Critical Evaluation of Effects of Globalization on Lego Company

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Critical Evaluation of Effects of Globalization on Lego Company

Introduction:

The company that has been chosen to be analyzed is LEGO. LEGO is a company that manufactures a line of plastic construction toys and is owned by The Lego Group. It was founded in 1932 by Ole Kirk Kristiansen in Denmark initially. After passing over almost 85 years – LEGO has accomplished its transformation from a small carpenter’s workshop to a modern, global enterprise. Correspondingly, Lego groups contain 17,000+ employees in 15 countries nowadays. (Lego.com, 2019). It becomes the world’s most valuable toy brand, with a brand value that now stands at US$7.6 billion at present (The annual report on the world’s most valuable toy brands, 2017). Not only limited to the little bricks, but their brand had also developed into various markets, like Lego theme movies, games, clothes (En.wikipedia.org, 2019). Besides, they even erected eight Legoland amusement parks in seven countries as well, including Denmark, United Kingdom, United States, Japan, Germany, Malaysia, and the United Arab Emirates (Lego.com, 2019). Obviously, LEGO has achieved an extraordinary result in the past few decades. Their revenue had increased in every region up to DKK 36.4 billion (The LEGO group – Financial Highlights 2018, 2018). The market share of LEGO has grown in all major markets, bucking overall industry trends. While global consumer sales also presenting a dramatic growth (Lego.com, 2019).

2. Key Stakeholders and Beneficiaries:

In a corporation, stakeholders are the members of the groups who care about a company’s operation situation. Without those concerns and support, a company would cease to exist (R. Edward, 1983). While for LEGO, they have three key stakeholders which are government, local community, and customer. (stakeholders mapping for LEGO).

The government has a high influence on the company. Because they are responsible for the whole market regulation and impose a corresponding tax for every industry. The attitude of the government and how they implement the relevant laws and policies are extremely important for such a multinational company once those companies want to succeed in a new foreign market. LEGO must fully engage with the government and make the greatest efforts to satisfy them in this case. The customer is another stakeholder group with high power and interest for the particular company. They support every purchase and provide a guideline for the company of what to invest and how they can improve their service or products. By engaging with customers, LEGO got the chance to cultivate a strong understanding of customer’s preferences and further lead to an increase in sales and revenue. While the local community also plays an important role as a key stakeholder. Although the local community has a low influence on the company, it still maintains a high interest. By adapting to local principles, LEGO can address not only business sustainability concerns but also local community issues (Weber and Weber, 2019). These principles are public perspectives towards the company and will further influence customers’ desire to buy.

3. Analysis of the effects of globalization:

3.1. Analysis of the effects of economic globalization

The form of a company’s response to global marketing is shaped by its international marketing orientation. By applying the EPRG model, LEGO can be classified as geocentric orientation. As geocentric approach is blending the ethnocentric and polycentric views to work out a balanced strategy to realize both global integration and local responsiveness (https://www.facebook.com/marketing91, 2019). Correspondingly, LEGO issued assorted products within a different country. While to conduct suitable plans for each country, LEGO has to take the economic situation of those countries into consideration. The fluctuation of the economic situation may lead to an uncertainty of the local’s purchasing power and their intention. As LEGO is founded in Denmark, here comes with huge profits benefits that it is under the European monetary union. This promotes the international competitiveness of LEGO and reduces transaction costs and risk simultaneously. As Denmark maintains independent currencies, the exchange rate for Denmark Krone plays a crucial role in international trade. From the data found in the World Bank, the exchange rate for Krone is decreasing overall since the year 2000 (Data.worldbank.org, 2019).

Basically, a weak national currency is beneficial for LEGO. As the price of exports decreases, cheaper exports are attractive in the international market. Their price will be more reasonable for foreign customers because of the cut-down price. Especially for the people in a developing country, it becomes more affordable to some extent and hence increases consumer base. Due to the sales boost, LEGO have more potential to obtain profit and hence can put more money on the R&D department to lower their production cost and maintain competitiveness (Shah A.,2009). This enables economies of scale as well, because of the cost advantages and booming scale of operation in the long run.

