An explorative study on small- sized game development firms from a born global perspective
Master’s Thesis 30 credits Department of Business Studies Uppsala University Spring Semester of 2017
Date of Submission: 2017-05-30
Eduardo do Amaral Kevin Walther
Supervisor: Desirée Holm Abstract
The existing literature provides a variety of drivers enabling rapid internationalization of born global firms. This explorative study with its inductive approach attempts to analyze to what extent born global theory can be used to understand internationalization in the context of small-sized game development firms. Five interviews of a qualitative nature are used to collect data from founders of firms in this under-researched context. The data collection process is based on an operationalization of concepts based on the three categories of founder, organizational and macro-environmental drivers. The findings show that the firms can be aligned to three different stages of their business development, from subcontracting, to game development, to self-publishing. Subcontractors are not born global, but game developers must develop games with global market potential. These firms are pushed to be international by the heavily globalized nature of their industry and digital nature of both the products and the distribution platforms. Founder and organizational factors do not drive the born global approach as much as the environment, but still play a role in explaining the business of these firms. Overall, the findings of this thesis may provide a guiding point for further research in this specific context of firms acting in an industry with immediate internationalization.
Keywords
Born global; Internationalization; Small-sized game development firms; Game development; Digital distribution
Word count
17,487
Content
List of Figures ...... I
List of Tables ...... I
1. Introduction ...... 1
1.1. Background ...... 1
1.2. Research question ...... 2
1.3. Contribution...... 2
2. Theory ...... 3
2.1. Definition of born globals ...... 3
2.2. Factors influencing accelerated internationalization ...... 4
2.2.1. Founder-related factors ...... 4
2.2.2. Organizational factors ...... 5
2.2.3. Macro-environmental factors ...... 7
2.3. Game development ...... 9
2.3.1. Industry overview ...... 9
2.3.2. Game development process ...... 10
2.3.3. Internationalization of game developers...... 11
2.4. Conceptual framework ...... 12
3. Methodology ...... 14
3.1. Research design ...... 14
3.2. Operationalization ...... 15
3.3. Data collection & sampling ...... 17
3.4. Respondents...... 18
3.5. Interview guide ...... 19
3.6. Data analysis ...... 20
3.7. Validity and Reliability ...... 20
4. Findings ...... 22
4.1. Classification of firms ...... 22
4.2. Subcontractors ...... 24 4.3. Game developers ...... 27
4.4. Self-publishing ...... 29
4.5. Internationalization ...... 31
4.5.1. Internationalization in terms of customers ...... 31
4.5.2. Internationalization in terms of competition ...... 33
5. Analysis ...... 36
5.1. Introduction ...... 36
5.2. Macro-environmental factors ...... 36
5.2.1. Market internationalization ...... 36
5.2.2. Technology ...... 37
5.2.3. Global competition ...... 38
5.3. Founder factors ...... 39
5.3.1. Past international experience ...... 39
5.3.2. Motivation and ambition ...... 39
5.3.3. Global orientation ...... 40
5.4. Organizational factors ...... 41
5.4.1. Foreign market knowledge ...... 41
5.4.2. Competences ...... 42
5.4.3. Networks ...... 43
6. Summary and concluding remarks ...... 45
6.1. Conclusion ...... 45
6.2. Contribution and future research ...... 47
6.3. Limitations...... 48
Bibliography ...... 49
Appendix A: Interview guide ...... 54
Appendix B: Coding ...... 56
List of Figures Figure 1: 7 Stages of Video Game Development (In reference to Johns (2006)) ...... 10 Figure 2: Internationalization of born global framework in reference to Madsen & Servais (1997) .... 13 Figure 3: Three stages model (own illustration) ...... 23
List of Tables Table 1: Operationalization ...... 17 Table 2: Overview of case firms ...... 19
I Master‟s Thesis 30 credits | Department of Business Studies | Uppsala University Spring Semester of 2017 | Date of Submission: 2017-05-30 | MIB Amaral & Walther 1. Introduction
1.1. Background
On the 18th of November 2011 the Swedish small-sized firm Mojang AB founded by Markus Persson released a sandbox video game after years of development. The game known as „Minecraft‟ was a blockbuster and as of today has sold 122 million copies for multiple platforms. (Polygon, 2017) The game released almost simultaneously with „Call of Duty: Modern Warfare 3‟ which is one of the most established video games franchises, owned by the Californian Software Publisher Activision-Blizzard. Whereas Mojang AB had nine employees at that time, 400-500 developers were working on Activision-Blizzard‟s „Call of Duty‟ game. Additionally Activision Blizzard had a $100 million marketing budget to promote their title which sold eventually 28.5 million copies. (Allabolag, 2017; Nichols, 2014; The Guardian, 2014) This comparison illustrates how the video games industry is an industry where small players can challenge or even beat incumbent and large video game developers even though the financial and human resources differ significantly.
Clearly „Minecraft‟ is an extraordinary example but it can be seen as an illustration of the successful emergence of small-sized game development firms in the global and fast growing industry of video games (McKinsey, 2015). Various successful games have been produced by Swedish small-sized game development firms - although the country is only the 26th biggest video games market in the world in terms of consumption. (Dataspelsbranchen, 2016; Newzoo, 2017) Small local markets such as Sweden connote that firms have to adopt a global approach right from their beginning or shortly afterwards. Being present on the global market and therefore internationalizing rapidly seems to be a requirement to all kind of game developers. This type of rapid internationalization of international new ventures or born globals has gained attention as a subject in international business research e.g. Madsen and Servais (1997), Oviatt and McDougall (1994) and Weerawardena et al. (2007). Especially for small- and medium-sized firms the internet has enabled a rapid internationalization by providing alternatives to the physical market (Sinkovics et al., 2013). Academic studies such as Cunningham et al. (2012) about the specific context of small-sized game developers are rare. More specifically Ström & Ernkvist (2012) mention the lack of research on the internationalization process of creative industries such as the video games industry and suggest further scientific investigation.
1 Master‟s Thesis 30 credits | Department of Business Studies | Uppsala University Spring Semester of 2017 | Date of Submission: 2017-05-30 | MIB Amaral & Walther Therefore, this paper is trying to address this gap and discuss born global theory under the very specific context of small-sized game development firms. In order to do so, this paper commences with a theoretical section that includes a critical literature review of born global theory and provides a framework on the drivers of a born global approach to internationalization based on current literature. The theory section will also contain a short overview and description of the game development process. In the findings section of this paper, we will discuss the specific context of small-sized game development firms based on a multiple case approach by interviewing various founders and CEOs. In the analysis section, we will draw the connection between our gained insights and the framework based on born global theory.
1.2. Research question
The purpose of this paper is to look at the phenomenon of born globals and their accelerated internationalization in the particular setting of small-sized game development firms. This leads us towards the following research question:
To what extent does born global theory explain the business of small-sized game development firms?
The aim of this paper is to investigate whether small-sized game development firms can be considered born global, based on the driving factors of rapid internationalization identified from previous research about small-sized firms. The framework that is derived from born global theory will provide a cornerstone for our data collection and analysis.
1.3. Contribution
This study examines the antecedents of internationalization in a rather young and little- researched industry. This will provide a better understanding of the small businesses acting in a global and fast-growing industry. Furthermore, this paper will enrich the field of international business due to the fact that there is little research on the internationalization process of the creative industry or video games industry as a sub-sector of that industry in particular – as e.g. pointed out by Ström & Ernkvist (2012) or Cunningham et al. (2012).
This paper will apply an explorative approach by drawing upon qualitative data. This will provide insights to a global, young and thriving industry of game developers and might provide a foundation for future research within that specific context. 2 Master‟s Thesis 30 credits | Department of Business Studies | Uppsala University Spring Semester of 2017 | Date of Submission: 2017-05-30 | MIB Amaral & Walther 2. Theory
2.1. Definition of born globals
The phenomenon of so-called born globals has been widely documented in the literature, albeit with different names. One such denomination is that of international new ventures (INV), defined as “business organizations that from inception, seek to derive significant competitive advantages from the use of resources and the sale of outputs in multiple countries‟‟ (Oviatt and McDougall, 1994: p. 49). This definition, along with the conceptual framework proposed by its authors, is widely used in the literature to define rapidly internationalizing firms (Autio et al., 2000; Knight and Cavusgil, 2004). A simpler and more concrete definition points to the requirement, that the firm operates in international markets from its inception as opposed to establishing a domestic presence before expanding internationally (Knight et al., 2004). In order to operationalize these definitions, various studies focused on time-based requirements of export speed, claiming that to be a born global the firm must earn more than a certain percentage of revenues from abroad within a few years from establishment, such as more than 25% in foreign revenues within 3 years (Andersson and Wictor, 2003).
However, these attempts to operationalize the concept have yielded a fragmented research field which can complicate the comparison and synthesis of findings (Rialp et al., 2005). Instead of focusing on a narrow operationalization, Gabrielsson et al., (2008) propose a definition that instead focuses on some key descriptive characteristics of born globals. These are having a product with global market potential; entrepreneurially seeking accelerated internationalization; a global vision; presence in a high-tech industry; and being a start-up that is independent from any corporation or larger firm (Gabrielsson et al., 2008). Given this study‟s objective to understand whether the born global phenomenon is at play in this industry, simply identifying a set of characteristics pertaining to born globals and matching it to the case firms would yield a superficial answer. We instead look to the usual drivers behind the rapid internationalization of these small firms, taking a step back while also developing the mentioned key characteristics in the process.
A review of the literature reveals that there have been many attempts to conceptualize the wide-ranging factors that enable rapid internationalization of firms such as born globals (Jones et al., 2011). Madsen and Servais (1997) propose three aspects of research when
3 Master‟s Thesis 30 credits | Department of Business Studies | Uppsala University Spring Semester of 2017 | Date of Submission: 2017-05-30 | MIB Amaral & Walther understanding born globals – founder, organization and environment. Founder factors are related to the background and characteristics of the founder such as previous international experience, personal ambitions and motivations to internationalize. Organizational factors are the competences, routines and governance structures of the firm that might affect internationalization. Environment factors are the macro-environmental trends of higher levels of technology, market internationalization and specialization. (Madsen and Servais, 1997)
Even though the framework is slightly simplified and open-ended in comparison to many other conceptualizations, its research model serves well to organize the literature on factors causing rapid internationalization. We will follow the advice of Madsen and Servais (1997) and fill in the model with theoretical propositions from the literature with the objective of reinforcing and refining it.
2.2. Factors influencing accelerated internationalization
2.2.1. Founder-related factors
The inadequacy of traditional international business theories in addressing entrepreneurial firms such as born globals led to growing interest in integrating international business and entrepreneurship research fields. One of the most natural consequences of this merge was an increased focus on the role of the entrepreneur or group of entrepreneurs in defining the speed of internationalization of the firm. (McDougall and Oviatt, 2000) After all, the entrepreneurs represent the foundation upon which the firm is built, so it is reasonable to assume that they will influence the firm‟s internationalization. The starting point of the process of international entrepreneurship is a business opportunity that presents itself to the individual, who must perceive it and decide on whether to act on it or not (Mathews and Zander, 2007). The entrepreneur is therefore central to the process, and their subjective evaluation of the opportunity and its surrounding conditions mediates whether the internationalization will happen and if so, the speed of the process (Oviatt and McDougall, 2005). Understanding born global entrepreneurs can give clues to what drives them to create firms that are international at the outset.
If the history of the firm extends back to the history of the entrepreneur, traditional evolutionary models of internationalization and knowledge acquisition can be applied even to born globals (Madsen and Servais, 1997). There is widespread support in the literature for the claim that a founder with previous international experience positively influences the
4 Master‟s Thesis 30 credits | Department of Business Studies | Uppsala University Spring Semester of 2017 | Date of Submission: 2017-05-30 | MIB Amaral & Walther likelihood of choosing a born global approach (Andersson and Wictor, 2003; Crick and Jones, 2000; Mathews and Zander, 2007). An entrepreneur who has incrementally gathered international experience has both knowledge of foreign markets and networks that can facilitate the internationalization process of a new firm, which in turn increases the motivation and ambition to internationalize (Madsen and Servais, 1997). Past international experience makes rapid internationalization more plausible and desirable to entrepreneurs.
