Student name: Nguyen Bao Linh

ID student: F14-129

Course name: Contemporary Developments in Business Management

Paper due date: 5/1/2023

Word count: 4370 words

PART 1 .............................................................................................................................................................. 3

I. The particular importance of external environmental factors of PESTLEG Factors and Porter’s
Five Forces to Tencent company ..................................................................................................................... 3

II. External environmental factors analysis to Tencent company using PESTLEG Factors and the
Porter’s Five Forces ......................................................................................................................................... 3

A. PESTLEG .............................................................................................................................................. 3

1. Political factors ........................................................................................................................................... 3

2. Economic factors ........................................................................................................................................ 4

3. Social factors .............................................................................................................................................. 6

4. Technological factors .................................................................................................................................. 8

B. PORTER FIVE FORCES .................................................................................................................. 10

1. Industry competitors (High)...................................................................................................................... 10

PART 2. Crises in the Economic and Financial Environment Theme ...................................................... 11

I. The relevance and it influences policies and decision-making of Tencent company ........................ 11

1. The growth of technologies ...................................................................................................................... 11

2. The importance of sustainability in the context of climate change .......................................................... 12

3. The role of changing consumer demographics ......................................................................................... 14

4. The complexity of geopolitics .................................................................................................................. 15

5. The inevitability of Structural Transformation (Post-Pandemic) ............................................................. 16

II. The evaluation of the effectiveness of Tencent’s response and area for improvement ................. 17

1. Effectiveness of Tencent’s response ......................................................................................................... 17

2. Areas for improvement ............................................................................................................................. 18

References ....................................................................................................................................................... 19

Appendix ......................................................................................................................................................... 24

2
PART 1

I. The particular importance of external environmental factors of PESTLEG Factors and

The PESTLEG and Porter Five Forces frameworks are crucial external factors that significantly influence
Tencent's development. These factors have a discernible impact on the company’s strategies and decision-
making processes. The company places significant importance on the Economic, Social, and Technological
factors within the PESTLEG framework. The effectiveness of Tencent’s operations in the political
environment is heavily influenced by government policies and trade tariffs, which also have a significant
impact on domestic competitiveness. Economic factors significantly influence Tencent's commercial
operations and growth prospects. Moreover, the social aspect encompasses customers who directly contribute
to Tencent's profitability and exert influence. Technology plays a crucial role in enhancing productivity and
product quality for leading game production enterprises like Tencent. Tencent faces a significant level of
competition within its industry, as indicated by the analysis of Porter's Five Forces. Numerous prominent
gaming companies, such as NetEase, pose a potential risk to Tencent's market dominance.

II. External environmental factors analysis to Tencent company using PESTLEG Factors and
the Porter’s Five Forces

A. PESTLEG

1. Political factors

China’s government has implemented regulations aimed at restricting expenditure and incentives within the
realm of online gaming, resulting in adverse consequences for the video game industry. The aforementioned
news prompted investors to promptly divest their holdings in Chinese game companies. Tencent experienced
a decline in its stock price by 12.35%, resulting in a decrease of over 43 billion US dollars in the company's
capitalization (L. Le, 2022).

The implementation of these regulations has adverse effects on Tencent's revenue and shares, as well as other
gaming companies that heavily rely on advertising and video games for their revenue. Additionally, these
regulations have caused concerns among investors.

However, to compete with the US in technology, China has reduced tariffs on 62 information technology
products starting July 1, 2023. Starting January 1, 2023, China will change tariffs on imports and exports. This
modification will lower the country's tax rate from 7.4% to 7.3% (VTV, 2023). Furthermore, the Chinese
government has recently granted approval for the distribution of 44 foreign games, which includes 7 games
from Korea. This decision comes after a halt in licencing Korean games since 2017 due to tensions related to
disputes. Following China's strict regulatory measures, many businesses have encountered difficulties, causing

3
the expanded licensing of many types of games to major Chinese technology companies to have a huge
positive impact (VTV, 2023).

The positive impact on Tencent arises from the dual benefits of reducing tax and fee burdens and effectively
increasing sales revenue. In addition, Tencent has the potential to invest in acquiring equipment and attract
foreign investors to reinvest profits both within the company and in China.

