Six Sigma University of Central Arkansas MBA 6330 – Operations Management Mark E. McMurtrey, Ph.D.

Miley Cyrus

April 25, 2013

Benefits and Applications

Cyrus MBA 6330

Six Sigma: Benefits and Applications

Table of Contents

Introduction to Six Sigma……………………………………………………………………2

DMAIC………………………………………………………………………………………3

Six Sigma Applications………………………………………………………………………5

Six Sigma as a Management Tool for Innovation……………………………………6

Six Sigma in Services and its Challenges……………………………………………8

Six Sigma and Multinational Corporations…………………………………………………10

Lean Six Sigma…………………………………………………………………………….11

Conclusion………………………………………………………………………………….11

References…………………………………………………………………………………..12

Appendix……………………………………………………………………………………13

Cyrus MBA 6330

Six Sigma: Benefits and Applications

Introduction to Six Sigma

In the technologically-driven world we live in, innovation and efficiency are crucial in

order for companies to thrive. The global aspect of our economies makes for very tight

competition, regardless of location. Geographic boundaries are less restraining and companies

throughout the world can compete in the same playing field due to the ease of communication

provided by the internet, and also because of advances in shipping and logistics. A small-

business owner in the United Stated can choose to have a manufacturer in China produce the

same product that he or she could have manufactured in the US, except in China the

manufacturer can do it for a fraction of the cost. This scenario illustrates the push companies

around the globe now face to manufacture, manage and operate more effectively in order to bring

the best offering to the client at the lowest possible price, to keep sales volumes soaring, while

still maintaining healthy profit margins.

Six Sigma was first introduced in the 1980’s by Motorola as a response to the Japanese

competition they were facing in the semi-conductor industry (Braunscheidel, Hamister, Suresh &

Star, 2011). The term “six sigma” was first coined by a Motorola engineer by the name of Bill

Smith, in which the sigma, the greek alphabet letter, is used to denote the standard deviation of a

given variable (Chiarini, 2011) (Goh & Xie, 2004).Six sigma can also be a reference to the

quality improvement philosophy derived by the methodology, as well as the program (Jacobs and

Chase, 2012).

Furthermore, Goh and Xie (2004) explain, six sigma is used to “represent the range of

values of a population with a normal distribution as mathematically, 99.73 percent of all values

can be expected to fall within a range that extends from three sigma lower than to three sigma

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Six Sigma: Benefits and Applications

higher than the population mean.” In other words, technically speaking, Six Sigma works as a

statistical measure that quantifies how often defects are likely to occur, and the higher the level,

the less likely a mistake is to take place (McAdam, Hazlett & Henderson, 2005).

The way levels are measured is in DPMO (defects per million opportunities), which was

a different and much more accurate approach in comparison to the previous method Motorola

used, which indicated defects in the thousands (Braunscheidel, Hamister, Suresh & Star, 2011)

(Chiarini, 2011). There are different levels depending on the variation in defects; Sigma 2 would

equal to 308,537 DPMO, Sigma 3 to 66,807 DPMO, Sigma 4 to 6,210 DPMO, Sigma 5 to 233

DPMO, and finally Sigma Six, that equals to 3.4 defects per million opportunities (McAdam,

Hazlett & Henderson, 2005). This is held as the number for companies to strive for, in order to

succeed. Companies that are in the Sigma 4 range, or higher, are considered good companies,

average organizations are considered to be so when they are in the Sigma 3 range, whereas any

company below this range would be thought to not be functional for much longer (Cowman,

2005). The whole concept is based on the premise that variability is the culprit for defects, thus

companies should focus on reducing variability in order to “perfect” their methods and defects

reduced almost to obsolescence (McAdam, Hazlett & Henderson, 2005).

DMAIC

Define, Measure, Analyze, Implement, and Control, most widely recognized as the

DMAIC cycle, is considered by some scholars as the most important part of Six Sigma (Byrne

and Norris, 2003). Basically, this acronym summarizes the actions to be taken in order to

properly implement Six Sigma within a company. This would ideally become the way of life of

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Six Sigma: Benefits and Applications

the organization, meaning it can be applied virtually to any problem faced by the multiple facets

that comprise an enterprise.

Define: This is the first step to be taken. In this stage the company is to state what

problem is going to be the focus of the process, the expected results, and the upper and lower

limits of quality (Cowman, 2005). Also, at this time, the benefits that can result from the project

are defined, as well as the way the customer is impacted (Goh & Xie, 2004).

Measure: In this phase, the company can identify the performance measures that are

considered the customer’s needs (Goh & Xie, 2004). These are also referred to as “critical to

quality” (CTQs) (Goh & Xie, 2004). In other words, make sure there is measurement capability,

measure the results of the process being evaluated and compare in regards to compliance to

quality standards (Goh & Xie, 2004) (Cowman, 2005). In this stage, current sigma value is

calculated, as well as improvement goals set (Goh & Xie, 2004) (Cowman, 2005).

Analyze: This stage is critical to the process. In the analyze phase, the root causes of

defects are determined, and key process variables that contribute to defects and waste are

uncovered (Goh & Xie, 2004) (Cowman, 2005).

Improve: In the improve phase, Goh and Xie (2004) state that the “influences of the key

process variables on the CTQs are quantified, acceptable limits of these variables are identified,

and the process modified to reduce CTQ defect levels”. In other words, the improvements on the

procedures are implemented in order to reduce the defects. However, it is important to note, that

sometimes the process is repeated several times regarding steps M, A, and I, until the expected

level of quality is met (Cowman, 2005).

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Six Sigma: Benefits and Applications

Control: in this final phase, steps are taken in order to maintain the improved quality

control level achieved, and ensure long term profitability (Goh & Xie, 2004).

When a company is contemplating incorporating six sigma as a method to improve

internal processes and profitability, the method must be implemented from the top-down,

meaning that top management must make a commitment to adhere to the methodology in order

for it to be functional because hierarchically speaking, the executives must be trained first. Then,

the Six Sigma Team will be trained by a Master Black Belt (MBB), most likely a consultant at

first. Because of the training the Six Sigma Team will receive, the company will most likely

choose the next Master Black Belts from it, who will be considered the leaders of projects, and

Green Belts, who are the team members of the projects, will also be chosen from there

(Cowman, 2005).

Six Sigma Applications

The impact that is attributed to six sigma, is due significantly to its measurable

improvements of CTQs, which are largely customer focused (Goh & Xie, 2004).

Goh and Xie (2004) further state:

“The effectiveness of six sigma is rooted in its judicious application of statistical

techniques for information gathering, analysis and interpretation. Six sigma translates an

operational problem into a statistical problem, makes use of proven mathematical tools to solve

it, and translates the results back to practical actions.”

The following are examples of applications of Six Sigma, aside from the operations

perspective.

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Six Sigma: Benefits and Applications

Six Sigma as a Management Tool for Innovation

As previously mentioned in the introduction, not only operational efficiency is essential, but

innovation is also crucial for companies. Six sigma can be used as a tool to promoting innovation

within a company. According to Azis and Osada (2010), six sigma, from a management

perspective, provides a tool for enhancing performance and has been widely accepted as a

management model that will guarantee in attaining competitive advantage if implemented

successfully.

Six sigma has another systematic process known as DFSS (Design for Six Sigma). DFSS

differs from DMAIC in that it is more geared towards design. DFSS is described as more

proactive with regards to the design of products, services, and business processes (Osada & Azis,

2010).

