Factors affecting competitive strategies choice of global companies in the video games console industry by the example of Nintendo in Japan and the USA

Japan had a unique opportunity to develop its economy at the level of the most advanced and effective achievements of world science and engineering, allowing not only to reduce production costs, but also to regularly provide new types of goods and services to the mass consumer. It is innovations that turn out to be the most convincing answer of the Japanese to the challenges that periodically test the strength of both the country's economy and its socio-political institutions.

For the last 40 years Japan has been known as a country that produces great number of innovations in different industries. According to “The Bloomberg Innovation Index” Japan is on the second place in the overall ranking after South Korea. It is number five in Research and Development spending, number three in the number of Hi-Tech companies, and number two in number of patents registered.

The formation of the gaming industry in Japan took place in conjunction with the changes that came in the second half of the 20th century. Here, first of all, we should talk about the comprehensive influence of the United States and the post-war occupation not only on the political and economic life of Japan, but also on culture. Control and financial support from the US government became the foundation for the Japanese economic miracle, which in turn led to a consumer boom, including for goods and services in the entertainment sector (Nicholas, 2011).

The first Japanese developers of hardware and software relied on existing concepts and developments of American colleagues, but a later start and the prevailing socio-economic situation determined a special way for the development of the gaming industry in Japan.

Unlike the United States, where the launch of the legendary game “Spacewar” in 1962 is considered the beginning of the video game industry, in Japan the first stage covers the period from the moment the industry was born in the late 1970s until 1980. This is due to the personal initiative of Japanese companies and individual developers, while in the USA the creation of video games was carried out on the basis of universities, scientific laboratories with the participation of the military. The main driving force behind the development of technology in the gaming industry in Japan has become the enterprises of electrical and consumer electronics, as well as companies producing toys for children (Hanzawa, Swiji, Yamamoto, 2017).

Today two of the most powerful players of the video game console industry are Japanese companies. Sony and Nintendo dominate the market. Nintendo owns 56% of the Japanese market, Sony owns 38% of it (Euromonitor). According to Insights into Japan's game market (Newzoo, 2018) half of the population of Japan (67.6 million) is playing video games. Japan is the third largest market for videogames in the world.

There are no state regulations concerning videogames in Japan. All regulations are carried out by the third-party company. For this purpose in 2002 a non-profit computer entertainment rating system organization (CERO) was established. It is an independent organization that gives ratings to videogames sold in Japan (Tsuji, 2018). The official website lists 4 main elements that are called attention to, the so-called “types of expression”: sexual relations, violence, antisocial behavior and related to languages and ideology. Each “expression” has subcategories and an upper limit, the excess of which leaves the game without a rating. The maximum permissible age of an expert is 60 years, and they can be representatives of various professions. In order to rate the product developer presents the product to CERO. After that, CERO decides for which age categories the game is suitable for:

· A - suitable for all ages;

· B - suitable for people from age 12 and above;

· C - suitable for people from age 15 and above;

· D - suitable for people from age 17 and above;

· Z - suitable for people from age 18 and above.

USA.

The United States of America is a federal republic of 50 states with some autonomy and the metropolitan federal district of Columbia. 48 states are located compactly, 2 separately: Alaska (received state status in 1958) and Hawaiian Islands (received state status in 1959). The United States is located in the Western Hemisphere, occupying more than a third of the continent of North America (an area of about 9.4 million square kilometers). The population of the United States is 328 million people. According to World Bank GDP in the United States in 2018 was $20,544 trillion, while GDP per capita was $59,507. Inflation rate in the country is 1.8%.

In the modern world economy, the USA, along with Japan, belonging to the category of countries - leaders in the field of innovation, continues to dominate in the main areas of research and development. Over the past 50 years, about 60% of all technical innovations have arisen there, and the advantages of this country in the creation and commercialization of information, military-space, biotechnological and environmental technologies are universally recognized.

Innovative development has become the "national idea" in the United States of America. Innovation processes meet the strategy of building innovation and cover all stages of the life cycle of the innovation cycle, consistently including basic research, applied research, development, innovation. Scientific and educational institutions of the country not only perform their direct functions, but also directly participate in the development of the economy, creating small innovative companies with high growth potential as startups. Business enterprises, interacting with scientific and educational institutions, influence the direction of scientific research and the educational process, including the training of specialists, and the state acts as a venture investor and public controller in this model. The generation of innovations, due to the synergy arising from this, becomes the inherent product of such a system even in the absence of direct stimulation by the state (Atkinson, 2014).

United States takes sixth place in overall rank of the “Bloomberg Innovation Index” (Coy, 2019), and number one in the ranking of countries with the biggest amount of hi-tech companies. So it is no surprise that United States is considered a cradle of the videogaming industry. In 1962 research member of Massachusetts Institute of Technology Steve Russel in collaboration with Martin Graetz and Wayne Wiitanen created first commercially successful videogame named “Spacewar”. It is considered one of the most important games in the history, because this game gave the birth to the industry.