2. Economic factors

The Covid-19 pandemic has significantly affected global trade and investment, while social distancing
measures in various countries have led to reduced income, consumption, and activity. According to a report
by the International Monetary Fund (IMF) on October 10, 2020, global economic growth was -4.4%.
Developed countries experienced a decline of -5.8%, while China’s growth rate was 1.9%. The remaining
developing countries saw a contraction of -3.3% (Nguyen, 2020). Despite the complexities surrounding the
pandemic, several companies, including Tesla, John Deere, and Volkswagen, continue to view China as a
promising market for their future expansion (Pham, 2022). China’s positive growth makes it an attractive
destination for foreign investors (Pham, 2022).. Hence, Tencent continues to benefit from the robust economy
and the effects of the Covid-19 pandemic.

The implementation of lockdown measures by different national administrations has compelled a significant
number of users to remain indoors. As a result, the demand for online gaming increases. Advertising and online
gaming revenue for Tencent are on the rise. Even other mobile applications, such as WeChat, experienced
monthly active user growth. As the Covid-19 pandemic swept the globe in the first half of 2020, the Chinese
technology conglomerate Tencent reported a 28% increase in revenue to 222.9 billion yuan (32 billion USD)
as a result of users devoting more time to gaming while at home (Le, 2020). This indicates that investors have
strong confidence in China, providing Tencent with increased opportunities to promote current trends. This is
particularly relevant in the global pandemic, where digital connectivity is more robust than ever.

4
 Figure 1: Top 10 largest economies countries in the world in 2023

Source: (Forbes India, 2023)

According to IMF data (2023), China ranks second among the top 10 wealthiest economies globally, with a
GDP of 17.786 billion USD. China has experienced significant economic growth following the Covid-19
pandemic, advancing from fourth to second place in global rankings between 1960 and 2023. China’s economy
experienced a growth rate of 4.5% in the first quarter of 2023 (B. N. Le, 2023). The recovery of domestic
consumption in China has positively impacted various technology companies, including Tencent. Tencent
reported an 11% increase in quarterly revenue, marking its fastest growth in more than a year as it saw a major
recovery in payments volumes, advertising and gaming sales (B. N. Le, 2023).

5
 3. Social factors

Gaming segment of Chinese consumers

Figure 2: Share of China's Gaming Market Revenue in 2020

Source: (Flanders, 2021)

According to Flanders (2021), it has been found that China’s mobile game market revenue is dominating the
game market and showing consistent growth. Overall, mobile games are still the most popular products in the
Chinese market. Tencent can take advantage of this consumer trend to boost sales and advertising revenue,
while also launching new projects and game updates.

6
 Figure 3: Top mobile games with the highest revenue in 2021

Source: (Sensor Tower, 2022)

It is worth mentioning that Tencent company holds the top positions in this ranking. PUBG Mobile (including
the Game for Peace version) and Honour of Kings both generated an impressive revenue of 2.8 billion USD.
Based on this list, it is evident that Tencent has achieved significant success in both the domestic and
international mobile game market. The group’s game products enjoy widespread support from gamers across
various genres, offering customers the best and most captivating experiences.

7
Demographic

By the end of 2022, the global e-sports audience will reach 532 million people, of which 49% are regular
viewers (T. L. Dang, 2023). Besides, the 2020 League of Legends World Championship held in China was a
major event, drawing in over 6,000 attendees and capturing the attention of nearly 2 million viewers worldwide
(Chen, 2020).

Figure 4: Number of eSports followers from 2020 to 2022

Source: (T. L. Dang, 2023)

Tencent has made significant investments and established partnerships with major gaming companies,
solidifying its presence in the global gaming industry. China boasts the largest number of active esports players
and viewers for esports tournaments, further fueling Tencent's expansion efforts. Tencent has acquired full
ownership of the popular game League of Legends from Riot Games. They have also organised large-scale
global tournaments to attract a wide audience of players and viewers, while also expanding their collaborative
resources (Dot Esports, 2017; T. H. Le, 2022). Tencent not only focuses on enhancing fan experience at live
tournaments but also creates online channels to cater to the community. Tencent has made significant progress
in both offline events and digital experiences.

4. Technological factors

China is emerging as a leading nation in the field of innovation. This country is demonstrating its ambition
and exerting its influence on the global technology industry through a sequence of significant achievements.
China has established a strong basis in artificial intelligence (AI) over the last ten years. China ranks among
the top three countries globally in terms of the pace of artificial intelligence development, as per Stanford

8
University's AI index ranking. Chinese researchers accounted for one-third of scientific articles and foreign
citations in 2021 (Phan, 2023). In 2021, private enterprises in this country will invest 17 billion USD in AI,
representing approximately 20% of the global private investment capital in this field (Phan, 2023). As reported
by Nature (2023), China not only boosts its technology investment, but also places significant emphasis on
the training and retention of AI talent. Consequently, China possesses certain competitive advantages in
comparison to Western nations. The government's assistance and the country's endorsement of technology
have significantly benefited Tencent firm. Tencent has capitalised on opportunities inside its technological
ecosystem, leveraging its core technologies.

