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IMAX: EXPANSION IN BRIC ECONOMIES
SYNOPSIS
IMAX Corporation (IMAX), a company based in Mississauga, Canada, is synonymous with large-format,
high-quality cinematic experiences. It started in the 1970s by making and exhibiting nature documentaries
shown on a few large screens located in museums. Following four decades of innovation, IMAX has
considerably altered its business model. The bulk of its revenue now comes from providing mainstream
TEACHING OBJECTIVES
1. Understanding sources of sustained competitive advantage
3. Evaluating country investment potential
COURSE FIT
1. What competitive advantages underlie the success of IMAX? Are these sustainable?
2. What motivates IMAX to expand internationally into emerging economies, such as the BRIC
2. Chapter 3 in George Yip and G. Tomas M. Hult, Total Global Strategy, 3rd ed., Pearson, Upper Saddle
River, NJ, 2012.
3. Yuval Atsmon, Peter Child, Richard Dobbs and Laxman Narasimhan, “Winning the $30 Trillion
CASE DISCUSSION AND ANALYSIS
This case is designed for a class of 75 to 90 minutes duration and comprises three parts. The first part
addresses the sustainability of IMAX’s success to date. The second part deals with IMAX’s international
As a possible opening question, the instructor can ask: How many of you have seen an IMAX movie?
Most of the students will have seen at least one IMAX movie. The instructor can then ask a couple of
1. What competitive advantages underlie the success of IMAX? Are these sustainable?
IMAX began by producing and exhibiting its own movies in large theatres in museums. Over time, and
especially post-2006, the bulk of its business has come from neither production, nor exhibition. Although
IMAX remains active in several aspects of the film-making value chain, it is now mainly a technology
that, when viewed in its format, considerably enhance the user experience. This focused differentiation
enables IMAX to sustain a premium price for its offerings.
The instructor can pose a question on whether IMAX’s growth plans have blurred its strategy. Our point of
view is that the IMAX growth plan involves doing more of the same in different locations across the globe.
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The IMAX business model supports its expansion, without diluting its focused differentiation strategy.
IMAX engages in both long-term and one-off agreements with movie studios to develop movies in its
format. It has several commercial options to engage with exhibitors—technology licensing, technology
thereby providing a source of sustained competitive advantage? It may be useful for the instructor to ask
students to identify the sources of IMAX’s competitive advantage before having students assess IMAX’s
resources using VRIN.
IMAX’s competitive advantage stems from its technology, its relationships with studios and exhibitors,
and its brand. IMAX films are successful, and they command a premium price. The company’s stock has
outperformed composite market indices by more than three times over the last five years (see case Exhibit
The very innovations that enabled IMAX to grow its business with movie studios and exhibitors (i.e.,
DMR and the retrofitting of existing screens) also lowered the capital and technology barriers to entry.
Lower entry barriers led to competition from exhibitors such as Cinemark and Regal Entertainment Group
PART 2—THE MOTIVATIONS FOR INTERNATIONAL EXPANSION
2. What motivates IMAX to expand internationally into emerging economies, such as the BRIC
countries?
The VRIN competitive advantages possessed by IMAX are not restricted to the North American market or
other developed economies. In the international business literature, Hymer
3
and Dunning (1980)
4
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acknowledge these competitive advantages to be firm-specific ownership advantages, which drive
international expansion. The growth of the middle classes and more affluent classes in developing
economies, such as the BRIC countries, increases the consumption potential toward higher-priced IMAX
The instructor may want to frame the class discussion by asking students to list generic motivating factors
for any multinational enterprise and then evaluate each of them in relation to IMAX. An extensive body of
research in international business suggests the existence of systematic patterns of motivation. Such
Motivations
Increased Profitability
Responding to Competition
In 2013, nearly 50 per cent of the exhibitor-branded PLF screens competing directly with IMAX were in
North America (see case Exhibit 5). Far from clear, however, is whether several domestic exhibitors will
Securing Key Supplies
Accessing Low-Cost Factors of Production
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While it is possible that IMAX may outsource to lower-cost countries several parts of its business
operations (e.g., accounting, information technology, capital acquisition, digital movie conversions), this is
unlikely to drive the setting up of screens in foreign locations.
