets. The shift to mobile ad spending is
driven mainly by consumer demand and is predicted to be over 28 per cent of total media ad spending
in the US by 2025, which is why Google has made acquisitions in this sector.
The disruptive change in the advertising industry at the beginning of the twenty-first century started
with the internet. Many industry experts believe that the convergence of the internet, TV,
smartphones, tablets and laptop computers is inevitable, significantly impacting the advertising
industry. Factors that have driven competitive advantage to date may not be relevant in the future.
Traditionally, this industry has embodied the idea of creativity as the vital differentiator between the
best and the mediocre. Individuals have often been at the heart of this creativity. With the emergence
of Google, Yahoo, Facebook and Bing, influencing and changing the media by which advertising
messages are being delivered, a key question is whether creativity will be more or less critical in the
future, in relation to the breadth of services and global reach.
Case study 1 questions:
Carry out a five-forces analysis of the advertising industry in 2015.
1. What are the strengths of the advertising industry, and what underlying factors drive them?
(10 marks)
2. What is the industry attractiveness? Why do you think so? (10 marks)
3. What are the changes in the industry? Which of these changes have a positive impact, and
which ones have a negative impact on the major advertising agencies? (10 marks)
Case study 2. Wanda’s move into the US movie industry
Chinese foreign direct investments in the USA have reached record levels and exceeded $10bn (￡
6bn, €7.5bn) in 2014. Despite this, Wanda’s $2.6bn acquisition of the US’s second-largest cinema chain
AMC in 2012 and the later $3.5bn acquisition of one of the world’s biggest movie producers,
Legendary Entertainment, in 2016, sent shock waves through the US entertainment industry. The AMC
acquisition created the world’s largest cinema company by revenue, and the Legendary Entertainment
acquisition was the biggest China–Hollywood deal ever.
Wanda Cinema Line Corp. is China’s largest operator of cinema screens, with close to 300 cinemas and
2,550 screens. Wanda now controls more than ten per cent of the global cinema market through the
AMC acquisition. AMC is North America’s second-biggest cinema chain operator, and the world’s
biggest film market, with ticket sales of over $10bn. The company has more than 5250 screens and
375 theatres in this market and is the world’s largest operator of IMAX and 3D screens, including 120
and 2170 screens, respectively.
The AMC and Legendary investments marked a new era as Chinese investment reached the heart of
US entertainment and culture. Although Chinese acquisitions in the USA have proven controversial
before, they may prove to be even more challenging, and it was speculated that a Hollywood ending
was far from certain. According to Chen Zheng, manager of Saga Cinema in Beijing, the AMC deal
strengthens Wanda’s global status as a movie theatre owner:
‘Wanda has been the largest theatre owner in the second-largest film market in the world.
Now the deal makes it also the owner of the second largest theatre chain in the largest film
market.’
Another analyst commented on the Legendary deal:
‘Buying Legendary entertainment puts Wanda on the road to becoming a global media
company and one of the world’s biggest players in movie production.’
Legendary Entertainment is a leading film production company with divisions in film, television, digital
and comics. Its big-budget, action and special-effects global blockbuster-type of movie productions
have performed very well in China. These include films such as The Dark Knight Batman trilogy, Jurassic
World, Inception, Pacific Rim and Godzilla – the last two particularly successful in China. The
Hollywood studio adds experience and expertise to Wanda’s movie production business. Wanda
Group is constructing an 8.2bn studio in eastern China which is claimed to be the biggest studio
complex globally, competing with and exceeding Hollywood’s best studios, but with Chinese costs.
Although the acquisitions are enormous, they are relatively small compared with the rest of the Dalian
Wanda real-estate conglomerate. Dalian Wanda Group Corp. Ltd includes assets of over $86bn and an
annual income of about $39bn (2014). Wanda, which means ‘a thousand roads lead here’, consists of
five-star hotels, tourist resorts, theme parks and shopping malls. The ‘Wanda Plaza’ complexes that
combine malls with housing and hotels have been a huge success in China and can be found in more
than 60 Chinese cities.