Tencent has made an investment in Ubtech, a startup company that specialises in the development of robots
for household usage (Financial Times, 2023). In addition, the company offers a wide range of devices that
cater to the many requirements of the family, including those related to healthcare, entertainment, help, and
security. In addition, the company engages in the development of autonomous vehicles, stores without
cashiers, and virtual assistant speaker devices for household use. This puts them in direct competition with
Alibaba and Baidu in China, as well as Amazon and Google in the United States (WeTransform, 2023).
Tencent has made significant progress in face recognition technology. As a result, three Chinese provinces
have authorized their inhabitants to be identified using WeChat's electronic ID cards, eliminating the need for
physical cards (Tencent, 2023). The technical aspect not only facilitates Tencent's commercial expansion but
also enables the creation of an ecosystem and the integration of many business sectors to enhance customer
involvement.

9
 B. PORTER FIVE FORCES

1. Industry competitors (High)

Figure 5: Global revenue ranking of Chinese mobile game publishers in 2023

Source: (Xueyang, 2023)

Tencent is currently facing significant competitive pressure from several other local game businesses. A total
of 39 Chinese game publishers have made it onto the list of the world's top 100 mobile game publishers in
terms of revenue, highlighting the intense competition. Tencent, HoYovers, and NetEase were listed as the
third highest Chinese mobile game publishers in terms of global revenue in June 2023. In addition, there are
numerous affluent game titles that need to be evaluated. A high level of attractiveness facilitates the attraction
of a greater number of players. Hence, the corporation faces a significant level of competition from rivals
within the industry.

Tencent engages in the development of video games and also produces material for its social network to entice
mobile users to play the most recent video games. Additionally, Tencent invests significant amounts of money
in acquiring the copyrights of animated films, comics, and books to include these items into mobile games.
These games will be extensively promoted through popular sharing tools like WeChat or QQ (Le, 2016). In
short, this action by Tencent contributes a lot to increasing its competitiveness compared to rivals when
developing a number of services besides advertising and gaming businesses.
10
PART 2. Crises in the Economic and Financial Environment Theme

I. The relevance and it influences policies and decision-making of Tencent company

1. The growth of technologies

With the rise of e-commerce, businesses have successfully utilised various technology trends like artificial
intelligence (AI), machine learning (ML), and cloud computing to improve their operations and enhance
customer satisfaction. A study conducted by MIT Sloan Management Review revealed that a significant
majority of organizations view AI as a strategic opportunity, with an overwhelming percentage also
recognizing its potential to provide a competitive edge (Ransbotham et al., 2017). The advancement of
technology is revolutionizing industries, replacing traditional processes with digital workflows. This shift
enables businesses to optimize operations, improve customer experience, and create innovative business
models (Calimanu, 2023). Additionally, machines have the ability to complete tasks at a faster pace and with
a higher level of precision compared to humans. This leads to increased productivity within organizations and
enhances the overall quality of results, particularly in the manufacturing sector (Finch, Goehring and Marshall,
2017; Balasundaram, S. Venkatagiri, 2020). These changes have significantly enhanced efficiency, lowered
expenses, and expanded market reach for various industries. They have also fostered a conducive environment
for the growth of global e-commerce, enabling businesses to connect with customers worldwide and
revolutionize traditional retail practices.

Tencent has successfully integrated artificial intelligence into its operations, resulting in a significant increase
in its user base on the WeChat application. On Wechat or Weixin, users have the ability to chat, play games,
shop, make payments, read news, stream live, and post their images and thoughts just like on social networking
platforms. From the rise of self-driving cars to the convenience of online services for tasks like scheduling
doctor's appointments or filing for divorce, our lives are becoming increasingly streamlined and efficient (Bao,
2023). Tencent not only provides a convenient payment solution, but also offers users a comprehensive
ecosystem to manage their daily lives. This enhances the convenience of conducting business, boosts
efficiency, lowers expenses, streamlines labour, and enhances user satisfaction, all of which contribute to
financial stability and a steady economic environment. Tencent's market capitalization has experienced a
significant surge, growing by over ten times and generating substantial profits (Bao, 2018). This growth can
be attributed to the company's efforts in fostering the advancement of diverse businesses within its e-
commerce ecosystem

However, the utilization of technologies like AI for task automation in organizations leads to significant
transformations in the operational dynamics of numerous industries, while simultaneously posing challenges
for workers. UN projections suggest that over 75% of the global workforce could face job displacement within
the next decades. According to a study conducted by the International Labour Organization (ILO), around
56% of workers in five South-east Asian nations face the possibility of job displacement due to automation by
robots (Dang, 2023).

