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Why are Japanese developers not undergoing mass layoffs?

After Microsoft shut down Tango Gameworks, we look at the reasons why Japan has otherwise been sheltered (but not immune) to many of the layoffs and trends seen further afield

Image credit: Tango Gameworks' Ghostwire Tokyo

On 14th June, Tango Gameworks employees had a pizza party. It was the studio's final day following the announcement of Microsoft's decision to close the studio behind games like Ghostwire Tokyo and the award-winning Hi-Fi Rush, a decision that surprised many across the industry.

The game had been released on platforms beyond Xbox for the first time mere weeks earlier as part of the company's new initiative to bring their titles to more platforms. As the company's only Japanese studio in a region of growth for Xbox and Game Pass after decades of struggling to break into the gaming market in the country, the decision also appeared counterintuitive.

If you focused solely on the Japanese industry, you would be forgiven for forgetting the crisis that has subsumed the wider industry

Layoffs and studio closures have been an unfortunately-common occurrence across the industry since last year, with layoffs in 2024 already matching 2023's total of over 10,000 developers being put out of work. Yet if there is one bright spot to find in this bleak reality, it is, ironically, in the same city as the departed Tango. Its closure, undeniably tragic, is an exception in a country seemingly insulated from the industry-wide devastation occurring beyond its borders.

Indeed, if you focused solely on the Japanese industry, you would be forgiven for forgetting the crisis that has subsumed the wider industry.

FromSoftware president Hidetaka Miyazaki recently came out to vehemently support his team, with no layoffs planned. Konami have once again been growing their gaming business after making a retreat in the 2010s for the land of pachinko, while Capcom have recently raised wages far above the recent inflation stats of 2.5% by increasing base salaries for new employees by 28% starting in fiscal year 2025, one of numerous the company has enacted since 2022.

All this has occurred while increasing employment and development amidst record profits.

And let's not ignore Nintendo, which ever since Satoru Iwata's 3DS-era wage cut to avoid cutting staff has enjoyed impressive growth, hiring more employees and increasing base wages to make the company more enticing. The company boasts an impressive employee retention rate of 98.8% with an average tenure far above the industry average of 14.3 years.

It's a trend across the industry in the country. In my own conversations with Japanese developers, many have acknowledged the concerns for friends in the industry internationally while admitting a level of confidence and job security that simply no longer exists no matter the company beyond Japanese borders.

It's not that the country is entirely immune from strife – Square Enix recently admitted in a shareholder meeting a new change in strategy to target a wider range of platforms for future releases while canceling some unannounced projects. Even then, these cancellations have not been followed by layoffs, at least in Japan. On the whole, employment is stable and investment is growing, with everyone from larger domestic companies entering publishing in the independent space to companies like NetEase investing and working with industry veterans and even nation states like the Saudi Investment Funds buying 96% of SNK, all paint a rosier picture than seen elsewhere.

What's different? Why is Japan seemingly immune to many of the layoffs and trends seen further afield?

While cultural differences play a part in retaining employees, it's not entirely benevolence keeping Japanese employees in a job. Employee protections are also a major factor in ensuring stability for employees. Under Japanese employment law, layoffs are incredibly difficult to implement – unless the company is under severe financial difficulty and at risk of insolvency in a manner layoffs could alleviate, after other cost-saving measures have been undertaken, layoffs for permanent employees are all-but impossible.

It doesn't mean there aren't other ways to reduce the workforce, whether that be in not renewing or canceling work for contract employees. While this is possible, this can reflect poorly on the company's reputation with the public and prospective future employees if employment isn't deemed stable, so is generally avoided if possible.

"It's almost night and day. In Japan, the law protects the employee. In the US, [it] protects the company. For Europeans, it's somewhere in the middle"Serkan Toto

Japanese law also prevents many roles from being classified under non-permanent employment. Employment, on the whole, is far more stable and secure than seen in Europe, the US or elsewhere.

