Why we can survive in the iPad era: Lego CEO

Lego: 'Traditional toys' are still in the game

While it may appear that children are playing with touchscreens more than toys nowadays, Jørgen Vig Knudstorp, CEO of the Lego Group is confident that the colorful building-blocks will remain relevant forever.

"Children need to move to develop their brain, it's a natural urge," Knudstorp told CNBC on Monday. "That's why boys will run after a ball and play soccer despite how many video games are available to them, and they can't help themselves from building with Lego bricks as well. They want to be creating something that's uniquely their own," he said.

Lego, the world's second largest toymaker behind Mattel, posted a 10 percent sales rise in 2013 to 25.38 billion kroner ($4.6 billion) and said it expects to continue outperforming the market by launching new products and expanding in emerging markets.

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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.

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