System was a success in Europe, and later in Brazil, it failed to ignite significant interest in the Japanese or North American markets, which, by the mid-to-late 1980s, were both dominated by Nintendo. With Sega continuing to have difficulty penetrating the home market, Sega's console R&D team, led by Masami Ishikawa and supervised by Hideki Sato, began work on a successor to the Master System almost immediately after that console launched.

In 1987, Sega faced another threat to its console business when Japanese computer giant NEC