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

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

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

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

Huge population of china provide access to unskilled la or for gaming industry.‡ ‡ ‡ ‡ 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.

China s rich cultural history is also a ig source of inspiration for gaming industry. software and technology. 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. Economic development of China is helping creative artist in uilding raw materials like story. ‡ ‡ ‡ . Thailand and Singapore is also helping in procurement of necessary hardware .‡ ‡ Local gaming companies are well aware of needs of local gamers. comic characters etc.

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 factor conditions have evolved over a period of time. Factor conditions are not inherited. The gaming industry was non-existing in efore 1999. .

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

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

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

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

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

Survey shows 53. Gamers of smaller town have less money at disposal for games and hence need cheaper games. ‡ ‡ ‡ ‡ ‡ ‡ . Four out of five most successful games are ased in Chinese classical stories. Females and older people prefer socially oriented casual games. Top 10 online games are the games manufactured y local companies.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.‡ The market for Chinese games has huge demand for games featuring traditional Chinese fantasy stories and martial arts.

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

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. Other factor conditions (Infrastructure. ‡ ‡ ‡ ‡ ‡ . To meet increasing demands of gaming industry various alliance and universities are designing programs to meet the needs of local industry. Capital. Success of local games are shaping the skill set of game developers in the direction to meet needs of local industry. Skilled force is creating games and content around traditional stories and martial arts. Chinese government also played its role in the content added y local game developers to ensure cultural synergies.‡ Since most successful games in China are ased in Chinese mythology or traditional stories. more and more skilled people are focusing on local content.

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 . companies are developing games for this segment of customers. Venture capitalist and private equity investors are more interested in funding companies making games for Chinese population. Four out of Five games are ased on classical Chinese stories. 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.

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

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

Due to colla oration etween industries. Increasing visi ility of upper stream industries.‡ 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. Tele-communications service is important and closely related to the online game sector. has had a spread effect into the local game industry. like the Chinese movie industry. ‡ ‡ ‡ ‡ . South East Asia and some countries in the west. Chinese online games now penetrate into overseas markets in Taiwan. Vietnam. The success of gaming industry is helping the complete eco-system and all related and supporting industry directly and indirectly.

Management how companies are esta lished. Organization.Industry Structure. 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? .

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

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

Chinese gamers preferred playing games which are ased on traditional Chinese stories and martial arts. As demand was for local content and story Chinese gaming industry focused in developing games for local consumption. so local culture shaped the games and in turn the industry. ‡ ‡ ‡ . The success of gaming industry is helping the complete eco-system and all related and supporting industry directly and indirectly. As Chinese people elieve in nationalism they gave more importance to local companies than MNCs.‡ ‡ 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.

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

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

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

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

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

ena ling cash flow from day one.‡ We would recommend Mr. It will ring in local expertise and hence precious time will e saved. Acquisition will also means less effort in esta lishing rand. Acquisition will also ring in loyal customers. Agarwal to acquire a small/medium size Chinese gaming company. ‡ ‡ . 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. Since Chinese gamers are loyal.

People : Since most of customer are youngster/women .‡ Product : We would recommend Mr. promotion strategy can e changed. Once sufficient market knowledge is acquired. 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. Promotion: To start with it should follow the strategy followed y competitor. ‡ ‡ . As the company intend to develop online games. Place: We . all games and marketing plan should e focused on these two segments.

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