Singapore Firm to Take Over Lego Production

Laying off more than 900 employees at their headquarters in Billund, Denmark, the Danish toymaker Lego Group has announced that it will outsource large parts of its production to the Singapore-owned Flextronics. Lego’s famous building blocks have entertained millions of children worldwide for more than 70 years, so it’s a great legacy which has been passed on to Flextronics. However, Lego intends to continue to make products “characterized by high technical requirements” at home, the Denmark company said Tuesday.
     The Lego Group will avoid outsourcing highly technical work to Flextronics, despite it being one of the world’s largest manufacturers of highly technical products. It produces a wide range of goods including Xbox 360 game consoles, PCs and mobile phones. Over half of its revenue comes from telecommunications products. Making plastic building blocks appears to be a new line of work for Flextronics. A spokeswoman declined to comment on the deal, but said the company has long produced a range of plastic parts and mechanical enclosures, indicating that making Lego does not represent a sudden shift into non-IT products.

Singaporean Production in Eastern Europe
In this most recent deal, Flextronics, which is headquartered in Singapore, will take over production of Lego products in North America and a portion of the Lego Group’s Eastern Europe manufacturing. As a result, the Lego Group plans to lay off 300 employees at its US subsidiary, as its North America production moves to a Flextronics plant in Mexico over the next three years. The 900 employees in Denmark who will most likely lose their jobs will see their tasks transfer over to Flextronics factories in Eastern Europe. Flextronics will also take over a Lego Group facility in the Czech Republic, from August 1.
     By the time its three year outsourcing plan is finished, the Lego Group expects its head count to total 3,000 employees – a considerable downsizing compared to the 5,600 people who are currently employed by Lego, according to the company’s website. The company decided to outsource most of its production to reduce costs by as much as 1 billion DKK ($169m) and ensure its facilities were close to its major end markets, it said. The Lego Group, a family-owned business, has struggled financially over the past few years. In 2004, it lost 1.69 billion DKK before taxes, while its pre-tax profit totalled 702 million DKK last year.
     “The traditional toy market is characterised by low or no growth, as a result of the severe pressure from electronic products and intense competition at [the] retail level,” the Lego Group said in a statement this week.

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