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Did you have to implement the same structure as your partners in the West? Did the people who came from the local market have a different expectation about how things are structured?
PF: Actually, we are structured, I think, pretty much the same as our clients in the West. We have the different departments and whenever there's a need we pull people from the talent pool and try to form a project team. And I think the local companies also have more or less the same kind of structure, so I don't think there are any big differences.
We were talking earlier about teams, we were speaking a lot about teams being able to sustain better Western teams by keeping the core creative going while outsourcing art.
Do you think that that's going to really change the way teams are structured across the industry? Because there's been a lot of talk also in the West about studios having to close because they couldn't keep payroll going between projects. So do you think that this is a trend that's building and you guys are helping in it?
PF: Well, I think for Western studios this is the change. Because we've been seeing that over the past years that more and more western studios keep internal teams on the concept and the development of new IPs, but outsource most of the production to other countries, especially in China. And that's also one of the reasons that we're growing so fast over the past six years.
By doing this, I think they can leverage a lot of the overhead and mostly keep the core of their internal teams, and we can provide [our services]. What we're providing is not only extra production capacity, but especially the high end stuff. Every time of the year, you come to our office, like if the art project we're engaging, I don't know, 40 or 50 different kinds of art projects, that gives our teams a lot of good experience that we can use to help our clients.
You have an internally developed engine for your games that you produce here. I was wondering why.
GL: It's not for all co-development projects. For some co-development projects, clients have technology that they're sharing with us, and that we're working off of. Like Pirates! as an example, we worked off the technology that they used for the original game. In other cases, when there's no commonly available technology, we diverge our engineering teams.
PF: We also divide our engineering teams into different areas, like what we did with our art. Some of the engineers are very strong in AI, some are strong at rendering. So I think basically what we're doing here is to provide the client with different options. If they have an existing technology we can make use of it, if they don't, where if they don't have some part of it, our expertise can also help them.
You know, you see a lot of talk about this in the West in the news media. As China's economy improves and grows stronger and stronger, how does that affect the business for you guys in terms of the reasons people select to work with you?
GL: So two, I think, main other points. First, this is an economy where there is a lot of peer pressure on people to improve themselves; to grow up quickly. So when they're looking for companies to work for, the number one criteria is, “Where can I have personal growth?; Where can I be challenged?” A company like ours, which is international and opens up the doors to games on all platforms offline, online in all countries -- U.S., Korea, China, Japan -- is an ideal stepping stone.
The second impact it has is that it puts the pressure on cost, because as people are gaining in skill sets, then their value increases very quickly and a lot of companies around us want to work with them.
So we have to be very selective and very quick about how we evaluate people, and make sure that the ones who are progressing very quickly also see their income progress very quickly and their responsibilities progress very quickly. And let the others leave, because if they stay long they would probably slow down [things]. So everything is moving faster than it does in the West is the point I'm trying to make; people are progressing faster.
We are also getting more juniors in faster -- challenging them, testing them, training them, making them progress -- because there's this appetite all around us for fast growth. On the positive side, because there is this appetite, I see people improving faster, or learning faster, than they did in France for example. They're more hungry, and because of that they go through more tutorials, more cases, more projects than they would in the West where the pace is slower and the opportunities less. As a Westerner in China, this is what is making me excited about working here.
A lot of people in the West think of outsourcing as a cost savings, primarily. And I understand that that's not entirely your philosophy, but that's an element of it. So do you think that that creates economic pressure on you?
GL: Yes, there's definitely pressure on us to keep the cost level at a level which is less than the West, and there's a pressure on margin. Fortunately for us, there's still a significant gap, in terms of productivity between the productivity we have here and the productivity there is outside. So by improving the productivity each year, we're able to keep our cost at the same level.
In six years, our cost has increased by less than 5 percent. In fact, if you consider that the dollar has gone down, our cost has probably gone down in terms of day rate, or by month rate. But what we actually produce for that cost has gone up because we have, on average, more experienced teams, better tools.
How long is this going to continue? I'm not sure. I think there's still a pretty big gap to bridge, so between now and maybe five or 10 years time. Still room.
The biggest savings come out of capacity, the ability to put a lot of capacity online, which would create a large ramp up and ram down of cost, if the studios had to do this ramp up and ram down in the West. [Capacity] is where probably 60 or 70 percent of the savings come from, and that will remain true even if our rates went up at some point.