However, there are also some downsides to this phenomenon. As in the long term, it decreases buying power and efficiency for LEGO resulting in inflation in the meanwhile, ceteris paribus.

Since its main target markets are from overseas (Imf.org, 2019). It is necessary to analyze their market situation globally. Take China, UK, Denmark, and US as the main four domains. It illustrates that China presents the best economic environment among them all. As it has the largest total investment and growing GDP as well as the lowest unemployment rate and government debt. Company is more easily to acquire profit during economic prosperity. This can be proved by the fact that “With declining or stagnating sales in its core U.S. and Western European markets, China is still a bright spot for Lego” (U.S., 2019). Practically, LEGO plans to set up around 140 shops in China this year. The rapid expansion in the Chinese market creates a balance for LEGO so that it can remain unaffected by a broader slowdown in other economies.

3.2. Analysis of the effects of political globalization

The political situation is an important issue for the company that needs to take into consideration. Because government regulation will affect the operation situation of a company. For example, Brexit makes every British and European company re-consider their marketing strategies and change their whole pricing, sales channel, and product strategies, and so on to adapt the changes to the existing market. After UK government announced Brexit news, the inflation rate of UK has hit its higher level and the pound is expected to depreciate in the recent future (The Independent, 2019). Besides, the British tariff will increase correspondingly. This actually damages the net profit of LEGO, as LEGO is a European company and has to pay tax while entering UK market. Hence, LEGO adjusts their pricing policy and are going to ‘raise prices by 5%’ after post-Brexit pound slump under these circumstances (The Independent, 2019). Yet, it is inevitable that Brexit will still further worsen LEGO’s operating situation. Because people’s limited disposable income cannot fulfill their demand, consumer purchasing power will deteriorate markedly. This is a significant drawback that political globalization brings to LEGO.

While the attitude of the local government is also a crucial factor within political globalization. When the new entrants are going to enter the domestic market, they need to premeditate that whether the local government supports or against the particular industry and what are the laws that set for the industry. Take China as an example, Lego toys didn’t enter the Chinese market until the year 1993. (LEGO, 2019). However, the situation in China is significantly various from other countries. Initially, LEGO applied a very unreasonable strategy that leads to a huge loss of assets. They set their price of products at 500~2000 Chinese yuan while most people’s monthly income is only two or three thousand. The most household cannot afford such expensive toys. LEGO has been plagued by piracy at that time because many manufacturers see the opportunities and they can easily imitate to produce those toys and sell it at a much lower price. While China has promulgated series of laws to protect intellectual property recently. Besides, Lego is protected under Chinese anti-unfair competition law because of its distinctive and unique appearance as well. In this case, LEGO builds on strong success with the support of the local government.

3.3. Analysis of the effects of technological globalization

LEGO is a good example of adopting technic changes. They seize opportunities and turn them into superiority. Above all, like what most companies do, LEGO created their distinctive and colorful official website to attract consumers and further boost sales through e-commerce. They also owned an Instagram account that had 4.8 million followers and created a hashtag #Lego that includes 14.4 million posts (Instagram.com, 2019).

In addition, their Facebook homepage posts various interesting events, stories, and fascinating news to attract potential customers. Currently, they have received 13 million followers as well as millions of likes of their posts (Facebook.com, 2019).

In fact, they are doing very well at making interaction with the local community. Their official websites offer several languages for their customers. This provides a more convenient way for those potential customers. Hence, they can browse the website more familiarly and are more willing to explore Lego’s products and the company’s culture. Take China as an example, Chinese people are regulated by the government and are not allowed to use YouTube, Facebook and Instagram, and so on. Under this situation, Chinese people can seldom receive messages from LEGO through these applications. While LEGO performed well in regards to this aspect. To tackle this problem, they set up WeChat and Weibo accounts which are the most widely used communication and entertainment apps by Chinese customers.

