OCTOBER 29TH 2015
LEGO’S SUCCESSFUL BET ON CHINA
In 2013, popular Danish toymaker Lego decided to build its first production facility in Asia (namely in the city of Jiaxing, located 100 km from Shanghai) with the prospect of tapping into the market of growing economies with promising middle class to level the stagnating sales from aging middle class in Europe and North America. At the time of overall slowdown of China’s economy and uncertainties on every corner (along with rising wage expectations) this has been a very bold move.
Now, two years later, when the factory has still two years to reach its full operation capacity, Lego executives see they have made a wise choice. Lego CEO Joergen Vig Knudstorp reflected on the benefits Chinese urbanization represents for company: “The urbanization where 500 million people are going to become members of a middle class that will look to great schools, great infrastructure but also play as an important part of childhood.” One of Lego’s great benefits is the positive impact it has on children’s creativity, which is an aspect that is not used to its full potential in Chinese early education.
Last month, the company announced that by the end of 2015, it will nearly triple the number of staff from the current 230 to about 600. The Danish toymaker also revealed it has increased global sales for first half of the year by 23 percent, which has also been helped by growth in Asia. Its revenue increased to USD2.13 billion, the company said in a statement issued in early September. «While all our regions experienced double-digit growth during the first half of 2015, it is particularly satisfactory that Asia saw the highest growth rates given the considerable investments we are making there to further the company’s globalization,» said Lego CFO Loren Shuster.
In China, however, it is not all that easy for Lego. As the brand becomes popular in China, the more pressure it is facing from competitor who in many cases build identical-looking bricks (also known as Lego clones). At present, the company is involved in a legal fight with Hong Kong-based Best-Lock Construction Toys, which has been accused of copying Lego’s mini-figures. In 2003, after China’s accession to the WTO, Lego won a landmark decision when the Beijing High People’s Court ruled that Chinese toymaker Coko Toy had infringed on Lego’s copyrights. But there are still dozens of copies and clones on the market that either fraudulently claim to be Lego. Lego’s best strategy may be to tout its high manufacturing standards as most Chinese toy factories are focused on exporting low-cost products rather than higher-quality toys for domestic consumption.
«Lego to build its first factory in Asia,» Financial Times http://www.ft.com/intl/cms/s/0/56b26c7c-8fdb-11e2-9239-00144feabdc0.html#axzz3pqhyrxY4
«Lego to increase workforce in Jiaxing,» Cihna Daily http://www.chinadaily.com.cn/business/2015-09/03/content_21783856.htm
«Lego looks to expand in China, the land of Lego knock-offs» Quartz http://qz.com/131355/lego-looks-to-expand-in-china-the-land-of-lego-knock-offs/
«Lego to expand production as it struggles to keep up with demand» Financial Times http://www.ft.com/intl/cms/s/0/0c7cbb6c-77cd-11e5-933d-efcdc3c11c89.html#axzz3pqhyrxY4
«Lego factories hit brick wall as Christmas worries build» The Guardian http://www.theguardian.com/world/2015/oct/21/lego-factories-brick-wall-christmas
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