Mr Wang Jianlin, the Founder, Chairman and President of Dalian Wanda, is the wealthiest man in
China. He joined the army as a teenager and stayed in the military for 17 years. In 1988, he founded
Dalian Wanda and rode the wave of China’s phenomenal growth by investing in property. His military
background and ties to local officials helped him as large commercial land sales are handled by local
governments. He became popular with officials as he was willing to take on whatever property the
local government was ready to give. Soon Wanda was the first property company to work in several
cities.
Landmark deals
AMC was considered a ‘trophy’ acquisition in the American entertainment industry and described as
a landmark deal by analysts and investors. As announced by the Chairman and President, Mr Wang:
‘This acquisition will help make Wanda a truly global cinema owner, with theatres and
technology that enhance the movie-going experience for audiences in the world’s two largest
movie markets.’
Mr Wang considered the AMC deal to be a springboard to expand Wanda’s global cinema presence
further with the goal to reach 20 per cent of the world movie theatre market by 2020.
At the announcement of the deal, Gerry Lopez, Chief Executive Officer and President, explained:
‘as the film and exhibition business continues its global expansion, the time has never been
more opportune to welcome the enthusiastic support of our new owners. Wanda and AMC
are dedicated to providing our customers with a premier entertainment experience and stateof-the-art amenities and share corporate cultures focused on strategic growth and innovation.
With Wanda as its partner, AMC will continue seeking ways to expand and invest in the moviegoing experience.’
When expanding on its home market, Wanda wants to benefit from the know-how of AMC, which
operates in a market five times the Chinese annual box office sales. AMC’s established worldwide
network of cinema theatres gives Wanda a reputable brand. There is also a trend for more foreign
movies in China, and the transaction may allow Wanda to secure more Hollywood movies for
distribution in China.
The Legendary Entertainment acquisition was considered the next bold step towards Wanda’s goal of
becoming a global film and entertainment company. Besides expertise and intellectual property, it
offered potential synergies between film production and screening between China and the USA. It
would help the distribution of more films into the tightly controlled Chinese film market. The quota of
34 foreign films per year could be bypassed if Legendary could make films in China. Mr Wang,
however, particularly emphasised the business integration benefits:
‘The acquisition of Legendary will make Wanda Film Holdings Company the highest revenuegenerating film company in the world, increasing Wanda’s presence in China and the US, the
world’s two largest markets. Wanda’s businesses will encompass the full scope of film
production, exhibition and distribution, enhancing Wanda’s core competitiveness and
amplifying our voice in the global film market.’
Thomas Tull, the Chairman and CEO of Legendary, added:
‘Together, Wanda and Legendary will create a completely new international entertainment
company. There is an ever-growing demand for quality entertainment content worldwide,
particularly in China. We will combine our respective strengths to bring an even better
entertainment experience to the world’s audiences.’
Wanda’s Cultural Industry Group in the USA
Wanda’s acquisitions were part of a general effort to develop China’s home-grown culture and
entertainment industry. Cinema is an increasingly popular recreational activity in China, and the film
market is booming with an amazing increase in box office sales of 50 per cent to $6.7bn in 2015. The
market is expected to overtake the USA as the world’s largest film market by 2025.
Wanda’s investments in culture and entertainment align well with China’s ambition to invest in the
sector. The company described the Legendary Entertainment investment as ‘China’s largest crossborder cultural acquisition to date’ and commented on the AMC acquisition:
‘The Wanda Group began to invest in cultural industries in 2005 massively. It has entered five
industries, including central cultural district, big stage show, film production and projection,
entertainment chain and Chinese calligraphy and painting collection. . . . Wanda has invested
more than $1.6 billion in cultural industries and become the nation’s largest enterprise
investor in cultural industries.’