The next step was the climb to the success of Ralph Baer and his prefix Magnavox Odyssey. This was the first console in history, and it was the representative of the first generation of game consoles. The prefix went on sale in 1972, although the prerequisites for its appearance were formed already in 1951 - it was then that the engineer and businessman Ralph Baer put forward the idea of “interactive television”, that is, the ability to interact with what is happening on the TV screen.

Competitors drew attention to Odyssey and created on its basis another electronic game. In 1972, the novice, little-known at the time Atari company launched an arcade machine with the game Pong. And the first Atari console on the background of the sudden popularity of Pong was Atari Home Pong - a compact version of an arcade machine.

Today neither Odyssey nor Atari exist. Both companies went bankrupt. Now the only company that develops consoles in United States is Microsoft. And it does not feel good even on the home market. According to the Euromonitor Microsoft is on the third place by the share of the retail value of video games hardware with 26.6%. While Sony has the first place with 31.7%, and Nintendo is on the second with 29.1% of the market. According to Insights into United States game market (Newzoo, 2018) more than half of the population of the United States (178.7 million) is playing video games. United States is the second largest market for videogames in the world (Williams, 2002).

In 1994 Entertainment Software Rating Board (ESRB) was founded. ESRB is a non-governmental self-regulatory organization that assigns ratings to computer and video games, as well as other entertainment software in the USA and Canada. ESRB ratings are based on content analysis. The verdict issued is indicated on the packaging of the game, is contained in its advertisement and is presented on the official website. Obtaining an ESRB rating is voluntary. However, to ensure the success of official sales of computer games in the United States and Canada, they simply need a rating. Without such an assessment, publishers face many of the constraints laid down in the corporate policies of the largest retail chains in the United States. To determine the rating, the publisher sends a video to ESRB containing the most typical, impressive and sharp scenes of the game, and also fills out a special form with information about the plot of the game (Tsuji, 2018). After that members of the committee decide which rating is suitable for the game:

· EC - for young children;

· E - for everyone;

· E10+ - everyone 10 and older;

· Teen - adolescents 13-19 years old;

· Mature - from 17 years old;

· AO - adults only.

Differences in Japanese and US cultures.

Japanese popular culture is being represented by the words “cute” and “adorable”. So it is easy to find any variety and genre of videogame with characters and features that correspond with modern Japanese pop-culture. Nonetheless, US customers might not be as interested in this as customers in East Asian countries.

Another difference is representation of women in videogames. In United States female character is usually represented as strong and courageous woman, instead of focusing on them as on objects that just stimulate male characters to do anything “heroic”. While in Japan, despite the recent advancements of women's rights, the stereotype of a female character in videogames as a motivational factor and reward for the male hero still stays. If a woman is a main playable character in the videogame, she has to act like a man, but with distinct features of idealized traits of female body.

Societal beliefs and ethics are another points of distinction of the two cultures. In west, and in the United States in particular, the world is very dualistic. There is good, which from any point of view is right, and bad, which is wrong in every way. In East, or in Japan in particular, the views are not that strict, there is lots of grey area, and truth might be on the both sides of barricades, it depends on the point of view one has. Basically, it states that sometimes people are forced to do good or bad choices, but that does not speak of them as of good and bad people. This views allow Japanese developers form complex plot structures, where the pure evil is not that distinct, and may vary on the perspective of the player. And this is why in US titles there always is a specific villain, which is there only to be defeated by the main hero character (Zagal, Tomuro, 2015).

2.2 Case study of Nintendo in Japan and the United States

Overview of Nintendo.

Nintendo was founded in 1889 by Fusajiro Yamauchi in Kyoto, Japan. The company was producing and selling gaming cards. Later Nintendo became the largest card producer in Japan, revolutionized the industry by being the first company to produce and sell plastic gaming cards, and signed an arrangement with Disney to use their characters on the plastic cards.

Hiroshi Yamauchi, the grandson of Nintendo's founder Fusajiro Yamauchi, when became a president of the company wanted to expand and explore new opportunities out of the gaming cards business and started using accumulated capital of the Nintendo. After several not successful attempts in different sectors, Hiroshi decided to implement its experience in the gaming industry and entered video game market by distributing first video game console Magnavox Odyssey. That is when Nintendo started developing its own platform (Ryan, 2011).

Today Nintendo is one of the leading players in the field of home entertainment. It is developing, producing and selling video game hardware and software. Nintendo has 25 subsidiaries around the world, but the main offices that conduct software and hardware development are located in Japan and the USA (Nintendo, 2019).

Nintendo Wii.

Analysis of the strategy.

In the end of the 20^th century Nintendo was a dominant player in the video game industry, its high-quality systems with great games helped Nintendo stay on that position. But in December 1994 Sony came out with its highly advanced PlayStation platform, which was a huge success selling 100 million during its lifecycle. To answer this call Nintendo released Nintendo 64, the cheaper console with similar process power, despite that it was not successful with only 33 million copies sold.

