Lego's Foreign Market Entry: India

Introduction

Background information

Lego group started as a small carpenter in Billund, Denmark, owned Ole Kirk Christiansen. He started the carpenter as a small workshop in 1932. Christiansen began the work by making wooden toys, and by 1934, it was given the name "Lego." The word Lego was derived from the Danish phrase leg godt meaning "play well" (Sichol, 2019). A decade later, the workshop started producing plastic toys. In 1949, Lego became more diversified in its production; it started producing other new products, including "Automatic Binding Bricks," which is currently the famous interlocking bricks. After examining an injection molding machine sample given by a British supplier, Lego modified its bricks' design. Lego bricks were initially manufactured from cellulose acetate, a traditional stackable wood sealed together through numerous round studs on an open rectangular bottom and top. The motto of the Lego group is " det bedste er ikke for godt" this is a Danish phrase, meaning "only the best is the best" or "the best is never too good." Lego founder Ole Kirk created the motto to encourage his employees to focus on product quality because he believed that product quality is the best value he could offer to his customers. The motto has remained throughout these years, and it is still being used by the company today. The company continued to overgrow, and by 1951, half of the company output were made of plastic products. 

In 1954, Godtfred, Christiansen's son, became the company's junior managing director. Through his conversation with overseas buyers, he introduced the idea of a toy system. His leadership transformed into a creative play system—however, some technical problems needed to be solved. By 1958, Logo Group introduced a modern brick design. The company continued to grow gradually. By 1969, the company introduced a Duplo product line with blocks twice the standard Lego blocks; the product targeted children as the primary consumer. Lego produced another new product in 1978 known as Minifigures; it has become a staple in several sets. They also introduced other product designs that were more appealing to young girls, such as Clikits and Beville product lines. 

A more advanced Lego production line was introduced in 1977 with young children as the primary target. Lego's technical production line was known as Lego Primo, and it was expected to run between 2004 and 2006. By 2011, Lego kits were bought by Space Shuttle Endeavour mission STS-134, where the astronauts expected to build to build some models and monitor their reaction in microgravity. 

One of the latest developments at Lego Group company is the creation of the largest model ever displayed in New York. In May 2013, the model was made of over 5 million bricks (Bartneck and Moltchanova, 2018). The model was on a scale of 1:1 with a 112-foot tower. Lego is currently headquartered in Billund, Denmark. After four years of construction and planning, the company has opened its first phase of the state-of-the-art Campus. A Danish businessman, Niels B. Christiansen, is currently the CEO of the Lego group. 

Expansion into India's Market

Since its formation as a small workshop in 1932, the toymaker Lego Group has been developing significantly and expanding its international market and the number of stores across the globe. Besides, the Lego Group has been striving to improve its brand globally and venture into new markets where its products have not been well known. According to 2019 statistics, Lego's first half of the 2019 revenue had risen by 4 percent, but due to huge investment in India and China, its net profit has dropped significantly ( Lubiński, 2020). Lego Group is focusing on increasing its Global mark, especially in China and India. 

According to information released by its CEO Niels Christiansen, the Lego group is currently satisfied with its performance and looking forward to reshaping the global toy industry. The CEO reiterated that its massive investment in China and India aimed to expand its consumer base in the two countries. The group presently has over 500 stores globally, with every store carrying the toymaker company's logo. Lego Group targets to have at least 140 stores in the 35 cities of China. Besides, the company targets to open over 70 stores carrying the company's brand outside China by the end of 2019. Lego group also targeted to expand its India market by establishing an office in Mumbai. Precisely, Lego strives to increase its global brand to improve brand awareness and increase the company's profitability 

Thesis statement

This proposal will analyze the expansion of Lego Group into the Indian market by implementing subsidiary branches and licensing grants to third party vendor. The paper will discuss the Indian toy market and industries and the possible entry strategies that could be used to explore the market. Besides, environmental scanning and potential threats to the new market will be captured. 

