THE LEGO GROUP:

ENVISIONING RISKS IN ASIA

(A)

SUBMITTED BY –
ABHISHEK GAUTAM

ARITRA NANDI

SONAM DOLMA

VIMAL JEPH
 1. How attractive is the branded toy industry?

✔ -with sales approaching $3.5 billion in 2011 the lego group was the
third biggest toy manufacturers in the world.
✔ -it enjoyed a 5.6% market share in the worldwide traditional toys
and games sector and a 60.9% market share in the worldwide
construction toys category, in which it was a leading company in
most countries.
✔ -with its head office in denmark, the group had subsidiaries in the
americas, europe, africa and asia and was selling its products in over
130 countries.

2. How well has lego adapted to the industry

environment?

✔ The ceo of the lego group jorgen vig knudstorp, developed a new
strategy – to focus on the core products and core processes.
✔ He worked on to improve on three major areas: product
development, customer relationship management, and supply chain
management.
✔ By 2012, these capabilities were organised into centralised functions
and were seen as the building blocks of a powerful new ‘business
architecture’.

PRODUCT DEVELOPMENT:
• THE NEW MANAGEMENT TEAM’S FIRST DECISION WAS TO SIMPLIFY PRODUCTION
AND DESIGN BY LIMITING THE NUMBER OF DIFFERENT BRICK ELEMENTS IN USE.
COMMONALITY WAS AT THE HEART OF STANDARDISING THE KEY OPERATING
PROCESSES OF PRODUCT DEVELOPMENT.
 • THE LEGO GROUP SHOWED THE ABILITY TO USE CONSUMER INSIGHT IN PRODUCT
DEVELOPMENT. ALSO, THE MARKETING STAFF CONDUCTED EXTENSIVE RESEARCH
WITH FAMILIES FOR WEEKS TO UNDERSTAND HOW CHILDREN LIVED AND PLAYED.

CUSTOMER RELATIONSHIP MANAGEMENT:

• LEGO PRODUCTS WERE SOLD TO CONSUMERS BY A VARIETY OF RETAILERS: LOCAL
TOY SPECIALISTS, REGIONAL CHAINS, GLOBAL RETAILERS, AND E-TAILERS.
• RETAIL CUSTOMERS SATISFACTION WAS MEASURED IN ORDER TO DETERMINE
VARIABLE COMPENSATION FOR TOP MANAGEMENT.
• DEVELOPING A WIN-WIN PARTERNERSHIP WITH THE RETAILERS ALLOWED THE
GROUP TO COMMAND A HIGHER MARGIN THAN ITS COMPETITORS DID.

SUPPLY CHAIN MANAGEMENT –

• COMPANY’ S SET ITS VALUE PROPOSITION OF GIVING BEST IN CLASS
INVENTORY TURNS, HIGH SHELF PRODUCTIVITY THROUGH CONSTANT
NEWNESS AND KEEPING THE PRODUCT AVAILABLE.
• IN US AND EUROPE, THE GROUP HAD FINISHED GOODS INVENTORY TURNS OF
7.5 TIMES A YEAR. THE COMPANY ACHIEVED THIS BY HAVING ITS
OPERATIONS CLOSE TO THE MARKETS.
• TO KEEP THE DISTRIBUTION EMPLOYEES FOCUSED THREE METRICS WERE
TYPICALLY TRACKED: LEAD TIME, STOCK TURNS AND DELIVERY RELIABILITY.

3. WHAT ARE THE KEY OPPORTUNITIES AND CHALLENGES IN THE

ASIA MARKET ?
OPPORTUNITIES
● THERE WAS MUCH ROOM FOR LEGO TO IMPROVE ITS MARKET SHARE.
● MARKETING RESEARCH FORECASTS THAT ASIAN TOY MARKETS WERE SET TO
GROW RAPIDLY IN NEXT FIVE YEARS AND SPECULATING THAT ASIA-PACIFIC
TOY MARKET WOULD OUTGROW EUROPE AND NORTH AMERICAN MARKETS
BY 2014-2015.
 ● CHINA SHOWS A PROMISING FORECAST OF INCREASE OF MARKET SIZE OF
CONSTRUCTION TOYS FROM 600 MILLION IN 2010 TO 1300 MILLION IN
2015.
● ENHANCE MARKET PENETRATION BY SWITCHING FROM DISTRIBUTOR MODEL
TO DIRECT SALES MODEL IN ORDER TO BE MORE RESPONSIVE TO LOCAL
DEMAND WHILE CARRYING LESS INVENTORY IN ITS DISTRIBUTION CENTRES.
● ESTABLISH REGIONAL DISTRIBUTION CENTRES OPERATED BY THIRD PARTY
COMPANIES AND BUILD UP REGIONAL SAFETY STOCKS SOO IT COULD
SHORTEN LEAD TIMES TO LOCAL CUSTOMERS.

CHALLENGES
● THE RISK OF OUTSOURCING PRODUCTION. RISK IS INVOLVED AND ALSO
QUALITY CONTROL ISSUES.
● DIFFICULTY IN ALIGNING THE GROUP’S SEASONAL AND UNPREDICTABLE
DEMAND WITH FLEXTRONICS MODEL.
● GROUP PRODUCTS WOULD NOT RESPOND TO MYRIAD OF CULTURAL
DIFFERENCES OF ASIAN MARKET.
● INSTEAD OF LARGE RETAILERS ,REGION WAS FILLED WITH MANY SMALL ONES
SO LEGO LACKED A DEVELOPED RETAIL NETWORK.

4. WITH A SPECIFIC FOCUS ON THE ASIAN MARKET, DO A

SCENARIO PLANNING AND DETERMINE THE IMPLICATIONS AND
OPTIONS FOR THE LEGO GROUP. SHOULD LEGO BUILD A
FACTORY IN ASIA IN THE NEXT FIVE TO SEVEN YEARS?

WHILE IDENTIFYING THE DRIVING FORCES OF THE BUSINESS SUCH AS

 CHANGES IN THE MACRO ENVIRONMENT
 CHANGES IN TECHNOLOGY
 CHANGES IN THE ECONOMIC TRADE SYSTEM
 CHANGES IN PRODUCTION METHODS
 CHANGES IN CONSUMER DEMANDS AND TASTES
  CHANGES IN TECHNOLOGY AND ECONOMY
WE CONCLUDED THAT
 CHANGES IN TECHNOLOGICAL ADVANCEMENTS AND DEVELOPMENTS
AND
 CHANGES IN CONSUMER DEMANDS AND NEEDS

WERE THE TWO UNCERTAINTIES OF THE FUTURE THAT WILL HAVE THE
LARGEST IMPACT AND INFLUENCE ON THE BUSINESS. ACCORDING TO THESE,
LEGO WOULD HAVE 4 POSSIBLE ACTIONS TO TAKE AND PREPARE FOR
NECESSARY RESPECTIVE SCENARIOS THAT MIGHT ARISE DUE TO EACH ACTION

INSTALL NEW DO MARKET

TECHNOLOGY RESEARCH

ENGAGE IN INNOVATIVE ENSURE IN-HOUSE OR OUT-

MARKETING HOUSE PRODUCTION OF

TECHNOLOGY

OUR FINAL CONCLUSION IS THAT LEGO SHOULD

 PUT MORE RESOURCES ON THE GROUND IN CHINA,
 COMMIT TO LOCALIZATION EFFORTS,
 AND CONTINUE TO INTRODUCE PRODUCTS LIKE NINJAGO THAT HAVE GLOBAL
APPEAL