Analysis of Offshore Development Patterns of Korean Online Game Companies in China

摘要

This study investigates offshore game development patterns of Korean online game companies in China. The analysis is based on interviews with Korean companies that use Chinese human resources. Since the first online game was developed in 1996, Korean online game companies try to maintain competitive advantage in terms of quality and novelty as well as costs. Since 2005, some Korean game companies have utilized Chinese game developing manpower and it is believed that they leverage wage differences of two countries. This strategy is similar to offshore outsourcing of western IT companies that utilize human resources of Indian and other Asian countries. However, it is interesting that all the Korean game companies use Chinese developers under captive control systems and none utilize offshore outsourcing mechanism that is a typical way of western IT companies. According to the transaction cost analysis (TCA), this study proposes two conditions under which firms choose a certain governance design in order to reduce transaction costs. First, the higher specificity of offshore services is, the more control they want to exercise, and therefore they set up their own development centers instead of outsourcing game development from local companies. Second, high behavioral or environmental uncertainty in assessing service providers' performance also forces them to have their own centers. The survey finds that all six companies set up their own development centers and barely outsource works from local firms. The interview results are not completely in line with the propositions of the TCA. Only two companies prefer the captive control because they suspect the observance of quality and time of local graphic outsourcing companies. Five companies answer that they established development centers because they planned to train and hold Chinese graphic experts in order to produce 'Chinese' games for Chinese gamers. Another driving force behind their own development centers is that they want to have a privileged market position when Chinese service market is opened in the near future. One reason why transaction costs are not the main decision making factor of international entry mode is that time horizons of Korean game companies are not short-term oriented, which is a major assumption of the TCA. Thus, it is argued that Korean game companies set up Chinese development centers in order to gain access to strategic resources such as capable graphic artists, to produce 'Chinese' games, and to occupy a dominant position in Chinese market.