Paper 2: Nintendo: A Stakeholder Approach to Problem Solving


Nintendo has a long history of making groundbreaking advances in the video gaming world, from producing the first 3-dimensional (3D) graphics on a system to creating a motion-sensitive remote.  Being a family-run company, it naturally aims to produce family-friendly devices.  As with almost any company, however, problems arise.  What can a company do when a product is unprofitable and share price is dropping rapidly?  What about when allegations arise that a manufacturer has been using child labor to make the company’s products?  Over the course of a year, Nintendo had to face both of these issues.  How Nintendo approached these two predicaments exemplifies their stakeholder-oriented approach to conducting business.

Nintendo Background

Fusajiro Yamauchi founded Nintendo Company, Limited on September 23, 1889 in Kyoto, Japan as a producer of hanafuda cards (see Exhibit 1) (Chan et al., 2008).  This company grew slowly at first, but by the mid-twentieth century it had created a large distribution network and was ready to expand into new markets.  Nintendo, which roughly translates to “leave luck to heaven,” had many failed attempts at expansion, such as creating a taxi company and a food company.   Learning from their mistakes and using a little luck, however, Nintendo found a niche making toys.

After a meeting with Walt Disney, Fusajiro’s great grandson Hiroshi Yamauchi decided to expand to North America in 1956 (Chan et al., 2008).  Capitalizing on his previous successful meeting, Yamauchi was able to land a deal that would allow Nintendo to use Disney’s characters on their playing cards.  This not only helped Nintendo bring their flagship product to North America, it also shifted people’s prejudice against playing cards.  Playing cards had until now been seen as a gambling tool, but Nintendo turned them into a product that children and homemakers wanted to purchase.  Nintendo would later use this concept, whereby they reimagine a product to make it compelling to a wider audience, in future video game systems.

3DS Sales

In April 1989, Nintendo released the Game Boy, their first handheld device (see Exhibit 2) (Werner, 2012).  The initial popularity of the system resulted in the first run of 1 million units being sold within weeks. In its 14-year life cycle, the Game Boy went on to sell almost 119 million units (see Exhibit 3) (Nintendo, 2012).  This solidified Nintendo’s position as the leader in handheld gaming.  They went on to have success with subsequent handheld systems.  Their winning streak was broken with the release of the Nintendo 3DS (see Exhibit 4).  The system, which boasted glasses-free 3D graphics, was an attempt to get in on the 3D craze without requiring cumbersome peripherals.  Unfortunately, the system was released with the lofty price tag of $250 and a lackluster game lineup.  As a result, sales were $297 million lower than expectations for their first quarter, prompting an 80 percent slash in forecasted annual operating profit (Boxer, 2011).  In addition to the poor sales, another problem surfaced about the Nintendo 3DS: there was evidence that showed children under the age of six could develop eye problems after prolonged exposure to the 3D images (Maeda, 2011).  With dashed expectations and possible health problems, Nintendo had to think up a way to save their bottom line and their good reputation.

Nintendo and Foxconn

Six years after the release of their groundbreaking home system, the Wii, Nintendo was gearing to release its successor, the Wii U (see Exhibit 5).  As many electronics companies are wont to do, Nintendo outsourced its manufacturing to China because of the country’s supply chain and production speed.  They contracted the production of their new system to Foxconn, China’s largest manufacturer.  Foxconn has had labor problems in the past, such as when there was a string of worker suicides on the premises or when workers rioted over the poor conditions (Johnson, 2011; Barboza & Bradsher, 2012).  As manufacturing of the Wii U started, rumors of underage workers assembling the system began to surface.  These rumors came to a head when the Chinese site Games QQ reported that Foxconn’s Yantai factory had children aged 14 to 16 working overtime to produce the Wii U (Ashcraft, 2012).  The students were apparently working as interns who could leave at any time, but if they tried to leave their teachers threatened them with expulsion.  Child labor was an allegation brought against Foxconn in the past, but Nintendo had never been involved.  As a company that prided itself as being family friendly, Nintendo had to respond to this quickly in order to prevent consumer backlash.

Nintendo as a Stakeholder-Oriented Company

According to Freeman in Business Ethics at the Millennium (2000), because people are moral individuals, they want to be accountable for their actions.  This is the underlying concept of the Responsibility Thesis.  People realize that as they are running a business, decisions they make affect more people than just their shareholders.  These people – employees, suppliers, customers – are the stakeholders.  Stakeholder management requires attention to the interests of all stakeholders, both in a company’s organizational structure and in decision making.  If Nintendo is a stakeholder-oriented company, they would understand that value creation and trade is closely linked to everyone with a stake in the company.  Given Nintendo’s situation, with a failing product and child labor allegations, there were many routes the company could have taken in attempts at amelioration.

In Managing Business Ethics – Straight Talk About How to do it Right, Trevino & Nelson (2010) outline an eight-step approach to ethical decision making.  Step one is to gather the facts regarding the issue.  Because the facts were stated in earlier sections, they will not be repeated here.  Step two is to define the ethical issues.  It is important to look at the situation from every side to be sure all problems are accounted for.  For the 3DS, the issue was unprofitability and the potential harm to children; the issue with the Wii U was underage labor.  The third step is to identify stakeholders who will experience harm or benefits.  Rawls’ veil of ignorance is a helpful tool for this step because it helps to look beyond just the facts to identify all affected parties.  Shareholders can of course be affected by both issues.  A less apparent stakeholder for the 3DS is the parents that have to care for their hurt children; they would have medical bills to pay.  Also, how does a local community in China feel about underage workers?  These are all stakeholders Nintendo has to consider.  Step four is to think about possible consequences for each party involved, making note of the most likely outcomes.  For example, if children’s eyes get irreparably damaged, Nintendo would likely have a class-action lawsuit to deal with.

