Danish toymaker Lego is to invest more than $1bn in building a factory in Vietnam to respond to increased demand in Asia, and to make its supply chain more resilient following a series of shocks from Covid-19.
The factory, which will be Lego’s first carbon neutral facility, will be built 50km from the capital of Ho Chi Minh City starting in the second half of next year with the first production scheduled for 2024.
It will be the sixth factory for the world’s largest toymaker following one in China, three in Europe, and one in Mexico, and will mostly serve south-east Asian countries as Lego looks to capitalise on the rise of the middle-class in the region.
“Our strategy is to have our manufacturing locally, and adapt to changes in demand locally. It has really helped our resilience this year. So where do we see growth? In the south-east Asian region above all,” Carsten Rasmussen, Lego’s chief operating officer, told the Financial Times.
Lego’s growth has accelerated throughout the Covid-19 pandemic, reaching a zenith in the first half of this year when revenues increased 46 per cent, cementing its position ahead of Mattel and Hasbro of the US as the biggest-selling and most profitable toymaker.
After conquering European and then US homes, the privately held Danish group has set its sights on Asia, expanding rapidly in China with hundreds of own-brand stores as well as a factory in Jiaxing that opened in 2016.
Lego spent the past 18 months exploring locations in south-east Asia and received a “very good deal” from Vietnam, according to Rasmussen, who pointed to the country’s skills and openness on sustainability as well as its closeness to other countries to reduce lead times. It will create about 4,000 jobs over the next 15 years as Lego gradually scales up the plant.
“We are really looking at the long term and investing for the long term. There is a big potential for us in Asia and China . . . Of course, it helps with resilience but that isn’t the primary argument,” added Rasmussen.
Lego’s existing Chinese plant will in the future mostly produce for China, Korea and Japan while the new Vietnamese facility will serve the rest of Asia.
The investment will be welcome news for Vietnam, where exports are one of the main drivers of economic growth, and which has in recent years positioned itself among foreign investors as a lower cost manufacturing alternative to China. Vietnam and the EU signed a free trade agreement in 2019.
The south-east Asian nation, however, has had a rough year because of tough measures meant to contain a record number of Covid-19 cases, which locked down the country’s main manufacturing hub in and around Ho Chi Minh City for nearly three months, causing disruption to manufacturers such as Nike, Intel, Ikea and Toyota.
Lego’s carbon neutral factory will rely on solar panels at the factory and a nearby solar project that should match the plant’s energy needs, as the group invests heavily in more sustainable production. Vietnam is trying to shift its energy mix to renewables, especially solar power, to reduce its reliance on coal-fired power plants, and the south is the country’s sunniest region.