From an entrepreneurial perspective, exploring the reasons why an individual starts their own business can lead to a better understanding of the essence of the firm and its orientations (Galloway and Mochrie, 2006). Despite the study being from another context of rural firms, it captures and operationalizes the motivations and ambitions of the entrepreneur, which was not done in Madsen and Servais (1997). The motivation of an individual to start a firm can be positive such as wanting to act on an opportunity or to work for oneself, or negative such as a lack of other employment or growth potential in previous jobs. The ambitions or aims of the entrepreneur can be personal such as to maintain a certain level of income or lifestyle, or more firm-focused such as to grow and expand the business or eventually sell the firm. (Galloway and Mochrie, 2006)
One strategy-focused characteristic of the founder that according to literature, should be present at the inception of a born global firm, is a global orientation. A global mindset has been defined as “the propensity of managers to engage in proactive and visionary behaviors in order to achieve strategic objectives in international markets” (Harveston et al., 2000: p.92). A founder with a global orientation accepts the world as a large marketplace, and thus is open to cultural diversity and gives managerial attention to international affairs and markets (Kyvik et al., 2013). This is akin to a global vision (Gabrielsson et al., 2008), which has been said to be the starting point to a firm that is truly born global (Knight and Cavusgil, 2004). There is support in the literature for a positive relationship between an entrepreneur with a global mindset and the internationalization behavior of small firms (Kyvik et al., 2013). Indeed, it seems to be the most natural characteristic for a born global founder – that they think globally in terms of strategy and markets.
2.2.2. Organizational factors
At the organizational level the possession of valuable knowledge can enable firms to internationalize successfully. The Uppsala model describes the internationalization process of the firm as a process which is characterized by gradual acquisition, integration and especially 5 Master‟s Thesis 30 credits | Department of Business Studies | Uppsala University Spring Semester of 2017 | Date of Submission: 2017-05-30 | MIB Amaral & Walther the use of knowledge about foreign markets and operations in order to increase commitments of the firm in foreign markets. The firm thereby overcomes its initial liability of foreignness which presents additional costs and difficulties of operating in a foreign market (Johanson and Vahlne, 1977). Knowledge is considered key to building an advantage in a foreign location (Oviatt and McDougall, 1994), and it has been suggested that market knowledge specifically acts as a moderator for the speed of internationalization (Oviatt and McDougall, 2005). Having sufficient market knowledge upon founding determines the location and the agile internationalization strategy of born global firms (Spence and Crick, 2009). Especially in the case of knowledge-intensive industries, it is postulated that the mobility and flexibility of knowledge as a capability makes it possible to expand internationally at a much faster rate (Autio et al., 2000). It thus follows that if the firms possess knowledge and are knowledge- intensive, they are more able to be born global.
In addition to knowledge, it is natural to turn to the possession of particular competences to explain how firms are able to achieve rapid internationalization. It was argued by Madsen and Servais (1997) that born globals must have particularly narrow and well-cultivated competences that can be exploited to internationalize rapidly. There have been attempts at defining what competences are linked to the born global approach, with varying degrees of detail. Early on it was already claimed that competences in relation to the background of the founder, networks and knowledge enable the success of international entrepreneurs (McDougall et al., 1994). This combination of competences ensures that the organization is aware of routines to handle the challenges of internationalization, and can indeed be the core from which the company later evolves (Madsen and Servais, 1997; McDougall et al., 1994). Born globals are usually small in size and entrepreneurial at heart, so they often need to supplement internal competences with external ones whenever that is necessary (Madsen and Servais, 1997). This is reflected in the attention given to capabilities revolving around networking to leverage external competences in the born global literature (Karra et al., 2008; Knight and Cavusgil, 2004; Weerawardena et al., 2007). The balance between internal and external competences seems to be a natural part of being a born global firm.
Given the lack of resources usually experienced by born global firms (Gabrielsson and Pelkonen, 2008; Jones et al., 2011; Spence and Crick, 2009), networks are often a way to seek resources and competences that are required to achieve their business goals, including internationalization (Oviatt and McDougall, 1994). In a revised form of the Uppsala model, Johanson and Vahlne (2009) respond to the critical reviews of the original model and 6 Master‟s Thesis 30 credits | Department of Business Studies | Uppsala University Spring Semester of 2017 | Date of Submission: 2017-05-30 | MIB Amaral & Walther recognize the business environment as a web of relationships, thus acknowledging the importance of relationships and networks for the process of internationalization. This revision also renders the model more applicable to new ventures and born global firms since they claim that these international activities usually do not span the globe in a significant way and thus are rather born regional with international activities (Johanson and Vahlne, 2009).
When discussing networks it is important to make a distinction between this more holistic business network approach to internationalization (Johanson and Vahlne, 2009) and the more functional approach of the use of networks to advance the internationalization objectives of the firm (Oviatt and McDougall, 1994). The former advances the understanding of internationalization by focusing on the overcoming of barriers represented by the liability of outsidership and establishing a strong insider position in business networks (Johanson and Vahlne, 2009). The latter posits a more direct approach of networks as facilitators rather than analyzing the internationalization processes from the business network perspective. For instance, it has been suggested that especially for the purpose of securing appropriate distribution channels, employing hybrid structures and partnerships are often a required strategy for rapid internationalization (Knight and Cavusgil, 2004; Madsen and Servais, 1997).
The use of networks for such purposes does not only affect the speed of internationalization but often the choice of foreign location as well, perhaps more so than the psychic distance to the host country (Oviatt and McDougall, 2005). Networks serve therefore as sources of opportunities and formal as well as informal contacts can be used to facilitate foreign market entry (Coviello and Munro, 1995). The use of connections to government agencies, local social networks and ties to local communities have been shown to act as catalysts for the internationalization process, speeding it up and mediating international performance (Zhou et al., 2007). Upon founding, the network of the firm is inherently small whereas the entrepreneur can bring an extensive network that has been built over long periods of time that can be used for more effective internationalization.
2.2.3. Macro-environmental factors
To study a born global firm with disregard to its environment would yield an incomplete picture of the driving forces behind the phenomenon. After having considered the founder and the firm in isolation, the environment in which the firm operates should be considered. To describe a firm‟s macro-environment in its entirety is a monumental affair, but certain 7 Master‟s Thesis 30 credits | Department of Business Studies | Uppsala University Spring Semester of 2017 | Date of Submission: 2017-05-30 | MIB Amaral & Walther characteristics and conditions of what is called the global business environment are particularly important for the propensity of born global firms (Gabrielsson and Pelkonen, 2008; Madsen and Servais, 1997). The nature of this environment will be clarified as its qualities are described.
The degree of internationalization of the market in which the firm is situated has been suggested to affect its propensity to rapidly internationalize. Theoretical arguments suggest that an internationalized market presents existing international networks and resources which the firm can utilize, thus enabling more rapid internationalization (Madsen and Servais, 1997). Furthermore, a market, and thereby a firm operating in it, is more likely to be more internationalized if the domestic market is relatively small in size in comparison to alternative foreign markets (Madsen and Servais, 1997). An industry that is highly internationalized, perhaps due to its small domestic market size, will encourage the birth of born globals, whereas in industries where serving local markets is a viable strategy, the born global approach might not be as necessary (Rasmussan et al., 2001). A major driving factor for born globals is therefore how global its industry already is.
Advancements in technology changed the global business environment and changed the face of global competition. The fact that these global markets exist enables greater specialization, leading to smaller-scale operations with niche target markets who in the past could not reach large enough markets to survive (Madsen and Servais, 1997). Niche strategies in turn enable smaller firms to avoid head-on competition with large MNCs who are able to target larger portions of the market (Knight et al., 2004). These global customers can be reached by global channels, established international logistics and improved information technology (Gabrielsson and Pelkonen, 2008). Digital technology therefore is an enabling force that makes accelerated internationalization possible, while competition on a global scale encourages firms to chase customers internationally and to prevent loss of market share to competitors (Oviatt and McDougall, 2005). According to Mathews and Zander (2007), the engagement with competitors is the last guiding principle in international entrepreneurial dynamics, largely shaping the pathway of resource deployment taken by a firm and therefore, whether it chooses to approach international markets or not. Indeed it can be claimed that the born global phenomenon therefore exists mainly because of the globalized competition and markets that compose the economic system of today (Chetty and Campbell-Hunt, 2004). When the product itself can be digitally distributed as in the case of computer software, the
8 Master‟s Thesis 30 credits | Department of Business Studies | Uppsala University Spring Semester of 2017 | Date of Submission: 2017-05-30 | MIB Amaral & Walther impact of these forces is amplified and born global theory shows promise in explaining the internationalization of such firms (Galimberti and Wazlawick, 2015).
2.3. Game development
2.3.1. Industry overview
What is now the global mass media industry of video games started out as a slightly accidental and minimal creation. In 1958 the US nuclear research scientist Wally Higginbotham created a game of tennis on an oscillating screen. His intention was to entertain visitors in his lab with this device. Higginbotham never patented his invention which also prevented his employer the U.S. government from owning the initial rights to this industry. Higginbotham‟s invention is seen as the birthmark of the industry of home video games or simply “video games”. However, it wasn‟t until 1974 where the industry created its first real profits. It was the US company Atari who launched the „Pong Home system‟ in 1974 with the iconic game of „Pong‟ which was similar to Higginbotham‟s two-dimensional game of tennis. Three years later in 1977 Atari launched a home entertainment system with the vital idea that independent developers could create their own games for this system. It was a further cornerstone in the history of the video games industry. (Nichols, 2014; Williamson, 2002) The industry had its rise and falls during the first two decades but since the mid-1990s, the industry is continuously growing in size and scope. In 2003 the industry reached a turnover of $23.2 billion (Johns, 2006). In 2014 the global consumer spending for the video games industry reached $81.0 billion which is more than twice the size of global consumer spending for cinema entertainment within the same year. Moreover, the video games industry overtook the music industry in 2015 based on global consumer spending. (McKinsey, 2015; Nasdaq, 2016) PricewaterhouseCoopers (2014) is expecting consumer spending in video games industry to grow even further in the next years due to attractions of non-gamers through social and casual games and upcoming new features in the hardware market.
Since our study is looking at game developers we will mostly focus on the software side of the video games industry and thus ignore hardware or console producers. Based on this software perspective the industry can be categorized into six different types: Console games (29%), PC Games (27%), mobile games (27%), tablet games (10%), browser web games (5%) and handheld games (2%). The number in bracket indicates their market share based on global revenue in 2016. (Newzoo, 2016)
9 Master‟s Thesis 30 credits | Department of Business Studies | Uppsala University Spring Semester of 2017 | Date of Submission: 2017-05-30 | MIB Amaral & Walther 2.3.2. Game development process
The development of a game is a process with several stages and can differ depending on the platform and type of software produced. Williamson (2002) tried to conceptualize the process of game development whereas Johns (2006) further developed the concept to a model with seven particular stages (see figure 1).