11
Tencent underwent a process of reorganization and efficiency improvement, resulting in the reduction of
around 7,300 job positions during the second quarter of 2022. Subsequently, the company implemented five
additional rounds of workforce downsizing (Game4V, 2023). Tencent implements initiatives to optimize its
people structure in order to prioritize senior roles. Tencent's strategic shifts have facilitated the company's
transformation from prioritizing revenue maximization at any expense to attaining sustainable and high-
quality expansion.

2. The importance of sustainability in the context of climate change

Global storage demand is rising in tandem with the annual amount of digital data created, transferred, and
processed, thanks to the proliferation of social media, video streaming, self-driving cars, and other AI tools.
The majority of this data is stored on servers, which are quite energy intensive.. As of 2023, they are
responsible for 3% of the world's electricity supply and 2% of greenhouse gas emissions, both of which are
double the amount ten years earlier, according to the Association for Computing Machinery (Fitri, 2023).
Powering data centres and other infrastructure with fossil fuels leads to substantial emissions of greenhouse
gases, mostly carbon dioxide (CO2). Data centres, which are commonly run by the IT industry and generally
fueled by fossil fuels like coal and natural gas, are a major contributor to the industry's high energy
consumption. According to recent calculations, the ICT industry is responsible for about 4% of the world's
CO₂ emissions, which is about the same as the carbon emissions produced by the aviation industry. Data
centres are expected to account for about half of the projected increase in ICT carbon emissions, which might
reach 14% by 2040, according to projections (Simoes, 2023).

Tencent, a world leader in internet and technology, recognizes the need of reducing development's
environmental impact while promoting economic and social development, and so is committed to shifting to
renewable energy sources. Tencent's development strategy and actions in encouraging credible corporate
action on climate change have been greatly influenced by this.

12
 Figure 6: Internal assessment of Tencent's 2021 greenhouse gas emissions

Source: (Bloomberg, 2021)

Tencent has initiated internal evaluations of its greenhouse gas emissions. As a result of this audit, Tencent
will actively monitor and strive to achieve carbon neutrality, not only inside its own operations but also
throughout its whole supply chain. The objective is to achieve a 100% utilisation of renewable energy in the
energy supply by 2030 at the latest.

Figure 7: Tencent's indicative timeline to 2030

Source: (Bloomberg, 2021)

Furthermore, Tencent implements explicit and robust strategies to decrease emissions, with a particular
emphasis on proactive carbon mitigation techniques. Tencent is strengthening its energy efficiency in offices
and data centres by focusing on improving power usage efficiency (PUE), researching energy-saving cooling
technologies, and enhancing monitoring systems. AI-powered energy monitoring. Tencent is highly engaged
in the green energy sector and is aggressively seeking investments in both distributed and centralised
renewable energy projects, with a particular focus on wind and solar energy (Bloomberg, 2021). Tencent

13
utilised technology and digitalisation to develop the Tnebula AI carbon management platform, which
identifies targeted solutions and implements a Carbon Neutral Accelerator programme for emerging
entrepreneurs globally. This initiative not only prioritises the utilisation of artificial intelligence to conserve
energy and diminish emissions, but also advocates for the achievement of carbon neutrality and the
implementation of carbon pricing.

3. The role of changing consumer demographics

One of the most prominent factors contributing to the world’s expanding population is the general trend
towards longer life expectancy. According to Song (2023), the percentage of people aged 60 and beyond will
rise from 11.9% in 2019 to over 25% in 2050. Also, the economy stays put since fewer people are of working
age (Truong, 2023). There are now 10.5% more people above the age of 65 in the population, according to
recent figures (Le, 2015). Many issues will need to be addressed throughout this ageing period, including
changes to health care, retirement age, pensions, social interactions, and intergenerational connections.
However, there will also be possibilities for businesses to capitalize on these changes.

