Nintendo Entertainment System Companys Aim - Essay Example

Nintendo  Term Paper 3852 words   College Nintendo (Japan) Introduction Nintendo, a Japanese company started in the year 1985. The company has since changed the video game industry with statistics indicating that it has sold over 60 million units. In the year 2006, the company introduced the Wii and incorporated new and advanced features into its products. Such features as the wireless motion-sensitive remote controllers and built-in Wi-Fi have given the company a competitive edge over other companies in the same industry.1 Nintendo’s Aims and Mission Nintendo Entertainment system company aim is to provide both gamers and non-gamers with playable and enjoyable gaming products. Nintendo’s mission statement clearly reflects the company’s core purpose, its identity, values and, to a large extent, the company’s main business aims. Nintendo’s vision is expanding its market by creating innovative products that would appeal strongly to the larger gaming population. Through its vision, for example, the company has been able to produce smaller consoles that are not only cheaper, but also easier to use.2 Nintendo’s decision to create smaller consoles boosted its sales and effectively edged out its main competitors i.e. Microsoft’s Xbox 360 and Sony’s play station 3. In addition, while Nintendo’s competitors rushed to creating more powerful and high definition consoles, the company opted to stick with the standard resolution hardware. Instead Nintendo focused its energies to creating a console that would appeal even to non-gamers population. Nintendo’s Strategies in the Industry Nintendo’s strategy is to tailor its products according to the needs of its target segments, and one way of achieving the same is being different. The company, for instance, has been able to produce portable gaming into the market effectively challenging Sony’s PlayStation Portable. Nintendo’s Wii that came with improved features, for example, was produced in order to counter Microsoft’s Xbox 360 and help extend Nintendo’s prestige. Nintendo Company has the following strategies in the gaming industry. Backward Integration Following Nintendo’s many years of operation in the gaming industry, the company has gained enormous experience. As a result, the company can use cost advantage through analysis of its cost drivers such as backward integration. While the company’s competitors develop their games using their facilities, Nintendo uses off-the-shelf parts from different suppliers. Rather than produce own chip, Nintendo acquires the same from a supplier and at a cheaper cost. As a result, Nintendo was able to introduce the Wii at a relatively low cost compared to Sony’s PS3 and still turn a profit on every unit. Through Nintendo’s Backward Integration strategy, Nintendo Wii attracted more sales per unit and hence huge profits.3 Differentiation from its Competitors While Sony and Microsoft companies focused on the “hard-core” demographic customers, Nintendo created a console that would address the needs of other customers who had been ignored. In value creation, Nintendo invented Wii remote with rumble pack and speakers which differentiated Nintendo from its competitors. In order to improve performance, Nintendo also created a three-axis accelerometer with the ability to measure movement accurately in 3D. These core competencies of Nintendo Company provided it with a competitive advantage from its competitors. The decision to choose Nintendo, therefore, is informed by the company’s ability to create innovative products, value creation to its customers and its clear vision and vision.4 Country Analysis This section will analyse Canada and USA based on the PESTEL framework. The framework divides the environmental business influences into six main types, namely: political, economic, social, technological, environmental and legal. The purpose of the analysis is to establish which of the countries provides a suitable environment for Nintendo’s business. Canada PESTEL Analysis Political Canada is one of the developed countries in the world. Although the country has moved from its colonial past, the British monarch is still its titular head. Canada has good relations with the US and is a key supporter of the US in international politics. In economical terms, Canada is doing well, and its economy is closer to that of the US. Part of the reason for its flourishing economy is because of its excellent geographical location and the mutually beneficial relationship with the US. In the Canadian politics, the Conservative, New Democratic and Liberal parties are some of the parties that are quite dominant. Although initially the country was under the liberal rule for 12 years until 2006, the entry of the conservative government has removed threat of political instability. Canada has allowed foreign companies to start distributing and selling consoles across the country, but that must be subject to approval of the relevant authorities. Such decision is quite significant in terms of importation for companies such as Nintendo.5 Economical Canada is among the countries with the highest GDP in the World, with a real GDP of $ 872 billion in the year 2010. Although the nation experienced a flop of its economy in 2009, it recovered in 2010. Some of the key sectors responsible for Canada’s high GDP include the services and industry. The country’s lower corporate taxes, the new duty-free manufacturing tariff regime and incentive for R&D have been highly critical in the attraction of foreign direct investment. This could be highly useful for foreign companies such as Nintendo, which may wish to conduct their business in Canada. Social Canada has performed quite on different social parameters. The living standards of its people are high and the country has a high Human Development Index (HDI) of 0.888. Although the Canada’s population is largely the aging