Financing Development Production Publishing Distribution Retailing Consumption
Figure 1: 7 Stages of Video Game Development (In reference to Johns (2006)) Game developers are usually not in charge of all stages in this process. They are often in a contract-based relationship with publishers. Those publishers can be the right-holders of the game or an intellectual property (IP). In most cases, publishers take on the responsibility of financing, publishing and distribution. Usually, publishers choose which game developer(s) they want to work with and the developing firms get rewarded with royalties from the sales of the game. Developers have the incentive to deliver a superior product in order to increase their reputation for a future work on bigger titles or with a bigger publisher. (Williamson, 2002)
This process was the custom in the industry but has changed a lot in recent years. More recently the game development process has been affected and stirred up by digital platforms. The most famous example of such a digital distribution platform is Valve‟s “Steam”. This platform allows PC users to purchase games and store them in a cloud-based virtual library. Such online marketplaces like Steam not only influenced the purchase behavior of consumers but also significantly changed the process of game development. Game developers have through those platforms the possibility to develop games independently and outside of the publishers‟ distribution network and influence. (Nichols, 2014) Online marketplaces have also turned the video games industry into a “weight-less” economy with an almost cost-free reproduction and distribution of software. (Johns, 2006) We will analyze these changes in the game development process further in the analytical part of this paper.
10 Master‟s Thesis 30 credits | Department of Business Studies | Uppsala University Spring Semester of 2017 | Date of Submission: 2017-05-30 | MIB Amaral & Walther 2.3.3. Internationalization of game developers
The video games industry can be seen as a sub-sector of the creative industry. Typical for firms in the creative industry is the uncertainty and complexity of product attributes. This means that the relationship between product attributes and market acceptance is challenging to predict for producers. (Ström and Ernkvist, 2012) In other words, game developers must focus on commercial success without losing the focus on creativity and innovation. (Hotho and Champion, 2011)
Another challenge, especially for game developers that choose to work without a publisher, is the requirement to undertake rapid internationalization in order to succeed (Cunningham et al., 2012). Clearly the internet and the development of online marketplaces can support game developers to accomplish this. A study on small and medium-sized firms by Sinkovics et al. (2013) concludes that the internet is a driver for such a rapid internationalization. The research concludes that the internet enhances the export performance and especially entrepreneurial firms can improve their overall performance through the internet by using it as a sales channel. However, the authors also highlight that firms are often relying too much on the internet. Therefore they might face the issue of generalizing their learning of foreign markets and online customers too much. Such a virtuality trap - as the authors call this phenomenon – might be the downside for game developers who are mostly relying on the internet or digital platforms as their sole distribution channel. Nevertheless, the alternative of distributing games digitally eliminates the production and distribution costs of the physical product, enabling higher profit margins and more accessibility to international markets (Marchand and Hennig-Thurau, 2013).
Also from a structural view, the industry of video games is extraordinary. In the early ages of the industry, video games started often as “garage production”. Since the late 1990s the industry grew in professionalism and organizational structure which brought up large studios with hundreds of employees and million dollar budgets for their game development. (Kröger et al., 2013) Despite this development there are numerous cases of small game developers that achieved success thanks to digital platforms as well as the rise of mobile gaming (Nichols, 2014).
Considering these specific circumstances of the industry regarding internationalization, we agree with Ström & Ernkvist (2012) that further research is needed in order to understand internationalization in this industry which they describe as an intersection between technology 11 Master‟s Thesis 30 credits | Department of Business Studies | Uppsala University Spring Semester of 2017 | Date of Submission: 2017-05-30 | MIB Amaral & Walther and creative industries. We see it as necessary to adapt existing born global theories to the special circumstances of the video games industry. To do this, we will outline our conceptual framework, which we will base our analysis on, in the next section.
2.4. Conceptual framework
In order to conceptualize our field of study, we use the widely cited framework by Madsen and Servais (1997) as a foundation. The framework is complemented by considering further research on the factors influencing the internationalization of born global firms and choosing to focus on a few prevalent concepts within each factor category. This framework will support our exploration of what leads to a born global approach to internationalization by small-sized video game development firms.
Founder factors are based on the propositions by Madsen and Servais (1997) that previous international experience can lead to higher ambitions and motivations to internationalize, which is supported in the literature (Andersson and Wictor, 2003; Crick and Jones, 2000; Mathews and Zander, 2007). To address the lack of operationalization of these ambitions and motivations in Madsen and Servais (1997), we use the factors suggested by Galloway and Mochrie (2006) to better understand the entrepreneurs‟ reasons for starting up their firm. The global orientation or mindset of the founder has also received attention as a predecessor to the creation of a born global firm (Knight and Cavusgil, 2004; Kyvik et al., 2013).
Organizational factors are refined from the original propositions that competences, routines and governance structures influence the internationalization of the firm (Madsen and Servais, 1997). The role of foreign market knowledge as a facilitator to rapid internationalization is considered (Johanson and Vahlne, 2009; Knight et al., 2004). The competence factor originally in Madsen and Servais (1997) is left as in the original model, open to interpretation and focusing on the equilibrium between internal and external competences. Business networks as tools to internationalization should be taken into account (Coviello and Munro, 1995; Johanson and Vahlne, 2009; Oviatt and McDougall, 2005), along with social networks as a catalyst for the internationalization process (Oviatt and McDougall, 1994; Zhou et al., 2007).
Finally, macro-environmental factors such as the levels of market internationalization, technology and specialization are in the foreground of other factors (Madsen & Servais, 1997). The mutually reinforcing factors of advanced technologies, increased specialization 12 Master‟s Thesis 30 credits | Department of Business Studies | Uppsala University Spring Semester of 2017 | Date of Submission: 2017-05-30 | MIB Amaral & Walther and market internationalization can be traced to the macro trend of globalization (Gabrielsson and Pelkonen, 2008; Oviatt and McDougall, 2005; Rasmussan et al., 2001). These factors, coupled with global competition (Mathews and Zander, 2007), create a breeding ground for born globals.
Figure 2: Internationalization of born global framework in reference to Madsen & Servais (1997)
13 Master‟s Thesis 30 credits | Department of Business Studies | Uppsala University Spring Semester of 2017 | Date of Submission: 2017-05-30 | MIB Amaral & Walther 3. Methodology
3.1. Research design
As a natural first step to the research process, the literature on born globals was reviewed to find whether there are established factors driving the rapid internationalization of game developers. Despite the experienced success of small-sized game development firms in this creative and internet-enabled industry, it seemed that our context was under-researched and lacked theoretical foundation. Therefore the construction of hypotheses on established factors influencing this industry did not seem viable (Saunders et al., 2009) and an explorative and inductive approach seemed more appropriate. True exploration in a pure form of induction such as the traditional grounded theory approach by Corbin and Strauss (1990) was assessed as to be too extensive especially considering the time available for conducting this study. In addition to the purpose of exploring we aimed to be descriptive in a purposeful way. Therefore, some guidance from the literature would facilitate our research process while still permitting the flexibility required when approaching this unexplored context. The principal intention was to look at the born global phenomenon in a new context, by focusing on small developers. The conceptual framework developed from the literature served as a guide for organization, analysis and especially discussion of data. It is therefore an inductive approach but conducted with the aid of the deductive element of a conceptual framework.
This is line with what could be described as an abductive approach to case research. According to Gummesson (1999), most studies often adopt inductive or deductive logic in their initial stages, but mostly develop into abductive research as the study goes on. This approach can be described as navigating between the theoretical and empirical world more freely and accepting the interconnectedness of different elements of research (Dubois and Gadde, 2002). By relying more strongly on theory, the inductive process becomes more focused. The objective of research thus becomes “theory development rather than theory generation” (Dubois and Gadde, 2002: p.559), and the initial theoretical framework is gradually adjusted as it is put to test with data collection and interpretation. We intended to begin the research process of developing theoretical preconceptions by connecting them to the empirical world and guiding further empirical research. Overall, we intended to take a first step with this study towards a better understanding of small-sized game development firms and make connections to international business theory through the perspective of the born global phenomena. 14 Master‟s Thesis 30 credits | Department of Business Studies | Uppsala University Spring Semester of 2017 | Date of Submission: 2017-05-30 | MIB Amaral & Walther In order to accomplish this purpose, a case study strategy enabled us to address factors behind the rapid internationalization of these firms more openly through in-depth investigation (Saunders et al., 2009). As argued by Yin (2003), using more than one case can strengthen the process by enabling comparison of findings across cases and improving replicability, and so a multiple-case study strategy was chosen. Case research stresses the importance of the context of the case (Dubois and Gadde, 2002; Dyer and Wilkins, 1991), so this seemed to fit with our intention to understand the context of our case companies and their little-investigated industry.
Given the research gap in this industry, qualitative methods yielded a greater level of detail about our cases, which was essential for our explorative purpose (Saunders et al., 2009). Acknowledging that triangulation strengthens the substance of the study (Eisenhardt, 1989), multiple data collection methods were employed and data from primary sources were complemented by secondary data from industry reports, company material and news articles.
From a philosophical standpoint, our explorative approach and choice of methods lent themselves best to a more subjectivist position since the findings are largely about the perceptions and opinions of the interviewees (Saunders et al., 2009). We set out with the objective of discussing the businesses in relation to our operationalizations, without making it obvious that we were looking at the different drivers of born global internationalization. In other words, we wanted to see whether internationalization would naturally arise as a key aspect of these businesses from the perception of the founders. This was done to keep a certain degree of objectivity and refrain from imposing the connection between the discussed drivers and internationalization onto the founders.
3.2. Operationalization
The constructed conceptual framework highlighted and summarized the existing literature and gave clues to what direction the empirical investigation should take. Our purpose was to better understand the three factor categories of founder, organization and macro-environment. These categories each have a few concepts which are broken down into indicators according to previous conceptualizations in order to make their meaning clearer. Previous operationalizations were taken into account but most often for our case, indicators are based on theoretical arguments and are therefore broader in meaning. These indicators were then used to partially guide questions and to facilitate data analysis. A key aspect of our
15 Master‟s Thesis 30 credits | Department of Business Studies | Uppsala University Spring Semester of 2017 | Date of Submission: 2017-05-30 | MIB Amaral & Walther operationalization is that we intended to bring the discussion to revolve around the development of a particular game or project of the interviewee‟s choice. With this approach, we tried to ensure that specific examples are discussed as opposed to purely conceptual perceptions. The questionnaire (see Appendix A) served as a point of departure with minor adaptations for each interviewee.
Subfactor Indicator Research Questions
Founder factors: 4
Past international - Living, studying and working - Madsen and Servais 1,2 experience abroad (1997) - Working in an international - Matthews and company Zander (2007)
Ambition & - Motivation to internationalize - Madsen and Servais 3 motivation and to be an entrepreneur (1997) (personal reasons) - Galloway & Mochrie (2006, p.5) - Ambition to internationalize and to be an entrepreneur (objectives for the firm)
Global orientation - View of world as one - Knight and Cavusgill 5, 6 marketplace (2004) - Attention given to international - Kyvik et al. (2013) markets and internationalization
Organizational 12 factors
Foreign market - If and how foreign markets are - Oviatt and 8 knowledge assessed prior to entering them McDougall (2005)
Competences - Balance between internal and - Madsen & Servais 10 external competences (1997) - Internal competences present - McDougall et al. (1994) within the firm - External competences that are needed from outside
Networks - Roles and responsibilities of - Oviatt and 10,11,14 external actors McDougall (2005) - Networks as a tool for the - Coviello and Munro (1995) business - Zhou et al. (2007)
16 Master‟s Thesis 30 credits | Department of Business Studies | Uppsala University Spring Semester of 2017 | Date of Submission: 2017-05-30 | MIB Amaral & Walther Macro- environmental factors
Market - Share of industry revenue from - Madsen and Servais 5 internationalization foreign markets (1997) - Relative size and importance of - Chetty and Campbell-Hunt domestic market (2004) - Rasmussan et al. (2001)
Technology - Enabling role of technology - Madsen and Servais 11 - Digital distribution platforms (1997) - Oviatt and McDougall (2005)
Global competition - General perceptions of - Oviatt and 7 competition in the industry McDougall (2005) - Basis of competition - Matthews and Zander (2007) - Influence of competitors
Table 1: Operationalization
3.3. Data collection & sampling
In order to investigate a phenomenon or problem, it is essential to choose a particular research method. It lays in the deliberate choice of the authors to critically assess the advantages and disadvantages of various methods. (Ghauri and Gronhaug, 2010)
This research takes a first step towards the understanding of small game developers and aligning it with theory from an international business perspective. Due to such an explorative nature of our study, we have assessed a collection of data through individual semi-structured interviews as the most suitable approach - as suggested by Saunders et al. (2009). Moreover, the semi-structured interview approach granted a set of topics or questions that can be introduced in varied ways as deemed appropriate to the interview. This allowed the interviewee to answer and discuss topics using their own words and phrasing. (Ghauri and Gronhaug, 2010; Saunders et al., 2009)
In order to find respondents for our interview, we used a non-probability sample. This is in accordance with Mathews and Ross (2010) who suggest a non-probability sampling approach in order to explore a phenomenon in a qualitative research setting which is the case in our study.
