TOKYO (Reuters) - Japanese videogame maker Square Enix Co Ltd (9684.T) said it is considering taking stakes in game developers to combat rising competition from established game publishers and other entertainment companies.

"Economies of scale and breadth of scope are getting important. It may be a business alliance or it may be us taking a stake in others, but we need to go beyond traditional Square Enix," Square Enix President Yoichi Wada told the Reuters Global Technology, Media and Telecoms Summit in Tokyo on Tuesday.

"We face competition not only from Japanese videogame companies but from game companies worldwide. We also see some new players from outside the videogame industry coming in," he said.

Game makers are rapidly consolidating to boost their competitiveness, with Electronic Arts (ERTS.O) planning to take over rival videogame maker Take-Two Interactive Software Inc (TTWO.O), while Vivendi's (http://VIV.PA">VIV.PA) game unit is merging with Activision Inc (ATVI.O).

Square Enix, creator of blockbuster game series including "Dragon Quest," "Final Fantasy" and "Kingdom Hearts," was itself created in 2003 through a merger of two leading Japanese game makers.

Asked if Square Enix is currently in talks with others, Wada said: "That's part of a CEO's job. That's part of our routine work."

Square Enix said last month it would move to a holding company structure in October, saying it was necessary to move to the kind of organization that could respond to business tie-ups and investment opportunities quickly and flexibly.

Wada said Square Enix has no fixed budget for investing in other companies, but he pointed out that management is allowed to issue about 290 million additional shares without approval at a general shareholders' meeting.

"I'm not suggesting we are going to use up all that. But we have a capacity to do that," he said.

Based on Tuesday's closing price, 290 million shares in Square Enix are worth 960 billion yen ($9.20 billion).

Wada also said he aims to boost the ratio of overseas videogame software sales among its total game software revenues to 80 percent in three years from about 50 percent now.

Following his comments, shares in Square Enix were up 0.9 percent at 3,300 yen in early afternoon, outperforming the Nikkei average (.N225), which fell 0.8 percent.

Square Enix is set to announce earnings results for the year ended March 31 and outlook for the current business year on Friday.

Analysts on average expect Square Enix's operating profit to come to 32.4 billion yen in the current business year to March 2009, up sharply from the company's own estimate for the previous business year of 21 billion yen.

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