LEGO Group is a worldwide, well-known toy manufacturing company. In 2004, the company was faced with a major financial crisis and a major decision to make. Do they try to save the business or not? Through strategic analysis of the company’s external and internal environments, many contributing factors became evident. External Analysis The external environment facing LEGO “consists of many external conditions and forces that have the potential to influence their organization” (Ketchen and Short). The external environment is analyzed through macroenvironmental, industry, and opportunities and threats. Macroenvironmental Analysis The PEST analysis organizes and identifies how macroenvironmental factors affect LEGO. Political. Trends within the political segment shaped LEGO throughout the years.
First, outsourcing toy manufacturing to China created employment overseas, meaning an increase in overseas household spending. Star Wars also became a popular trend, making references to fighting and crime in the world. This significantly impacted toymakers, specifically LEGO, by providing an opportunity to incorporate new trends into their products. LEGO was also influenced by regulations that supported safer toys; they needed extra safety precautions when creating products. Economic. The 2004 LEGO crisis is related to the overall economics of the 2000s, when the global economy slowed down, decreasing household spending. As unemployment rose, consumers were discouraged from purchasing LEGO products, because they were unessential. This unstable economy resulted in a decrease in sales for LEGO.
Another trend in the economic segment was the decreased cost of outsourcing. Companies began outsourcing manufacturing to Asia, because labor was cheaper. In addition, when the Berlin Wall fell, LEGO saw a steady growth in sales, but it was not enough. Lastly, most LEGO purchases happened seasonally, meaning LEGO needed to adjust their internal environment to reflect the consumer external buying habits. Sociocultural. Sociocultural factors affecting LEGO included declining birth rates, change in children’s behavior, and the use of educational toys. Birth rates in Western Europe and Northern America declined, providing a major threat to LEGO, since they originally targeted young children. Children’s attention spans also shortened and they wanted instant gratification.