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LEGO Case

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luisa muñoz

on 2 April 2013

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Transcript of LEGO Case

OUTLINE 1. LEGO Group 2. Background 3. What was the new plan? 4. Main Problem 5. Five Force Analysis 6. SWOT Analysis 7. Alternatives 8. Conclusions LEGO Group LEGO GROUP is a Denmark toy company founded in 1932 by Ole Kirk Christiansen. The business model is based on offering high quality products that encourage creative play while children learn through their imagination. The LEGO’s iconic product, the plastic brick, results from the acquisition of the company: plastic injection-molding machine. In 2000 began a period of explosive growth due to licensing products and intellectual properties. Background The company faced a big expansion that included not only new product lines but computer games, clothing, amusement parks (LEGOLAND), movies (Star Wars & Harry Potter), series (Bionicle) and their website. For increasing innovation, the company hired many designers, whose ideas were beyond traditional bricks, which affected the cost structure. Increasing competition The toy industry reduced costs by outsourcing the manufacturing to Asia countries and the Danish Krone devaluate against the US Dollar, so LEGO faced a pressure in prices because the competition offered lower prices and was faster than LEGO bringing products to the market. The retail sector was consolidating into mega stores which had an increasing large share of total toy sales. This caused a strategic space competition that came with an acceptance of marketing politics from retail outlets and producing toys for then under license. Electronic games The crisis started in 2003 and 2004 because of: The toy industry was changing dramatically Children about the age of 8 start losing interest in traditional toys due to multimedia fantasy worlds. The toys period of use was reduced in 4 years due to this trend, what affected the company’s market share. The expansion in the range of offerings not only affected the identity of the LEGO Group but also altered its cost structure because every new product line had to have its own mold, production method, and inventory, which added to the fixed cost of the company. The identity of the company was affected because they had so many product lines and projects that they lost their focus. This was represented in the total sales of 2003 and 2004 WHAT WAS THE PLAN? Stabilize for survival:

Reducing costs

Eliminating debt

Returning profitability Profit from the core:

Revitalizing the core product lines and transforming them. Achieving vision:

Developing innovative new play experiences. The rescue plan was called Shared Vision, on which Jorgen Vig Knudstorp (LEGO’s CEO) implemented 3 phases: In 2006 the company announced that 80% of manufacturing would be relocated to low cost countries in Eastern Europe and Mexico.

The LEGO Group sold 70% share of the 4 LEGOLANDS to the Black Stone Group for $456 million dollars to reduce debt and generate cash.

They began to reduce the inventory of LEGO components*
*each unique color-shape combination. Elimination of some products that were not profitable to the business. Unique brand identity in every new idea of product. MAIN PROBLEM Lego due to the market diversification had lost its core business and capability of innovation (2 of 10 ideas made it to the market) causing a decrease in profitability. ALTERNATIVES Our alternatives are focused on open Innovation that is a strategy in which the company has to go beyond its limits and be creative.

It means combining internal knowledge with external knowledge to take forwards the draft strategy and R & D. It also means that LEGO can use both internal and external channels to market their products and technologies. FIVE FORCE ANALYSIS This Porter five forces analysis show us that LEGO has to innovate constantly in order to win position in the toys market and to bring a different value to make them feel motivate to prefer a LEGO toy more than others.
This is has to be made by LEGO because their principal problem is the high threat of new entrants and the intensity of competitive rivalry that it cause, and the result of this is more bargaining power of the customers. SWOT ANALYSIS Diversified Factories, Specific Tasks: Because of the loss of the purchasing power of the U.S dollar (USD) against the Danish Krone (DKK), is necessary to adopt a transnational politic and translate the manufacturing operations of fabrication by line of products LEGO, that is, each line will be manufactured in a specific country where the production is cheaper.

