LEGO POM Assignment

08-Jul-2015 ITM 27EEdward Yeo Jay Tong

The Lego Group

1.Introduction The word Lego is renowned worldwide, and is recognized by kids of all ages, and it will be used for the case study of this essay. The essay consists of the PESTEL Analysis, Porters five forces, and the Corporate Social Responsibility of the Lego Group. Lego is a combination of two Danish words, led and godt, which means play well. The Lego Group was a startup by a carpenter, Ole Kirk Christiansen, who only sold stepladders, ironing boards and wooden toys. He decided to focus on the toy industry, after a fire burned down the factory. Lego bought a plastic injection-molding machine in 1947, which mass produced plastic toys, and the ever so popular Lego Brick. In 1958, Ole passed away, and his son, Godtfred, took over the company. By the early 1960s, LEGO went international, and would release their popular theme sets a decade later (The Lego Group History, 2015).

2.Discussion2.1General Environment Analysis: PESTEL Analysis 2.1.1Political FactorPolitical factors could either impact organizations with operation restrictions or provide business opportunities (Bateman & Snell, 2013). Examples of political factors include government regulations like, law enforcement, tariffs, tax policies, to political stability and more. These factors, would affect organizations in their execution of strategic implementations. Therefore, it is important for a corporation to anticipate any shifts in power, in order for them to thrive.Singapore is dominantly controlled by a single ruling party, so there is a lesser chance of political turbulence and more national stability. This is an opportunity as a large corporation like Lego would find it easier to further expand its business. Furthermore, with effective tax policies (IRAS, 2015), Singapore would be more attractive to conduct business, and Lego would be able to leverage upon this advantage to maximize their profits. 2.1.2Economic FactorThe economic factor refers to the finance welfare of a nation. The factors consist of influences that impacts corporations in decision making. Some of these influences include economic growth rates, interest rates, unemployment rates and currency stability. These characteristics will affect the organizations expenditure, scalability, and the demand of customers (Bateman & Snell, 2013).

Singapores unemployment rate is considered to be one of the lowest rates in the world. The workforce is also considered highly skilled, which means that a majority of Singaporeans have high disposable incomes. Low unemployment rate would be a threat as Lego would have a hard time to find personnel to run their business operations. The second would be an opportunity, because Lego can leverage on the high spending power that Singaporeans have (Key Household Income Trends, 2014).

2.1.3Social Factor The Social Factor represent trends of peoples thoughts and behaviors, culture, beliefs and values of the community (Daft, 2009). All of which have a large effect on strategic decisions. Such strategic decisions could refer to marketing campaigns, promotions and pricing. By using the media, the government also plays a crucial role in motivating trends. Which in turn would allow businesses in those industries, to flourish and rein in more profits.

Being in a first world country, the younger generation of Singaporeans are more educated, and more westernized. They are also heavily influenced by media. However, Singapore is experiencing a rise in the aging population (Elderly, Youth and Gender Profile, 2014). This is bad for the toy industry, especially Lego, because their target audience is the younger generation.

2.1.4Technological FactorTechnological factors range from heavy manufacturing and industrialization, to utilizing information technology for business. Modernized, Singapores main technological factor would be information technology. The internet is an example of information technology which could greatly influence the business environment of many companies (Boddy, 2008). This means that corporations would use innovative techniques through online platforms like social media, to engage and promote to the local online community.

Being highly IT oriented, Singaporeans would have the latest information on their fingertips. This is a threat, because physical barriers are torn down, and more corporations can find ways to reach out to Singaporeans. Also, video games are now more popular than toys (Garland, 2012). This would impact Legos sales as children are now focused in another direction. Therefore, Lego would have to find new ways to motivate their customers to buy their products.

2.2Competitive Environment Analysis (Porters Five Forces) 2.2.1Threat of New EntrantsThreat of New Entrants refer to startups that might enter an industry, which would compete with existing organizations. Factors that prevent these new entrants are called barriers to entry. Today, Internet technology has lowered the barriers to entry by enabling startups to avoid setting up physical stores, and establish online presence (Daft, 2009). Such advantages would allow more new entrants to enter the industry, and they would affect sales of organizations.

Despite being a reputable brand in Singapore, the threat of new entrants for Lego is high. The barrier for entry is low, since new entrants would be able to take advantage of the popularity of Legos brand, and its simple complexity to copy the product. There are no government policies to prevent new startups from selling similar products. Another factor that might allow new entrants to enter the industry is to leverage on the fact that Lego products are slightly pricey. Even though new entrants would find matching the quality of Lego products difficult (Product Safety & Quality, 2015), new entrants would find it easy to penetrate the industry 2.2.2Bargaining Power Of SuppliersThe bargaining power of suppliers is an important aspect of a companys livelihood. Supplies include raw materials, information to financial capital, all of which could impact a corporations success (Worthington & Britton, 2006). The supplier would also be able to reduce an organizations profits, should they raise the prices of their services. This would only occur when said organizations are unable to pass on the price increase to its customers.

