a) Background and Motivation
The Cirque du Soleil, the arguably most famous circus in the world, has been founded in 1984, in Quebec, Canada. The two initiators of this company, Guy Laliberté and Daniel Gauthier, have always seen circus with a modern eye. Effectively, their power of creativity and their visionary ideas have been the key ingredients to make this circus a global empire. The comparative advantage which makes the Cirque du Soleil so unassailable is its creative inspiration and the perfection of its shows. The particularity of the business model of Cirque du Soleil is to create demand all around the world on the circus market. The strength of this circus is to develop shows which are different than the ordinary; for example by eliminating some elements that we find in other circuses such as animal shows or clowns. However, their secret of success is their ability of creating year after year shows convincing people to come many times, creating music and fun while always retaining a magical perceptioni. Thus, a direct competitor does not really exist. It is what we call a Blue Ocean Strategy: “Create Uncontested Market Space and Make Competition Irrelevant”ii. The point is to expend the service around the world, ignoring territorial boundaries in order to increase the share they can take in the global market and in the meantime to decrease the costs. The shows are exclusive. Therefore the price of an average ticket is more expensive than in a traditional circus. As every company, the main motivation is to create revenues for the firm. The first idea that the circus had, was to differentiate into two kinds of shows: Tours and the residencies. In 1992, The Cirque du Soleil signed the first partnership with the Mirage hotel in Las Vegas, for a resident show called Nouvelle Expérience. After a year of success, they created a subsequent show, known under the name of Mystère. This event would be the start of a long collaboration. Effectively, since 1992, Las Vegas Hotels count now more than seven shows. Besides, the circus had the opportunity to host a new resident show in Disneyworld Resort in Orlando, Florida. After ten years of negotiation, the two parties have agreed on the conditions of the partnership and thus presented to the spectators the La Nouba show in December 1998. The circus would invest only on the artistry whereas the Hotel or the Resort would invest in the infrastructure for the show. Hence, on one side the host would attract more customers because of the show in his place and the Cirque du Soleil would ultimately reduce its cost through the collaboration. The strategy of Cirque du Soleil is to always guard the decisive authority in terms of creativity, even in a partnership. Moreover, the collaboration permits to create specific merchandising for the resident place as well. Merchandising is an excellent way to increase the benefit and to create brand awareness. The longevity of the strategy of Cirque du Soleil is to focus its efforts on the creative concept of each show, its core business, whether in tours or in resident shows. b) Application of Theoretical Perspectives
There are two conditions to fulfill in order to determine if a hold up problem could appear: a relationship-specific investment and an incomplete contract. First condition: The Cirque du Soleil's business model requires that the potential partner invest about 150M for the theater construction and show equipment and about 15 millions for the production of the show while the Cirque invests only 15 million for the production. As the theater is mainly built for the Cirque's show and couldn't stand for any other shows without transformations, it means that it is a Relationship-Specific Investments and thus the first condition for a potential hold-up is fulfilled. What about the incomplete contract condition? We have two different kinds of contracts in the case. On the one hand, we have the contract with Disney. It took 10 years to the...
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