While Microsoft’s keynote address at the 2008 Tokyo Game Show proclaimed that the American console maker has succeeded in penetrating the elusive Japanese gaming market, the presentation that preceded it had a distinctly different tone.

Leaders from three of Japan’s major game developers — Square Enix, Namco Bandai Games and Capcom — discussed why the Japanese game industry is no longer the power it once was.

Showing a vast disparity in sales between their Western and Japanese markets, the three business leaders admitted that the Japanese gaming industry tends to look inward to its home market rather than develop more global products.

"There has been a global convergence of music and movies; only games have been different," Capcom’s president and chief and operating officer, Haruhiro Tsujimoto, said through a translator. "Japanese users are only now becoming more familiar with overseas games."

They also pointed to the improved quality of games from their Western competitors as a reason the Japanese game industry does not have the status it once did.

After the eras of the Sony PlayStation and the PlayStation 2, "we probably were a bit lax in our development," said Shin Unozawa, chief operating officer for Namco Bandai Games.

While Capcom’s "Resident Evil" series, Namco Bandai’s "Naruto" and Square Enix’s "Final Fantasy" do have potential in the global market, all three men said it is difficult to think globally.

"In order for us to become number one, we need to have a more global organization," Tsujimoto said, adding that partnering more with overseas companies is the way to do that.

"Can we in Japan make those kinds of games?" Unozawa asked. "I think it will be difficult."

Echoing the sentiment, Square Enix president Yoichi Wada offered a grim analogy of his industry’s reluctance to change.

"I am a heavy smoker," he said. "I wouldn’t quit smoking unless you told me I had cancer and would die tomorrow."