Inside Asian Gaming

INSIDE ASIAN GAMING | June 2009 28 T here are significant cultural as well as financial challenges for foreign operators interested in entering the Taiwan market. One is that Taiwan is quite an opaque business market even by comparison with Macau. Anyone who has spent even a short amount of time in Taiwan quickly becomes aware that the place already has a de facto casinomarket—it just goes by another name. This is the arcade trade referred to by Mr Liu of Jumbo Technology. Gaming arcades are all over Taiwan, as he suggests. Many of the arcades operate baccarat machines as well as slot games. Technically these machines are played for gift prizes, not cash, but it’s an open secret among locals that the prizes can be exchanged for money, rather in the manner of pachinko arcades in Japan. Local suppliers rule The market to supply gaming machines to the Taiwan arcade sector is in turn sewn up by local manufacturers. Foreign suppliers have at least two major challenges in breaking in to this market. One is that for external, regulatory reasons they are extremely cautious about dabbling in a domestic arcade market that is at best opaque and at worst downright illegal. Another is that it is very hard to compete with the local suppliers on price. The latter generally do not have to spend time and money getting their machines internationally certified and therefore can significantly undercut the international brands on pricing. While it’s possible that a new, legally sanctioned casino industry will demand international standards for its equipment, it is by no means certain that international manufacturers will be able to achieve the sort of market share and market penetration achieved in Macau. In Macau there was no domestic equipment industry prior to market liberalisation being announced in 2002. This domination of the local equipment market by local suppliers has knock on effects for any foreign casino operators interested in setting up shop in Taiwan. The risk is that if those operators were to choose trusted external suppliers with whom they are familiar from other operations outside Taiwan, they could load the business with costs significantly higher than those faced by operators relying on local equipment, without guarantees that the premium product will be more popular among Taiwanese players. Many key components inside the machines of leading global gaming equipment suppliers are sourced in Taiwan, which has a reputation for quality control and relative respect for copyright, as compared to Mainland China. If the foreign equipment suppliers were to start competing in the domestic Taiwanese market, it could create conflicts of interest of little benefit to either side. In Focus “I n 2000 LVS, Harrah’s and MGM MIRAGE visited Taiwan—a long time before Macau’s investment. We had a chance at that time, but we lost the chance,” says Simon Liu of Jumbo Technology. “Some friends ask me to estimate when a casino will be built. I say 2013 to 2015. That’s in around five years time. By then Entertainment City in Manila will have been operating for several years and Macau will have new venues online. “This is all because of the inefficiency of the government. We can’t just spend all our time dreaming about it. We have to put it into practice,” he adds. “If you’re in Taiwan and you want to gamble, there are markets within relatively easy reach. A flight from Taiwan to Macau is about one hour and ten minutes. From Taiwan to Manila is one hour, 15 minutes,” he points out. “It will still take 30-40 minutes to get from Taiwan to Penghu, not including check in. So where will you choose to go? If I’m a gambler, I will go overseas, so I can combine a real vacation with a visit to a casino. Penghu is like gambling at home,” adds Mr Liu. Michael Chen of Harrah’s says the ground rules for successful development of new casino markets are straightforward. “Our recommendations to governments that want to invite in gaming to drive tourism are simple,” he explains. “Let the investors be the owners over time, if not right away; consider separating regulator fromoperator; andminimise the factors that inhibit the ability of the business to grow competitively in the market. “Yes, the industry globally is currently in a crisis, but in the long term the future is bright. Asia is just at the beginning in terms of casino market growth.” Last Chance Saloon? Taiwan has missed so many opportunities it may struggle to catch the regional competition