The video game industry became a global epidemic since 1952, with the conception of doing offers on computer systems to participating in online and wireless games, gambling on different gaming console programs and consumer spending on video games. Since then, the global games market broadened and became an enormous and diverse industry as we know today. With the progress of the video game industry, it facilitated economic growth, international investment, and world trade.
The reason for this paper is to first discuss the micro-environmental factors that affect the video game and game system industry by studying the external factors which include the industry's market size and expansion, its potential buyers and target market, its competitors and scope of rivalry and the industry's economies of range. Secondly, the macro-environmental factors that have an impact on the industry may also be discussed such as the industry's monetary conditions and overseas competition, legislations, societal principles, demographics, and technology. And thirdly, a debate on Nintendo's internal factors which include primary and extra factors will be analyzed using the value-chain analysis that was developed by Michael Porter. Furthermore,
As part of analyzing the gaming industry, an external analysis must take a look at opportunities and hazards that have an impact on the industry's encompassing environment because this shows the permanent competitiveness of the industry.
Market Size and Growth Rate
In 2007, the gaming and game system industry continues to level off and is still a billion money industry. Actually, Bangeman (2008) mentioned that based on the Entertainment Software Relationship (ESA), total revenue in 2007 were "$18. 8 billion, with $9. 5 billion of this spent on game titles (both Computer and console) and $9. 35 billion on consoles" (Bangeman, 2008); therefore, this implies that the expansion of gamers has greatly broadened, but also increased career for game builders as well. Furthermore, the development of the video game industry has surpassed the movie industry with accounts of $9. 66 billion and the music industry dropped about 10% in sales in 2007.
Scanlon (2007) explained that matching to PricewaterhouseCoopers (PwC)'s Global Entertainment and Press View: 2007-2011 statement, the video game and game system market is recognized as the third-fastest growing portion of the entertainment and marketing market which is said "to develop at a compound gross annual rate of 9. 1% over the next five years" (Scanlon, 2007). Also in 2006 the video gaming market was believed to increase to $48. 9 billion by 2011. In addition, Asia-Pacific region is the major worldwide game playing market in the gaming industry globally, specifically China, because of the increased market with online gaming and piracy. The second greatest market is in European countries, Midsection East and African region, followed by america, Canada and Latin North american region. This indicates that the gaming industry had constantly grown internationally and there is no sign of halting the industry section, but is incessantly creating new improvements as technology is constantly on the make technological leaps ahead.
According to Gilbert (2009), there is no sign of preventing the market progress in the gaming industry anticipated to technology breakthroughs. Because of the growth of industry, companies such as Nintendo, Microsoft and Sony have the ability to improve their earnings as it is a growing industry. There's a good indication that it is a well balanced market.
Rivals & Opportunity of Rivalry
In the video game and game console industry, there are three major global players: Nintendo, Microsoft and Sony. According to (Eisner, 2007; Gorshein, 2007) the 7th generation of video game consoles was only the start of fighting for market share since overdue 2006. With the release of the NINTENDO WII GAMING CONSOLE in 2006, Nintendo has been dominating in the video game consoles segment matching to Krangel (2008).
With the research of these rivaling gaming companies for management position in the video game industry, this created an intense competitive environment on the market by trying to keep or gain the majority of the market share. In the case of the Nintendo Wii console, it didn't have the technological features as its rivals, but the Nintendo Wii's gaming system was more reasonable in cost than Sony's Ps3 3 and Microsoft's Xbox 360; in cases like this, Nintendo had the competitive benefits with pricing. You will discover high degrees of product differentiation among these three companies, because brand equity played a big part as it leads to loyal and repeat consumers.
Since the discharge of the NINTENDO WII GAMING CONSOLE unit in 2006 and with the production conditions that Nintendo was facing in relation to meeting resource and demand, some consumers had to find the console in different retail stores or on-line via public sale websites; this created low switching costs because of the limited NINTENDO WII GAMING CONSOLE console, these were losing market show as consumers can freely switch from one gaming console to some other, such as purchasing Microsoft's Xbox 360 console or Sony's PlayStation 3 3 because they were available to purchase; therefore, capturing the market share is a superb battle to the gaming industry.