Using Osada’s management systems model, Azis and Osada illustrate how both of Six

Sigma’s processes together, DMAIC and DFSS, address the three main classifications of Osada’s

management system, the Driver, the Enabler, and the Performance.

The driver, which can be considered the company’s mission, vision, objectives, overall

direction, strategy, and organizational expectations, is addressed by six sigma because it helps

the company achieve its expectations by not only telling the company what to do, but also how to

do it. Furthermore, it assists in the strategic project management, meaning it helps organize the

way the project is handled, making sure every group is working in sync.

The enabler refers to the soft infrastructure, stock resources, process and flow resources

(Osada & Azis, 2010). The enabler is addressed by establishing a data driven approach which

forces the company to research and actually measure issues, as opposed to vague statements

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Six Sigma: Benefits and Applications

based on hunches in which managers just state their opinions on how they feel the company is

doing in a certain aspect (Osada & Azis, 2010). Also, the effectiveness of training, and employee

spirit and motivation seem to improve. In training, employees in order to be certified must

complete projects and achieve goals in which they save the company a given amount of money,

this ensures that the employees not only grasp, but are also able to employ the principles they

learn.

Employee spirit and motivation see an improvement because taking in such tasks

employees feel more connected to the firm in general, and more confident in their ability.

Furthermore, being able to see their capabilities clearly, and for management to visibly see and

praise their efforts, allow employees to get more promotions and get recognized concretely for

their hard work. Six sigma also improves the quality of communication. Since six sigma has a

standardized methodology and terminology, it is easy to relay information across business units

and the program actually allows for progress related to six sigma to be tracked and stored for

dissemination (Osada & Azis, 2010). It also assists in upgrading the production process,

improving inventory utilization, and enhances processes by eliminating non-value-added process

(Osada & Azis, 2010).

The performance section in the management model refers to the output, the outcome and

the financial result (Osada & Azis, 2010). Six sigma addresses this component by being a driver

of profitability. It is estimated that on average, the company that implements six sigma, typically

gets a payback of eight-to-one, savings to cost (Cowman, 2005).

Companies that have utilized Six Sigma have reported significant financial gain. For

example, to name a couple, GE, one of its first users, reported in 1998 having saved $330

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Six Sigma: Benefits and Applications

million; Honeywell reported to have saved the company over $3.5 billion since the time it was

implemented. Six sigma also helps the company brand increase in value, not to mention since

everything is based on CTQs, there is a noticeable improvement in customer relationships and

satisfaction (Osada & Azis, 2010).

Six Sigma in Services and its Challenges

The concept of service quality as defined by Nakhai and Neves (2009) is a term that

“embodies a particular model, relating service performance, customer perceptions of quality,

customer expectations, and customer satisfaction.” The main areas in the service industry that

have adopted six sigma are banking, healthcare, construction, supply chain management,

accounting, customer relations, education, libraries, material procurement, order processing,

airline industry, safety, government and non-profits (See Appendix, figure 3) (Nakhai & Neves,

2009).

Many service companies have yielded great benefits from implementing six sigma.

However, there are some challenges to be taken into consideration that apply specifically to

service organizations. For example, it is much harder to collect data in service industries;

measuring is difficult due to the different situations that can take place while customers and

service providers interact; since data is collected in a face to face manner, it may not be as

accurate as an anonymous alternative; finally, because of the difficulties that arise from the sub

processes in services, it may be more difficult to measure and control six sigma (Nakhai &

Neves, 2009).

Since goods and services are different, the factors that lead to each of those types of

enterprises to success may be different as well (Nakhai & Neves, 2009). Thus, it is very

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Six Sigma: Benefits and Applications

important to take that into consideration when trying to apply six sigma to service-oriented

companies (Nakhai & Neves, 2009).

The authors of the article “The challenges of six sigma in improving service quality”,

when asking the question of whether six sigma makes a significant contribution as a service

quality philosophy, argue that while the answer is yes, but there needs to be an understanding

that a variation in customers exists, and that there is a range of preferences, personalities, styles,

cultures and needs. This realization can help the company understand that modular solutions

need to be developed, and flexibility needs to be built into its service delivery processes (Nakhai

& Neves, 2009).

Nakhai and Neves (2009) continue by implying that an incorrect implementation of the

method in a service industry could actually be highly detrimental. They also believe that there is

an area of great opportunity with regards to using six sigma as an agent of change in the services

area, with the caveat that champions and black belts must be trained specifically to introduce

changes in service oriented companies. The authors continue by stating that “developing six

sigma curricula that focuses on the nature of services, how customers form expectations, and

how they evaluate service quality is an area of great opportunity.”

The most important contribution that six sigma provides for service oriented customers,

according to Nakhai and Neves (2009), is in the area of delivery of service reliability. If a

company can reduce the variations in the services that are being delivered, the customers’

expectations are more predictable, because their expectations have been shaped around what is

consistently being offered by that service provider. This they consider however, to be only half

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Six Sigma: Benefits and Applications

the battle because they maintain management must also pay attention to changing customer

needs, and tailor the offerings to where they satisfy customer standards.

Six Sigma and Multinational Corporations

As previously mentioned, six sigma has been adopted by famous corporations

throughout the globe. 3M, Caterpillar, Merril Lynch, Amazon, Bank of America, DHL, SGL

Group, Dell, Ford, DuPont, McGraw-Hill Companies, HSBC, among others, are companies that

have implemented six sigma in their company projects (AlSagheer, 2011). A study published on

the sustainability six sigma offers multinational corporations, can give an insight as to what

makes six sigma so popular among these giants. AlSagheer (2011), defines sustainable

development as “development that meets the need of present without compromising the ability of

future generations to meet their own needs” and continues to say that with regards to six sigma

sustainability refers to “utmost standardization with zero defects”. AlSagheer (2011) argues that

the core goal of these companies was to obtain financial sustainability.

Regardless of whether financial sustainability seemed to be the primary goal, most of

these companies, once they are able to stabilize and streamline their processes utilizing six

sigma, can build up monetary reserves that they can utilize further to apply to different causes.

Once the variables that promote defective work are taken care of, the company can focus on

alternate goals, like upgrading equipment, driving innovation, eliminating waste, achieve full

environmental sustainability, improving marketing efforts, whatever the company management

deems as the appropriate next step.

Cyrus MBA 6330

Six Sigma: Benefits and Applications

Lean Six Sigma

Lean six sigma is considered a variation of Six Sigma that is a combination of Lean

manufacturing and the standard six sigma management approaches ("What is lean,"). The

merging of the two was said to have occurred when AlliedSignal and Maytag were cross training

employees and took different aspects of each and combined them.

The combination of the two seems like a logical one, since lean manufacturing is based

off of eliminating waste and streamlining processes to where only the essential core of the

specific process in question remains. Six sigma eliminates waste by eliminating variation, which

at times means removing non-value-added process steps.

Conclusion

Six sigma is best defined broadly as a “high performance, data-driven approach to

analyzing the root causes of business problems and solving them” (Blakeslee Jr., 1999). It can be

further analyzed as a “business process that allows companies to drastically improve their bottom

line by designing and monitoring everyday business activities in ways that minimize waste and

resources while increasing customer satisfaction” (Harry and Schroeder, 2000). Six sigma

provides a business with a great solution that can be tailored to many different applications, and

when followed as a “way of life”, it ultimately leads to business excellence. Today, some of the

most prestigious companies of the world like Apple Computers, American Express, Boeing,

Hewlett-Packard, Honda, LG, and Unilever, (among many others), implement Six sigma to

manage their projects and processes, and live the six sigma way ("Six sigma companies," 2008).