Tencent has implemented policies and campaigns aimed at assisting older Internet users by enhancing product
design and accessibility. Tencent has increased the default font size on Weixin, a widely used media
application in China, in order to enhance the readability of on-screen material for individuals with visual
impairments (Tencent, 2021a). Tencent workers receive training to assist users aged 60 and over in tasks like
as verifying spending, adding bank cards, and conducting money transfers via a dedicated personal support
and service line (Tencent, 2021b). Annually, Tencent enhances its artificial intelligence capabilities, cloud
technology, and digital platforms to collaborate with developers who prioritise public welfare and leverage
technology to address significant issues (Tencent, 2021b). Tencent advocates for philanthropy and social
responsibility to advance sustainable innovation and provide financial support for efforts in various domains,
including rural rehabilitation, education, emergency assistance, public grants, technology for the aged, and
public welfare.

14
 Figure 8: One dramatized course episode explains how to spot frequent internet fraud

Source: (Tencent, 2021b)

Tencent, along with other philanthropic organisations, has developed a set of educational programmes aimed
at equipping individuals in their sixties and seventies with proficiency in digital skills. Tencent's strategic
focus on tapping into the potential of the ageing population not only facilitates corporate growth but also
contributes to broader socio-economic development (Tencent, 2021b).

4. The complexity of geopolitics

The blockade in Shanghai (China) and the crisis between Russia and Ukraine have interrupted supply lines to
corporations and substantially affected investor psyche. This is because most Asian economies continue to
rely heavily on commerce with the EU. Statistics compiled by Nikkei Asia show that in the first two months
of the conflict in Ukraine, the value of about 70% of Asia's top capitalisation stocks fell. This was due to
investors' concerns about the possibility of an economic slowdown brought on by the war (N. T. Le, 2022).

Sanctions imposed on Russia have curbed foreign commerce and investment, which has had a significant
impact on Tencent's production and import operations. World natural gas and crude oil prices reached record
highs this year due to sanctions like the agreement to restrict up to 90% of imported oil and Russia’s decision
to impose a price ceiling on imported crude oil (Gioi, 2023). Consequently, production costs went up, and
high inflation had a devastating effect on Tencent's bottom line. The second quarter of 2022 saw a 3% year-
on-year decline in sales for Tencent, reaching 134 billion yuan ($19.8 billion). Profit for the same period
dropped 56%, reaching 18.6 billion yuan ($2.7 billion) (BNews, 2022). Exchange rate concerns on the server
are just one more thing that Chinese enterprises dealing with Russia face, along with the withdrawal of
overseas orders. Consequently, the capitalisation of Tencent Holdings is comparable to that of other prominent
Asian businesses like TSMC and Samsung Electronics, both of which saw a decline as a consequence of

15
increasing raw material prices and worries about interruptions in their supply chains. The market value of e-
commerce giant JD.com fell 27%, while that of Tencent fell 23% and Alibaba Group fell 23% (BNews, 2022).

Faced with this problem, Tencent had to cut 5,500 employees and withdraw from non-core businesses,
reducing marketing and operating costs to increase profits, despite difficult revenue conditions. In the second
quarter of 2022, Tencent's sales and marketing costs decreased by 21% compared to the same period last year
(BNews, 2022).

In addition, Tencent is subject to investment and trade restrictions concerning technological products and
services. The reliance of China's high-tech sector on suppliers of integrated circuits and semiconductors from
advanced economies has been designated as the most vulnerable aspect of the development process (Fuller,
2019). This will present a significant obstacle for Tencent. The financial technology (fintech) industry and
online business and advertising services account for approximately 50% of Tencent's revenue (BNews, 2022).
As a result, Tencent has invested in chip research and development and implemented long-term strategies to
advance the domestic semiconductor industry in China (Kien, 2021).

5. The inevitability of Structural Transformation (Post-Pandemic)

Due to shortages of industrial inputs, blockades, and social distancing measures affecting production,
transportation, and services, the worldwide supply chain has been disrupted and impacted by the COVID-19
pandemic. Transportation delays accounted for the remaining 25% of the decline in global commerce volume,
while production constraints accounted for 75% (V. T. Nguyen, 2023). Consequently, following the COVID-
19 epidemic, nations have sought to diversify global supply networks in order to mitigate its detrimental
effects. Redistributing the supply chain such that it is less concentrated in any one country or region will be
the medium- to long-term solution to the problem of global supply chain disruption. Also, the supply chain is
going to be developing in a way that is transparent, which is in line with customer expectations and has been
promoted by digital technology applications.

Tencent has prioritized the development of AI skills and cloud infrastructure in order to take advantage of the
potential presented by the platform model. The company believes that AI will act as a catalyst for growth,
allowing it to better serve users, customers, and society as a whole. The company has enhanced its machine
learning advertising platform by incorporating a deep learning model and a standard product unit database,
with the objective of improving targeting precision and increasing conversion rates for advertisers. Tencent
experienced a 17% increase in online advertising revenue during the first quarter of 2023, reaching a total of
around $3 billion. This growth was mostly driven by the WeChat application (B. N. Nguyen, 2023).