17 Master‟s Thesis 30 credits | Department of Business Studies | Uppsala University Spring Semester of 2017 | Date of Submission: 2017-05-30 | MIB Amaral & Walther We see the video games industry as an industry showing global vision from inception. In the selection of our data we ignored therefore the geographical location of the firms but moreover focused on having various small-sized game development firms belonging to different expected patterns or types of firms. We chose to focus on PC games and therefore looked for companies that had been involved in the development of games for this platform. This implied a closer examination of the potential case firms in the sample, which helped us gain a better overview of the different types of firms in the industry. Overall, our sample can for those reasons be described as a judgmental sample (Ghauri and Gronhaug, 2010; Rialp et al., 2005).
Our judgmental sample included 22 Swedish, three Brazilian and three Swiss game developers. We contacted all of them and eventually arranged to interview three Swedish, one Brazilian and one Swiss game developer. Our aim was to conduct the interviews in person. However, due to the limited amount of time of the interviewees and the geographical distance, interviews by phone replaced in some cases the personal interviews. The interviews were audio-recorded in agreement with the interviewees and afterwards transcribed in order to facilitate data analysis and extract exact quotations. All of the respondents agreed on being quoted and their companies mentioned in this paper. In two particular cases, the interviewees requested to counter-check the quotes to ensure correct interpretation and thereafter gave their approval.
3.4. Respondents
A summarized overview of interviewed companies can be found in Table 2. Further elaborations and description of the companies will follow in the findings section of this paper.
18 Master‟s Thesis 30 credits | Department of Business Studies | Uppsala University Spring Semester of 2017 | Date of Submission: 2017-05-30 | MIB Amaral & Walther Company Country of Number of Founded Discussed main Interviewee origin employees project Fablebit Sweden 1 2010 Battlefield 1 Mikael Säker (contract work) (Owner & founder) Pixeldiet Sweden 3 2011 Warhammer: Simon Lundmark Entertainment Endtimes - (CEO & Co- Vermintide founder) (contract work) Urban Games Switzerland 10 2013 Transport Fever Basil Weber (CEO & Co-founder) Fatshark Sweden 65 2007 Warhammer: Martin Wahlund Endtimes - (CEO & Co- Vermintide founder) Webcore Brazil 15 1999 My Night Job Fernando Chamis Games (CEO & founder) Table 2: Overview of case firms
3.5. Interview guide
Our interview questions were based on our conceptual framework presented above in the theory section. We opened each interview with questions about the respondents‟ prior experience within the gaming industry before founding a company and an open question about their motivation to start their own company. After those initial questions we tried to focus on a game or project that the firm was involved in and we perceived as significant for their firm history. The respondents were asked if they share our assessment or if they would like to shift the focus of our game- or project-specific questions. By going from broader questions to a more specific focus, we tried to establish our credibility and gain the interviewee‟s confidence in line with the recommendation of Saunders et al. (2009) to open a semi-structured interview. Further on we focused on additional open questions in order to cover all three main factors of our general framework as presented in the theory section above.
By doing some research on the companies prior to each interview we adapted some of the questions to fit the respondents. The gained insights from these interviews are presented in the findings section.
19 Master‟s Thesis 30 credits | Department of Business Studies | Uppsala University Spring Semester of 2017 | Date of Submission: 2017-05-30 | MIB Amaral & Walther 3.6. Data analysis
The interviews were conducted during March and April 2017. All of the interviews were recorded with the permission of the interviewees. Two of the five interviews were held in person in Stockholm and the three other interviews were conducted by phone. All of the interviews were transcribed in order to facilitate the data analysis process.
The gathered data was analyzed through a process of thematic analysis in which the raw data was studied in search of its principal themes and ideas. (Matthews and Ross, 2010) In a first step the transcripts were coded manually and afterwards they were transferred into a single spreadsheet. Each interviewee was assigned a color, so each code could be connected easily to the specific interviewee. For the next step the codes were organized and grouped into categories and sub-categories. The codes were extracted and grouped regardless of their fit to the conceptual framework. However, some of the categories were influenced by previous literature research and the categories of our framework. As recommended by Eisenhardt (1989) the whole process was iterative and codes were eventually re-coded and re-categorized as our focus became clearer. An extract of our coded spreadsheet can be found in Appendix B.
3.7. Validity and Reliability
We tried to increase the validity during the semi-structured interviews by clarifying the question when prompted and asking follow-up questions to explore the topics (Saunders et al., 2009). The interviewees varied in their experience in the industry and the amount of projects they have worked on, but all respondents provided valuable insights to our purpose. We emphasized the process of finding respondents that are relevant to our research question. In order to validate research this is a critical procedure. (Miles and Huberman, 1994) Another measurement taken was to ensure validity through triangulation with the use of alternative sources of data wherever possible (Saunders et al., 2009).
The generalizability of findings from qualitative research has to be considered carefully. The more applicable the findings of a research study are to other settings, the higher is the generalizability. (Saunders et al., 2009) Our research consists of five different interviews from five different companies, all of them founders of a game development firm. On the one hand this low number of interviews has practical reasons since it was difficult to find firm founders in our particular context who were willing to collaborate with us. On the other hand we were 20 Master‟s Thesis 30 credits | Department of Business Studies | Uppsala University Spring Semester of 2017 | Date of Submission: 2017-05-30 | MIB Amaral & Walther aiming for comparing different cases in-depth and a high amount of case firms would have exceeded the scope of this thesis. We are aware of the lack of generalizability of our findings due to the specificity of our focus, but believe this is justified by the small amount of research that has been conducted in this context.
When it comes to semi-structured interviews a degree of standardization may reduce the reliability (Ghauri and Gronhaug, 2010). By showing transparency in our methodological choices and our process of arriving at the findings, we want to counterbalance that by ensuring that other researchers understand our process - as Saunders et. al (2009) suggest in terms of reliability. Moreover, our interview guide and our coding categories can be found in the appendix for the same reason. However, we are also aware that there might be alternative explanations to our findings that differ from the respondents‟ subjective reasoning. We tried to discuss the different topics without forcing their connections to internationalization, in order to ensure higher data quality and avoid interviewee bias.
In connection to the abductive approach to case research, we acknowledge the difficulties in addressing the credibility of an approach that mixes both deductive and inductive elements and runs the risk of being quasi-deductive testing of theory (Dubois and Gadde, 2002). To address this we strived to demonstrate coherence through description of the research process to the reader (Eisenhardt, 1989), thus showing not only what we learn but also how we learn as suggested by Dubois and Gadde (2002). This will help the credibility of the study and show the empirical process more clearly.
21 Master‟s Thesis 30 credits | Department of Business Studies | Uppsala University Spring Semester of 2017 | Date of Submission: 2017-05-30 | MIB Amaral & Walther 4. Findings
4.1. Classification of firms
The founders of the firms have varying levels of seniority and experience in the industry, but their background is similar in many ways. Before founding these firms, all of the founders had experience with programming, most often through formal education except in one of the cases where it was self-taught. While some had previous work experience in the gaming industry before founding, most had worked in unrelated industries, ranging from the finance sector to internet service providers. None of the founders had any international experience in the sense of living or working abroad before the formation of the firm. The founders were all programmers with an interest in games and all of them are either the founder or co-founder of the firm.
The size of the firms in terms of number of employees range from 1 to 15 which would be considered micro or small according to EU standards. Micro companies earned 2% of Swedish industry revenues in 2016, and small companies earned 6%. (Dataspelsbranchen, 2016) One firm is the outlier at currently 65 employees, which would be considered on the lower scale of a medium firm, which ranges from 50 to 250 employees (see Table 2). We decided however not to exclude this firm in our analysis due to the fact that they made the step into a medium sized firm recently and during the development of their latest title were still what would be considered as a small-sized according to this definition.
The firms are actors in the same industry since they all meddle with the overarching process of game development. A key similarity for these firms is that all of them have developed, are developing or want to develop and launch their own game. This lies behind an interesting pattern that places all five firms somewhere on the same continuum which is made up of three separate but often overlapping stages:
22 Master‟s Thesis 30 credits | Department of Business Studies | Uppsala University Spring Semester of 2017 | Date of Submission: 2017-05-30 | MIB Amaral & Walther
Figure 3: Three stages model (own illustration) Subcontracting seems to be a natural first step to game development in this sample, with four out of five having started at this stage. Pure subcontractors such as Fablebit and Pixeldiet are consultants that work on games developed by other firms. Both of these firms have the intention to develop and launch a game in future. Webcore Games and Fatshark also started out as subcontractors, and this type of work-for-hire is still a key aspect of Webcore‟s business. But both of these firms have also moved to the next stage of the process.
The stage of game development implies that the firm will develop a game and publish it with the assistance of a publisher. After a long history of subcontracting for clients, Webcore Games developed their first PC game and worked with a publisher to launch it. Fatshark also developed a few games and launched them in the same manner. Perhaps the most entrepreneurial of the firms, Urban Games skipped the first stage and launched their game „Train Fever‟ directly upon founding and „Transport Fever‟ in sequence, both through publishers, but have expressed a desire to move to the last proposed stage.
The last stage is defined as self-publishing which includes both developing a game and publishing it independently. Fatshark is the only firm in our sample that is currently at this stage. After going through subcontracting and game development with publishers, they developed and published a few titles without external partners, the latest of which is „Warhammer: End Times – Vermintide‟. It is important to note that this stage is not necessarily the end goal for these firms, nor is it the most optimal stage to be in. It represents simply one of the strategic approaches to being a small firm in this industry.
The findings are presented in accordance with this three-stage model for a few reasons. This proposed model is an interesting finding in itself and elaborating on it, by using the case 23 Master‟s Thesis 30 credits | Department of Business Studies | Uppsala University Spring Semester of 2017 | Date of Submission: 2017-05-30 | MIB Amaral & Walther firms, shows its apparent applicability. In a way, this is an attempt to loosely cluster the firms into three different categories according to the stages. This eases the presentation of the findings since each stage has particular features and challenges, even if there are features and firms that overlap over different stages. Indeed, a key characteristic of the model that will be displayed is that it is a continuum where a firm might move from one end of subcontracting, to the other of self-publishing. But there is no linear direction and one firm can cover the entire spectrum with different projects. In line with this thinking, we intend to present the findings that are most relevant to the business of these firms and later discuss internationalization as it emerged as a theme in these cases. We therefore present internationalization in a separate sub-section of the findings.
4.2. Subcontractors
In our data, there are two examples of companies that can be aligned to the first stage of small-sized game development firms. As outlined in the previous section we summarize them under the category of subcontractors. In 2016, around 4% of companies in the Swedish gaming industry reported to have worked in projects as consultants (Dataspelsbranchen, 2016).
The first example of such a firm that is acting as a subcontractor is Fablebit. Fablebit is at this point a one-man business which is founded and owned by Mikael Säker. He has a background in mathematics and creative writing and started off after university with his own firm in the fields of Internet Service Providing. Säker has extensive experience from the gaming industry in Sweden, having worked with large studios such as Starbreeze and Avalanche in their early founding days. Since 2010, Säker has been able to use his experience, skills and network to focus completely on his own firm. Running his one-man firm, he has managed to receive a fixed income through work for hire for various game developers. Fablebit provides consulting services in the field of story writing and game mechanics design.