population, the youthful population embraces the gaming culture. Consequently, this provides opportunity for Nintendo to set up in Canada.6 Technological Although Canada is a developed nation, its technological development has not quite reflected its potential. The country’s total expenditure on R&D is still quite low and only accounts for 2 percent of the country’s GDP. Canada’s failure to invest sufficiently in terms of R&D has created an “Innovation gap” in the country. Following the country’s poor investment in terms of R&D, Canada receives quite a low number of patents compared to countries such as the US. The poor technological development may pose challenge to Nintendo as they rely largely on networking and internet connectivity. Legal Canada is one of the most flexible nations in terms of its labour markets. The country operates under quite flexible employment regulations which not only enhance employment opportunities but also productivity and growth. Compared to other developed nations, Canada has a very low corporate tax rates. However, foreign companies have to bear one of the highest marginal effective tax rates on investments. As far as media is concerned, video games are under very strict policies of censorship in Canada. Any video game known to violate the country’s laws of censored is immediately banned. Such policies may affect Nintendo. Environmental Canada has come up with a raft of measures intended to meet the environmental challenges posed with economic development. The country has fared well in meeting not only its domestic objectives but also its international commitments. Canada’s Electric Power Law provides that companies using electricity must ensure they utilise the same with efficiency and protect the environment. In addition, the companies must ensure that their software does not cause a threat to the environment. This may be quite costly at times and could have a potential impact on companies such as Nintendo.7 USA PESTEL Analysis Political The US enjoys quite a strong democratic set up and effective rule of law. The country’s elections are always considered credible and quite transparent. On the global policymaking, the US commands a huge political and economic influence largely because of its recognition as a leading superpower across the globe. The US, however, continues being criticised due to its interventionist policies on “War on Terror.” Many countries view the policies as unfriendly and blame them for contributing in not only US’s foreign relations, but also increasing the threat of terrorism across the globe. The influence of politics in the video industries is pegged on factors such as taxation policies, foreign trade regulations and social welfare policies. Since video games can affect the people’s emotions, unregulated subjection of people to the same may threaten peace and law. Since most the youthful generation in the US constitute the largest consumers of video games, the US has ensured its foreign trade regulations with regards to the video industry are fair. The country also has the best social welfare policies aimed at protecting the youth from harmful effects of video games.8 Economic The US is undoubtedly the leading economy in the world with a GDP of over $16.760 trillion. The country’s economy is quite favourable and derives its strengths from its well-developed services and manufacturing industries. Although the global recession of the year 2009 had a significant effect on the US economy, it has since recovered. In the third quarter of 2014, for instance, the US economy posted a growth of 4 percent as informed by consumer and business spending.9 Owing to its favourable economy, the video game business thrives well and contributes towards the GDP of the country. Since the US is involved in manufacturing own video game units, the interest rates have a little impact the video game business. However, the amount of disposable income available to the consumers largely influences their buying behaviour. The people with low income may, for instance, not be in a position to buy highly priced video game. Since Nintendo’s production costs are significantly low, the company can sell its video games at a nominal price; consequently increasing its sales. Following the high demand of Video games at the US coupled with a good economy, Nintendo’s low pricing strategy may appeal especially to the low-income consumers. Social The US, like many developed countries, has a considerable number of an aging population. However, the main consumers of video game console are the teenagers or young adults. The main social issues, which are critical in the video game business, are demographics, the income distribution, an individual’s level of schooling and spending just to mention a few.10 For example, on the demographic factors, an American’s average video game player’s age is 34 whereas the average age of the game purchasers is 40 years.11 The fact that Nintendo has opened World of showrooms and insistence on producing products tailored to the consumer needs may help the company secure a market in the US. Although the US has a significant number of the old population, value addition services offered by Nintendo may assist in improving its market share in the US’s video game industry.12 Technological The US is one of the countries that has embraced innovations and use of technology in various sectors of its economy. Since its inception, the US has dedicated a significant amount of its resources in developing, adapting and applying technology. In addition, the country also encourages the other countries especially developing ones on the importance of technology. The use of technology in the US has created massive opportunities for companies to exploit. As far as video game industry is concerned, the US has invested in R & D technology which quite critical in the Video game console market. The US is also a hub for the manufacture of