Global supply chain: Lego to build $1bn factory in Vietnam

Lego has announced plans to build a new manufacturing operation in Vietnam to keep up with growing demand for its products in Asia.

The toymaking giant said it will invest more than $1bn (£760m) in the project, which will be near the country's main business hub of Ho Chi Minh City.

It will be the Danish company's second factory in Asia after it opened a plant in China five years ago.

The firm has seen double-digit growth in the region since 2019.

"We are very grateful for the support of the Vietnamese government in helping us achieve our ambition to build our first carbon neutral factory," Lego's chief operations officer Carsten Rasmussen said in a statement.

Construction on the site is due to start next year, with plans to match its energy consumption with solar panels on its roof and on a nearby farm.

Production at the plant is set to begin in 2024 and is expected to create up to 4,000 jobs over the next 15 years.

It is the latest development in Lego's decade-long strategy of building production plants close to key markets, and comes after companies around the world have faced global supply chain issues during the coronavirus pandemic.

"This provides the flexibility to respond quickly to shifts in local consumer demand, shortens the supply chain, and reduces the environmental impact of shipping long distances," the company said.

Although the company also said that its decision to build the plant in Vietnam had not been accelerated by recent supply chain disruptions, some experts have said it can be a lesson to other companies struggling to get their products to customers.

"What they're doing is what we should have done a long, long time ago, which is hedge our bets. If you see demand coming from a certain direction, you've got to have alternatives," according to Paula Rosenblum, managing partner of RSR Research.

However, the past two years have been challenging for some multinational companies with manufacturing facilities in Vietnam.

Production at some of Nike's largest plants in the country was disrupted as Covid-19 spread through factories.

Some logistics experts think the difficulties faced by Vietnam in recent months could help it deal with similar challenges in the future.

"Vietnam has learnt a lot in terms of balancing the risk of Covid outbreaks and maintaining production capacity during the last wave," Megan Benger at consultancy TMX said.

"We believe that these learnings will likely hold the country in good stead in the event of future outbreaks," she added.