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Six Sigma: Benefits and Applications

References

AlSagheer, A. (2011). Six sigma for sustainability in multinational organizations. Journal of

Business Case Studies, 7(3), 7-15.

Blakeslee J.A. Jr. (1999), “Implementing the Six Sigma solution”, Quality Progress, Vol.32,

p.77.

Braunscheidel, M., Hamister, J., Suresh, N., & Star, H. (2011). An institutional theory

perspective on six sigma adoption. International Journal of Operations & Production

Management, 31(4), 423-451. Retrieved from www.emeraldinsight.com/0144-3577.htm

Chiarini, A. (2011). Japanese total quality control, tqm, deming's system of profound knowledge,

bpr, lean and six sigma. International Journal of Lean Six Sigma, 2(4), 332-355.

Retrieved from www.emeraldinsight.com/2040-4166.htm

Cowman, K. (2005). Six sigma: what, where, when, why & how. Materials Management and

Distribution, 50(8), 69. Retrieved from

http://search.proquest.com/docview/227981602?accountid=10017

Goh, T. N., & Xie, M. (2004). Improving on the six sigma paradigm. The TQM Magazine, 16(4),

235-240. Retrieved from

http://search.proquest.com/docview/227617145?accountid=10017

Harry, M.J. and Schroeder, R. (2000), Six Sigma: The Breakthrough Management Strategy

Revolutionizing the World’s Top Corporations, Doubleday, New York, NY.

Jacobs, F. Robert; Chase, Richard (2012). Operations and Supply Chain Management: The Core,

3rd edition (The Mcgraw-Hill/Irwin Series Operations and Decision Sciences) (Page

313). Business And Economics. Kindle Edition.

McAdam, R., Hazlett, S., & Henderson, J. (2005). A critical review of six sigma: exploring the

dichotomies. International Journal of Organizational Analysis, 13(2), 151-174.

Nakhai, B., & Neves, J. (2009). The challenges of six sigma in improving service quality.

International Journal of Quality & Reliability Management, 26(7), 663-684. Retrieved

from www.emeraldinsight.com/0265-671X.htm

Osada, H., & Azis, Y. (2010). Innovation in management system by six sigma: an empirical

study of world class companies. international Journal of Lean Six Sigma, 1(3), 172-190.

Retrieved from www.emeraldinsight.com/2040-4166.htm

Six sigma companies. (2008, June). Retrieved from http://www.asixsigma.com/companies.php

Wiesenfelder, H. (n.d.). Definition of lean six sigma. Retrieved from

http://www.ehow.com/facts_5007027_definition-lean-six-sigma.htm

What is lean six sigma? definition and meaning. (n.d.). Retrieved from

http://www.businessdictionary.com/definition/Lean-Six-Sigma.html

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Six Sigma: Benefits and Applications

Appendix

Graph illustrating the statistical explanation for Six Sigma

DMAIC Cycle Illustration

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Six Sigma: Benefits and Applications

Applications of Six Sigma in Services. From “The challenges of six sigma in improving service

quality”, by Nakhai and Neves (2008)

W15058

IMAX: EXPANSION IN BRIC ECONOMIES1 (REVISED) Dwarka Chakravarty wrote this case under the supervision of Professor Paul W. Beamish solely to provide material for class discussion. The authors do not intend to illustrate either effective or ineffective handling of a managerial situation. The authors may have disguised certain names and other identifying information to protect confidentiality. This publication may not be transmitted, photocopied, digitized or otherwise reproduced in any form or by any means without the permission of the copyright holder. Reproduction of this material is not covered under authorization by any reproduction rights organization. To order copies or request permission to reproduce materials, contact Ivey Publishing, Ivey Business School, Western University, London, Ontario, Canada, N6G 0N1; (t) 519.661.3208; (e) [email protected]; www.iveycases.com. Copyright © 2015, Richard Ivey School of Business Foundation Version: 2016-08-26 In September 2013, Richard Gelfond, chief executive officer of IMAX Corporation (IMAX), declared that the route to becoming a billion-dollar company lay in growth markets outside of North America.2 This was no “blue sky envisioning,” but a pragmatic view grounded in facts. These included competition from U.S. exhibitors offering an “IMAX-like” experience, and a flat five year box office trend in North America versus double digit growth in Asia Pacific and Latin America. In 2013, for the first time in four decades, IMAX aggregate revenue from 56 countries outside of the United States and Canada ($151 million,3 10 per cent growth from 2012) exceeded North American revenues ($137 million, 6.5 per cent decline from 2012). Since 2000, emerging markets, led by Brazil, Russia, India and China (the BRIC nations) had fuelled global gross domestic product (GDP) growth. China was foremost on IMAX’s radar, with screens growing from one in 2001 to 221 in 2014, making it the second largest IMAX market after the United States (see Exhibit 1). IMAX had far fewer screens in other BRIC countries with 11 in Brazil, 36 in Russia, and eight in India. How should IMAX allocate its future expansion by country in the BRIC economies? A BRIEF HISTORY OF IMAX Headquartered in Missisauga, Canada, IMAX (an abbreviation of Image Maximum) became synonymous with large-screen, high-quality cinematic experiences. IMAX was conceived during EXPO 1967 in Montreal, Canada, when a small group of Canadian filmmakers developed a method to show a film across multiple screens, using a single powerful projector. The resulting IMAX system revolutionized cinema by projecting movies on a large curved screen, creating an immersive experience. Initial movies were nature documentaries, e.g., Grand Canyon—funded by the National Science Foundation and the National Film Board of Canada. These were shot on IMAX cameras, with films 10 times larger than the regular 35mm, and shown on huge museum screens 20+ metres tall and 30+ metres wide, using special high-intensity projectors. The system was proprietary, capital-intensive, and hard to scale. In the 1990s, IMAX began licensing its technology. Commercial theatres had to pay $2 million for equipment, and spend $3 million to build a screen. The capital cost and difficulty in filming IMAX movies were big barriers to theatre and Hollywood adoption. Burdened by a $200 million debt, IMAX was fighting for survival.4