Furthermore, Tencent is progressively expanding its markets to mitigate reliance on a singular market. Tencent
has intensified its emphasis on the worldwide market, considering the challenges faced by the game sector in
its domestic territory of China. The company reported robust growth in its global gaming sector, with the
game Valorant experiencing a notable annual revenue increase of 30% (B. N. Nguyen, 2023). The sales of
games in international markets experienced a 25% growth compared to the previous year, reaching a total of
16
$1.88 billion. Conversely, sales of video games within the country experienced a mere 6% growth compared
to the previous year, amounting to $5.1 billion. The revenue generated from social networks, which
encompasses messaging applications like WeChat and Tencent's QQ, experienced a 6% growth, reaching
around $4.5 billion. This growth can be attributed to the sales of virtual products in games and music
subscription services (B. N. Nguyen, 2023).

II. The evaluation of the effectiveness of Tencent’s response and area for improvement

1. Effectiveness of Tencent’s response

Tencent's proactive responses to significant global variables not only bolster its brand image but also foster
trust from society. Tencent and NetEase are on the list of Top 35 stocks in the world selected by Credit Suisse
in a report on Metaverse and the next generation Internet (Metaverse, 2023). Furthermore, Tencent allocates
a substantial expenditure towards enhancing technology and machines to safeguard the quality of social
existence and mitigate the sources of environmental pollution. Tencent has motivated consumers to engage in
climate action by advocating for low-carbon lifestyles and encouraging green consumption habits through
sustainability-focused mini-programs and mobile games on its WeChat application platform. This initiative
also aims to assist the United Nations Environment Programme (Bloomberg, 2021). Tencent is facilitating a
shift towards low-carbon practices in the industrial sector by digitising company operations and enhancing
energy efficiency in buildings and parks (Bloomberg, 2021). Tencent's gaming revenue in the third quarter
exceeded $6.3 billion, further establishing its status as the leading global game company in terms of financial
earnings. The gaming division of the corporation contributes to 30% of the overall revenue, which amounts
to $6.36 billion. It holds the top position in China in terms of both revenue and user count (Obedkov, 2023).

Figure 9: Revenue of Tencent from 2020 to 2023

Source: (Obedkov, 2023)

Tencent not only confirms its superior AI capabilities but also establishes itself as a valuable provider for
customers, enterprises, and society as a whole.
17
 2. Areas for improvement

Tencent has provided detailed intentions for corporate social responsibility, but it has not yet explicitly
communicated the efficacy and outcomes of its initiatives. Customers are not fully convinced that Tencent's
operations may effectively enhance society. Hence, Tencent must disclose the procedural steps and
comprehensive outcomes of each of its endeavours. Consequently, the company can enhance its reputation
and credibility, resulting in higher and enduring profitability.

Furthermore, Tencent should prioritise the well-being of its employees and establish additional employee
benefits in order to both attract skilled individuals and ensure long-term growth. This fosters a sense of
appreciation among tenured employees and encourages new employees to actively participate and establish a
lasting affiliation with the organisation.

18
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 Appendix

APPENDIX 1. ORGANIZATIONAL PROFILE

Tencent Holdings Limited, established in 1998, is a prominent global technology and internet corporation
headquartered in Shenzhen, China.

Tencent was publicly traded on the Hong Kong Stock Exchange in June 2004 under the ticker symbol HKEX:
0700.

Tencent’s primary activities encompass four distinct business segments:

1. Value Added Services (VAS)

Tencent provides a range of services on its gaming and social networking platform, which can be categorised
into four sub-segments: (1) domestic gaming, (2) international gaming, (3) media and social, and (4) digital
content.

Tencent's gaming endeavours encompass mobile and PC games, including animated series and films derived
on popular games and game characters. The domestic games area comprises titles such as Honour of Kings,
Call of Duty Mobile, Moonlight Blade Mobile, Dungeon and Fighter, and Peacekeeper Elite. On the other
hand, the international games category contains League of Legends, Clash Royale, PUBG Mobile, Valorant,
Brawl Stars, and Clash of Clans.

The media and social category pertains to the messaging and social networking applications Weixin (China's
domestic iteration of WeChat) and QQ.

