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Lego to build first China plant

By: Michael Lauzon

March 22, 2013

BILLUND, DENMARK -- Targeting Asia as a major up-and-coming consumer of its building-block toys, Lego Group plans to set up a factory in Jiaxing, China, its first in the nation.

"It is our strategy to have production close to our core markets in order to secure short lead time and … service to our customers and consumers, and it has proven a successful strategy," said Lego Chief Operating Officer Bali Padda in a news release.

Padda said Asia is a future core market.

"Having full control of the production process is essential to deliver products of a consistent high quality and safety and in harmony with our values," Padda said.

The Jiaxing plant will be in the middle of the Yangtze River Delta about 60 miles from Shanghai, where Lego is planning to establish a regional distribution center. Lego expects to begin construction of the Jiaxing plant in early 2014.

Lego would not disclose actual sales volumes in Asia

"We currently source from a range of suppliers in China," said Lego spokesman Roar Rude Trangbæk in an email. "The parts we source from China include a smaller portion of our Lego and Duplo elements as well as the majority of our electronic components and textile elements. We have no plans to stop sourcing from current suppliers."

Lego has been investing in growing markets as it shifts some operations from in its headquarters plant in Billund, Denmark.

The company recently installed several hundred Arburg injection presses in Ciénega de Flores, Mexico. Lego opened the plant in 2009. The facility, believed to be one of Lego's biggest, is Arburg GmbH & Co.'s biggest customer in Mexico. Arburg installed the last hundred of the presses in February.

In February, Lego announced it was cutting 380 jobs at its main production plant in Billund, Denmark, where the toy major is based. Most of the work affected will be decorating and packaging, which will shift to Lego plants in Hungary, Czech Republic and Mexico. Billund, however, will receive large investments in its molding operations.

"The new [China] factory will be built and run with the same technology, automation and standards for employee safety and product quality as our Lego factories in Denmark, Hungary, the Czech Republic and Mexico, and it will have a distinct Lego look and feel," said Michael McNulty, Lego senior vice president of procurement.

Trangbaek said it is too early to estimate the number of injection molding machines destined for Jiaxing. He said the firm would not reveal the cost or planned supplier of the machines.

Lego does not now directly manufacture in China. The new investment will include molding, decorating and packaging operations. Lego's sales in Asia have grown by more than 50 percent in recent years.

"Based on our current expectations for growth in Asia, the factory should be able to supply approximately 70-80 percent of all the Lego products sold in the region in 2017," McNulty predicted. "All products made in the new factory will be sold in Asia."

Jiaxing, with a population of 5 million, was chosen because of its infrastructure, proximity to Lego's regional distribution center and the city's plans for sustainable development. The city has a natural market of 15 million and boasts two universities and several technical colleges.

By 2017 the new Jiaxing plant will be fully operational with an area of about 1.15 million square feet and about 2,000 employees. By 2015 it will employ 200-400. Lego did not release precise figures for its Jiaxing investment but said it will amount to three-digit million euros.

Lego recently reported a 25 percent increase in group sales to US$4.04 billion for 2012. It said more than 60 percent of its sales derive from new launches each year.