Chinese toymakers say Lego's new plant could affect competition

Visitors visit the European architecture model constructed with Lego in Hong Kong, south China, April 30, 2011. Artists using 3 million pieces of Lego constructed 17 world famous scenic spots, attracting lots of visitors. [Photo/Xinhua]

Danish toymaker Lego Group plans to start building its first factory in China next year, but some local toy manufacturers have already claimed it could lead to tougher domestic competition.

The factory will be built in Jiaxing, in the middle of the Yangtze River Delta, about 100 kilometers from Shanghai, where the group is also planning to locate a regional distribution center for Asia.

Officials did not specify exactly how much it would invest, but Reuters reported it could create about 2,000 jobs once fully operational in 2017.

"The 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's senior vice-president.

McNulty added that based on current growth projections for Asia, the factory should be able to supply 70 to 80 percent of all Lego's products sold in the region by 2017.

Lego sales in Asia have grown by more than 50 percent annually in recent years, and are expected to see further regional growth in the near future, he said.

According to Companies and Markets, a global research firm, Asia Pacific will become the world's largest toy market, raising global sales revenue of toys by $7 billion by 2016.

"It is our strategy to have production close to our core markets and it has proven a successful strategy," added Bali Padda, Lego's chief operations officer.

Total retail sales of toys and games in China soared in value from $3.89 billion in 2007 to $8.3 billion in 2011, an average annual growth rate of 21 percent, according to statistics from Euromonitor, the global market research firm.

The sales revenue of toys in China reached 54 billion yuan ($8.69 billion) last year, an 18 percent increase on the previous year.

"Asia is a future core market for Lego," said Padda.

"Having full control of the production process is essential to deliver products of a consistent high quality and safety."

In recent years, however, more Chinese toy manufacturers have been forced to shift their focus from overseas to the domestic market due to a sharp decline in demand from the United States and Europe.

Data from Wind Information Co, the leading provider of financial research, show that $11.45 billion worth of toys were exported from China in 2012, with an annual increase of 5.8 percent.

But Ye Shuhui, the manager of Ningbo Jinfan Toy Co from Zhejiang province, which sells most of its toys to the United States, Europe and Southeast Asia, said: "Our sales revenue saw a 20 percent drop in 2012, largely due to the severe decline in export orders."

Ye added more local toymakers have moved to sell their products to domestic buyers.

Other export-oriented toymakers also say they have started to feel pressure from global toy brands like Lego to produce higher quality items at lower prices.

"Making money from running a toy business is going to be harder as we face tougher competition from local companies, and well-known global brands," said Yang Junliang, sales manager of Yangzhou Oasis Ocean Toys from Jiangsu province.

yuran@chinadaily.com.cn