In November 2001 Microsoft entered the battle with its Xbox, the console more powerful than PlayStation and Nintendo 64. A year later Sony presented its legendary PlayStation 2, the console which is still unbeaten in the number of copies sold (158 million). It was the most advanced and power platform at the time, with the capability of playing DVD.

To compete with these giants Nintendo released GameCube. Nintendo sold 21 million copies of the console, 3 million less than Microsoft's Xbox. Even big library of games with recognizable and beloved characters could not save GameCube from the failure. Sales of the GameCube in Japan and the United States in comparison with the main competitors were disappointing. Nintendo lost its position as a market leader with only 15% of the market share in 2005, while Sony and Microsoft had 51% and 34% respectively (Cole 2005).

In November 2006 Nintendo released their new video game console Nintendo Wii. The name of the console sounds like a pronoun “we”, to show that the console is not only for the hardcore gamers, but for everyone. The name is also easy to remember no matter from what country the customer is. Double “i” in the name illustrates controllers that people use while playing Nintendo Wii. The console introduced a new way of playing, therefore changing the landscape of the industry (Carless, 2006).

By creating a console that brings uncommon and exceptional experience of playing a video game, and doing it with less costs than competitors, Nintendo was trying to create “innovation value” to discover the Blue Ocean in the video game console market.

Figure 3. Strategy canvas. Adapted from “The Blue Ocean that disappeared - the case of Nintendo Wii” by Svend Hollensen (2015). Journal of Business Strategy.

Characteristics (Thurott, 2010):

· Price. While Xbox 360 and Playstation 3 prices were $349 and $399 respectively, Nintendo's Wii price was $249, which made Wii the cheapest seventh generation console on the market. This 30% cut turned the price of the console to the perceived value for the customers.

· CPU Power. Contrary to the competitors Wii's processor speed was low. Xbox 360 and Playstation 3 processors were much more advanced.

· Storage. Wii did not have hard drive disk.

· GPU. In terms of graphics Wii was far behind competitors. While Xbox 360 and Playstation 3 provided so called “next generation” picture, which meant high definition graphics, Nintendo Wii's graphics were slightly better than on the consoles of the previous generation.

· Optical Drive. That year Sony introduced new compact disk format which is called Blu-Ray. It was far more advanced than DVD, and Playstation 3 could play both. Xbox 360 supported only DVD, and Wii did not support any of these.

· Online. Xbox 360 was famous for its online features, Playstation 3 also had this feature, but not as advanced as in Xbox 360, and Nintendo Wii had none online features at all.

· Motion controls. Instead of creating usual controllers for the new console, Nintendo decided to introduce new way of playing with the motion controllers that repeated players moves in the video game.

· Unique gameplay. Microsoft and Sony's platforms did not require the player anything but finger control to use controllers, while Nintendo's console required player to be active by playing the game using player's motions.

· Family oriented. While the “old school” consoles like Xbox 360 and Playstation 3 were perceived as something for only “gamers” because of the types of the games and complex controls, Nintendo Wii focused on simpler games and conquered non-gamers, people who do not usually play video games, like parents and grandparents.

Nintendo Wii took a leading position by highlighting its advantages like low price and clarity of the gaming process to win new consumers. The TV advertisements of the Wii showed how easy it is to play by displaying seniors and children playing together. By that Nintendo successfully reached new, not usual for the industry, customers.

Women and senior citizens, people who were not attracted to the video games, liked Nintendo Wii. Besides the whole concept of playing with motions, which itself was very attractive for non-traditional customers, Wii offered variety of games that were also not demanding to the player's skill. Titles like Brain Training and Wii Fit attracted a lot of customers from the segment described above (Reynolds, 2010). Brain Training is a set of simple daily exercises that help stimulate the brain and keep it in good shape. Brain Training is one of the best-selling games in Japan, selling over 1.4 million copies. The game was especially popular among the middle aged people. Wii Fit is a sports video simulator developed by Nintendo, Wii Fit contains four main categories of exercises: aerobics, exercise, yoga and games that improve balance. There are 40 exercises in total. Wii Fit was very useful for people who sit a lot in rooms (offices, houses, etc.). Also Wii Fit helped people with Parkinson's decease by improving their ability of keeping balance, and therefore reducing risk of falling. Wii Fit was sold 42 million copies (Susman, 2013).

When Nintendo Wii was launched in November 2006 the demand was so high, that Nintendo could not meet it because suppliers were not able to increase the production. But it did not stop Nintendo from becoming Japan's most valuable listed company after Toyota in September 2007 and selling 101 million copies of Nintendo Wii (Takenaka, 2007).

In the United States Nintendo sold 40 million units of the Wii console, while Microsoft and Sony sold 39,6 and 26 million units respectively. In Japan Nintendo sold 12,7 million units, while Microsoft and Sony sold 1,6 and 10,4 million units respectively. In the years 2007 to 2009 Wii Sports game was the best selling game in both Japan and USA (Vgchartz).

