Why Lego Are Building A New Factory In Vietnam
(Image copied from official Lego press release)
The Lego Group has just announced that they are going to build a new Lego factory in Vietnam, with a total investment of more than $1billion. This is in addition to existing factories in Denmark, Mexico, Eastern Europe and China.
So the question of course is why is Lego taking this step and investing a very significant amount of money - group revenues for full year 2020 were c. $6.65billion USD, so an investment of $1billion in a new manufacturing plant is clearly a major step. This is not the kind of investment a company makes on a whim, it is most likely to be a medium to long term strategic play.
Lego opened a new factory in Jianxing near to Shanghai back in 2016, and the company's significant investment in China is clear, with the company committed to having c. 300 retail stores in China by the end of 2021. Therefore Lego's factory in China is easy to justify and explain. But when we look at the comparatively small economy of Vietnam - with c. $270bn USD GDP versus China with c. $15trillion USD GDP - it is obvious that Vietnam itself can't be the entire justification for the new Vietnam plant.
According to Lego's press release, the Vietnam factory has a broader target - manufacturing to support overall growth in the Asia-Pacific region as a whole. So this might mean shipments to Australia, it could be extra capacity to service the hungry and growing market for Lego in China and it could be part of a supply strategy for other fast growing Asian markets. Lego's long term strategy with manufacturing has been to set up factories close to market for quick response to demand as well as increasingly environmental concerns with near to market manufacturing significantly reducing logistics carbon footprint of course.
Vietnam is also a country where many toy manufacturing groups have been relocating manufacturing out of China for the best part of a decade. With a relatively stable political situation and with labor costs significantly lower than China (minimum wage in Vietnam is c. $180usd per month vs c. $360 in China), this looks like a sensible play from The Lego Group.
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