The second example of a game developer that can be assigned to the category of subcontractor is Pixeldiet Entertainment. The company was founded in 2011 by Simon Lundmark and Fredrik Engkvist. Simon Lundmark got into the video games industry through writing his Master thesis at Avalanche Studios and was offered a job during that time. Two years later he joined another company called Starbreeze Studios. During this time he met Fredrik Engkvist and in 2011 they saw the opportunity of offering their programming services
24 Master‟s Thesis 30 credits | Department of Business Studies | Uppsala University Spring Semester of 2017 | Date of Submission: 2017-05-30 | MIB Amaral & Walther to Arrowhead Studios and therefore decided to found their own firm. Currently, they are three employees and were involved in the development of „Warhammer: The Endtimes – Vermintide‟ which is developed and published by Fatshark.
In order to work as a subcontractor, both Säker and Lundmark point out the importance of having a background in the industry in order to have contacts but also to develop a positive reputation.
“I‟ve been doing this for 15 years now, and I‟ve been at a number of companies so I know people pretty much everywhere. I think that is a requirement.” (Mikael Säker, Fablebit)
“You need to be able to reach out to other developers and say that „hey guys we know that you‟re doing this new project and we think you might need some more programmers‟. So it‟s also trying to convince them that they need us”. (Simon Lundmark, Pixeldiet)
“What I do is risky for a company to bring someone new in. So they would rather have someone who is having a lot of experience and that‟s been doing it for a while.” (Mikael Säker, Fablebit)
Moreover, Säker points out that if you deliver constantly good work and make yourself a name within the industry, the projects that you can pick from get more in number and especially attractiveness. Säker therefore was involved in multiple titles from the „Battlefield‟ series and is currently involved in a project with King.
Lundmark also pointed out that subcontractors are beneficial for companies since they have clear responsibilities and deadlines according to a contract.
“That creates a very interesting power structure in a project. Contractors are people who just want to do what is best for the project. They don‟t want to climb in the hierarchy of the structure in the company and just want to do a good job.” (Simon Lundmark, Pixeldiet)
At the same time, it is important for a subcontractor to choose carefully which project they decide to join. Being part of a video game that turns out with a low quality can ruin the name of a subcontractor as well. This is a significant risk for his business according to Säker.
25 Master‟s Thesis 30 credits | Department of Business Studies | Uppsala University Spring Semester of 2017 | Date of Submission: 2017-05-30 | MIB Amaral & Walther From the perspective of Fatshark, a company that is relying on subcontractors for their projects, Wahlund mentioned that his firm sometimes uses subcontractors when they are facing a bottleneck or need help in a certain field of expertise. Additionally, Wahlund stated that subcontractors are obliged by contract to deliver in a certain range of quality and by a specific deadline. This makes the whole production to a certain degree more predictable than doing everything in-house.
Asked about their long-term goal both founders of the subcontracting firms Fablebit and Pixeldiet mentioned that they have the ambition to release their own game in the future. Lundmark sees subcontracting as a method to obtain the financial basis for their own game in the future.
“The entire thing that we‟ve been doing for the last five years is to be able to finance ourselves. So personally we‟ve actually taken quite a low or decent paycheck. So we just accumulated money and for some of the projects that we‟ve been through, we have received lower payment from them in exchange for a percent of the winnings. We‟re just starting to see the revenues from those come in now. So it looks like after we‟re done with our current project at Arrowhead, we have the funding to develop our own game.” (Simon Lundmark, Pixeldiet)
This pattern of business development is also found in the history of Fatshark. The firm started off as a subcontractor and has grown into a firm that is developing and publishing their own games.
“We had a long-term plan, we started as subcontractors. We were working to learn the trade, then we took on larger subcontracting projects where we had more people involved in the production. Later on we did work-for-hire for publishers so we did full games. Then the natural step in the end was to make your own games that are self-funded and self-published which we are doing right now.” (Martin Wahlund, Fatshark)
In accordance with that Wahlund mentioned starting off as a subcontractor is a common path since it goes along with a very low financial investment. On the other hand, you have to have the skills that are demanded in the industry.
26 Master‟s Thesis 30 credits | Department of Business Studies | Uppsala University Spring Semester of 2017 | Date of Submission: 2017-05-30 | MIB Amaral & Walther “... you don‟t need a big investment capital when you start. You basically need a computer and the skill to do stuff. That was one of the things we really liked and we knew it was a fast-growing market as well.” (Martin Wahlund, Fatshark)
Starting off a game firm as a subcontractor is according to Lundmark also a good way to learn about game development in general since it provides a lot of insights into the industry.
“We learned a lot about game development that way and we got to know a lot of people in the industry, which was crucial for the future.” (Simon Lundmark, Pixeldiet)
4.3. Game developers
We have identified two firms from our dataset that can be assigned to the second stage of game developers. Webcore and Urban Games both released games that they developed on their own but launched with the support of a publisher. In this sense the firms are similar but what differentiates them is that they come from another starting point.
Webcore Games is a subdivision of the Brazilian firm Webcore Interactive, focusing on developing games and services for different clients within the video games industry and consumer product firms. For the latter they developed interactive content such as websites or apps. Based on one of their founder‟s passion for video games and the evaluation of the gaming industry they decided to focus their resources on Webcore Games and release their first PC and console title called „My Night Job‟ in 2016.
The second company that we align to this stage is the Swiss game developer Urban Games. Urban Games started right away with the development of their own game and were never involved as a subcontractor in any other titles. One main reason for jumping directly into their own development was that the founders Basil and Urban Weber identified an opportunity in the gaming market due to the lack of transport simulation games and the big success of those games in the past. Besides their passion for gaming, one of the founders was working prior to the founding of Urban Games in a firm that focused on city modeling. With this expertise, he and his brother developed a first version of the game in their spare time before they decided to found their firm in 2013 and release „Train Fever‟ together with a publisher in 2014.
27 Master‟s Thesis 30 credits | Department of Business Studies | Uppsala University Spring Semester of 2017 | Date of Submission: 2017-05-30 | MIB Amaral & Walther One main reason for using the support of a publisher is financing as Fernando Chamis, the co- founder of Webcore and the president of the Brazilian Game Developer Association Abragames, points out:
“We thought about launching it [My Night Job] by ourselves but we saw that we need the money to finish and release the project. So we were looking for a publisher. For sure we might get a loan from a bank but we wanted someone to invest together with us.” (Fernando Chamis, Webcore Games)
As inclined by Chamis a publisher also takes on a bigger role than solely financing a project. In the case of Urban Games, Weber talks about the different function that their publisher took on, emphasizing that it was more of a partnership that facilitated many aspects of the launch process:
“Our publisher was kind of an allied publisher. It means what they do is that they are responsible for publishing itself, so they have contracts with Steam or other distribution platforms. They are responsible for marketing and have a budget for that. They organize press tours like Gamescom and things like that. The special thing about our publisher is that they are very developer friendly. For them it‟s clear that the IP of the project should stay in the hands of the developers. That was actually the main reason why we work with them. They did take us serious. When they make a decision they always asked for our opinion. Regarding this they are very different from other publishers.” (Basil Weber, Urban Games)
Based on their various negotiation experiences with publisher Weber states that it is important for game developers to have a big focus on the business side because publishers can take advantage of you.
“Especially when it comes to publishers you need to be quite strong in negotiations. Usually publishers want to give you the money in advance and in return they make a contract suggestion that they get 80% of royalties.” (Basil Weber, Urban Games)
According to Martin Wahlund from Fatshark releasing a game with a publisher also bears problems and changes the development process fundamentally.
28 Master‟s Thesis 30 credits | Department of Business Studies | Uppsala University Spring Semester of 2017 | Date of Submission: 2017-05-30 | MIB Amaral & Walther “I‟d say the difference is that usually, when you have a publisher, is that you have an external part that puts pressure on delivery. […] Publishers have slots when they have to release a game. For example they book a lot of marketing in advance. So you are kind of locked in and have to handle everything in a different way with a publisher.” (Martin Wahlund, Fatshark)
Releasing a game through a publisher can therefore be a reasonable way for a game development firm that lacks financial resources and knowledge of the whole distribution chain. However, by working with a publisher they give away a degree of freedom in their development process and often a big cut of their sales profits. Both Urban Games and Webcore Games mentioned that they are considering for their future projects to release their games without a publisher. Game developers that decide to self-publish fall within the third stage of the proposed process.
4.4. Self-publishing
The last stage is reached when a firm is able to develop a game and publish it independently without using a publisher. Only one of the five firms in our sample has tried their hand at this, but only after having gone through the first two stages.
This company is Fatshark and was founded by Martin Wahlund and four other co-founders who shared two things in common - a passion for games and a desire to have their own company. Like many of the other case firms, Fatshark started out as subcontractors in 2007 working on game development for clients. Then over the next few years the firm developed a few titles and worked with publishers to release them. Already in 2011 the firm published their own game „Hamilton‟s Great Adventure‟, and until 2016 moved between self-published and publisher-aided releases. Their latest release „Warhammer: End Times Vermintide‟ has sold over a million copies (Larsson, 2017). The idea for the game started by looking at what type of market seemed attractive and how they could stand out in the market, in this case by making a partnership with the well-known intellectual property of Warhammer:
“We knew we needed to do a really good game in the right genre. So we looked at what kind of genre does sell a lot of games and we picked one of them which was the co-op genre and which was kind of popular. Then we also realized that with the amount of new games coming up on Steam we figured
29 Master‟s Thesis 30 credits | Department of Business Studies | Uppsala University Spring Semester of 2017 | Date of Submission: 2017-05-30 | MIB Amaral & Walther out that as an independent development, it would be wise to use a brand through the noise” (Martin Wahlund, Fatshark)
After having chosen the genre of co-op and a strategy to make the game stand out, they also decided on a sub-genre that seemed underserved in the market, and matched the competences of Fatshark:
“We are good at multiplayer games and we also want to be best at something. We realized that first person melee is an underserved niche. We had done a lot of third person melee games and we felt that we can do a really good game and there are not a lot games with a first person melee. So that was also a decision. It was actually not just like „we do a game‟. We tried to analyze what kind of games can we do, what kind of game would be great and what kind of games are wanted in the gaming community.” (Martin Wahlund, Fatshark)
The decision to self-publish is justified by two major factors, the first being that they are able to exercise a greater degree of control over the development process:
“Another major thing that was really important for us was to be able to control the release date. We were able to wait until we thought the game was really good and release. The agility that we have and also the freedom to develop whatever we want is the upside.” (Martin Wahlund, Fatshark)
The second and perhaps most natural justification is that by going at it independently one can keep a larger part of the revenues by “cutting out the middleman”:
“And the third thing is that you get a bigger part of the value chain. So we only paid 30% in distribution fee or something like that. If you have a publisher they have their cut as well. I mean if you are able to do it and you have the skill set and people to do it that‟s a great way. Sometimes I would recommend going with a publisher - I don‟t say that it‟s a stupid thing to go with a publisher. But if you are comfortable with what you are doing you are able to get a bigger cut of the value chain by yourself.” (Martin Wahlund, Fatshark)
30 Master‟s Thesis 30 credits | Department of Business Studies | Uppsala University Spring Semester of 2017 | Date of Submission: 2017-05-30 | MIB Amaral & Walther However as it has been displayed in all of the cases, funding the development of a game is perhaps the most prominent challenge for the firms in this study. As it has been mentioned, working with a publisher in the second stage of our model is a way to overcome this challenge. Subcontracting is a method of funding a game as in the case of Pixeldiet, or public competitions in the case of Webcore Games who later also hired a publisher. In the case of Fatshark, the majority of the funding was acquired through the sale of their subsidiary Bitsquid in 2014. So while self-publishing is a strategy enabling greater control over the process and higher potential earnings, it also presents the challenge of financing and of having the competence to do the work that publishers usually do such as marketing and distributing the game.