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Page 2 9B15M028 The Breakthrough In 2001, an IMAX scientist developed a procedure to convert existing 35mm movies into the IMAX format—a patented process called Digital Re-mastering (DMR). The first re-mastered movie was Apollo 13 in 2002, which took 16 weeks to convert. With experience, the conversion time was reduced to two to three weeks at a cost of only $20,000 to $50,000. Digital movie formats further lowered the cost. Prior to DMR, the only Hollywood films made using IMAX were Disney animations, such as Fantasia and Beauty and the Beast. The development of DMR was critical since projecting a 35mm film onto an IMAX screen would produce a grainy picture. DMR removed the grain, while preserving image quality. Now, instead of persuading movie studios to film using its cameras, IMAX could convert a movie to its format. The Business Model By 2006, IMAX was able to create a near IMAX experience in existing theatres—the new IMAX Digital Theatre, at a fraction of the cost ($150,000). The 70mm projector was replaced with two smaller ones projecting over each other, providing increased resolution relative to standard digital projectors. IMAX also improved the sound system from a regular cinema set up. Importantly, the screen was not altered, but merely moved about 10 meters closer to the audience, giving a perception of increased width and height. Most contracts with exhibitors were revenue-sharing agreements. IMAX would install the digital theatre for free and receive about a third of the box office receipts for IMAX films shown on that screen. Exhibitors and studios typically handed over 20 and 12.5 per cent of the ticket price respectively, excluding taxes. As part of the agreement, IMAX provided advice on theatre design, supervised installation, trained personnel, and performed ongoing maintenance. These agreements were usually non- cancellable for an initial term of 10 to 13 years, after which they could be renewed for one or more terms of 5 to 10 years. Apart from revenue sharing, IMAX also licensed its technology through leases and sales. The Hollywood Surge Early IMAX DMR conversions, such as Apollo 13 and The Matrix sequels, were considered successful, but the 2004 computer-animated film The Polar Express in IMAX 3D was a game changer. It made cinematic history as the world’s first full-length IMAX 3D Hollywood feature, shattering box office records worldwide and becoming the highest grossing DMR release at $60 million on 100 screens. Numerous other Hollywood movies were DMRed and ran successfully on IMAX screens, including the Harry Potter films, Superman Returns, Batman Begins and Night at the Museum. Since 2002, more than 200 Hollywood films had been digitally re-mastered to IMAX. Of these, about 190 were converted post 2006, once IMAX began retrofitting existing screens. Two notable exceptions to the mass of DMR productions were The Dark Knight (2011) and Mission: Impossible – Ghost Protocol (2011), both partially filmed using IMAX cameras. Hollywood traction helped IMAX reduce its debt; and, since 2010, it remained debt-free, cash-positive, and profitable (see Exhibits 2 and 3). James Cameron’s Avatar, released in 2009, grossed $250 million on IMAX screens and represented a financial turning point. From 2008 to 2010, IMAX’s stock price increased by over 500 per cent (see Exhibit 4). However, despite Hollywood now actively pursuing IMAX, the company was very selective in the films that it converted to the IMAX format or shot using its cameras. It turned down about five movies for every one it made. It carefully picked blockbuster action-adventure movies that, when rendered in IMAX and projected onto its screens, would provide a truly enriched viewing experience. To further maintain its

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Page 3 9B15M028 premium, speciality brand, and ensure adequate profitability per screen, IMAX limited screen numbers and concentrations to ensure reasonable distance between theatres. It was not just the visual enhancements which made filmmakers demand that their movies be shown in IMAX; it was also quality control. From Toronto, IMAX continuously monitored all its locations in 58 countries to ensure volume levels were set correctly, projector bulbs weren’t in danger of burning out and images remained pristine.5 INNOVATION6 Despite significant proprietary expertise in projection, sound, and imaging technologies, IMAX did not rest on its laurels. As of December 31, 2013, it held 99 patents in the United States, more than twice it held six years ago. Corresponding patents were held or had been filed in many other countries, and additional 35 patents were pending. In 2012 and 2013, IMAX significantly increased its level of research and development (R&D) with a focus on developing its next-generation laser projection system. In 2013, IMAX’s R&D spend was more than 5 per cent of revenue, with one in six employees (90/541) working on R&D. Other key areas of research activity included improving projector reliability, enhancing 2-D and 3-D image quality, manufacturing digital film cameras, and designing premium home theatre systems. THE MOVIE INDUSTRY7 In 2013, more than 7,000 movies were released worldwide, led by India at 1,274. Over 65 per cent of frequent moviegoers were aged 18 to 59. Global box office revenues increased to nearly $36 billion in 2013, a 4 per cent increase over 2012. North America generated the most revenue at $11 billion, growing by 1 per cent over the previous year, followed by China with $3.6 billion and 27 per cent growth. The other BRIC nations also featured among the top 10 international movie markets, with India at $1.5 billion in revenue; Russia, $1.4 billion and Brazil, $0.9 billion. The U.S. producer Warner Bros. Entertainment Inc. was the highest grossing movie studio with $1.8 billion in revenue. With more than 7,000 screens worldwide, Regal Entertainment Group, a U.S. company, was the world’s largest movie exhibitor. Partnerships with Movie Studios and Exhibitors IMAX had partnerships with several movie studios to develop IMAX movie versions. These arrangements could be one-off deals for a particular movie, or a broader agreement comprising a number of movies. For instance, in November 2008, IMAX and Disney agreed on a five-picture deal starting with the 2009 release of Disney’s The Jonas Brothers, followed by the fall 2009 3-D release of Disney’s A Christmas Carol and Alice in Wonderland in spring 2010. Partnerships with studios also extended beyond Hollywood. In June 2009, IMAX and Huayi Bros. Media Corporation Ltd., China’s largest privately owned media group, entered a partnership to release up to three mainstream Chinese films to capitalize on the growing size and scope of IMAX in China. Similarly, in March 2013, IMAX announced a partnership with Yash Raj Films Pvt. Ltd. in India to develop and release three movies in IMAX theatres globally. IMAX put in place numerous licensing and joint venture agreements with exhibitors in an attempt to build new IMAX theatres or retrofit existing ones. For instance, in December 2007, it entered into a joint venture agreement with AMC Entertainment to install 100 screens equipped with IMAX’s digital projection technology at AMC U.S. locations In March 2011, IMAX announced its largest international agreement—a 75 theatre deal in China with Wanda Cinema, Asia’s largest cinema operator.

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Page 4 9B15M028 Competition from Exhibitors In 2014, while 72 premium large format (PLF) brands competed with IMAX, only a few were real threats.8 Since 2009, North America’s five major theatre companies had either retrofitted their theatres or built new ones with oversized screens, adding several dollars to the ticket price. Hence, IMAX faced competition from the very exhibitors it relied on for business. Exhibitor PLF screens were opening at a rapid pace and by December 2014, for every two IMAX screens in North America, there were three such screens. Competing screens usually stretched from floor to ceiling in theatres with enhanced sound and extra-cushy seats, offering what some moviegoers felt was the best viewing experience for Hollywood blockbusters. Exhibitors varied in how aggressively they pursued the PLF strategy. Some stopped adding new IMAX contracts. Others placed their screens near IMAX theatres. Some built new locations that offered both IMAX and their own big-screens under the same roof. In November 2013, of the $161.1 million grossed during the opening weekend of The Hunger Games: Catching Fire, about $9.6 million was collected from U.S. exhibitor PLF screens—only about $3 million less than what IMAX U.S. locations generated. Studios and exhibitors stood to gain millions of dollars by cutting out IMAX. According to Chris Aronson,9 president of U.S. distribution at 21st Century Fox Inc., “The distribution and exhibition dynamic is much simpler when there are only two parties involved.” The competition had its roots in the film industry’s move to digital distribution. When studios started delivering films digitally rather than in bulky canisters, it became easier to build theatres with sound and lighting for large-format viewing. “There was enough off-the-shelf technology that, if you knew how to put it together, you could create your own PLF experience,” said Timothy Warner,10 chief executive at Cinemark. IMAX retorted that exhibitors were trying to replicate its signature experience without delivering the goods. “It’s like putting a Mercedes on a Ford body and saying you have a Mercedes,” said Gelfond.11 A key concern for IMAX was if such exhibitors would renew their IMAX contracts in 2017. The competition from exhibitors was not limited to North America (see Exhibit 5). In October 2013, Russia’s Karo Cinema announced a tie-up with RealD to roll out 10 PLF screens. A year later, China Film Giant Screen (CFGS), a subsidiary of China Film Co. Ltd. entered into a partnership with Deluxe Digital Cinema for subtitling and converting Hollywood films to its PLF format. FOREIGN SHORES In 2013, growth markets outside of North America were important to the sustained success of IMAX. In the past few years, domestic ticket sales were flat to down, as more consumers opted to watch movies on home entertainment systems and mobile devices. Internationally though, IMAX movies were becoming increasingly popular, especially in emerging markets. In the United States, the average price of a movie ticket was $8 to $10, but an IMAX ticket ranged from $13 to $15. Nowhere was the popularity as strong and as price inelastic as in emerging markets. According to Gelfond,12 an IMAX ticket could cost four times as much as a regular ticket in India, and at least one theatre in Russia charged $80 a ticket and “does very well.” He forecasted international ticket receipts to account for 60 per cent of the company’s total in the next few years and said “the expanding theatre network around the world, will be a major driver of growth.” The combination of DMR conversions and lower capital cost of retrofitting existing theatres also helped IMAX expand globally. Being debt-free and cash-positive provided IMAX with both investment and licensing options in foreign markets. In most countries, IMAX preferred revenue-sharing agreements, in which it paid for part of the cost of building screens in return for a share of box office revenue. In 2013, IMAX entered into revenue-sharing agreements for 126 screens and licensing agreements for five screens.