Analysis of the factors.

External Factors.

Political.

In the beginning of 21 century society and global governments began to worry about the issue of violence in the video games. Countries like Australia and Brazil started banning violent video games (Sveen, 2015), some states in the USA started doing that too (Morris, 2003), Researchers in Japan found out that children who play violent video games have less developed parts of the brain that are responsible for aggression control (Ahmed, 2002), which caused discussion in the Japanese government.

Economical.

Table 2. Economic situation in Japan and the USA. Author's composition based on data from World Bank and United Nations.

Japan. The Japanese economy was weakened by lower personal consumption and a general fall in corporate earnings resulting from a market recession which was longer than expected. In the midst of prolonged deflation, has generally not been in a crucial situation due to weak consumer spending, high unemployment and a lack of income growth, while recovery has been seen in some business sectors as a result of improved corporate revenues as a result of positive restructuring results.

USA. The US economy was temporarily slowed by lower investment, especially in the information technology sector, and by the terrorist attacks of September 11. The economy was in slow recovery. In 2004 in the fallout of the Iraq conflict, the US economy continued to expand steadily due to large tax cuts, low interest rates, and steady consumer spending, partly due to the recovery of stock prices.

Social.

In both countries the perception of typical consumers of video games were antisocial males 13-20 years old that waste their time and life. Because of that in Japan and the USA parent's awareness towards violence in video games and time spent playing them steadily grew. Instead of doing physical, social and educational activities children spent too much time playing video games, it led to constant arguments between parents and their kids, which lowered level of parent's involvement in their lives and increasing the gap between them. (Lynch, Gentile, Olson, Van Brederode, 2002). On top of that it was revealed that retail stores in the United States did not mind video game ratings and sold video games to children who are not supposed to play them (Miller, 2003). But there were positive trends too, researchers started talking about possible educational value that video games might bring (Kirreimur, 2002).

Technological.

GameCube failed in sales with 4,040,000 units sold in Japan compared to PlayStation 2 with 21,450,000 units sold, and in the USA with 11,700,00 unts sold compared to Xbox with 15,000,000 units sold and PlayStation 2 with 43,000,000 units sold (Vgchartz).

Due to the constant advancements of consoles and transformation of video games from simple fun to complex worlds the cost of video game production dramatically grew. Video game consoles evolved into technological combines that could process complex, adrenaline-fueled games with HD graphics for hardcore gamers. Because of that the productions costs increased dramatically not only for the consoles, but also for the games, which made them expensive for the customer (Koster, 2005).

Internal Factors.

Resources.

Nintendo management believed that deep pockets are vital for a company in the entertainment business to survive any failures. So even after the failure of GameCube Nintendo had abundance of cash which allowed them to innovate. The lowest in the industry debt to equity ratio and the highest cash and current ratios show that Nintendo was in great financial health and could afford new risks. On the contrary Microsoft and especially Sony had to be more cautious, therefore radical changes were not welcome.

Table 3. Financial analysis of Nintendo, Sony and Microsoft. Author's composition based on analysis of Nintendo, Sony and Microsoft financial statements.

Besides that, Nintendo holds a lot of recognizable brands like Mario, Pokemon and Donkey Kong, which were a perfect fit for the introduction of the platform to new customers, who were not interested in the video games before.

The main advantage of these characters that they were used and known outside of the video gaming media, for example Pokemon cartoon series were extremely popular in Japan and the United States (Minotti, 2016), just a year after Pokemon brand was introduced to the customers in the United States, product sales were at the point of $1 billion (Lockridge, 1999).

Processes.

In 2002 Satoru Iwata became a CEO of the Nintendo. Under his order Nintendo started spending more time and energy on building a new universe of video game entertainment featuring a well-known stable of characters while creating new characters and game concepts. The Organization has extended and improved its R&D functions and was actively working to maximize its profitability through innovation and cost control. His first offer as a CEO of the company was to release new handheld video game console to replace old GameBoy. But not just generic hardware improvement, he wanted to introduce something new. In November 2004 Nintendo DS was released. The first handheld device with two screens, one of which was a touchscreen. The focus of the console was on the people who were seeking fun. Nintendo DS was cheap in production, and it was cheap for developers to make games for the platform, so they could experiment and innovate, which led to a variety of fun, not expensive games. Nintendo DS was released in two colors - blue and pink, by that welcoming not only boys, but also girls to try and play. The console was a huge success in both Japan and the United States and became the most selling handheld console with 154 million units sold.

Values.

Target audience for the majority of video games were males from 15 to 30 years old, which accounted as 10% of population in both Japan and the United States (United Nations). Sony and Microsoft were leaving huge part of population unnoticed rushing toward advancements of consoles hardware. Nintendo decided to shift their scope on people who do not usually play video games or just too young for ones presented on the market. These are children 10-14 years old, mothers and senior citizens.

