Analysis of Indian Games industry

The following figure indicates the salary package of Game Designers in the United States:

     

The figure suggests that the average salary of a male Game designer in the United States is $62,113, which is substantially more than the salary of a game developer in India. Recent comparisons and surveys reveal that salaries of game developers in India are 1/3rd that of the game developers in

The United States. This has a major impact on the cost of the final product and enables to develop a game for 30-40% cheaper than the United States. According to India’s National Association of Software & Service Companies (NASSCOM), a PC game that would cost anywhere near $6 million to $7 million to be developed in the United States can be developed in India for only $500,000 to $3 million in India.

India’s Insight:

The Present and the Future of Indian economy

The Indian economy is the 12th largest in USD exchange rate terms. India's GDP has touched US$1.25 trillion. India is the second fastest growing economy of the world and during the fiscal year 2007-2008 India's GDP growth rate was nearly 9.5%.

Indian economy is a diverse one, encompassing agriculture, textiles, handicrafts etc. Although many people are still dependent upon agriculture, the service sector is also playing a very important role in the Indian economy. Indian GDP per capita is $1,089 which is very nominal. But the crossing of Indian GDP over a trillion dollar mark puts India in the elite group of 12 countries with trillion dollar economy.

The contributions of various sectors in the Indian GDP are as follows:

It is great news that the service sector is contributing more than half of the Indian GDP. It takes India one step closer to the developed economies of the world. Earlier mainly it was agriculture which contributed in the GDP.

The Indian government is still looking up to improve the GDP of the country and so several steps have been taken to boost the economy. Policies of FDI, SEZs and NRI investment have been framed to give a push to the economy and hence the FDI inflows surged to $23 billion in 2007. Strong cross-border mergers and acquisitions were the key factor driving up such flows.

A number of studies have highlighted the growing attractiveness of India as an investment destination. According to the study by Goldman Sachs, Indian economy is expected to continue growing at the rate of 5% or more till 2050. Indian economy is slated to become the fourth largest economy by 2050.

Foreign Direct Investment Policy and Rules:

India has among the most liberal and transparent policies on FDI among the emerging economies. FDI up to 100% is allowed under the automatic route in all activities/sectors except the following, which require prior approval of the Government:-

1.Sectors prohibited for FDI.

2. Activities/items that require industrial license.

3. Proposals in which the foreign collaborator has an existing financial/technical collaboration in India I the same field.

4. Proposals for acquisitions of shares in an existing Indian company in financial service sector where SEBI is attracted.

5. All proposals falling outside notified sectoral policy/CAPS under sectors in which FDI is not permitted.

Most of the sectors fall under the automatic route for FDI. In these sectors, investment could be made without approval of the central government. The sectors that are not in the automatic route, investment requires prior approval of the Central Government. The approval in granted by Foreign Investment Promotion Board (FIPB). In few sectors, FDI is not allowed.

After the grant of approval for FDI by FIPB or for the sectors falling under automatic route, FDI could take place after taking necessary regulatory approvals form the state governments and local authorities for construction of building, water, environmental clearance, etc.

Intellectual Property Rights:

India provides protection to Intellectual Property Rights in accordance with its obligations under the TRIPS Agreement of the WTO. The importance of intellectual property in India is well established at all levels- statutory, administrative and judicial.

India has well-established administrative mechanism for enforcement of Intellectual Property Rights. Police officers are empowered to take action against the infringement of IPRs in case of pirated and counterfeit productions.

Cases of infringement of IPRs are tried in the judicial courts. Indian Intellectual Property Rights Laws also provide for appeals in the judicial courts of the administrative decisions relating to Intellectual Property Rights.

The major statue under which Intellectual Property Rights of Game developers in India are protected is as followed:

Copyrights

India’s copyright law, laid down in the Indian Copyright Act 1957 as amended by Copyright (Amendment) Act 1999, fully reflects the Berne Convention on Copyrights, to which India is a party. Additionally, India is party to the Geneva Convention for the Protection of Rights of Producers of phonograms and to the Universal Copyright Convention.

The copyright law has been amended periodically to keep pace with changing requirements. The recent amendment to the copyright law, which came into force in May 1995, has ushered in comprehensive changes and brought the copyright law in line with the developments in satellite broadcasting, computer software and digital technology. The amended law has made provisions for the first time, to protect performer’s rights as envisaged in the Rome Convention.

Several measures have been adopted to strengthen and streamline the enforcement of copyrights. These include the setting up of a Copyright Enforcement Advisory Council, training programmes for enforcement officers and setting up special policy cells to deal with cases relating to infringement of copyrights.

Domestic Gaming market:

India has a Gaming mindset which is waiting to explode. With the fact that 54% of the Indian population is below the age group of 25yrs and having the world’s largest youth population - India’s only getting younger. Although the majority of the revenue earned by the Indian gaming companies are by the way of developing games for the foreign market, there is a huge online gaming market in India waiting to be tapped. Entertainment features to be one of the predominant spending areas amongst the Indian consumers and growth in this sector is expected to be made possible increasing internet penetration, and entry of industry houses into online gaming business. The figure below indicates the uses of PC’s in India:

Risk factors:

In the current scenario, India is fairly stable politically and has been entering into trade agreements and mutual treaties with a few developed nations on a regular basis. On the other hand, the global financial turmoil can be considered as an obstacle but then again it is not directly related to the gaming industry and doesn’t seem to halt the boom of the gaming industry. In the worst case scenario the dollar rate fluctuation can create some temporary hardships and might reduce the revenue of the company.

But, there are other major threats and obstacles that need to be addressed and dealt with while entering the Indian shores.

