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Lessons from LEGO’s Digital Economy

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Danish toy company Lego continues to ride the crest of the wave, despite stiff competition by mobile video games.

The Danish company is the second largest in its industry in terms of sales, surpassed only by Mattel, the manufacturer of Barbie, which in 2013 generated lower operating profits than its rival. These successful results were largely due to Lego’s digital economy, which has prevented the company from being pushed aside by new technologies. To examine its business strategy, the first thing to be  considered is that its audience consists of children.

While it’s true that construction games are also a challenge for adults, who can easily take part in the process, play with their children, and take an interest in their kids having fun with this type of toys (before other types of entertainment), the purchase decision is influenced by the demands of the children, and the company targets its efforts at them, as well as the nuclear family as a whole.

Lego’s video games

Lego launched its first computer video game, based on its physical games, in 1997. At that time, the PC had proven itself to be a powerful entertainment platform and was beginning to enter the home. Consoles were still an expensive option by comparison. Since then, the company hasn’t stopped releasing new games and has progressively added supports for its software development as new ones have started to become more popular.

lego’s digital economy

From Windows, it made the jump to Mac OS, and to video game consoles at the end of the 90s and early 2000s, including portable devices like the GameBoy Advanced and Nintendo DS. Lego’s objective has always been to be wherever kids find entertainment, instead of trying to use advertising spending, for example, to try to keep kids from changing their habits.

If kids are playing on the computer, then that’s where Lego breaks in, to position itself among the available play options. Of course, this isn’t the company’s primary business, but the visibility helps the physical games to sell better. Today, smartphones and tablets are the supports that have the biggest influence on children. For years, Lego has been releasing games for these devices, mostly for iOS, abut there are also a few available for Android.

All the mobile video games that are based on Lego’s physical games are free. There are other games that are centred around characters or worlds whose copyright does not belong to the company, like the Batman, Harry Potter or Lord of the Rings sagas. In these cases, the downloads are paid and there is only an iOS version. But in all cases, the main function of the video games is to spread the brand.

Perhaps the biggest challenge in Lego’s digital economy in this area is the video game Minecraft, which is based on building virtual structures with blocks, and will soon release its own movie, perhaps inspired by the ‘The LEGO Movie’ project. The movie was a success for Lego not only in terms of publicity, but also at the box office and among critics. It’s not a shoddy product; quite the opposite, it’s an adventure comedy with refined aesthetics, humour and charisma. It was so well received that the sequel is already being prepared for 2017. In this case, the objective was to generate affinity with the brand, especially with families, which was the film’s target audience.

lego’s digital economy

Unafraid of 3D printing

The popularization of 3D printers is making some companies afraid that their products will be able to be printed at home, giving rise to a kind of piracy that affects certain businesses, just as the creation of P2P networks did for the music and film industries. In response to these concerns, toy manufacturer Hasbro, which makes Transformers, signed an agreement with 3D Systems to allow some of its toys to be produced in the home. And Lego is thinking of taking a step in that same direction.

Lego’s CFO, John Goodwin, confessed to Financial Times just this year that 3D printing represents an opportunity for the company. He said that this technology opens up new paths and added that they are looking for a way to take advantage of it so that consumers can benefit. For example, they recently filed for a patent that allows the customization of the 3D-printed pieces.

Stimulating crowdsourcing among fans

Lego has an online platform where it invites its consumers and fans to upload their own ideas for physical products. If one of the proposals gets 10,000 votes, the manufacturer will consider whether or not it should be launched commercially. This initiative allows the company to be in constant contact with its most loyal customers and to enrich itself with their suggestions.

It also helps to create a circle of fans, which is decisive for a brand, both because of the fans’ loyalty and the publicity that they generate, which is of the best kind.

The manufacturer also has exclusive web content, such as Build with Chrome, which is an application that runs in the browser and allows the user to move and connect Lego pieces, simulating how it would be done in reality. The software offers a 3D environment adapted to the building of structures.

Innovation in toys

In addition to all these actions, Lego has also devoted its energy to innovation in toy manufacture. Robotics is one area that the company has been focusing on for years and its new kits have been expanded to include the latest technology, such as sensors. The company recently announced a project to connect its physical products to the virtual world of video games. Consumers will be able to build a structure and then take a picture of it with a smartphone camera to unlock a game based on the construction. This trial will be limited to the United States for now.

