Lego Global Toy Industry

Table of Contents

Introduction        2

External Analysis        3

Five Forces Analysis:  Global branded toy Industry        3

Bargaining Power of Supplier        3

Bargaining Power of Buyer        3

Threat of Substitutes        4

Threat of New Entrants        4

Degree of Rivalry        4

Internal Strategic Audit        5

SWOT Analysis        5

Financial Appraisal        6

Value Chain Linkages        7

Core Activities:        8

Secondary Activities:        8

Evaluation of External Stakeholder Issues        9

Market Evaluation:        11

Recommended Entry Strategy:        13

Bibliography        16

Appendix 1: The LEGO Group Financial Highlights        17

Appendix 2: VALUE CHAIN ANALYSIS        18

Appendix 3: SWOT Analysis for the LEGO Group        19

Appendix 4: BCG Matrix For The LEGO Group’s Productline        20

Appendix 5: Porter’s Five Forces Analysis        21

Executive Summary 

Being a branded player in the global toy industry gives the LEGO Group a lightly higher bargaining power than other manufactures given the fact that it enjoys strategic relationships with retailers like Wal-Mart. However, emergence of alliances between competitors like Mattel and Mega Brands has challenged the LEGO Group’s traditional approach of focusing on large markets with sale of traditional playing material. While the US market offers growth and scale, the stagnation of the European market and declining sales of traditional toys worldwide has increased the need to explore new markets like China where the establishment of a factory has opened new avenues. The financial position of the company does not show any hindrances in pursuing growth while at the same time entry into Asia via China would allow formation of strategic alliances and elimination of currency fluctuations.

While products for both male and female children have seen growth potential, other areas that can be explored in Asia can be in markets for educational toys and digital avenues. The LEGO Group’s weakness in the digital market may also be improved via an alliance with Chinese or Japanese partners. While growth opportunities seem attractive, external stakeholder issues in the form of breakage of strategic alliances, decline in quality and damage to brand equity can be areas of concern if growth is pursued rapidly in the seasonal high growth global toy market. While the LEGO Group’s decentralized firm structure and core activities such as development, production, marketing and sales have managed to establish a value chain that can compete in global markets, the decision of pursuing new strategic prospects seems challenging.

Introduction

This paper has made use of the latest financial and market results for the LEGO Group to evaluate future potential moves which should be undertaken by the company to pursue growth in the global toy market. An analysis of the internal and external environment of the company has been done using various frameworks. Porter’s five forces analysis has been used to look into the external environment of the LEGO Group by identifying the five forces which currently form the competitive environment of the company.

An internal analysis has been done by looking at the value chain of the LEGO Group to understand how the company creates value through its activities. It addition to the value chain analysis, a summarized SWOT analysis has been done to identify the company’s strengths, weaknesses, opportunities and threats.

A financial audit was important in the internal analysis to evaluate the financial position of the company as per information available from the annual report for 2013. A stakeholder issues analysis follows the internal and external audit. It was important to identify the key external stakeholder issues in the environment to identify how a strategic move would be affecting external and internal variables.

A section summarizing the potential markets for growth, the respective product lines for the chosen market and the course of action for pursing growth marks the end of the paper.

External Analysis

Porter’s framework of ‘Five Forces Analysis’ has been used to evaluate the LEGO Group’s competitive position in the global toy market. Appendix 5 displays this framework concentrating on the bargaining power of the buyer and supplier respectively, the threat of new entrants and substitutes and the intensity of rivalry in the industry.

Five Forces Analysis:  Global branded toy Industry

Bargaining Power of Supplier: The global toy industry gives a low bargaining power to the supplier owing to the fact that manufacturing companies are dependent on retailers for shelf space. However, attractive brands can increase to bargaining power of players especially as these brands ate crucial for leveraging bargaining power over distribution partners. Big companies such as Toys R Us and Wal-mart with revenues of approximately $14 billion and $450 billion respectively enjoy a powerful position in the global toy retail and strategic relationships with such partners are important for attaining a high bargaining power in the industry. Suppliers are dependent on these retailers for market information and reaching out to the final consumer.

In addition to this, suppliers can have a greater control over the end user through the introduction of online distribution channels and brand retail stores. While this reduces the dependency on the retailer, it does not promise a high bargaining power to the supplier owning to the fast growing global toy market which has several competitors catering to the demands of the buyer.

Bargaining Power of Buyer: The buyer on the other hand has a high bargaining power in this industry given the fact that manufacturers are constantly looking out to catch the attention of the buyer with the latest innovations. In addition to this, buyers have option in the form of different distribution channels like toy retailers, online distribution options, branded stores and discounted stores where a variety of toys is available from various brands.