The rationale for Expansion into India

Market Analysis

Toy Market in India

According to a report released in 2019, the Indian toys market was estimated at $ 1.75 billion as of 2019. The toy market in India can be traced back to five thousand years ago during the Indus valley civilization. Some of the earliest toys in the Indian market included whistles shaped toy monkeys and toy bids which could slide down a small cart and string; the toy was made from materials such as rocks, clay, and sticks. Over the past years, technology has grown significantly, forcing toymakers to manufacture modern and innovative toys that match the current consumers' demand and the existing market standard. With the gradual development of toy technology in the Indian Industry, there is a projection that the country's market is likely to be high between the period 2020 to 2025. The strong market growth is attributed to the fact that modern and innovative toys have not been popular in the Indian market. Furthermore, the country's population is vast and has continued to grow significantly due to the broader market. 

In expansion, the company must conduct a thorough market analysis to understand consumer behavior. Depending on the product to be sold, the market largely depends on various factors which go alongside consumer preferences. Based on the recent statistics, the Indian toy market is projected to grow in the next five years. The Market dynamics and segmentation of the Indian toy market are dependent on factors such as the type of toy, religion, gender, and distribution channels. The type of toy plays an integral role in determining the consumer response to a product. 

Lego Group is currently selling various toys, including electronic toys, plush toys, construction and building toys, doll, ride-on, games and puzzles, and infant toys. Among these types of toys, Plush toys are believed to be more favorable for the Indian market. As far as religion is concerned, the Indian estates can be classified as Maharashtra, Karnataka, Tamil Nadu, Gujarat, Delhi, and other religions. Among these regions, Indian, Maharashtra could be the most favorable region for Lego toys' sales. Based on gender, unisex based toys are considered most favorable for the Indian market; it has no gender limit. Distribution channels that could be considered for the Indian market include online, select stores, supermarkets, and hypermarkets. Particular stores distribution channel is preferred for the Indian market among these channels. 

Recent research reveals that India is one of the countries with the largest population of young people globally. The primary market driving factor is population; the larger the number, the higher the possibility of high sales (Arslan et al., 2020). Therefore, the large young population is one of the critical factors driving the Lego group in the Indian market. Besides, the market is driven by a wide array of both modern and traditional toys. Generally, there are numerous toys market drivers in India. One of the leading market drivers is a huge customer base. With a population of over 1.3 billion, Indian is a potential market destination for Lego group products. The country's strong economic growth is the second market driver; India has a high demand for toys due to its strong economy, thus facilitate customer purchasing power. Lego has a wide variety of toys that could perfectly fit the Indian market, thus acting as a motivating factor. 

Toy Industry in India

The toy industry in India has indicated huge potential in the domestic market. Past study has revealed that the Indian market estimates about & 850 million, and it generates about 0.5 percent of the global market. The technological development, growing awareness among the parents, and increased personal disposable income have led to huge growth in the Indian toy market, especially games and educational toys; these toys are believed to facilitate children's brain development (Dash and Chanda, 2017). There is a massive demand for a toy under various toy programs like Sarva Shiksha Abhiyan that is being run by the Indian government. Study analysis released by European based research organization, the rate at which Indian spend on toys is expected to rise significantly in coming years compared to other Asian counties, thus making the country the best destination for the toy market (Shen et al., 2018). Online market channels Are rapidly gaining popularity, with a growing number of consumers becoming more comfortable with online distribution channels than other distribution channels. The growing popularity of internet sales has been attributed to the increase's internet accessibility among consumers. 

India is one of the countries that produce top quality toys that can hardly be matched with toys produced in other countries. Therefore, exploring the Indian market requires proper market analysis to counter the existing toy products in the market. The dynamic of industry is also an issue of concern as it affects its marketability and the manufacturers. With domestic toy production in China, the competition aspect must be considered for India's future market projection. Furthermore, governments always favor the domestic market over the global market. Another study has shown that Indian the number of toy stores in India is expected to rise significantly with a projected rise in sales (Ranjan and Pattanaik, 2017). The toy industry's general characteristics in India include the following: lack of innovation, small-scale domestic producers, and lack of resources to invest in technology, equipment, and advertisement. The nature of the Indian toy industry has created a considerable market gap for global companies. Therefore, the target of Lego to enter the Indian market. 

Cultural/Operational/Geographic/Economic Framework of India

Roles of children

When exploring a new market, the target population's geographical, cultural, operational, economic, and demographic framework should be considered. The marketing company ensures that it is targeting the right population with the ability to increase sales. For Lego Group, children are the primary consumers for their products, and therefore most of their marketing plans must be meet children's demand. Past research shows that children are becoming targets for many companies, particularly in the toy industry; the trend has been consistent over the past few decades ( De Veirman et al., 2019). The children are becoming more economically empowered than before. Children's economic power is even more intense in the western countries where they have an impact on the overall household decision making. The children's economic power has been associated with higher education levels that saw most parents earn more salaries that improve their children's expenditure. Besides, the modern world is becoming more concerned about the generation as compared to the previous generation. 