The bargaining power of raw material suppliers do not affect Lego in Singapore, because Lego manufacture their products in other countries. In fact, the supplier of Lego products would be the Lego Group, and the organizations affected are the affiliates of the company in Singapore. Based on this scenario, the rating would be low, because Lego has set a standard price that affiliates should sell their products. This is to stop them from toppling one another. This method would enable said affiliates to continue selling Lego products.

2.2.3Bargaining Power Of Customers Customers are crucial, because they determine the survivability of an organizations. Customers bargaining power, which can demand lower prices, higher quality, or better service are some of the important factors that affect the profitability of a company (Bateman & Snell, 2013). This bargaining power that customers have, is an important factor, because it could determine the survivability of an organization. The bargaining power can also threaten an organization by supporting their competitors products.

The bargaining power of Customers is high. There are low switching costs, when customers purchase Lego products. This means that customers are free to patronize any other toy brands out in the market. Also, having a high disposable income, Singaporeans are able to purchase more goods. In an attempt to counter the high customer bargaining power, Lego offer replacements for damaged/ missing pieces (Lego Customer Service, 2015).

2.2.4Threat of Substitutes Threat of Substitutes refers to how alternatives impact a product or brand. Alternatives include technological advances and economic efficiencies that firms can develop substitutes for existing products (Bateman & Snell, 2013). Potential substitutes that may be viable in the future are also considered a threat, because they are possibilities that could affect a brand.

The threat of substitutes for Lego is high. In Singapore, almost everyone has an association to technology, and one of the main substitutes, to Lego, are video games (Andronico, 2014). Video games are slowly replacing toys, because they are available on many platforms. From gaming consoles to applications on mobile devices, such as phones and tablets. This would impede on Lego sales, as children would want to play games instead of toys. To counter this, Lego had already considered this situation as a potential substitute, and developed video games, based on their theme sets, to maintain their customer base.

2.2.5Competitive RivalryCompetitive rivalry refers to the amount of competition an organization would face. To understand the competition, organizations are required to identify their competitors. Competitors would compete for the same customer pool by selling similar products, which enable customers to switch between organizations. Said competitors can range from small medium enterprises, to Multinational Corporations. An extremely competitive market also has a high threat of new entrants (Boddy, 2008).

The competitive rivalry for Lego in Singapore is high. Firstly, there are numerous brands that come up with similar brick toy concepts like Mega Bloks, owned by Mattel, Nanoblocks, Kre-O and other knockoffs in the toy industry. Also, these competitors niche themselves in specific themes that Lego does not offer. Also, competitors product prices are lesser than Lego, making it a tougher competition for Lego (Mintz, 2014). Despite having many competitors, Lego can leverage on the reputation that they have developed over the past years. 2.3Summary Of The External EnvironmentThe opportunities that Lego can leverage upon is the high disposable income of Singaporeans, low tax rates, zero tariffs and the national stability of Singapore. Whereas, the threats that Lego face include competitors lower prices, video games being more popular toys, and Singapores aging population. In order for Lego to overcome its threats, they would have to differentiate in their strategies or think of new ideas.

3.Analysis on CSR Strategy 3.1Corporate Social ResponsibilityCSR is an abbreviation of Corporate Social Responsibility. Corporate Social Responsibility refers to the involvement and actions of organizations, beyond their legal and economic commitments, to do the right things and act in ways that are good for society (Robbins & De Cenzo, 2013). Examples of Corporate Social Responsibility include, organising charities, holding fund raisers, working towards wildlife conservation and environmental protection. There are advantages and disadvantages of implementing CSR in an organization. Some advantages are, Moral responsibilities, public representation, public beliefs and stockholder interests. Whereas, disadvantages include high expenses, lack of specific skills and accountability (Robbins & De Cenzo, 2013).The advantages are beneficiary, because they would increase the potential for increase in profits. As they would enable strong public appeal, which would increase the organizations reputations. They would also draw more investors, due to their rise in popularity.The disadvantages are damaging, because committing to social responsibility would increase expenses, and it would reduce the overall profitability of the corporation. Also, if the corporation do not invest time and the right personnel to manage their CSR project, there would be a lack of skills and little accountability of the consequences in CSR operations.

3.2Corporate Social Responsibility for LegoLego has performed CSR in a few aspects. For instance, under business operations, Lego primes themselves in conducting business transparently, in order to promote ethical business practices (Lego Responsible Business, 2015). Also, Lego came up with new measures to demote corruption amongst its directors (Lego Responsible Business Behaviour, 2015).Lego also focuses on being environmentally friendly. Lego prioritizes in manufacturing Lego bricks in the most environmentally friendly way. They also work with their suppliers to ensure that there are lesser wastes, and to reduce carbon emmissions (Lego Environment, 2015). Lego cancelled their contract with Shell, after one million signatures were collected to petition against their partnership, because Shell planned to drill for oil in the Artic (Lego ends 50 year link with Shell, 2014). This would allow them to publicly express their stand on protecting nature. By performing such actions, there would be a boost of investor confidence in Lego. Furthermore, their profit potential would increase, as more consumers would now have faith in their products. So far, Lego has done a good job in maintaining their CSR effort, and has an positive increase in productivity and environmental friendliness.

