GREE confirms it is shutting its office in China and will lay off all 120 local staff

GREE, the Japanese mobile game firm best known internationally for its RPG Knights & Dragons, is reported to be closing down its China operations, according to local media.

Update: GREE has confirmed the office closure, see the bottom of this post for its statement in full. In addition, it confirmed that 120 employees are being let go, that’s considerably more than the figure of 30 that was initially reported.

According to a report in Sina Tech — first spotted by Tech in Asia — the struggling firm will lay off its staff of over 30 120 employees and will officially cease operations on June 28. The announcement follows layoffs within the firm’s California branch, which saw the departure of 25 employees last year as the company struggled to turn in profit from its North American business.

The announcement appears to be an indication that the firm is struggling to convert its domestic success internationally.

In 2007, the company was was one of Japan’s leading providers of web-based social games, along with rival firm DeNA. Since smartphones gained popularity comparatively late in the game for Japan, for a long period of time, most device owners in the country would play GREE’s games their feature phone’s built-in web browser. With a domestic market firmly attached to feature phones, the firm could continue build momentum in this space, and ultimately grew its presence throughout Asia.

With a stronghold on the local Japanese market, the company went on to establish offices in San Francisco and Beijing. But by that point, mobile device purchasers were beginning to switch from feature phones to smartphones with easy access to the App Store and Google Play.

GREE struggled to adapt to this market shift, with Google and Apple’s cut of app store revenue cutting into its margins. While its grand plan for a global games-based social network never caught on outside of Japan.

At present, some 60 percent of the GREE’s revenues come from feature phone users that play its games online. But with that market segment destined to shrink in size, the firm finds itself in a less than desirable position to compete with bigger players in the mobile apps category.

In the Sina Tech piece, analysts also state that the firm’s rigid, Japanese-style bureaucratic structure, coupled with its inability to successfully localize its offerings, made its retreat from China all the more likely.

While the firm said it expects to net profits of more than $300 million for the fiscal year ending in June, the earnings are likely to mark an overall decline compared to the previous year.

With news of these layoffs now official, GREE finds itself among many Japanese tech firms that are struggling to make the transition from domestic giant to international giant. DeNA, another Japanese game developer, saw declining growth in Q4 2012, thereby raising the stakes on its recent efforts to venture outside the island country.

GREE is currently pursuing mobile messaging as a way to gain greater market share, and it acquired a ‘strategic minority stake’ in Netherlands based eBuddy last year in order to build its Tellit app for iOS and Android. For now, Tellit is available overseas while GREE tests the waters before launching it in Japan.

Inspired by the success of Korea’s Kakao Talk — which revealed its Games platform is grossing $30 million per month despite being less than a year old — GREE strategy’s is likely to swing towards Tellit, and that could lead to the company completing a buyout of eBuddy and refocusing its resources.

Given that Line, Kakao Talk and DeNA are already in that space and making money, while others including WeChat set to enter gaming too, the competition is already heating up.

We’ve reached out to GREE for comment.

Update: GREE has provided the following statement confirming its exit from China:

We are reviewing our business to optimize our global game development operations through a process of selection and concentration, and this has led us to the difficult decision to close our China office and studio. GREE Beijing has developed several excellent games and the talented people who made up its staff have made a valuable contribution to GREE. We regret that we have had to make this closure and wish all the best to everyone affected.

Image Credit: Kiyoshi Ota/Getty Images