Is Nintendo’s Success Due to Outsourcing?

Nintendo gets noticed by the business media because of its insane profit to employee ratio. The recent story in the Financial Times is no exception.

Nintendo is able to make so much money with so few people because it relies on outsourcing.

Now, this is absurd. It is amazing to watch all the reasons why Nintendo is successful. They keep changing every few years. Rather than focusing on what the company doesn’t do (such as manufacturing), it is more helpful to look at what the company DOES do.

Most companies do not build their own computers or write their own operating systems. They pay others to build their computers and pay Microsoft to put an operating system on those computers. Yet, no one would consider this ‘outsourcing’. It is like saying a film studio is ‘outsourcing’ because they do not manufactur their own cameras.

The biggest flaw about looking at Nintendo the company, from most business magazines, is that the product is hardware. Nintendo sees itself in the software business, not the hardware. Nintendo only puts out the hardware so it can fully control and enhance the software. There could be no Wii Sports without the motion controller, for example. Software companies don’t ‘outsource’ because they pay someone else to manufacture their DVDs. The secret to Nintendo’s success is the integration of hardware and software. It is also the secret to Apple’s success.

The article incorrectly states that Mario Party is ‘outsourced’. No. Hudson makes the game. Mario Party is a licensee of Mario. Nintendo oversees it to protect the Mario license.

Then, the article implies that Nintendo employees are getting shafted while the owners are fat cats getting rich. The employees, assuredly, are not getting shafted. They love working there. And the video game market is so unstable and can savagely destroy a company on a dime. It is best to be frugal and to have a large war chest just in case disaster strikes.

Why can’t business magazines try being interested in Nintendo beyond the profit/employee ratio? They study Google. They study Apple. But Nintendo they ignore. Perhaps it is because it is not an American company. Perhaps it is because there is not much information about the business inner workings. But I think it is more about stigma of video games in general.