Due to the fact that we now have three major opponents in the gaming industry, there are no other major rivals; this creates a situation of high leave barriers. Whether or not the business is making a profit or not, the company has to contend to remain on the market; therefore, each company is required to find different techniques to be able to compete. And although the gaming and game unit industry is exponentially growing and the market segments are increasing, this can activate new companies to go into the gaming market. These three competitors would then take significant actions to avoid new entrants from stepping into the industry by continually innovating services and changing their strategies, which keeps a low risk of entry. Additionally it is difficult for new entrants to enter into the gaming industry as it's very costly and game designers for each of the three rivals has to keep up with breakthroughs in technology regarding to (Eisner, 2007; Gorshein, 2007).
The range of rivalry for the video game industry is in the global market which include Asia-Pacific, the Americas, and combined region of Europe, Midsection East and Africa. The rivalry among Nintendo, Sony and Microsoft is rather high, because each company has to have a different way and strive for a competitive advantage against their competitors in order to gain market share; each offered another, unique gaming system and games, nonetheless they all talk about the same concept of entertainment and video gaming.
Buyers - Concentrate on Market
The customers of the video game industry contain retailers and the marketplace, specifically mature consumers. THE WEB can bring purchasers from all over the world to purchase gaming consoles and video gaming. Retailers can purchase large quantities of gaming consoles and video games and spread them to their retailer programs, such as EB Video games, Wal-Mart, Future Shop, and Best Buy to name only a few. Regarding to (Coulter, 2004; David, 2004; Being hungry, 2004, pg. 88), merchants "can account for up to 50 percent of many manufacturers' earnings. With anywhere near this much buying ability, these discounters can virtually dictate selling conditions;" with this thought, this gives suppliers a great deal of bargaining electric power. Suppliers and consumers likewise will always be looking to discover the best deal and discuss to discover the best price. If there are low turning costs, the merchant or consumer won't have to feel obligated to remain with the initial provider and can shop around elsewhere.
Prices for the Nintendo Wii console were acceptable in comparison to its major rivals, Sony's Ps3 3 and Microsoft's Xbox 360 360; therefore, more consumers inserted the market, increasing the demand for the NINTENDO WII GAMING CONSOLE unit. As market saturation of new games innovations occur, these innovations are anticipated to gas consumer purchases, such as Microsoft's Xbox Live Marketplace for example, which allowed direct buying capacity to the average person consumer to choose digital content they want online and at any time of day.
Economies of Scale
There can be setbacks for companies in the video game industry, because for a company to obtain economies of level, a company would need to increase their creation levels, increase their marketing and circulation, and continue to develop services to be able to meet source and demand. The three major video game companies have control on the retail distribution channels; this creates cost advantages because it includes secured product technology and favourable locations.
According to (Eisner, 2007; Gorshein, 2007), there are huge economies of scale for video game developers as they have gained interest and found potential for growth in the industry, this includes research and development. Due to the difficulty of games being created with every new gaming platform, it was costing video game designers big money in order to build up new game titles, and with the economies of level of creating sequels to existing games, this created a setback for technology. Due to technological developments, innovating more will keep potential entrants from the gaming industry. Furthermore, gaming developers, such for the Nintendo Wii have created a hurdle to access for other video game developers to create new gaming software, which includes created economies of size that other video game developers cannot compete against. But on the other side, economies of scale in developing games for the Ps3 3 and Xbox 360 reduced development costs as a builder can create the same game for both console platforms.
Economic Conditions and Foreign Competition
Historically it has been established that the gaming industry is able to survive an financial downturn according to Kalning (2008) and Silverman (2008). Folks are more inclined to spend less overall by staying home and participating in video games as everyone needs some form of entertainment; therefore, regarded as a "recession-resistant" industry because sales continue steadily to rise irrespective of an economic downturn. But when there is a continued drop in economical conditions, discretionary consumer spending will decrease and could reduce the demand for video game consoles and games altogether. And due to shift in global consumer spending, this could impact these gaming companies in a negative way.