4.ConclusionLego is internationally renowned, and has many competitors. Its competitors compete by selling similar products at lower prices. Furthermore, with a low birthrate in Singapore, there is a limited and dwindling customer base. Therefore, Lego would have to develop new ways to differentiate from their competitors. Also, to overcome the rising popularity of video games, Lego has partnered with gam developers to create video games based on their theme sets, so that they could keep their customer base. This is a method of innovation, which Lego needs to have, in order to stay on top in the toy industry.

Reference List

Books:1. Bateman, T., & Snell, S. (2013). The Competitive Environment. In Management (fifth ed., pp. 43 - 47). New York, NY: McGraw-Hill.2. Bateman, T., & Snell, S. (2013). The Competitive Environment. In Management (fifth ed., pp. 48 - 52). New York, NY: McGraw-Hill.3. Boddy, D. (2008). The competitive environment Porters five forces. In Management: An introduction (fourth ed., p. 89 & 91). Harlow, England: FT Prentice Hall4. Boddy, D. (2008). The competitive environment Porters five forces. In Management: An introduction (fourth ed., p. 87). Harlow, England: FT Prentice Hall5. Daft, R. (2009). The External Environment. In New era of management (Ninth ed., International ed., p. 66). Mason, OH: South-Western.6. Daft, R. (2009). The External Environment. In New era of management (Ninth ed., International ed., p. 196). Mason, OH: South-Western.7. Robbins, S., & DeCenzo, D. (2013). What Does Society Expect From Organizations And Managers? In Fundamentals of management: Essential concepts and applications (eigth ed., p. 54). Upper Saddle River, NJ: Pearson. New Era of management.8. Worthington, I., & Britton, C. (2006). Market Structure. In The business environment (fifth ed., p. 382). Harlow: Financial Times Prentice Hall.

Websites:1. About Us: The Lego Group History. (July 8, 2015). Retrieved from http://www.lego.com/en-us/aboutus/lego-group/the_lego_history/1940

2. Corporate Tax Rates, Corporate Income Tax Rebates, Tax Exemption Schemes and SME Cash Grant. (July 8, 2015). Retrieved from: https://www.iras.gov.sg/irashome/Businesses/Companies/Learning-the-basics-of-Corporate-Income-Tax/Corporate-Tax-Rates--Corporate-Income-Tax-Rebates--Tax-Exemption-Schemes-and-SME-Cash-Grant/3. Elderly Statistics of Singapore. (July 8, 2015). Retrieved from: http://www.singstat.gov.sg/docs/default-source/default-document-library/statistics/browse_by_theme/population/statistical_tables/elderly.xls

4. Lego Customer Service. (July 8, 2015). Retrieved from http://service.lego.com/en-us/

5. Lego ends 50 year link with Shell. (October 9, 2014.). Retrieved from: http://www.greenpeace.org/international/en/press/releases/LEGO-ends-50-year-link-with-Shell-after-one-million-people-respond-to-Save-the-Arctic-campaign/

6. Lego Responsibility Report 2014. (July 8, 2015). Retrieved from: http://www.lego.com/en-us/aboutus/responsibility/responsibilityreport2014/results2014/results-20147. 8. Lego: Business Behaviour. (July 8, 2015). Retrieved from: http://www.lego.com/en-us/aboutus/responsibility/responsibilityreport2014/responsiblebusiness/responsible-business

9. Lego: Environment. (July 8, 2015). Retrieved from: http://www.lego.com/en-us/aboutus/responsibility/responsibilityreport2014/responsiblebusiness/environment

10. Lego: Responsible Business Behaviour. (July 8, 2015). Retrieved from: http://www.lego.com/en-us/aboutus/responsibility/responsibilityreport2014/responsiblebusiness/responsible-business-behaviour

11. Singstat Household Income Trends 2014. (July 8, 2015). Retrieved, from http://www.singstat.gov.sg/docs/default-source/default-document-library/publications/publications_and_papers/household_income_and_expenditure/pp-s21.pdf

12. Andronico, M. (February 22, 2014). Kids Are Playing With Screens More Than Traditional Toys, Survey Says. Retrieved from: http://www.huffingtonpost.com/2014/02/24/kids-playing-with-screens_n_4834484.html

13. Garland, I. (2012, June 25). Forget dolls... study reveals modern girls prefer video games. Retrieved from: http://www.dailymail.co.uk/news/article-2164026/Forget-dolls--study-reveals-modern-girls-prefer-video-games.html

14. Mintz, Z. (September 6, 2014). Lego Prices May Cause Sticker Shock Always Stick Together. Retrieved July 8, 2015, from http://www.ibtimes.com/lego-prices-may-cause-sticker-shock-toy-blocks-will-always-stick-together-16803242LEGO POM Assignment

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