Economic Analysis of Nintendo

Nintendo is a company which manufactures video games and gaming consoles and it is not new company as, it have been one of the oldest in the stock market. This company actually produces different devices of technology that upgrade the new videogames that had launched in the world, the name of Nintendo is very famous and became the most dominant in the in the games industry. And eventually most people universally known NES from many years and must have seen its success and also its debts from many years, which any company faces both of them. It was the leading game worldwide who dominated the market in video games for many years till their critical step they took in the year 1993, taking over SNES which is also known as Nintendo Entertainment System. Nintendo sold about 565 million of hard ware units and 3.4 billion software units and currently it is one of the best companies in the game’s history.

(Techshout 2011)

Nintendo Company Limited is one of the oldest and also one of the best games of all times which is originally from Japan, Kyoto. The name Nintendo was given by a Japanese name called ‘HanaFuda’ which was launched in the year 1889 as a playing card. These cards were 52-deck playing card these were mostly made for exports but were later sold in Japan for the increasing population. However, later it grew and become one of the largest business producers in video games, selling games like The Legend of Zelda, Donkey Kong, Pokémon and Super Mario Brothers. Even after so much completion if you ask any game producer company like Sony, Microsoft, and many more, where did they get the idea or the start I’m sure they will tell you only one name Nintendo, the meaning of Nintendo in English means the thing we can do the best and rest leave it to God. Nintendo WII and Sony play station and also Microsoft Xbox went high in the stock market in the year of 2011where youngsters around had it. These games have a lot of tools like listening to music and using internet and in that way they could download movies and play video games online.

(Kotaku 2009)

The first video game launched by Nintendo was the Nintendo ES, which was grey color box which had only ‘x’ and ‘o’ to play with, followed by many games like Nintendo super As, 64 Nintendo, Nintendo, Nintendo Revolution which was launched in late 2006. Hence, later famous games which had a good name and a great sales turnover for Nintendo which made their profit increase and produce more products, then the game boy launched in the market and after seeing such a big success it launched the advance version of its which was later called Gameboy advance, and then Nintendo DS.

Nintendo noticed a great fall in its sales between Nintendo 64 and Nintendo, because of the great game launched by Sony, called the Sony PlayStation and people would buy Sony play station than Nintendo 64 and Nintendo. The Sony PlayStation 2 and also Microsoft which launched into the market its Product called Xbox, had some features of the other games but in an advanced level. Having some debts thing didn’t affect Nintendo much because they knew that they will come back into the market with games that are more powerful than their last ones and in that case it would have the demand of the market by their side, with advance advanced gaming system, like now we can see in this graph that as it went by it keeps on increasing by million units.

(Gizmodo 2006)

2. Trends analysis

2.1 Past of Nintendo

The Game cube was unveiled on August 24th 2000 but customers were only allowed to buy it during the launch in November 18th 2001. During the launch of the GameCube, it was recorded as the fastest selling home video games console. Within North America over 500,000 systems were sold which was double than Microsoft’s Xbox and was 25% faster than the launch of the PS2. Nintendo had made about a $100 million on GameCube’s and merchandise that was related and with the release of the Harry Potter and the sorcerer’s Stone earned them a gross of $93.5 million. (Cubicle2001). Even thou the Game Cube had done really well in its launch; it did have an outstanding performance well over the years after of its life hood the market share were majorly occupied by the Sony PlayStation2 and then Microsoft Xbox, leaving the Nintendo GameCube last. The game developing companies that produced games for each console have shown the destitution of their products to each console. This is a combination of EA, Avtivision, UBISOFT, THQ, and Midway. These were companies that produced games. (the guardian 2012)

You can see that the Sony PlayStation had an upper hand when it came to talks about market shares but over the quarters there have been substantial drops of sales. Not only just for Sony but also in Microsoft and Nintendo, yet still Nintendo being the worst out of them all. Even thou it was shown to be the greatest ever gaming consoles to be sold over there year leaving PS2 and Xbox to eat its dirt.

3. Economic Analysis

3.1 Production Possibility Frontier

As Nintendo manufactures many gaming devices and consoles they always kept the primary objective as one. In 2009 when the new Nintendo DS was launched it made a great profit for Nintendo company and after one year when they fully launched Nintendo Wii which was a blast for the competition which made a profit of millions was in their choice that which one to manufacture more either the Nintendo DS or Nintendo Wii. And in the below given diagram u can see how do they do this.

As in the diagram above you can see that the console Wii is manufactured in maximum rate of 2000 per month and if they manufacture 2250 Nintendo ds devices than they will make more Wiis and if they reduce the output for Wii than the output for Nintendo ds Wii increase.

3.2 supply and demand

Demand for Nintendo device in the market and competition stands higher than Xbox and ps3 because Nintendo operates portable devices and consoles which other companies have not done yet. And Nintendo Wii was the first game in which you can actually react outside the screen and your own prototype will do the same movies in the screen. In Nintendo Wii you can have games that can provide you home fitness such as yoga, cardio exercises and such games which really help your movements to get refreshed and make you stay in fitness. After Nintendo Wii was launched Xbox bought up their Kinect through which you can do the similar things as Nintendo Wii but with better graphics and improved technology than Nintendo Wii.

Quantity Demanded

In the diagram above you can see the demand for the Nintendo Wii and as you can see the demand for the console is high and people are ready to buy it in an affordable price and if there is a decrease in price of Wii than the demand for it will increase automatically.

Nintendo has their supply all over the world and it makes great amount of profit from all the places where it supplies its devices and consoles. If Nintendo would increase the value of their products, people would not wish to buy their products anymore so they should supply in a particular limit in the monthly basis and in that case they should keep lower prices from which they can take their profit out and a price which would be reasonable for the people to buy.

