Report on

Executive Summary

This report has presented the analysis on Japanese based organization Nintendo. Macro-
environmental analysis has been done by applying PEST, industry analysis has been done by
Porter’s five forces model, company analysis has been done by applying VRIO framework.
Further, competitors’ analysis in context of their markets and strategic moves are discussed in
which Nintendo is recommended to take strategic action for dealing with moves of competitors.
Contents
Introduction.................................................................................................................................................4
Macro environmental analysis.....................................................................................................................4
PEST analysis..........................................................................................................................................4
Political factors....................................................................................................................................4
Economic factors.................................................................................................................................4
Social factors.......................................................................................................................................5
Technological factors..........................................................................................................................5
Industry analysis..........................................................................................................................................5
Life cycle stage of the industry:...............................................................................................................5
Porter’s five forces model........................................................................................................................5
Power of suppliers...............................................................................................................................5
Power of buyers...................................................................................................................................6
Threat of substitutes.............................................................................................................................6
Rivalry.................................................................................................................................................6
Threat of new entrants.........................................................................................................................6
Company analysis........................................................................................................................................6
VRIO Framework....................................................................................................................................6
Are resources VALUABLE?...............................................................................................................6
Are resources RARE?..........................................................................................................................6
Are resources IMITABLE?.................................................................................................................7
Is firm ORGANIZED?........................................................................................................................7
Competitors analysis...................................................................................................................................7
Market commonality and resource similarity..........................................................................................7
Competitors future plans.........................................................................................................................7
Strategy analysis..........................................................................................................................................7
Conclusion and Recommendation...............................................................................................................8
References...................................................................................................................................................8
Introduction
Nintendo Co ltd is a multinational organization situated at Kyoto, Japan and deals in consumer
electronics and development of software. In the 1970s, the focus of the Nintendo was shifted
from toys and cards manufacturing towards video games and sales of the hardware and software
were in millions. This organization has generated the most iconic franchises of the video games
such as Mario, Pokemon etc and has entered into the ninth generation of the video game
consoles. In the home entertainment industry, Nintendo has composed unique hardware and
software as single entertainment unit. Now, this organization has entered into the global gaming
and targeting international audience (Nintendo, 2019). Video gaming industry is one of the
significant industries in Japan. For enjoying video game at home, many corporations are working
in this industry. The purpose of this report is to analyze the Nintendo along with its competitors
such as Sony and Microsoft etc. Analytical tools such as PEST analysis, Porters 5 forces model
and VRIO analysis have been done for Nintendo.

Macro environmental analysis

Analysis of macro environment is composed of those factors due to which certain significant
changes occur in an environment and these factors also influence an organization. PEST analysis
is a tool for analyzing the macro environment and how Nintendo is being influenced by these
factors.
PEST analysis
PEST is the abbreviation for political, economic, social and technological environment
respectively and is a tool for environmental analysis (LEYVA et al., 2018). PEST analysis in
context of video game industry is illustrated below.
Political factors
Political environment is comprised of government agencies and pressure groups that has strong
influence on organizational matters and workings (Kotter, 2003). These factors also impact
individuals along with organization. Gaming industry is influenced by certain factors including
policies of taxation, foreign trade policies and policies regarding social welfare. Video games has
strong association with people emotions so there are chances that people can be involved in some
kind of threat and impair piece, so government closely monitors these matters as well. Copywrite
is also another area of concern. Nintendo need to see this issue because violation of copywrite
has serious implications. In any political environment, government policies intervene in
organizational matters due to which organizations need to strategize accordingly.
Economic factors
Despite the current economic conditions, this video game industry is expanding. The sales of
software along with console hardware is increasing a lot. Apart from it, video games
consumption is much dependent on disposable income of the consumers therefore Nintendo
needs to analyze its costing structures in order to provide product at low cost. Nintendo is
operating at global level so most of sales are comprised of global sales (more than 70% of sales
are global). Exchange rate fluctuations also have influenced on Nintendo due to which they have
purchased US dollars for minimizing exchange rate effect. Apart from it, Nintendo has large
amount of assets in foreign currencies (Nintendo.co.jp. 2019). Thus economic factors have
strong impact on Nintendo.
Social factors
Social factors are considered important in context of video games industry. Population
demographics, lifestyle, social mobility, consumers’ behavior etc. are the driving social factors
which induce video gaming industry in social context. In Japan, population aging between 12
and 29 years play video games for more than 6 hours (Japantimes, 2019). Due to this, people are
suffered from high addiction and video game industry analyze the trends in consumer
behaviorism.
Technological factors
In video game industry, product lifecycle is considered very short due to rapid change in
technological environment. In terms of technological environment, Nintendo has created
hardware and software with latest technology and IT infrastructure keeping in view the change in
technology and even customer’s preferences. Nintendo operates not only in Japan but in USA,
Australia, European and Asian countries as well so technological shift create massive pressure
for the company to respond to technological changings.

