By Huang Jiangqin
Compliance with local rules and laws is an issue for any gaming company promoting its products in other countries. It is crucial for companies to “localize” their games in multiple areas including language, culture, local customs, and product characteristics and develop a good understanding of the markets, laws, and regulations as well as policies of the host countries.
Southeast Asia has 11 countries, each with a different culture, political system, and religious beliefs, which requires companies doing business in the region to avoid violating local policies and regulations as well as cultural taboos.
What are the red lines for game compliance in Southeast Asia? What difficulties do small and medium-sized enterprises (SMEs) face when going overseas? How can companies going global reduce risk? China Report ASEAN interviews Sun Lei, a partner at Beijing Yuanhe Law Firm and an expert with the China Game Industry Research Institute, a Chinese think-tank.
Sun Lei has long been committed to translating and analyzing foreign laws and cases applicable to online games. Compliance Guidelines for Online Games Going Global, which he authored, was China’s first reference book to systematically analyze the global laws and policies related to online games.
China Report ASEAN: You summarized and analyzed the laws, regulations, and policies of Japan, South Korea, and Southeast Asia in your book Compliance Guidelines for Online Games Going Global. What are the compliance conditions for promoting online games in Southeast Asia?
Sun Lei: First, the large population in Southeast Asia determines that both the payment rate and the cost of “purchasing volume” (a commercial activity to promote games through the purchase of viewership, primarily the method of mobile advertising) are low. Therefore, many gaming companies look to Southeast Asia as a destination for testing before distributing their products in countries and regions with higher payment rates.
Regarding Southeast Asia as a “testing ground” means Chinese gaming companies are less willing to spend money to build a corporate compliance management system. So although many Chinese gaming enterprises do business in the region, few do the compliance work.
Secondly, the legal system enforcing compliance among gaming companies in Southeast Asia is not highly developed. Countries in the region generally do not have clear procedures to enforce compliance and mainly make judgments based on network security, national security, and protection of minors.
In addition, Southeast Asian countries have their own specificities in terms of compliance. Most of the countries were colonized in the past and have diverse ethnic groups as well as religions. As a result, issues such as folk customs, religion, culture and history need to be considered when advertising and distributing games. Chinese gaming companies that lack enough knowledge of the local conditions are likely to have compliance problems because they tend to assume Southeast Asia regulates online games the same way those with Chinese mindsets and cultural values do.
China Report ASEAN: The book Compliance Guidelines for Online Games Going Global was published in 2019. What changes have taken place in the compliance environment in Southeast Asia since then?
Sun Lei: Supervision and law enforcement in Southeast Asian countries have been strengthened in recent years. Countries in the region are accelerating formulation of regulations and policies on distributing online games developed by foreign companies.
For example, the Singapore government proposed Amendments to the Cybersecurity Act to Parliament in October 2022 which requires platforms to use robust content filters to avoid harmful content.
In such circumstances, companies that have already “gone overseas” are required to retrospect, adjust, and improve their compliance work.
China Report ASEAN: What changes in compliance have Chinese gaming companies navigated?
Sun Lei: Chinese gaming companies only started developing awareness of overseas compliance in the period between 2018 and 2020.
Overseas distribution of Chinese online games is usually operated in two modes: exclusive agency and independent operation. The former means hiring local organizations to manage and oversee the product’s operation, while the latter refers to the company retaining full control of its overseas business.
In 2018, Chinese authorities tightened the approval and issuance of publishing licenses for online games, forcing many Chinese gaming companies to shift overseas. During the period, most companies chose to entrust overseas agencies so they did not have to worry about compliance.
After 2020, some gaming companies began hiring locals, renting offices, and buying small local gaming businesses after gaining experience in overseas operations. This was the second phase of Chinese gaming enterprises going global, during which they began to pay attention to the details of local compliance requirements.
Overseas distribution of games can hardly succeed without local operation teams.
Compliance with non-legal rules is often as important as with laws. Some games do not violate local laws or regulations but still might fail to win over users if the content conflicts with local cultures or users’ mindset. Problems usually result from companies’ lack of understanding of the supervision trends of local authority and “sensitive points” of local players.