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Entrepreneurship

Why Entrepreneurs Are Settling in Bali

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Bali, with its tropical climate, laid-back lifestyle, beaches, jungles and cheap beer, has long been a holiday-maker’s paradise. The ‘Island of the Gods’, a province of Indonesia, is a popular playground and place of reflection for Australian, Asian and, since Julia Roberts had a mid-life crisis on its shores in Eat Pray Love, American travelers. In recent years, the very reasons for the island’s booming tourist trade have also made it an attractive place to do business from. Bright, driven folk striking out on their own have realized they can live and work in paradise, rather than just holiday in it. So what business realizations are travelers having on their wanderings around the island?

  1. Eat, drink and generally live like a king = cost of living (and of doing business) is low relative to developed economies, and time can be bought back by outsourcing the chores of life.
  2. Relax and reflect in paradise = escape the daily grind of big cities and stresses of everyday life, and gain new perspective on your work.
  3. Soak up the island’s renowned nutrition, wellbeing, art and culture pursuits = immerse your work mind in a creative, inspiring and energetic atmosphere.

Peter Wall, co-founder of the island’s first major co-working space, Hubud, speaks of the hinterland town of Ubud as the island’s creative hub, and the perfect place to escape the rat race:

“Bali has always been recognized as an incredible creative hub. You can come here and experiment, do things a bit differently, step back from the business and work harder or smarter. The day-to-day grind in a big city can wear you down. Living here no-one doesn’t want to come to work. No-one is doing things they don’t want to do. There’s a really nice energy in our space; there’s something about getting out of your normal cubicle and working in a space that feels different.

“My commute to work is two-and-a-half minutes through a monkey forest. I’ve never been as productive as I have been living in Bali. There’s an opportunity here to access yoga, healthy food and fresh air that’s more difficult to come by in a city. It’s a place people come to get perspective on their lives… a unique opportunity to get perspective and focus.”

With over 200 members, and around 50-60 daily coworkers, Hubud is one factor in the growth of Bali’s creative and startup business community. Wall and co-founder Steve Munroe use the space to help build a stronger community of entrepreneurs, hosting 25 events in November, encouraging ‘exchangeable learning’ and sponsoring hackathons and Indonesia’s social innovation award. The pair are also developing a ‘soft landing solution’ for new arrivals which will include airport pickup, phone number and phone, accommodation, cleaning, laundry, food, desk space and other support for a monthly rate. Understanding and transparency of costs is a sticking point for many, according to Munroe.

A similar set-up can be found at co-working and co-living startup accelerator, Startup Getaway, located near Denpasar and offering offers one, three or six-month stays for entrepreneurs to work on their startup without any distractions or daily chores. The same team is also behind the 30-day networking event Project Getaway and the Contenga International co-living and coworking environment.

One of the facility’s alumni, co-founder and CEO of Windows mail client Mailbird, Andrea Loubier, says the community in Bali is fresh, innovative and creative but, like a startup, still in its early stages. Originally from Cincinnati, Ohio, Loubier has stationed her team — a mix of Danish, Indonesian and Colombian nationals — in a town between Ubud and Kuta. She believes:

“Operational costs can be bootstrapped much easier than in the US or Denmark, simply due to the high cost of living in Europe and America.

“It’s beautiful here; it’s in an up-and-coming, rapid-growth market, with Indonesia being the fourth largest population in the world. The tech industry is growing rapidly as well, and more and more students are seeking degrees in technology which is very promising for building a stronger economy in Indonesia. We have some of the best team members on Mailbird from the prestigious Institute of Technology Bandung right here in Indonesia. We are excited to be part of the movement specifically in Bali, where we already feel that our startup community is a great example of eliminating the extra day-to-day to-do’s, so you can fully dedicate your time to building an exciting business while also enjoying life.

“It’s funny when you tell people that your startup is based in Bali — they’re surprised or don’t take you seriously. Then they are surprised when they see the traction and global awareness of the startup.”

“Our little, Bali-based startup has been recognized worldwide after we were picked up by major tech news publishers and blogs like TechCrunch and Lifehacker.

“The warm weather keeps you happy and very motivated in Bali too.”

Another coworking space in the island’s coastal town of Sanur, a female entrepreneurial group called Secret {W} Business and #subali meetups add to the community on the island.