video game hardware and other accessories. In addition, the US also provides a suitable environment for software development. Although there are restricted innovations in the gaming industry, the US provides a suitable environment for companies to develop their innovations. Since Nintendo Company’s mission is to be a leader in innovation in the video game industry, US can provide a very good platform to accomplish the same.13 Environmental The US has strict laws with regards to environmental protection. In its bid to protect the environment, the US advocates the adoption of “green” lifestyle. Since video games use a lot of plastic in their manufacture, this may be quite costly for Nintendo to operate in the US. Most of the people in the US have access to electricity and since playing games consume a considerable amount of power, Nintendo must see to it that their games utilize low power. The decision of Nintendo Company, to create “Super Mario Sunshine” game that challenges players to embrace environmental protection, is a clear indicator of the company’s intention to protect the environment. Legal The US takes matters of trademarks, copyrights, licensing, and online ownership seriously. Infringement on the laws governing the above can pose serious legal implications. The US is also keen on products that are likely to pose danger to its citizens. In the US, it is also acceptable for industrialists to make loses on hardware and recuperate capital expenditure on higher fees to video publishers and producers.14 Why Canada is the most Appropriate for Investment While both the US and Canada are likely places for Nintendo to setup its video game business, Canada has could be the most suited option. The reasons behind preferring Canada over the US includes the following: Favourable corporate income tax: When comparing the two countries based on their corporate income tax levels, it is evident that Canada offers the most attractive corporate tax levels. As such, companies locating in Canadian cities can expect to pay relatively lower corporate income taxes compared to those who locate in the US. Consequently, Nintendo should consider locating in Canada in order to enjoy such privileges.15 Savings on the costs of labour: In Canada, the costs of designing a basic video game centre is quite and a company can save up to $ 2 million per year. This is in comparison to those companies that choose to establish their subsidiaries in the US. Competitive office costs: The cost of renting offices is quite low in Canadian cities compared to that in the US. In fact, it costs twice as much to rent an in the US than in Canada. As such, Canada will be an ideal place for Nintendo Company to establish itself. Highest infiltration of video sports: A total of US $1.1 trillion imports of video games were made in the year 2010. This figure is much higher than that of the US. Since Canada has the highest penetration of competing locations, it can be an appropriate location for Nintendo. Lastly, Canada offers a soft landing program for foreign companies compared to the US.16 Entry of Nintendo into the Canadian Market Canada being the best possible foreign market for Nintendo to establish its business, the company must be careful when gaining entry as that could have significant impact on the results. The following are the strategies Nintendo can use to expand into the Canadian market. Exporting Exporting entails the marketing and sale of locally manufactured products in a foreign country. In this technique, no investment in foreign production facilities is needs since the products are manufactured locally and then exported. The costs earned in exporting will largely be associated to marketing. Since Nintendo is well established in Japan, it can manufacture its video games and export them to Canada. In order to accomplish the exporting strategy, Nintendo may opt for the three forms of exporting i.e. indirect exporting, cooperative and direct exporting.17 In indirect exporting Nintendo will engage an independent intermediary who will help in selling its products in Canada. The problem with this method, however, is that Nintendo will exercise little control with regards to how its products will be marketed in Canada. In addition, the intermediaries may make wrong pricing decision, and this may eventually lead to poor sales. There is a possibility of damaging Nintendo’s brand image in the event that makes wrong decisions as far as marketing mix is concerned. In cooperative exporting, Nintendo will use overseas distribution network of another company (whether local or foreign) in order to sell its products in Canada. Lastly, Nintendo may opt for direct exporting. In this case, the company will go to Canada on its own or with the use of an intermediary located in Canada. Exercising this form of exporting may enable Nintendo to reap more profit, and exercise greater control. However, direct exporting requires more expertise and financial resources. Direct Investments In this organization, the company establishes its own production unit in another country. This mode of entering a foreign market usually requires total commitment of the company. In using this method, Nintendo may use two for its direct investments i.e. make direct acquisitions in Canada or develop its facilities (Greenfield investment). Many companies who opt for direct investment usually prefer the acquisition way largely because it is easy to access and has lower risks compared to Greenfield investment. In addition, the outcomes of acquisition can be measured easily with precision. In the event that Nintendo opts for Greenfield investment, then the company will have to establish its subsidiary. This strategy of foreign market entry is quite complex and often very costly. This strategy is also considered high-risk because of the requirement of huge amounts of capital to establish a new business in a foreign country. The strategy