Games outsourcing in China grows rapidly

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It has been the common practice of some developers and publishers to have their products outsourced. This means that certain aspects of production are given to other companies, typically from third-world countries, to have smaller expenses (and therefore more profits). We're pretty sure we don't have to reiterate to you how low they sometimes pay third-world workers.

Regardless of your stance on this matter, it seems that it will continue - and continue to boom in the coming years. San Francisco-based firm Pearl Research forecasted the games market in China will exceed US 1.3 billion in 2008. The study focuses not on game development outsourcing alone but also on the country's domestic games market.

In case you're wondering about the company's findings, here are the highlights worth mentioning the most:

• Online casual games continue to gain traction and are expected to constitute 30 of the online games market by 2008. MMORPGs still constitute the largest online gaming segment in China. Top MMORPGs can generate US 80 million annually in China.
  
• Compelling and diverse game content, the low cost of playing games at an average of US 0.05 per hour, and the lack of entertainment options in China drove growth in the online games market.
  
• China will continue to flourish as a game development and outsourcing destination due to its low cost structure, large labor force and robust infrastructure. Companies can increase their production capabilities and achieve cost savings of 20 to 40 by outsourcing disciplines such as art creation.
  
• Outsourcing to China comes with significant challenges. These challenges include concerns over product quality and intellectual property protection, cultural differences and the competition for skilled employees.
  

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Pearl: Be Wary of Outsourcing Expenses



Outsourcing to China is a viable way to cut game development costs, but Pearl Research tells Next-Gen there are some underlying expenses that make outsourcing a less efficient option than some game companies may anticipate.

Pearl Research managing director Allison Luong says that there are some growing pains that the young Chinese game development sector must overcome before reaching its full potential as a highly efficient outsourcing option.

“Outsourcing to China is a lot harder than companies expect,” she says. "There is a severe talent crunch in China. It’s relatively young, less than five years old, and people are not as experienced.”

According to a recent study from Pearl Research, the Chinese games market is expected to exceed $1.3 billion in 2008. The same report says that game companies may achieve between 20 and 40 percent cost savings from outsourcing such development duties as artwork and high-definition requirements, among other work.

While outsourcing studios in China may quote Western game companies very low rates thanks to low labor costs, related expenses such as recruiting, training, travel and project management make for higher-than-expected total outsourcing bills.

Another issue that US companies must consider is the high employee turnover rate in China. Workers often stay at a company for 12 to 18 months then leave to find a better, higher-paying job. “Every time you lose an employee, you have to recruit and you have to train,” Luong says. “So that adds to the cost of outsourcing to China.”

Luong says that most salaries in the Chinese game development industry start at around $300 a month for entry-level grads fresh out of college. More experienced or more talented artists can bring in $1000 monthly.

Luong adds that in most cases, quality is not up to par to US standards. “There’s still a learning curve for many of these Chinese developers,” she says. “Quality is constantly improving, but it wouldn’t necessarily be fair to compare it to the US.”

Most game development is located in China’s financial capital, Shanghai, where cost of living can be just as high as the US or Europe. According to Luong, the Chinese government is aggressively promoting game companies to establish themselves in smaller, second-tier cities with lower living expenses.

Overall, China’s economy is booming, and its gaming operations are coming up with everything else. The region has a robust infrastructure and many residents have access to broadband and other technology, not to mention a large labor force and a significant amount of avid gamers.

Game companies such as Electronic Arts and Ubisoft have already announced operations in China, but Luong expects “a lot more announcements” from companies that are quietly on the ground in the region.

“I don’t want to give the impression that China is not going to grow as an outsourcing destination,” Luong clarifies. “I think there are just a lot of challenges that companies have to be aware of before they establish an operation in China.”


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