Lego and Tencent Partnership
Lego and Tencent entered a partnership that will see the creation of a video zone for children on Tencent's video streaming platform. The move by Lego has been seen as part of increasing partnerships between multinationals and Chinese firms. Such partnerships create an environment for value creation and advancement of growth towards strategic objectives achievement. Lego made a move in response to the deal made by Mattel, the maker of Barbie and Alibaba, A Chinese e-commerce firm. Mattel would sell its products on Alibaba's platform. The move will foster cooperation between Lego and Tencent in the creation of online games and social networks targeted at children.
Contents
Executive Summary. 2
Introduction. 2
Analysis and Discussion. 3
Recommendations. 5
Conclusion. 5
Introduction
The primary aim of the partnership between Lego and Tencent is the creation of branded video games and possibly a social network for kids. Lego considered various factors before making the move. Such a partnership is only viable when it is mutually beneficial, and it generates value for key stakeholders such as customers and shareholders. Tencent is one of the most valuable companies in Asia. It is deeply involved in mobile gaming and online video streaming. On the other hand, Lego is a leader in making children's toys and games. In recent times, Lego has struggled to find a firm footing in the business world. To increase its stability, the company had to cut off more than a thousand jobs. In China, Lego sees an island of hope as revenues grow double figures compared to losses or stagnation in some western countries (Chen, L. 2010, 11). The partnership will see the creation of Lego branded games and a video zone on Tencent's platform. Such a partnership will create new improved services for the clients of both companies (Nelson, C. 2017, 274). Moreover, the companies are working to ensure safety online for children through the development of Lego Life.
Analysis and Discussion
With more children spending time online for entertainment, it has become essential to creating a safe environment for children to play. The partnership between Lego and Tencent is marked by several mutually important issues, including online safety. The two companies are cooperating in the creation of a safe, creative, and fun environment for children. The move targets Chinese children. There are plans to develop Lego Boost, a programmable, connected robotics kit released mid last year. Lego Life is already available in some countries. The current objective is to develop Lego Life suited to Chinese children.
China as a Vital Hub for Business
China is a vital hub for business in the modern world. The Chinese government has made several deliberate attempts to create a positive atmosphere for doing business and investment (Ryu, I. 2009, 501). The country's economy has been growing positively for many years. Demand has been on the rise despite some shocks due to global events such as oil prices and financial meltdown. China's population makes it the world's largest almost homogenous block of consumers (Chen, L. 2010, 15). Lego sales may be dropping in some countries due to stiff competition or slackened economic outlook. In China, there is a vast market of untapped consumers. Lego can have the competitive advantage if it takes advantage and creates a new market niche for itself with new innovative products and services in China (Smith 2017). Tencent will benefit by having access to Lego's already established market shares in Europe and North America.
Opportunities and Benefits
Apart from the availability of a ready and vibrant market, Lego will also access the Chinese labor market. The labor market in China is highly competitive. Many companies have moved their production activities from Countries such as the US to China due to the availability of highly skilled cheaper labor. Property costs are also likely to be lower in China (Ryu, I. 2009, 499). All these present an opportunity for Lego to lower costs without compromising on product quality. Tencent will gain from the move by having a team of skilled labor and managers from Lego at their disposal. The joint teams made by the two companies will be more endowed regarding human capital, experience as well as diversity (Nelson, C. 2017, 269). As such, the new products created are likely to be better than those of competitors creating brand value for both sides.
Cost Reduction and Economies of Scale
The creation of safe, fun, and creative online environment for children requires specialized labor and other inputs. The partnership will create avenues for more cost reduction when the two companies take advantage of merged supply chains. The aggregation of some procedures or nodes and networks on the two supply chains will lead to reduced costs. The two companies can also benefit from economies of scale. Producing in bulk is likely to lower per unit costs associated with storage and transport (Smith 2017). China has policies encouraging product development and production of goods and services. Some of those policies include creating tax havens for businesses. Lego will gain from this given the reduced dedications from earnings in the form of corporate tax.
Potential Challenges and Ethical Considerations
Nevertheless, there may be some challenges that emerge with this partnership. Globalization may present challenges with the coordination of activities. For instance, Lego has mostly focused on Western countries in the past. The Chinese cultural expectations regarding children's games as well as other forms of entertainment for children may differ from that of western culture (Andersen 2016). Cultural clash may also happen as teams from the two companies are working together in the development of new products (Einwächter, S. 2017, 25). The partnership also needs to make sure it meets safety and other regulatory requirements in China. Promoting the online presence of children can also be an ethical issue. Children need to learn other activities outside the online world. The partnership, therefore, has to balance the profit motive with the welfare of children motive.
Recommendations
Some of the issues encountered in making a partnership such as the one with Lego and Tencent work is deciding how the venture will be managed. In a dominant system, one company dominates the other is aspects such as staffing and decision-making. This system would bring out issues as the dominated firm feels repressed (Gunasekaran, A. 2010, 555). An equal partnership system is better where there is a system that allows for firms to contribute equally to decision-making processes.
It is essential to have the shared values and goals of the two companies well elaborated in writing. After this, both companies need to contribute managers as well as other specialized staff. The managers need to use the shared objectives and preferences in the development of strategies, short, medium, and long-term (Smith 2017). At the top level, there needs to be a coordination team that reduces friction from the joint task force (Warner 2017). This team also needs to monitor and evaluate the progress of the output by the joint team. In case there are gaps between the actual output and the expected output, appropriate changes can be made. In making the partnership work, it is also vital to complement each other's abilities. More so, constant, honest communication is essential for the business structure to be strong.
Conclusion
The move by Lego to partner with Tencent is a well-informed step to move the company towards increased sales. Tencent is a highly valuable company based in China. It has a pool of skilled workers and a valuable brand. China presents a large market for Lego's products. The development of new products from the venture will create value for both companies. This will improve their respective competitive advantages. Nevertheless, it is crucial to have measures in place that make the partnership work well. This involves removing barriers to effective coordination and cooperation. Of greater importance is the creation of a safe online platform for children.
References
Chen, L., 2010. Business–IT alignment maturity of companies in China. Information " Management, 47(1), pp.9-16.
Warner, M. and Sullivan, R. eds., 2017. Putting partnerships to work: Strategic alliances for development between government, the private sector, and civil society. Routledge.
Gunasekaran, A., Lai, K.H. and Cheng, T.E., 2008. Responsive supply chain: a competitive strategy in a networked economy. Omega, 36(4), pp.549-564.
Ryu, I., So, S. and Koo, C., 2009. The role of partnership in supply chain performance. Industrial Management " Data Systems, 109(4), pp.496-514.
Einwächter, S.G., and Simon, F.M., 2017. How digital remix and fan culture helped the Lego comeback. Transformative Works and Cultures, 25.
Smith, A.C., Stavros, C. and Westberg, K., 2017. Brand Fans: Lessons from the World's Greatest Sporting Brands. Springer.
Andersen, P. and Ross, J.W., 2016. Transforming the LEGO group for the digital economy.
Nelson, C. and Mattes, A., 2017. Lego, Creative Accumulation and the Future of Play. In Multidisciplinary Perspectives on Play from Birth and Beyond (pp. 265-279). Springer, Singapore.
