2008-1
Creative Industry in UK, Japan and China:
A supply chain management perspective
Chee Yew Wong
Ruihong Gao

Creative Industry in UK, Japan and China:
A supply chain management perspective

Chee Yew Wong (The University of Hull)
Ruihong Gao (Kobe University)

Abstract
Nowadays, many nations have started to see the potential of creative industries. However,
due to the varying definitions of creative industries, governments still find it difficult todetermine which business sectors they encompass. Some developing countries such as
China, Philippines, etc., have started to discuss such industries. Simultaneously, managers
in creative industries are faced with various problems. This article attempts to provide an
overview of the creative industries, and to compare examples from the UK, Japan and
China. Such an overview leads to the foundations for the management and research of
supply chain for the creative industries.
Keywords: Creative industries, economic development, supply chain management, China.

1. Introduction‘Creative industries’ is a new concept introduced to policy-making and academic research
institutions. It includes a wide variety of different industries such as advertising,architecture, art and antiques, crafts, design, designer fashion, film and video, interactive
leisure software, music, performing arts, publishing, software and computing services,
television and radio. Today, the definitions of creative industries vary from nation to nation.
Creative industries are considered similar to ‘cultural industries’, ‘leisure industries’,‘copyright industries’, and ‘content industries.’ However, creative industries broadly consistof industries which encourage individual creativity, skill and talent through the generationand exploitation of intellectual properties.
Creative industries are growing in economic importance for industrialized andpost-industrialized nations. The production of lifestyles, cultural experiences, constructed
heritages, fantasies, images, meanings and emotions are coming to replace objectives and1things as the locus of the consumer society (Rifkin, 2000). Creative industries exist due tothe contracts between arts and commerce (Gave, 2000). Global creative industries provided
USD$2.24 trillion revenue in 1999 (Howkins, 2001). The United States was the dominant
producer with a global share of more than 45% overall, with even higher shares inadvertising, R&D, and software. The creative industries are a significant contributor to the
UK economy, growing significantly faster than the economy as a whole. Since 1996,
creative industries in Japan have expanded despite the country’s overall economic
recession.
Some governments in East Asia are now looking to creative industries to drive future
growth of metropolitan economies (Yusuf and Nabeshima, 2003). The most energetic is theSingaporean government, which anticipates sizable growth in these industries. In fact,
estimates for the cultural industries in Singapore show that output of broadcasting media
is 1.66 and 1.76 times greater than the design industries, which are well above those forsome of the manufacturing industries (Economic Survey of Singapore, 2003). The
Singaporean authorities are attempting to create the nucleus of a creative industry
through the establishment of two large and linked office and area development schemes
called One North and the Esplanade, located a short distance from the Orchard Road
commercial district. A Multimedia Super Corridor with its own university at Cyberjaya is
being developed in the vicinity of Kuala Lumpur. And similar attempts at seeding creative
industry clusters are underway in Pucheon near Seoul, in Shanghai, and in Taiwan.
Many creative industries in China are experiencing rapid growth due to a
combination of state-driven and private-sector investment.

TV and online games

industries are the two fastest growing creative industries in China. Design industry ispotentially very important to the future of China. For example, the toy industry is part of acreative industry in the U.S. and Europe but it is just a ‘production’ industry in China.
There are presently more than 8,000 toy makers in China, exporting at least USD10 billion
in 2003, but only a very small portion of these trade values are earned by the Chinese
factories. The total global toy sales are over USD70 billion but much of these profits comefrom innovative design and brand marketing.
As a new form of economy, the study of creative industries in terms of supply and2demand will influence nations in their policy making. Supply chain management offers astructured manner in analysing a chain of supplies from the original source to theconsumers (Cooper et al., 1997; Lambert et al., 1998; Ellram, 2004). By identifying thenature of demand (consumption of creative products), the structures of the industries, thelinkages between creative production activities, the relationships among key suppliers andcustomers, coordination mechanisms, and governance structures, we can enhance
understanding of the development of creative industries. This article reviews thedevelopment of creative industries in the UK and Japan as a guide to the establishment ofcreative industries in China.

