Nintendo is anticipating pre-empting some of the PSP attack, by introducing the console at just 99.99 pounds earlier than Sony. According to Wakabayashi (2012), Nintendo sold more than half a million DS units during the first week of its introduction in the United States last November. The DS that features wireless email and touch screen also seems to be an attempt to reach the older consumer than GameBoy-branded consoles of Nintendo. By the end of March, after the launch in continental Europe and UK, Nintendo aims at selling five million units. The video game industry comprises of about 35 billion dollars international market. Many factors are involved when it comes to the growth of video game industry. Some notable factors include the variety of video games, graphics, and movies among others. In this regard, this paper outlines and justifies the various events that lie ahead of gaming console industry. It also identifies the significant strategic uncertainties associated with the external environment that Nintendo might experience. The paper will achieve the above objective by applying Porter’s five competitive forces.
With the application Porter's Five Competitive Forces:
Outline and Justify What You Think Lies Ahead Within the Gaming or Console Industry
According to Kalafaties, Tsogas, & Blankson (2000), Porter’s five forces analysis refers to an approach for business strategy and industry analysis development. Three of these forces refer to competition and, are therefore, from external sources. The remaining two are internal threats. The three forces associated to competition include the threat of substitute products or services, the threat of established rivals, and the threat of new entrants. The other two forces include bargaining power of customers, and bargaining power of suppliers. The diagram below shows the five forces of competition of Porter.
Competitive Rivalry within the Gaming and Console Industry
Nintendo competes directly with various competitors such as console manufacturers, independent game developers and Real Networks. The various console manufacturers competing with Nintendo include Microsoft and Sony. The various independent developers include Sega, Activision, Atari, Square Enix, THQ, Take Two Interactive and media giants like Viacom, Fox, and Disney. Other unclassified competitors include Massively Multiplayer Online Games producers like Blizzard Entertainment, NCsoft, Gameloft, Mforma, Infospace, Verisign and Sorrent. Internal rivalry within the game and console industry seems to intensify because these companies utilize new ideas in order to be appealing to various market segments, and improve market position in these areas. Another reason for the intensified competition is that there is zero to low costs of switching. According to Porter (2008), the high competition is stipulated by the diversity of competitors worldwide, which drives creativity in gaming technology. Nintendo will continue experiencing intensified internal competition because of the increased number of competitors that are equal to it in terms of capability and size.
According to market analysts, Nintendo might experience weakened internal rivalry due to the fast-growing nature of industry, the great number of companies that reduce strong effect of competitive strategies, and highly differentiated and appealing product-lines to various market segments. Having in mind that many smaller gaming companies have began exiting the industry, whereas many of the established companies continue making significant profits in highly differentiated market niches, the internal rivalry remains normal to moderate. It is explained by manoeuvring among the industry firms which still enables many companies to earn satisfactory profits.
Threat of New Entrants
Despite the existence of many opportunities for rapid growth of the industry and profits, the threat of new entrants into the video game software market is slightly limited due the considerable barriers to learning or experience. Nevertheless, the profits will continue drawing new entrants to the industry. The problem is that the newly attracted firms into the firm will discover that they do not have enough resources and expertise to become successful. This has been exemplified by the small game developers that are struggling to absorb the increasing costs of developing games in preparation for the worldwide market adoption of new console generation. New entrants into the gaming and console industry are most likely to be constrained in terms of capital, have less predictable cash flow and revenues, might lack product diversity, and are compelled to spread their fixed costs over a smaller revenue base.
The conspicuous barriers to enter this industry include considerable economies of scale in operations and production, strong brand loyalty to established game developers, learning curves, problems related to establishing distribution networks and retailers, and extremely high capital requirements. Despite profit incentives continuing to attract new entrants into the industry, these very fearsome barriers concurrently hinder and prevent new firms from wielding strong competitive force. This implies that Nintendo should expect fewer firms to join the gaming and console industry in the future. Consequently, the level of competition might remain at the same scale for quite some time.