They have about 683K followers and so that they can send notifications via WeChat and Weibo official accounts weekly to share some news and promotion events. It’s a great combination of technologic and marketing under the trend of globalization by all means. As it is a digital information epoch, people are pursuing novel and innovative products. To draw customers’ attention, LEGO had launched the Technic series. Technic sets use specialized pieces which including motors and pneumatic elements. In this case, they are creating much more functionality than regular bricks. The new gearboxes and steering systems provide a challenge to the kids who want to build in a more real-life function (Lego.com, 2019). In addition to this, LEGO is ambitioning to use sustainable materials in products by 2030 and packaging by 2025. They have used 83 elements from sustainable sources starting in 2018 to support their objectives (The LEGO group – Financial Highlights 2018, 2018). Practically, these actions stimulate the purchasing needs of consumers who are literally concern about environmental issues. It frames a good corporate image and further expand its influence.

3.4. Analysis of the effects of cultural globalization

As the world’s leading multinational toy company, LEGO put a lot of effort into making its products become more iconic and cultural diversification. It respects to every culture and is trying to integrate these regional cultures into their products. These characteristics can be seen in its series of products. LEGO currently partnered up with many companies and bought the license from them. For example, Disney, Warner Brothers, Blizzard and so on. Under the strategic collaboration, LEGO had launched series of prevalent sets based on different themes like Star Wars, Overwatch, Harry Potter, Marvel, Disney et cetera (Lego.com, 2019). Apparently, this strategy brings significant profits to LEGO due to the large consumers base of those themes. Those avid fans who are very loyal to those games or movies may become potential customers of LEGO products as they are keen to collect the movies/games related products. Besides, this also increases opportunities for those who are not those fanatical people to buy these products. According to the mere exposure effect (Social Psych Online, 2019). People have a high tendency to preferencing things merely because they are familiar with them and so that purchase those goods. In this case, they achieve a win-win situation.

Moreover, LEGO has astutely catered to local tastes and released several special sets in order to fulfill the demands of customers who are from different continents. For example, the LEGO group recently come out its 2020 Chinese New Year sets which is the first time it has done to celebrate the festival. Fans were delighted at the attention to cultural detail (The Economist, 2019). According to Hofstede’s cultural dimensions theory, the company needs to use this framework to discern sundry methods that companies should apply under different national cultures, the dimensions of culture, and business setting (Corporate Finance Institute, 2015).

Take China as an example by applying this model.

Power Distance High

Collectivism VS. Individualism Collectivism
Uncertainty avoidance index High
Femininity VS. Masculinity Masculinity
Short-term VS. Long-term orientation Long-term orientation
Restraint VS. Indulgence Restraint

It is evident that China retains a distinct belief in comparison with most of the western countries. People in China are deeply influenced by Confucian culture. They are more focusing on a sense of collective honor and maintaining the bonds between every single relationship. Furthermore, Chinese people are long-term orientation and are very willing to invest in children’s education (Earnhardt, 2019). In this case, LEGO’s ideas about STEM class and innovative education are very popular among the newly affluent parents in China. LEGO also established summer camps in China for the children here can experience and gain a deeper understanding of LEGO culture (Prnasia.com, 2019).

These facts reveal that LEGO’s products are ideally integrated and incorporated into the local culture and mainstream entertainment by adopting marketing strategies accordingly. And this increases LEGO’s sales revenue globally.

4. Conclusion

Globalization allows both the local people and companies can enjoy the benefits of scientific advances and industrial progress. Customers have more opportunities while companies can achieve market expansion and revenue increment. In general, globalization is a force for good, especially for LEGO. With entry the several new markets, global companies have received greater development opportunities. Due to the increased value of shared culture, it allows greater customer harmonization and offers advantages in other countries with lower operating costs. The company can obtain a competitive position by gaining new raw materials, resources, and investment opportunities. LEGO as a representative has overcome several crises thanks to its globalization strategies. The company obtains a huge success as they received ideas from different civilizations and backgrounds and created a whole new culture of their brand. Their humanized and innovated products fulfilled customers’ demands. The assistance from the local government protected LEGO’s interest as well. When LEGO is facing the sales declined in one country, its sales revenue from other markets can be the back up for the whole company operation. These can also be applied to other companies. Though, Globalization has led to some side effects like fluctuation in price and damaged to some traditional industries. The multinational company is very restricted by the local environment and are regulated strictly by local government through imposing the tax. Despite this, the merits of globalization still much outweigh the drawbacks.