In the diagram above as you have seen that Nintendo supplies at the price of P1 and they supple Q1 amount of goods so if Nintendo starts to transport more goods than they will have to increase the price together as well because of the other cost of exporting the goods.

3.3 Opportunity Cost

In 2007 Nintendo DS was one of the best portable device and 170,000 devices were sold in Australia and if in one country Nintendo DS was sold in thousands of quantity then how much would they would have sold in the rest of the part of the world. When Nintendo Wii was launched it was a big challenge for the other gaming competitors because it was a total different technology and which made sales huge amount of sales around the world and at that time Nintendo DS was not that competitive so Nintendo lowered down the sales of Nintendo DS and the plan they had was to keep Wii in the market and stop Nintendo DS and after a while bring up Nintendo DS up with a better technology so as they planned they have now launched their latest Nintendo 3DS which is a convenient device and in which the games are all in 3D and without using 3D glasses people will be able to play in 3D just believing in their eyes.

3.4 Economies of scale

As Nintendo has a very good reputation in the market and they hold a very good position in the market and people are willing to buy their products more so if Nintendo increases the quantity of supplying more goods and specializing on more technology which is going to happen if they get more capital into the business and invest them to get more machinery for more output and making sure of using them properly because it will be of no use if they get a new machine and they don’t use it. More supply and decreasing the prices will result into economies of scale.

3.5 Pricing

When a product is manufactured the cost of making that product is the original price of the product and the value added on it is the profit and the original value is used to manufacture same product again and the profit left after it is either distributed or invested into the business for more production.

3.6 Law of diminishing Returns

Nintendo is a multinational company and it operates in more than one country so it is a huge company and they loads of sales and profit earnings they must have many employees labors. Having many labors a firm and giving them the same task is not that good because there will be some of them who will try to escape from work and be dependent on others which is not there and they will not be affected by anything because they will be paid in the end of the month. It is always better to have limited amount of labors and giving every different labor an altered task. Removing the lazy workers and having the good ones is always a better option and which will also save cost and that amount can be used in many other things such as getting more raw materials, giving more security services to the workers who work, savings for the working workers and in the end of the month giving them bonuses and etc.

3.7 Production cost and nature of competition for Nintendo:

Nintendo is a Japanese company that specializes in video game consoles. The product line includes Game Boy line, Color TV Game, NES (Nintendo Entertainment System), SNES, Virtual Boy, Nintendo 64, Nintendo Game-Cube, Game-boy Advance, Nintendo DS, Wii, Nintendo 3DS, and various video games that are sold world-wide.

Nintendo: Production Cost

Nintendo is clearly the leading video game selling console for the current generation. It manages to sell more than the leading rivals combined on a regular basis and now there are suggestions that indicate Nintendo might be prepared to reduce prices in order to make its devices even more attractive.

Analysts have said that costs associated with manufacturing Nintendo devices have fallen quite clearly since the initial introduction into the market. In fact, the various components and the process itself has been discovered to be 45% cheaper. As a result, the gaming device will get a price cut in order to boost sales. In some ways the price reduction has been seen as necessary for Nintendo due to its recently disappointing performance in some regions. A reduced manufacturing price for Nintendo devices means that the company is making more money on each console it sells. Other sources have discovered that just because Nintendo can it doesn’t mean it will drop the system’s price. This might be especially relevant for consumers in areas which recently saw the devices take a hike in price due to the declining value of their currency.

Overall, some consumers find the company current’s devices to be expensive but others say it’s fair considering the technology offered, so whether or not we agree with the current prices or not, it all comes down to whether or not we believe we are getting our money’s worth. Either way, whoever at Nintendo figured out a cheaper way to construct the devices must have earned a promotion.

Conclusion

Nintendo a well know Japanese multinational corporation based in Kyoto, Japan is the world’s most famous gaming company specialized in card and video gaming, Founded by Fusajiro Yamachi when it first started to produce card games which it aimed for export but was also demanded by the local market and has lead it into becoming worldwide gaming company with millions of production each year and new version coming up often with better and much more functions. It has kept high profile for its goodwill till the 1990’s,However it has seen a decrease in its sales after the competition firms such as Sony, Microsoft etc. till 2006 until the production of the Nintendo Revolution which has given the organization a goodwill and brought it back to the market. Moreover which has given the green light to create an advanced version of it called Gameboy and later changed it to Gameboy Advanced with faster processors and better effects.

On the other hand Nintendo plans to launch a new home console sometime in 2012 and has also show interests in increasing the Nintendo 3DS and Wii awareness. Nintendo is aiming to have a steady release of software over the next year, no huge gaps between releases as it seems, however there has been no dates issued but has disclosed the future plans as the following

There are plans to enhance the line-up for the 3DS, internationally

Nintendo says beginner, middle and core gamers are all related

Nintendo is dedicated to expanding the core gamer audience

More collaborations with third parties is promised, including content for online networks

Nintendo won’t allow another gap in software releases

Steady stream of software to be released next year

16 million 3DS hardware sales target is not conservative, but aggressive

The priority this year is 3DS hardware sales, and as such, Nintendo’s profitability has been sacrificed

Nintendo is aiming to grow the 3DS to being a core platform

There isn’t a lot of opportunity for Street Pass in USA

Implied release of Wii U to be later than June 2012

Assumption of Wii U launch in Japan in September, EU/NA in November

The Wii U’s final version will be shown at E3 next year

Nintendo is aiming to accelerating digital offerings and downloadable content

A Pokémon game may be arriving in Spring, and it might be related to Poke Park 2

(Nardi 2011)