economics case study

Section B: Read the case study below and answer only ONE out of the two [UNSEEN] questions


LEGO Group to build factory in China


Source: Lego website, 2013 and the Financial Times (with permission)


The LEGO Group has announced plans to build and operate its own LEGO factory in China, expected to have around 2000 employees. The factory will supply products for the growing Asian market. Construction is expected to begin in 2014. As it shifts its production to lowcost countries, this Chinese factory will follow plants in Hungary, the Czech Republic and Mexico as the group diversifies away from its roots in central Denmark.


“It is our strategy to have production close to our core markets in order to secure short leadtime and world class service to our customers and consumers, and it has proven a successful strategy. Asia – including China – is a future core market for the LEGO Group and therefore I am excited to share our plans for the new factory. Having full control of the production process is essential to deliver products of a consistent high quality and safety and in harmony with our values” says Bali Padda, COO and adds: “In addition by placing a manufacturing site in the region we reduce our environmental impact as we will reduce the need for

transporting products from Europe to be sold in Asia.”



State-of the art factory



The factory will be built in the city Jiaxing, right in the middle of the Yangtze River Delta


and located approximately 100 km from Shanghai where the LEGO Group is planning to locate a regional distribution centre for Asia.

“The new factory will be built and run with the same technology, automation and standards for employee safety and product quality as our LEGO factories in Denmark, Hungary, Czech Republic and Mexico, and it will have a distinct LEGO look and feel.” says Michael McNulty, Senior Vice President, Procurement.



Producing for Asia only



The LEGO Group currently does not operate its own manufacturing facility in China, but with the new production site including moulding, decoration and packaging facilities it will have a supply base for future growth in Asia. LEGO Group sales in the region have grown by more than 50 percent annually in recent years. The plant is expected to meet 70-80 per cent of total regional demand for Lego.


“Based on our current expectations for growth in Asia, the factory should be able to supply approximately 70-80 percent of all the LEGO products sold in the region in 2017. All products made in the new factory will be sold in Asia,” says Michael McNulty.



Location with focus on employees



The location of the new factory, Jiaxing, has a population of 5 million and it has been chosen for several reasons, says Michael McNulty:

“It is close to our regional distribution centre and the city has all the facilities and

infrastructure needed. But in addition, we believe the location is perfect in regards to securing the best environment for future LEGO employees. The city is the strongest possible match with core LEGO values, and the plans for a sustainable city development is well organized”

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