Industry analysis
Life cycle stage of the industry:
The video game industry has undergone massive transformations in recent years and is growing
at a fast pace. PlayStation by Sony, Nintendo’s Wii and Microsoft’s Xbox 360 are considered the
market leaders. But this industry has undergone difference lifecycle phases. Initially, evolution
of this industry has enabled to utilize ever changing technology technological developments.
Traditionally, mobile phones, MP3 players were the choices of people in earlier period. Now
latest video games have transformed our entertaining lifestyle to a great extent. Lifecycle of
video games industry is composed of 4 phases. At the startup stage, consumer demand was
limited and even technology was not much advanced. At the growth stage of the gaming
industry, improvements were started in the video games make by companies such as Sony,
Nintendo etc. profitability started escalated. In maturity stage, companies are involved in
developing more advanced games according technological shift. Currently, this industry in is
mature form but at the same time new growing avenues are opening. Nintendo involvement in
making new video games by amalgamating latest software and hardware, Sony inclination
towards making PlayStation more engaged for consumers and many other giants are taking this
industry to the next level.
Porter’s five forces model
Micheal Porter has established five forces model in order to analyze the long term attractiveness
for earning profitability (Hbs.edu, 2019). and is a tool of strategic management (Meyer and
Cohen, 2018)
Power of suppliers
There is handful amount of organizations that are involved in video gaming business. These
business have dependency on outside suppliers. And every supplier in this business wants to
provide products and services to the big three organizations such as Nintendo, PlayStation,
Microsoft. Game designers have the focus on high quality software and hardware combination.
Hardware providers don’t give much differentiated products due to which supplier’s power is
medium in gaming industry.
Power of buyers
Video games and consoles have short life cycles and is influenced by preferences of the
customers. Now there are options for online games which consumers can play at their own place
and console manufacturers provide virtual world platforms for playing games. Buyers’ have so
many options according to their preferences so their power is not much high in gaming industry.
Threat of substitutes
There are many forms of entertainment that are available for consumers. Direct substitutes are
available for consoles such as smartphones and computer systems where consumers can pass
their leisure time. There are many games that are downloadable on computers and even on
android and consumers can enjoy a lot.
Rivalry
Main competitors in this industry are almost similar in size. Sony, Nintendo and Microsoft are
the three major players in the industry. All these big giants have captured the substantial market
share of the video gaming industry. This industry is mature due to strong leadership and have
small growth. From all major rivals, launching of new video games, consoles etc. are in
consistent growth therefore rivalry is much high in this industry. Console producers also offer
online movies to see, create libraries as well for consumers. Therefore, substitute threat seems
not much high in this case.
Threat of new entrants
Current players in this industry are very giant and they have developed strong brands and novel
products for consumers. These organizations are in high rivalry so they can react aggressively in
case of new entrants in the industry. Console manufacturing require high investment and new
entrants would think multiple times before entering into this industry. So this threat is low for
gaming industry.

Company analysis
VRIO Framework
VRIO framework is a tool for analyzing organizational internal resources and capabilities for
achieving organizational goals and sustainable competitive advantage (Jugdev, 2005). VRIO
analysis asks four questions regarding resources or capabilities. There are discussed below for
Nintendo.
Are resources VALUABLE?
Nintendo reputation as console manufacturer is very high and it has a strong brand name with
high culture of excellence. This organization continuous to attain intellectual property for
manufacturing different consoles but owing to small life cycles, hardware IP has quick
amortization. So Nintendo resources add value to customers and these valuable resources are
significant in achieving goals of the organizations.
Are resources RARE?
Nintendo has unique wireless and motion technology as compared to its competitors. Recent
development of the hybrid hardware of the Nintendo appears to be very unique. Further,
characters are very different such as Mario etc. so all these resources and capabilities are
considered significant which make them innovative for achieving competitive edge.
Are resources IMITABLE?
It is very hard to imitate Nintendo style and reputation because of its strong brand name.
Nintendo has invested huge amount in research and development, it hardware cannot be easily
copied by competitors. On the other side, customers are inclined towards praising software more
than hardware.
Is firm ORGANIZED?
Nintendo is a Japanese organization and is involved in making hardware whereas it is now
combining hardware with games so that it continues to emphasize its vision as a high quality and
safety provider in form of its products. It has a strong management system which is a base for
capitalizing all resources.