The digital content segment primarily encompasses Tencent's video subscription service, Tencent Video, as
well as its music subscription service, Tencent Music. Additionally, it includes Tencent Comics, Tencent
Sports, and Tencent News.

2. Online advertising

The online advertising sector comprises two subcategories: (1) social and miscellaneous advertising, and (2)
media advertising.

The term “social media and other advertising revenue” encompasses the income made from different aspects
of the Weixin platform, including live streaming and short video features, as well as advertising within Weixin
Moments.

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 3. FinTech and Business Services

Tencent's revenue from its FinTech and business services segment is derived from its financial technology
(FinTech) business, cloud computing initiatives, and various other business services. The revenue segment
can be split into two sub-segments: (1) FinTech and (2) Cloud and other business services.

WeChat Pay is an online payment processor that operates within the Weixin app and offers similar features to
Alipay.

The cloud computing business offers TencentQiDian, a customer relationship management software-as-a-
service (SaaS) solution that helps enterprise customers improve customer service. Additionally, there is
Tencent SQL Database (TDSQL), a database platform-as-a-service (PaaS) solution used by over 3,000
enterprise customers. Tencent offers a range of business services, including WeCom, a communication and
collaboration tool for business customers. They also provide enterprise software solutions like Tencent Meet
and Tencent Docs.

4. Others

Tencent's involvement in various sectors, including third-party production and distribution of films and
television shows, copyright licencing, merchandise sales, and game-related goods, highlights its diverse range
of activities in the entertainment industry.

Tencent's portfolio

Tencent's investment portfolio reached a value of RMB 878.7 billion in December 2021. Tencent's shares in
publicly listed investee companies, excluding subsidiaries, were valued at 982.8 billion RMB in December
2021.

Source: (Meemi, 2022)

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APPENDIX 2. LESS IMPORTANT PESTLEG FACTORS AND PORTER’S FIVE FORCES

A. PESTLEG factors
1. Environmental factors

According to the World Health Organization (WHO), China has been announced as the country with the
highest PM2.5 levels, making the quality of the atmosphere worse and causing air pollution (Vo, 2022). PM2.5
is the cause of blood poisoning, blood clotting problems, affecting the circulatory system, weakening the
nervous system that controls the activity of the heart muscle, causing cardiovascular diseases. In addition,
PM2.5 also contains many heavy metals that can cause cancer, or affect DNA and cause genetic mutations.

Figure 10: Linfen, China

Source: (Parks, 2023)

As environmental pollution problems persist, consumers are becoming more concerned about the need for
sustainable corporate operations. Consequently, numerous Chinese enterprises are progressively adopting the
concept of environmental conservation. This not only improves customer response but also has a beneficial
impact on the environment. Tencent has made significant investments of 50 billion yuan (equivalent to 7.68
billion USD) on environmental and social programmes (NTTD, 2021). Tencent's investment will support
several efforts spanning disciplines such as fundamental scientific research, educational advancements, rural
development, carbon neutrality, environmental conservation, food security, energy and water resource
management, and public welfare. Furthermore, Tencent has also formed a distinct development team to
advance these initiatives. These projects will enhance public consciousness regarding environmental
protection and also generate positive reputation for the organisation in the market.

2. Legal factors

The promulgation of China's anti-monopoly law occurred in 2008. The State Administration for Market
Regulation (SAMR) released a draft in February aimed at curbing monopolistic practices exhibited by Internet
platforms. This plan is among the most recent and stringent measures introduced by the country to regulate
major technological companies. Following the enactment of this anti-monopoly legislation, numerous

26
prominent corporations in China experienced significant adverse consequences. China's Market Management
Administration (SAMR) has recently issued a notice imposing fines of 500,000 yuan (approximately 77,000
USD) per company on 12 companies. The fines are being imposed due to the companies' exploitation of their
monopoly position and their previous violations in trading and investment activities. These entities comprise
Alibaba, a prominent e-commerce conglomerate, Baidu, a search engine service provider, Softbank, a
multinational conglomerate, and Didi Chuxing, a transportation network firm and so on (Bo Cong Thuong,
2021).

Tencent has publicly emphasized its willingness to fully comply with government rules and regulations for a
long time. In addition, Tencent consistently demonstrates transparency in all its operations and enhances its
reputation by investing in small enterprises and purchasing competitors rather than eliminating them from the
market (Nguyen, 2021). Hence, the corporation may cultivate confidence and foster loyalty among clients by
achieving consistent annual sales growth.