Several years before the introduction of Nintendo Wii Satoru Iwata realized that the home video game console market in Japan is shriveling. On the basis of different research activities, it turned out that the cause of the contraction is lying in complexity of the video games. They required too much time and effort to play, the potential player had to figure out all the complicated rules, controls and combinations. Customers who are constantly working, studying and having busy lives, even if they are not new in the video gaming field, did not have time to get into it. It would be even harder for people who have never played video games to get attracted by them. Iwata recognized that the industry largely overlooked non-gamers and was only fighting for the attention of the already existing gamers. That was the moment when Nintendo decided to take a different path.

When the time for the development of new generation of consoles had come, instead of developing, like competition, new console with improved hardware for graphics and power update, Nintendo decided to take a view on the gaming experience from another angle. This approach led to the development of a console that differentiated the whole interaction experience with the game. Besides that, Nintendo focused on the simpler games, games that are not only based on large fantasy and sci-fi worlds with complex stories, but mostly on usual day-to-day experiences like sports, to target all customers regardless age or gender.

Figure 4. Demographics in Japan and the USA. Author's composition based on the data from United Nations.

If one wants to play a game, instead of hard process of learning controls and understanding what to do, Iwata wanted it to be an easy process that might take several seconds just to turn on the console and play. Shigeru Miyamoto, member of the Wii development team, answering the question about what made them to take this turn, and develop such an original console said “Our goal was to come up with a machine that moms would want - easy to use, quick to start up, not a huge energy drain, and quiet while it was running. Rather than just picking new technology, we thought seriously about what a game console should be. Iwata wanted a console that would play every Nintendo game ever made”. This approach made the console a game changer that allowed Nintendo to disrupt the market.

Nintendo Switch.

Analysis of the strategy.

In 2011, 5 years after presenting Nintendo's groundbreaking Nintendo Wii, Nintendo Wii U was presented. The main feature of the console was a new controller that included a 6.2-inch touch screen with very high sensitivity, which, however, did not support multi-touch. At the same time, the controller retained the traditional controls: buttons and analog sticks. The name and the emphasis on the controller during the presentation confused people. Majority thought that it is the same Nintendo Wii but just with a new controller. Some wondered that the $350 price is just for the controller without the console (Corriea, 2013).

The whole confusion, caused by poor demonstration and delivery of the value of the console, led to disappointing sales. The console was launched in 2012, and one year after the sales were at the point of 3,5 million copies sold, while the predecessor was sold on average 14 million a year. It was clear for Nintendo that Wii U was a failure.

Year later, when Microsoft and Sony released their new consoles, situation for Nintendo became worse. In the end of 2014 Sony sold 18 million copies of Playstation 4, Microsoft sold 11 million copies of Xbox One, and Nintendo, whose console unlike its competitors was on the market for almost two years already, sold 8 million copies of Wii U. Since the rivals were dominating in the industry leaving Wii U far behind, game publishers left the platform focusing only on PlayStation 4 and Xbox One (Vgchartz).

In 2015, at the age of 55 years old Satoru Iwata died. Tatsumi Kimishima, former banker who worked as a finance manager in Nintendo and was involved in the senior management before Iwata in 2002, became a CEO of the Nintendo. The timing for a non-creative finance manager, who was in the management when GameCube was released. to become a CEO could not been worse.

The decision to develop and release Iwata's last project was made. In March 2017 Nintendo Switch was released. The core value of the console was that the customer could play it anywhere, anytime and with anyone. Switch is a hybrid that included home video game console and handheld video game console. It has 6.2 inch touchscreen with two removable motion controllers on the sides. If one wants to play at home in a stationary mode, the controllers can be removed and the platform itself should be placed in a dock that is connected to the TV (Nintendo, 2017).

Figure 5. Strategy canvas. Author's composition based on the analysis of Nintendo Switch characteristics.

Characteristics (Greenwald, 2019):

· Price. At the launch price of the Nintendo Switch was $300, same as PlayStation 4 and Xbox One had at the moment.

· CPU Power. Engineers fitted in the small console advanced CPU, which was more powerful than in Nintendo Wii U, but still not as effective as in PlayStation 4 and Xbox One.

· Storage. Switch does not have a hard drive disk, instead it uses 32 gigabyte flash drive, which can be expanded.

· GPU. Nintendo Switch graphics capabilities are much more advanced in comparison with Wii U, but not on the same level as graphics that PlayStation 4 and Xbox One can present.

· Optical Drive. Switch, due its size, didn't have optical drive at all. Instead it uses flash cards, which in case of some games are useless because of the incapability to storage big amount of data.

· Online. In Switch Nintendo incorporated its Nintendo ID online service, which allowed players to communicate and play with each other. While in previous consoles online capabilities, and Nintendo ID in particular were not fully developed, Switch finally allowed its users to use it in full power.

· Portability. The main advantage of the Nintendo Switch was its portability. One could play all the games available on Switch anywhere. The ability to play on the TV at home, and when player has to leave the home for work, studies and etc., continue playing on the go, brings value to the customer.