4.5. Internationalization
4.5.1. Internationalization in terms of customers
The level of internationalization of the customer base differs strongly between subcontracting and game development. For subcontractors, whose customers are other game development firms, the services are provided mostly locally to other firms, especially since clients are often found through previous work contacts. Local informal networks can also be a way of finding work:
“I had a couple of examples where people have approached me on LinkedIn and that has actually led to something small. But other than that it‟s mostly that you meet people and get to know them. You do lunches… there‟s a pub, it was a while ago they ran it but they used to run a pub every two months for the Stockholm game development people. It was really well-attended, it was fun, you meet people and you talk about what are you doing, things happen.” (Mikael Säker, Fablebit)
However, even subcontractors work on games that will then eventually be sold to the end- customers, who are players. When this is considered, then the task of assessing the market becomes more difficult since the people who will play the game are scattered around the world:
“We‟re looking a little bit at target groups and so on. But we are doing games that are mainly digital and therefore global. That‟s the great part with games industry – it is that you need to go global. You don‟t have an internal 31 Master‟s Thesis 30 credits | Department of Business Studies | Uppsala University Spring Semester of 2017 | Date of Submission: 2017-05-30 | MIB Amaral & Walther market, you can‟t basically survive as a larger game company by selling them only e.g. in Sweden. You need a global sales strategy from day one. You have to have a global mindset when you do the game.” (Martin Wahlund, Fatshark)
Indeed, in the case of the Swedish gaming industry, almost 99% of industry revenues are originated from abroad (Dataspelsbranchen, 2016). Prior to the development of „Transport Fever‟, Urban Games was aware that they would find customers in the German-speaking countries because these countries have historically enjoyed simulation games. However, poor performance in the United States prompted the firm to develop DLC (Downloadable Content) specifically for Americans:
“Our game is very popular within the German speaking countries. In Germany we sold 20-25% of all sales. That was expected because simulation games are very popular in Germany. In the US we only sold about 15 percent. That was not expected because US is three or four times bigger than Germany and we only sold half the number of units.(...) We wanted to make the game attractive to Americans as well because we found out that we didn‟t sell enough there.” (Basil Weber, Urban Games)
North America is a large market in terms of revenue having represented 25% of the global market in 2016, which is more than Europe, Middle East and Africa combined at 24%, but nowhere near the 47% share from Asia-Pacific customers (Newzoo, 2016). Given that the market is technically global, the firms sometimes localize their products as Urban Games attempted to do with extra content for Americans. In other words, some adjustments have to be made in order to fit different countries. However, the degree of complexity of these adjustments varied between projects. Sometimes specific features of the game have to be changed in order to avoid offending different cultures, but that change will apply globally, as Säker mentions:
“There are some things we have to cater for though. Everyone knows that these games are going to be sold massively, on the mass market. So we steer away from some things because we know it is probably going to be sensitive. And we are really careful about how we portray things. For example in the latest Battlefield game, we have a section where you play in a Lawrence of Arabia episode and you play a female. And playing a woman in that situation 32 Master‟s Thesis 30 credits | Department of Business Studies | Uppsala University Spring Semester of 2017 | Date of Submission: 2017-05-30 | MIB Amaral & Walther at that time, you have to be really careful about how she is dressed, because there are so much cultural things that we have no clue about. So it‟s a bit dangerous for us as Swedes to start to go out and see this highly sensitive conflict that we‟re going to portray – we can step on toes without realizing it.” (Mikael Säker, Fablebit)
Despite these efforts to depict cultural content accurately, changing the game to fit country- specific demands is not viable in most cases since they are released globally. Localizing the games can sometimes be simply translating it to other languages, as demonstrated by the Webcore Games example that is supported by Fatshark who explained that “localization” for them means translating, but changing the core game would be “too much work”. However, the company did release a retail version of the game to reach more markets:
“I always say that it‟s not good to develop a game for the Brazilian market, because the market is not so good here. And also it‟s easy to translate your game to other languages.” (Fernando Chamis, Webcore Games)
“And we have obviously had to do a lot of localization to make sure that people in different region can play it. We also made a retail version to allow people with a lower bandwidth to play without downloading the full game.” (Martin Wahlund, Fatshark)
Targeting regions is possible through translation and sometimes even extra content such extra downloadable content for the game, but the case firms usually mentioned that they see markets in terms of genres instead of nationalities. The firms therefore do not develop a game for a particular country, but rather for a particular genre of games and release it worldwide.
4.5.2. Internationalization in terms of competition
In terms of competition the interviewed founders had different viewpoints regarding where their firm stands. Subcontractors like Fablebit or Pixeldiet mentioned that they are not involved in the early phase of a project so subcontractors usually do not have to have an eye on what competitors do from a product perspective.
As soon as a firm starts to develop their own game, this focus changes. Martin Wahlund from Fatshark mentioned that they usually look at products that are already on the market and try to differentiate from them - but otherwise try to have a focus on their game and not spend too
33 Master‟s Thesis 30 credits | Department of Business Studies | Uppsala University Spring Semester of 2017 | Date of Submission: 2017-05-30 | MIB Amaral & Walther much time on what competitors do. In line with that is Basil Weber from Urban Games who mentions that for their case of simulation games, competition can even be beneficial in order to make their genre of simulators more popular. However, he also points out that if someone would release a game within the same genre during a similar timeframe, this is likely to decrease their sales. This is why many publishers try to influence the release date.
Wahlund argues that particularly the small game development scene is very cooperative and rather supporting than competing with each other. Firms do however compete for talent in the industry:
“The game development scene is very cooperative. People exchange experience and are supportive to each other. For example we have the international GameDev network where a lot of people meet up and exchange in real life and online. We have a lot of stuff in common and we try to cooperate a lot. We don‟t compete directly with each other‟s games but we compete about employees.” (Martin Wahlund, Fatshark)
All the interviewees confirmed that digital distribution platforms such as Steam enable game developers to avoid the production costs of physical retail versions. The dependence on a publisher has lowered, causing developers to gain more power in the industry.
“These platforms are great for independent developers. Today you can develop a game and you can sell it over the whole world with a few clicks. That was impossible before. Earlier you have always been dependent on a big publisher. That is not necessarily needed anymore. And you also earn much more than in classical retail.” (Basil Weber, Urban Games)
Martin Wahlund also points out that those digital platforms are the reason why the whole world can be seen as one market and you do not have to consider different countries when it comes to distribution.
“If we want to sell to multiple countries from a physical, retail perspective you need to deal with every single market. (...) It wouldn‟t or we are not that core competent doing that kind of deals. (...) If you want to do physical retail you need to buy a certain amount of copies ahead and you need to produce and print them. There is a lot of costs before you can see actually any money. And then you get paid when the store sells. So it‟s a longer road and more 34 Master‟s Thesis 30 credits | Department of Business Studies | Uppsala University Spring Semester of 2017 | Date of Submission: 2017-05-30 | MIB Amaral & Walther investment needed to repay. While digital, you can sell 100,000 or 1 million copies it is still the same costs in terms of production. Because there is just like pressing a button and put it live on Steam or whatever digital distribution you have. And you keep selling games without any costs of goods and that stuff.” (Martin Wahlund, Fatshark)
Besides those benefits two interviewees also mentions the downside of these digital platforms. The ease of releasing and the sheer amount of games is increasing the competition.
“I mean everybody with technical skills and persistence can release games on digital platforms but it‟s harder to reach out through the noise.” (Martin Wahlund, Fatshark)
“We realized that if we‟re going to release a game on Steam now, it has to be something that actually rises above the mass.” (Simon Lundmark, Pixeldiet)
The companies in our samples that developed their own game tried to deal with this mass market by standing out of the crowd through a focus on a unique product. Whereas Fatshark used the „Warhammer‟ IP, Webcore Games used the setting of old and iconic horror movies and Urban Games used the historical success and lack of current supply for simulation games to stand out of the mass and differentiate within a mass market.
35 Master‟s Thesis 30 credits | Department of Business Studies | Uppsala University Spring Semester of 2017 | Date of Submission: 2017-05-30 | MIB Amaral & Walther 5. Analysis
5.1. Introduction
Whereas our findings section focused on the eminent topics that came up based on our coding of data, we will shift the focus of the analysis back to our conceptual framework of born global theory. We will combine our gained insights for our specific context of small-sized game development firms with the factors of our conceptual framework in section 5.2-5.4. With this approach and from our gained insights we intend to shed light on whether born global theory can be helpful to further explore the context of these firms.
5.2. Macro-environmental factors
5.2.1. Market internationalization
As mentioned by Madsen & Servais (1997) and outlined in the theory section, certain characteristics and conditions of the global business environment bear a high importance to the propensity of born global firms. When it comes to analyzing the video games industry and more specifically the business of small-sized game development firms the degree of market internationalization is a cornerstone for the discussion of the extent to which such firms can be seen as born globals.
Taking Sweden as an example the rate of market internationalization is surprising. Swedish game firms generate 99% of the industry revenues outside of the domestic market (Dataspelsbranchen, 2016). The three respondents that we aligned to the game developer or self-publisher stage stated that they do not consider specific countries or a singular region for their product. It was mentioned that a global mindset is needed when producing a game and there is even a need to sell globally from inception since you cannot live from sales from your domestic country. According to Wahlund, it is a requirement that their games bear a potential in the major regions such as Europe, North America and Russia. Data from Steam Spy, a website that tracks sales and player statistics on the Steam platform, confirms that in May of 2017 „Vermintide‟ had active players worldwide: 35% from North America, over 30% from Europe and 9.4% from Russia. (Steam Spy, 2017)
Market assessment based on one specific country therefore seems less relevant and none of our interviewed founders seemed to have undergone such a formal assessment before releasing a game. The responses that we got implied that companies do focus and assess 36 Master‟s Thesis 30 credits | Department of Business Studies | Uppsala University Spring Semester of 2017 | Date of Submission: 2017-05-30 | MIB Amaral & Walther potential successful genres or brands - such as „Warhammer' in the particular case of Fatshark. Focusing on such product attributes seems to be more important than assessing the different customer groups based on their country of origin.
As for the relation between domestic and international market, our findings support the theoretical argumentation by Madsen and Servais (1997) and Knight et al. (2004). The authors pinpointed the fact that firms are more likely to be internationalized if the domestic market is relatively small in size in comparison to foreign markets. Due to the enormous size of the global video games market, it is natural that selling to foreign markets is a basic requirement for game developers.
Whereas the market is highly internationalized from a consumer or output perspective, we saw in our data that this was not true for the market targeted by subcontractors. Both Pixeldiet and Fablebit were only working for companies within Sweden and mentioned the importance of their local network within Sweden. These subcontractors had no international outputs in terms of sales, and neither did they make use of resources from multiple countries since they used mostly their own competences (Oviatt and McDougall, 1994). Subcontractors have been shown to follow clients wherever they go (Madsen and Servais, 1997), but it seems that the two firms in our case were able to pursue a „born local‟ strategy (Rasmussan et al., 2001), by serving the growing game development industry in Sweden, and did not see the need to chase customers abroad.
