Business Decision Making

This report examines the decision making process of Lego's partnership with Tencent in China. It analyzes the benefits of collaboration in expanding business in new markets and discusses alternative options. The report also applies theoretical models and provides recommendations for future growth.

Business decision making
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AUTHORS NOTE
Running head: BUSINESS DECISION

BUSINESS DECISION
Executive Summary
In this report decision making of Lego to form partnership with Chinese firm Tencent has
been examined and it was found that decision of collaboration has been suitable approach as
it would lower risk while expanding business in new markets of China. Also alliance with
local firms will help Lego exploit knowledge and capabilities of local enterprises which will
ensure easy as well as rapid expansion move.
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BUSINESS DECISION
Contents
Executive Summary...............................................................................................................................1
Introduction...........................................................................................................................................3
Analysis and Discussion.........................................................................................................................3
Recommendations.................................................................................................................................5
Conclusion.............................................................................................................................................6
References.............................................................................................................................................6
Appendix...............................................................................................................................................7
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Introduction
The primary issues that have been identified from case study of Lego’s partnership with
Tencent in China is that though Lego’s decision to expand into Chinese market is a good
opportunity due to rapid growth prospect and market of toys and games which is worth $31
bn, but still Lego’s major issue is intense competition in China market from major players
such as Mattel and Hasbro. Other issue identified is Lego’s slow sales growth during current
years though China being a strong spot with sales there increasing to 30% in 2016. But
Lego’s small growth improvement in global value share during 2016 is a matter of concern.
Other issue discussed in case study is safety of online content and digital environment where
many young children are likely exposed to online games so securing online experience for
every child and integrating online child protection policy in all aspects to eliminate negative
concerns, abuse and privacy misuse is an issue, which are likely being addressed by
partnership initiative of Lego with Tencent. Together they look to offer safe online eco-
system, content and experience for children and parents. In this report Lego’s decision of
partnering with Tencent in China has been analysed and an alternative option has been
suggested.
Analysis and Discussion
In order to analyse Lego’s decision to partner with Tencent in China two theoretical models
will be applied. Shah and Amjad (2016) states that ethical decision making model which will
be applied to examine Lego’s decision includes three perspectives i.e. ethic of obedience,
ethic of care and ethic of reason. Ethic of obedience is applicable to Lego’s decision of
partnership as it not only meets legal compliance but also looks at moral value behind the
law. This means that Lego’s partnership decision with Tencent reflects ethics of obedience
where children are more exposed to digital environment and safe online platform and
encounters have turned out as significant concerns for parents and society in China. Lego and
Tencent’s collaboration decision is a significant initiative to ensure digital child safety. Also
the decision looks at moral value as collaboration has been ensured to facilitate Child
protection in digital environment under inputs from UNICEF to create safe online eco-
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system tailored for Chinese children. Secondly MacDougall et al. (2014) states that ethics of
care is even applicable for Lego’s partnership decision as collaboration has emerged to add
benefit to people through technology and innovation to create healthy online environment for
children, hence fulfils engagement with emotional intelligence and empathy while making
decision from people’s outlook. Schwartz (2016) states that ethics of reason is even
applicable as Lego’s collaboration decision with Tencent engages rational perspective to
create desirable outcome i.e. Lego decided to enter China as market scope is huge with toys
and games market worth 31 bn dollars and the country is developing rapidly in contrast to
Western markets like US, Europe as they have grown mature.
The second theoretical model i.e. Porters 5 Forces will be applicable to examine Lego’s
partnership decision with Tencent as it will reflect on strengths and their existing competitive
landscape and situation. Welker and Berardino (2014) states that by applying threat of new
entrant perspective, Lego and Tencent’s collaboration decision looks suitable as this threat is
high for them and it is needed for Lego to extend their network and make it strong through
entry into new markets so as to consistently position as strong competitor in market over
