By

:
Satyesh Singh Rajput

Firm Strategy, Structure & Rivalry

Factor Conditions

Demand Conditions

Related & Supporting Industries

K y Fact rs

Skill Lab r Ca ital I frastr ct r

N nK y Fact rs

Unskill Lab r Raw Mat rial

Alliances with research institutes and Universities strengthen eco-system for gaming industry. Presence of Multi national gaming companies enriches the echo system. .‡ ‡ ‡ ‡ ‡ ‡ ‡ China has su stantial num er of engineers. At present the workforce is skilled in downstream skills. Expansion of Chinese gaming industry may lead to resource crunch of skilled la or. Chinese engineers still need to master design. Skill la or in China contri utes to competitive advantage for gaming industry. graphic and other technical skills.

Chinese companies are a le to generate revenue from domestic market. Intense competition is affecting smaller companies. Survival of start up depends on venture capital or acquisition.‡ ‡ ‡ Chinese companies have adequate funds for development and expansion. ‡ ‡ ‡ . Due to easy availa ility of money domestic companies are ecoming aggressive. Venture capitalist are optimistic a out Chinese gaming industry and hence start up do not face much pro lem in fund raising.

Infrastructure development inferior as compared to US. Development of IT infrastructure in China is helping gaming industry. ‡ ‡ ‡ . Korea.‡ Rapid development of telecom sector and economic growth is good for gaming industry. Duopolistic nature Chinese telecom is negatively affecting speed and quality of internet connection for gamers.

‡ ‡ ‡ ‡ China s universities and institutes are training unskilled la or. Expansion of Chinese gaming industry is creating demand for unskilled la or. Penetration of internet and telecom is helping in reducing learning curve for unskilled la or. ‡ . Unskilled la or can take up downstream activities of gaming industry. Huge population of china provide access to unskilled la or for gaming industry.

‡ ‡ ‡ . Economic development of China is helping creative artist in uilding raw materials like story. Proximity to gaming hu s like Korea. China s rise as manufacturing hu for electronic equipment is also contri uting in the success of Chinese gaming industry. software and technology. China s rich cultural history is also a ig source of inspiration for gaming industry. comic characters etc.‡ ‡ Local gaming companies are well aware of needs of local gamers. Thailand and Singapore is also helping in procurement of necessary hardware .

Factor conditions are not inherited. . The gaming industry s evolution can e divided into 3 stages : ± Stage I (2000-2002) ± Stage II (2002-2005) ± Stage III (2006-present) ‡ ‡ At each stage gradual development took place in each of factor conditions. The gaming industry was non-existing in efore 1999.‡ ‡ ‡ The factor conditions have evolved over a period of time.

infrastructure. ‡ ‡ .‡ ‡ During this period local companies were distri utor of Korean game makers. China s technology industry was growing and factor conditions at this stage were representative of its capa ility. raw material were at nascent stage and met the demand of industry at that time. ‡ As the primary activities involved selling and distri ution only the factor conditions like skilled la or. capital. The focus was on selling and distri ution. At this stage industry was not even properly recognized. un-skilled la or.

Num er of games developed y Chinese companies exceeded num er of games imported. Factor conditions like skilled la or. Various universities . ‡ ‡ ‡ . The increase in num er of gamer in China coupled with good local games fueled the need for drastic improvement in factor conditions.‡ ‡ During this period local companies started game development . alliances helped in improving factor condition. ‡ Chinese companies started mergers and acquisition to gain competitive advantage. infrastructure and capital improved significantly.

Factor conditions like infrastructure and capital improved significantly Various universities . alliances helped in improving factor condition. Strong gaming eco-system consisting of domestic and MNCs oosted improvement of factor conditions. Major companies saw tremendous growth during this time. The demand for skilled people exceeded the availa ility. . ‡ ‡ ‡ ‡ ‡ Num er of gamers also increased so was num er of internet users.‡ ‡ During this period Chinese games ecame more popular than foreign games.

The infrastructure in China developed at rapid pace and penetration of telecom and internet created large communities for users. ‡ ‡ ‡ ‡ . political growth contri uted indirectly to huge growth of gaming industry. Economic development also changed consumer ehavior and rought in social changes positively affecting gaming industry. as these companies had access to local hardware/software vendors.‡ China s meteoritic economic. China s emergence as manufacturing hu helped in development of gaming industry. Economic growth also led to social changes and these social changes created demands for local games .

Demand Mix Market Size & Growth Transmission Mechanism Customer needs & wants Market Size & Growth Unskilled La or Raw Material .

‡ The market for Chinese games has huge demand for games featuring traditional Chinese fantasy stories and martial arts. ‡ ‡ ‡ ‡ ‡ ‡ . Survey shows 53.5% online gamers prefer games associated with traditional and legendary Chinese stories. The gamers from ig cities have different taste as compared to smaller towns. Gamers of smaller town have less money at disposal for games and hence need cheaper games. Females and older people prefer socially oriented casual games. Top 10 online games are the games manufactured y local companies. Four out of five most successful games are ased in Chinese classical stories.