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Page 5 9B15M028 THE BRIC COUNTRIES In 2001, Jim O’Neill, chief economist at Goldman Sachs, coined the acronym BRIC, which stands for Brazil, Russia, China, and India. He noted that the BRIC countries symbolized a shift in economic power from the developed G7 economies. From 2003 to 2013, the combined GDP growth of the BRIC nations exceeded by over four times the combined growth of the G7 (Canada, France, Germany, Italy, Japan, the United Kingdom, and the United States). O’Neill estimated that by 2030, the BRIC countries would overtake the G7 in terms of GDP. The key drivers of such economic growth were large urban populations, a high proportion of young people, and increased consumption by a fast-rising middle and upper class (see Exhibits 1, 6, and 11). The rise of the middle classes in BRIC countries, with their willingness and ability to spend, had transformed consumer markets.13 During a television interview in 2013, Gelfond discussed how this rising middle class, was tipping the scales toward international markets for IMAX.14 Rapid consumption growth in BRIC nations was prevalent in tier-1 megacities, as well as in several mid- size cities (see Exhibit 7). Brazil In 2013, Brazil was South America’s most populous and influential country, home to more than 200 million people, of which 87 per cent resided in urban areas. Following three centuries of Portuguese colonization, and a fourth century of being ruled by its own monarchs and dictators, Brazil became a democracy in 1985. Exploiting vast agricultural and mineral resources and a large labour pool, it grew steadily over the past three decades to become the world’s seventh largest economy. Brazil had also made great strides in reducing social and economic inequality. In 2013, close to 80 per cent of its households were middle class ($15,000 to $30,000 annual income) or upper middle class ($30,000 to $45,000). Nevertheless, wide gaps remained between the rich and the poor. Upper middle class and more affluent households were expected to comprise over 35 per cent of the population by 2020.15 Brazil was the only Portuguese-speaking nation in the Americas, giving it a distinct culture from the Spanish-speaking countries. As Portuguese was the official language, it was the only language used for all business and administrative purposes. English, which was often studied in school, was the principal second language among educated Brazilians. Christianity was the dominant faith in Brazil. Movies released in Brazil generated nearly $1 billion at the box office in 2013, a growth of 14 per cent over 2012, making Brazil the world’s 11th largest movie market. Hollywood movies accounted for nearly 83 per cent of revenue. The market for Brazilian movies grew rapidly, with 2013 revenues increasing by more than 80 per cent over 2012. One hundred new cinema screens were added in 2013, increasing the total to more than 2,650 screens. IMAX tied up with UCI (a joint venture between Universal and Paramount), the largest exhibitor in Brazil, and the partnership operated five IMAX theatres in 2013. Russia In 2013, Russia, home to more than 143 million people, was a developed, high-income country, with an urban population of 72 per cent. Vast oil and gas resources, helped Russia overcome a late 20th-century economic collapse to become the world’s ninth largest economy, and reassert itself as a world power. Economic strength and massive public support, also allowed Vladimir Putin, Russia’s dominant political figure since 2000, to enhance state control over political institutions and the media. Approximately 35 per cent of Russia’s households were middle class, and some 40 per cent comprised upper middle and more affluent classes. While Russia’s population was expected to decline to 140 million by 2020, the middle, upper middle and more affluent households were expected to increase to about 86 per cent.16

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Page 6 9B15M028 Russia was a multicultural and multi-ethnic society, with dozens of languages. Russian, the official language, was widely spoken and used for all business and administration. English was the most common second language, but fewer than 10 per cent spoke it fluently. Christianity was Russia’s dominant faith. In 2013, movies released in Russia generated $1.4 billion at the box office, a 13 per cent growth over 2012, making it the world’s 7th largest movie market. Hollywood movies accounted for nearly 83 per cent of revenue. Local movie revenues grew more slowly, increasing by 5 per cent over 2012. In June 2014, Russia’s minister for culture Vladimir Medinsky spoke in favour of protectionism, hinting at introducing quotas for local films.17 In September 2014, two top Russian directors argued18 for restrictions on Hollywood movies. Yuri Kara called for a ban until sanctions imposed against Russia for annexing Crimea from Ukraine were lifted. Stanislav Govorukhin, who had been Putin’s election campaign chief, said, “I believe that it would be good to limit the presence of Hollywood movies on Russian screens.” In October 2013, the World War II epic, Stalingrad became the first Russian language IMAX film. It was digitally re-mastered into IMAX 3D and released in Russia, China and several countries in Central and Eastern Europe. The movie was a huge commercial success and became Russia’s top grossing local- language film. In the first six months of 2013, 177 new cinema screens were added in Russia, increasing the total to more than 3,200. IMAX had partnerships with Cinema Park and Karo Film, Russia’s two largest movie exhibitors, and with several other local exhibitors—Mori Cinema, Kronverk Cinema and Formula Kino. Commenting on the Russian market, in July 2010, Richard Gelfond19 said, “You have a growing middle class and wealthy class that’s seeking premium entertainment.” During an interview in July 2012 , Andrew Cripps, IMAX President for Europe and Middle East Asia, said,20 “Russia has been a tremendous market; they embrace technology and the box office has been incredibly strong.” India In 2013, India was the world’s largest democracy, and the second most populous country (at 1.26 billion). From the late 1980s, India initiated reforms that opened up its economy, and encouraged foreign direct investment. Since then, India emerged as a fast-growing and powerful economy, to become the 10th largest in the world. However, India faced huge socio-economic problems. Nearly half of its population was poor and lacked a reasonable level of literacy. Hinduism was the major faith, and Hindi the most widely spoken language, although with its many languages, cultures and religions, India was extremely diverse. In 2013, 17 per cent of Indian households belonged to middle, upper middle and affluent classes. These classes were expected to increase to 33 per cent of all households by 2020.21 By the same year, it was estimated that 40 per cent of Indians would reside in urban areas. Despite gaining independence from Britain in 1947, English remained the language of instruction in most urban schools, and the language of business and administration. India was therefore home to a rapidly expanding urban, English-educated workforce, making it an attractive destination for international business outsourcing. With $1.5 billion in 2013 box office revenues, India was the world’s fifth largest movie market, growing at 11 per cent annually. However, Hollywood’s share of India’s box office was a mere 10 per cent. Despite producing over 1,000 movies every year, India only had 1,200 multiplex screens—fewer than one per million people. In contrast, the United States had 120 multiplex screens per million. India added over 150 multiplex screens in 2013, but while single-screen cinemas had dwindled from about 13,000 to 10,000 in the past five years, they were still pervasive. Movies in Hindi and many regional languages, collectively known as Bollywood films, dominated the market and were most often shown in small, single-screen cinemas with tickets costing $2 to $3. According to Gelfond, this made it difficult to sell IMAX, a totally different entertainment proposition that cost four times as much or more. In February