As industry analyst Serkan Toto (CEO of Japan-focused games industry consultancy Kantan Games) puts it, "It's almost night and day. In Japan, the law protects the employee. In the US, the law protects the company. For Europeans, it's somewhere in the middle. It's not as easy [in Europe compared to] the US to fire people, but it's also not as easy as in Japan to keep your job once you have it as a full time employee."

When layoffs are so difficult, why was it possible for Tango Gameworks to be shut down by Microsoft in the manner that it was?

"A closure where you lay off people through that method is different than going in and [cutting] that same amount of people and ten people stay," explains Toto. "You have to explain yourself in court, because there will be lawsuits and that's a very difficult case to make as a company. But if you close the entire company outright, get rid of everything inside the company including the staff, office, the rent, the equipment, it's a different story."

Another factor in Japan's strength amidst ongoing turmoil is the fact the country is insulated from many of the issues facing companies elsewhere. Outside the United States and China, Japan has the largest market for mobile gaming in the world, with many of its biggest titles like Uma Musume, the recently-launched Gakuen Idolmaster, Puzzle and Dragons, and Dragon Quest Walk being domestically-developed and published by Japanese companies. Other new releases primarily target and seek to make a profit from domestic audiences without relying on global success to turn a profit.

"Mobile gaming is three times bigger than console gaming in Japan," explains Toto. "People outside Japan always think about Sega, Nintendo, and so on, but inside Japan 70% of the market is controlled by mobile game companies. CyGames is a big one, and they're also doing console games now, but then there's primarily-mobile companies like Gree, DeNA, Akatsuki. These companies have 1,500 [to] 2,500 employees, and nobody's talking about them, but these guys also don't fire anybody.

"Mobile gaming is not exploding anymore like it used to about ten, 12 years ago when smartphone gaming came and conquered, but for the last five or six years, mobile gaming in Japan has been quite stable. If you look at the revenue size across the industry, it is not really changing that much, although PC gaming is becoming bigger."

Tango Gameworks' Hi-Fi Rush

Exporting work to cheaper countries is also far more challenging for Japanese developers. Such routes to accomplish this are not only not established, language barriers make communicating with foreign workforces more difficult, protecting domestic labor. This also contributes to the circumstances fueling wage increases, as companies compete for a shrinking working-age population.

"Japan is an island nation where the language is only spoken inside the country and nowhere else – you can't sack 500 Japanese people and then outsource that work to 500 people in the Philippines," as Toto summarizes it. "And the population in Japan is graying and shrinking at the same time, you have less talent. Companies like Bandai Namco, Nintendo, and Capcom are not paying people more because they want to share the wealth, they do it because they have no other choice! Otherwise, these software engineers working at Capcom might go and work for Toyota in the AI business."

"People outside Japan always think about Sega, Nintendo, but inside Japan 70% of the market is controlled by mobile game companies"Serkan Toto

Even then, rising wages still doesn't make game development prohibitively expensive in Japan, opening up space for games to fail or companies to take more risk. A lower cost of living coupled with lower average wages compared to those seen in the likes of the US – according to Orix Bank the average yearly income in Japan is ¥4.58 million (around $28,000), and research from Imagica GEEQ placed the average wage for game programmers at ¥5.23 million (around $32,000) – help reduce overall budgets.

Compared to titles like Rocksteady's The Suicide Squad, which reported major losses of over $200 million for Warner Bros, Toto estimates factors like wages mean even the biggest titles in Japan can be produced for "30-40% less, maybe more" than seen internationally, reducing risk.

Morale is low across the global industry, and for good reason. The post-COVID and post-growth shock fueling layoffs means that regardless of the size of your company or talent in releasing critically-acclaimed games, no job is safe in the pursuit of endless growth.

Even companies making record profits deem it necessary to make the line go up further, slashing jobs with abandon. This can be seen with Tango Gameworks and recent Microsoft layoffs: the company had an operating income of $88.5 billion in 2023 and increased profits, yet enacted company-wide layoffs including 1,900 under the Xbox brand.