‡ As of now only 211 million users are connected to internet.4 illion people has the potential to ecome largest market. and these youngsters comprise the largest group of online users. ‡ 52.9% of internet su scri ers ( 211 million) are youngsters. ‡ Rapid and deep penetration of Telecom and road and is exponentially increasing user ase. ‡ The industry is expected to reach revenue of $3. .05 illion in 2011. ‡ Gaming industry is emerging industry with more 60% growth per annum.‡ China with 1.

Chinese government also played its role in the content added y local game developers to ensure cultural synergies. more and more skilled people are focusing on local content. Other factor conditions (Infrastructure. Capital.‡ Since most successful games in China are ased in Chinese mythology or traditional stories. Success of local games are shaping the skill set of game developers in the direction to meet needs of local industry. To meet increasing demands of gaming industry various alliance and universities are designing programs to meet the needs of local industry. ‡ ‡ ‡ ‡ ‡ . Raw materials an unskilled la or ) were more or less remained part of larger economic development of China and were not influenced y online gaming industry. Skilled force is creating games and content around traditional stories and martial arts.

Since more than 50% of internet su scri ers are youngsters. ‡ ‡ ‡ ‡ ‡ .‡ Most of the games developed y Chinese companies are around traditional stories and martial arts. Four out of Five games are ased on classical Chinese stories. companies are developing games for this segment of customers. More and more games are developed to meet the needs of local population. Instead of relying on MNCs local gaming companies are now working hard to improve design and creativity skills . Venture capitalist and private equity investors are more interested in funding companies making games for Chinese population.

Advantages due to Cluster Competitive supplying and supporting industries Advantages For supporting industries Advantages for other related or supporting industries .

telecom operators and Internet cafés. These supporting industries supply high-quality and low-cost production talent who further stimulate new ideas and create synergy among the industries. Increasing connections with the Chinese movie industry has had a widespread effect on the game industry. The supporting industries includes computer hardware manufacturers.‡ ‡ There are strong related and supporting companies located near the online game companies. ‡ ‡ ‡ ‡ . game and animation developers. Clustering of supporting and related industries supports the expansion and opera-tion of online game companies. International demand for cultural products involving Chinese martial arts and history has supported the movie and animation industries.

Vietnam. Due to colla oration etween industries. Tele-communications service is important and closely related to the online game sector. like the Chinese movie industry. Increasing visi ility of upper stream industries. has had a spread effect into the local game industry. South East Asia and some countries in the west.‡ Online game companies are mostly located in the high-tech areas of Beijing and Shanghai which helps in easy and quick adoption of technologies within the industry clusters. Chinese online games now penetrate into overseas markets in Taiwan. The success of gaming industry is helping the complete eco-system and all related and supporting industry directly and indirectly. ‡ ‡ ‡ ‡ .

Organization. are organized and are managed? Competition Characteristics & Rivalry Characteristics of domestic competition ? Whether rivalry has helped companies to search for competitive advantage on more glo al scale? Cultural Aspect How have cultural aspects played a role? . Management how companies are esta lished.Industry Structure.

Fast career track and wealth prospects have even motivated talents from other industries to transfer to online game industry. ‡ ‡ ‡ ‡ .‡ ‡ ‡ ‡ Strong governmental regulation restricts the entry of foreign game companies. Foreign game companies face regulatory challenges that are too restrictive to follow. Organizations usually have flat management structure and encourages exchange of ideas. The national attitude toward success and entrepreneurship encourages youngsters to venture to this industry. Different companies have a unique style of corporate strategy and understanding of competition to target different category of gamers. a transparent stock-holding ownership structure and a share-reward incentive scheme are regular part of gaming companies. Usually. Cultural challenges from the local gamers also affect competitiveness of foreign firms.

cost efficiency. Domestic Rivalry coupled with the help of supporting industry forces these companies to seek international markets. The easy entry arrier for new companies makes it tough for existing companies.‡ ‡ ‡ ‡ Foreign rivals are generally not involved in competing for the Chinese domestic market. There is a strong competitive pressure. poaching of talent is also prevalent. Foreign companies use China as a purely R&D center. Domestic competition has played important role in the development of industry. quality improvements and pressure for companies to explore new markets domestically and internationally. Domestic rivals are considered major competitors on the Chinese online game market. ‡ ‡ ‡ ‡ ‡ . As most of gaming companies are concentrated in few cities of China. Competition has also encouraged creative marketing. and there are signs that this competition has fostered new product development.

so local culture shaped the games and in turn the industry. As Chinese people elieve in nationalism they gave more importance to local companies than MNCs. As demand was for local content and story Chinese gaming industry focused in developing games for local consumption. Chinese gamers preferred playing games which are ased on traditional Chinese stories and martial arts. The success of gaming industry is helping the complete eco-system and all related and supporting industry directly and indirectly.‡ ‡ Cultural aspect has also played a role in shaping online gaming industry. this led to alienation of MNCs and also intense rivalry among local companies. ‡ ‡ ‡ .

