Legoland
Malaysia: An Economic Building Block
Legoland Malaysia, which opened a few months ago.
An article by The
Business Times posted on September 13th, 2012 by Lee U Wen, entitled ‘Brick by brick, Legoland Malaysia set for opening’ discussed the opening of Legoland Malaysia in September, what it
predicts will be “one of the crown jewels of the Iskandar Malaysia special
economic zone.” I seek to further analyse the opening and subsequent operation
of this theme park and what kind of impact it will have on the regional
industries located in Johor.
A mega theme park, Legoland Malaysia occupies 28 hectares and includes
over 40 rides (including rollercoasters) and attractions. The entire theme park
is themed after Lego, and its construction, along with the Legoland Hotel, cost
almost RM900 million. Clearly, large amounts of resources in the form of land,
labour, capital and entrepreneurship were utilized in the construction of this
particular project. Our Prime Minister, Datuk Seri Najib Tun Razak, described
Legoland Malaysia as the “catalyst to the Iskandar Malaysia development.”
Iskandar Malaysia itself is a massive development region encompassing the
capital city of Johor Bahru, the new administrative capital of Nusajaya, and
other adjoining towns that aims to revitalize and increase the economic growth
of the state of Johor and elevate its socio-economic status. Legoland Malaysia
is among the most ambitious projects in the Iskandar Malaysia development
corridor and its opening heralds a bright economic future for the state of Johor.
Among the predicted effects Legoland Malaysia will have on the economy are the
enormous boosts to the tourism industry and Merlin Entertainments (owner of the
theme park), as well as improved growth of other related industries in the
region.
Legoland Malaysia is set to be one of the jewels of tourist attractions in
Malaysia. The obvious theme of the park, Lego, attracts people of all ages and
from many countries across the world; the market for an attraction like this is
very large. In terms of economic principles, one of the determinants of demand
is population, and the local populations of Johor and nearby Singapore result
in more visitors to the theme park. Tourist guides are just one profession that
will enjoy the benefits of this greater number of visitors. John Ussher,
general manager at Merlin Entertainments, sees the popular Universal Studios
Singapore not as a rival, but as a complementary partner in helping to bring
more tourists to Southeast Asia and thus increasing the size of the market even
further. Futhermore, domestic tourism is predicted
to improve because of Legoland Malaysia, as locals use the convenient
North-South Expressway to reach Johor (Johor is only a 3 hour drive from Kuala
Lumpur). Legoland Malaysia is but one of the big reasons why the local tourism
industry is set to flourish in the near future.
Potential customers from just the local area.
An interesting thing to discuss is also Merlin
Entertainments’ (owner of Legoland Malaysia) problems faced during construction
of the theme park. Much of the resources used in the construction were attained
from the market and the firm itself. Many other actions were forgone: the
opportunity cost of Legoland Malaysia. For example, Merlin Entertainments could
have decided to use their funds for bond investment and gained some interest.
Furthermore, the firm was also facing information constraints, such as the
future market for attractions and the plans of its competitors, such as other
entertainment attractions groups. For that problem, Merlin Entertainments
invested some resources into market research to decide if their strategy was
sound.
As tourists flock to Johor because of Legoland Malaysia,
the local service industry has to expand as well, to achieve a greater
capacity. This provides more jobs for locals, obviously reducing unemployment
rates in the region. As the locals acquire better jobs, they gain access to
improved goods and services, and their standards of living improve as well. As
an example, the New Straits Times paper reports that local taxi and restaurant
operators are eager to welcome the new visitors to Legoland Malaysia, and they
are expecting higher incomes and revenue. This shows that the
demand for services in the region is expected to pick up, and will continue to
increase further as time goes on.
Legoland Malaysia is but one of the
large projects that are part of the Iskandar Malaysia development region.
Visitors attracted to the area by the theme park can also enjoy such services
as the Johor Premium Outlets, an outlet centre with more than 80 upscale
stores. One can imagine that the people who decide to visit Legoland Malaysia
would also plan their trip around the other high-quality services in the
region. This synergy between the services in the region only serves to increase
the demand for them in the area. One important statistic to note is that the
services sector makes 44.9% of Malaysia’s GDP. Thus, Legoland Malaysia can definitely
be considered to be one of the major catalysts for the large predicted growth
of the service industry in Johor.
Johor
Premium Outlets, near Legoland Malaysia.
It has been discussed
the two main effects Legoland Malaysia will have on the local economy of Johor.
However, it does not just end there. If the theme park proves to be successful,
it will in turn have many implications for many other companies that have
interests in the region, not all of which are local. Chief Executive of
Iskandar Regional Development Authority, Datuk Ismail Ibrahim said that for the
period from 2006 until 2012, the economic corridor of Iskandar Malaysia has
recorded total investments of RM 95.45 billion in various sectors, 62% of which
are from domestic sources, and 38% of which are from foreign investors. Being
part of the Iskandar Malaysia development corridor, just one of the five
current economic corridors in Malaysia, the success of Legoland Malaysia would
give validation to much of the foreign investments in Malaysia.
Source:
Iskandar Regional Development Authority (2012).
Being in a monopolistic competition with other
entertainment venue companies, such as the Genting Group, Merlin Entertainments
faces a set of unique challenges and opportunities. For example, there is not a
large presence of large scale theme parks in Malaysia, but still there are
enough that Merlin does not have massive control on the market. However, being
in monopolistic competition, they have the power to make their own decisions
without having much fear of heightened competition from other competitors.
Partly, this is because there is high differentiation in the product, which is
in this case, the theme park itself. Legoland Malaysia has its own theme that
is different from other theme parks and thus can attract customers who have
different preferences. It would seem that the Merlin Group sees building
Legoland Malaysia in Johor as an opportunity, and feel that it is a good
location for them to place their latest investment.
Therefore, as discussed throughout this
article and after much detailed analysis, Legoland Malaysia has shown that,
directly and indirectly, it has, and will continue to, help the local economy
of Johor by spurring the growth of local tourism and services industries, and
by attracting further investment from foreign companies, such as Merlin
Entertainments themselves. It is exciting to ponder the future possibilities of
this regional economy, particularly that of the tourism and services sector.
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