"Nobody thinks about the people who are still working there," laments Toto. "If I was an artist at Ubisoft, for example, I would be scared. Ubisoft is one of the last big companies that haven't pulled out the hammer yet. They've cut some people, but it's a drop in the ocean when you have over 20,000 total employees. Even if you're one of the remaining employees [after a layoff], I wouldn't feel secure at any games company right now."

"Japan is an island nation where the language is only spoken inside the country – you can't sack 500 Japanese people and then outsource that work to 500 people in the Philippines"Serkan Toto

Layoffs of this magnitude feel counterintuitive. When so many developers are thrown out of work, the brain drain means many years of experience will likely leave the industry for good, and companies will lose access to the generational knowhow of company workflows and tools new hires will be forced to learn from zero. Growth may have slowed, but it is still growing, and the industry remains larger than film, TV and music combined. The crushing reality is that, while you can't prevent every job loss, many layoffs are avoidable.

Employees simply must take the hit to add a few extra dollars to the end-of-year shareholder dividend though, right?

Japan's alternative approach has long-term merits in ensuring companies have retained the talent needed to react to any revitalization for the industry, as Toto explains.

"If there's a new bull run in the video game industry, which I think will come, then I think Japanese companies will be in a better position. They have retained their talent, and it builds trust. I fear that Western game companies have overdone it, and there's a danger that if the game industry revitalizes in one or two years that these decisions might come back and bite them.

Industry analyst Serkan Toto, CEO of Japan-focused games industry consultancy Kantan Games

"I think there's a big philosophical difference between the Japanese and the Western world. Japanese game companies really think long term, a lot more long term than their American counterparts. For a lot of the American companies, they are basically characterized by American capitalism, where everything's profit, profit, profit, profit, and if the line goes downward everybody starts panicking."

When the never-ending tide of layoffs finally subside, many developers will have left the industry for good. It will take years to regain that experience, and what's to stop another run of job losses tossing all that progress aside once again? How much strain can the industry hold before it all crashes in on itself? And even if things recover, without a change in mindset, will another collapse in jobs 10 years down the line remain not only possible, but inevitable?

"Will you be able to get the ideas of American capitalism out of the minds of the CEOs at Activision or Electronic Arts? Probably not," ponders Toto as we wind up our conversation. "I think it's always a battle between the American system and the Japanese system, with the American system very much focused on profitability and short term thinking and making everything as efficient as possible, whereas in Japan the thinking is different."

After one last opportunity to share pizzas as a company on Microsoft's dime, Tango Gameworks closed its doors for the last time. Perhaps on some spreadsheet thousands of miles away, the thought of a games company far from home a few years out from releasing a new game is the most efficient way to make the line rise just that little bit further. Not everything of value can be quantified on a graph, nor does massaging one quarter of growth for short-term gain mean the decision won't adversely impact another quarter in the future.

"I think it's always a battle between the American system and the Japanese system, with the American system very much focused on profitability"Serkan Toto

But who cares about that? The line must go up, the concept of endless growth viewed not as an impossibility but a rational objective that must be achieved at all costs. And the people suffer.

It's not even that Japanese companies are all that much different from their American counterpoints. Many are publicly traded, and you can be assured, private or public, they all still love money. In some ways, you can't help but wonder if things would be different if employment protections were different, or if employees didn't benefit from the language barriers making it more difficult to ship their efforts elsewhere. Yet whichever it is, their difference in approach makes the grass much greener for those plying their trade in the country, if just for the fact they aren't as worried about not having their job in a week's time.

Perhaps for now, we should merely take solace in the fact that, in a seemingly-never ending world of layoffs, there are at least some people still in a job.

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In this article

GhostWire: Tokyo

PS4, PS5, Xbox One, PC

Hi-Fi Rush

Xbox Series X/S

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