These will increase the production because of the specialization and assembly lines, increase the rate of reaction, facilitate the development of more products, reduce the molds and types of blocks and generate an effect of reducing the production costs. LEGARTKITECT (“The art of playing to be an architect”) Through de LEGO Digital Designers be encourage the development of LEGO city, where whole cities can be designed, the consumers can design the city with the characteristics they wanted to have it, and he can make it real receiving LEGO blocks and building them in their houses, tanks to the established and existing in the different plants of fabrication that will send the blocks to a plant of distribution that trough the system “Pick-to-light” will arm the order request, for the delivery of it. Anniversary Edition For not to put in a side the blocks and previously discontinued editions, it would celebrate editions by anniversaries, in which will be sail again, (as anniversary special edition) those blocks that were previously discontinued, will capture knew consumers who prefer previous versions. Thursdays Special Every Thursday will be discounts series in blocks, encouraging the online purchase inside the LEGO web side, achieving future savings in costs of distribution to big superficies. LEGOmarket In each continent will have a store specialized in retail shop selling LEGO, this store will be the size of any Walmart or Carrefour store, where everything will be LEGO, from the floor to the shelves and the market cars. This store will supply all parts and systems LEGO for the direct consumer. And will be the center of recreation for it. This store will have one counseling, in which the client also can design using LEGO Digital Designer and LEGARTKITECT Strategic Plan “Develop your idea.” It will create a building created for innovation and innovation culture, destination for LEGO collaborators that will need these building just to create. Right there the innovation and development team will analyze all the ideas, which will publish each semester in LEGO Digital Designer the best 10 ideas that can succeed, here people will vote for the best ideas and theses will be in the market the next month. Ensuring that every 3 years 6 especial editions will be develop, totally knew and that consumers will like. Chosen Alternatives! Licensing Destine a percentage of profits to renew each license LEGO that is expire, allowing the exclusivity of the blocks to the company, as well as the possibility of selling the rights to companies that wish to make use of LEGO products, generating additional incomes for the company “Diversified manufacturing plants, specific labors”. CONSEQUENCES
US dollar gradually declined against the Danish Krone, LEGO products became more expensive. USD/DKK (United States dollar/Danish krone) years 2003-2005 exchange rate history Strategy Low-cost country sourcing LCCS is procurement strategy in which a company sources materials from countries with lower labor and production costs in order to cut operating expenses.

LCCS falls under a broad category of procurement efforts called global sourcing. The process of low cost sourcing consists of two parties.

The customer and the supplier countries like US, UK, Canada, Australia, and West European nations are considered as high cost countries (HCC) whereas resource rich and regulated wage labor locations like China, India, Indonesia, Bolivia, Brazil, Russia, Mexico, and East European nations are considered low cost countries (LCC).

In low cost country sourcing the material flows from LCC to HCC while the technology flows from HCC to LCC. MEXICO In 2000, Mexican manufacturing labor was more than three times as expensive as Chinese.
The surging costs of transporting finished goods in recent years—helped drive Mexico’s share of US manufacturing imports to nearly 15% in 2012, up from a 10-year low of 11.2% in 2005.

Along with a yuan that remains quite strong by the standards of the last two decades, the rising cost of Chinese workers is another headwind for the export sector in the People’s Republic. On the flip side, those workers’ rising wages have helped make consumer spending in China a bit more resilient.
Mexico meanwhile benefits from proximity to the U.S., but suffers from low productivity growth. THAILAND Thailand, a country that has not received the amount of attention currently being paid to India and Vietnam, is quietly turning itself into a serious alternative for Asia-based manufacturers.

According to a report published in The Business Times, companies in Thailand are forecast to chalk up the highest earnings per share (EPS) growth in Asia in the coming 12 months at 50.9 percent.

The outlook, from StareMine Professional, predicts 33.6 percent growth for firms in China, while listed firms in India are expected to boost their EPS by 18.2 percent. FINANCIAL ANALYSIS COSTS MEXICO
BUILDING USD 1.200.000
LAND 2.200.000
ADECUATION 14.400.000
COSTS THAILAND
BUILDING 1.600.000
LAND 600.000
ADECUATION 15.200.000
COSTS -40%
CAPACITY +40% LEGARTKITECT (“The art of playing to be an architect”) FINANCIAL ANALYSIS Karen Catalina
Laura Chaves
Daniel Espitia
Roberto Cortes
Luisa Munoz
Valeria Duran
Ana Maria Tarazona Conclusions In LEGO Group is recommended to diversify it's manufacturing because this will allow the company to reduce costs and have a higher production capacity. With this alternative LEGO will get a favorable competitive market position and it will respond easily to the direct competitors strategies.

Both alternatives chosen give to the company higher returns and the ability to respond to environmental needs. THANK YOU!!!
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