2. Definitions of creative industries
The word ‘creative industries’ was coined by Adorno and Horkheimer in 1944 to depict theindustrialization of leisure time (in the same way that mass-production had organizedworking life). The UK Government’s Creative Industries Task Force defined the creative
industries as ‘those industries which have their origins in individual creativity, skill andtalent and which have a potential for wealth and job creation through the generation andexploitation of intellectual properties’ (Department for Culture, Media and sport, 1998).
The rationale in grouping these rather diverse activities together was said to be that
individual creativity and intellectual capital were the prime drivers for this sector. A
common denominator of all these industries is that aesthetic attributes are decisive
element of product and service differentiation and value.
The definition of creative industries has not reached a common agreement. Creative
industries are formed from convergence between the media/information industries and thecultural/arts sector (Jeffcutt, 2000). Some commentators (e.g. Tepper, 2002) have argued
that it is very difficult to achieve a consensus about what boundaries of the creative
industries ought to be and whether the categories listed above fully capture the true extent
of creative endeavor. Other variations of definition exist. Creative industries are consideredsimilar to ‘cultural industries’, ‘leisure industries’, ‘copyright industries’, and ‘content
industries.’ Creative industries are even said to include those industries with ‘strong
brands.’ For example, Millar et al. (2005) defined creative industries as ‘those industries3with strong brands and unique products such as music, film, media, consumer electronics,
fashion and software.’ With the inclusion of ‘strong brands’, companies such as IBM, LVMH,
Coco-cola and Unilever could be considered as part of the creative industries (Millar et al.,2005). In this article, ‘strong brand’ is not considered as part of the creative industries
because it may or may not aesthetic attributes from individual creativity.
All discussions on creative industries start off with the thorny problem of definition.
The term “creative industries” is a new concept introduced to policy-making and academic
research. Other similar industries are “cultural industries”, “leisure industries”, “copyrightindustries”, and “content industries”. Although many of these exhibit common concern on
the economic contribution or employment structure of the creative sector, there still lacks
standard methodology or analytical tool in defining the term. Discussions on creative
industries are sustainable with new research on the changing relationship between culture
and economy and on topics such as the relationship between the creative sector to
education, urban rejuvenation, national or city images, heritage and tourism.
The UK Government’s Creative Industries Task Force has included thirteen industries
as creative industries. These industries are briefly highlighted as follow.
•

Advertising, like artist, traffics in symbol systems and metaphors, not literality.
Both arts and ads embellish symmetrically - the elaborate, enhance, and modify tomake promises for our wants and wishes.

•

Architectural design includes architecture, interior design, landscape, urban design,
physical planning, engineering and model making. Architectural design is protectedby copyright whereby architects demonstrate skills and creativity to provide quality
services to different clients.

•

Art, crafts and antiques involve individual creation and exchange and distributionsof copyrights. This sector operates with a complex system of galleries, art andantique vendors as well as cultural institutions such as museums and providers of
exhibition services.

•

Design industry includes graphic, fashion, interior and product design. This
industry is quite closely related to goods production; it is an important service
required by today’s manufacturers.

Design industry also works with theadvertising industry or being part of the advertising industry.

4

•

Designer fashion includes the design of fashions for clothing, footwear, and othermiscellaneous. This industry is similar to the design industry but it specificallyfocuses on mostly clothing.

•Film and video are sometimes considered as part of the entertainment or motion
pictures industry.

•

Interactive leisure software specifically refers to video and computer games•

Music is another part of the entertainment industry. It involves recording, labelling,
production and marketing of music.

•

Performing arts involves production of cultural and leisure experiences. It usually
involves live performance in the forms of shows, concerts or theatres in which the
production of cultural experiences is consumed simultaneously.

•

Publishing involves printing of news, magazines and books.

•

Software and computing services provides computer programming and othersoftware services (software development, packaged software, game software, etc.)•

Television and radio is another part of the entertainment industry involves in
production and broadcasting of entertainments.

Shorthose (2004) commented that the capitalization of culture leads to the collapse of therelationship between work and leisure. Cultural activities in many nations have been
considered as a matter of leisure, but the capitalist economies has transformed leisure orcultural activates into job creation and profit-making economy. Creative industries areworking at significant contemporary sites of cultural production and consumption. Jeffcutt(2000) commented that research works have been concentrated on the creative andaesthetic across organized life and within formal organizations but not yet explicitly on the
production and consumption of aesthetic products.

3. Overview of the development of creative industries
As there is no standard definition for the creative industries and different nations view
their importance differently, therefore there is still no global overview or statistics
available. However, The Centre for Cultural Policy and Research, at The University ofHong Kong has provided some useful data about creative industries in some countries.
5

Table 1 provides statistics about the employment and classification of creative industries insome countries.
Table 1 Employment and classification of creative industries in some countries.
Country

No. of persons

Employment

Survey year, creative

employedratio

industries conceptJapan

1 878 000

3.2%

2000, CI

U.K.

1 300 000

4.6%

1997-98, CI

U.S.