Competitors analysis
Market commonality and resource similarity
Over the past few decades, video gaming industry has witnessed drastic changings. Nintendo
was the oldest organization that deals in video gaming. Two major competitors including Sony
and Microsoft. Like Nintendo, Sony has own console system, “PlayStation” (Dillon, 2011). Sony
has the target audience of gamers having age from 14 to 30 (Brightman, 2012). Nintendo has a
long history as a strength and Sony strength lies in taking strategic decision. In the same way,
Microsoft, although it’s a young company as compared to Nintendo and Sony, the release of the
Xbox has also target the young generation. But the major market of the Microsoft is US where
Xbox users are in large numbers. All these three successful companies have strategic resources
alike.
Competitors future plans
Sony and Microsoft are considered to be two major competitors of Nintendo. Sony offer wide
range of video games in which gamers have the option to select game genres. An amazing thing
which is happened recently that Sony and Microsoft have involved in to surprise partnership for
development of future cloud solutions. These cloud solutions are for gaming and content
steaming. Even both these organizations have been involved in battle with each other and with
Nintendo as well. This kind of partnership has shocked users of Xbox and PlayStation (Warren,
2019). Therefor Nintendo may be affected with strategic ally of these competitors.

Strategy analysis
At the corporate level, Nintendo is following the innovation strategy that has a crucial role in
maintaining its competitive advantage. In its innovation strategy, it is following innovative
business model which differentiates it from competitors. Nintendo tries to understand the
behavior of customers regarding playing games (Pontiskoski and Asakawa, 2009). Furthermore,
Nintendo has the strategy for technological push to untapped gaming markets. Technological
push helps Nintendo to tap non-gamer adults in order to persuade his or her game playing
behavior. Further at corporate level, product innovation is the strategy in which Nintendo offer
Wii-mote and infrared pointer which are its innovative product design. Business level strategy is
explained as how to get competitive advantage over competitors. Nintendo follows blue ocean
strategy in which it avoids the business competition of the industry and tap the non-gamer
segment.
Apart from this Nintendo has many options for the future. Nintendo can utilize its expertise into
retailer channels where it can approach those who can’t find at some general retailer. It can
arrange session for consumers where product demonstration can pursue to purchase Nintendo
products. As a technology expert, Nintendo can become the champion in the industry by
providing high resolution graphics. Further, as a toy provider, it can be the preferred toy all time
by giving virtual realities in smartphones and consoles. It can also create a theme part like
Disney where consumers can take ride and enhance their experience of entertainment. This
strategy analysis will pave the way to shape future of Nintendo.

Conclusion and Recommendation

In conclusion, Nintendo is one of the large corporations in the history of video games and
consoles. It has unique value proposition which attracts consumers a lot. It is giant corporation so
it has complex business units. After analysis, an important insight is that its competitors are now
joining hand such as strategic alliance of Sony and Microsoft. It may not be a good sign for
Nintendo, therefore it needs to be alert and have the through understanding of strategic moves of
its competitors. Nintendo needs to create a vertical integration and focus on value analysis.
Along with focus, it needs to make its value chain complex so that no one is able to imitate it and
it can respond effectively to strategic moves of competitors.
References

LEYVA, M., HECHAVARRIA, J., BATISTA, N., ALARCON, J.A. and GOMEZ, O., 2018. A
framework for PEST analysis based on fuzzy decision maps. Revista ESPACIOS, 39(16).
Jugdev, K., 2005. The VRIO Framework of Competitive Advantage: Preliminary research
implications for innovation management.
Meyer, C. and Cohen, D.G., 2018, July. Porter’s Five Forces in the Post-industrial Age.
In Academy of Management Proceedings (Vol. 2018, No. 1, p. 16589). Briarcliff Manor, NY
10510: Academy of Management.
Nintendo.co.jp. (2019). [online] Available at:
https://www.nintendo.co.jp/ir/pdf/2019/annual1903e.pdf [Accessed 15 Dec. 2019].
Nintendo.com. (2019). | Nintendo - Corporate Information - Home Page. [online] Available at:
https://www.nintendo.com/corp/index.jsp [Accessed 15 Dec. 2019].
Hbs.edu. (2019). The Five Competitive Forces That Shape Strategy. [online] Available at:
https://www.hbs.edu/faculty/Pages/item.aspx?num=34522 [Accessed 15 Dec. 2019].
Pontiskoski, E. and Asakawa, K., 2009. Overcoming barriers to open innovation at Apple,
Nintendo and Nokia. World Academy of Science, Engineering and Technology, 53, pp.372-377.
Warren, T. (2019). Microsoft and Sony are teaming up for the future of gaming. [online] The
Verge. Available at: https://www.theverge.com/2019/5/20/18632374/microsoft-sony-cloud-
gaming-partnership-amazon-google [Accessed 15 Dec. 2019].