Professor Howard Weiss presents his monthly Guest Post. Howard recently retired from a distinguished career at Temple University.
As illustrated in Figure 8.1 in your Heizer/Render/Munson location chapter, one of the important factors in selecting a country is the location of markets. Toymaker Lego just said it plans to build a new factory in Vietnam to keep up with rapidly growing demand for its colored plastic bricks among children across Asia. Lego will build the plant outside of Vietnam’s business hub of Ho Chi Minh City and the plant is expected to open in 2024, create 4,000 jobs over the next 15 years, and cost more than $1 billion. It will be a carbon-neutral plant and use solar energy from its roof and a solar project nearby for all of its energy.
Lego, which is the largest toy company in the world, began manufacturing in 1949 and currently has five factories worldwide: in Denmark where Lego is headquartered, and in Hungary, Mexico, the Czech Republic and China that produce 100 billion bricks per year. While there currently is a plant in China, demand in Asia is projected to be greater than the capacity at the Chinese factory. One of Lego’s strategies has always been to locate factories near its markets. Vietnam is important because essentially the life cycle of Legos in Asia is in the growth phase whereas the life cycle for Legos in Europe and the Americas is in the mature stage as described in 
Chapter 5 (see Figure 5.2) of your textbook.
The growth in demand in Asia is due to an increase in the middle class, higher birth rates and increased spending power in Asia than in Europe and North America. Locating near its Asian markets should reduce shipping costs and delivery times and make Lego less susceptible to supply chain disruptions. Lego has noted that the decision to build in Vietnam was not due to recent supply chain disruptions. In fact, Lego claims to have encountered no production or distribution problems due to COVID. In terms of quality, roughly .002% of manufactured bricks do not meet the required standards.
Lego is not the only major company to recently plan to increase its production capacity in Asia. Recently Ford announced that it would upgrade its facilities in Thailand at a cost of $900 million.
Classroom discussion questions:
-
Why is it easier now than previously to locate offices, factories, retail stores and banks outside of a company’s home country?
-
What are other important factors in choosing a country?