8 000 000

5.9%

2001, CR

Hong Kong

170 000

5.3%

2002, CI

Singapore

72 0003.4%

2000, CR

Taiwan337 000

3.6%

2000, CCI

Australia

345 000

3.8%

1999-00, CR

New Zealand

49 0003.6%

2000-01, CR

Note: CI = creative industries, CR = Copyright industries, CCI = cultural creative industries; source:
CCPR, HK University, Baseline Study of Hong Kong’s Creative Industries, 2003.

Table 1 indicates that creative industries contribute employment to a great extent inpost-industrialized and industrialized countries. Some countries separate creative
industries into copyright and non-copyright, while Taiwan includes ‘culture’ into theclassification to emphasize the important cultural element in the industry.

3.1 Creative industries in UK
The Creative Industries are a significant contributor to the UK economy - accounting for7.9% of GDP, and growing significantly faster than the economy as a whole. Four of the CI’s
accounted for three quarters of the economic value of the grouping of sectors (Design - 2.8%of the whole economy; Software - 1.6%; Publishing - 0.9%; and Advertising - 0.7%). Exports
contributed £8.7 billion to the balance of trade in 2000, equating to 3.3% of all goods andservices exported. Exports have grown by around 13% per annum over the period of 1997 -6

2000. By comparison over the same period the value of all services exported have grown by
9%, while all goods and services combined grew by 5%. UK creative industries deservedly
enjoy a global reputation for excellence, creativity and innovation. British design,
advertising, music and interactive leisure software companies are considered to beworld-class.
In December 2001, creative employment totaled 1.95 million jobs. This comprised
1.15 million jobs in companies in the creative industries. There was a further estimated800,000 creative jobs within companies outside the creative industries. Total creative
employment increased from 1.45m in December 1994 to 1.95m in Dec 2001. Over the period
1997-2001, employment in the creative industries grew at a rate of 5% per annum,
compared to 1.5% for the whole of the economy. In 2001, there were around 135,000
companies in the Creative Industry sectors on the Inter- Departmental Business Register(IDBR). Nevertheless, it is estimated that the IDBR covers over 99%3 of all economic
activity. Two thirds of these enterprises are accounted for by 2 sectors: software andelectronic publishing (56,000 enterprises), and music and the visual and performing arts
(33,000 enterprises).
In the U.K. a task force was setup to nurture creative industries. The six core themes
identified by the Creative Industries Task Force in 1997 - export promotion; skills andeducation; access to finance; taxation and regulation; intellectual property rights; andregional issues still remain relevant today. The Creative Industries fact file attempts topull together these issues in one easily accessible document, identifying issues andappropriate contacts across Government. Today many of the thirteen creative industries
categories are overseen by the Department of Trade and Industry, while the department ofCulture, Media and Sports provides support to the film and music industries, and also
coordinates overall policies to promote creative industries.

3.1.1 Music industry in UK
The music industry has evolved dramatically by delivering music through various formats drums/disc system, Vinyl tape record, tape cassette, compact disc and recently the Internet(Gillett, 1996). Huygens et al. (1999) labeled the evolution stage of music industry as “right7

shifts” during the mid 1980s because music was finally considered as property right. In thin
evolution stage, record labels firms developed music multinational distribution channels andspecialization of artist training.
Before the sales of music through Internet, the distribution channels and the divisionof labour within the industry have remained relatively stable: artists create music, record
companies promote and distribute it and the fans consume it (Graham et al., 2004). Record
companies distribute music records via distributors, retailers (general merchandisers ormusic specialists), DJ’s, dance clubs, television, radio and event organizers (Parikh, 1999;
Lewis et al., 2005). The success of an artist depends greatly on the talents, as well as
training and marketing investment by the record companies. This traditional businessmodel involved high marketing, retail and distribution costs. In the UK, EMI purchased
Virgin Megastore, one of the largest music retail stores in order to further control the
distribution and retail channels.
The traditional business model for the music industry is threatened by piracy either
from counterfeit records or ‘illegal’ peer-to-peer music downloading businesses. The piracy
music market in the UK is equale to about 4.5 million counterfeit CDs sold each year in the
UK alone (Reece, 2004). In the UK download market, more than 26 million songs werelegally bought on the net in 2005 - overtaking the number of singles sold over the counter.
After the success of music downloads through file sharing software on the internet themusic industry saw a new opportunity of a new way to sell their music. Even though thesales of music records are still dominated by retails today, many analysts expect that the
downloading of music will continue to grow in the future. The success of Apple’s iTunes has
shown it is possible to sell downloads over the internet with many customers willing to pay
rather than download the music for free from such sources as Kazaa where legality is still arather grey area. This trend will lower the distribution and retail costs substantially andultimately beneficial to the consumers but threatening the retail industry.
Music is a global business. The industry is dominated by the big five major recordlabels

-

EMI

(UK),

Sony

(Japan),Bertelsmann

Music

Group 1

(Germany),

Universal-Vivendi (France), and Time Warner (US) who control the market for recorded
1

Bertelsmann has merged with Sony although the deal has not yet cleared all regulatory hurdles.

