The company is currently building its first toy factory in China that will supply products for the growing Asian market. The factory is expected to supply approximately 70-80 percent of all Lego products sold in the region by 2017.
It will be located in Jiaxing, approximately 100 kilometers from Shanghai where the company plans to locate a regional distribution center for Asia.
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"It wasn't chosen to achieve the lowest cost but to be logistically optimal and finding a labor force that is as capable as the ones we can find in the very industrialized parts of Mexico or the Czech Republic," he said.
"We run a fairly automated operation, which means labor cost is an important component, but it's far from the entire story," he said.
Upholding safety standards
While there have been a number of high-profile cases of poor quality control in China, Knudstorp is confident that Lego can uphold its safety standards in its mainland factory.
"We are very confident we can do that. The plant we're building here is not your typical idea of a low-cost factory with migrant workers. This is a super modern factory reflecting the latest in our technological development with very high environmental standards and a highly capable workforce," he said.
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Knudstorp said the company has outsourced a small portion of its manufacturing to China in the past, with "quality results."
Fending off the copy cats
Knudstorp says the legal environment in China is supportive to protecting the company's intellectual property rights.
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In addition, he said while Chinese are "famous for buying copied products, they are also famous for being very conscious of quality and brands."
"We find they really appreciate quality and product safety. I think this only works in favor for us," he said.