Chinese Government s intervention in game development will also e serious issue to tackle. Following key issues are stacked against entering Chinese market: ‡ Significant entry arrier created y Chinese government for foreign companies. Games has to e developed ased on Chinese traditional stories and martial arts a out which Indian companies may not have knowledge. However entry arrier for local company minimal. Agarwal s company our suggestions in next slides are road recommendation rather than specific. Lack of knowledge of Chinese market will also work against this move. ‡ ‡ ‡ ‡ ‡ ‡ ‡ Due to a ove mentioned issues and lack of detailed information a out Mr. . China rivalry in international platform may also affect Chinese operation and success of this move.‡ ‡ Not enough information is provided a out Mr. Agarwal s company in China. India. Lack of skilled resources for upstream and downstream activities would pose serious challenges in head hunting and retaining talent. Intense rivalry among local players will pose serious threats to long term existence of Mr. Agarwal s company so a detailed SWOT is not possi le.

Good understanding of social life of Chinese. Learn a out successful Chinese game development companies. Motivating factor for Chinese game designers Competitive intelligence of competitors. Deep understanding of gamers' ehavior & usage pattern. Industry dynamics Competitive rivalry in industry . Good understanding of how Chinese youth entertain themselves. Deep knowledge of Martial arts.‡ To e successful Mr. Agarwal s company has to acquire knowledge a out following: ‡ ‡ ‡ ‡ ‡ ‡ ‡ ‡ ‡ ‡ Deep knowledge of Chinese traditional stories.

Lot of setup efforts needed. Lack of experience in operating in China Accept/ Reject Reject Own Su sidiary in China 1. 3. 2. Indian team has no or little knowledge a out preferences of Chinese gamers. 1. product and rand.competition and consumers. Full trading rights 3. Full trading rights 3. IP protection Reject .Entry Mode Export from India Advantage 1. Full control 2. 2. Full control 2. Complete disconnect from Chinese market . Precious time will e lost in esta lishing company. IP protection Disadvantage 1.

Profit sharing 3. Lack of information a out partner. 4. Lack of information a out potential companies for acquisition. Chinese gaming companies are not looking for JVs. Local contacts 3. Already esta lish rand and product. Accept/ Reject Reject Acquisition 1. Local contacts 3. Partial control 2. Local knowledge Disadvantage 1. Accept . 2.. Market access 2.Entry Mode Joint Venture Advantage 1. Local knowledge 4. Could face o stacles from government. Market access 2. 1.

designers and gamers. Look for strategic acquisition & alliances. . Trend spotting and game development for youngsters. 1. Stage 2 Stage 1 Acquire small/ medium size Chinese company Localized already successful Indian games 2.Stage 4 Stage 3 1. Build an eco-system of supplier. 3. developers. 2. women and elders. Form alliances with institute and universities Form strategic alliance with content and supplier industry Build very good design capabilities. 3.

It will ring in local expertise and hence precious time will e saved.‡ We would recommend Mr. The company chosen should have some successful games in following customer segments :    Youngster: Traditional story ased games Youngster : Martial Arts ased games Woman/ Elder: Social games ‡ ‡ Acquiring a small/medium sized company will e fastest way to enter the market. ena ling cash flow from day one. Agarwal to acquire a small/medium size Chinese gaming company. Since Chinese gamers are loyal. ‡ ‡ . Acquisition will also ring in loyal customers. Acquisition will also means less effort in esta lishing rand.

Place: We . Once sufficient market knowledge is acquired. promotion strategy can e changed. Promotion: To start with it should follow the strategy followed y competitor.‡ Product : We would recommend Mr. As the company intend to develop online games. ‡ ‡ . Agarwal to uild games for following customer segments:    Youngster: Traditional story ased games Youngster : Martial Arts ased games Woman/ Elder: Social games ‡ ‡ Price : Imitate local Chinese competitors for pricing. People : Since most of customer are youngster/women . all games and marketing plan should e focused on these two segments.

Form strategic alliance with universities and various institutes to get access quality talent. As this would help the company to differentiate itself from others.‡ The company should focus on developing sound designing skills within . It will not only help in product differentiation ut also in can create competitive advantage for the company. ‡ ‡ ‡ ‡ . As Mr. Chinese companies are still catching up on design skills. This would help in instantly in widening product portfolio. Agrawal company is in gaming. Mr. It can consider porting some of the games for Chinese gamers. Agarwal s company can ring in expertise from India and work on uilding strong design team. Alliance with supplier and content industry would help in game development life cycle.

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