Threat of Substitutes
According to Porter (2008), three major factors influence the level of competitive force exerted by sellers of substitute products. The first factor is the availability and price of the substitute product. The second factor is related to the comparability of the substitute product in terms of performance, quality and other relevant features. The third factor is related to the costs incurred by buyers in switching to the substitute product. According to Alessandri & Alessandri (2004), the video game industry is part of the broad entertainment industry, which competes with discretionary spending and leisure time of consumers against other entertainment forms like television, music, and motion pictures.
Despite movies, music and television being viewed to exert a strong competitive force since they are attractively priced and readily available and have low costs of switching, many consumers do not link these media to the same type of performance and interactivity offered by Nintendo games (Wesley & Barczak 2010). This implies that Nintendo games serve completely different entertainment purposes. As such, it is more rational to perceive the substitute products as wielding extremely low competitive force on the gaming and console industry. This, in its turn, implies that Nintendo and Sony should expect relatively low levels of threats from other substitute products in the entertainment industry.
Power of Suppliers
Suppliers can also wield a significant bargaining power under various conditions. Nintendo and Sony incur high costs due to the actions of their suppliers in the industry (Wakabayashi 2012). For instance, supplier actions might cause an increase the costs related to switching purchases. Shortage of supplies also increases the costs related to acquiring them. (Wesley & Barczak 2010).
Bargaining Power of Buyers
According to Alessandri & Alessandri (2004), buyers have moderate power of bargaining as they often can switch from one brand to another without experiencing huge switching costs related to the title and genre of the game. Buyers are able to receive necessary information from game reviews on the prices, products and costs. They make the decision of whether and when to buy games. An example of moderate bargaining power of buyers includes the ability of buyers to use and rent copies of games. Nevertheless, on a relatively small scale, if a buyer wants a certain genre and tile of a game, the bargaining power will be reduced.
In general, it is apparent that the video and game industry is very profitable, provided Nintendo gains the necessary learning and experiences curves (Wakabayashi 2012). Despite the presence of limitations related to dealing with suppliers, which demand payment of royalties, should Nintendo gain enough experience, it will continue enjoying high profitability levels due to competitive forces that prevent new firms from entering the industry, rapid industry growth and weaker forces from buyers and substitute products.
Identify and Discuss the Implications of the Most Important Force that May Influence Upon the Selected Company
The most important force is the bargaining power of suppliers (Kalafaties, Tsogas & Blankson 2000). The two suppliers grant the technology and license from their platforms to the independent software publishers. Software publishers frequently find differentiated inputs, which can make games perform in different ways. For instance, Nintendo might develop a game for Microsoft. From this perspective, the technology and license that Microsoft grants the publisher will create a completely different technology than say the same title for EA Games.
Implications of Higher bargaining power of Suppliers
The availability of fewer suppliers of a given input also causes the supplier to increase the cost of purchasing. Some suppliers have also been seen to threaten integrating forward into the business of industry members. In the gaming and console industry, the two major suppliers that include Sony, and Microsoft, wield one of the robust forces of competition. These companies maintain their due to a significant level of bargaining power of independent publishers. In addition, with the two highly differentiated consoles, Nintendo experiences extremely high costs of switching between one platform and another.
Identify and assess potential strategies to lessen such impact
For this reason, Nintendo must now choose strategically which supplier will grant the inputs giving a title the desired results. In addition, this differentiation implies that suppliers in the gaming and console industry should now maintain limited licenses for different and unique technology (Wakabayashi 2012). For a significant amount of time, the suppliers have been deploying forward vertical integration market and developing games for their individual platforms.
Develop Different Scenarios for the Each Strategic Uncertainty
According to Porter (2008), ambiguity and uncertainty are the major challenges for businesses today. Companies, including Nintendo and Sony, are finding that they need to increasingly plan for unforeseen events in the future rather than focusing on short-term goals. In the few recent years, many companies in the video and gaming industry have believed that long-term goals could wait until they have dealt with the present crisis. However, in the present business environment, this seems irrelevant. The rate of change in the business environment has significantly elevated showing that business must learn how to strike the balance between predicting uncertain issues of future and managing sophisticated issues of today. According to Wesley & Barczak (2010), the rate at which the external environment changes defines the environmental uncertainties. This implies that uncertainty is the measure of the factors that change during the period of planning. Not every factor affects the daily operations, and therefore, needs to be weighed in a different way. Higher uncertainty levels imply that the company has a complex external environment to deal with. In this regard, this section discusses the two uncertainties experienced by Nintendo (Wakabayashi 2012).