Alongside awareness of rules and laws, companies must account for the cost of managing public opinion. Today, many well-performing Chinese gaming companies have their own local operations teams for better knowledge of local rules, laws, and cultures.
As a lawyer, I recommend that companies consider compliance issues four to six months in advance. When the game is about 60-percent finished, the legal department needs to start working on compliance.
China Report ASEAN: What kind of legal problems do Chinese gaming companies going global tend to face? What should companies do to prevent such problems?
Sun Lei: Cases I encounter most often are violations of rules. Many companies have been punished by the authorities of Southeast Asian countries because of a lack of awareness of the differences in rules between the countries in the region.
For example, if a game’s material violates the relevant rules of Indonesia, local authorities notify the game company twice by e-mail 24 hours apart. The game is removed from the app store directly if the company fails to respond in time. However, if the same thing happened in Malaysia, the company would only get one advanced notification.
Many Chinese companies are confused when their games are taken down and realize the period to respond has already passed upon finding the e-mail. To avoid such problems, I suggest gaming companies pay close attention to e-mail correspondence. If possible, companies can hire an agency in the host country to effectively solve problems related to the finer nuances of different countries’ regulations.
China Report ASEAN: SMEs developing online games might hesitate before promoting their business in Southeast Asia because of the complex regulations and international laws. How can compliance anxiety be eliminated?
Sun Lei: Compliance anxiety is not what causes failures for companies’ attempting to operate overseas. Faltering gaming companies are more worried about localizing their products and keeping users.
I have seen two types of companies that are unable or unsuitable to go overseas. The first type is companies that spend so much developing games that making profits in Southeast Asian markets is difficult because of the low rate of payment. These products are usually animated or Western style.
The other type is companies with products requiring a social connection that does not align with the region. Homogeneity is the biggest barricade for such companies to attract and keep overseas users.
Online games are content products, which means that the playing approaches are identical in different countries and regions. Foreign users should have no problem playing a Chinese game if the language model is shifted to the user’s native language. New and characteristic outfits on characters are another highlight for foreign users. But products that target social connections with users require a substantial user base and local content producers (such as live-streamers) to create the “platform effect” that helps to promote the games.
Unfortunately, the population of Southeast Asia is much smaller than that of China, and the high penetration rate of existing social media apps including Facebook and Twitter makes it harder for newcomers to win over users because of a lack of User Generated Content (UGC).
For Chinese enterprises seeking to go global, the operation and monetization methods of their products, whether games or social media apps, must be viable in Southeast Asia. Companies have to figure out this issue first before tackling the compliance problem.
China Report ASEAN: Have you seen any difference between larger and smaller companies going global in terms of compliance?
Sun Lei: Money is key. Big companies have the financial support to make complete compliance plans, monitor public opinion from development to launch, and perform daily maintenance. Deep-pocketed companies are able to maintain compliance. However, expenditures related to compliance can be unaffordable for SMEs.
The biggest difficulty is that the cost of information retrieval is too high. It is hard to review compliance laws and regulations in other countries because of language barriers. Some Chinese individuals translate and share the information on domestic social media platforms, but they often inevitably miss some key points and lack professionalism.
I know a lawyer who has been providing free assistance to some small gaming companies grappling with funding problems. However, generosity does not address the shortage of lawyers specializing in compliance for games and interactive entertainment businesses going global. Materials and books on such subjects are scarce in China. The demand for related legal consultation is huge, so lawyers cannot always offer free services.
What we have done was to find individuals and organizations specializing in overseas business compliance and organize public lectures. Last year, we offered free access to the Risk Map for Chinese Companies Going Global to the Gaming Publishing Committee of the China Audio-Video and Digital Publishing Association and the Xiamen Gaming Industrial Association. Our hope is that Chinese gaming enterprises become more aware of the compliance risks of different countries.
We want companies, especially small and medium-sized gaming companies with limited budgets, to be more aware of the risks. We also anticipate more people becoming engaged in compliance legal services and more media coverage of the field so as to alleviate the anxiety of small gaming companies aiming to do business overseas.