5.2.2. Technology
Research on born globals highlights advancements in technology as an enabler of internationalization, as well as allowing firms to specialize and serve niche markets that could not have been targeted in the past (Madsen and Servais, 1997; Oviatt and McDougall, 2005). The video games industry revolves around technology-intensive products by nature, but digital distribution platforms such as Steam have significantly changed the distribution of games. As a result of this the physical market for video games has been decreasing gradually (Nichols, 2014). The threshold and requirement to release a game on a global market have become very low with such platforms. Moreover, the diminishing role of physical distribution is from a developer perspective making it possible to release a game without a publisher and having a bigger share of the value chain than in classical, physical retailing. All our interviewed founders mentioned furthermore that their businesses are to a great extent relying on such distribution platforms. The reason for that is that Steam makes it easy to upload and 37 Master‟s Thesis 30 credits | Department of Business Studies | Uppsala University Spring Semester of 2017 | Date of Submission: 2017-05-30 | MIB Amaral & Walther test games before release and there are no costs of goods except royalties to the platform. In contrast to classical retailing a developer gets the income from sales directly after a consumer has bought the product.
In the context of small-sized game development firms, the technological aspects or digital platforms per se are more than just an enabler. This technological aspect is to a large extent a prerequisite for those developers to exist since they can directly address large markets and the digital platforms act as global channels (Gabrielsson and Pelkonen, 2008), making it possible for game developers to become self-publishers and releasing a game that is according to their idea and not influenced by demands or requirements from a third party such as a publisher. Therefore, the technological aspect is not only an enabler but a basic requirement for small- sized game developers to become a born global firm.
5.2.3. Global competition
A high degree of internationalization of the industry competition implies an ideal context for a born global firm (Chetty and Campbell-Hunt, 2004; McDougall and Oviatt, 2000). Other authors even see global competition as the main reason for the existence of the born global phenomenon (Chetty and Campbell-Hunt, 2004). Especially in the context of the video games industry the global competition is therefore closely intertwined with the previous two factors of market internationalization and technology. Technology or digital platforms represent a global marketplace where a large portion of customers all around the globe is present. The country of origin of the consumer becomes to a large extent irrelevant which might be partly based on a cultural homogeneity in the video games market. At least our data shows that most firms do not have a profound market assessment of the different regions and especially do not adapt their product except in terms of language. Such cultural homogeneity across markets is usually another driver for firms to take a born global approach (Oviatt and McDougall, 1994).
It does not seem that competition is about gaining market share in specific regions or markets, but rather about making the product stand out from the vast supply of games. After all, just as digital platforms act as marketplaces where companies can find their worldwide customers, customers are able to find the majority of companies and games that are produced worldwide. Whereas larger game companies usually have large budgets for marketing and advertising, small-sized game development firms have to find a niche or stand out of the mass identifying a popular genre or like the case of Fatshark through a brand that will gain the attention of a specific customer group. In many cases, the small-sized game development firms are not 38 Master‟s Thesis 30 credits | Department of Business Studies | Uppsala University Spring Semester of 2017 | Date of Submission: 2017-05-30 | MIB Amaral & Walther direct competitors due to the large variation of genres. This might be a reason why the direct competition between game developers is rather low and described by Martin Wahlund as very cooperative. A symbol of this cooperation can be the aforementioned international game developer networks.
Since a cornerstone of the video games industry – no matter if small or big-sized firms – are creative and technical skilled employees, each company is in constant search for people with those two traits. During our research of potential firms for the sample, most were on the lookout for talent through job advertisements on their websites. From a subcontractor perspective, it is also common that a client offers them to join the company after a successful contract work – which both our subcontractors have experienced but eventually denied. So one aspect where the firms are directly facing heavy competition is in the search for talent.
5.3. Founder factors
5.3.1. Past international experience
A newly founded firm‟s strategy and subsequently also its internationalization process are directly affected by the founder. It can be assumed that this comes even more into play when it comes to small-sized firms. Madsen and Servais (1997) propose that the past experience of the founder determines the geographical location of activities. Mathews and Zander (2007) assume that born global firms are often created by internationally experienced individuals. However, based on the founders that we interviewed we could not confirm this. None of our five interviewees had international experience neither from working nor studying abroad. For our specific context of small-sized game developers, we cannot draw a parallel to this factor and see the international experience as irrelevant. Work experience in the industry and the resulting network of contacts are more important individual characteristics in the sample of founders, especially for subcontractors. But these characteristics are not linked to internationalization but rather to the general operation of the businesses in this industry.
5.3.2. Motivation and ambition
In their studies, Galloway and Mochrie (2006) capture and operationalize the motivations and ambitions for business ownership. Madsen and Servais (1997) stress the importance of the international experience as a condition that creates the motivation and ambition to become a born global firm. On the one hand, we can relate and identify similarities to the operationalization provided by Galloway and Mochrie (2006) in our context. On the other 39 Master‟s Thesis 30 credits | Department of Business Studies | Uppsala University Spring Semester of 2017 | Date of Submission: 2017-05-30 | MIB Amaral & Walther hand, these firms lack international experience and don‟t see the desire to internationalize as a main ambition or objective (Rasmussan et al., 2001).
Two main motivators of entrepreneurs according to the study of Galloway and Mochrie (2006) is that the entrepreneurs “saw an opportunity and acted on it” and that they “wanted to do something that they enjoy”. Most of our interviewees mention reasons that fall under this category when asked why they decided to start their own firm in the video games industry. All of them mention their passion for video games and therefore their desire to found their own firm either as a long existing dream or that came up during working in the industry. The identification of a business opportunity is also a motivator that we found in our data, which is also suggested as the spark in the entrepreneurial process (Mathews and Zander, 2007). As outlined previously the founders of Urban Games saw the lack of simulation games and the historical success of these as an opportunity. Another example is Simon Lundmark from Pixeldiet who realized that their specific technical knowledge was in high demand by other firms.
In terms of ambition of the firm, we identified what Galloway and Mochrie (2006) describe as the third most common ambition of entrepreneurs “to grow and expand” as the most common answer that we received. Four out of five founders interviewed by us express the goal to grow the company. Moreover, all of them express the intention to develop their own game or releasing their future game independent of a publisher. Whereas in other industries expansion means increasing the geographical scope of the business in the context of small-sized game development firms this is obsolete due to the market being largely internationalized thanks to digital platforms. However, we noticed the desire of the founders to expand in terms of developing their firms towards an independent, self-publishing game firm. We think that this ambition is a key driver for small-sized game development firms and one major aspect that guided us to the stage model as presented in the findings section.
5.3.3. Global orientation
While literature often explains a global mindset by pointing to past international experience (Kyvik et al., 2013), the lack of international experience or particular ambitions to internationalize did not prevent some of the founders from having an acceptance of the globalized nature of the market they acted in. The impression from talking to the founders, which was confirmed by secondary data, was that the domestic market was indeed too small and making games for the global market was a natural strategy for the gaming studios. This 40 Master‟s Thesis 30 credits | Department of Business Studies | Uppsala University Spring Semester of 2017 | Date of Submission: 2017-05-30 | MIB Amaral & Walther global outlook of the world as one large marketplace for the games (Knight and Cavusgil, 2004; Madsen and Servais, 1997) did not seem to be developed from previous exposure to international markets, but rather seemed implicit and commonplace in the industry, to an extent that it is taken for granted. This once again shows how the global profile of the industry undermines the role of the individual in dictating the propensity to a born global approach. When the service being provided is consulting about game development, customers were mostly domestic and the orientation was therefore not global. But the work done by these subcontractors on games had to be done with a global outlook since the games would be sold to the global market as well.
5.4. Organizational factors
5.4.1. Foreign market knowledge
The firms seem to value the possession of market knowledge and a general assessment of the potential demand for their games is a preliminary step prior to development in many cases. However, an important distinction is found in the parameters that are used to define markets. The traditional challenge of overcoming the liability of foreignness through the accumulation of knowledge (Johanson and Vahlne, 1977) is not applicable because the market is not defined in terms of countries, but rather in terms of game genres. This is in line with the proposition that lower country-specificity of market knowledge allow born globals to find homogenous worldwide markets that do not require high resource commitments to be served simultaneously (Madsen and Servais, 1997), as exemplified by game translations as an effective tool to reach markets. Instead of serving each country with localized products, the firms look at global trends such as popularity of particular games or genres and develop games accordingly.
Despite claiming that market assessment is a part of their development process, firms also seemed to only know about the performance of the game by region after releasing it, admitting that they often expected a specific performance in regions but the sales did not match this expectation, as in the case of American performance for Urban Games and Webcore Games. This difficulty of understanding the true potential of products could be linked to complex and creative nature of video games, which makes it difficult to determine the extent of market acceptance (Ström and Ernkvist, 2012). This performance uncertainty is counterbalanced for instance by looking at previous successful games in their target genre. But most of all, the fact that regional performance is to some extent unknown prior to release, 41 Master‟s Thesis 30 credits | Department of Business Studies | Uppsala University Spring Semester of 2017 | Date of Submission: 2017-05-30 | MIB Amaral & Walther reinforces the fact that foreign market knowledge is not considered paramount. Firms often mentioned focusing on making a „good game‟ as opposed to knowing where it will sell the most and targeting markets accordingly.
The firms would all be defined as knowledge-intensive in that they are largely dependent on products that are developed through the application of extensive knowledge and replicated easily (Oviatt and McDougall, 2005). In this case, extensive experience in game development allows these firms products that can be distributed digitally. Games are after all a software industry, which as pointed out by Oviatt and McDougall (1994) are suitable for rapid internationalization because while they entail long production time until a product is finished, it is much easier to distribute these products due to the mobile nature of knowledge and of digital software (Galimberti and Wazlawick, 2015). Using the internet as their path to immediate internationalization, these firms do not need to establish themselves physically in any of the countries that they serve but this does not seem to cause a virtuality trap since the customers are mostly online anyways (Sinkovics et al., 2013). Games are knowledge- intensive products imbued with the game developers‟ expertise, and the difficulties of funding these long production times are clear in the business of every firm. Game development is therefore pursued alongside informal self-funding methods such as subcontracting work or unrelated jobs, or through formal funding by publisher partners.
5.4.2. Competences
In line with the findings of Cunningham et al. (2012), the importance of publishers in the value chain of the game industry is highlighted in our findings. The use of partnerships with publishers is first and foremost a way to overcome the challenge of funding. However, these partnerships are also a way of tapping into the competences required to publish a game, which are not the same as the ones required for developing it. The game development firms thus access complementary resources (e.g. financing) and competences (e.g. marketing and distribution) owned by publishers in order to successfully launch their games. The firms tackled resource and competence constraints through hybrid governance structures and partnerships, as described by early research on born globals (Madsen and Servais, 1997; Oviatt and McDougall, 1994). It would be speculative to claim that to say that a networking capability was at play in capturing these external competences (Karra et al., 2008; Weerawardena et al., 2007), but finding the right publisher for your game can according to the
42 Master‟s Thesis 30 credits | Department of Business Studies | Uppsala University Spring Semester of 2017 | Date of Submission: 2017-05-30 | MIB Amaral & Walther firms determine the global success of games. Publishers therefore are powerful actors in the industry, which explains the desire of self-publishing that is observed in the cases.
When a firm tries to publish their own games, they are in essence trying to capture more of the value chain by broadening their scope of operations to include more steps of the stages proposed by Johns (2006). This is the flipside of the trend of publishers taking control of the development of games by purchasing studios or developing in-house (Larsson, 2006). As pointed out in the self-publishing case of Fatshark, this requires new and broader competences which in turn require larger teams of people for the project. This expansion does not seem to be enabled by the possession of a particularly specialized competence (Madsen and Servais, 1997) but rather the opposite, that the firm believes it should broaden its capabilities to that of a publisher. On the other hand, subcontractors serve as an example of actors with specialized competences for sale. They do not face the resource constraints of born global firms but instead play a role in overcoming other firms‟ constraints as in the case of the „Vermintide‟ project.
