25 Aug 2016 18:49 IST

Brexit: No easy game for Korea

For the IIM-B group, Day-2 saw a seminar on Brexit and its impact on Korea and India; and a talk on gaming

Day two began with an Indian Chamber of Commerce Special Economic Seminar on Brexit. It was called “Brexit is Official — what does it mean to you?”

The discussion was kickstarted by David Fellon, director at Deloitte Hong Kong for UK affairs. He showcased the various models which European Union and UK could follow. The probabilities of each of these happening are:

1. UK Staying in EU: 10 per cent

2. Euro-Economic Area (like Norway): 20 per cent

3. European Free Trade Area (Swiss model): 10 per cent

4. Free Trade Area (Canada model): 25 per cent

5. WTO (Australian model): 35 per cent

He believed option four and five were more probable than the others, as they allowed the UK to control immigration. In order to attract industries, the UK also decided to cut tax rates from 20 per cent to 19 per cent, and plans to futher reduce it to 17 per cent by 2020; maybe even 15 per cent, if conditions permit.

With the separation, the UK would now require a new Customs duty structure as well as incentives for employees who may be affected by the separation. However, it also has to balance its policy outlook and that of the EU.

Head of research at Standard Chartered Bank Korea Dr Chong Hoon Park reiterated the sentiment of uncertainty prevailing around Brexit, and stressed the projections by different banks forecasting a loss of growth potential to the tune of 6 per cent.

There is also the existing uncertainly on the direction oil prices would take, as well as that of an impending US Fed interest rate hike. The markets have now come to believe that the US will not hike its interest rate, which has helped divert investment towards emerging economies.

South Korea has several Free Trade Agreements (FTAs) with countries like China and the US, and the EU. Because of this, there are concerns about the effect Brexit will have on its economy.

 

Impact on Korea

Dr H Chong Kim, senior research fellow at the Korean Institute of International Economics Policy, said that about 45 per cent of Korean firms would be impacted by the issue. The structure of Korea’s FTA allowed it to continue its trade with EU, but given the circumstances and the fact that the FTA has not been revised since the last five years, it is high time the agreement was amended.

The seminar was moderated by Dr Jong Nam Ho, former secretary to the President for Economic Affairs and the current senior advisor to the law firm, Kim and Chang. Apart from the aforementioned speakers, it also included Sue Kinoshita (deputy head of the UK’s Korean Mission and director for UK Trade and Investment).

The discussion concluded with a questionnaire round, which attracted varying questions on the impact of Brexit on Indian exporters, the asset prices and opening up of the British markets.

Korea’s gaming industry

Korea has a burgeoning gaming industry, with a current turnover of about $5 billion, 60 per cent of which comes from mobile the platform and 40 per cent from the more conventional ones.

Savannah Han, the VP of EA for the Asian Market, presented her outlook on the industry. EA is one of the leading players in the gaming world and has a significant presence in Korea. In fact, several of its top selling games originated in this country. Its flagship game ‘Fifa 3’ is one of the most successful online games in the world, with a cumulative revenue of over $500 million.

However, the industry is also quite unpredictable and cyclical in nature, with 82 per cent of the games not even clocking 10,000 users in their lifetime! Further, the developmental expenses are very high. EA releases about 72 titles every year, many of which don’t make it to the market.

Short life-cycle

Hence, new games are quite often a hit-and-miss scenario. Not even beta testers can accurately predict if a game will be a hit (something similar to what the music industry experiences). Added to this are the frequent tech and hardware related developments, which force game developers to change their game’s architecture and engines. Further, western formulae don’t seem to work in the east, and vice-versa.

With the advent of the mobile gaming industry, the lifecycle of games has further contracted. It is also open to disruptions from nimble new studios and entrepreneurial ventures that threaten to disrupt the entire environment.

One such example was the messaging platform ‘Kakao’, which had an installed user base of 40 million. When it decided to open up its platform for gaming, it was a runaway success. Top 10 per cent of Kakao games hold 60 per cent of the mobile gaming market, and the top five of them are Korean.

Given the extremely unpredictable nature of the industry, the only way to succeed in it is to identify outstanding IPs and trends. For this, a firm needs to be fast, flexible and adaptable. Thus speed, flexibility and adaptation form the three key success factors in the industry. However, the principle key to success will always be one aspect: the ability to predict what the next gen smartphone will allow users to do.

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