The purpose of this article is to analyze the business development and entrepreuriship of Japanese computer game companies such as SEGA, Namco, and Nintendo.
Until the 1970's, these firms were all once small manufactures of amusement machines or toys. How did such relatively small firms in the urban area grow up to be the profitable corporations we see today?
The first step is to analyze how they have been as the leading companies in the fragmented computer game market which has been characterized by frequent changes with increasing speed since the formative years of the industry. Nintendo, the first mover, created its business system based on the strategy of outsourcing in software production and quasi-integration of distributors as “Shoshinkai”. SEGA and Namco tried to attack Nintendo's system using the strategy of building internal software development capabilities, which generated software production organizations which are, in using Michael Cusumano's terminology, 'software factories'.
The second step is to analyze the mechanism of the 'software factory' as in the case study of 'AM 2 ken' (the 2nd R & D division of arcade machines) of SEGA. Its origin is intrafirm venture business in the crisis era of the arcade game market in 1985. AM 2 ken has been developing and driving SEGA's innovation since then. Its software production is done by small cross functional teams, and its advantage is based on the communication 'on the shop floor', where old business resources and new technologies are combined. It enabled gestalt change from 'waterfall' model to 'revise' model in grasping the process flow of software production.
The study shows that small manufacturers in the urban area pzoneeringly introduced basic hardware technology from US in 70's and created the new market by developing and concentrating on the innovation of software and contents. In this way, relatively small firms could grow by bypassing the demerit of economy of scale. Here is the logic of 'small is storong'.
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