The LEGO Group (www.lego.com) is a family-owned Danish company and one of the most iconic toy manufacturers in the world. Originally known for its plastic interlocking brick toys with a strong educational focus, LEGO has evolved into a global entertainment brand while maintaining its core product. After reaching revenues of €3.4 billion in 2018, the company continued to grow strongly, despite a generally stagnant or declining global toy market. By 2024, LEGO reported record revenues and profits, outperforming traditional competitors such as Mattel and Hasbro and reinforcing its position as the market leader in construction toys.

Although LEGO had long dominated the European market for traditional building-block sets, growth opportunities were limited by market saturation. In response, the company pursued international expansion and diversification. A turning point came in 1999, when LEGO began expanding overseas more aggressively and broadened its product portfolio by entering into licensing agreements with major entertainment companies. The rise of animated and adventure films featuring well-known characters strongly influenced children’s entertainment preferences, which closely overlapped with LEGO’s core customer base. By integrating popular movie themes into its sets, LEGO was able to remain relevant to younger generations while deepening loyalty among existing customers.

Licensing became a central element of LEGO’s contractual entry strategy. On the inbound side, LEGO acquired licenses from companies such as Walt Disney, allowing it to use globally recognized franchises like Star Wars, Marvel, and Frozen. These agreements stimulated the design of a wide range of new sets and reduced market risk by building on already popular stories and characters. At the same time, LEGO expanded its outbound licensing activities. Its own intellectual property was extended into films, video games, theme parks, and merchandise. The LEGO Movie, for example, generated nearly €1 billion in global box-office revenue within its first year and was subsequently licensed to other manufacturers and media partners, creating additional royalty streams beyond toy sales.

LEGO’s licensing strategy has contributed significantly to brand strengthening and global visibility. The company has achieved a dominant position in the interlocking brick segment worldwide and continues to gain market share in a highly competitive industry. Its brand awareness and user trust are passed down from generation to generation within families, ensuring a stable and expanding customer base. LEGO products are largely language-independent and intuitive, allowing them to transcend cultural barriers and function as truly global products.

International production has supported this growth. LEGO opened a factory in Jiaxing, China, in 2016, employing over 1,200 people and supplying the majority of products sold in Asia. More recently, the company has invested in additional manufacturing capacity in Vietnam and the United States to reduce supply-chain risk and serve key markets more efficiently. These investments complement its licensing-driven growth by ensuring availability and speed to market.

At the same time, LEGO’s extensive use of licensing exposes the company to potential risks. The growing reliance on external intellectual property and the licensing-out of its own trademarks, patents, and media content raise questions about brand control, imitation, and long-term dependency on partners. As LEGO continues to expand beyond toys into movies, digital games, and collaborations with external firms, managing these risks becomes increasingly important.

Overall, LEGO illustrates how contractual entry strategies—particularly licensing—can support international expansion, generate royalty income, and reinforce brand leadership, while also introducing strategic vulnerabilities that merit careful consideration.

a. How does LEGO generate royalties by using contractual entry strategies?
b. What are the advantages of licensing as described in the case?
c. What risk(s) does LEGO face from licensing its trademarks, toy patents, and the LEGO Movie?