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Page 7 9B15M028 2013, commenting on the low penetration of IMAX screens in India, Gelfond said,22 “It’s harder to change people’s habits.” December 2013 marked the release of Dhoom 3, the first Bollywood movie to be digitally re-mastered by IMAX. Following its success, another Bollywood action thriller, Bang Bang, was converted for IMAX and released in October 2014. In India, IMAX had partnerships with Cinepolis, the world’s fourth largest exhibitor, and with local exhibitors PVR Films and Sathyam Films. China In 2013, China with 1.35 billion people, was the world’s most populous country and its fastest-growing economy. In the late 1970s, China’s leader, Deng Xiaoping, commenced a process of widespread economic reform. Despite being a communist country, China underwent what has been described as a second industrial revolution. In 2011, fuelled by manufacturing growth, and domestic consumption, China became the world’s second-largest economy. In recent decades, many rural dwellers in search of employment moved to the country’s eastern cities, which were undergoing a construction boom. In 2013, for the first time, city dwellers outnumbered the rural population. It was estimated that, by 2020, China’s population would be 60 per cent urban, with middle and higher classes comprising 700 million people.23 China’s box offices pulled in $3.6 billion in 2013, a 27 per cent jump from 2012. Hollywood movies enjoyed a one-third market share, and Hollywood box office revenues in China grew by nearly 60 per cent. In February 2013, Gelfond said,24 “Establishing IMAX in China was aided by the Chinese people’s enormous appetite for affordable luxury.” He added, “The Chinese have fallen in love with Hollywood movies.” China had more than 12,000 multiplex screens, with 10 new screens being added each day. Most of China’s 200 IMAX screens were operated by the theatre chain Wanda Cinema, which was China’s biggest exhibitor in terms of box office revenue, with more than 15 per cent share of the Chinese market. The Chinese movie Aftershock was the first big non-Hollywood commercial IMAX film. Released in 2010, Aftershock was a huge hit, grossing more than $100 million in China. Following its success, additional Chinese IMAX movies were made. In 2014, the digitally re-mastered Monkey King became the biggest grossing Chinese film ever, with more than $167 million in global box office receipts. Optimism on China’s movie industry growth was, however, tempered by the risk of government interference and protectionism. In June 2014, China Film Bureau chief Zhang Hongsen,25 claimed the country’s film business was at war with Hollywood, and needed to dramatically up its game to survive when the annual quota for foreign film imports (currently limited to 34) was raised in four years’ time. The powerful government regulator urged theatre owners to reduce screen time for Hollywood movies. RELATIVE MARKET EMPHASIS At the Toronto Film Festival in September 2013, Gelfond said,26 “We’ve identified 1,700 target markets to put IMAX theaters into in the world, and about 500 of them are in North America.” In the next 14 months, IMAX added 150 new screens worldwide, but only about 25 of them in North America. Hence, as of December 2014, 1,550 screens remained from Gelfond’s stated target. With an estimated investment of $350,00027 per screen, each one represented a significant commitment. Allocating these by country would convey relative priorities to IMAX and its stakeholders, and enable purposeful implementation. Of the remaining screens, was 475 the right number for North America? If 400 were earmarked for the BRIC economies, how should they be distributed by country? The BRIC nations offered ample business opportunities, but also presented economic, political, and cultural challenges (see Exhibits 8, 9, and 10). What were the country-specific risks for IMAX, and how could they be mitigated?

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Page 8 9B15M028 EXHIBIT 1: IMAX WORLDWIDE: SCREENS, BOX OFFICE, DEMOGRAPHICS, AND URBANIZATION

# Country Existing

Screens (2014)

2013 Box Office ($ million)

Hollywood Box Office

Share

Middle and Upper Class population % Increase

(2013–2020)

Urban population % Increase (2013–2020)

1 ARGENTINA 1 400 76% 32.1 0.4 2 AUSTRALIA 5 1100 95% 3.5 1.6 3 AUSTRIA 5 160 90% 3.5 4.1 4 AZERBAIJAN 2 53.1 6.7 5 BRAZIL 11 900 83% 56.4 2.7 6 BULGARIA 2 25 85% 8.3 4.3 7 CANADA 46 1000 98% 3.5 2.4 8 CHILE 1 130 95% 57.2 1.9 9 CHINA 221 3600 50% 65.8 17.1

10 COLOMBIA 2 230 65% 80 3.5 11 COSTA RICA 1 51.7 7.4 12 CROATIA 1 20 98% 9 7.5 13 CZECH REPUBLIC 1 70 65% 3.5 3.1 14 DENMARK 1 190 60% 3.5 1.1 15 DOMINICAN REPUBLIC 1 96.8 6.7 16 ECUADOR 2 65 95% 71.4 5.5 17 EGYPT 1 120 20% 115.3 13 18 ESTONIA 1 15 95% 3.5 3.1 19 FRANCE 13 1600 54% 3.5 3.3 20 GERMANY 5 1300 64% 3.5 4.2 21 GUATEMALA 2 65.7 11.2 22 HONG KONG 5 210 78% 3.5 0 23 HUNGARY 1 60 91% 12.8 5.7 24 INDIA 8 1500 10% 105.6 17.6 25 INDONESIA 4 195 80% 56.5 14.1 26 ISRAEL 1 115 50% 3.5 0.7 27 ITALY 2 800 53% 3.5 4.5 28 JAPAN 23 2400 39% 3.5 5.2 29 JORDAN 1 24.3 6.4 30 KAZAKHSTAN 2 65 45% 10.5 7.2 31 KENYA 1 24.3 32 KUWAIT 2 0.2 33 MALAYSIA 4 200 82% 29.9 6.7 34 MEXICO 20 900 90% 33.5 3.2 35 MOROCCO 1 44% 14.1 36 NETHERLANDS 6 300 80% 3.5 3.4 37 NEW ZEALAND 1 175 97% 3.5 1.6 38 PHILIPPINES 8 175 80% 55.9 7.8 39 POLAND 5 200 66% 9.3 7.2 40 PORTUGAL 2 85 47% 3.5 8.8 41 QATAR 2 42.1 0.6 42 ROMANIA 1 45 90% 8.3 7.8 43 RUSSIA 36 1400 83% 16.9 2 44 SAUDI ARABIA 1 1.6 45 SINGAPORE 3 170 90% 3.5 0 46 SOUTH AFRICA 3 90 68% 41.3 7.8 47 SOUTH KOREA 15 1400 46% 4.6 2.7 48 SPAIN 3 700 65% 3.5 2.9 49 SWEDEN 1 200 60% 3.5 -0.9 50 SWITZERLAND 2 200 60% 3.5 6.5 51 TAIWAN 9 300 75% 3.5 3.5 52 THAILAND 5 150 60% 26 17.4 53 TRINIDAD AND TOBAGO 1 54 TURKEY 4 300 42% 17 5.8 55 UKRAINE 5 5.2 56 UNITED ARAB

1 1.6

57 UNITED KINGDOM 35 1700 60% 3.5 1.2 58 UNITED STATES 385 9900 100% 3.5 2.9

Note: All source data accessed December 26, 2014. Missing data is shaded in grey. For 13 countries, 2013 Box Office is estimated from the average two-year growth rate. For 22 developed nations, a 3.5 per cent European poverty reduction estimate (European Commission, http://ec.europa.eu/eurostat) is used to proxy Middle and Upper Class increase (2013-20).