5.4.3. Networks
The highlighted importance of establishing an appropriate publisher (Cunningham et al., 2012) could be considered from a network perspective, but based on the findings it seems that this is rather a dual relationship between business actors akin to an investor and investee since funding is its backbone. The relationship between the developer and the publisher is important and can affect the development process as demonstrated by the example of publishers rushing the release of games. Publishers don‟t affect the speed of internationalization since it is immediate, but do seem to affect international performance according to the firms. The role of networks in affecting the internationalization process, for instance by determining the choice of the foreign market (Oviatt and McDougall, 2005), is undermined by the globalized nature of the target market which once again eliminates the need for entering local business networks. On the other hand, formal networking events such as Game Connection Europe were mentioned a few times and led to one firm finding their publisher, so the role of such these international networks should not be overlooked.
It is important to note the use of networks can be much more evident in the business of publishing. Firms can and do sometimes distribute their games exclusively through digital platforms, but physical distribution is still a viable strategy and requires local partnerships and networks to a much larger degree (Madsen and Servais, 1997). The process of game 43 Master‟s Thesis 30 credits | Department of Business Studies | Uppsala University Spring Semester of 2017 | Date of Submission: 2017-05-30 | MIB Amaral & Walther development for the smaller firms is internally focused to a large extent, and partnerships with external actors usually consist of the two-way relationship that is governed by a formal contract as opposed to informal obligations as in a network structure (Oviatt and McDougall, 1994). The only case of self-publishing in this sample briefly mentioned their dependence on external foreign partners for physical distribution and we believe that a deeper look into the games publishing business would reveal similar trends.
Networks play an entirely different role in the initial stages of the firms that consisted of subcontracting or working for others. Here, the personal networks of the founder in the gaming industries prove to be valuable in serving many purposes. The founders used previous contacts to find clients and contracts that in many cases enabled the very founding of the firm. Networks thus serve the purpose of providing business opportunities (Weerawardena et al., 2007), albeit local as opposed to international ones. The firms also consider previous colleagues and contacts when hiring. Examples of informal networks such as a recurring social event for game developers in Stockholm point to a certain collaborative environment between firms. So while these social networks don‟t necessarily mediate internationalization (Zhou et al., 2007), since subcontractors focus on domestic clients, they do serve as platforms to find potential clients and talent.
44 Master‟s Thesis 30 credits | Department of Business Studies | Uppsala University Spring Semester of 2017 | Date of Submission: 2017-05-30 | MIB Amaral & Walther 6. Summary and concluding remarks
6.1. Conclusion
The paper aims to answer the question of whether small-sized game development firms are born global indirectly, by looking at whether some typical antecedent factors of a born global approach are present in these firms‟ context. In that way, the purpose is to analyze whether born global theory is relevant and applicable.
The nature of the process of internationalization for these firms turns out to be key in shaping the findings of this study. Upon interviewing the founders, it became clear that as proposed by Rasmussan et al. (2001), internationalization is not a main strategic objective for these firms. To become internationalized is not an active strategic choice, but rather a requirement for entering the industry. It is ill-advised, if not impossible, to have a game development firm serving only the domestic market. This highlights the importance of studying the firm in the context of the degree of internationalization of the market, which in the case of video game development is a defining factor. Indeed, the macro-environment sets the scene for the apparent requirement of immediate internationalization. Global competition is largely enabled by the digital nature of games and technologies such as distribution platforms. These conditions make the video games industry highly internationalized - a natural birthplace for born globals.
The founders of these firms have no previous international experience such as work or study abroad as suggested by research on founders of born globals. Instead, previous industry experience is more important since it helps the founders build reputation and skills that they can use in their own firm. In regards to the ambitions and motivations prior to founding, the internationalization per se does not seem to be regarded as a factor. This is probably due to the fact that it is a precondition that is taken for granted.
The chosen organizational factors of foreign market knowledge, competences and networks provide interesting and interlinked insights albeit with limited relation to the internationalization process itself. The possession of foreign market knowledge is broadened to market knowledge since the market is defined by game genres as opposed to countries. The difficulties in predicting demand due to the creativity involved in these products is present and likely complicates the acquisition of market knowledge through formal assessments, so companies instead focus on making games that they deem to be of high quality and taking 45 Master‟s Thesis 30 credits | Department of Business Studies | Uppsala University Spring Semester of 2017 | Date of Submission: 2017-05-30 | MIB Amaral & Walther measures to make the game stand out by appealing to niche markets or by targeting mass markets. Publishers play a larger role than originally expected, especially in terms of providing competences which lie somewhat outside of the scope game development, such as marketing and actually publishing the games worldwide. The use of networks as a tool to internationalization seems limited in the sample, although formal and informal network events are mentioned as bearing some value in finding business partnerships especially for subcontractors.
Born global theory provides a solid framework of factors to explain the business of the firms in this study. Macro-environmental factors are the most influential since they create industry conditions highly reminiscent of those pertaining to born globals. These conditions are crucial to the extent that they override the importance of individual factors since entrepreneurs must simply follow the rules of the global games industry to survive. Previous industry experience, as opposed to international experience, is therefore more important. Organizational factors are also largely shaped by these macro-environmental forces, for example by causing foreign market knowledge to be less important due to accessible global markets. Complementary external competences are sought directly from publishers as opposed to through networks, who turn out to be central actors in the business of these firms.
In fact, we discovered the distinction between subcontracting, development and publishing as proposed by the three-stage model as vital to the question of the born global nature of these firms. The pattern of moving or showing the desire to move from a subcontractor to self- development or publishing self-developed games is found at differing levels. The case of Urban Games illustrates an exception since they skipped the subcontracting stage and started by developing their own game and targeted a global market from inception. All the other companies started out as subcontractors serving their domestic markets and therefore showing little resemblance to a born global approach. Clearly, as soon as the firm changes its business in order to make a self-developed game, they target a global market much like a born global would or Urban Games did from inception. Still, we think the period of subcontracting which lasted many years for these firms should not be ignored, even if it can be argued that it represents another type of business.
The extent of applicability of the born global theory to explain internationalization is affected by the subcontracting stage, which was a common starting point for most of these firms. Upon founding services are provided locally, but the level of internationalization increases as the
46 Master‟s Thesis 30 credits | Department of Business Studies | Uppsala University Spring Semester of 2017 | Date of Submission: 2017-05-30 | MIB Amaral & Walther firms move along the proposed spectrum and begin working on their own games that are sold to worldwide markets. When self-publishing, more international activities are to be expected such as dealing with local distributors for physical game distribution. This process of business development identified in this sample underlies the business models of these small firms, and its effect on the degree of internationalization proves that it should be better understood and taken into account when researching the industry.
6.2. Contribution and future research
This paper contributes to the field of international business literature by exploring an under- researched industry from the perspective of born global theory. In doing so, it adds to the existing field of international business research by looking at an unconventional industry that does not entail rapid but immediate internationalization. The theoretical contribution is therefore the exploration of an array of driving factors of born global firms, and how the macro-environmental factors seem to supersede founder factors and shape organizational factors. Further research into specific organizational factors that are key to the internationalization of this industry would help deepen the findings proposed here about the role of networks and capabilities. Specific capabilities at play would be an interesting topic, and so would a holistic application of business network theory in order to understand whether there are network structures at play for these firms.
From an empirical standpoint, we believe the process of developing the business from a subcontractor to a game developer and eventually a self-publisher is an interesting avenue for future research. From an internationalization perspective, the process affected the level of and approach to internationalization. Future research will likely benefit by taking a resource-based view or dynamic capabilities perspective in order to understand how competences are developed as the business evolves through these stages. Alternatively, studying the types of businesses independently such as by focusing only on subcontractors or only on game developers would provide a stronger basis for further insights into the internationalization of each stage.
The role of the publisher also seems to be vital to the game development process and research on games publishing seems to be lacking. Understanding publishers would provide great insights into the industry, since internationalization seems to be largely in the hands of those
47 Master‟s Thesis 30 credits | Department of Business Studies | Uppsala University Spring Semester of 2017 | Date of Submission: 2017-05-30 | MIB Amaral & Walther publishing the games, especially in terms of physical distribution which was outside the scope of this study.
6.3. Limitations
It should be acknowledged that this study has significant limitations. From a theoretical standpoint, by attempting to cover a wide variety of theoretical arguments with a broad framework, it could entail that some factors are addressed superficially and that the study runs the risk of “saying little about a lot”. This is in line with the explorative approach chosen from the start, but nonetheless could be a limitation. The attempt to avoid directly asking questions about internationalization or a born global approach to the interviewees was meant to be more objective in the sense of avoiding bias, but it led to findings that sometimes were not so useful to the context of internationalization.
One methodological limitation is related to the generalizability of the findings, which is rooted in the sampling. Using firms from different countries is justified by the globalized nature of the industry, but it nevertheless entails a broader context to handle than just Swedish firms for instance. Similarly, these five firms do not necessarily represent the entire video game industry, especially since they are further subcategorized into three types of firms as the findings suggested.
Lastly, using only one interview per firm gives insights into the perspective of that individual but not necessarily of the firm as a unit. Additional sources used in order to complement the interviews, but triangulation could be employed to a much larger extent in order to corroborate the findings across data sources. In addition to this issue, while anonymity was offered to every interviewee, none required it from us. We believe that if there was a formalized promise of confidentiality, the interviewees would be more willing to share information and detailed accounts of their firms, such as dissatisfaction with business partners and more detailed internal routines for market assessment.
48 Master‟s Thesis 30 credits | Department of Business Studies | Uppsala University Spring Semester of 2017 | Date of Submission: 2017-05-30 | MIB Amaral & Walther Bibliography
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53 Master‟s Thesis 30 credits | Department of Business Studies | Uppsala University Spring Semester of 2017 | Date of Submission: 2017-05-30 | MIB Amaral & Walther Appendix A: Interview guide Interview guide:
Background of the founder:
1. What was your educational background did you have some work experience in the industry prior to founding of your firm?
2. Do you have some International work or study experience ? a. Did this experience to some sort affect your founding of the firm.. b. ..knowledge of the foreign market?
3. Why did you start your own game development firm? a. What were your main obstacles when starting the firm?
4. What was your role when you founded the company? a. Has it changed if you compare it to today?
Development of a specific game/ project
5. Could you give a description of how the development of this game went, from initial idea to the final product? a. Where did you evaluate the biggest risk during this project? b. Where did it sell the most in terms of countries and was this expected? c. Did you do a market assessment prior to the development?
6. Did you develop it based on your own interest or because of an opportunity in the market?
7. How do you consider competitors? a. In what way does competition influence the development process?
8. Did you have knowledge about the market where the game was most consumed?
9. In what way was your product innovative compared to other similar games?
10. Did you use any external partners during the development process? a. Based on what reason did you choose to work with this partner? b. What role did the partner take on? c. If no external partners, why not? d. (Why did you choose to work with/without a publisher?)
11. How did you distribute the game? a. To what extend do digital platforms change the game development process for your firm? b. (Hypothetical questions: Where would your firm / games stand without them?)
54 Master‟s Thesis 30 credits | Department of Business Studies | Uppsala University Spring Semester of 2017 | Date of Submission: 2017-05-30 | MIB Amaral & Walther Firm-level questions:
12. Could you briefly describe your Firm a. How many employees & how is it organized? b. What is the structure of the company? c. What are your long-term goals for the company?
13. Do you consider your firm to be entrepreneurial? a. Taking risks b. Innovation c. Proactive in pursuing opportunities
14. Do you have ties to any other networks other than strictly business, like governmental agencies, game development networks or similar social networks?
General questions
15. Is entrepreneurship within gaming in some way supported in your country? a. Would you define your country as good place to start a game development firm? b. Specific examples if available
16. What do you think makes the video games industry “special” to work in? a. Perhaps compared to another industry you have worked in?
55 Master‟s Thesis 30 credits | Department of Business Studies | Uppsala University Spring Semester of 2017 | Date of Submission: 2017-05-30 | MIB Amaral & Walther Appendix B: Coding Excerpt of coding file
56 Master‟s Thesis 30 credits | Department of Business Studies | Uppsala University Spring Semester of 2017 | Date of Submission: 2017-05-30 | MIB Amaral & Walther