Online Gaming Industry in China

- a case study

Quality of business environment

Porters Diamond

S o u rce : Pro fe sso r M i a e lE . Po rte r, Harvard Business School, Advanced Management Program, April 15, 2009 ch
el E. Porter, Harvard Business School, Advanced Management Program, April 15, 2009

Key Factor Conditions

Skilled labour Infrastructure Capital

Non Key Factor Conditions

Unskilled labor Raw material availability

Evolution of Factor Conditions

The gaming industrys evolution can be divided into 3 stages : Stage I (2000-2002) Stage II (2002-2005) Stage III (2006-present)

Gradual development took place in each of factor conditions at each stage

Factor conditions are not inherited.

Political Restriction of foreign players Decentralized economy

Contributing Factors for development of Factor Conditions

Social Collectivistic values One child Policy

Technological Sharing of R&D knowledge by foreign investors Mergers, joint ventures, and acquisition Agglomeration: this lead to technological spill over

Demand conditions
Mixture: 1.Entertainment 2.Socializing 3.Lack of console games 4. 5. 1.

Demand conditions(Continued)

Scope and Growth rate

large internet users base increasingly growing online users Currently, only 27% of people in China are online users 2/3 online users are playing online games the average age of china is 28 years Industry is on a growth phase

D e m a n d co n d i o n s( C o n ti u e d ) ti n

Transmittance of domestic preferences to foreign markets Learning's Graphic characters Global media Martial arts, Chinese mythologies Easy adoptability by foreign markets.

Shaping of factor conditions

Growing local demand Easy capital availability Agglomeration of upstream and downstream industries Easy and quick adoption of technologies

Impact on the pace and direction of innovation and product development.

Game industry thrives of innovation and technology. Wider knowledge base Industry clusters Investment in R&D

C om m ent on th e e x iste n ce or none x iste n ce o f in te rn a tio n a lly co m p e titiv e su p p ly in g a n d su p p o rtin g in d u strie sfo r g a m in g in d u stry ?

SUPPORTING AND RELATED INDUSTRIES

companies located near

Strong related and supporting online game companies.

Agglomeration of all supporting and related industries ,technology spill over.

Downstream industries -Distribution and operation game titles, broadband services , mobile industry

of

Upstream industries -animation , movie industry , media, software industry

Animation and movie industry-intersection between western global media and local stakeholders(field of television, film, or internet.) are now compatible with transnational media giants

No hindrances of overseas market.

local

game

companies

exploring

the

. Distribution industry-Online game industries built successful distribution networks to deliver their game content to consumers through sophisticated customer service.

Communication Services-

Broadband services-China is the second biggest internet market in the world

70% of internet users are under the age of 30. China has worlds largest mobile market.

Software services- High priority on achieving economic goals makes local media to achieve techno transfer and acquiring R&D skills from international media companies

Has the internationally successful gaming industry in China led to advantages in other related or supporting industries?
Moving from being purely a game operator to accompany that combines business in game development , marketing, operation and distribution.

Section 4:
Firm Strategy, Structure, and Rivalry

1. Analyze the conditions in China that determine how companies are established, are organized and are managed?
Strong governmental regulation Cultural challenges. Direct foreign investment for its economic growth. Style of management is well suited to the national environment. Decentralized economy.

2. Determine the characteristics of domestic competition

Strong competition has fostered improvement and new product development. Vigorous domestic competition encourages companies to explore new markets Domestic market size and growth, complex demand and the synergy of related industries play key roles in creating the competitive edge. Extent and impact of domestic rivalry is important to motivate the entire industry.

3. How have cultural aspects played a role?

Chinese collectivistic culture motivates people to value their relationships Online gaming population comes from generation under influence of the one-child policy. Strong demand for games featuring traditional Chinese fantasy stories. International demand for cultural products involving Chinese martial arts and history.

4. How has domestic rivalry and the search for competitive advantage within China helped the gaming companies achieve such advantage on a more global scale.
Combination of online gaming industry with traditional media Successful companies break the entry barriers and remain competitive Global media intensify and connect people in different geographic locations

Situation
An Indian Online Gaming Company considering to enter the China Market

Competitors
Some of the major online game companies in China include

Chinese NetEase(Westward journey) Tencent Shanda Interactive KongZhong The9 NetDragon Giant Interactive Perfect World and ChangYou.com. Blizzard Entertainment (WoW) Valve Corporation (Chinese version of Counter strike)

Foreign players

Competitors Advantages
Better understanding of the local customs
Domestic companies understand Chinese mythology much better than others can.

Excellent marketing strategy

Many games are free-to-play or very cheap, where users pay only if they want extras such as better weapons or decoration

Government Support (Media industry)

Huge subsidies. Regulations making the entry of foreign players tough. Inclusion of online gaming in the 2006-2010 plan for software and information service development.

Chinese people prefer local made games to the imported ones. Knowledge gained from Korean as well as American game companies

Market Conditions
Online gaming in the China represents one of the largest and fastest growing Internet business sectors in the country.

Currently, only 27% of people in China have the internet out of which 2/3 indulge in gaming.

Internet population in China growing at double digit rates. Emerging market that attracts the flow of foreign capital.

Spending ability of gamers is very low.

Stringent regulations for foreign game developers.

Suggestions for Indian Company Government regulations

People prefer local games Stage Model , FDI , Network Approach Get an acquisition stake Considerations: What are the terms of collaboration? What do we need to input in the partnership? What is promised to be brought in by the partnership? What will be the areas of responsibilities? What will be the share in the partnership? Large, medium or small company Their knowledge and your expertise