others. Secondly Eisenhardt and Martin (2000) states that by applying threat of substitute
perspective, Lego’s collaboration decision with Tencent looks applicable as this threat is high
due to encompassing substitutes like sports, extracurricular activities. Also as switching cost
to substitutes is low so Lego’s collaboration decision will help to increase its competitive
position in contrast to risks from substitute through developing engaging digital content that
will support need for fun, creativity as well as learning and development in Chinese children.
Thirdly by applying level of competition perspective, Lego’s collaboration with Tencent
looks suitable because toy industry being oligopolistic has limited firms in different markets
so though reason of competition is low but its intensity is high. So to secure more broader
market it can be said that Lego’s decision to collaborate with Tencent which is an internet
giant in China is suitable as it has helped them to expand into online games and social media
sector to generate more value. Also, by applying power of buyers perspective, Lego’s
partnership decision with Tencent looks suitable as bargain power of buyers is high for them
in industry so to retain relationship with buyers it is considerably reasonable for Lego to
enhance their product portfolio and quality in other emerging platforms like online games or
video content. Further, by applying power of supplier perspectives, Lego’s collaboration with
Tencent looks suitable as power of supplier is moderate and due to high brand power of both
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BUSINESS DECISION
Lego and Tencent they have gained support from suppliers and also utilise their supplier
value to procure high quality material at supplier prices to demonstrate product quality.
Lego’s decision of partnership with Tencent is best demonstrated through Expansion method
matrix theory as it offers the manner through which decision for growth have been attained
and explores a structured method by which market opportunities related with Lego’s decision
approach has been attained (Innovation for growth, 2019).
Fig: Expansion method matrix (http://www.innovationforgrowth.co.uk, 2019)
As demonstrated distinct growth or expansion decisions can be made, but for Lego to enter
into China’s market the best strategic decision was to go for external opportunities through
alliance as doing business in China and to get ROI in expected time period is not easy. Under
these conditions it made sense for Lego to decide about forming alliance or partnership with
indigenous firm Tencent in China which already had established presence in online games
and internet industry. The Coalition business decision offered Lego option to develop strong
collaboration with partner through exploiting Tencent’s expertise in market and commitment.
It also allowed both Lego and Tencent to learn about one another and explore best of their
resources and capabilities to overcome other competitors in industry. However, through
Lego’s partnership decision some likely issues may occur such as both partners may have
limited joint commitment to make coalition a success and may need regular work to maintain
relationship sound.
Recommendations
Alternative option for Lego to extend growth expansion in China is to enter into Franchise
with local firms. Under expansion matrix method franchising approach can be suitable for
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external opportunities in offshore markets which can leverage Lego with lower investment in
contrast to alliance rights with partners. Also as franchising is low risk option so this alternate
decision can be rational for Lego to expand in China. Moreover, with franchising Lego can
license their trademarks, copyrights, expertise and business model to franchisees who can
adopt these to function in new market, making the business approach subtly supportive rather
than operational. This will help to rapidly build brand awareness, market share and revenues
in China with arguably low risks.
Conclusion
Thus it can be concluded that Lego’s decision to collaborate in partnership with Tencent to
enter and expand in markets of China was an ethical and righteous decision as China is a
tough market to be tapped by offshore firms, so having collaboration with local firm adds
leverage to exploit indigenous expertise of local market, skills and consumer approaches,
which all together helps in rapid growth and better positioning in new market.
References
Eisenhardt, K. and Martin, J. (2000). Dynamic capabilities: what are they?, Strategic
Management Journal. 21 (10-11), pp. 1105-1121
Innovation for growth (2019). The Expansion method matrix. Available:
http://www.innovationforgrowth.co.uk/resources/Expansion-Method-Matrix.pdf [Accessed 21
April 2019].
MacDougall, A. E., Martin, A. A., Bagdasarov, Z. and Mumford, M. D. (2014). A review of
theory progression in ethical decision making literature. Journal of Organizational
Psychology. 14(2),pp. 9-19.
Schwartz, M. S. (2016). Ethical decision-making theory: An integrated approach. Journal of
Business Ethics. 139(4), pp. 755-776.
Shah, S. A. M. and Amjad, S. (2016). Ethical decision making in business: linking rational
and non-rational theories. International Journal of Information, Business and Management.
8(3), pp. 56-80.
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Welker, J. and Berardino, L. (2014). Integrating ethical decision making in multiple business
courses. Academy of Educational Leadership Journal. 18(1), pp. 117-132.
Appendix
Expansion Matrix methods for internal and external resoruces
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