· Motion controls. Several years after Nintendo Wii was released both Sony and Microsoft introduced their take on motion controls. Sony developed PlayStation Move controllers, which were similar to Wii remotes, but were more advanced. Microsoft's technology did not need any types of controllers, their Kinect camera could recognize all parts of player's body, but needed more space, and was not as accurate as competitor's devices. In 2013, when Xbox One was launched, it was sold already with Kinect in the box, but in next revisions Microsoft decided to exclude Kinect from the kit, and sell it separately from the console, like Sony, that sold motion controllers for PlayStation 4 separately from the console. Nintendo Switch controllers have some simple motion controls functions, but nothing like in Nintendo Wii.

· Unique gameplay. The main differentiator in the gameplay department were games developed specially for the features of the Nintendo Switch, like removable controllers and portability.

· Family oriented. Abundancy of games with popular characters, and ability to use one set of controllers for two people to play together made Nintendo the most family oriented company on the market.

· Switch does not have any non-gaming features like Xbox, PlaySation and even Wii U. The format of the console could work perfectly for web browsing and watching Netflix, but remembering the Wii U fail, where Nintendo tried to battle with tablets, and inserted variety of non-gaming media functions, company decided make Nintendo Switch for gaming purposes only.

· Another step that Nintendo made different, in comparison with Wii U, company started controlling games that are being made for the platform. All third party developers before publishing the game for the Switch console should submit it to the Nintendo to get authorization.

By that console Nintendo redeveloped boundaries of the market by bringing the best what games for the consoles like Xbox and PlayStation and games for the smartphones could offer. Sufficient interest of users in the new console, a good advertising company (especially in the USA) and interesting exclusive games gave the initial result. Old school gamers were simply obliged to try Legend of Zelda, and their positive reviews interested the original audience. Plus, the game turned out to be an excellent gift for those who are fond of traditional consoles, and also do not mind playing on the phone. And then came the long-awaited Mario Kart 8: Deluxe, Mario Odyssey and Splatoon 2, which also deserved very positive reviews, and additionally untwisted the flywheel. The massive interest in Switch caused a shortage of stocks in warehouses in the States, Europe and Japan, and Nintendo did not have time to produce systems at the speed with which people bought them. The main offline seller of Switch in the USA, the GameStop network, in March said that the new console had the most successful launch of all time among Nintendo consoles. In the first 10 months of sales, Switch purchases are expected to exceed Wii's performance by 20% over its entire existence. Neither industry experts, nor the players, nor Nintendo itself expected this.

Other video game developers who initially did not expect Switch to succeed switched to the new platform in a hurry. Among them are Bethesda, Square Enix, Konami, EA and Capcom. They all thought the console would fail. Or, at least, it will be much less popular than it turned out in the end. Now they are trying to catch up, releasing their most popular games on Switch, and already announcing the development of new titles in collaboration with Nintendo.

Besides online features that allowed Switch users to play with each other, Nintendo made it possible to several people play on one platform. It is available because of the two controllers that Nintendo Switch has. Switch is the first platform that allowed people to “switch” back and forth portable and stationary mode and has games from both worlds (Olenick, 2019).

In Japan Nintendo Switch is number one on the market with 47% of market share, while PlayStation 4 has only 31% of the market share. In the USA Nintendo Switch is right behind PlayStation 4 with 22% and 23% of market share respectively, while Xbox One on its home market has only 16% of market share (Euromonitor).

Analysis of the factors.

External factors.

Political.

In 2008 fight against the violence in the video games reached its peak. Jack Thompson, the attorney from Florida, started his campaign against soon to be released Grand Theft Auto 4, which he wanted to be banned. It was not the first case in his career, he already had a reputation of a strong opponent of the video games. The publisher of the game, Take-Two Interactive, filed a lawsuit against Thompson, accusing him of slandering. Mr. Thompson filed a countersuit, declaring that Take-Two Interactive committed perjury and was obstructing the justice. The conflict ended by a settlement from the both sides (O'Holleran, 2008).

In Japan most of the games with excessive violence are edited. But if the player wanted to play without edits, all he had to do is to switch from Japanese language to English language.

Research by Iowa State University (2008) showed that in both Japan and the USA video games may feed anger in children, but it is just a little piece in a complex puzzle of factors, and video games can not be accused of violence acts.

Economical.

Table 4. Economic situation in Japan and the USA. Author's composition based on data from World Bank.

Japan. Economics in Japan was stagnating after recession caused by the earthquake in 2011. In 2013, new premier minister Shinzo Abe launched new economic program to revitalize the country. As a part of this program in 2014 taxes were raised, which led to the new recession, but in 2016 Japan's economy faced rapid growth.

USA. In 2013 due to budget argument in congress the government of the United States had to shut down, which led to increase of unemployment. The different situation was in 2014, which was the first year after 1999 with huge growth in jobs. 2015 broke another record, by being the first year after crisis in 2008 with unemployment rate less than 6.

Social.

