Doing Business in Romania - Coursework Example

Doing Business in Romania Company Background Square Enix is a British video game developer and publisher credited with the release of its popular fantasy video game series, Final Fantasy (Final Fantasy Wiki 2013, n.pag.). The video game series, which was first premiered in Japan in 1987 received a great response with sales of more than 92 million units registered worldwide (Square Enix 2014) and having up to 14 videos games released in the series as of yet (Final Fantasy Wiki 2013, n.pag.). The company has many other prestigious games in its portfolio and has a plethora of other entertainment related intellectual properties in the pipeline. Square Enix Europe has its headquarters based in London however it operates in quite a few foreign countries as well including China, USA, Canada, and Denmark. With its respectable company profile and an ever growing video gamers community, the entertainment company is thinking about expanding its operations in Romania. State of the Romanian Economy Although the Romanian economy has suffered a lot due to its economic policies during the 1970s, it entered the European Union as a poor Balkan state. In terms of the GDP variable, it remains one of the poorest countries of the European Union however despite such trends, the country has been successful in attracting foreign investments into the country since the late 1980s experiencing a promising growth in the Foreign Direct Investments (FDIs). According to forecasts by the European Union Commission (2014, p. 92), the GDP growth is projected to decline to 2. 3 percent in 2014 while managing to recover in 2015 having a GDP growth rate of 2.5 percent. Most important is the fact that the Romanian video game industry has and is experiencing dynamic growth in terms of sales subsequently after the growing awareness of technological gadgets among Romanians. Now the Romanian video games industry is coming as a lucrative market both for local and foreign businesses. The membership of Romania in the European Union is another plus for Square Enix. The industry has received a great increase in its sales with over 300,000 units of video game sales experienced as of 2012 (Euromonitor International 2013, n.pag.). The figures demonstrated by the video game industry data provide a promising overview of the investment and profitability prospects in Romania. This paper seeks to examine the qualitative and quantitative assessment of the potential risks involved as Square Enix considers investing in the foreign market of Romania. Qualitative Risk Assessment The qualitative risk assessment methodology does not make use of any numerical data in order to come to a conclusive judgement, rather it uses qualitative terms such as high low or medium risk in terms of severity, frequency, expected value, etc. However, since the qualitative assessment is hard to validate and poses some problem in defining the high, low, and medium standards therefore it is appropriate to scale variables such as severity and frequency between the values of, for example 1 and 5. The outlook for the year 2014 as evaluated by the UK Trade and Investment (2014) suggests that the Romanian government has moved towards stimulating sustainable economic growth and is focusing on foreign investments. As it is, the economic developments are favorable for Square Enix as investments are being promoted into the local market. This will not only provide the company with large profits by operating in the Romanian video game industry but it will also endeavor to pull the Romanian economy out of crisis though its severity could threaten the operations of the British company in Romania. Although terrorism threat to the business is highly unlikely in its execution nevertheless there does exist a possibility for hostile attacks against expatriates operating in the country. Perhaps the most important consideration for the video game company is the registration of the Intellectual Property rights as they are territorial in nature, that is, they are only protected where the rights have been granted. So if Square Enix chooses to operate in the Romanian market, it is highly recommended that the company registers its intellectual property rights in Romania. Since video games are mostly creative works, they should be protected by intellectual property rights or they may fall prey to the crimes of software counterfeiting and other related crimes associated with piracy. Organized crimes also exist in Romania due to its South Eastern borders that provide a transit route for human trafficking as well as heroin smuggling. Apart from such crimes, street crimes and cyber crimes also exist in Romania including job scams and other fictitious schemes that are meant to exploit the victim. Romania is also a target for fiscal crimes such as IPR (Intellectual Property Rights) offenses that can severely hurt the presence of Square Enix in the country (UK Trade and Investment 2014). Thus, as it turns out, a major risk from the Romanian region pertains to the protection of Intellectual Property Rights (IPR). Quantitative Risk Assessment Among the basic economic facts provided by the UK Trade and Investments (2014) the key variables include GDP growth, unemployment, exports, imports, trade deficit, current account deficit, FDIs (Foreign Direct Investments), exchange rate, and so on. Table 1 below summarizes the figures provided by the UK Trade and Investment (2014). Table 1: Key economic variables for the Romanian economy GDP growth (2013 forecast) 2.3% Inflation (October 2013) 1.9% Unemployment (November 2013) 7.3% Exports for the EU and UK respectively EU: 70,2% UK: 3,2% Imports from the EU EU: 73.5% Trade Deficit (2012) 5 billion Euros FDI (Foreign Direct Investments) (2012) 1.7 billion Euros Exchange rate (2012) 1 Euro = 4.45 RON Table 1, which contains essential economic data provides quite useful information regarding the Romanian economy and its favorability to the company. Although trade deficit is huge as compared to other European countries, but the figure for FDI seems to be a decent motivator for investment in the video game industry of Romania. It can also be noted although Romania exports to the UK, the country does not count as an important import partner. Equally important is the fact that though video game market has become quite attractive and lucrative, it is still not among any of the major industries of Romania. The lead is taken by food and beverages, energy sector, chemical processing, and crude oil processing, to name just a few (UK Trade and Investment 2014). Since Square Enix will be relying more on the electronics, entertainment or the video game industry, it is important for the company to consider the risks associated with entering an industry, which although is growing does not occupy a major position in the country’s major industries responsible for providing a large share of revenue. The report by the European Union Commission (2014, p. 92) also shows that the net exports gained as of 2014 are expected to fall to a negative by 2015 which though somewhat irrelevant to the company directly does not show good signs, especially as the company is trying to weigh out the risks associated with investing in the country. The unemployment rate has also risen in the country with little prospects of improvement in the labor market conditions. This fact is an important consideration for the company as it may be interested in employing local art directors, game developers, programmers, graphic designers, and other skilled workforce from the Romanian labor market. On the bright side, Romania is full of talented individuals that can provide an effective human resource for the company who may design region specific games to add more attraction to the games while opening them to the worldwide gamers community. Hence, there is availability of a pool of talented and relatively cheaper workforce for the company although the economic facts are not as pleasing as such. Overall, the transition to a market economy by the Romanian government has not been largely regarding but it still continues to provide hope for better prospects particularly from foreign investments. The Romanian government is trying to spur local economic growth through FDIs and the investment by Square Enix may prove to be quite profitable, not only for the company but also for the local Romanian economy. A plus for the company is the presence and availability of a pool of cheaper human resources for the company that will prove to be advantageous for the company. Recommendations Considering the possible threats and risks to Square Enix pertaining to its investment in the Romanian industry, it is highly recommended that the company obtains IPR (Intellectual Property Rights) for its creative works as there are numerous companies within the company that also produce high quality computer games. This will possibly protect the company works from being sold illegally as counterfeited games. Since the video game industry is relatively infant in the country, Square Enix operations will have a competitive advantage over the local video game companies due to its prestigious portfolio of having produced the world’s best games. Thus, the most important consideration is the protection of its Intellectual Property Rights. Bibliography Euromonitor International. 2013. Video Games in Romania. [online] Available at: http://www.marketresearch.com/Euromonitor-International-v746/Video-Games-Romania-7902434/view-stat/ [Accessed: 19 Mar 2014]. European Union Commission. 2014. [e-book] Forecasts for Romania. http://ec.europa.eu/economy_finance/eu/forecasts/2014_winter/ro_en.pdf [Accessed: 19 Mar 2014]. Final Fantasy Wiki. 2013. Final Fantasy (Series). [online] Available at: http://finalfantasy.wikia.com/wiki/Final_Fantasy_(Series) [Accessed: 19 Mar 2014]. Square Enix. 2014. About US: Square Enix. [online] Available at: http://eu.square-enix.com/en/aboutus [Accessed: 19 Mar 2014]. UK Trade and Invetsment. 2014. Overseas Business Risk: Romania. [online] Available at: http://www.ukti.gov.uk/export/countries/europe/easterneurope/romania/sectorbriefing.html [Accessed: 19 Mar 2014]. Read More