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Lego strategic analysis
This essay will consider firstly the position of Lego in relation to both the constraints of the internal and external environment in the lead up to 2004. The essay will then go on to consider the position of the Lego group from 2005 onwards paying particular attention to how the company has reacted to adapt its internal resources in order to meet the needs of the external environment.
The Lego group up to 2004:
In 2004 the Lego group was u nder the leadership of CEO Kjeld Kirk Kristiansen, the company faced a large number of problems including posting a loss for the year of DKK 1,800m despite a group turnover of DKK 6,295m. As a result Kristiansen stepped down from the chiromancy and deposited a further DKK 800,000 of personal funds into the company. Despite these headline figures the problems facing the Lego group in 2004 many be considered has having a longer history than the single year of such great losses and be routed in both problems in the internal and external environment.
Five Forces Analysis
Porter (2004) outlines five forces which have an impact upon a business coming from the external environment and include the following elements which will now be considered individually: Level of rivalry
Power of buyers
Power of suppliers
Threat of substitutes
Threat of entrants
Level of rivalry
The overall level of rivalry may be seen as relatively intense for the Lego group in the run up until the end of 2004. Whilst Lego occupies a strong position in the market for construction toys with relatively few rivals one must consider that Lego is now competing in boarder market of children's entertainment which in the lead up to 2004 began in include large incumbents from the electronics sector such as Sega and Nintendo. Power of buys
The power of the buyer in the case of Lego may be seen as relatively high with low switching costs between
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Lego strategic analysis
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alternative toys and even substitute products such as video games and television. Power of suppliers
The power of suppliers may be seen as average, Lego's products on the whole may be seen as largely based upon standardised inputs such as plastics and chemicals. There is the consideration that were Lego chooses to move into non-traditional areas such as sets associated with films or games the power of suppliers will increase as a key input becomes that of licences which is a form of intellectual property. Threat of substitutes
This may be seen as the largest threat to the Lego group in the run up to the end of 2004. Although it is difficult to define what market a company occupies (Grant 2008, Porter 2004) for the purpose of considering the impact of substitution one must consider Lego to be a provider of children's entertainment. In this case the threat from substitutes are rather high given that consumers may substitute between alternative traditional toys such as action figures or toy cars through to electronic products such as video games and television. Threat of new entrants
The threat of new entrants into both the smaller traditional toys market and the wider children's entrainments market may be seen as relatively low in the run up until 2004 largely for similar reasons. In order to enter these markets there is the requirement for significantly high levels of investment in both the form of...