Abstract
Competition in the market is determined by various factors based on the dynamics in the market. Various marketing studies have been developed to analyze market conditions in line with the development of strategies to ensure competitiveness of business. This paper draws from the school of thought of the VRIO model and the PESTEL analysis model to develop an overview and evaluation of the prevailing conditions in the Lego business. Lego, a toy manufacturing company, has recently undergone market-based challenges that have resulted in tough decisions on the part of the management in ensuring sustainability of the competitiveness of the company in the market. The findings of the case analysis are such that the company can effectively utilize the SWOT analysis approach provided by the VRIO and PESTEL models to effectively address concerns regarding its competitiveness with respect to the market challenges that it is faced with. Appropriate recommendations to the report are provided as well as suggestions for the implementation of strategies in countering market challenges that can be utilized by the company Lego.
Main Issues
Lego is a toy manufacturing company that is based in Billund, Denmark, and it is best known for the manufacturing of the famous Lego brand of toys. The company has been in existence for almost a century having been founded in 1932 by Kirk Christiansen. The company is renowned for its assembling bricks for toys. The bricks can be assembled to make an array of different toys that appeal to children. Examples include; objects such as vehicles, buildings, and robots etcetera. The development of the interlocking bricks revolutionized the toy manufacturing industry since Lego products have grown to influence popular culture. Today the Lego subculture has developed and has been adopted in movies, six themed amusement parks and competitions. The company remains successful although it was faced by the challenge of acquisition in the early 2000s when the then CEO Jorgen VigKnudstorpfound it difficult to decide on whether to continue with the traditional brick manufacturing or adopt the most recent products such as videogames and Robotics product lines that the company had recently engaged in.
But this was not the only challenge that Jorgen faced as CEO, the industry was seemingly increasing in its competitiveness pitting the company Lego against manufacturers who were bent on cloning Lego’s bricks. Resultantly, law suits ensured where the company sued CoCo Toy Company in Beijing in 2004 over copyright infringement. Later in 2005 another company based in Canada dubbed Mega Block was also sued by Lego for trademark violation, but Lego lost in the case. The courts ruled that Mega Blocks should continue to sell its products since the eight-peg design of the original Lego brick was merely a technical function. For this reason it could not be registered as a trademark. The decision led to the entry of a myriad of other toy manufacturers’ into the toy market pushing Lego’s profits down and threatening its closure or acquisition by other companies.
Resource Based Analysis Employing VRIO/VRIN
According to Fuchs, Mifflin, Miller and Whitney (2000), business challenges are continuously becoming complex in the modern day market (118). As a result there is need for the management of the organization to remain dynamic in its approaches towards ensuring the competitiveness of the corporation in light of the changing market situations. Chapman (2011, p. 587), provides a resource bases analysis that is dubbed VRIO which are abbreviations for; Valuable, Rare, Imitable and Organization (VRIO).
Foremost Valuable is concerned with the worth of the product or commodity. In this regard, the commodity can be used to achieve a premium price at the market or that the price can be set at an advantage over competitors prices in the market. Hence, an evaluation of Lego’s traditional building bricks reveals that the product cannot fetch a premium price in the market since competitors can develop substitutes that sell for less. Therefore, it is advisable for Lego to focus on its line of new products such as movies and robotics which have not yet been tapped into by competitors to gain competitive advantage.
Secondly, Rare refers to the nature of the commodity of a company to be in the hands of the company only or in very few other companies. In this respect, the rare nature of the product makes it a competitive advantage. Before the courts ruled that building bricks were not a copyright of Lego, the company had enjoyed Rarity of the commodity, hence, a competitive advantage. That has, however, changed since the ruling and competitors can as well produce the same building bricks at lower prices . Thus, an evaluation of the market conditions reveals that although the buyers in the market are abundant, entry of new players will result in the reduction of toy prices. As a consequence of the reduction the company’s profits would be jeopardized meaning that its sustainabilityis in question given that the prices of its toys in the market remain the same.
