Global Corporate Strategy: LEGO
Lego is a company that was established in 1932 by a Danish entrepreneur known as Kirk Kristiansen. At the beginning of the business, the company produced small entities of wooden toys. However, with time, the company realized that manufacturing wooden toys was not a productive option, and after 15 years, he realized that manufacturing plastic toys was more suitable. Lego is a family-oriented business, it has been active in hiring close to 12500 people in the world. Lego produces the second most toy units in terms of sales. Lego bricks have also gained supremacy in the competitive market since the beginning of 1958. (Lego, 2019). The organization has taken initiative in exporting its products across 130 countries.
2.1 COMPETITIVENESS OF TOY INDUSTRY
2.1.1 Dynamics of the Toy Industry
The toy industry has intense competition because of its volatile and dynamic nature. This industry is considered difficult because of the ever-changing pricing of toys, technological advancements as well as attributed to games, thus making it difficult for other companies to prosper constantly. During the early days, there existed few options for children, which changed from wooded to electronic entertainment devices over the years (Klassner & Anderson, 2003). The Smart Toy application increased this competition much further for Lego. Nowadays, infused electronics is used in toys as active participation in owning its intelligence software. The enhancement of smart games made children have less attention to traditional toys. This enhancement increased interest amongst high-class children in the society as their parents had the purchasing power. According to the NDP group, the sales of toys acquired are estimated to be $18.4 billion during the first half of 2018, recording a 4% increase in the previous year (Lepcha, 2019). This report also suggests that the enhancement of purchasing toys has been experienced since 2012. Lego is comprised of a couple of interlocked plastic bricks that accompanies a wide range of mini-figures to attract the consumer’s interest. (Herman, 2012). Several Lego pieces can be assembled to construct objects such as robots and vehicles.
2.1.2 Major Players in the Industry
Lego boasts has a superior position in the toy industry as a result of its strong base regarding the innovation of ideas and consumers. It faces competition from rival brands Hasbro and Mattel (Lego, 2019). Hasbro comprises of toys ranging from power ranger, transformers, and G.I Joe. On the other hand, Mattel comprises more popular brands such as Barbie, hot wheels, matchbox toys, and pocket dolls among others. Toy manufacturing companies based in the U.S have a supreme position in this industry. Lego also faces competition from Bandai Namco which makes animated gaming products. To address this competition, Lego should begin introducing new products to their already popular categories.
2.1.3 The Effect of Porter’s Five Forces on Lego Performance
Porter’s five forces are used as a framework to assess the toy manufacturing industry and understanding the profitability forces in this industry.
184.108.40.206 Threat of New Entrants
The toy manufacturing industry needs a huge capital, making it difficult for new companies to enter this sector. Nonetheless, the distribution channel could be easy to establish for newcomers. Also, the licensing policies are strict for authorities of government. Lego, therefore, capitalizes on its capital requirements as well as the government policies which restrict newcomers.
220.127.116.11 Bargaining Power of the Suppliers
The bargaining power of the suppliers is relatively weaker because there are considerable vendors who are supplying the products. Lego can cope with this challenge by purchasing raw materials from different vendors across the supply chain. The existing rivalry among vendors will help Lego in buying quality raw materials.
18.104.22.168 Rivalry among Existing Companies
The toy manufacturing industry Lego is in is very competitive because of the renowned conglomerates like Mattel and Hasbro. Since Lego is facing stiff competition from these competitors, it has initiated strategic approaches that limit the growth of small-scale firms.
22.214.171.124 Bargaining Power of the Buyers
The company puts a lot of emphasis on its products on differentiation and high-quality maintenance. Lego has a strong consumer base which ensures the organization can meet the changing demands and needs of consumers, thereby making them loyal patrons of the respective brands.
126.96.36.199 Threat of Substitution
There is increased competition from alternatives like digital toys. Lego should, therefore, revolutionize its brands constantly to gain supremacy in the competitive market.
