Towards Global Domination
Tencent, one of China’s largest Internet service companies and the maker of WeChat, is aggressively investing in Korea following its successful penetration into the market. Observers say that the company has been augmenting its influence in full swing, in that it purchased Kakao’s stake in the company and sounded out CJ E&M Games’ interest in the sale of an ownership stake, after establishing its local branch, securing rights for games, and investing in venture businesses.
The market cap of the Chinese company, which turned over 10.5 trillion won (US$9.74 billion) last year, is estimated at 150 trillion won (US$139 billion), which places the firm in the 4th position among global Internet enterprises, after Google, Amazon, and Facebook. After conquering the Chinese gaming market, the Internet giant is expanding its business to the mobile messaging and mobile games markets with the help of its Internet-based instant messaging platform QQ and mobile messaging app WeChat. For example, WeChat’s Gunz Dash, which was launched by Tencent to closely mimic Kakao’s ecosystem, is dominating the Chinese market, with average monthly sales of more than 30 billion won (US$27.8 million). The firm continues to expand its reach to other countries through its huge capital.
An official at a global mobile gaming company said, “After acquiring major gaming companies in East Asia, Tencent has been successful in dominating mobile gaming distribution channels in the region. As for the more advanced Korean market, the Chinese firm has adopted a detour strategy to gradually increase its influence through the purchase of an ownership stake in game developers, or the signing of a license agreement for games.” The official added, “Recently, the company has been gaining momentum in the Korean and Japanese markets.”
Korean games such as Nexon’s Dungeon & Fighter, Ncsoft’s Blade & Soul, Xlgames’ ArcheAge, and Smilegate’s Crossfire are already available or will be launched in the Chinese market through Tencent. There are almost 30 companies in which Capstone Partners – a venture capital firm founded with investment from Tencent – has bought an ownership stake.
At first, the local industry considered the Chinese Internet company to be the best partner in their entry to the Chinese market. However, the fact that the firm purchased US-based PC game developer Riot Games and bought a 14 percent stake in Korean mobile messenger service provider Kakao raised concerns about the growing influence of the Chinese firm. In fact, Riot Games’ League of Legends makes up around 40 percent of the total games played in local cyber cafes.
In the event of Tencent’s success in its purchase of an ownership stake in CJ E&M Games, both Kakao, which created the mobile boom, and CJ E&M Games, which is considered to be the most influential mobile gaming company in the local market, will be within the sphere of influence of the Chinese company. In the long term, there is the possibility that Tencent will make an effort to enter into a contract with the two Korean firms for the sale of their 100 percent stake in their companies.
In the local market there is intense competition between Korean mobile game developers, and therefore their expansion into neighboring countries such as China is urgently needed. However, Tencent is blocking the gateway to local developers’ market entry.
An executive of a listed gaming company explained, “Tencent has grown in stature to the extent that Activision Blizzard, the top-ranked company in the UK and the US combined, cannot even think about competing on equal terms with its Chinese rival.” The official concluded by saying, “Tencent’s exponential growth and greater bargaining power are more likely to weaken Korean firms’ position in the market.”