The third element Imitable advances that is commodity is easily copied then it cannot be regarded as a competitive advantage. To be advantageous the company’s product must be difficult or impossible to copy and reproduce in order to provide the company with undue competitive advantage. An evaluation of the building bricks product reveals that Lego enjoys temporary Imitability since the bricks can easily be copied. In fact competitors’ bricks can be made to be compatible with Lego bricks.
Fourth, Organization is concerned with the firm’s ability to take advantage of the resources at its disposal is it meets the VRI requirements discussed above. Hence, if a products is valuable, rare and non-imitable, the company can organize it or rather make it Non-substitutable in the market. Through organization, the company can exploit the exclusivity of the commodity to its advantage .
PESTEL Analysis
An evaluation of the political, economic, social, technological, environmental and legal considerations of the Lego business presents an overview of the dynamics of competitiveness in the market. Foremost, the analysis of the political climate in which Lego operates reveals that no political tensions threaten its operations. Hence, the business is operational under political stability. Secondly, an evaluation of economic aspects also reveals that Lego had exclusive share of the customer base before losing the law suit on patenting rights. Now that the Lego signature bricks can be produced by competitors prices will dwindle reducing revenues for Lego.
Thirdly, the social climate can also be likened to the political stability in the environment of operation which is as well an element of state of the environment. On this note, environment, social and political aspects of the PESTEL analysis is regarded as conducive to support the operations of the company. This leaves legal matters and technological aspects as the other elements to be considered in the PESTEL analysis. To this end, the legal state of the Lego business is such that it is faced by law suit battles left right and center in attempts to defend its hold on competitive advantage in the market. Legal battles are not sound for business as they derail the conduction of smooth business due to time and resources used. Finally, the analysis of PESTEL is complete by evaluation of technology. To this end, the technological development in the firm has seen it develop other lines of products such as movies and robotics. Therefore, the company can utilize this new line of products as an effective means of curbing competitors’ intrusion on its bricks business. Hence, the company can employ technology to win back competitive advantage.
Therefore, the company Lego can evaluate its options with regard to its competitive position. Based on the VRIO and PESTEL models discussed above, Lego can effectively conduct a SWOT analysis to gauge its strengths, weaknesses, opportunities and threats in the market. As a result, the company can be in a position to maximize on its strengths and opportunities while at the same time make appropriate plans to handle its threats and weaknesses. To this end, the company’s strength lies in the development of Lego culture which has integrated into popular culture. For this reason, the company can capitalize on other lines of its products such as movies and robotics. Hence, the profits earned can offset losses made in the bricks product segment which has historically been Lego’s primary profits earner. Similarly, the new line of products presents an opportunity for the company to develop and capture new and existing market segments.
However, the company should develop strategies to counter the increased competition presented by entry of new companies into the industry. Hence, weaknesses and threats to the future profitability of the company encompasses managing the competition paused by entrants into the industry. Thus, it is important for the company to develop differentiation techniques that would eventually ensure its competitiveness in the future.
Conclusion
The principle focus of this paper has been the case study and evaluation of Lego a toy manufacturer based in Denmark. The evaluation finds that the company has dominated the toy manufacturing industry well known for its trademark bricks that can be utilized in the construction of various kinds of toys. However, the evaluation also finds that the company has recently faced huddles in the toy market due to the increased competition and cloning if its bricks. As such, the company has entered into various law suits in attempts to counter copy right infringement as well as patenting of its bricks as a trademark. These events led to a situation where profitability of the company was compromised leading to a dilemma in management’s decision making regarding its acquisition by other firms. The evaluation has examined the dilemma that management at Lego is faced with and presents several ways to examine the position of the business in line with competitiveness in the market. The VRIO framework and PESTEL analysis have been presented as an appropriate means to the evaluation of the position of the business.
Recommendations
The recommendations of the case analysis are as follows; first, that the company Lego utilizes the information contained herein to develop a strategy that will ensure its competitiveness in the industry. Secondly, that such a strategy must encompass the utilization of its strengths and opportunities while at the same time used to make improvements on its weaknesses and threats. Essentially, this paper’s recommendations are such that the company should conduct a SWOT analysis based on the VRIO framework and PESTEL model. The same should evaluate the position of the business which takes into account elements of the company’s competitiveness in comparison to the prevailing dynamics in the market as discussed.
References
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