Regional Economic Intergration
Question 1
Before competing in Asia, Lego pursued a global standardisation strategy whereby its aim was to create global products with 95% standardisation and 5% variation in its packaging. Lego started adopting the transnational strategy when competing in Asia whereby there is high pressure for cost reduction and local responsiveness. In terms of cost-reduction, it was vivid when Lego decided to construct a factory in China which is expected to shorten lead times and improve efficiency by responding quickly to retailer demand. The effort to match demand helps to regulate production and reduce warehousing which will in turn reduce the cost. As for local responsiveness, Lego has taken effort to adapt the products to suit Asian market. Lego opened its first theme park in southern Malaysia and it planned to open an onsite hotel. In addition, Lego created new product lines namely ‘Legends of Chima’ and ‘Lego Friends’. Lego also created new video games with an emphasis on the role play of education. Not only that, Lego has adopted the just in time approach and moved closer to customers.
Question 2
There are two major factors that might inhibit Lego’s future sales growth in Asian markets. The first would be on the company’s level. The company’s decision to move into excessive diversification such as building theme parks and creating video games could slowly draw capital away from its original activity which is producing building blocks. Furthermore, until the production in China is operational, there are risks of trade barriers, long lead times and high freight costs. This issue could be addressed by the company having proper budgets and output controls such as sales and profit targets. The second factor that would affect Lego’s sales growth would be on customers’ level. The aging population may reduce Lego’s customer base in the long run. Problems of customer acceptance may arise whereby Lego may offer products that Asian market do not value. It has to be
Before competing in Asia, Lego pursued a global standardisation strategy whereby its aim was to create global products with 95% standardisation and 5% variation in its packaging. Lego started adopting the transnational strategy when competing in Asia whereby there is high pressure for cost reduction and local responsiveness. In terms of cost-reduction, it was vivid when Lego decided to construct a factory in China which is expected to shorten lead times and improve efficiency by responding quickly to retailer demand. The effort to match demand helps to regulate production and reduce warehousing which will in turn reduce the cost. As for local responsiveness, Lego has taken effort to adapt the products to suit Asian market. Lego opened its first theme park in southern Malaysia and it planned to open an onsite hotel. In addition, Lego created new product lines namely ‘Legends of Chima’ and ‘Lego Friends’. Lego also created new video games with an emphasis on the role play of education. Not only that, Lego has adopted the just in time approach and moved closer to customers.
Question 2
There are two major factors that might inhibit Lego’s future sales growth in Asian markets. The first would be on the company’s level. The company’s decision to move into excessive diversification such as building theme parks and creating video games could slowly draw capital away from its original activity which is producing building blocks. Furthermore, until the production in China is operational, there are risks of trade barriers, long lead times and high freight costs. This issue could be addressed by the company having proper budgets and output controls such as sales and profit targets. The second factor that would affect Lego’s sales growth would be on customers’ level. The aging population may reduce Lego’s customer base in the long run. Problems of customer acceptance may arise whereby Lego may offer products that Asian market do not value. It has to be
References: Danubrata, E. & Philomin, L. 2013. ‘For Lego, rising wealth means more play – and business’, Reuters, 4 October. Davidson, J. 2014. ‘Lego is now the largest toy company in the World’, Time Money, 4 September. Girard, K. 2013. ‘Can Lego snap together a future in Asia?’, Forbes, 29 May. Metcalf, T. & LaFranco, R. 2013. ‘Lego builds new billionaires as toymaker topples Mattel’, Bloomberg, 13 March. Trangbaek, R.R. 2013. ‘Successful Lego strategy delivers continued strong growth’, Lego Group, 21 February. Wienberg, C. 2013. ‘Lego beats Hasbro as World’s No. 2 toymaker amid Asia sales jump’, Bloomberg, 5 September.