Square Enix’s New Playbook: Centralize in Japan, Shrink the West, and Bet Big on AI

Square Enix has confirmed a new wave of layoffs across its UK and US operations as part of a wider restructuring that pulls decision-making and development closer to home in Japan. The company’s internal materials describe an ongoing “reorganization of overseas organizations,” a process that has already included closing or selling Western studios and consolidating core development functions domestically. Under UK law, at-risk roles enter a consultation period, so final numbers may shift, but the message is unmistakable: the center of gravity at Square Enix is moving decisively to Japan.

How We Got Here: Years of Repositioning

This step follows Square Enix’s earlier sale of Crystal Dynamics, Eidos-Montréal, and Square Enix Montréal – with associated IP – to Embracer Group, along with multiple rounds of workforce reductions across its Western footprint throughout 2024. What remains on the Western slate is slimmer: support for franchises such as Life Is Strange, Outriders, and Just Cause, plus publishing for breakout hits like PowerWash Simulator. The strategy signals a back-to-basics focus: fewer global bets, tighter control from Tokyo, and a portfolio that leans more on creations incubated inside Japan.

AAA Economics Are Biting – And Not Just at Square Enix

Square Enix’s pivot reflects a broader industry reality. The AAA model has drifted into Hollywood-budget territory, where production schedules bloat, marketing costs balloon, and a miss can erase years of profit. When revenue underperforms, the reflex is familiar: scale back teams, cancel experiments, and concentrate investment in fewer, safer projects. This is not creativity’s fault so much as math’s: multiplatform blockbusters are expensive to build, maintain, and live-service thereafter. Consolidation promises speed, cultural alignment, and theoretically lower overhead; what it risks is diversity of ideas and regional perspective.

The AI Gambit: 70% of QA by 2027

Inside the same presentation, Square Enix outlined a remarkable target: by the end of 2027, it expects 70% of quality assurance work to be handled by generative AI. In plain terms, Square Enix aims to automate a major slice of testing – regressions, routine checks, and potentially code- or content-level anomaly detection. Done thoughtfully, AI can accelerate test coverage, flag known classes of defects faster than humans, and shorten iteration loops for designers and engineers. But there is a hard truth many players and testers keep stressing: great QA is not only about scripts; it is about human curiosity, failure-driven play, and inventing weird ways to break games that no checklist anticipates.

That tension defines the next two years. If AI augments human QA, shipping quality could rise while costs fall. If it substitutes for humans too aggressively, day-one stability could suffer – and audiences will notice. In an era when trust is fragile and patches are frequent, the reputational price of a buggy launch can outweigh the savings.

Why Centralize in Japan?

Operationally, centralization reduces complexity. Fewer legal regimes, time zones, and management layers can mean clearer priorities and faster decisions. For a story-driven studio culture that prizes craftsmanship, pulling teams into one creative orbit has logic. Yet the trade-off is real: Western studios have historically widened Square Enix’s voice, offering different sensibilities and tech pipelines. With fewer of those teams, the slate could tilt even more toward Japanese design philosophies – beloved by many fans, but potentially narrowing the company’s global experimentation.

What It Means for Players

• Fewer, bigger bets: Expect more resources behind a smaller set of games, alongside stricter greenlighting.
• Quality under the microscope: The AI-in-QA plan will be judged in the wild. Players will feel the results at launch.
• Price pressure won’t vanish: Even if AI trims costs, publishers rarely reset MSRP downward; savings are likelier to fund scope or margins than retail cuts.
• Stronger Japanese identity: Fans of series like Dragon Quest or the more traditional JRPG style may see that DNA shine brighter.

The Human Side – and the Pipeline Risk

For developers in the West, this is a tough moment. Layoffs ripple beyond studios: they hit local vendor ecosystems, contract QA networks, and future talent pipelines. Aspiring game devs should read this as a signal to diversify skills – engine know-how plus tools, automation, and production literacy – and to avoid over-leveraging personal finances for a single job outcome. The industry is cyclical, yes, but the current cycle is also structural: automation is rising, projects are consolidating, and leadership teams are being pressured to do more with fewer seats.

Leadership Lessons: Avoid the Next Bubble

Square Enix’s recent history includes trend-chasing missteps (remember the sudden NFT enthusiasm). The AI push could become a competitive edge – or the next costly distraction – depending on execution. The companies that will thrive are not the ones shouting the loudest about AI; they are the ones that use it to lift human craft, not replace it. That means funding expert testers, not just test bots; investing in production excellence; and putting shippable quality ahead of quarterly optics.

What to Watch

• Staffing mix: Whether Square Enix backfills QA with hybrid human+AI teams or moves farther toward automation.
• Release stability: The cadence and severity of day-one patches will tell the story better than any slide.
• Portfolio signals: Greenlights that skew toward Japanese-led projects, including more traditional RPG sensibilities, would validate the centralization thesis.

Square Enix is betting that a leaner, Japan-centered structure plus aggressive AI adoption will produce faster cycles and better returns. Players, meanwhile, will keep their own scorecard. If the games arrive polished, distinctive, and worth the price, few will argue with the means. If they don’t, no cost savings will cover the gap.