Lego builds presence in China toy market

Published on: 28th April 2014

Lego is making a strong play for the mainland’s increasingly affluent middle class with construction of a new factory in Zhejiang province that will pit the company against challenges from locally made knockoff products.LEGO_Logo300

The plant, in the city of Jiaxing, will be the company’s third-largest worldwide, employing 1,500 workers when it is fully operational by 2017.

Jorgen Vig KnudstorpLego, known for its namesake interlocking plastic blocks, recorded growth of 50% on the mainland last year, and chief executive Jorgen Vig Knudstorp said the country had become its fastest-growing market.

“We are now significantly putting the flag on the Chinese market and in the society,” Knudstorp said. “We want to be part of the modernisaton of China.”

The production site in Jiaxing, 100km from Shanghai, will cover an area of 315,000 square metres with the establishment of moulding, decoration and packaging facilities. Lego said there was room for further expansion. It declined to say how much it was investing in the factory, other than to say it was more than €100m (HK$1.1b). The company will also set up a distribution centre in Shanghai for the Asia markets. Some of the output of the Jiaxing factory will be exported to other markets including Japan and South Korea.

“Chinese parents are concerned about their children’s competitiveness to survive in society. Their focus is on the children’s learning,” Knudstorp said. “There is an opportunity for us because our products offer children something to learn when they play.”

Anecdotal evidence showed that increasing numbers of small manufacturers were making counterfeit Lego blocks on the mainland, taking advantage of the growing interest among the Chinese in the toys. Knudstorp said mainland authorities had been stepping up efforts to protect the intellectual property rights of foreign companies.

The mainland’s toy market has grown by leaps and bounds over the past decade as parents and grandparents spent freely on “little emperors”. Sales there exceeded 100b yuan (HK$125.6b) last year, analysts said. However, there are growing concerns about the safety of locally made toys, given reports of hazardous materials being used to cut costs.

The Jiaxing facility would be built to the same global standard as all Lego factories in the world, Knudstorp said, adding that the company would not deliberately make cheaper products to attract more mainland consumers. The rising middle-class Chinese would be a key driver for Lego’s global business, he said. Global management consultancy McKinsey estimated the number of middle-class consumers on the mainland would reach 400m by 2020. Chinese shoppers have already become the world’s largest consumers of luxury goods, accounting for nearly 30% of the global luxury market, according to Bain & Co.

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