China Becoming World's Game Outsourcing Center

China is becoming the world's center for game development outsourcing, while 75 percent of large North American game companies have outsourced projects to China, official of Niko Partners said yesterday at the Game Developers' Conference in Shanghai.

Through a study of Chinese outsourcing companies and North American outsourcers, Niko Partners, a market research firm, found that the Chinese game development outsourcing industry has developed rapidly over the past two years, Zhou Fan, a partner of Niko Partners, said.

According to Zhou, there are currently around 300 game outsourcing companies of varying sizes in China. Of these, 20 had over 50 employees, 50 had secured overseas projects, and 33 had both secured at least one overseas project (mobile handset games not included) while having over 10 employees. These 33 companies had doubled their staff numbers in the past year.

Zhou estimated that the number of game outsourcing companies would not increase in 2007, but the scale of the companies would continue to expand, with employee numbers increasing by 50 percent from 2006, and companies merging.

China's game outsourcing industry started around 2001, though large projects did not come to China until the end of 2005, when the average amount invested in a game's development reached $10 million or $15 million, she said.

China's low human resource cost is not the most important reason for North American game companies outsourcing their projects to the country, Zhou noted. Instead, the increasing complexity of games, which made it hard for North American game companies to complete them independently to deadlines, should be held as the major reason for the global game outsourcing trend.

North American companies usually outsource game art work to China, which is the most time-consuming stage of game development. Of all game outsourcing projects in China, 75 percent are art work, which is why the majority of staff at Chinese game outsourcing companies are art designers. Other processes such as quality assurance (QA), testing and programming make up only a small percentage of the total outsourcing projects.

The average expense of Chinese outsourcing companies is between $3,000 and $5,000 per employee per month, according to the study. Company profit margin is, on average, between 10 percent and 30 percent. If they can directly secure projects from outsourcers, their profit margins will be comparatively higher, compared to when they obtain projects through brokers. Employee wages account for two-thirds of the total expenses of Chinese outsourcing companies, with office leases and communication fees accounting mostly for the remaining third.

The average price of each project is between several thousand dollars and $500,000, Zhou said. If a project is larger than $500,000, outsourcers will usually consider dividing it into two parts by hiring two outsourcing companies. With the appreciation of the Chinese renminbi, the cost of outsourcing to China will increase accordingly, Zhou added.

The major worries plaguing outsourcers include possible communication difficulties due to language and culture differences with Chinese outsourcing companies, and whether their intellectual property rights will be well protected against content leakage, Zhou said. In addition, they are also concerned over whether Chinese companies used pirated software to complete projects. Outsourcers tend to give their projects to larger companies that ask reasonable prices and have adequate management experience, to guarantee quality and adherence to schedules.

2008-03-17

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