8

music in both production and distribution. These big firms collect 85-90% of the profit fromthe music sales. EMI from UK is lagging behind two giant competitors – Universal andSony BMG. However, the winners of competition are still unclear. The traditional musicindustry business model is challenged by the Internet online sales of music. In 2005, 159
million albums and 21 million physical singles were sold in the UK. British artists
accounted for 49% of non-compilation album sales. 26 million songs were downloaded
legally, according to the British Phonographic Industry, BPI. With the emerging trend ofmusic purchases via the Internet, the industry structure can be substantially altered tofavour established online shopping firms (such as Amazon, eBay, etc.) while the roles of
traditional retail diminished and individual artist (or any individual) can now bypass thepower of record labels firms.
The music industry is going through a revolutionary stage due to the availablility ofdigital technology. Suddenly the digital technology (such as MP3) and software for music
sharing over the Internet has allowed Napster to disrupt the traditional business model(Graham and Hardaker, 2003). While many countries are now enforcing new laws toprotect the property rights of record companies and artists, the record companies areaggressively charging those involved in illicit acts and attempting to control the Internet
music business. The digital technology advances so swiftly that the law finds it difficult tokeep up (Alcock et al., 2003). The music industry represents another creative industry
which is gradually being digitized.
Another phenomenon in the music industry is its reciprocal supplier-customer
relations between the media and advertising industries. MTV and radio are effective
channels for advertising of new music records (Martin and McCracken, 2001). MTV is also
an effective trend setting media for many other firms. MTV not only promotes songs but
also popular cultures which are extremely effective for targeting teenagers. The media
industry invests in MTV in order to gain more advertising business, while record
companies produce MTV to promote their music. Thus, media and broadcasting,advertising, and music publishing seem to build a cluster of reciprocal supply chains.
Together with digital technology firms, this industry cluster can further offer downloadable
music and video through cable television, building up an alternative channel for selling9

music and video.

3.2 Creative industries in Japan
There is no clear definition of creative industries in Japan. However, according to the 1999
Survey on Service Industries, creative industries accounted for ¥35.35 trillion in revenue
or 17.5% of the total of all service industries (Yoshimoto, 2003). Based on data from the2001 Establishment and Enterprise Census, Yoshimoto (2003) found the creative industries
in Japan to contain 176,000 establishments and 1.878 million employees, comprising 2.8%
and 3.2% respectively of the total for all industries in 2001. Since 1996, creative industries
in Japan have expanded by 3.8% in number of establishments and 7.9% in employment
despite the recession, compared to declines of 5.5% and 7.9% respectively for all industries.
The industrial sectors which employed the most number of workers were computer
software and architecture/engineering services, followed by publishing, advertising, andaudio/video recordings.
Unlike in the U.K., the vise in creative industries in Japan is left up to depend on
private enterprises. Of the twelve creative industries, industry cooperation is nurtured
through foundations and other means of advertising, architecture and engineering services,
design, and publishing, but of the actual initiatives are led by private enterprises. However,in Japan, the government has attempted to provide concerted efforts to establish Japan asa nation based on intellectual property. After the Strategic Council on Intellectual Property
was established in March 2002, a comprehensive strategy was adopted in July, and the
Basic Law on Intellectual property was implemented in March 2003.
The Japanese government put great emphasis on the ‘content industry.’ Since the late
1990s, the Ministry of Economy, Trade and Industry has targeted the content industry
which includes movies, music, game software, and animation. This is considered as being apromising industry, and has been analyzing the issues and studying promotion policies. In
January 2003, METI released a report entitled ‘Present Status and Issues of the Content

Industry’, which raises three structural issues and concerns. The first issue is theoligopolistic tendency among content distributors will make content producers dependent
on distributors. The second concern is that concern producers will resort to subcontracting
10

as a result, leading to a possible brain drain. The third issue is that the lack of content will
seriously threaten the development of the immature broadband market into a new
distribution route.
In addition, two policies are implemented to promote the content industry. They are
the development of the distribution infrastructure and the promotion of competition
between routes, and development of a vital market environment. The first policy involves
the development of an EDI system necessary to launch broadband and expand distribution,
the establishment of copy protection technology, and the eradication of piracy to expand
into overseas markets. The second policy involves ensuring fair competition by revisinganti-monopoly guidelines and establishing model contracts, creating an environment thatfacilitates financing, and developing human resources.

