International wage differential in virtual world?
September 30th, 2005 Jun Sok Huhh Posted in news |
Sep. 28th, the National Police Agency of Korea(NPA) announced the arrest of professional item traders who has offended the law of Korea.
According to the announcement, a group of Korean and Chinese traders who set up for item transaction hacked some Korean web-sites to get National Registration Numbers(a lot like Social Security Number, but it's more important information for Korean). With this hacking, they stole the information about 53,000 people, and made about 120,000 ID of online games. Chinese partners who had arranged and operated sweatshops took their virtual products (made in China) over to Korean partners. They sold those items in Korean trading market. From 2003 to Aug. this year, they've earned about 100 million US dollar for this transaction from which around 60 million were remitted to their Chinese partners by illegal way.
A police officer who investigated this case says, "Recently, there are a lot of words that one out of four in any online games is from China. According to our estimation, the number of workshops in China dedicated to item production is around 1,000, and more than 40,000 workers (or gamers) are hired in this business."
It is a lot suspicious how they could guess the exact size and scale of sweatshops and their activities for producing item of Korean online games in China. I think numbers of NPA's announcement exaggerated definitely. But, there have been many rumors among Korean players about this kind of business. According to those unidentified stories, at the outset Korean gamers were hired for this job. many Bosses of workshops, however, gradually turned their eyes to overseas like China or Vietnam where wage cost was exceedingly low. Assuming that organizing production in virtual world be following same logic in real world, the movement or transition of workshops would be a natural consequence of seeking profit. As a result, the supply of items is mostly from foreign players (or employees) who have much lower reservation wages. above episode shows a sort of natural strategic move of virtual businessmen who are dedicated to item trading.
Undoubtedly, there are some limits for these activities. 1) Physical limits; connection from abroad is not fit for profiting from playing. 2) Legal issues; this kind of activity can be viewed as a crime. Anyway, it it interesting that the reason for which traders from the story were arrested is not trading itself, but hacking of privacy and smuggling of foreign currency.
What if there are no legal issues in the way? By the law of economic forces, (at least in theoretical sense) most of items which are traded in the game-serving country might be supplied by foreign cheap labor. Wage differential of real world is the key factor for virtual world transaction. Also, lower production costs mean that there are much more chances for the price falling down, if not the demand for items exceed the increasing amount of supply. At lower price, independent producers who were previously making their profit by enjoying games can not earn profit any more. Finally, Chinese workers will occupy the supply side of trading markets, and most of Korean players will take demand side.
Is this weird division of labor good for players in Korea? Lower price of items might be some (or great) help to beginners or busy players who have not enough time to raise himself fast. Gains from trade, whatever. How about potential sellers who had endured so many toiling hours for the money earned afterward? Actually, economic incentives for RMT has been a strong motive for younger native players. Is this beneficial to the game-servicing companies? They might feel indifferent as far as there is no difference in the revue from games. Only the number of subscribers matters, not their nationalites. Is there any need or reason for them to take serious actions against this sort of activity that pursues 'comparative advantages' from international wage differential of real world in virtual world?
October 20th, 2005 at 4:00 am
Are the revenue numbers cited above even remotely possible? $100 million USD. Can someone with more insight into the Korean market put this number in context or tell me that it is grossly overestimated (like the number of “sweatshops”).
Also, I’m very excited about this site! The first few articles have been downright intriguing. Are there plans for other East Asian game researchers to be included?
October 20th, 2005 at 6:50 am
>Alexis
Thank you for your visiting. We’ve been so hungry for any comment.
At first, I didn’t believe the number either. Now I’m trying hard to get the investigation file of police to look with my own eyes. The first part of the above post was based on news articles from Korean famous newspapers.
Someone who knew this investigation more deeply said that the number might not be a yearly revenue or from just one broker, but all of brokers in concerned. So, 100M USD is approximate total size of revenues that have been earned by all brokers in China for two or three years. Considering this, it still feel weird and surprising.
Another funny news from China. A few days ago, at the front of Korea Embassy in China some Chinese organized a demonstration against the arrest of their Korean partners. Interestingly, they blamed Korean police agency of getting rid of 40,000 jobs in China. 40,000 jobs for sweatshops?!?
I promise to post short outlook of RMT of Korea, sooner or later. Although not so detailed one, we had the data announced by the largest mediator of Korea, ItemBay on the profile of their transaction record.
And, this page is just a humble start. In our Korea page, there are a lot more interesting issues on Korea gaming world. At now, researcher, developers or someone are somewhat hesitating to share their ideas. Language barrier are the culprit! I hope that this small page would be a hub to activate more lively communication with others from world.
October 20th, 2005 at 11:11 am
Well, it certainly is interesting. I’m trying to spread the word because there are so many people interested. I noticed that Vili was here–he’s a very smart guy–so you are getting the right kind of US research people here. Quality over quantity, right?
You know, I wouldn’t be that surprised if 40,000 were employed in this way. I talked to some of the farmers over there and it doesn’t seem too hard to set up or perpetuate.
Let me know if you guys want any help with English stuff. If it would help people feel confident posting things, I’m totally willing to proofread for english grammar stuff. I don’t read Korean, but I can edit English.
Keep up the good work!
October 20th, 2005 at 12:09 pm
WOW! We also have two smart guys in ths field. It feels really powered-up to me.
Actually, my English writing skills are not so good(But, we are generally good at reading!). Give us any advice or notify error of our articles. Or, If you have any question about Korean gaming culture, do not hesitate!
Thanks again.
October 20th, 2005 at 1:29 pm
Estimated volume of RTM in Korea
Recently, Korea government estimated the scale of RTM $ one billion. This estimated volume is so big compared with the online game market in Korea, which is just $ 1~1.4 billion. Of course, many Korean researchers think this volume is overestimated.
So we can estimate this volume in our way.
Last year, the total trade volume through ItemBay, Korea’s most biggest mediator company was 280 million dollars. This company has 60% of total mediator market. So we can think the total mediator market scale in 2004 was $ 460 mil.
And there are another ways to trade items. Especially, you cannot ingnore individual trading. Korean researchers think its total volume is near 5~60% of that of mediator market. If we consider this factor, the total volume of RTM in Korea will be estimated as $ 600 mil.
And the annual growth rate of mediator market is 20%, then we can have the number, $ 720 mil as the total volume of Korea RTM in 2005.
Recently, RTM has a tendency to be divided with Korean users as consumers and Chinese sweatshops as providers. So $ 100 mil is not surprising to me, if we consider it be the total volume of 2, 3 years revenue of many companies.
October 21st, 2005 at 2:31 am
Wow. That is incredible. $720 million. This is great, great information and I really appreciate you bringing together the thinking in Korea on that topic.
My company, DFC Intelligence, is going to be working on a full scale report on emerging game technologies including virtual asset sales. So, I’ve been looking around for information on virtual item sales. As of now, I’m pretty sure your post is the best insight into Korea that I’ve seen. Thank you!
November 29th, 2005 at 5:06 pm
Could you kindly inform me the web site of Itembay !
Thank you in advance.
NgTrang
November 30th, 2005 at 1:18 pm
http://itembay.co.kr
It’s on Korean language. If you need more information, have no hesitation to e-mail me. Bye.
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