Numerous studies have been conducted on children's consumer behavior, with some researchers perceiving children's consumer behavior as a consumer socialization paradigm ( Gbadamosi, 2017). Children's consumer behaviors largely depend on how the children on becoming independent and socializing with others. Sources indicate that Indian children traditionally like building blocks (commonly known as toy blocks). Children have a history of playing with building blocks, especially Indian children; they love playing with toy blocks, making it easy for them to purchase the products. With projected demand for toys, blocks will enhance the smoother transition of Lego Group into the Indian market since it is one of the top products the company majors on. 

The growing importance of education in India

The growing education need has also prompted various techniques to incorporate various techniques facilitating the learning process. According to Zosh et al. (2017), the products of the Lego Group play an essential role in ensuring engaging children through play. Play is regarded as one of the most important factors influencing the engagement of a child. Lego's products are believed to help children with autism, disabilities, and cognitive delays. Lego toys can be used in autism therapy, strengthening muscle, introducing ng sensory children to colors and textures, and building their social and emotional skills. The educational benefits of Lego are as follows: 

Imagination and Creativity: Lego toys are in the form of art; they have an opportunity to think beyond their imaginations, thus making them more creative. For instance, providing a box of random Lego pieces and unstructured time is essential in igniting children's imagination 

Spatial Skills and Fine Motor Skills : By playing with Lego bricks, children can build their fine motor skills. As children pick Lego bricks' pieces, they use their fingers, thus developing their fine motor skills. Besides, the pieces come in different sizes shapes, making them more effective in developing skills. 

Problem Solving and Thinking Skills: By using a bucket of Lego bricks, children can allow every child to sharpen their thinking skills regardless of whether the child is using a build from their imaginations or an instruction booklet. Children also build their thinking skills by solving a puzzle and picking up little pieces around them. 

Following Instructions : is an important communication skill; children must learn to listen to the instruction they are given and follow those instructions to keenly; it is part of our life. When playing Lego, children must follow instructions given to winning games. By following instructions from the beginning to the end, children learn to a better listener. 

The growing number of middle-class children

Children love toys, not a guarantee that would but the toys; many factors determine whether they will buy the toys. Some of the critical factors include family status and financial ability. These factors significantly determine children's purchasing power. Even though many families strive to give their children the best treatment, financial constraints may limit what they buy for their children. Lego targets India because it is projected that the number of middle-class families in India shall have risen by at least 100 million; this shows extraordinary potential for the Indian market. With a high number of middle-class families, the children's purchasing power in the country will increase significantly because many families will be able to purchase Lego toys for their children. According to Gilboa and Mitchell (2020), middle-class families have higher purchasing power and are prone to impulse buying. Therefore, the projection that the number of middle-class families in India is expected to shoot to 100 million in the next ten years; is an excellent opportunity and the right time to get into the Indian market. 

Transition into Entry Strategy

After considering all the factors, the company can make an appropriate decision based on the new market's viability. After a decision to join the new market has been made, it is essential to consider a strategy that would be favorable when entering into the Indian market. The entry marketing strategy depends on various factors ranging from the product being sold to the target customer. Lego's intention to enter into the Indian market is an international arrangement and therefore requires a strategy that would incorporate the global aspects. There are various types of market entry strategies, including licensing, franchising, exporting, Turnkey projects, joint venture, and partnering. Considering all the factors associated with Lego's products and the targeted market, the preferred market entry strategies include wholly-owned subsidiaries and licensing agreements. 

Entry Strategy

Wholly owned subsidiaries

Wholly owned subsidiaries are where a parent company owns all the shares with no minority shareholders. The subsidiary usually operates under the permission of the parent company. A wholly-owned subsidiary can be established in a different company and create products, structures, and clients. Lego Group can establish subsidiaries to operate in the Indian market, thus maintaining operations in various markets and geographic areas within India. 

