Adopting a firm
1) Name your chosen company: SEGA CORP 2) Share Price of Company Wed 10th Sept 2003: 1,225 yen = 6. 50 3) Main area of business of the firm: Sega are manufacturing Game Software the Electronics (console/amusement) market 4) Level of Operating Profit in 2002: 5) Main Strategy of Firm: Sega are concentrating on publishing game software for multiple platforms (for example the Xbox, Playstation 2, Gamecube and the Amusement industry) thus continuing to improve their financial position by increasing profit margins and paying off old debts.
Most of these debts generated by Sega’s old console; the Dreamcast which flopped worldwide due to lack of advertising despite advanced technology superior to those of its rivals. Successfully generating a popular worldwide console is very risky and can be very damaging for a company as Sega have come to realise from the past hence why Sega have restructured the company into a software developer from a hardware developer.
This transition began in late 2001 when they ceased production of the Dreamcast and ever since restructuring the firm, they have continued to increase their financial security making profit for the first time in April 2003 for 10 years since it was the end of the
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Sega have left the reborn phase and are entering the growth phase exceeding Company and Stakeholder’s expectations despite depressed economies in Japan, U. S and Europe. From March 2002 to March 2003, sales of their software have increased by over 40 percent. Driving this growth is all down to Sega’s 7 main goals all part of their main strategy of becoming once again like they were in the early 90’s; market leader of the software market. Goals A. Sega plan to carry on releasing sports titles which is one of the fastest growing sectors of the games market as interest and popularity in this genre continues to increase.
B. Release new versions of their well known game series such as Sonic and also create brand new series from the recent hits such as Super Monkey Ball for 2003. C. Revitalise their vintage content of nearly 1,000 games by renewing them onto all major platforms. D. Release over 114 games in 2003 for multi-platforms while also improving product quality and the time the games hit the market. E. Sega will license character brands from other companies creating easily recognisable titles for global release. F. Focus on reenergising their amusement business since demand has fallen in recent years.
They plan to release a full line up of new amusements, network connected facilities and customer focused amusement centers (for instance Sega World for passionate Sega fans). G. Sega plan to create new business and use their technologies and know-how to establish new types of content other than games. For instance the company is embarking on new ventures such as: driving simulators for driving schools, Animanium (software to create computer generated animation), 3d sound attractions, film business and licensing more related business. This will create a new source of profitability
Evaluate Sega’s Strategy Sega’s strategy seems perfectly suitable since they barely just avoided bankruptcy in 2001. Sega have opted for a safer route to revitalizing their brand by concentrating on developing software for consoles and arcades opposed to setting up their own console as they have done in numerous occasions in the last decade. Their last console did so badly in terms of sales that it almost crippled the company financially. Therefore it seems very sensible to take the safer route and guarantee a better financial position before trying to build a new console.
This strategy has already allowed Sega to repay their debts and increase financial security for future investments. In fact Sega’s software sales have been so successful in the last year that they’ve exceeded all expectations and this success should continue if all goes well for Sega, increasing their profit margins further. Furthermore if Sega continue to grow at the current rate they have been in these past 3 months it will be one of the quickest company revivals in history.
Sega are continuing to make software in an expanding market so it should be relatively easy to recapture some of the market share they have lost in the past years. As the market expands more and more gaps become visible. For instance another company made a game for the Playstation 2 console which proved to be popular therefore to captalise on this Sega designed a virtual fishing rod compatible with this game which also proved popular as buying the game made the rod a necessity for the consumer. It’s clever strategies like this that will soon make Sega one of the biggest software developers worldwide.
Other areas Sega are also benefiting from are the retro market (classic games). Consumers are still demanding old popular games from the old consoles, which died in the last decade such as the Sega Megadrive. Evidence of high demand for these games even though it was years since they were made is obvious on the auction website ‘Ebay’ where hundreds of retro games are sold a day. Therefore Sega decided to release the games in bundled packages for the new consoles. For example all the old Sonic games have been bundled onto one disc and released on the Gamecube console.
Another very clever strategy is making new version of these old games as they already have good reputations from the past and in theory they should recapture the success they brought in the past. Sega have mainly focused on these two strategies above in the last year as there is less financial risk involved. It also allows Sega to increase their image and reputation to the standard it was before it’s demise allowing consumers to become familiar with the brand name before releasing new spontaneous titles.
This is obviously worked well in 2002 with sales booming and now 2003 is present Sega are concentrating on making brand new titles that hopefully will be as successful and bring in a high capital return. Although obvious, this strategy is more risky than the others as these games are unkown by the consumer for quality and so it relies heavily on advertising, a factor Sega have lacked expenditure in the past, allowing rivals such as Sony to gain more of the market share not through quality but simply promoting their products more.
However the perception of Sega’s revival through looking through their strategies gives the impression that they have learnt their lesson and hopefully will invest more money in this sector in order for history not to repeat itself. Overall I am very impressed with Sega’s strategies and expect growth to continue and if growth rate continues at present they will most likely be the number one developer for games software in five years and possibly the amusement business if their new amusements in development reflect the same success their games software have.
Also Sega’s growth can also be boosted furthermore if they decide to embark on new ventures such as ‘driving simulators, computer animation’ etc and expand their market share into new areas. But these potential areas will most likely not be considered until Sega’s financial security is completely secured by a large margin because a Multi national firm like Sega hope to achieve high profit margins with long term success and a large enough market share to form a oligopoly opposed to high short term profits with lack of long term investments.
7. Comment of both current problems and opportunities that the firm faces Sega have the opportunity to continue increasing its profit margins as it carries on releasing new game titles for consoles and arcade machines. Although competition in recent years has got tougher with other game developers often releasing similar titles to those of Sega which can and have stole high percentages of their sales. However Sega are trying to differentiate their products through new innovative ideas not used by other developers before.
For instance creating a first person American Football game opposed to the standard third person angle. Due to the high quality of these games, the console developers are often doing exclusive deals with Sega to make sure their game only appears on a certain console in order to give the console a competitive advantage which financially rewards Sega with more money than they would have got for developing a game for all the consoles.
However in theory this could damage Sega’s relationship with the other console developers by doing an exclusive deal with one, but thankfully for Sega this is not the case since it is doing exclusive deals with all three main rivals. Sega’s growth can also be boosted furthermore if they decide to embark on new ventures such as ‘driving simulators, computer animation’ etc and expand their market share into new areas.
But these potential areas will most likely not be considered until Sega’s financial security is completely secured by a large margin otherwise it could see Sega once again go into dept if they do not approach expansion into these areas carefully as these new options do carry high risk factors. Sega also have the opportunity to expand inorganically by merging with another large company but this does look unlikely after declining take over bids from Electronic Arts, Microsoft and Namco in the last year.
However this cannot be crossed off as Sega could accept a deal in the future if it is to there liking but for now Sega are concentrating on surviving by themselves. Lastly Sega have always suffered in the marketing department which lack of expenditure always seeming to be the case. This has often damaged sales as a result and meant losing out to rivals. However hopefully Sega have analysed their mistakes from the past and we shall see a lot more adverts for Sega’s products on the television, internet and magazines.
Overall Sega have a vast selection of opportunities to aid the further growth of the company and all there problems can easily be overcome if they analyse the market effectively and advertise more while also not forgetting to following market trends. For example in the short future Sega should develop games for the new sequel consoles coming out such as the Xbox 2 rather than carrying on only making games for the original Xbox as consumer demand will most likely shift to the newer console.