Toy maker keen on growing market

Danish toy maker Lego Group laid the founding stone of a new factory on Sunday, marking the commencement of construction of its first Asian factory in Jiaxing, East China's Zhejiang Province in a bid to tap the growing Asian market and its rising middle class.

Lego, the world's second-largest toy maker by revenue, will invest several hundred million euros in the factory in Jiaxing, located around 120 kilometers away from Shanghai, where the group will build a central distribution center for Asia.

"The three digit million euro investment in the factory sends a strong signal that we see Jiaxing and China as a long-term manufacturing base for the Lego Group together with the other Lego factories around the world," Michael McNulty, senior vice president, Asia Manufacturing of Lego, said at the site of the factory.

The factory, which will include moulding, decoration and packaging facilities, is expected to employ around 1,500 workers once it is fully operational in 2017, serving the entire Asian market.

Apart from the logistical location - in the middle of the Yangtze River Delta with Jiaxing and Shanghai harbors, Jiaxing has skilled laborers and is an ideal place to optimize the group's service and serve China, Japan, South Korea and Southeast Asia, Jørgen Vig Knudstorp, president and CEO of Lego, told the Global Times on Sunday.

"We are not looking for the lowest labor cost that we can find in other parts of China or Asia. We are looking for the most capable workforce. Jiaxing is a city with high education and many manufacturing bases," Knudstorp said.

The Queen of Denmark Margrethe II also attended the ceremony as part of a state visit to China.

The Danish toy maker, known for its interlocking plastic bricks, reported a net profit of $1.12 billion in 2013, up 9 percent from a year earlier while its sales rose 11 percent to $4.65 billion, according to the company's annual results in February.

In 2013, its China sales spiked more than 50 percent, albeit from a small base.

The result beat US toy maker Hasbro which sold for $4.08 billion in 2013, but still lagged behind the sales of Mattel, the US maker of Barbie dolls, which stood at $7.1 billion.

Currently, Lego has production facilities in Denmark, Hungary, Czech Republic and Mexico and expects the new factory in China, which will be its third-largest plant in the world, to supply approximately 70 percent to 80 percent of all products sold in the region in 2017.

In November 2013, China announced it would loosen its one-child policy by allowing couples to have a second child if one spouse is an only child.

The relaxation of China's one-child policy is good news for child-related sectors. In the toy market, for example, sales of traditional toys reached 48.5 billion yuan ($7.76) in 2012, and will continue to rise by an annual average of 0.6 percent in the next three years, Beijing-based Investor Journal reported in November, citing data from Euromonitor and CITIC Securities.

Lego also faces challenges in the Chinese market where consumers are more price-savvy and a strict parenting culture tends to emphasize studying rather than play.

Its high price is also a barrier in the Chinese market. A Lego Bricks & More Builders of Tomorrow set costs 299 yuan or $47.80 while the same set only cost about $29 in the US.

The group also faces fierce competition from domestic rivals in China, the largest toy producer and exporter in the world.

"Foreign toy makers such as Lego will have great potential in China's first-tier cities but they are no threat to domestic makers like us because we cater to second-tier and third-tier cities," Yan Yuantong, a sales manager at Jinjiang-based Hongshun Children's Goods Co in East China's Fujian Province, which exports toys to Europe, told the Global Times.

Intellectual property rights also remains an issue the Danish toy maker needs to cope with in the Chinese market as Lego knockoffs are common.

Kong Shengnan, mother of a 4-year-old girl in East China's Shandong Province, told the Global Times that she used to buy Lego knockoffs for her child but the knockoffs usually broke or bent easily.