Capturing Scale Economies
Additional revenue from screening the same Hollywood blockbuster movie across numerous countries may
provide economies of scale, improving profitability. The ability to do so may also encourage movie studios
to develop more films on the IMAX format, and increase the bargaining power of IMAX relative to the
Developing Global Scanning and Learning
Expanding into China and building local market knowledge may help with expansions into similar
Diversification
A diversified portfolio may lead to several benefits outside of North America and in other developed
economies. Diversification limits the exposure to systematic risk arising from a single market or a set of
similar markets. Greater diversification may also reduce performance volatility as a result of operating in a
3. How would you evaluate IMAX’s international expansion to date?
From case Exhibit 1, it would seem that IMAX might have underpenetrated some of the larger markets by
following a market development strategy across 58 countries, versus a market penetration strategy in, for
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instance, consider the first four countries listed in case Exhibit 1. Argentina and Australia, which have a
combined movie business of nearly $1.4 billion and a Hollywood market share of 76 per cent and 95 per
cent respectively, have a total of only six screens. Austria has one-sixth the business of Australia, yet both
evaluate the expansion to date is to determine, based on available data in case Exhibit 1, the relative market
potential for each of the countries in which IMAX has a presence, and then assess the number of screens
for each country in proportion to its market potential. Exhibit TN-1 provides a step by step calculation
procedure with an illustrative example for one country (Argentina).
From Exhibit TN-2, which summarizes the screen assessment for all countries, we observe that Argentina
should have 12 screens, but has only one screen. Among the BRIC economies, we see large differences for
Several reasons may explain why IMAX is betting big on China. For one, IMAX may have considered a
far higher growth rate for the Chinese market. Our growth rate is based on a 65 per cent middle-class and
upper-class estimated population increase.
6
Other analysts project higher increases in China’s middle-class
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“conservative” computations. IMAX may also be predicting a bigger slice of the local Chinese movie
market based on its success with the DMRed Chinese action movies. Finally, IMAX may be considering
longer-term potential beyond 2020.
We emphasize that no single numerical answer is correct in regard to determining an exact allocation of
current screens. Students may come up with different numbers based on assumptions they make, and the
The instructor may find it useful to initiate a class discussion on why IMAX is betting big on China. Is this
strategy wishful thinking, or does it make a lot of sense? The discussion may be triggered by the instructor
asking a few students to state the allocation of IMAX screens they calculated for China, and having them
PART 3—THE RECOMMENDATION
4. If 400 of the additional 1,550 screens are to be allocated to the BRIC economies, how would
you distribute them by country? Within each country, how would you distribute them among
cities?
Managers often face making decisions within the framework of an aggregate decision made by a more
senior leader. Here for example, while regional investment has already been decided, not yet determined is
how the investment should be allocated by country; or, when the country-level investment has been
decided, which cities should be prioritized? Here, students are asked to determine a certain number of
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city’s connectedness to local and global markets, cosmopolitan environment, and physical and information
infrastructure may be far more important than its population size.
8
It is estimated that over the next 12
years, just 440 emerging market cities will account for nearly 40 per cent of global consumption.
9
The 20–59 age group percentage differences over time are Brazil, 4.8 per cent; Russia, –6.9 per cent; India,
9.1 per cent and China, –1.3 per cent. We reason that an increase in this demographic boosts the movie and
IMAX business, while a decrease weakens it. As before, we use a multiplicative factor, which is 1.048 for
Brazil, 0.931 for Russia, 1.091 for India and 0.987 for China.
We do not recommend use of multiplicative factors for the governance indicators and cultural distance
Again, we emphasize that no single numerical answer determines an exact allocation of these 400
additional screens by BRIC economy. Students may come up with different numbers, based on
assumptions they make, and the instructor should ascertain only that their rationale is defensible.
(75 per cent of the 36 total screens computed previously) to the 15 Indian cities in case Exhibit 7.
Clearly, many more factors distinguish cities in regard to their business opportunities than the population
and income analyses we have used. Diversity between cities in the same country is widely prevalent among
5. Identify key business risks in international expansion to the BRIC economies. How should
IMAX address these business risks?
The instructor may want to frame the class discussion by asking students to list generic risks applicable to
any other BRIC nation to stable policy implementation, and, in contrast, Russia may have the least
commitment. Hence, the risk of protectionism seems to be relatively high in Russia. However, IMAX can
mitigate a portion of this risk by engaging in partnerships to develop local movies in the IMAX format
(e.g., Stalingrad and Monkey King). Diversification across BRIC nations can also help to reduce country-
Commercial Risk
The ease of doing business in a country is related to such factors as infrastructure, construction permits and
securing credit, and these factors may also affect the establishment and operation of multiplexes, where
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IMAX screens are located or planned to be located. The IMAX business is capital-intensive, and exit
barriers are high. It is therefore important for an IMAX screen to be built and opened to the public as
Intellectual Property Risk
Crucial to the company’s success is its proprietary knowledge regarding IMAX theatre systems and digital
and film technology. To protect its intellectual property (IP), IMAX relies on a combination of laws (i.e.,
Economic Risk
Cultural Risk
A large body of research has shown that national culture affects individual beliefs, perceptions and
behaviour as well as conflict management, executive decision making and leadership. Cultural differences
may therefore affect IMAX’s business from both the demand side (i.e., the local audience appeal for
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SUBSEQUENT EVENTS
From January 2015 to June 2016, IMAX added 70 screens in China, five in Russia, one in India, and one in
Brazil. During this period, China and India’s GDP grew at an average of 7 per cent and 7.5 per cent
respectively. Brazil had suffered five consecutive quarters of economic decline and its economy shrank by
Superman: Dawn of Justice. In June 2016, IMAX announced an expansion of its revenue sharing
agreement with AMC theatres in the United States, which involved building 25 additional screens at
existing and new AMC locations. These were to be installed by 2019 in major cities such as New York,
Los Angeles, and Houston, as well as a number of smaller-tier cities across the United States.