Language Barrier:

While market entry into Europe and Australia has been easy for US game studios, with similar language and animation expectations in gaming, it would not be the same while entering into the Indian market. Not only the western companies would have to translate but also rewrite software to accommodate the different alphabets and character systems used in Asian languages.

Piracy Threat:

Piracy is the second major obstacle companies’ face, and it requires more than a simple translation of their software.  Programmers in Asian countries like India rapidly crack the protections developers place in their software and the bootleg copies are circulated in cheap CDs or are made available to the world online. Networks like Bit Torrent allow the rapid dispersal of illegal software and the high-speed internet connections allow it to be done conveniently.

Gamer Culture:

The gamer culture is yet another hurdle that western companies generally face. Gamers in India prefer games which are attached to the names of famous sport star or a film star. Any cricket game in India named after Sachin Tendulkar sells just because of the popularity of the sport star. Moreover, Indian gamers prefer games developed on famous epic stories of ancient India. Another popular category of games is that of bollywood, which involves games developed on the stories of hit Indian movies.

Strategic Risk Management:

Joint ventures have traditionally been an entry strategy but in the modern day business where globalization is at its peak, joint ventures serve as a risk leveraging option for entering into a new country. In recent years, India has seen a series of joint venture and most of them have been driven by the need of minimizing some of the risks and threats mentioned above.

In the context of the gaming industry, a joint venture can be fruitful in the following aspects:

Technology: A joint venture would enable the two firms to combine their technological expertise and make the most out of a suitable opportunity.

Ease of Operations and set-up: For foreign firms a Joint venture with a local partner lowers risks via: ability to hire the best talent, knowledge of local markets, connections with local government, pre-existing distribution networks etc.

Access to Capital: In an emerging economy like India, the local partner provides the distribution network, human capital and government links as its investment in the JV, while the foreign partner provides the capital and technology which ultimately increases profitability.

Cultural integration: A Joint venture provides an opportunity to the foreign company to gain an insight into the culture of the local firm’s country and hence enables it to collaborate its operations accordingly.

Dhruva Interactive: A Potential Business Partner

Dhruva Interactive is one of the oldest and most respected Indian games company. It is based in Bangalore, the Information Technology hub of India and is in its 12th year of operations. It has an extensive knowledge of the Indian games market and has been developing games considering not only the likes but also the sentiments of the Indian population. In the last 8 years, the company has contributed towards the development of over 20 blockbuster games.

The company’s client base includes big names such as Microsoft, Intel, THQ and Codemasters to name a few. In Nov. 1998, Infogrames Entertainment (now Atari) commissioned Dhruva to develop the PC version of their hit 3D title ‘Mission: Impossible’. This was a historic event, as Dhruva became the first ever games developer from India to be signed on for developing a game title by a major international games publisher.

Dhruva Interactive outsources grunt work to its clients in the United States and is a specialist in its field. Rajesh Rao, CEO and founder of Dhruva Interactive started the firm in 1995 with a team of 5 and has now expanded to a workforce of 65. It is ideally located in Bangalore, the IT hub of India which provides access to skilled technicians who are willing to work at competitive wages. Over the years, the company’s USP has been its reliability and experience in the outsourcing business, its uncompromising quality, sophisticated processes and its professional work ethic. Moreover, it also has a strong track record over the past 11 years of its operations and a strong client base which provides a lucrative opportunity for collaboration with this company.

Conclusion:

After conducting analysis of the Indian gaming market and the Indian economy as a whole, it can be concluded that there cannot be a better time to invest in India. The Indian economy is developing very rapidly and the foreign investment procedures in India have never been so simple before.

Moreover, these basic factors coupled along with specific benefits for the Games developing Industry such as cheap and talented workforce, a vast untapped domestic gaming market and centralized location in Asia make India a hot spot for investment in the games developing industry.

At the same time, there are also certain threats and risks of investing in the Indian gaming market but these can be dealt with by adopting risk leveraging options such as a Joint-Venture which ultimately makes investing in India a safe bet.

Recommendations:

Based on the conclusions above, following are some of the recommendations made to the U.S. Game developing company:

• Considering the cost of production, foreign policies and the untapped gaming market in India, the U.S. firm should set up a developing unit in India.
• Considering the risks and threats surrounding the gaming industry in India, the U.S. firm should enter into a joint venture with one of the local Indian firms such as Dhruva Interactive which is experienced and well versed with the gaming culture in India.
• The best location for setting up a developing unit would be Bangalore, the IT hub of India, where Dhruva Interactive is based.
• In addition to developing and selling games globally, the U.S. firm should put special emphasis on the Indian gaming market which is still untapped.
• Along with making strategies to minimize risk, the U.S. firm should also develop strategies to deal with the piracy threat in India and should put special emphasis on the Intellectual Property Rights in India.

Reference List:

Dhruva Interactive. (2008).   Retrieved 11th October, 2008, from

Electronic Arts (EA) Eyes on Asia.   Retrieved 11th October, 2008, from

Embassy of India- Doing business in India. (2008).   Retrieved 10th October, 2008, from

Gamasutra - Companies. (2008).   Retrieved 13th October, 2008, from

Gaming in India set to grow 72% by 2011. (2007).   Retrieved 8th October, 2008, from

India, still 2nd hottest FDI spot. (2008).   Retrieved 8th October, 2008, from

India's new export:Video games. (2005).   Retrieved 10th October, 2008, from

India in the fast lane:Game-makers go overseas. (2005).   Retrieved 9th October, 2008, from

Intel India Gaming Summit. (2007).   Retrieved 10th October, 2008, from

Kottolli, A. (2006). Joint venture is a preferred way to enter India.   Retrieved 12th October, 2008, from

Trade Chakra- Doing business in India. (2007).   Retrieved 11th October, 2008, from

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