Sources: for existing screens: IMAX Corporate website, www.imax.com/theatres; for 2013 box office: Motion Picture Association of America Inc., European Audiovisual Observatory, UNESCO Institute of Statistics; for Hollywood box office share: The Hollywood Reporter website, 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.

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Page 9 9B15M028

EXHIBIT 2: IMAX CORPORATION BALANCE SHEETS, 2010–2013 (IN THOUSANDS OF $) Period Ending 2013-12-31 2012-12-31 2011-12-31 2010-12-31 Current Assets Cash and Cash Equivalents 29,546 21,336 18,138 30,390 Net Receivables 180,184 136,200 133,373 113,171 Inventory 9,825 15,794 19,747 15,275 Other Current Assets 10,678 7,570 5,514 5,281 Total Current Assets 230,233 180,900 176,772 164,117 Long-Term Assets Fixed Assets 132,847 113,610 101,253 74,035 Goodwill 39,027 39,027 39,027 39,027 Intangible Assets 27,745 27,911 24,913 2,437 Other Assets 27,034 23,963 14,238 12,350 Deferred Assets Charges 24,259 36,461 51,046 57,122 Total Assets 481,145 421,872 407,249 349,088 Current Liabilities Accounts Payable 84,628 83,839 87,840 99,378 Short-Term Debt/Current Portion of Long-

0 11,000 55,083 17,500

Other Current Liabilities 76,932 73,954 74,458 73,752 Total Current Liabilities 161,560 168,793 217,381 190,630 Total Liabilities 161,560 168,793 217,381 190,630 Stockholders’ Equity Common Stocks 327,313 313,744 303,395 292,977 Retained Earnings 43,051 87,166 128,503 141,209 Other Equity 35,323 26,501 14,976 6,690 Total Equity 319,585 253,079 189,868 158,458 Total Liabilities and Equity 481,145 421,872 407,249 349,088

Source: NASDAQ, “IMAX Company Financials,” accessed December 21, 2014, www.nasdaq.com/symbol/imax/financials?query=balance-sheet.

EXHIBIT 3: IMAX CORPORATION INCOME STATEMENTS, 2010–2013 (IN THOUSANDS OF $) Period Ending 2013-12-31 2012-12-31 2011-12-31 2010-12-31 Total Revenue 287,937 282,755 235,098 248,614 Cost of Revenue 123,334 129,510 121,033 110,962 Gross Profit 164,603 153,245 114,065 137,652 Operating Expenses Research and Development 14,771 11,411 7,829 6,249 Sales, General and Administrative 82,669 81,560 75,212 78,757 Non-Recurring Items 445 674 1,590 1,488 Other Operating Items 1,618 706 465 513 Operating Income 65,100 58,894 28,969 50,645 Additional Income/Expense Items 55 85 57 399 Earnings Before Interest and Tax 65,155 58,979 29,026 51,044 Interest Expense 1,345 689 1,827 1,885 Earnings Before Tax 63,810 58,290 27,199 49,159 Income Tax 16,629 15,079 9,293 (52,574)28 Minority Interest 0 0 0 0 Equity Earnings/Loss Unconsolidated

2,757 1,362 1,791 493

Net Income-Cont. Operations 44,424 41,849 16,115 101,240 Net Income 44,115 41,337 15,260 101,240 Net Income Applicable to Common

44,115 41,337 15,260 101,240

Source: NASDAQ, “IMAX Company Financials,” accessed December 21,2014, www.nasdaq.com/symbol/imax/financials?query=income-statement.

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Page 10 9B15M028

EXHIBIT 4: IMAX CORPORATION STOCK PERFORMANCE, 2008–2013

Note: The graph compares the total cumulative shareholder return for $100 invested (assumes that all dividends were reinvested) in common shares of the Company against the cumulative total return of each of the following stock indices— NYSE Composite, S&P/TSX Composite and Bloomberg Hollywood Reporter on December 31, 2008 to December 31, 2013. Source: IMAX Corporation Annual Report, 2013.

EXHIBIT 5: EXHIBITOR-BRANDED PREMIUM LARGE FORMAT SCREENS, BY REGION

Region PLF North America 686 49%

Asia Pacific 378 27% Central and South

224 16%

Western Europe 70 5% Eastern Europe 28 2% Africa and Middle East 14 1%

Source: Patrick von Sychowski, “IHS: 72 PLF Brands Compete with IMAX,” accessed December 26, 2014, http://celluloidjunkie.com/2014/10/31/ihs-72-plf-brands-compete-imax-two-threat/.

EXHIBIT 6: ECONOMIC COMPARISON OF THE BRIC ECONOMIES

Source: Adapted from Gillaume Corpart, “Assessing the Relative Merits of the BRICS and MIST Economies as Investment Destinations,” Americas Market Intelligence, accessed December 21, 2014, http://americasmi.com/en_US/expertise/articles- trends/page/assessing-the-relative-merits-of-the-brics-and-mist-economies-as-investment-destinations.

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Page 11 9B15M028 EXHIBIT 7: POPULATION AND AVERAGE HOUSEHOLD INCOME FOR 15 MOST AFFLUENT CITIES

Note: Numbers in parentheses denote number of IMAX screens as of December 21, 2014. Source: 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.

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Page 12 9B15M028

EXHIBIT 8: COUNTRY CULTURE COMPARISON OF BRIC COUNTRIES

Note: Power Distance (PD) reflects the degree to which hierarchy and unequal distributions of power are accepted. A high PD score implies acceptance of large status differences between superiors and subordinates. Managers tend to be autocratic and paternalistic, while employees tend to do as told. Individualism (IND) reflects the degree to which personal independence is valued over group membership. A society scoring high on IND values personal goals, initiative, autonomy and privacy. In contrast, a society that scores low values group goals over individual preferences and gives importance to harmony and consensus in decision making. Masculinity (MAS) reflects the degree to which tough and assertive behaviour is encouraged. Conversely, feminity encourages tender and nurturing behaviour. Uncertainty Avoidance (UA) reflects the degree of comfort with ambiguous situations and the extent to which efforts have been made to avoid these situations. Managers in high UA cultures tend to depend extensively on systematic rules and regulations. Extensive efforts are made to plan for the future. Long Term Orientation (LTO) reflects the degree to which short-term pain is accepted for long-term gain. Societies with LTO are less likely to seek out immediate gratification and more likely to plan for and invest in the future. Source: Geert Hofstede, Gert Jan Hofstede, Michael Minkov, Cultures and Organizations: Software of the Mind. Revised and Expanded 3rd Edition. New York: McGraw-Hill USA, 2010.

