CASE STUDY WEEK 2: LEGO

QUESTION:

1. Assess the key strategic decisions he made, including

outsourcing and divesting the theme parks.
Production was outsourced to a Singaporean company with production
facilities in Mexico and the Czech Republic : cheaper facilities, high degree
of uniformity, packing of these products is very wage-intensive =>
Thereby, the LEGO Group will reap the full effect of lower wage costs
across all production processes

Upgrading the procurement processes and trimming product complexity. With

the restructuring process, they want to improve their profitability while at the
same time strengthening our competitive edge in an increasingly competitive
market.

2. LEGO’s movie-themed products, keyed to popular film franchises

such as Harry Potter , Lord of the Rings , and Spider-Man , include
detailed construction plans. Do you think this is the right strategy?

I would say that it was a right strategy in order to diversify their products and
also expand their customer targeting, I mean gain more attention not only kids
but also these series’s fans.
But Star Wars– and Harry Potter–themed products. “They were successful —
until they weren’t,” Robertson stated, noting that the Star Wars– and Harry
Potter–centric toys, for instance, were blockbusters — but only in the years
when new movies or books in those series were released. Other toys either
failed to gain traction or were only popular within small niche markets.
 3. Using Porter’s generic strategies framework, assess LEGO in
terms of the company’s pursuit of competitive advantage.

a. Competitive Rivalry
Size & Market share of competing firms: There are four major companies in
the toy manufacturing industry holding majority of the toy market share. Mattel
is the largest toy manufacturer in the world with 12% of total toy market share,
followed by Hasbro, Bandai and Lego holds more than two-third of total
market share.
Because of the price pressure from retailers on all major manufacturers to
reduce the price made a price competitive rivals, in order to gain temporary
advantage, rivals often lower product price by outsourcing manufacturing to
third worlds for example: Lego transferred some of its production units to
Eastern Europe from USA and Switzerland to minimize the manufacturing
cost.
Produce differentiation: Generally, to grab the more market share Lego
continuously improving product differentiation. Every year they introduce new
products in their portfolio to attract more customers.

b. Barrier to Entry
Licensing: toy characters (i.e. star wars, superman) => complex, expensive
start-up cost for new entrant
advance technology: toys are ranged from plastic to sophisticated robotics.
So they not only needs sophisticated equipments but also highly skill human
resource.

c. Threat of substitutes

Among many, cheap imitation, online gaming, computer games and video
games are common substitutes of toy.Parents are finding it much cheaper
or no cost at all to entertain their kids, while most of the portal uses method
like ‘learning while playing’
Handheld gaming devices (i.e. Nintendo, PSP etc.) are not yet a threat as
substitute because their high retail price. However, as technology develop
rapidly such devices price will drop significantly in coming years and when
almost all people will afford to buy, it may appear as an alternative to toys.
d. Supplier Power
Common raw materials in toy industry are oil, rubber, plastic and for
processing labour market (human resource). In labour market supplier power
is weak in toy industry as there are many competitive suppliers However, raw
materials supplier such as oil company has dominating power over
manufacturer as they have many alternative buyer. Even though, there are
alternative oil suppliers, switching supplier may be costly depending on
various factors such as geographic position of manufacturer, transportation
cost, and export tax.

e. Buyer Power
Toy manufacturers direct buyers are retailers. Large retailers such as super-
market chain often dominate on their suppliers
But in the case online shop, end-users are directly buying from manufacturer.
In this case buyers have freedom to switch between online retailers.

4. What risk, if any, is posed by LEGO’s movement into multimedia

categories such as video games and television?

Nowadays, kid tend to spend more time in playing video game so maybe
forgetting about the physical toys -the interlocking plastic bricks so It may lead
the considerable increase in sale of physical stores.