Step five is to identify obligations of the company.  Nintendo is obliged to increase their profitability, but people also expect their products to be safe.  The next step requires Nintendo to consider how it identifies itself as a company.  Given that Nintendo has been a family-friendly company in the past, this is likely an important aspect of their culture.  Qualities such as this must be mulled over when deciding what course of action to take.  Step seven is to think outside the box: think about potential actions that might not be blatantly obvious.  Apart from marketing the 3DS more heavily or issuing a recall, Nintendo might have another route it can take.  Lastly, a decision-maker should check their gut feeling.  If something about the action he chose doesn’t feel right, it most likely isn’t.  If Nintendo were truly a stakeholder-oriented company, how would they have reacted to the problems mentioned earlier?

Nintendo’s Response

Nintendo’s executives, sensing the potential harm their products can do to the company and society, decided to do what would be the best for all the parties involved while affecting share price the least.  For the 3DS, the executives could have easily laid off some workers to save the bottom line.  Instead, Nintendo’s president cut his salary by 50 percent and other executives cut theirs by 20-30 percent (Steinberg, 2012).  This pay cut allowed Nintendo to lower the price of the 3DS by about $70, making it much more affordable.  They also put a warning about the potential to cause eye problems both on the product and the company website (Maeda, 2011).  Nintendo cut the price of the system to attract more customers, but wanted to ensure that children whose eyes could be affected would not be harmed in any way.  The executives also went against the grain by cutting their own pay as opposed to making their employees take the hit.  In doing so, Nintendo saved its stock price while maintaining its values; the 3DS is now profitable and the number of units sold has doubled from 3 million to 6 million in a year (Nintendo, 2012).

The same day that the report about underage workers was released, Nintendo issued a statement saying (George, 2012):

“Nintendo is in communication with Foxconn and is investigating the matter. We take our responsibilities as a global company very seriously and are committed to an ethical policy on sourcing, manufacture and labor. In order to ensure the continued fulfillment of our social responsibility throughout our supply chain, we established the Nintendo CSR Procurement Guidelines in July 2008. We require that all production partners, including Foxconn, comply with these Guidelines, which are based on relevant laws, international standards and guidelines. If we were to find that any of our production partners did not meet our guidelines, we would require them to modify their practices according to Nintendo’s policy.”

The allegations were met with swift action on Nintendo’s part and staff are continuing to carry out on-site inspections of all partners now in order to ensure working conditions meet their CSR Guidelines.  Nintendo’s reputation was threatened by these two problems.  While one was the fault of their product design, the other was beyond their control.  Nintendo was able to use a stakeholder viewpoint in order to choose the best path for both.  They have since kept their reputation as a family-friendly company that takes responsibility for their actions and produces innovative systems that many can enjoy.

Exhibit 1. Nintendo hanafuda cards

Exhibit 2. Original Nintendo Game Boy

Exhibit 4. Nintendo 3DS

Exhibit 5. Nintendo Wii U


References

Ashcraft, B. (2012, October 17). Report: Chinese kids were used to manufacture the Wii

U. Kotaku. Retrieved from http://www.kotaku.com.au/2012/10/report-chinese-kids-were-

used-to-manufacture-the-wii-u/

Barboza, D., & Bradsher, K. (2012, September 24). Riot at Foxconn factory underscores rift in

China. The New York Times. Retrieved from http://www.nytimes.com/2012/09/25/business/global/foxconn-riot-underscores-labor-rift-in-china.html

Boxer, S. (2011, Jul 28). 3DS price cut by almost a third as Nintendo reports loss. Retrieved

from http://www.guardian.co.uk/technology/gamesblog/2011/jul/28/3ds-price-cut-nintendo-loss

Chan, S. L. C., Janarthanan, S., Lim, C. W. L., Setho, S. Y. C., Tan, H. H. D., & Tuanku, M.

(2008). The Wii case study. Informally published manuscript, Engineering and Technology Management, National University of Singapore, Singapore. Retrieved from http://www.scribd.com/doc/13084246/MT5007-The-Wii-Case-Study

George, R. (2012, October 27). iPhone, Wii U manufacturer admits to employing children.

Retrieved from http://www.ign.com/articles/2012/10/18/iphone-wii-u-manufacturer-admits-to-employing-children

Johnson, J. (2011, February 28). 1 million workers. 90 million iPhones. 17 suicides. Who’s to

blame? Wired. Retrieved from http://www.wired.com/magazine/2011/02/ff_joelinchina/

Maeda, R. (2011, January 3). Nintendo warns children not to play new player in 3D. Reuters.

Retrieved from http://www.reuters.com/article/2011/01/03/us-nintendo-idUSTRE7020UL20110103

Nintendo. (2012). Consolidated sales transition by region. Retrieved from

http://www.nintendo.co.jp/ir/library/historical_data/pdf/consolidated_sales_e1109.pdf

Trevino, L., & Nelson, K. (2010). Managing business ethics-straight talk about how to do it

right. (5 ed.). New Jersey: John Wiley & Sons, Inc.

Werner, N. (Producer). (2012). All your history: Nintendo part 3. [Web Video]. Retrieved from

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