LEGO (A): The Crisis Harvard Case Solution & Analysis

External Analysis

Step 01: Identify the industry

The industry in which LEGO has been operating is a toy manufacturing industry. LEGO has been in the industry for more almost a decade where the company started off its operations in the year 1916 by Ole Kirk Kristiansen.

lego (a) the crisis case solution

lego (a) the crisis case solution

Toy industry has been quite successful in the past, however with the introduction of various substitutes for the children and the increasing competition, the overall impact on the industry has been a negative one and all the players offer discounted prices to stay competitive in the market (Jan, W. 2013).

Step 02: Analysis of the General Environment

Political/legal Environment:

The overall political environment for LEGO and the toy industry has been affected in a negative manner due to support by the government for the industry. Moreover, the upcoming countries such as China and India have become the largest consumer industry; therefore, major countries are signing trading agreement with them where the trade barrier has reduced.

Along with this, many developing countries have been accompanied with the agreement where they are looking for resources that are reducing cost. The overall industry has been facing trade agreements which have to be dealt by each industry player.

Economic Environment:

The economic environment for all the industries including the toy manufacturing company has been affected by the global recession that has hit in the year 2008. Moreover, the limited buying patterns and disposable income for the consumers have also been a decline in the overall sales.

The increasing production cost for the products in developed countries has raised the overall price for the products. The companies operating in the industry to achieve economies of scale have been outsourcing their production to China or open up manufacturing plants over there (Jan, W. 2013).

Socio cultural Environment:

The social environment for the industry has been affecting the industry negatively because now the children have no longer stayed brand loyal. Moreover, with the decrease in the birth rate in western world, the overall sales have also reduced. Along with this, children want fun, while parents want them to have education. The shift has been in the direction where the toy industry has been unable to sustain itself.

Technological Environment:

With the introduction of various technological innovations, the industry’s sales have been affected badly. Children in the past were content to play with toys, however in the modern era; they are more inclined towards the online games, internet, video games, etc.

Along with this, the product cost is increasing alongside the cost of material and also the increase in demand for technological based game. Moreover, companies have been investing in the online websites, research and development to sustain in the market.

Global Environment:

The global environment has been introducing new features, new products and have been trying to align themselves with the introduction of newer products in the market. Since the shift has been towards various other components, therefore the industry players have been looking to outsource the production to Asian market where the labor cost is low; raw material cost is also less, which makes the products cheaper overall.

Demographic Environment:

The demographic environment has also been changing in the past decade or so. People preference has changed. Parents want the children to focus on education more than fun. The shift in focus has been due to the changing preferences.

Step: 03 Analysis of the Industry Environment

Bargaining Power of buyers: High

The bargaining power of buyers has been high for the industry. It is high because of the large number of players in the market. Moreover, the low switching cost has also been a factor. In addition, the players offer discounted prices to sustain in the market.

The largest buyers include large retail outlets like Wal-Mart and Toys’” Us, who are established players in the industry and have a well-reputed name. The overall product is standardized in the market (Michael E. 2008).

Bargaining Power of Suppliers: Low

The bargaining power of suppliers is low for the industry. It is low because of the increased number of suppliers in the industry. Moreover, with the introduction of Chinese firms offering lesser prices and offering economies of scale, the bargaining power of supplier has reduced. The enormous presence of huge industry players has actually made the bargaining power of suppliers quite low. All the suppliers offer discounted prices to the industry players......................

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