In inspecting the gaming industry, although it is recognized as "recession-proof", these companies may still have to lessen costs, for example the development of new video games or gaming platforms, they could have to find a cheaper manufacturer for several components. For instance, due to the economic downturn that influenced a domestic supplier of certain gaming system components, it may have gone out of business, reducing domestic competition. As a result, domestic gaming companies may need to search and discuss for the best prices in overseas countries, such as China, for cheaper components for his or her video game platforms. The outcome is the fact overseas companies such as in China would try to compete for domestic business; in cases like this, it increases foreign competition, which also boosts economical conditions in the international market.
Concepts of individual freedom and freedom of expression are generally accepted in THE UNITED STATES but with legislations in various countries, there are legislation and rules that require to be used in relation to video game content. The Entertainment Software Association (ESA) is considered a small party in politics representing the gaming industry section and in charge of publishing video gaming content. The Entertainment Software Score Plank (ESRB) was proven in 1994 and its own responsibility is to rate training video and computer video games' content. (Source: Entertainment Software Connection website, Citation: http://www. theesa. com)
Computers and video games have been ruled out by courts as "protected talk" (Source: Entertainment Software Association website, Citation: http://www. theesa. com). There have been efforts and troubles in regulating usage of game titles. The Entertainment Software Relationship (ESA) is making work to guarding intellectual work of users of the ESA by adhering and aiding the copyright legislation and other restrictions and laws and regulations.
There is not any distinct legislation in protecting people as there's a whole lot of red tape to separate free speech and protecting children from predators.
With regards to interpersonal issues and video games, the Entertainment Software Relationship (ESA) suggested that "computer and video games have grown to be successful vehicles to teach important values, indulge a new era of voters and bring problems facing other countries to leading door of new followers" (Source: Entertainment Software Connection website, Citation: http://www. theesa. com). Using this method, it provided public education and tackled global cultural issues such as violence, Internet security, famine, battle and poverty to mention only a few. The introduction of different types of games created a message of recognition to young adults, but you may still find a lot of controversies encompassing video game content, specifically in relation to violence. Vaughan (2006) mentioned that different types of people are intrigued with the violence in video gaming as a release from truth; it is more of a getaway to another world. These types of people are not violent in nature but choose that can be played these kinds of games.
Hodgson (2010) explained that video gaming that have assault or sexually-explicit materials has an undesirable have an effect on on our society; but in the finish, the adult consumer has a constitutional right that provides them the right to choose what types of game titles they play and evidently it's the responsibility of the adult consumer to not expose these types of games to younger technology of gamers.
Based on the statistical study made by the Entertainment Software Association (ESA), the majority of folks that play the most video gaming are guys from 18 to 49 years of age. Statistics confirmed that 40% of feminine gamers were from 18 years and aged that represented a huge small fraction of the game-playing society, while 60% were male gamers.
Based on both video game genres for both videogame consoles and pcs, the 'Family Entertainment' genre came out as the second highest percentage of 17. 6% for video gaming played out and 14. 3% for computer games played. Folks are more inclined to buy family game titles for the entire family, for reasons such as for family fun and family closeness. There is a rise of females doing offers on videogame consoles, like the NINTENDO WII GAMING CONSOLE, which caters to all age ranges. But male gamers will still be the prominent player in the gambling market.
The video game and game unit industry play a significant role in the economy; it stimulates growth by new innovations through research and development of new solutions. Upon examining the Nintendo Wii RESEARCH STUDY 33, the rise of gaming designers creates more opportunities to develop and engineer new game design. Because of gaining new information on new technology progress, video game builders have the ability to utilize these resources through the web, through various research and development and other locations globally. As a result, technology moves hand-in-hand with globalization. Another opportunity that arises in the gaming industry will be the online capabilities of emerging gaming consoles like the Xbox 360, which gives the individual customer the opportunity to download games, videos, demo games and so many more; this allowed for interactive entertainment.
