(Yicai Global) June 1 -- Chinese gaming companies are seeking to inhabit the increasingly competitive overseas markets amid strict regulation at home.

"[Games targeting foreign markets] may have been a backup option before, but now it is a must," Gong Xiaosi, founder of Wafa Games, said to Yicai Global. But the competition has been becoming more intense in the past two years, said Gong who established her team in the Middle East in 2017.

Another industry insider agreed. "Going abroad is more challenging for small and medium-sized companies now than it was two years ago," said Zhao Yijiang, head of business development at Google Play on China's mainland. The challenge involves the whole research and development process as investments needed in terms of time and labor are higher, Zhao added.

Costs are biting into profits. Hong Kong-listed game developer IGG reported a nearly 79 percent drop in net profit last year from 2020 while revenue grew 11 percent. Meanwhile, R&D expenses equaled 21 percent of its revenue, up 8 percentage points from 2020.

But for developers, not going abroad likely means not growing. Heaven Wu, chief marketing officer at Century Game, predicts that more Chinese games go viral overseas. "Coupled with the current restrictions on domestic game licenses, I think it would not be unusual if half of the top 50 games in the US and Japan are from China in the future," he said.

China's game regulators ended a nine-month license issuance freeze in April while authorities are still trying to prevent addiction by imposing game time limits on minors.

In comparison, overseas markets have ample space for growth. The growth space comes from emerging markets including Vietnam, Indonesia, and Brazil, where the population and economy are growing rapidly, said Yuan Yu, vice president of China Mobile Games and Entertainment. But it also stems from the rising demand for high-quality games from players in developed countries, he added.

The Chinese game market tallied USD45.6 billion last year, accounting for nearly 26 percent of the global industry revenue, according to gaming analytics firm Newzoo. Meanwhile, the share of the US was about 24 percent.

However, the requirements are different abroad. It is difficult to move successful products to other regions as, unlike the Chinese market, overseas markets vary greatly from region to region, said Wu.

Moreover, Chinese entrepreneurs entering foreign markets need to understand different cultures and environments, as well as deal with challenges in terms of different regulatory policies, the CMO added.

Still, Chinese firms are making some progress. User spending on mobile games developed by Chinese companies abroad has been rising steadily in the past few years to make up 21 percent of the global total in 2021, up from 20 percent in 2020, according to data analytics platform Data.Ai.

Some 16 Chinese companies made Data.Ai's list of the world's top 52 game publishers in 2022 based on revenue, according to the firm's ranking published in April.

Editor: Emmi Laine, Xiao Yi