requires a considerable amount of time for creating new processes and delivery networks. Through Greenfield investment, however, Nintendo will be in a position to take full control of its operations and will have the potential to provide above average return.18 Licensing This is a pledged contract in which case a business (the licensor) avails its assets to another firm (the licensee). In return, the licensor gets royalties, license fee or any form of compensation. Nintendo may choose this strategy as it has the potential to offer the company an attractive return on investment. It is also an easier way since the only cost involved is signing the agreement and policing its implementation. By Nintendo adopting this strategy, it will be in a position to overcome tariffs, quotas or similar export barriers in Canada. Through licensing, Nintendo may be granted considerable autonomy and, as such, will be free to adapt its products in accordance to the local needs of its customers. The problem Nintendo may have to contend with as regards licensing is that licensing may offer the company limited market control. In addition, the agreement may have a short life in the event that the licensee develops its know-how and begins to innovate in the licensed product. Joint Ventures In this agreement, the international firm is placed in a good position to control over its operations and access to local markets. Therefore, Nintendo will be able to have access to a network of associations of the business and will be less exposed to the danger of expropriation. While joint ventures have lots of advantages to the company planning to enter a foreign market, the method also has disadvantages. For instance, conflict over asymmetric new investments may arise between Nintendo and the other company. In addition, there could be suspicion over exclusive information and deficiency of firm support.19 The Preferred Mode of Entry for Nintendo into the Canadian Out of the four modes of foreign market entry described above, foreign direct investment may be the most suitable for Nintendo. The decision to choose foreign direct investment is because of the following: Canada has a huge market for video games. Large markets can justify a company deploying a major share of its resources in investments. Since Nintendo is a big company with a substantial amount of resources, the company can do direct investment in Canada and earn great returns. The Canadian government regulations are quite favourable for foreign investments. Therefore, Nintendo may find it easy carrying out direct investments in Canada and can be assured of protection by the overseas government.20 Another factor, that favours foreign investment, is the local infrastructure. Canada is one of the developed countries across the globe. The country is known to have excellent infrastructure which is an essential factor for business. Such a good infrastructure determines the overall market attractiveness. Nintendo can, therefore, directly invest in Canada as the country already has the necessary infrastructure. Direct investment often requires a substantial amount of resources. As such, for a company to draw huge resources to invest in another country, it must be sure that the country is safe and risk-free. Canada is politically and economically stable; therefore, Nintendo can dedicate huge investments into the country with a great deal of certainties. Consequences of Direct investment on Nintendo’s Structure Choosing direct foreign investment may not have many consequences on Nintendo’s company structure. However, owing to the large amounts of capital that will be spent, the company may have to adjust in terms of its spending. Probably, it may have to downsize on its management in order to ensure its wage bill is within the acceptable limits. Since Nintendo Company will be in a new geographical area, it may also be forced to create new departments such as a distinct marketing department. Such a department will be responsible for conducting research on the customer’s needs and hence contribute in value co-creation to Nintendo.21 Entry Modes Used by Nintendo’s Competitors in Canada The main foreign competitor company’s for Nintendo are Sony Canada and Microsoft Canada Inc. Sony Canada, an entirely possessed subsidiary of Sony Corporation, Japan, entered the Canadian market by establishing joint ventures. On the other hand, Microsoft Canada Inc. is a subsidiary of Microsoft Corp. Unlike Sony Canada, Microsoft Canada Inc. entered the Canadian market through licensing. In a nutshell, therefore, the mode of entry of a company in a foreign market is dictated by different factors.22 References Ahuja, H. Economic Environment of Business (Macro Eco. Analysis), India, S. Chand Limited. Aswathappa. International Business, New York, NY., McGraw-Hill Education, 2001. Bedi, S. Business Environment, New York, Excel Books, 2002. Huse, T. "What Can We Learn from Nintendo? - Harvard Business Review, https://hbr.org/2010/08/what-can-we-learn-from-ninten, 24 Aug, 2010’ (accessed 09 January 2015). Nintendo, ‘Corporate Information,’ http://www.nintendo.com/corp/index.jsp, 2014, [accessed 07th Jan 2015] Research and Markets, ‘Country Analysis Report - Canada - In-depth PESTLE Insights,’ http://www.researchandmarkets.com/reports/1934270/country_analysis_report_canada_indepth, July 2011, [accessed 8th Jan 2015]. Research and Markets, ‘Country Analysis Report - USA - In-depth PESTLE Insights,’ http://www.researchandmarkets.com/reports/1934278/country_analysis_report_usa_indepth_pestle, July 2011, [accessed 8th Jan 2015]. Reza, R. "Macroeconomic Factors influencing the Video Game Console market," https://www.scribd.com/doc/52291359/Macroeconomic-Factors-influencing-the-Video-Game-Console-Market, 5 April 2011, [accessed 8th Jan 2015]. Appendix The United States GDP Figure 1 The USA GDP (Source World Bank) Canada GDP Figure 2 Canada GDP (Source World Bank) Read More