Gibson (2005) mentioned that online video gaming extended in the Asia-Pacific market, specifically in China. The posed hazard for the video game industry is the piracy of video games in various countries such as China because of the growth of online gambling, some gamers are able to duplicate gaming material for different video game platforms but also for online gaming and not pay for it; therefore, it increases bandwidth and slows down online gaming because there is a lot of gamers to take into account who may well not have paid anything. In addition, another menace is the complicated regulations of governing the video game content in several countries, publishers would need to meet up with the needs of video game content in those countries; this may pose issues since it restricts the gaming companies from getting different markets if indeed they don't follow the restrictions.
Competitive Environment Analysis
Porter's Five Makes model is evaluated for the video game and game gaming console industry to demonstrate its competitive environment.
Rivalry among competitive businesses through the video game industry is considered as average to high because although one company may have unique or break-through technology, it could lack some features in its gaming console platform, including the Nintendo Wii with its unique wireless distant controller but it lacked great graphic features. While the other video game companies such as Microsoft Xbox 360 and Sony PlayStation 3 3, may lack the unique wireless remote, it experienced better graphics and possessed online capabilities.
Although it can be a fierce competition for market share among these three major challengers, it levels away because of the fact that we now have different choices for different gamers alike. Among the reasons why NINTENDO WII GAMING CONSOLE did perfectly was since it was more family-oriented. The rivalries for the gaming industry intensify because they have a similar market share, competing for the same customers and resources.
Potential access of new opponents in the gaming industry is recognized as low because Nintendo, Microsoft and Sony have previously established such strong product differentiation that potential entrants are discouraged from getting into the industry. Brand collateral also plays an enormous part and brand switching will be a challenge for gamers to choose new entrants over one of these three major challengers. If there is a risk of new entrants to the gaming industry, this might show that there is less product differentiation that may allow new companies to contend and would also result in a slow market expansion on the market because market share is pass on among the prevailing and new companies, setting up a fierce and high rivalry in most of market share to be able to survive in the industry.
Potential development of replacement products in the video game and game console industry is recognized as modest to high because although Nintendo, Microsoft and Sony have strong product differentiation, what maintains it modest is the rates of the video game system. Gamers are always looking to get better deals and this includes features of the different gaming console and video gaming offered. For example, all three opponents provide same gaming entertainment, but the Microsoft Xbox 360 360 and Sony Ps3 3 were both pricey gaming consoles that some gamers were not able to afford it and as a result of this, the NINTENDO WII GAMING CONSOLE was more of a functional purchase as it was being sold for an acceptable price compared to its competition; this brought on a substitution of products. Even if the NINTENDO WII GAMING CONSOLE didn't have the online ability or the best design, it offered a great deal of games and it was made more for young families at a cheaper price; this allowed for an development of the game playing software industry as well. Addititionally there is another threat for substitution based on the video game industry, if gamers cannot find the money for the gaming consoles, a different type of entertainment would be through computer games, which is another form of substitution.
Bargaining electric power of suppliers in the gaming industry is considered as low because there are substitute gaming consoles on the market; therefore, the suppliers don't have a whole lot of bargaining ability in the industry. Lots of the suppliers of gaming programs are software employees, impartial game web publishers and editors, microprocessor and images accelerator companies such as IBM or Intel, designers to display high definition quality or 3D design, or computer manufacturers. Suppliers cannot exert any power over the video game industry because Nintendo, Microsoft and Sony have brand equity and suppliers are willing to keep their interactions with these companies. Also, there are a great number of suppliers on the market and due to this these suppliers are not able to exert considerable effect over their prices, quality and sales terms because there are just three major competitors in the video game industry.
On the other hands, suppliers are important to the industry because they supply important source to the firms in order to build up new innovations, for example a microprocessor is important to the process of fabricating a video game console system and without them these businesses would not exist.
Bargaining electricity of customers in the video game and game console industry is recognized as high because of the fact that everything is technologically-based and individuals are always looking for the best discounts. People would swap quality for price now nowadays since the economical downturn. Consumers have a whole lot of bargaining electric power because they are able to impact prices down and great buy for higher quality or more services. Retailers are essential to the video game industry as well because they sell these companies' products and help create enthusiasm through ad of games and gaming consoles.
