Vertical Integration, Outsourcing and Diversification Strategy
Chapter 9 Vertical Integration, Outsourcing and
Diversification Strategy
Disney Integration Map
Since Disney, unlike traditional manufacturing businesses, is in the
leisure/entertainment business, the way the vertically integrate their resources is quite
unique. Therefore, we developed a map to illustrate our thought process upon this
topic.
Figure 23. Disney Integration Map
The Walt Disney Company Case Study
82 FCU e-Paper (2016-2017)
9.1 Disney Vertical Integration
Vertical Integration is a strategy where a company expand its business operations
into different steps on the same production path. (Investopedia) By using the vertical
integration, Disney has their own supplier and distributor, so it can not only help
Disney reduce costs but also increase revenues.
9.1.1 Park and Resorts
About the vertical Integration of the Walt Disney Parks and Resorts, you can see
a lot of entity and virtual products or services which are created in Disney’s own story
and character in Disney Parks and Resorts. For example, like the performance, Walt
Disney Animation Studios produced the animation film The Lion King, and they
produce The Lion King musical to show in the Disney theme parks; like the virtual
products, Disney put their own consumer products to the Disney theme parks and sale
them to the consumers and visitors; like the virtual characters, you can see many film
famous characters show on the road in the Disney theme parks; like the character of
Simba the Lion, it was cross-licensed by consumer products division to merchandisers
who created Simba the Lion stuffed animals T-shirts, and others products that are sold
and distributed throughout Disney theme parks as well as the company’s retail stores
worldwide.
9.1.2 Movie
The “up-stream” of Disney Movies’ vertical integration is basically the same as
other products in Disney: the creators produce ideas and stories, then the studios
(movie and television) turn them into motion pictures we watch on different sizes of
screens. For other parts of Disney, they would go on to create more products from
The Walt Disney Company Case Study
83 FCU e-Paper (2016-2017)
these motion pictures, but for the movie section, this is basically it.
Vertical integration of Disney movies, whether it is animated or live-action, is
realized within Disney itself, Disney’s teams creators produce storylines, which is
then transferred to the hands of professional animators. The visual results are then
examined by editors and directors. Finally, the finished movie is marketed through
Disney’s own television channels and websites. Disney also owns distributors to
distribute their own movies.
Disney owns several studios: Disney Studios (including animation and live
action), Pixar, Lucas Film, and Marvel Studios. Industry information are as follows:
Table 25. Disney Studios SIC Code
9.1.3 Merchandise
Merchandise which includes consumer products and interactive media is a
segment of Walt Disney vertical integration strategy. This division uses the stories and
characters as materials of production process. Unlike other segments, Disney
consumer products and interactive media (DCPI) is not purely vertical integration but
also have attendance of market contracts.
The Walt Disney Company Case Study
84 FCU e-Paper (2016-2017)
Figure 24. Merchandise Outsourcing
The progress is Disney makes films and cartoons to create stories and characters
by themselves. Then use them as materials to form license and publish contracts with
other company. Disney will not be in charge in merchandising products but others will
produce then Disney or that companies will sell them. For example, H&M make
clothes with Mickey mouse logo and sell them in H&M store (Market contracts) or
Disney sell their toys in Disney store (Vertical integration); Disney catch-catch: a
game uses Disney characters license in Facebook social media platform. Retailers also
undertake after service.