EXHIBIT 9: RISKS IN THE BRIC ECONOMIES

BRAZIL RUSSIA INDIA CHINA High dependence on commodity exports.

High dependence on oil and gas exports.

Current account deficit (foreign investment i l)

High debt levels threatening financial

bili Current account deficit (foreign investment

)

Shrinking and ageing population.

Demographic dividend may become liability.

Ageing population and shrinking workforce.

Social pressures impeding structural

f

Endemic corruption at all societal levels.

Messy democracy stalling structural

f

Entrenched state enterprises and powerful

High taxes, red tape, and poor infrastructure.

Crumbling infrastructure eroding

i i

Weak infrastructure crippling manufacturing.

Rising workforce wages burdening economy. Sources: Adapted from Al Fin, “BRICs: Can the Tail Wag the Dog?” accessed December 21, 2014,

http://alfin2100.blogspot.ca/2012/06/brics-can-tail-wag-dog.html; Michael Schuman, “The BRICs have hit a wall” accessed February 16, 2014, http://business.time.com/2014/01/10/brics-in-trouble/; Erich Follath and Martin Hesse “Troubled Times: Developing Economies hit a BRICS Wall”, accessed February 16,2014, www.spiegel.de/international/world/economy-slows- in-brics-countries-as-worries-mount-a-951453.html.

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Page 13 9B15M028

EXHIBIT 10: BRIC COUNTRIES’ GOVERNANCE INDICATORS (PERCENTILES)

Note: Ease of Doing Business—capturing the conduciveness of the regulatory environment to business operation. Voice and Accountability—capturing perceptions of the extent to which a country’s citizens are able to participate in selecting their government, as well as freedom of expression, freedom of association and a free media. Political Stability and Absence of Violence/Terrorism—capturing perceptions of the likelihood of political instability and/or politically motivated violence, including terrorism. Government Effectiveness—capturing perceptions of the quality of public services, the quality of the civil service and the degree of its independence from political pressures, the quality of policy formulation and implementation and the credibility of the government’s commitment to such policies. Regulatory Quality—capturing perceptions of the ability of the government to formulate and implement sound policies and regulations that permit and promote private sector development. Rule of Law—capturing perceptions of the extent to which agents have confidence in and abide by the rules of society, and in particular the quality of contract enforcement, property rights, the police and the courts, as well as the likelihood of crime and violence. Control of Corruption—capturing perceptions of the extent to which public power is exercised for private gain, including both petty and grand forms of corruption, as well as "capture" of the state by elites and private interests. Source: The World Bank, “Data,” accessed October 19, 2014, http://data.worldbank.org/indicator/.

EXHIBIT 11: BRIC POPULATION AGE DISTRIBUTION 2013 AND 2020 (PROJECTED)

Source: Martin De Wulf, “Population Pyramids of the World from 1950 to 2100,” accessed December 20, 2014 http://populationpyramid.net/.

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Page 14 9B15M028 ENDNOTES 1 This case has been written on the basis of published sources only. Consequently, the interpretation and perspectives presented in this case are not necessarily those of IMAX Corporation or any of its employees. 2 Eric Lam, “IMAX CEO Sees $1 Billion Box Office on China,” accessed December 20, 2014, www.bloomberg.com/news/2013-09-12/imax-ceo-sees-1-billion-box-office-on-china.html. 3 All currency amounts are shown in U.S. dollars unless otherwise noted. 4 Richard Gelfond, “The CEO of IMAX on How It Became a Hollywood Powerhouse,” Harvard Business Review, July– August 2013, pp. 36–39. 5 Brent Lang, “With ‘Interstellar,’ IMAX Takes Aim at the Bigger Picture,” accessed December 24, 2014, http://variety.com/2014/film/features/with-interstellar-imax-hits-hollywoods-bigtime-1201341443/. 6 IMAX Corporation, Annual Reports, 2013 and 2007. 7 Motion Picture Association of America Inc., Theatrical Market Statistics, 2013. 8 Patrick von Sychowski, “IHS: 72 PLF Brands Compete with IMAX,” accessed December 26, 2014, http://celluloidjunkie.com/2014/10/31/ihs-72-plf-brands-compete-imax-two-threat/. 9 Erich Schwartzel, “Movie-Theater Chains Take on IMAX,” accessed October 17, 2014, www.wsj.com/articles/SB10001424052702304202204579254453051597642. 10 Ibid. 11 Ibid. 12 Lam, op. cit. 13 Sarah Boumphrey and Eileen Bevis, “Reaching the Emerging Middle Classes beyond BRIC,” Euromonitor International, November 12, 2013, accessed December 26, 2015, http://blog.euromonitor.com/2013/11/white-paper-reaching-the- emerging-middle-classes-beyond-bric.html. 14 Etan Vlessing, “IMAX’s International Expansion at Tipping Point,” accessed December 21, 2014, www.hollywoodreporter.com/news/imaxs-international-expansion-at-tipping-414859. 15 Boston Consulting Group Perspectives, “Redefining Brazil’s Emerging Middle Class,” accessed December 21, 2014. www.bcgperspectives.com/content/articles/center_consumer_customer_insight_globalization_redefining_brazils_emerging_ middle_class/?chapter=5. 16 Nielsen Newswire, “A Rising Middle Class Will Fuel Growth in Russia,” accessed December 21, 2014, www.nielsen.com/us/en/insights/news/2013/a-rising-middle-class-will-fuel-growth-in-russia.html. 17 Hollie McKay, “Russian Film Industry and Hollywood Uneasy with One Another,” accessed November 7, 2014, www.foxnews.com/entertainment/2014/10/14/russian-film-industry-and-hollywood-uneasy-with-one-another/. 18 Ibid. 19 “IMAX to Open 10 More Theaters in Russia”, The Moscow Times, accessed December 21, 2014, www.themoscowtimes.com/business/article/imax-to-open-10-more-theaters-in-russia/411257.html. 20 Wendy Mitchell, “Andrew Cripps and Richard Gelfond, IMAX,” accessed December 21, 2014, www.screendaily.com/andrew-cripps-and-richard-gelfond-imax/5043387.article. 21 Asian Development Bank, Key Indicators for Asia and the Pacific 2010: The Rise of Asia’s Middle Class, 2010, accessed December 26, 2014, http://digitalcommons.ilr.cornell.edu/cgi/viewcontent.cgi?article=1095&context=intl. 22 Jorn Madslien, “IMAX Sets Its Sight on Bollywood and India’s Audiences,” accessed December 20, 2014, www.bbc.com/news/business-21322164. 23 Asian Development Bank, op. cit. 24 Madslien, op. cit. 25 Clifford Coonan, “China Film Bureau Boss Urges Local Industry to Prepare for War With Hollywood,” accessed October 19, 2014, www.hollywoodreporter.com/news/china-film-bureau-boss-urges-715332. 26 Lam, op. cit. 27 This estimated investment is based on a capital investment of $23 million for developing 65 theatres under joint revenue- sharing agreements in 2013 (from IMAX Corporation Annual Report 2013). 28 This amount includes an income tax benefit of $55 million related to a decrease in the valuation allowance for deferred tax assets and other tax adjustments (from IMAX Corporation Annual Report, 2010).

This document is authorized for use only by Camila Cuesta ([email protected]). Copying or posting is an infringement of copyright. Please contact [email protected] or 800-988-0886 for additional copies.