As most of you know, this blog started with a focus on helping social game companies increase their international business, largely reflecting my role at Disney/Playdom leading the EMEA/LATAM/Russia/India team. As my career has evolved, so has the blog, though my strongest passion remains international opportunities in social gaming. Thus, I am really happy to have a chance to blog about an international topic, two emerging market countries where recent developments suggest you should avoid or pull back.
Although some of my favorite co-workers have been from Argentina and they have some of the best beef in the world, economic decisions that their government—led by Cristina Fernandez—is making suggest it should not be a priority market. The Fernandez government has taken an anti-business stance for a while, making it difficult to repatriate profits or import products. More recently, the government has increased its hostility to business, especially foreign businesses, best shown by the nationalization of Repsol’s (the Spanish oil company) shares of YPF, the former state-owned Argentine oil company.
As a social game company, you may not care what the Argentine government does, but it has a strong effect on your opportunities in the market. First, the nationalization, coupled with other populist policies is likely to have a strong negative effect on the Argentine economy, dampening or destroying the ability for Argentines to monetize. Even if they do, new currency controls will make it more difficult or even impossible to bring your revenue home.
The other warning is to shy away from investment in Argentine social game companies. Several US game companies have invested in game companies based in Argentina in the last few years, because of the creative capabilities and lower costs. Unfortunately, what the Repsol nationalization shows that no matter how brilliant and successful your investment strategy, you run the risk that you will lose your investment to the government. Just think: What happened if you invested in the next Funzio, only to have the Argentine government decide it is a national asset and force you to take pennies on the dollar for its sale?
I would not, however, totally avoid the market. Some of the most creative game designers I have met are in Argentina (as well as some of the best people in the social game industry). There is no reason to avoid licensing games built in Argentina to publish in other markets or bringing Argentine talent into your company (outside of Argentina). Just be careful what you do within its borders.
The other market I would caution you on is India, which really pains me to say. I have always been strongly on the India side in the “India vs. China” debate as to the most promising emerging market. I always felt a democracy would outpace an authoritarian regime over time. I still do, and I am not particularly bullish on China, but I also see signs in India that it should not be one of your priorities.
Recently, Standard & Poors changed its outlook on India’s long-term debt to negative and downgraded its sovereign credit rating. The Indian government precipitated this downgrade by running large budget deficits, ignoring rampant corruption and not taking action to open its markets. Government gridlock has made most observers pessimistic that any improvements will happen (sound familiar, Americans?).
The promise of India as an export market for social games (primarily mobile) has been in the potential of the market, not its current state. Many—myself included—forecast that incomes would raise and coupled with the strong penetration of mobile phones, many Indians (and there are many) would spend money in entertainment, including social games. With all of the negative forces on the Indian economy, however, it will probably take a long time for incomes to rise to the point at which India becomes a significant market for social games.
Like Argentina, India has also recently had some cases when foreign investments were not protected. In February, Indian courts revoked mobile licenses, including huge investments by foreign mobile operators such as Telenor. Thus, for social game companies looking at foreign investments, the added macro-risk to investing in India suggests there are better places to put your money.
There are still opportunities to work with Indian companies. They have some of the strongest engineering and programming talent in the world, and represent a great way to help scale your company quickly. It is just important to structure relationships so they minimize the risk created by the current macro-economic environment.
Despite the issues above, there are still opportunities to work with companies from Argentina and India to build your social game company; just be careful. In terms of looking where to grow your market, though, I suggest you look elsewhere as these two countries are not as attractive as some other options (and I will blog about some of my favorites next week).