Company president tells investors restructuring isn't the answer to falling profits
Nitendo president Satoru Iwata says his company can get back in black without layoffs.
The company has faced major setbacks in recent years after disappointing launches of the 3DS and Wii U.
Though profits haven't fallen, expenses have risen, and this led an investor at a recent shareholder meeting to ask about corporate restructuring.
Iwata answered that the primary problems facing Nintendo are a stronger Yen and the rise in the number of employees required for HD gaming.
“You will understand even if the scale of our businesse in the United States is the same, the yen-denominated sales shrink because of the appreciation of the yen against the dollar,” he explained.
“I would like you to understand that the influence of exchange rates is the main aspect of this matter.”
Since Nintendo incurs most of its development costs in Japan, a weak Yen means costs are lower relative to the income it receives from western markets.
As the Dollar and Euro decline and more Yen have been spent on development, actual profits have fallen.
This means HD gaming is a big challenge for Nintendo.
“One more difference from that time is Nintendo’s head-count,” said Iwata.
“The manpower required for increasingly complex and advanced product development has totally changed from that of the past. Hence, the number of employees has increased and higher costs have been incurred.”
Despite the negative effect higher costs are having on the company, Iwata doesn't think layoffs are the solution.
“If we reduce the number of employees for better short-term financial results, however, employee morale will decrease, and I sincerely doubt employees who fear that they may be laid off will be able to develop software titles that could impress people around the world,” Iwata explained.
“I believe we can become profitable with the current business structure in consideration of exchange rate trends and popularization of our platforms in the future.”
To Iwata, the popular business strategy of restructuring to cut costs is throwing the baby out with the bathwater; employees are valuable resources the company depends on for its income, so a better solution is to remove truly unnecessary expenses.
“I also know that some employers publicize their restructuring plan to improve their financial performance by letting a number of their employees go, but at Nintendo, employees make valuable contributions in their respective fields, so I believe that laying off a group of employees will not help to strengthen Nintendo’s business in the long run,” he said.
“Our current policy is to achieve favorable results by continuously cutting unnecessary expenses and increasing business efficiency.”