Opportunities & Hazards for Nintendo
Nintendo's opportunities and dangers will be briefly analyzed because of the ever-changing breakthroughs of technology that might either grant or hinder success of the business.
Since Nintendo creates more family-oriented game titles than its rivals, Nintendo can exploit the growing market of female gamers and really should create more female-oriented games, such as puzzle or trivia game titles. With that in mind, Nintendo should also market to beginner gamers such as elderly people, in this way it'll keep them amused by keeping their thoughts and motion skills dynamic. Nintendo also needs to cater to youngsters from 3 to 8 yrs. old and create learning games because the Xbox 360 and Ps3 3 are created more for teenagers and adults. Nintendo also needs to get more in to the online games market as it is an evergrowing marketplace. Far more gamers are gravitating to online video gaming these days, which gives them the incentive to learn with relatives and buddies regardless of where they are in the world.
Since the release of the NINTENDO WII GAMING CONSOLE, Nintendo was facing resource and demand issues for its NINTENDO WII GAMING CONSOLE game console and for that reason, there is a loss of potential customers which threatened Nintendo's success. Another risk is a lack of software selection, because Nintendo's competitors are creating more selections of games for his or her video game consoles, new gamers would be more willing to gravitate to the other video game consoles due to the variety of selection of video games and better graphics. Another potential menace that Nintendo encounters is the discharge of new technology, such as new and powerful games consoles of competition or better hand-held video gaming devices that might have better features than the NINTENDO WII GAMING CONSOLE and Nintendo DS.
An internal analysis will be evaluated for Nintendo in order to recognize and evaluate the company's resources, features and central competencies to be able to get the most appropriate and effective strategies.
According to (Coulter, 2004; David, 2004; Craving for food, 2004, pg. 131), the worthiness string is a "systematic way of evaluating all of the organization's efficient activities and how well they create customer value. " This concept was developed by Michael Porter and the nine value-chain factors will be evaluated for Nintendo.
Nintendo handles its made products through quality control methods internationally according to Nintendo's 2008 Annual Report. Because of this, quality control methods increase development efficiency by Nintendo striving to concentrate on quality; they try to make their products with zero to minimal errors to ease extra costs in reproducing or fixing an error. As a result, this gives value to the customer by giving them an increased quality product with zero to minimal defects.
Since Nintendo is a technology-based company, it utilizes automated means to lessen from human mistakes in creating their video game consoles and other products. Given that production processes have become automated, it does increase development efficiency; this is a cost advantage since it decreases worker labour salary. Again, quality control minimizes faults, which reduces costs. But Nintendo still relies on human labour to develop their video game platforms and video gaming. Nintendo has customized video game builders that were competent to help out with creating the Nintendo Wii.
According to the Nintendo's 2008 Total annual Report, the business handles third-party manufacturers and overseas suppliers. Nintendo can spend less because it could be cheaper to produce their components by having a different company who is experienced using components, where it will save you them time and money. Nintendo will also be in a position to save costs through international suppliers because it may be cheaper to obtain certain components from another country. In this respect, it gives Nintendo the benefit of finding new technology. Just how Nintendo operates provides customer loyalty and trust in the product that they are purchasing.
Due to Nintendo interacting with third-party manufacturers and overseas suppliers, there is a huge disadvantage since there is uncertainty a manufacturer's business could fail and it'll be problematic for Nintendo to obtain key components necessary for its products or even produce its products. In relation to overseas suppliers, Nintendo may need to deal with words barriers, order issues, riots or disasters that can cause creation interruptions, and may not in a position to provide necessary components on a timely basis, that will lag the complete process of providing their products with their customers on time.
According to (Eisner, 2007; Gorshein, 2007), Nintendo had source and demand issues with the NINTENDO WII GAMING CONSOLE video game unit shortages scheduled to production issues. The demand for the NINTENDO WII GAMING CONSOLE video game console was regarded as a hassle to consumers since it would sell out and they would have to search for it online through auction websites and pay more than its retail price. But other products that Nintendo has produced including the Nintendo DS, they didn't have that same concern and has satisfied the requirements of consumers globally.
