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Lego Group: Building Strategy Essay

2243 words - 9 pages

INTL 4400 – Assignment 1

2012-2013
LEGO Group: Building Strategy
Professor: Kelly Lecouvie
Celeste Chan, Richard Guo

Table of Contents
Executive Summary 1
Problem statement 2
ANALYSIS 2
External Analysis - Porter’s five FORCES: 2
Internal Analysis – Core Competency 4
Main Issues 4
ALTERNATIVES 5
Recommendation 7
Appendices 8
APPENDIX A – LEGO’s VALUE CHAIN 8
APPENDIX B – Core competencies & LEgo 9
APPENDIX C – FOUNDATION & DIRECTION OF LEGO 10

Problem statement
LEGO as a company has withstood many years of changing business environment, and has grown from creating wooden toys to interchangeable blocks, and eventually becoming an international ...view middle of the document...

Kre-O’s pieces are also interchangeable with those of LEGO’s, which directly steals from LEGO’s market shares. The availability of substitute products significantly increases the bargaining power of customers.
Threat of new entrants: Since LEGO’s patent for its toy blocks expired, the threat of new entrants is quite high. LEGO does not have a highly distinguishable trademark, and lost its own “8 Studded Brick” design to Mega Bloks in a court battle. This makes it easier for other companies to enter the market with similar products as LEGO. On the other hand, one of LEGO’s core competencies is its unique brand, which has a longer history than any of its competitor’s brands. It also has an innovative system of capturing the creativity from online designers, and transforming them into actual LEGO sets. This system of fostering innovation is unmatched by other competitors, and creates a barrier to potential entrants.
Threat of substitute products: The threat of substitute products for LEGO is rated as high. When LEGO’s plastic brick design patent expired in 1988, companies such as Mega Bloks and Kre-O were able to begin creating similar toy blocks based on LEGO’s design. Kre-O even went as far as creating interchangeable blocks that can connect with LEGO blocks. This significantly decreases LEGO’s competitive advantage. Other substitute products were being created by Mattel and Hasbro. Although their toys were not plastic blocks, and not direct substitute products to LEGO, they are never the less in the toy market. These two toy companies have partnerships with entertainment entities such as Walt Disney and Marvel, which increases their economy of scale as well as marketing potentials. Their products’ marketing channels include partnerships and license agreements, much like LEGO has done in the past with Harry Potter and Star Wars, and could potentially steal LEGO’s market share in the toy market.
Competitive rivalry: Competitive rivalry for LEGO is considered high. Kre-O has begun to encroach on LEGO’s market through advertising its similar line of product through partnership with the movie: Transformers. Mega Bloks has already won one lawsuit against LEGO. Lastly Hasbro and Mattel are also signing licensing agreements with Disney and Marvel, which creates more competition for LEGO due to the increasing scale of their competitors’ operations.
Internal Analysis – Core Competency
When a company has a core competency, they integrate their key skills into developing a good or service through learning, coordination, and communication with the company’s different departments. The core competency is also unique and difficult in the imitation of the core competency and finally, it must be valuable by contributing to consumer benefit from a product/service developed from this competency. LEGO has been dedicated to maintaining its core competency as the brand with the ultimate imagination-building toy as stated in their mission: “Our ultimate...

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