As Wanda’s acquisitions were the largest overseas cultural investments of a Chinese private enterprise
ever, they raised some concerns in the USA. AMC is a US household name, ‘once epitomised as the
all-American movie-watching experience’, and the Legendary investment reached Hollywood’. This
was a significant expansion of Chinese influence in the American film industry. Some were anxious
about the effect as many American movies are censored or banned in China. Mr Wang was, after all,
a Communist Party member, sitting on China’s top advisory council. Wanda’s acquisitions raised
concerns that Chinese-style censorship of politically controversial movies would become
commonplace also in the USA. As reported by USA Today: ‘Beijing is investing heavily in projecting its
“soft power”, or cultural influence. . . .’
Chinese investments in the USA had been of concern earlier, and the US government had rejected
investments in the past in the telecommunications and energy industry due to national security
concerns. However, cinema was unlikely to be considered a strategic industry for the USA.
Mr Wang insisted that Wanda had ‘no plans to promote Chinese films in the United States’ and that
AMC CEO Lopez ‘will decide what movies will be shown’ in AMC theatres. It was also clear that AMC
would continue operating from its Kansas City headquarters. Mr Wang said Wanda would retain AMC
senior management and would not interfere with everyday operations and programming decisions,
which should remain with the US management and claimed ‘The only thing that changed is the boss.’
On the Legendary Entertainment deal, Mr Wang dismissed concerns that it would lead to censorship
or alter movie content claiming he is a businessman that buys things ‘. . . to make money, so I don’t
really think about government priorities’, and the main consideration was instead commercial.
Some claimed, however, that China was already achieving its goal of ‘soft power’ as Legendary’s
Chinese arm (Legendary East) had partnered with state-owned China Film Group to co-produce The
Great Wall, starring Matt Damon and Willem Dafoe alongside Chinese actors such as Andy Lau, Jing
Tian and Eddie Peng. The big-budget, Hollywood blockbuster action-fantasy film was the largest film
intended for global distribution ever shot entirely in China, starring Chinese actors, and incorporating
Chinese myths.
AMC and Legendary Entertainment were not likely to be Wanda’s last investments in the global
entertainment industry. It acquired Hoyts, Australia’s second-largest multiplex chain, in 2015 and was
rumoured to be looking for a pan-European chain. In the spring of 2016, they announced the intent
to acquire Carmike Cinemas. If approved, this deal would make them the largest cinema chain in the
USA. Wanda also had plans to make the movie theatre operator Wanda Cinema Line Corp public in an
initial public offering with the aim to raise money for further worldwide expansion.
Case study 2 questions:
1. What drivers of internationalisation do you think were most important when Wanda entered
the US market through its AMC and Legendary acquisitions? (10 marks)
2. What national sources of competitive advantage might Wanda draw from its Chinese base?
What disadvantages derive from its Chinese base? (10 marks)
3. Based on the CAGE framework, what challenges may Wanda meet as it enters the US market?
(10 marks)
Format
The assessment document in WORD format should clearly indicate the case and question numbers for
each answer. There is no need to include an abstract/executive summary, table of contents and a
conclusion. At least 10 in-text references and a reference list at the end are required but not included
in the word count. References should be formatted as per SCU’s Harvard referencing style. The
assessment needs to be submitted via Turnitin.
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Marking criteria
Each question is worth 10 marks, and marks awarded will depend on the following criteria:
Understanding of the theoretical concepts
Application of theoretical concepts
Quality of written content (e.g., sentence construction, grammar, spelling)
Referencing (e.g., number of references, quality of sources cited, formatting of references)
Special consideration (e.g., extensions)
You must submit an online application prior to the assessment due date if you need an extension for
any assessment task. Such requests cannot be approved via email or verbally.
Late penalty
Unless an extension has been already approved, late submissions incur a penalty of 5% of the
assessment marks (i.e. 2 marks for an assessment worth 40 marks) per day, including weekends.

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