2.2 INNOVATION AND KNOWLEDGE MANAGEMENT
2.2.1 Plougmann versus Knudstorp Strategies at Work
Innovation means creating a product or something new and unique. This can be merchandise, services or concepts. The sustaining innovations do not create existing and new values or new market segments, and instead, it enhances the superiority of the present ones. This would help Lego involve in the toy manufacturing business to help it strive against all other striving strategies (Khajeheian, Friedrichsen & Modinger, 2018).
Disruptive strategies aim at creating a new value network as well as a new market area too. Lego. This strategy starts by craving the new market scenario and starting a new model for existing and new clients. This strategy has an advantage as conglomerates cannot compete with Lego. Therefore, as Lego continues to bring new toys in the market, it automatically decreases competition.
Poul Plougmann’s strategy was appointed by Lego to increase its sales. He introduced and reinvented the strategy of a game and therefore approached the disruptive innovation strategy, which attracts existing and new customers. He introduced a new game by creating a macho creator called Jack Stone.
Jorgen Vig Knudstorp adopted a new idea of sustaining a strategy of innovation to shift the sale base. He emphasized on managing cash flow very diligently to reduce the complexities associated with gaming products and later on focusing on developing existing core products for Lego (Ross et al., 2016).
2.2.2 Approaches Lego Used to Employ trained Staff
Most companies face challenges in retaining well and qualified staff. The certain profit falls for Lego is making the workers unstable. The invention of advanced and new technologies makes employees more reluctant, thus making it hard for Lego to hold skilled employees. Lego being an innovation company used the power of a game to attract the new and talented group as well as keeping them aligned and focused on the job. The introduction of gamification proved to be the most appropriate tool for Lego to recruit the right people for the right job.
Corporate Social Responsibility practices ensure that Lego can cut costs effectively. Lego communicated its CSR events extensively by specifying the details comprehensively over digital websites and platforms. Lego also provides the action details by uploading links to all CSR topics. Additionally, Lego follows the international approach in communicating the CSR strategies in the international market which are affected by the national situation in the place it had begun its national operations.
2.3.1 The National Business Structures for CSR in Billund
The government structure has affected the CSR programs of Lego in Denmark. The government bodies enjoy more power in Denmark and it largely decides the CSR regulations and functions. Lego group does not frame its regulations a sit has small control over the actions of CSR. In regards to the education system, in Billund, the government has all the education responsibilities, and not on the company’s project (Ali, Frynas & Mahmood, 2017). Therefore, Lego is not supposed to invest in the development of education in the given area.
2.4 EXPANSION STRATEGIES AND GLOBAL COMPETITIVENESS
Parents tend to buy educational toys to help in the cognitive development of their children. This, therefore, triggers the growth of toy manufacturing companies at a fast rate. Lego also introduces the cult characters in several movies as well as children related programs to increase the demand for games and thus increasing usage of modern toys (Lego, 2019). This is evident since Lego was active in launching motion pictures like Lego Ninjago and Lego Batman.
Customization of the toy box has revolutionized the toy industry in a good way. This has provided specific features that help clients select the preferred toys in the subscription box, which could curate the specific needs of the children. Lego increased its competitive advantage by identifying and increasing the preference of the clients about the production of green toys. This is because parents preferred eco-friendly toys that ensure their children are immune from specific hazards as well as keeping the environment safe. Lego understands the demand specifications and is willing to take active participation in this (Gliddon & Rothwell, 2018).
Additionally, Lego needs to prioritize on segmenting the market based on specific age groups to facilitate a focused strategy. This will help in understanding customer needs. For instance, products designed for children between 4 to 12 years will mainly comprise of Pictionary, puzzles, the building of bricks and other types of construction toys. Children of 12 years and above will have educational games. Also, Lego needs to consider the psychology of children to customize toys that meet their needs (De Wit, & Meyer, 2010).
Lego is a leading toy manufacturing company and it has a huge customer base. Even though it faces stiff competition from Mattel and Hasbro, it continues to revolutionize its products category with new offerings. Gamification could be the best strategy for retaining talented employees. Analysis of CSR strategies provided an overview of Lego’s brand in the competitive market. Finally, Lego has undertaken several strategies to expand its business across the world.