Foreign-Controlled Firms Are the Exporting Champions!
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Volume 4 Number 1 EXPThe newsletter forANSION foreign subsidiaries in Québec Winter 2006 Foreign-controlled firms are the exporting champions! According to a report published by Statistics Canada last fall, foreign-controlled exporters generated 30% of operating revenues and are accountable for fully half of Canadian exports, despite holding only 20% of domestic corporate assets. Among these firms, 60% are American The new subsidiaries of the interests, while 8% belong to companies based in the United Kingdom. In total, firms from some 40 countries have Canadian subsidiaries that export. Video games are becoming increasingly expensive to produce. According to certain studies, While foreign-controlled subsidiaries have production costs can exceed US$15 million — and that’s before marketing. more diversified exports than Canadian companies, the United States remain their With so much money involved, it’s easy to see why the Disney’s Buena Vista division, for instance, games with primary destination. mass market is dominated by large players who are gratuitous violence will not be easily accepted.” competing to acquire the small studios where the most In 2002, 18% of foreign-controlled exporters creative talent is to be found. All the same, Williams points out that certain popular shipped goods to five or more countries, games would never have seen the light of day if a major compared with only 6% of their Canadian- The wave of acquisitions that has been ongoing since studio hadn’t stepped in. “For example, The Sims exists controlled counterparts. the end of the 1990s has allowed publishers—tradi- because Electronic Arts bought Maxis in 1997. The same tionally less involved in the production process—to studio recently created Spores, a very innovative game; In total, exporters from 26 different countries enjoy exclusivity in terms of technological expertise and once again, the game was produced because other EA exported to their country of control in 2002. content. projects were yielding enough revenue to finance it. A However, with the exception of American- small studio would never have been able to launch such controlled firms, the value of these exports For independent studios, becoming a subsidiary can be a product on such a scale.” was fairly low. Goods worth just over a question of survival, according to Edward Williams, $1 billion were exported to the country of Senior Research Analyst in interactive entertainment for One thing is certain: in this sector, it is of vital control, accounting for less than 1% of total BMO Harris Nesbitt in New York. importance to launch new products regularly to meet exports from foreign-controlled firms in 2002. the needs of a young clientele hungry for novelty. “These days, becoming a subsidiary of a large publisher Ubisoft puts out three new games every two years; Practically all American-controlled exporters is vital for any studio wanting to capture certain niche Electronic Arts markets three per year. sent their goods to the United States. In fact, markets. Becoming a part of a group gives immediate their deliveries to the United States access to the necessary human and financial resources, Each subsidiary therefore has to demonstrate creativity. represented 91% of the total value of their along with a content catalogue and technologies to If an idea is good, it will be retained. As Williams says, exports, and 30% of the total value of which the group holds the rights. Subsidiaries also have “In a group, it’s best to have subsidiaries that Canadian exports to the United States easier access to retail shelves.” bring in a stable revenue so that others can take in 2002. creative risks.” Japan ranked second among the firms that However, subsidiaries must learn to work together with exported to their country of control. a head office that has its own culture and objectives, Williams notes. “A studio used to having elbow room must respect the values of the head office. If you go to Becoming the subsidiary of a multinational has allowed Beenox to tap into new resources without sacrificing its freedom, according to its President and founder, Dominique Brown. For details, see overleaf. Spotlight Locate near the Beenox: Creative subsidiary freeway or the experimental theatre? In May 2005, Beenox, a small video game studio located in Québec City’s Saint-Roch neighbourhood, was bought by American interactive Creative hubs entertainment publisher Activision. In January 2005, researcher Richard Florida ranked Montréal second among Becoming the subsidiary of a multi- Electronic Arts in Montréal. Activision acquired North American cities for the relative size national has allowed Beenox to tap into our company because they thought that we had of its “super creative core.” In March of new resources without sacrificing its a winning formula, one that worked in our According to Brown, studios the same year, the very hip magazine