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EXHIBIT TN-1: CALCULATION PROCEDURE TO ASSESS CURRENT IMAX SCREEN DISTRIBUTION
2. We consider IMAX theatres to be long-term investments, and use two multiplicative factors to account
for growth in addressable movie business size in each country in 2020. First we consider the increase
3. The next step involves normalizing the PFHMB for each country. This step provides a proportional
measure for each country, in order to determine screen allocation. The normalized PFHMB for each
country is the ratio of PFHMB for the focal country to the sum total of PFHMBs for all countries. For
4. The final step involves multiplying the total number of theatres across the 45 countries used to
calculate sum of PFHMB by each country’s NPFHMB to arrive at a number indicative of the number of
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EXHIBIT TN-4: BRIC ECONOMIES’ DISTRIBUTION WITH 400 ADDITIONAL SCREENS
#
Country
Existing
Screens
Computed
Screens
2013
Box
Office
($M)
Hollywood
Box Office
Share
Mid +
Upper
Class %
Increase
(2013–20)
Urban %
Increase
(2013–
20)
Age
Group
20–59 %
increase
(2013–20)
PFHMB
NPFHMB
(%)
1
Brazil
11
135
900
83%
56.4
2.7
1.048
1,257.4
19.9
2
Russia
36
128
1400
83%
16.9
2.0
0.931
1,197.8
19.0
3
India
8
44
1500
10%
105.6
17.6
1.091
406.2
6.4
4
China
221
369
3600
50%
65.8
17.1
0.987
3,448.3
54.7
TOTALS
279
676
6,309.7
100.0
Sources: for existing screens: IMAX Corporate website, www.imax.com/theatres/, accessed December 26, 2014; for 2013
box office: Motion Picture Association of America Inc.; for Hollywood box office share: The Hollywood Reporter website,
accessed December 26, 2014, www.hollywoodreporter.com/movies; for middle- and upper-class population increase: Asian
Development Bank, World Bank, OECD, Ernst and Young; for urban population increase: City Mayors Statistics, “Urban
population growth between 1950 and 2030,” www.citymayors.com/statistics/urban-population-intro.html, accessed
December 26, 2014.
EXHIBIT TN-5: ILLUSTRATIVE DISTRIBUTION OF ADDITIONAL COUNTRY SCREENS, BY CITY
#
City
Average
Population
(2013–
2020)
millions
Average
Household
Income
(2013–2020) (in
thousands of
US$)
Attractiveness
Weight (AW)
City
proportion
of total AW
(CPAW)
Computed
Screens
(CPAW × 27)—
rounded to
nearest integer
Existing
Screens
Net
New
Screens
1
Surat
6.5
7.0
45.5
2.8%
1
0
1
2
Hyderabad
7.5
6.5
48.8
3.0%
1
1
0
3
Ahmedabad
7.5
6.5
48.8
3.0%
1
1
0
4
Nagpur
3.0
8.5
25.4
1.6%
0
0
0
5
Kochi
2.0
8.5
17.0
1.1%
0
0
0
6
Ludhiana
2.0
8.0
16.2
1.0%
0
0
0
7
Visakhapatnam
2.0
9.5
19.0
1.2%
0
0
0
8
Nasik
2.0
10.5
21.0
1.3%
0
0
0
9
Kolkata
16.5
12.0
198.0
12.3%
3
0
3
10
Pune
6.5
12.5
80.9
5.0%
1
0
1
11
Faridabad
2.0
15.0
29.8
1.9%
1
0
1
12
Mumbai
22.0
16.0
352.0
21.9%
6
4
2
13
Bangalore
10.5
16.5
173.3
10.8%
3
1
2
14
Patna
2.0
19.5
39.0
2.4%
1
0
1
15
Delhi
24.5
20.0
489.4
30.5%
8
0
8
TOTALS
1604.1
100.0%
7
19
Sources: for existing screens: IMAX Corporate website, accessed December 26, 2014, www.imax.com/theatres/; for
average household income: Ugne Saltenyte, “Do Business Opportunities Exist Outside the Largest Cities in BRIC
Countries?,” accessed December 21, 2014, http://blog.euromonitor.com/2014/04/do-business-opportunities-exist-outside-
the-largest-cities-in-bric-countries.html.