Opportunities of a wholly-owned subsidiary

Lego Group will have strategic and operational control over the wholly-owned subsidiaries. The company also can hire its own staff to manage the subsidiaries, thus ensuring that the company runs smoothly. Besides, Lego Group may apply its security directives and data access to reduce the risk of losing its intellectual property to its competitors. 

Challenges

In a wholly-owned subsidiary, the Lego Group may be forced too much money for its assets, particularly when its competitors are bidding on the same business. Furthermore, establishing relationships with local clients and vendors may hinder the company's operation and progress. Lego Group may also be forced to assumes the risks of owning a subsidiary. 

Organizational Structure

Lego group can develop an international division structure to build and handle all international operations through division. Firms usually adopt the structure in their development stages. The main advantage of the international division structure is that it allows the division of unique products, prices, product placement, and promotion. 

Licensing agreements

Licensing agreements refer to a legal contract between two parties; the licensor and the licensee. In a licensing agreement, the licensor gives the licensee the right products and sells good, and applies a trademark, technology, or brand name owned by the licensor. Lego group can decide to use a licensing agreement as to the entry strategy into the Indian market. The company can identify a licensee and depend on the licensee, reach the Indian market. 

Opportunities for licensing agreements

Lego Group can identify various opportunities through licensing agreements that would help them conquer the Indian toy market. Two ways through which the Lego Group can use licensing agreement to penetrate the Indian market are as follows: 

potential partners to grant licenses

Lego group can identify various potential partners that can use its brand, produce and sell its products. The company will grant the potential partners to do business on their behalf; it can consider appointing licensees that would sell the Lego products in the Indian market. 

Negotiating with Vendors on Pricing+ Incentives

Lego Group can also enter the Indian toy market through vendors; it can give its products to dealers, salespersons, and traders to sell in the Indian market. Lego Group would have to convince vendors through this entry strategy by lowering product prices and giving them incentives. 

Challenges

Through a licensing agreement, the company is destined to lose control over various production factors, including promotion, packing, and selling. The Lego Group might not have a better reflection of what is happening on the ground; the vendors might be relying on inaccurate information to the company. 

Organization Structure

Lego Group can consider the Global division structure as an appropriate structure for licensing strategy. Using a global division structure, the Lego group can establish its value creation and manufacturing activities in inappropriate global locations. The structure will increase responsiveness to quality, efficiency, and competitive opportunities in the Indian market. 

Levels of Centralization, Formalization, and Specialization

The levels of formulation, centralization, and specialization are essential for subsidiary branches. If the company embraces wholly-owned subsidiaries, it should ensure that its subsidiary branches are decentralized to boost the communication between executives and employees. The subsidiary branches should also embrace horizontal specialization to ensure that employees are expert and efficient in their respective rules. The high formulation would also help the subsidiary branches an idea of managing the business functions and operations. 

Environmental Scanning and Potential Threats

In any business venture, environmental scanning is one of the essential activities that must be carried out regularly. It allows the business to identify opportunities and threats. Having these factors in place allows the business to examine itself and even its ability to invest in future opportunities. According to Phornlaphatrachakorn and Khajit, 2020), environmental scanning refers to a system where a company systematically surveys its business environment and interpreting the data to generate potential opportunities and threats. In this case, environmental scanning is conducted to identify potential threats towards the Lego Group's entry into the global market. Possible threats for Lego Group in the Indian market include political risks, social challenges, economic challenges, regulatory challenges, and competitive threats. 

Political Risk.

The government or political system in a country influences how a business is conducted and managed within a country. A company seeking to start a business in a foreign country must adhere to political provisions to carry out its activities smoothly. The government's political system can be evaluated based on the ideology and the degree of individualism. Political factors are likely affecting the profitability of a business and its chances of survival. Political risk ranges from civil unrest to changes in political regimes. There are two forms of political risks; that is a macro and micro-political risk. 

Macro Political Risk

It refers to a political risk that affects all businesses operating in a foreign country. There is a macro-political Risk that Lego Group is likely to face when investing in India (Kaplan et al., 2020). Some of the possible macro-political risks include introducing contract laws that suppress a business; the Indian government can decide to dictate what gets into and out of the country. Thus, the government can impose unfavorable business conditions, making it difficult for the company to venture into the country. Other factors, such as taxation, keep on changing and rise to a level that minimizes the company's profit. The government could also impose some trade barriers to eliminate foreign business and protect local businesses from international investors. 