freedom, according to its President and cultural milieu and with our own methods.” can only benefit from being Wallpaper ranked Montréal fifth in a list acquired by a large publisher. founder, Dominique Brown. “For anyone thinking of Since the acquisition, Beenox has expanded: the of the most exciting cities in the world. starting a video game Beenox specializes in platform conversion. The number of its employees has doubled and new And finally, last October, Hill Strategies company today, I’d company has extensive experience adapting projects are in the works. stated that one of Montréal’s recommend looking into console systems (PlayStation 2, Xbox or neighbourhoods, Le Plateau, was the “Of course, our projects get approved by another field. Certain GameCube) to Windows-equipped PCs, and also most creative in Canada. independent studios were Activision, but the initiatives come from the produced the game versions of the films successful for years, and now ground-up, even if planning and approval is top- That’s fine for a Montrealer’s ego and the they have to close their Madagascar, X-Men Legends II and the recently down,” says Brown. “Activision subsidiaries tourism industry, but what else? Some doors or merge.” released GUN. Year-in and year-out, the studio have to manage their own production and bring people, like Richard Florida, the author of generally had 15 to 20 projects on the go. Acti- their own expansion plans to the table.” the bestseller “The Rise of the Creative vision was initially one of Beenox’s top clients. Class,” maintain that prosperity and For this savvy entrepreneur who took many risks Despite the acquisition, Beenox has kept its economic development are closely tied to to found one of Québec City’s leading video name, visual identity, management team and a city’s creativity index. His premise is game studios, it wasn’t hard to hand over the production methods. However, the Québec City that innovation and creativity, as well as reins to a foreign power. studio had to let go of clients, some of whom the spirit of enterprise, are now essential were Activision’s competitors. “The fact that my company will stay here and factors to the success of a company. keep its name is very satisfying,” Brown Naturally some cities are more conducive “When Activision acquires a studio, it looks for concludes. “I have yet to see any negative sides than others to the development of a a winning formula, meaning that there’s no to this move.Activision has granted us a degree dynamic, creative environment. need to change the operations of the acquired of freedom that few others would have been company,” says Brown. While observers fail to agree on the real able to match.The company makes the effort to impact of these factors, one thing is “Other publishers may opt to change the name communicate with us in French in official certain: creative hubs have imerged in of the studio they buy and integrate it into their documents; they understand that this is a reality Québec in recent years and companies own array of procedures and hierarchies. They in Québec.” have followed the trend, particularly in can also start a new studio from scratch, like Montréal and the Saint-Roch neighbourhood in Québec City. For a Québec subsidiary of a foreign company, it may be very beneficial to be Montréal welcomes the big guns in located next to a creative hub. First, electronic games! cultural life is generally very rich there, which may prove very helpful in Last November 2 and 3 marked the second the industry accounts for over 2,000 jobs, 85% recruiting or moving employees. Next, annual Montréal International Game Summit. of which are in Montréal. When related creative people can export their creativity This year’s rendezvous for video game industry industries (production, development, con- to other related sectors. Lastly, the professionals attracted 750 participants from version, quality assurance, etc.) are brought influence of creative hubs benefits the Canada, the United States and Europe, along into the picture, it adds up to some 50 local entire business community. Clearly with over 30 North American, European and firms with close ties to the gaming industry — everyone benefits from the image of Asian journalists. not counting training centres and software Québec that the Cirque du Soleil projects 40609764 publishers. internationally. No. Representatives from Investissement Québec took the opportunity to meet key decision- The Summit is organized by Alliance numériQC, makers and explain the many competitive the business network for Québec's interactive Agreement advantages Québec offers companies in this digital content and multimedia industry. — sector. For information: www.numeriqc.ca Mail Internationally, annual sales for the video game industry are estimated at some $30 billion and boast a growth rate of around 9%. In Québec, Publications To contact us or subscribe: 1 866 870-0437 www.investquebec.com 393, rue Saint-Jacques, bureau 500 Montréal (Québec) H2Y 1N9.