Big shifts happened in the demography of the video games consumers. In Japan the average gamer age was 32 years old, 40% of the gamers were woman, 41% and 32% of males and females played on the smartphones, while 30% and 14% of males and females played on the consoles. More than a half of the country's population plays videogames (Newzoo, 2014).

In the United States the average gamer is 34 years old, 33% of the gamers were woman, 60% and 58% of males and females played on the smartphones, 42% and 24% of males and females played on the consoles. More than a half of the country's population plays videogames (Newzoo, 2014). According to the research by the Entertainment Software Association (2015) 70% of parents believe that video games have positive effect on their children. And more than 90% of them are near when their adolescent purchasing a game, and always informed about the game itself.

Technological.

Nintendo again lost its competitive position on the market with the failure of Nintendo Wii U. In Japan from 64% of market share in 2012 it fell to 32% in 2016, in the United States it fell from 30% in 2012 to 10% in 2016 (Euromonitor).

Since the introduction of Apple and Android smartphones between 2007 and 2008, access to the Internet, mobility and touch screens have made these devices the ideal platform for video games. However, the target and use were very different from regular video games. People were likely to play short sessions of easy-to-use games like Candy Crush or Angry Birds, which were so addictive that more than 100 million people downloaded and played. While the console business had ruled the industry for years, the global smartphone installed base had achieved a record of two billion in 2014, thus becoming the most effecting platform of video game distribution.

Some major video game publishers, such as Ubisoft with Rayman, and Square Enix with Final Fantasy, have also gradually invested in this emerging market with their big and well-known franchises. U.S. publisher EA spent more than $1.1 billion on the purchase of Playfish in 2009 and PopCap in 2011 to join emerging mobile and social gaming markets. These markets had a hard time achieving differentiation. Capcom's 2014 profits were high in the console gaming industry with its Monster Hunter 4, but the smartphone sector was struggling due to a lack of big games and a highly competitive climate. While some analysts argued that mobile gaming was not cannibalizing the conventional market, others observed that growing amount of teens, 34% in 2011 and 66% in 2012, played games on their smartphones and tablets.

Casual games, the category innovated by Nintendo with the Wii, became especially popular for people sneaking in short bursts of game time while commuting, waiting in line, or even working. But Nintendo's DS system, with its small screens and no utility value beyond gaming, was now obsolete. Since users had an array of approachable games they could control just by moving their phones, the appeal of the Wii to control with movement wore off. High-powered consoles for traditional gamers continued to sell as smartphones became popular, but the elements of the Wii that differentiated it were lost against the new smartphones (Gillet, 2015).

In 2015 almost half of the game revenues in Japan and the United States were from the smartphones and tablets (Newzoo, 2016).

Internal Factors.

Resources.

Nintendo went from boom to bust, pressured by mobile platforms for casual gaming and high-end consoles for traditional players. By the end of July 2012, the situation was poor enough for Iwata to slash his own pay by half, around $770,000. Other executives took pay cuts from 20 percent to 30 percent. They also reduced the price of the Nintendo 3DS, a three-dimensional version of the DS that focused on gimmicky technology that was not well received, from $250 to $170 (Kohler, 2017).

Success of the Nintendo Wii and Nintendo DS consoles allowed the company to accumulate huge cash reserves, which corresponded with their “deep pockets” financial style. The lowest debt to equity ratios, and highest cash and current ratios tell us about huge cash reserves that can cover all debts at any given time without serious consequences. Extremely high debt to equity ratio says that Sony finances its growth with debt, which makes company to be very cautious with its products and experiments.

Table 5. Financial analysis of Nintendo, Sony and Microsoft. Author's composition based on analysis of Nintendo, Sony and Microsoft financial statements.

Nintendo's intellectual property had more value than it had before the launch of the Nintendo Wii. The success of the Wii in variety of demographic groups raised the recognition of the Nintendo's characters.

Processes.

In 2013 generational change in management happened. Four directors left their seats, and the average age of the board of directors became seven years younger. To achieve closer cooperation between two main headquarters in Japan and the USA Satoru Iwata decided to double as the CEO of Nintendo of America.

In 2015 Nintendo made a partnership with the developer of mobile games DeNA. The partnership was made for two reasons. First is, due to the big experience in internet services and mobile games of the DeNA, development of video games for smart devices using Nintendo characters. Second is development of the Nintendo membership system for variety devices including PC's and smartphones. Both of these steps were made to expand the user base, and to tie them not just to console, but to the ecosystem, which is not dependent on the hardware (Nintendo, 2015).

Values.

In 2014, when it became obvious that Wii U has no interest from the customers, and the platform, after just two years, was almost dead, on the corporate management policy briefing Satoru Iwata presented new strategic directions. There were five points:

· Redefining a video game platform;

· Taking advantage of smart devices;

· Changing the way of selling hardware and software;

· Active utilization of Intellectual Property;

· Expanding into new business areas.