3. Global factors

Globalisation is a phenomenon in international relations that fosters interdependence across various domains
of social life (including economics, politics, security, culture, and the environment) among nations.
Globalisation and regionalization have a beneficial effect on countries as they serve as catalysts for fostering
economic and social progress and development. They also facilitate market access and encourage the
liberalisation of trade, investment, and services. Nevertheless, globalisation and regionalization pose a threat
to countries' independence, economic autonomy, and national strength. Opening up the home market leads to
intense rivalry for domestic economic sectors (Q. T. Nguyen, 2023).

China, with its substantial economic size, accounts for 23% of global economic growth, making it highly
favourable towards globalization (Enter News, 2017). China engages in both exportation and production of
goods and services in foreign nations. This solution aims to facilitate China in identifying appropriate partners
to elevate the country's businesses to a higher level. Hence, a portion of the investment capital flowing into
the Chinese stock market might be diverted to other stock markets, such as Vietnam, in pursuit of a more
secure and promising alternative market (Enter News, 2017).

27
 Figure 11: Voting rights structure at VNG Limited

Source: (M. S. Le, 2023)

Tencent has strategically acquired shares and forged partnerships with numerous companies in Vietnam to
bolster its expansion in the global gaming industry, as well as mitigate any financial setbacks. Tencent
presently possesses 57 million shares in VNG Limited and may potentially augment this number to 65.15
million shares in the foreseeable future, resulting in a voting rate of 23.2% (M. S. Le, 2023). Globalization
provides Tencent with the chance to engage and collaborate with enterprises in foreign nations, so enhancing
its competitiveness both domestically and in the global market.

B. Porter’s Five Forces

Tencent operates in a greater number of suppliers in the video game industry compared to the number of
enterprises engaged in manufacturing products. Consequently, purchasers have limited options in terms of
available companies, resulting in a lack of influence on pricing. This diminishes the bargaining power of
purchasers inside the business. Furthermore, there is a significant degree of product diversity within the
business, making it difficult for consumers to locate alternative companies that manufacture a specific product.
Transitioning within this sector is quite challenging, making it arduous for clients to shift their purchasing
preferences from one product to another offered by a different organization. The items available in this market
exhibit a consistent pattern of diversification and frequent updates. Consequently, consumers who are regular
users of the platform frequently possess a limited capacity to effectively negotiate.

2. Threat of new entrants (Low)

New enterprises venturing into the video gaming sector will face formidable challenges due to the substantial
financial outlay and capital investment, as well as the demanding technological prerequisites. In addition,
establishing a brand and executing marketing techniques to improve brand awareness also necessitates a
substantial expenditure for a gaming company. Hence, new enterprises face significant challenges in
competing against well-established gaming corporations like Tencent or NetEase. Furthermore, the process of
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game manufacturing necessitates the use of cutting-edge technology, resulting in exorbitant expenses for
newly formed small enterprises as a result of limited financial means. Consequently, the entry of new
enterprises into the video game sector will be quite challenging. Consequently, the level of risk posed by new
competitors to Tencent firm is evaluated as exceedingly minimal. This presents a favourable prospect for
Tencent corporation to sustain its income and profits inside the industry.

3. Threat of substitutes products (Low)

While there may be several 5vs5 game products or survival games available as alternatives to Tencent's games,
their quality and graphics are incomparable to those of Tencent's games. Hence, it is uncommon for users to
opt for alternative games as substitutes for Tencent's offerings. Hence, it may be asserted that Tencent firm
faces less competition from substitute products. Nevertheless, the surging demand for video games in recent
years has prompted Tencent to allocate further resources towards developing increasingly comprehensive and
innovative upgrades to enhance the company’s earnings in the next years.

4. Bargaining power of suppliers (Low)

Suppliers to Tencent fall into three categories: those providing communications services (represented by
telecommunications mobile value-added operators) and those providing hardware servers (represented by
Cisco). On the developing level, content creators for games, websites, images, audio, and videos predominate.
Tencent has been successful for a long time because it offers media and social network based services that add
value for its users. Tencent will interact with information providers like mobile and telecom during this
process, sharing and collaborating with them. Factors such as competitive strength and duration of
collaboration determine the exact share ratio. From the very beginning of their operations, Tencent started to
invest more on hardware expenditures and labour costs related to server hardware. Due to the high number of
vendors in the server industry all using low-price techniques to compete, vendors have limited negotiating
power on this matter. Providers still do not hold a dominant position in terms of content, due to the fact that
Tencent has been a behemoth in the business for a long time and has a powerful voice, as well as rivalry among
content providers. To sum up, suppliers do not hold much leverage in negotiations.

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