China as the rising star of the games industry? EA to set up global online HQ

It would seem that the games industry is taking another big step in becoming a truly globalised system today, as the biggest publisher – Electronic Arts, has confirmed its intentions to make moves into China, via interviews with Reuters and Dow Jones News. Outsourcing programming duties to Chinese teams is not a new phenomenon, companies like Ubisoft have been doing that for a decade or so; and making in-roads to the Chinese market itself, opening up some potentially lucrative possibilities (which Sega recently chose to do in establishing an HQ here) is something that most successful publishers will inevitably have to do at some point in the future.

The fact that EA has made the decision to establish its global online gaming HQ here will have important consequences. Firstly, it is proof that China is about to become an enormous market in itself, whereas once it was largely ignored by games companies. Indeed, EA hopes to generate a billion dollars in Asian revenues by 2010. Importantly, this means that EA will have to re-address its overall strategy. Up until now, the company has flourished thanks to continually extended franchises and popular licensed products. The Chinese market, however, isn’t specifically interested in the latest 3rd person, famous character featuring, gaming-by-numbers.

Initially, EA hopes to position itself for success in China by developing games locally for that market. However, as a tightly rationalised business with a strong capitalist ethos, it will be looking to create the potential for uniform worldwide products in the long term. Success in China could mean that online games and strategy titles might one day usurp generic action titles as EA’s franchise-canvas of choice. But on the other side of the coin, existing Chinese software companies might not be able to face the competition put up by EA and will likely have employees poached and markets encroached. So whilst EA may begin to cater for Chinese tastes, in doing so, it may put out of business smaller indigenous companies that exists solely for Chinese tastes. Whether or not you think the resulting cultural convergence is a positive thing is a highly subjective matter.

There will also be a strong knock-on effect with EA’s approach to online gaming. By 2007, China is expected to be the biggest online games market in the world (hence Sega’s earlier moves into this territory), so EA will have to be prepared for this in order to achieve the success that it and its shareholders will be clamouring for. Having demonstrated a surprising ineptitude in this arena, with Burnout 3 recently breaking Xbox Live, the move into China will be a crucial stimulus for EA to get its online-savvy act together.

Another reason to opt for online gaming over straightforward console releases comes from China’s much publicised piracy epidemic. By effectively charging for play-time, rather than for entire discs ,this problem is, for the most part, circumvented. But if EA invest in an extensive ‘pay per play’ type system to cater for the Chinese market, you can bet that a similar scheme will find its way westwards later on.

The point is, after a history dominated by Japanese and American cultures, the games industry will soon take considerable influence from China. In the long term, China was always going to blossom into the world’s largest economy, so it was inevitable eventually. However, the process has now begun. EA will move into China, almost immediately absorbing the specialist skilled workforce to the city it locates to; other companies will follow suit, to prevent EA getting too strong a foothold, investment into training up more local developers will be encouraged, and the wheels will have been set in motion.

It is sure to be an exciting ride for those companies involved in China’s economic transformation, and the rewards will be plentiful for those that are successful. However, it is largely unchartered territory for Western games companies and, although entirely necessary in the long run, it could prove a high risk strategy for those without a sufficient appreciation of the market they wish to exploit.