LEGO Group: An Outsourcing Journey - Essay Example

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This research is being carried out to discuss the competitive environment of the toy industry, and how it relates to LEGO’s strategic choice. The general competitive environment of toy industry relates directly to LEGO’s strategic choice…
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LEGO Group: An Outsourcing Journey
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"LEGO Group: An Outsourcing Journey"

Download file to see previous pages The paper tells that unlike in the past century when the competitiveness of business environment was defined on the basis of the assets that firms owned, competitiveness in the present century is defined by intangible capabilities. Just like other industries, toy industry has witnessed changes in its competitive environment. Cost of production has been central in shaping the competitive environment in toy industry, a situation that has led to toy companies cut their costs through various initiatives. The dynamic nature of toy products and markets has made the business environment of toy industry to be more competitive and complex. The issues of pricing and meeting customers’ expectations have also formed crucial aspect of the competitive environment of toy industry as pricing strategy and quality of products determine the competitiveness of a toy company. Due to the challenge of managing the global supply chain effectively and which had greatly eroded its competitiveness, LEGO decide to outsource and offshore its major chunk of production to Flextronics, a Singaporean electronics manufacturing services (EMS) provider. The aspect of cost of production that determined the competitive advantage of toy companies affected LEGO and resulted to it pursuing cost-cutting sourcing advantages. The dynamic nature of toy products and markets had drawn LEGO into a crisis that drew the company to near bankruptcy. The company was losing confidence in its core product: the LEGO brick and its market were shrinking, which made the company to make significant economic losses in the period from 1998 to 2004 (Larsen 3). 2. What were LEGO’s main expectations and leanings from the relationship with Flextronics? In its pursuit of rapid short-cutting sourcing advantages, LEGO entered into a relationship with Flextronics, a large Singaporean EMS provider. LEGO expected Flextronics to outsource and offshore a major chunk of its production. From its analysis of the Flextronics work with other global companies, LEGO believed that Flextronics’ industry-leading capabilities in packaging, assembly, moulding, and distribution would give it a competitive edge in the global supply chain. Also, since Flextronics had vast size and experience with original equipment manufacturers, LEGO had expected that Flextronics would have been effective in outsourcing its large amount of production (Larsen 6). The expectations and leanings of LEGO from the relationship with Flextronics were fed by what can be said to be the evaluation of the strategic functions of outsourcing such as product distribution and advertisement. Companies try to identify outside partners with greater scale and expertise; that is, partners who could provide capabilities more effectively (Gottfredson, Puryear, and Phillips 135). From its relationship with Flextronics, LEGO expected that it would be able to eliminate the production price fluctuations risk. In addition, LEGO had expected that due to Flextronics’ vast experience and long history in documenting and standardizing work processes and routines to move business activities from one site to another, it would excel in reducing its organization and production complexity (Larsen 6). These expectations were expressed in LEGO’s various communication in regard to their relationship with Flextronics. For example, in one of the instances, it stated that Flextronics understood and appreciated the unique values of LEGO, as well as the quality and safety of products which is fundamental in LEGO’s operations (Larsen 7). 3. What are the key challenges in maintaining a relationship like the one between LEGO and Flextronics? The decision of LEGO to get into a relationsh ...Download file to see next pagesRead More
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