Iwata affirmed that the core competence for Nintendo is staying the same - dedicated video game platforms that integrate hardware and software. He mentioned that since Nintendo was not as rich as its main competitors, it could not compete with them on the same field by just imitating and trying to constantly make more powerful hardware, Nintendo's way is individuality and differentiation.

Redefining a video game platform.

Iwata began his talk about the future strategic directions with the foundation of the Nintendo company - consoles. He felt that redefinition of the video game platform might play an important part in deciding if it is possible to adapt to fast changes in the market environment.

Iwata's concern was that their handheld and home consoles were separated in terms of ability to connect to the customer. With any new console update, no difference handheld or home, Nintendo encouraged people to upgrade and buy new revisions by providing software backward compatibility. But these relationships were only holding on devices, there were no other connections between Nintendo and the customer.

The company wanted to improve it, and enhance its bonds with the customer by creating online service Nintendo ID. All gamers would be connected with each other and with Nintendo, which allowed to shift relationship focus from device-based to account-based. It would allow Nintendo to get a constant customer base instead of rebuilding it each time with the new console release.

Taking advantage of smart devices.

Iwata recognized the popularity of smart devices like smartphones and tablets, and since the competition for consumers time and attention has become fierce, Nintendo had to take advantage in the field. Instead of just porting Nintendo games without any changes, Iwata decided to create small development team that will focus on creating games for smartphones with Nintendo's IP characters therefore introducing new potential customers with the world of Nintendo. By that Nintendo will enlarge the customer base, because people who do not even own a Nintendo console, will have Nintendo ID.

Changing the way of selling hardware and software.

During the existence of video game platforms, the business model was always the same - consoles are sold at the price of $250-$300, and games are sold at the price $30-$50. That is how market operates today. Since Iwata wanted to redefine video game consoles, this business model had to be revised too. Iwata suggested to implement a flexible system that accounts how many titles one buys, and on the basis of that, reduce prices on the games. This system allows to create a situation when customers can enjoy cheaper prices and buy more.

Active utilization of Intellectual Property.

The abundant number of Nintendo's worldwide characters are not as used as they should be. Nintendo almost never licensed their characters because of the possible damage to the value and reputation of the character. But Iwata decided to change it and expand IP licensing. Finding suitable partners, who would be gentle with the Nintendo characters, will increase exposure and recognition.

Expanding into new business areas.

This part of the presentation Iwata highlighted and made an emphasis on it. He wanted to redefine the entertainment as a whole, he wanted it to be not just something that will comfort people, but something that will improve people's quality of life. He talked about long-term plans, the one that has to be achieved in 10 years.

Iwata mentioned that mostly when entertainment wants to improve quality of life it focuses on the learning and changing lifestyles. But Nintendo wanted to bring health on the top. For that they had to create a blue ocean again. The whole new platform had to be created with software that could engage people and integrate the experience in every moment of their lives.

3. Results and applicability

3.1 Research findings

The master thesis observed the competitive strategies used by Nintendo and its competitors in the video game console industry and described the factors from Japan and the USA that shaped the choice of the strategy.

Nintendo was pushed to pursue hybrid of cost leadership and differentiation strategies by that creating new values and finding the Blue Ocean. Nintendo has to be dynamic in order to stay in the Blue Ocean and not to allow turning it into the red one. It has already happened with Nintendo once, when Microsoft and Sony destroyed Nintendo's Blue Ocean by presenting their own motion controls, which was one of the factors why Nintendo Wii U was such a failure. In 2017 Nintendo created much more solid Blue Ocean, not just by developing unique controllers, but by developing unique console. Three years have passed since the release of Nintendo Switch, and neither Sony nor Microsoft are not going on entering this Blue Ocean, in the end of 2020 both corporations will release new generations of PlayStation and Xbox, which will bring nothing more but advanced hardware for faster processing capabilities.

External factors.

Political. During all the clashes around the violence in the video games Nintendo was the only company that decided to play on that and distance its platform and games from the violent activities. Both Microsoft and Sony were and still are focusing on the adrenaline-fueled games where central activity is violence.

Economical. Sony and Microsoft paid less attention than Nintendo to the economic situation in both markets trying to make their consoles as powerful as possible, which led Sony to introduction of its most expensive console in 2006.

Social. In both cases Nintendo reacted to the trends in society, whether it is trying to win customers who have negative perception of a typical player and change their opinion or winning new major group of female players with portable device in different colors.

Technological. Nintendo recognized the fact that the race for constant hardware improvements will limit industry's audience and decided to advance not in terms of computing power, but in terms of bringing new experience and value.

Internal Factors.

Resources. Since Nintendo was in position of the main innovator of the industry, it had to keep robust cash reserves to take new risks and cover unforeseen expenditures and debts in case of failure. Nintendo is not the only company with valuable brands and characters in its portfolio, both Microsoft and Sony developed recognizable characters and brands, but the main difference is that Nintendo was careful with its intellectual property and did not waste it to other platforms like Sony and Microsoft did.

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