3.2.1 The Video game industry in JapanThe current global market for video games is estimated at US$18 billion. In 1999 alone,
215 million copies of games were purchased in the US, which amounts to two for every
American household (IDSA, 2001). The video games industry originated in U.S. and started
as arcade games. In 1983 the market crashed and it was ‘saved’ by Japanese video gamefirms Nintendo and Sony. In Japan, imports of products and services exceeded exports forthe creative industries except for game software.

Attention had shifted on creative

industries such as animation, TV games and cartoon character merchandising. They wererepresented as ‘Japan’s Coolness.’ The overseas market for the content industry is
predicted to grow from ¥351.8 billion in 2001 to ¥1.5 trillion in 2010.
A study by Bryman (1997) showed that late entrants had significant advantages overindustry pioneers in case of the US animation industry. Game software is part of a new
industry with lower barrier to entry. It does not suffer from language-based disadvantages,
and escaped the negative aspects of state-led industrialization. Significant barrier comesfrom the scarcities of creative resources and electronic technology. Evidence from the US
indicates that the video game industry typically shows a higher R&D to sales ratio among
entertainment industry (IDSA, 2000). Aoyama and Izushi (2003) analysed historicaldevelopment of video game industry in Japan and described its evolutionary process as
11

cross-sectoral transfer taking place concurrently with the evolution of technologicalknowledge and artistic creativity. In Japan, video games industry flourishes without
governmental support. The industry is linked to socially and historically embedded
foundations of creative imaginary based on vibrant cartoons (for example ‘Pokemon’ and‘Manga’) and animation films, complemented by the availability of skilled engineers
emerging from Japan’s consumer electronics industry. Video games developer such as Sony
(Playstation) and Nintendo (GameBoy) played an important role in the emergence of video
games industries in Japan and globally.
Nintendo (founded in 1889), formerly a company that produced toys and playing
cards, began with experimenting with electronic toy products in the 1960s. Although widely
ignored by the mainstream toy industry at the time, Nintendo took a particular interest in
gaining knowledge of electronics, initially in order to respond to consumer demand
generated by shooting games that used optical censors. Nintendo joint-ventured with
consumer electronic firms Sharp and Mitsubishi Electric and produced some earlier versionof video game systems. As a latecomer in the home game market behind Tommy andBandai (both are Japanese video games firms), Nintendo managed to succeed overcompetition with competitive pricing, ability to delivery mega-hit software and portableconsole such as GameBoy (1989) and Super Famicon (1990). Nintendo realised theimportance of maintaining relationships with the software industry, nurturing both talent
in-house as well as through third party publishers. Nintendo successfully avertedcompetition by: (1) monopolizing popular game titles, (2) having an in-depth knowledge ofthe toys and entertainment market, (3) upgrading technologies through alliances withhardware firms, such as Silicon Graphics and Philips, and (4) in case of the Japanesemarket, controlling the distribution channel, and in the US market, aggressively goingafter piracy in courts.
In Japan, the two major platform developers, Nintendo and Sony, forged an indirect
link between manufacturing expertise in consumer electronics and software publishers. As
hybrids of hardware manufactures and software developers, platform developers drew
crucial resources indispensable for growth from consumer electronics, and facilitatedfledgling software start-ups through financial assistance and early disclosure of platform

12

specifications. For the hardware (console), Nintendo relied on the local presence ofconsumer electronics firms, and particularly IC (integrated-circuits) chip manufacturers
and display manufacturers. Nintendo in fact maintained no in-house manufacturing plants
and outsourced most manufacturing activities including production of parts and assemblyof platforms and cartridges.
Sony, with technology know-how of CD-ROM, entered into the video game industry as
a consumer electronic firm and platform developer. As a reputable consumer electronic firm
itself, Sony uses in-house plants known for quality in design and performance. Directcontrol over production of consoles coupled with shortened lead time with CD-ROMs haveallowed Sony to remain responsive to fluctuating market demand while maintaining
quality standard.

3.3 Creative industries in China
Many creative industries in China are experiencing rapid growth due to a combination ofstate-driven and private-sector investment. For example, the liberalization of trades has
promoted increasing needs of advertising; the Olympic Games 2008 has driven the shift
towards digital TV; the popularity of online games has driven the creation of a new games
industry. As there is not yet a unified government agency taking the whole creative
industries into consideration, there is currently lack of data to provide the overview ofcreative industries in China. However, some of the potential and fast-growing creative
industries are highlighted so that their supply chain characteristics can be examined.

