LEGO & Billund, Denmark

6 June 2016

In this report I will focus on toy manufacturing company called LEGO and its goals of expending their business in China. The project will contain of 10 pages which will include internal and external analyses of the company and chosen country environment or market. In this project I will try to analyze Chinese market for toys with the purpose of reaching a better foundation for decision regarding their strategic situation. I will use information from books, internet and my decisions are going to be based on knowledge and information I have collected.

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Problem Proposal
How LEGO should change their strategic situation in Chinese market? What kind of strategic proposals company should choose?
What target groups, positions and segments LEGO should attract the most? Delimitation

In this report I am going to talk about LEGO’s target groups, mainly B2C market. Also I will include market size and geographical position of the market. I will talk about company’s insides, their mission, vision and values. Moreover, I will talk about possibilities and resources to expend their market in China in addition I will include financial position of the company and some statistical information. Furthermore, I will talk about living costs and economy to get better insight due to market expansion in current country. In this project I will not include any political and environmental analyzes because in my opinion they are not relevant in this case. Methodology

In this case study, I will try to find out, proper answers and solutions for my problem proposal. First of all, I will divide analysis into 2 sections: internal (inside of the company) and external (chosen market). In the Internal part I will briefly go through company’s history and existence. After that, I am going to present LEGO’s vision and mission, to get a better insight of company’s goals and attitudes towards their wishes. Also I am going to talk about their value chain, on which steps LEGO is trying to build value for their customers.

Moreover, it is important to discuss company’s financial position at the moment and organizational structure. To sum up internal analyses I am going to use SWot. After the internal part I will discuss only strengths and weaknesses. Afterwards I will start the internal part I will analyze China’s market, where LEGO wants to spread their business. To get a full understanding of all the different powers, pushing the company, I will use Porter’s 5 forces. These analyze shows how different powers, such as: suppliers, buyers and etc. can influence business.

To sum up the external part I will use swOT, I will talk only about threats and opportunities. The second part, after internal and external analyses, I am going to talk how LEGO should generate and select their strategy (STP) in China. Also, I am going to offer a marketing mix (4P’s) and talk a bit about implementation. After all the research and my proposals I will make a conclusion.

Analysis section
Step 1: Internal analysis

Short Introduction
LEGO is a Danish company established in 1932 by Ole Kirk Christiansen, a carpenter from Billund, Denmark. In 1947 company expanded their production by producing plastic toys. Moreover in 1949 company went even further and started to produce the early version of the now famous interlocking bricks, calling them “Automatic Binding Bricks”. The Lego Group’s motto is “det bedste er ikke for godt” which means roughly “only the best is the best”. Today Lego is one of the most successful toy manufacturers in the world. Company sells their products world-wide and even leads markets in particular countries. Now company mainly focuses on Asian especially China market, because it is developing really fast and China is one of the BRIC countries. Mission and Vision

‘Inspire and develop the builders of tomorrow’
Our ultimate purpose is to inspire and develop children to think creatively, reason systematically and release their potential to shape their own future – experiencing the endless human possibility.

‘Inventing the future of play’
We want to pioneer new ways of playing, play materials and the business models of play – leveraging globalization and digitalization…it is not just about products, it is about realizing the human possibility.1

Value chain
LEGO is a company which is very aware of their value chain. It is really important for them to create a value on every production and service step, because in China value based products goes to the top. First of all, company’s core values are: imagination – creativity – fun – learning – caring and quality. Every department of LEGO is trying to keep those values on the top; starting from the infrastructure and ending with the services. Thinking about that LEGO friends are already in China, it is important to understand how company is building their value for customers and how they can improve it.

Residents of China are very focused on youngster’s population, after they made one-child law, so it is very important that LEGO friend would show that they are as much concerned about children as their parents are. It is important to know that LEGO’s core values are quality, from the very beginning of the company; they started to make toys from a quality wood and later on plastics. Moreover, company in their making process uses renewable energy, to reduce the impact to the environment. LEGO wants to be known for their passion, dedication to work and how carefully they create everything. In this case, all the documentations and chemical researches on materials are released into the public.

Company is using only environmentally safe materials, so they are trying to be close with their suppliers and pay extra costs to minimize the environmental impact and at the same time create a value for the customer. LEGO is a toy making company, so they need to be very aware of the quality and what kind of message they are sending to their customers. Also, the company is very aware of human rights, that’s why, in 2012 LEGO issued a new Code of Conduct to set rules for the company and how it should threat the workers. Moreover, this Code of Conduct was released because LEGO was very concerned about their employees in China.

According to the LEGO group progress report “The Pearl River delta where most of our Chinese suppliers are situated is currently struggling with labor shortages.” In this case, LEGO created very favorable working conditions. Such values are vital for parent’s opinion about the company when they are choosing witch products they want to purchase. By creating these values LEGO feels the market demand for LEGO friends in China, that is why, the company will start to build toy factory in China, Jiaxing from 2014. This move will add value to outbound logistics and will shorten company’s lead times. From everything what LEGO is doing for China, we can see that it is really important for them to take an appropriate root in China.

Therefore, company wants to show Chinese customers that they are the best in all possible ways, and if not then LEGO will do their best to become leaders. But there is always another side of company’s inside problems and of course LEGO also has few. Their cost strategy is not adapted to a Chinese customer. Most of the toys production in China is focused on low-cost strategy. It does not mean anything wrong, but I just want to underline that LEGO’s price strategy could cause some problems. Also as an international company LEGO is facing some outbound logistic issues. Company depends on the partnerships they have with many global partners.

These partnerships require LEGO to have mutual benefit for their co-operations. This is the reason why company will start to build their own factory, but until that time, they will be dependable on these partnerships in China. Moreover, LEGO’s marketing strategy is not fully developed for Chinese market. Company should create more culturally customized products, and do not put everything on “skillful toys”. They should concentrate on intimate customer values and allocate their marketing according to the different countries.

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