Trade Wars

Lego should be part of the relocation and growth of foreign direct investment in the United States

In 2006, Lego A/S closed its US manufacturing facility in Enfield, Connecticut, moving production to Monterrey, Mexico.

Now, 16 years later, the company is returning production to the United States, with a new $1 billion plant in Chesterfield County, Virginia, near Richmond.
Why the new manufacturing strategy? Thanks to the growing popularity of Lego, supply chain issues, and advanced automation that makes American manufacturing globally competitive.
“The United States is a very important market for The Lego Group. We have experienced rapid growth over the past four years, and we expect this demand to continue as we increase availability across the country. and attract new builders to the Lego game,” Chief Operating Officer Carsten Rasmussen said in an email.
Since Lego, based in Billund, Denmark, closed the Enfield plant, the company’s Monterrey plant mainly supplies the United States with the colored ABS building bricks.
Today, Lego is expanding in Monterrey and returning production to the United States, with a carbon-neutral facility that will be powered by a solar farm and employ 1,760 people.
The 1.7 million square foot facility will help the family business, which is celebrating 90 years in business, meet demand for Lego products as well as manufacture them with greener materials in sustainable factories.

The Virginia factory will be a full-scale Lego facility with molding, decorating, assembly and packaging handled on-site and molding tools made in-house, primarily in Denmark.

Company officials have ruled out the construction of a second plant in Mexico to stick to their strategy of strengthening their regional presence in major markets.

In Europe, Lego has factories in Denmark, Hungary and the Czech Republic. In Asia, Lego has a factory in China and is building one in Vietnam.

The Virginia Project continues a trend of reshoring in the form of foreign direct investment (FDI) — when the parent company is based outside of North America — that contributed 80,000 of the 261,000 U.S. jobs relocated in 2021. Projections predict another big year for U.S. relocation and FDI with Lego job postings among an estimated 400,000 job postings forecast for 2022.

Lego has seen massive gains during the pandemic and again in 2021, with the company’s growth outpacing that of the toy industry. Sales increased by 27% to $8.06 billion (55.3 billion Danish kroner) in 2021 compared to the previous year.

Founded in 1932, Lego building sets are an internationally loved toy that appeals to a wide age range with Star Wars and Harry Potter themed playsets, 1000+ piece sets for adults from Ages 18 and up, botanical collections, mosaic art and more.

“The demand for Lego has been pretty insatiable from American consumers, so it makes sense that they’re being produced here again,” said James Zahn, associate editor of The toy booksaid in a telephone interview.

Although Lego is preschool, it really appeals to all ages, including a growing number of older teens, young adults, and adults who are kids at heart. They buy Lego Technic sets with working gearboxes, wheels and axles as well as artistic sets of flowers and portraits from the Lego Art range.

“Lego really focused on that market with detailed models and more elaborate lines that older kids or adults would feel good about doing,” Zahn said. “They were among the first to recognize ‘kidults.’

To meet demand from kidults and others, construction of the Virginia facility is slated for a project-ready 340-acre parcel in a county-owned industrial park with zoning, roads and electrical connections, proper water and sewer just waiting for the right business.

Production is expected to begin in the second half of 2025.

“The United States is the number one toy market, but China is very close and will probably become the number one toy market in the world because there are a lot of families with young children,” Zahn said.

To prepare for these orders, Lego is investing more than $1 billion to build a carbon-neutral factory in Vietnam that will employ around 4,000 people over 15 years.

With a growing middle class, demand from Asia is set to outpace supply from its Chinese factory, Lego officials told Reuters.

When the Vietnamese factory opens in 2024, it will be Lego’s second in Asia and sixth overall.

Lego is also expanding its factories in China and Europe, with financial forecasts expecting growth rates to normalize in 2022 and return to single digits.

“Lego has production pretty much all over the world. It continues to locate where it can be most effective. It’s about getting closer to the customer,” Zahn said.

The goal is to quickly respond to changes in local consumer demand for hot products, shorten the supply chain and reduce the environmental impact of long-distance shipments.

“The toy industry talks about speed to market,” Zahn said. “The standard lead time for a toy used to be 18 months from the green light to the production of your child’s toy box. Now companies want this done as quickly as possible. We’ve seen it shrink to three months for some items and even faster for other things.”