3.3.1 TV industry in China
China largest creativity industry is television. With over 2,000 channels, 400m TV homes(including 100+m cable homes) and a total valuation of between US$4.7 billion and
USD$4.9 billion for 2002, China TV is estimated to have grown by 17.5% year-on-year overthe past four years (UK Trade & Investment, 2004). China TV’s industry has undergone
sustained restructuring over a period of years. The industry is now organised into regional
Media Group – the most significant at present being the central China Media Group, and13

the Media Group of Beijing, Shanghai, Guangdong and Hunan. TV production in China has
great prospect for growth because the country produce only 25% of its programming needs
currently. One of the Chinese TV production houses has now ventured globally. CCTV is
subscribed in many countries globally, viewed by both Chinese and non-Chinese audiences.
CCTV has become an essential news channel for the world as it has privileged access tonews in China quicker than other global players.
Cable subscriptions remain low (an average US$2 per month) — suppressed bydelays in the introduction of Pay TV, limited content, and a lingering concern in somecorners of government, to maintain the utility pricing policies which have characterised
Chinese TV to date. Change is however underway. There is now a clear policy recognition
that the economics need to stack up and a range of experimental and trial Pay TV
initiatives are now in operation — some charging up to US$30 per month. As cable
subscriptions are still low, China TV production houses rely on advertising revenue. TV
production houses have for some years pursued close (in many cases symbiotic)
relationships with advertising entities and advertisers (50 per cent of China's production
houses have advertising 'interests').

3.3.2 Online games industry in China
China’s online games industry is the fastest growing in the world due to the availability of
talented youth and entrepreneurs. Commentators expect the video games industry in
China to experience the most significant growth. China will have the largest online gamers(estimated 41.8 million gamers in 2007) in the region and also the future producer of theregion’s most popular games. In China, online games surpassed the console games market
due to the limited availability of home PCs and consoles.
There are over 100 major Chinese businesses engaged in online games development.
Shanda, one of the market leaders, was recently declared the fastest growing firm in
China’s media and telecom sectors. Specialised games developers are merging, mostnotably Kongzhong which leads the mobile games market. Games development in China
has significant cost advantages comparative to global industry; these are reduced however
for the region — particularly Korea where cost differentials are limited and in a market
14

(including China) where Korean games dominate. The general expectation however is that
China will overtake Korea (and Japan) at some point within the next ten years: key factors
include access to a rich fabric of myth and legend, strong creative talent which has been
underutilized in other media, positive government policy framework and scale.
Against this background, both Korean and Japanese games businesses have invested
in China (sometimes jointly) and the Korean government actively supports Korean
networking with Chinese games developers. Other international players are following suit- although (to date) more often as localizers and outsourcers than direct investors. Someare using their engagement with China to drive regional collaboration and to extract
laboratory value from what is the fastest growing market in the world; some receive homegovernment assistance to support their engagement.
Throughout the value chain, there are increasing signs of both vertical and horizontal
integration. China has over 60 games publishers (mainly domestic, some international) many of these are also developers and/or operators and portals. Almost all domestic
publishers provide distribution and agency services for their own and imported games.
Some have achieved significant scale and a growing number are accessing both domestic
and international capital markets. M & A activity is rising (many of China's major
corporates are keen to tap into digital industry growth in general and games in particular)
and cross-media investment (spurred by recent liberalizations in investment in TV
production studios) is likely to become significant.

3.3.3 Other creativities industries in China
The design industry (including industrial design, architecture design and fashion design)in China is highly fragmented. Even though China has become the manufacturer of theworld but the shift from ‘made in China’ to ‘designed in China’ is still a long way off. Thus,
China still resumes the ‘lost-cost production’ part of many goods supply chains. So far
industrial design for automotive and consumer electronics sectors are the two which havethe strongest growth.
The film, radio and music sectors in China are weaker. These sectors suffer from a15

shortage of investment over a prolonged period of time. These sectors are also underminedby ‘industrial scale’ privacy and lagging liberalization. Pay TV is expected to breathe life
into movie channels and music video capable of delivery in new revenue streams.