Identify the strategic implications of each of your proposed scenarios
The first uncertainty is the emerging new Internet capabilities and applications (Wakabayashi 2012). New internet capabilities and applications is one of the most significant influential forces in a highly technological video gaming industry. The emerging new internet capabilities and capabilities are utterly transforming the video gaming industry. For instance, plain graphics were acceptable during the onset of video game. Presently, video games are expected to have high definition graphics, multiplayer online gaming and intuitive functionality. Despite the consoles of the previous generations not focusing heavily on the use of internet, the new internet abilities and applications, as an influential force, will continue shaping the industry and forcing firms to learn the new trends. Failure to adapt to these trends might bring to an end the existence of Nintendo (Wesley & Barczak 2010). It is apparent that Nintendo does not know what the internet capabilities and applications will cause next to the already dynamic industry. The new emerging Internet capabilities and application have brought new online entities such as Yahoo, MSN and Popcap among others. Because Nintendo does not know the future of Internet capabilities and applications, it might experience the inflow of new online entrants.
The second uncertainty concerns product innovation in the video gaming industry. Like emerging internet capabilities, product innovation is a fixed driving force in a highly dynamic industry (Wesley & Barczak 2010). Whereas the consoles of last generation majorly competed on internet capabilities and graphics, consoles like Nintendo Wii have proved that the new dynamics in the gaming industry can expand the potential target markets. However, Nintendo or Sony does not know what lies ahead in terms of product innovation. Companies like Microsoft and NCsoft might come up with another product that might shape the industry in another direction.
Relate your proposed scenario to existing strategies with the purpose of assessing the suitability of the latter
The present strategy of Nintendo focuses on developing games and consoles geared toward families and non-gamers. The most important resource of the company includes the research and development team, manufacturing processes, the marketing and management teams. According to Wesley & Barczak (2010), these resources create valuable abilities. For example, Nintendo’s management ability enabled it to foretell the future of gaming. Research and Development activities of Nintendo provide it with an upper hand in the innovative technology and game concepts. The efficient manufacturing processes enable the company to reach economies of scale and produce Nintendo at a cost that is lower than the developing a competitor game system. The company’s primary competencies lie among these abilities.
The company’s strategy considers expanding its business to reach the mobile devices and social networks as a way of capitalizing on the emerging internet capabilities and applications. Kalafaties, Tsogas, & Blankson (2000), recently cited the popularity of some Nintendo games for Smartphones and Facebook. This seems to be aligning the company’s present focus on the simple games for non-gamers and might open the brand to a new market niche.
Suggest and justify changes to strategy where necessary
One recommendation is that Nintendo should develop certain abilities to enable users to play social networking games on the Nintendo Wii console. Nintendo should continue pressing ahead for game concepts and innovative technology (Alessandri & Alessandri 2004). Nintendo experiences a significant level of competition, though it has many alternatives to assist in maintaining its present competitive advantage. A cautious consideration of Nintendo’s present strategy and the environment in which it operates, will direct the company to an efficient strategy that will maintain a competitive advantage and guaranteed success (Alessandri & Alessandri 2004).
Porter’s five forces analysis refers to an approach for business strategy and industry analysis development. Three of these forces refer to competition and, are therefore, from external sources. Nintendo competes directly with various competitors such as console manufacturers, independent game developers and Real Networks. The various console manufacturers competing with Nintendo include Microsoft and Sony. Despite the existence of many opportunities for rapid growth of the industry and profits, the threat of new entrants into the video game software market is slightly limited. Suppliers can also wield a significant bargaining power under various conditions. Nintendo and Sony incur nigh costs due to the actions of their suppliers in the industry. Companies, including Nintendo and Sony, are finding that they need to increasingly plan for unforeseen events in the future rather than focusing on short-term goals. The first uncertainty is the emerging new Internet capabilities and applications.