Tendo City

In short, because Sega of Japan and Sega of America were at odds and couldn't agree on anything... and when your two main branches are fighting eachother, you don't win.

http://www.sega-16.com/Interview-%20Tom%20Kalinske.htm

Quote:Sega-16: It's good that you mention that, as it must have been very difficult for Japanese game executives to see the American arm of their company leading the way, considering how poorly the Mega Drive was doing in Japan . Do you think that there was some resentment on their part over the Genesis' success? Could this have been what caused them to exert more authority over how things were run?

Tom Kalinske: In hindsight, I think there probably was. I don't believe there was from 1991-1993. I think somewhere in the mid ‘90s – '94 or '95 – they built up a great deal of resentment, and I didn't realize it at the time, until probably the latter part of 1995, when one of my colleagues in Japan, who I knew well and had a good relationship with, said to me something to the effect of “you don't understand how browbeat and annoyed the Japanese executives here are because of your success. Every meeting we go into, Nakayama asks us why can't you do things the way the Americans and Europeans did? Why aren't you guys as successful as they are? We've been around longer." I think the local executives didn't appreciate that he'd take that tone with them. Apparently, he also beat them up over Sonic, which was never as successful in Japan as it was in the U.S. and Europe (to this day, that's the case), and I think he was always throwing that in their faces too. So clearly, by late '95 there was great resentment built up: jealously, resentment, and kind of a desire to get back at those Americans that Nakayama kept throwing in their faces.
Sega-16: So could that have perhaps caused them to exert more authority over how things were done? The inner rivalry that existed between the American and Japanese branches of Sega is legendary, and most believe that this, rather than any hardware decision, is what caused the company to lose its focus. Would you agree? How much do you think SOJ's treatment of its U.S. branch hurt business?

Tom Kalinske: I think so. I don't know how many different instances you know about, but what basically occurred (and I'm probably going to be a little fuzzy on the timing. Joe Miller could probably help you on that one) was that we all knew that there would come a day when the Genesis would no longer have a life, and we'd have to move on to the next technology. There was of course, a big debate as how best to go about that. When we started the CD-ROM efforts, clearly those were the early days of using optical discs for video games, and it was very rudimentary (a lot of it was even done in black & white back in those days), and the combination of live-action and real program software was very difficult.

I remember Joe Miller and I were talking about this, and we had been contacted by Jim Clark, the founder of SGI (Silicon Graphics Inc.), who called us up one day and said that he had just bought a company called MIPS Inc. which had been working on some things with some great R&D people, and it just so happened that they came up with a chip that they thought would be great for a video game console. We told them that in the U.S., we don't really design consoles; we do the software, but it sounded interesting and we would come over and take a look at it. We were quite impressed, and we called up Japan and told them to send over the hardware team because these guys really had something cool. So the team arrived, and the senior VP of hardware design arrived, and when they reviewed what SGI had developed, they gave no reaction whatsoever. At the end of the meeting, they basically said that it was kind of interesting, but the chip was too big (in manufacturing terms), the throw-off rate would be too high, and they had lots of little technical things that they didn't like: the audio wasn't good enough; the frame rate wasn't quite good enough, as well as some other issues.

So, the SGI guys went away and worked on these issues and then called us back up and asked that the same team be sent back over, because they had it all resolved. This time, Nakayama went with them. They reviewed the work, and there was sort of the same reaction: still not good enough.

Now, I'm not an engineer, and you kind of have to believe the people you have at the company, so we went back to our headquarters, and Nakayama said that it just wasn't good enough. We were to continue on our own way. Well, Jim Clark called me up and asked what was he supposed to do now? They had spent all that time and effort on what they thought was the perfect video game chipset, so what were they supposed to do with it? I told them that there were other companies that they should be calling, because we clearly weren't the ones for them. Needless to say, he did, and that chipset became part of the next generation of Nintendo products (N64).

So that's an example of how, partly due to our success in America, Japan just didn't want to do the things that we suggested.

The whole interview is interesting, though. Go read it.