Marketing and Sales
Nintendo has a favourable reputation and is famous for their Nintendo game playing programs. The demand for their products far surpasses their supply. Nintendo is brand collateral; consumers know that they produce quality products. Nintendo marketplaces in several countries from Asia- Pacific and the Americas to regions of Europe, Middle East and Africa. Market research is effectively used because they are able to identify their customers' needs by hearing their customers' requests and issues to allow them to improve their products and services matching to Nintendo's objective statement.
Based on analyzing the Nintendo Wii RESEARCH STUDY 33, just how that Nintendo advertised and promoted their Nintendo Wii video game gaming console coincides with the beginning of the Christmas shopping dash. Nintendo is using the power of the web to market its products through public sale websites, retail websites, and online adverts.
Nintendo values their customers as explained in their objective declaration that they pay attention closely with their customers and to "treat every customer with attention, factor and respect" (Source: Nintendo, Citation: http://www. nintendo. com/corp/mission. jsp) by allowing their customers to give feedback on issues they might have with regards to Nintendo's products. Nintendo offers 24-hour customer service contact for their customers to own their questions solved by trained Nintendo customer support staff. Nintendo offers technical support and product purchasing questions. Nintendo offers a 12-month hardware warrantee and guarantee to displace any defective component. In addition they offer game and accessory 3-month guarantee and service after the expiration of the warranty. This adds value to customers.
According to Rodriguez (2007), he stated that the demand for Nintendo's components is so high that their suppliers have to create separate buildings to support Nintendo's requests which develop a long-term relationship between Nintendo and its suppliers. Nintendo is focused on environmental awareness and is also overseeing purchases of all their materials that they are acquiring are environmentally-friendly from internal components to products such as office resources, etc. and recyclable products (Source: Nintendo, Citation: http://www. nintendo. com/corp/csr/index. jsp).
Nintendo's research and development activities in product and process enhancements have been a success as they are continuously looking at new enhancements as technology continues to change. Corresponding to Anthony (2005) he indicated that in early 2000, there were six distinct divisions for research and development but later on in the years, it offers integrated into four divisions. This demonstrated that different ideas were being distributed among fewer departments when it came to hardware and software development. Nintendo's organizational culture promotes creativity and innovation because they hold themselves to an increased standard.
Human Tool Management
In mention of Nintendo's mission affirmation, Nintendo is committed to their workers and places them at high regards. Because Nintendo is globally-based, this means that that Nintendo has a diverse labor force. Nintendo offers various programs for all its employees such as promoting healthy lifestyle options and offering continuing education and training. Because of these carrying on education and training programs, employees learn self-independence, problem-solving skills, and greater assurance in their abilities, which results in upgraded efficiency for Nintendo's businesses. Nintendo cares about the work environment of its employees by offering ergonomic workstations. Nintendo also rewards their workers by giving bonus products and retirement living benefits. Nintendo offers different types of measure in order to promote worker well-being and a wholesome work-life balance.
In analyzing Nintendo's corporate structure, it is recognized as vertically integrated, which means that they take care of all the process of creating and promoting, including marketing and designing themselves. When there is a discourse about any work-in-process product, video game developers, gaming publishers and engineers would distribute their ideas to the new product. As a result, any ground breaking thoughts appear through annual conferences and research and development departments. This brings about greater co-operation between departments, a greater level of control in both quality and management and increased opportunities of Nintendo's products becoming successful in the market. This also means that Nintendo has a more personal level of interaction with their products and means that they can offer the most of quality to their customers.
Resource-Based Methodology and VRIO Model
Resources and functions for Nintendo will be evaluated using the resource-based approach as well as the VRIO model to look for the uniqueness of Nintendo's resources and activities.
Nintendo possesses a forward thinking, unique user-friendly cellular Wii remote
Nintendo is an extremely recognizable brand.
In order for a corporation to truly have a competitive gain, it must consider their resources and competencies which provide a basis for new enhancements in technology and products that the company can sell to the marketplace. Nintendo's competitive advantage
In bottom line,
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