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On the first day of January 2012, the LEGO Group delved into a new initiative to develop its market presence in Asia. In the latter part of that year, senior managers conducted a meeting with the objective of discussing how the Asian invasion fared as well as to identify the challenges involved with such initiative. The same meeting is geared towards coming up with four scenarios that may arise in the future and how managers should act when challenged by any of the scenarios. This case study analysis enables students to do the scenario exercise which would help them come up with the best answer on whether the LEGO Group should build a factory in Asia within the next several years.
Anette Mikes; Dominique Hamel
Harvard Business Review (113054-PDF-ENG)
November 15, 2012
Case questions answered:
- On a scale of 1-10, how attractive is the branded toy industry? How well has the LEGO Group adapted to this environment?
- Let us look at the Asian market – what are the opportunities and the key challenges?
- Please design (and be ready to present) scenarios. What are the implications for Lego’s strategy? Should Lego build a factory in Asia in the next five to seven years?
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The LEGO Group: Envisioning Risks in Asia (A) Case Answers
1. On a scale of 1-10, how attractive is the branded toy industry? How well has the LEGO Group adapted to this environment?
Using Porter’s five forces framework, the branded toy industry, including the LEGO Group, can be rated as very unattractive with a score of 2.
In terms of industry rivalry, the branded toy industry exhibits a medium level as there are large, established players such as LEGO and Mattel that dominate the industry.
Regarding the threat of substitutes, the branded toy industry has a high level, especially when looking at the Asian market and the commoditization of toys.
The threat of new entrants in the branded toy industry, to which the LEGO Group belongs, can be considered medium, as the barriers to entry to be an established player are relatively high due to infrastructure requirements.
However, as depicted in the case, in Asian markets the threat of new entrants is persistent as, for example, Japanese retailers are pushing their entrance into the Chinese market.
The bargaining power of buyers in this industry can be considered high, due to the fact that customers have very low-switching costs and a high amount of substitute products. The bargaining power of suppliers is also relatively high in this industry, as for example, in order to compete, companies have to maintain low prices and thus offer low margins whilst efficiently managing the complex supply chain. This results in suppliers having the possibility to bargain with companies and exert pressure on their price levels.
Within this fast-growing industry, the LEGO Group has remained very competitive and adapted very well by focusing on the main strategic points in their operations. For example, LEGO’s high focus on supply chain management has enabled them to implement best-practices such as guaranteeing retailers faster inventory turnovers than competitors whilst keeping an adequate level of closing stock and prevent stock-outs.
Furthermore, practices such as the “commonality” principle enable the LEGO Group to…
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