4. Challenges faced by creative industries
The above overview of creative industries leads to the conclusion of some generic challenges
faced by creative industries. Some challenges may be significantly influencing some specificindustries but they are present in all creative industries to some degree.
1. Copyright issue. Copyright is an issue faced by creative industries globally. The
copyright issue hits mainly the music, film, video, design, games industries. The
copyright issue is more critical in less developed countries because the copyright
law is either not available or enforced. In the UK, the piracy music market in the
UK is equal to about 4.5 million counterfeit CDs sold each year in the UK alone(Reece, 2004).
2. Highly unpredictable demand (consumption of creative products and services).
Creative products are ‘experience’ products; their consumption is highly subjective
and unpredictable about demand. Study of the performing arts industry showedthat the demands are very volatile (Johnson and Garbarino, 2001; Bennett, 2005)
due to competition with conventional competitions (theatres and cinemas) andunconventional competitions (home entertainment and other leisure). Three kindsof uncertainties have been identified in the study of the Hollywood film industry
from 1936 to 1965 (Milliken, 1987), e.g., state, effect, and response. Miller andShamsie (1999) suggested that uncertainties can occur at industry specific,
environmental (state), organizational level (effect), and individual level (response).
Financial investment and artistic talent are two other sources of uncertainty(Faulkner and Andersen, 1987)
3. Short product life cycle. Creative products are unique and their values are highly
subjective (Dempster, 2006). In the case of opera, Dempster (2006) discovered theeffective way was to use a multi-staged production process with constant16

interaction with the audience and ruthless re-writing of a by the core creative team.
Innovative toys have a short life span in the market these days (Wong et al., 2005).
4. Scared supply of human capital (creative resources) of a wide variety of skills andmanagerial

skills.

Creativeindustries

operateinheterogeneousandtransdisciplinary forms of economy (Jeffcutt, 2000). Talents and skills of artistic
creativity from various designers, performers, technology, and various others are
required but not all nations have these pulls of resources. Even given theavailability of diverse creative resources, management of these resources becomesthe next issue. A core process is the management of creativity and innovation incomplex knowledge flows; a cycle from the generation of original ideas to theirrealization and consumption in the forms of performances, products or services(Jeffcutt, 2000). Managers face paradoxes of managing and organizing creativity inthe cultural economy, particularly the tensions between routinised and creativity
activities (DeFillippi et al., 2004). At a wider scope, issues may arise from the
management of relationships amongst independent creative artists, gatekeepers fortalent (agents), cultural industry brokers, producers, distributors, and media
outlets (Jones et al., 2004)
5. Intensifying competition among creative cities and firms. Competition inadvertising, design, TV, entertainment and games industry is especially keen. The
rates of mergers and sales of creative industries tell the extent of competition.
Competition can suddenly come from other industries who previously were not partof the competing rivalries (Aoyama and Izushi, 2003), and often firms do not react
to threats of the potential entry of an ‘unconventional’ competitor (Bennett, 2005).
6. Lack of government supports. In some countries there is a lack of support from thegovernment in form of policies, funding and incentives. This is apparent from thereview of creative industries in China; it is a problem shared by many Asian
countries currently.

The above lists of challenges are also faced by typical goods supply chains at different
degrees. The most distinguishable challenge faced by supply chain management initiative17

is the capability in understanding ‘experience’ products instead of ‘goods’ products. The
subjectivity of experience products lead to ambiguity in ensuring satisfied consumers. The
next challenge faced by supply chain management is the management of ‘creative
resources’ instead of the ‘production machineries.’ For example, the slack of resource does
not guarantee fulfillment of the customer’s demand for creativity. Creative resources are
not measurable in absolute form and therefore planning of these resources become
problematic.

5. Supply chain management for creative industries
This section examines creative industries from supply chain management perspectives.
The first principle is that a supply chain aims at satisfying the needs of end customers.
Typically for a goods supply chain the attributes of the products satisfy the end customers
to a great extent while the attributes of the services provided such as lead time play a partin additional roles in satisfying the end customers. In creative industries the end customers
are individuals who purchase entertainment experience, leisure experience and creativeideas. As the values of these creative experiences vary among individuals, creative
providers need to constantly communicate with the end customers and constantly shaping
their creativity to satisfy different customer needs. The research in supply chain
management for service and creative industries should therefore begin detailed
investigation on how the values of creative services should be classified and quantified.
The second essential concept of supply chain is that a supply chain consists of a chainof supplies and customers, in which each supplier adds values to the ‘products’ required by
the customers. Goods supply chain typically has a chain of supplier and customer in a
serial manner, even though a supply network does exist. However, the networking amongst
creative industries is even more complicated than a typical manufacturing supply chain.
Scott (2000, 2003) observes that cultural-products industrial agglomerations around theworld are increasingly becoming caught up with one another in global webs ofco-productions, joint-ventures, creative-partnerships, and so on. In this manner, productive
combinations can be established that draw on the specific competitive advantages ofdiverse clusters without necessarily compromising the underlying force of agglomeration18

itself (Yusuf and Nabeshima, 2005). Such complex clusters of creative industries is
illustrated by the following figure (modified from Yusuf and Nabeshima, 2005).

