Lego’s New Footprint in China

By Eloha Habibi & Jeanette Norgaard

In the course of a year more than 400 million children and adults play with Legos toys which also have been elected as the most popular toy in the 20th century. But in the new millennium Lego has found it difficult to adapt to the changing production methods and new requirements of the target audience. However， after years of vacillation， the company has gained a foothold again. Lego has currently used outsourcing in their production and has entered a new “toy-era” where the company now focuses on modern technologies， computer games and robots and their new collaboration with Disney.

The famous Danish toy company Lego is rapidly growing in China but the company has not always been as popular in China as it is today. Just a couple of years ago Lego had to pay thousands of dollars to be allowed to make a sales promotion in one of Beijings fashionable shopping malls， but today Lego has doubled its turnover and is now one of the biggest foreign toy brands in China. That is also why the Danish company recently announced that they are going to build their first factory in China， beginning in early 2014 in the city of Jiaxing， which is about 60 miles from Shanghai， where the Lego Group also plans to establish a regional distribution center for Asia.

How it all began

Lego is a popular line of construction toys manufactured by The Lego Group， a privately held company based in Billund， Denmark. The Lego Group was founded by a carpenter named Ole Kirk Kristiansen who began to make wooden toys in 1932. In 1947 Lego expanded and started to produce plastic toys. The company has passed from father to son since the beginning， and it is now owned by Kjeld Kirk Kristiansen， a grandchild of the founder.

Since the 1960s， the Lego Group has released thousands of sets with a variety of themes including town and city， space， robots， pirates， trains， vikings， castles， dinosaurs， undersea exploration， and the wild west. New elements are often released along with new sets. Lego pieces of all varieties constitute a universal system. Despite variations in the design and purpose of individual pieces over the years， each remains compatible in some way with existing pieces. Lego bricks from 1958 still interlock with those made in the current time， and Lego sets for young children are compatible with those made for teenagers.

That may also be one of the reasons why Legos toys are so popular and why the Danish company now has to expand and develop their business in China.

Even though Lego is popular in China the marketing is still a necessary component in order to make the toys interesting for the Chinese：

“We pay great attention to the marketing， especially the digital marketing in China and other emerging markets. In Europe， Lego is known to many parents， or even grandparents. The marketing is therefore not a problem. But in China， not a lot of people know the value of Lego toys and the experiences of playing with them. The digital marketing channels can connect us with consumers and bring better experiences to them.” Legos General Manager in China Esben St？rk J？rgensen explains.

Lego has also thought about how the company wants to integrate some Chinese elements into their products. For example they launched the new series of toys in China in the year of the Snake.

“We know that the Chinese people like sending and collecting gifts on important holidays like the Spring Festival. This is a good opportunity and we do not want to miss it，” Esben St？rk J？rgens continues.

But even though Lego has to make some changes to reach the Chinese consumers there are still a lot of similarities to the toys made in Europe. The toys featuring “police station” is the best sold product in the world but it is also the best sold Lego toy in China.

Creates 2000 jobs in China

According to the Lego concern the factory in Jiaxing will be ready in 2017 and it will create 2000 jobs for the Chinese when it is fully finished. The plan is to supply the growing market in Asia. Based on the current expectations for the upcoming growth the factory will be producing about 70-80 % of all of Legos products that will be sold in Asia in 2017.

The company believes that it is im-portant to have control of the products in order to deliver the quality they are known for：

“Asia - including China - is a future core market for the Lego Group and therefore I am excited to share our plans for the new factory，” Chief Operations Officer Bali Padda says. “It is necessary to have control over the production to assure that we deliver products with high standards and good quality that fits our values，” the chief operation officer continues.

The city Jiaxing was chosen because of the citys infrastructure and its awareness and plans for sustainable develop- ment.

Michael Mcnulty who is the Vice President of Procurement explains how the new factory will be similar to the rest of the Lego factories that are located different places around Europe， for example Denmark， Hungary and The Czech Republic. He claims that the new Chinese factory will run with the same tech-nology and standards for employee safety and product quality like the rest of Lego factories.

Harder competition

Even though the new Danish factory will create a lot of jobs for the Chinese people， not everybody is happy about the new company opening in Jiaxing because it means that the competition will get much harder：

“Making money from running a toy business is going to be harder as we face tougher competition from local companies and well-known global brands，”Yang Junliang says to the China Daily. He is a sales manager of Yangzhou Oasis Ocean Toys from Jiangsu.

Other toy companies see Lego as a threat as well because of its ability to make good quality products for a cheaper price.

Chinas toy market is actually in a transitional period. It is changing from a market without high-quality products and well-established brands to a market that pays more attention to quality and brands. Lego believes that China is going to be its largest market in the future. Therefor Lego needs to become the best， not the largest， toy manufacturer in China according to Legos General Manager in China Esben St？rk J？rgensen：

“We have an increasing business in China and a larger number of competitors. In order to win the com-petition， we always keep enhancing our core competitive power – the experiences of play. Weve made a lot of surveys in China to find out what consumers really need when playing with toys. We find out how the children consider the toys and how they play with the toys and then we integrate these findings into our products in order to keep the charm of Lego.”

Helping the environment

According to the Lego Chief Operation Officer Bali Padda there are a lot of advantages by opening a factory in China：

“It is our strategy to have production close to our core markets in order to secure short lead time and service to our customers and consumers， and it has proven a successful strategy.”

The chief operation officer also explains how the company can protect the environment by locating a fabric in the region. By having a fabric in China the company doesnt need to transport products all the way from Europe to Asia and thereby Lego will reduce the pollution from the transportation.

That is in keeping with Legos environmental policy. The policy is supposed to ensure that all activities performed by the Lego group have to be executed in favour of the environment. According to Legos webpage， they strive to ensure a high environmental standard.

In the long term Legos ultimate goal is not to waste but to recycle and use natural resources. To reduce waste， Lego has focused on providing products with a long life and a unique compatibility.

The company also works on creating more environmentally and friendly products and generally reducing the amount of waste of the Group. In 2010， Lego launched the initiatives to reduce waste in the Lego Groups value chain， and they surpassed the goal of recycling 80% of their own waste to a recycling rate of 88%.