Micro Political Risk

Micro risk refers to a political risk where the host country's political actions are likely to compromise foreign operations; it largely depends on the existing government. One of the leading micro political Risk is the political instability in the country. However, peaceful a country may be, the political stability cannot be foretold. Indian can become politically unstable, thus compromising the operation of the Lego Group. Another micro risk is a politician's integrity, which can see some businesses get out of the market. Lego group's main competitors in the Indian market can conspire with the local politicians to the company out of the market. 

Competitive Analysis

In any business set up, marketing s one of the main factors most business; the inability of a company to cope with the current market demand can easily get it out of the market. Even though Lego Group is one the leading producer of toys globally, it can never assume the competition aspects. Lego's entry into the Indian market is likely to be challenged by its key competitors in the industry; the company is likely to face competition from both local and international companies. Besides, Asia as an economic block can form a force to get the Lego group out of the Indian market. As stated earlier, Indian is also known for the production of quality toys global. Some of the top toy companies in Indian that are likely to affect the operation of the Lego group include Fisher-Price, Hot Wheels, MEGA Blocs, and Chicco. 

Social Analysis

Social factors directly influence the purchase of goods and services. Societal factors such as cultures, beliefs, attitudes, and values greatly influence the type of goods and services consumers are willing to purchase. Before venturing into a new market, a company must consider various social factors that are likely to affect the demand and supply of their products and services. A business should understand the consumers' level of education, lifestyle, societal segmentation, and beliefs. These factors will help Lego Group to design toy products that best suit the customer demand. For toy products, children are the main target customers; the company should focus on social factors that are likely to affect the Indian children. Lego Group should consider factors such as population demographics such as gender and ages, class distribution, and different educational background. 

Regulatory Analysis

Every country has legal provisions that businesses operating within the country are expected to follow. These government provisions must be considered as they affect the operation of a business. When Lego Group seeks to infiltrate the Indian market, it is essential to consider various legal factors that are likely to interfere with India's establishment. Lego group's key legal factors of consideration include the country's data protection laws and intellectual property laws; with current technological development, companies are prone to stealing other businesses' ideas even before they are executed. Property ownership laws will be crucial in protecting the business and ensuring that every business's brainchild idea is protected. Other legal provisions that can affect the entry of Lego Group into India include quality laws, health, safety laws, and discrimination laws protecting the company's employees against exploitation. 

Economic Analysis

The economy is the business driving engine; a healthy economy will most likely support businesses, while a weak economy may sink a business. A country's economic growth will influence suitability to a business establishment: economy influence factor such foreign exchange rate, inflation rate, gross domestic products, and various economic cycle. The economic factors are likely to affect any business starting within a country, mainly foreign business. With the Indian economy, there are high hopes that the Lego group would perform well in the market. However, the economy worsens over, thus exposing the company to severe risk. With a weak economy, the sales would automatically fall, thus reducing sales and the profit margin. 

The financial risk of failure to expand effectively into India

If Lego Group does not pick up in India, there is a possibility that the company would become financially unstable in the coming years, thus threatening its stay in India. Lego Group might not manage operations when the business does not pick up in the region, thus compromising its future expansion and progress. 

Conclusion 

In conclusion, the Lego group's idea to enter the Indian toy market is viable and can be put into practice if it follows proper guidelines. In examining entry into the Indian market, Lego Group has to consider numerous factors ranging from the market analysis to its ability to explore a new international market. Based on past statistics, Lego can invest in a foreign country to use an appropriate entry strategy. According to the Indian toy market industry analysis, the country has a vast child population that makes it viable for such investment. Considering the projected rise in children's population in the next ten years, there is a high possibility that the Indian toy market would increase, thus increasing Lego Group products' sales. Other operational, cultural, and economic framework of India also favors new investment into the industry. Based on entry strategy analysis, Lego Group can embrace either wholly-owned subsidiaries of licensing agreements. Considering the benefits and challenges of these entry strategies, wholly-owned subsidiaries are the most suitable entry strategy for Lego Group. Besides the entry strategy, the company should conduct an environmental scanning and potential threat in the new market, including political risks, economic risks, and competitive risks. The management of the Lego Group should continue to explore various ways to capture the Indian market and strengthen its brand throughout the world. 

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