The

challenge for supply chain management is to formulate methods to analyse the chains or
networks of suppliers and customers and how the cores value-added activities areorganized.
The third concept of supply chain is that all suppliers utilise their resources
effectively to add value to the ‘products’. In creative industries the networks of creative
sub-sectors add value to each others reciprocally. The notions of plan, source, make,delivery may still be applicable but they have to be fine-tuned to suit the creative andservice nature of the creative industries. Critically, the view on creative resources has to bedifferent from the view on typical goods production resources. Creative industries often
require a diverse mix of skills and are likely to gravitate towards urban areas that either
have or are acquiring the institutions and other attributes to meet the labour requirements.
Creative sub-sectors, such as movie making and electronic games, depend upon local andinternational networking in order to develop commercially successful products and toenhance their market prospects.
Figure 1 Reciprocal supply and demand relationships in creative industries

Physical location
clusters

Digitalized clusters

Publishing& Printing

Cinema &TheatreDesign clusters

IT &Software

Leisure(games)Broadcasting& Media

Architecture& industrial

AdvertisingMarketing19

To fully understand these factors, the creative industries can be divided into six distinct
clusters based on the current knowledge of supply chain management. They are grouped
together based on the types of customer needs and the required forms of delivery, thestructures of the supply chain, and the types of required resources. These six clusters are:
• Digitalisable entertainment cluster which involves copyrighted publishing, music,
firm and video, and television and radio. This cluster tends to be managed byconglomerates which control media, broadcasting, publishing, music, and video
businesses. This cluster is in the progress of transformation from a traditional
retail business model to digital- and Internet-based business model. Especially forlive television and radio programs which involves artists interacting with theaudiences, these ‘products’ can be regarded as similar to the ‘live gallery andtheatrical cluster.
• Digitalisable leisure cluster which involves the exchange of copyright leisure gamesin the form of video games or computer games. At this time the industry involves
the delivery of game consoles and game software. Game software is deliverable indigital (download from Internet) or physical (CDs) formats. The use of game
consoles is a way of protecting counterfeit products.
• Live gallery and theatrical cluster which involves copyrighted crafts, performing
arts, concerts, paintings, etc. This cluster tends to involve copyright art and craft
performances in specific locations (such as cinemas, theatres and exhibitions) sothat the production of cultural experiences and their consumption take place
simultaneously.
• Digitalisable advertising cluster which involves exchange of copyright advertisingideas and services. This cluster is closely related to the entertainment (media)
industry where some of the advertisements are published. The advertising industry
is independent from the entertainment cluster because it does not sellentertainment, but creative ideas for marketing of almost anything. As Internet,
electronic billboards, television (and other mobile devise) are increasingly used foradvertising purpose, advertising in the future will become more digitalized.

20

• Goods and architecture design cluster which involves the design of goods, fashion
clothing, buildings and landscapes. This cluster involves exchanges of copyright andcreative services and business continuity is dependent on the relationships between
the creative service providers (designers or architecture designers) with thecustomers (manufacturers and building owners). This cluster requires providers toactively understand customer needs and constantly deliver the required creativity.
• Arts and antiques auction cluster which involves constant valuation and bargaining
from prospective buyers
This initial analysis of creative industries from supply chain management perspectives
provides a map to further studying creative industries. These concepts are likely to berefined in future to enhance our knowledge.

6. Conclusions
This article examines creative industries from UK, Japan and China. It is evident that thestate of economic development is a critical factor driving the growth of creative industries.
For industrialized (post) countries like UK and Japan, the decline of the production
economy and the changing lifestyles of people help to drive their creative industries. In
these countries we can see the creation of governmental agencies and funding to formally
nurture their creative industries. In newly developing (and not capitalized) countries like
China, the bulk of government funding is channeled to the production economy. In China,
creative industries grow organically in line with the level of liberalization and foreign
investment while waiting for domestic demand to grow. However, when creativity from
China is required for the global markets, creative industries such as TV, games, design andadvertising will grow exponentially driven by global demand.
The article further clarifies the definitions of creative industries. Some cases ofcreative industries are discussed to amplify the unique characteristics of creative
industries. These unique characteristics can help us to group industries of similar
characteristics from supply chain management perspectives. This article classifies creative
industries into six clusters. Supply chain management for creative industries should be21

distinguished from goods supply chain in terms of (1) creative services are highly subjectiveat individual level, (2) supply chains of creative industries consist of reciprocal networks ofsuppliers and customers, and (3) creative resources are not easily quantifiable and theyrequire substantially different managerial skills to manage. These new features require
further research such that new knowledge can be generated for the policy maker andindustry operators. The advantage of supply chain approach for the research of creative
industries is that it provides policy makers knowledge of the value creation process andproblems faced by their key players.

[2008.1.7 846]
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