Three years ago, TEDx made its way to Bali’s shores, started by digital designer Daniela Burr. Earlier this year the event was attended by a curated group of 400 innovators, creatives, cultural leaders and social pioneers. Burr started TEDxUbud after falling in love with the island:

“It happened unintentionally. I took a sabbatical in 2010, inspired by designer Stefan Sagmeister and came to Bali following his advice. I loved it. I started TEDxUbud just two months after landing and it grew exponentially, completely changing my life. I run a digital design studio and have the ability to work from anywhere… Bali quickly became the perfect spot. I’ve met the most incredible people on this island, we now have a great co-working space, and I get to live what I always thought was a dream life.”

Working in paradise, and in a developing country remote from major business centers, has its drawbacks, but those working there find them insignificant compared to the benefits. Budgeting, safety, language/cultural barriers and internet speed can be factors to contend with, but are issues easily managed. Access to outside networks, events and resources not yet established in Bali also need to be managed — raising investment requires flying in or flying out, for example.

The picture painted by the entrepreneurs and digital nomads who’ve chosen the Bali work-life haven is a rosy one. The business case is strong, and the vibe of the island is proving for many to be the special ingredient needed to unlock inspiration and creativity. It’s not hard to see why it’s becoming a hub for startup business and creative industries.

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About the Author

This article was written by The Fetch contributing writer Chris Byrne. The Fetch is the best place for professionals to share and discover what’s going on in your city. Subscribe to our free, curated weekly email digests here and follow us @thefetch.

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Entrepreneurship

Will Financial Liberalisation Trigger a Crisis in China?

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The People’s Republic of China (PRC) has been liberalizing its financial system for nearly 4 decades. While it now has a comprehensive financial system with a large number of financial institutions and large financial assets, its financial policies are still highly repressive. These repressive financial policies are now a major hindrance to the PRC’s economic growth.

The PRC is at the beginning of a new wave of financial liberalization that is necessary for supporting the country’s strong economic growth. The country’s leaders have already unveiled a comprehensive program of financial reform, which includes 11 specific reform measures in three broad areas: creating a level-playing field (such as allowing private banks and developing inclusive finance), freeing the market mechanism (such as reforming interest rate and exchange rate regimes and achieving capital account convertibility), and improving regulation.

But could financial liberalization lead to a major financial crisis in the PRC? What would be the consequences for financial stability as the PRC moves to further liberalize its financial system? If the PRC repeats the painful experiences of Mexico, Indonesia, and Thailand, then it might not be able to achieve its original goal of overcoming the middle-income trap.

International experiences of financial liberalization, especially those of middle-income economies, should offer important lessons for the PRC. In our new research, based on cross-country data analysis, we find that financial liberalization, in general, reduces, not increases, financial instability. This powerful conclusion is valid whether financial instability is measured by crisis occurrence or by fragility indicators, such as impaired loans and net charge-offs. The only exception is that financial liberalization does not appear to significantly lower the probability of systemic banking crises, although it does lower the risk indicators for banks. These results have higher statistical significance and are greater in magnitude for the middle-income group than for the entire sample.

The insignificant impact on banking crises, however, should be interpreted with caution. One of the possible explanations is that under the repressed financial regime, the government supports banks with an implicit or explicit blanket guarantee. This reduces the probability of an explicit banking crisis, although the banking risks may be even greater because of the moral hazard problem. In fact, government protection of banks could also increase the probability of a sovereign debt crisis or even a currency crisis before financial liberalization.

If financial liberalization significantly reduces the likelihood of financial crises, especially in middle-income economies, then why did some middle-income economies experience financial crises following liberalization? We further investigate whether the pace of liberalization, the supervisory structure, and the institutional environment matter for outcomes of financial liberalization.

We obtain three main findings. First, an excessively rapid pace of financial liberalization may increase financial risks. The net impact on financial instability depends on the relative importance of the “liberalization effect” and the “pace effect.” In essence, what the “pace effect” captures could simply be the prerequisite conditions and reform sequencing that are well discussed in the literature. Second, the quality of institutions, such as investor protection and law and order, also matter. International experiences indicate that investor protection can significantly reduce the probability of financial crises. Third, the central bank’s participation in financial regulation is helpful for reducing financial risks during financial liberalization. This is probably because central banks always play central roles in financial liberalization, especially in the liberalization of interest rates, exchange rates, and the capital account. If a central bank is responsible for financial regulation, its liberalization policies might be more cautious and prudent.

Our research findings offer important policy implications for the PRC. (1) Further financial liberalization is necessary not only for sustaining strong economic growth but also for containing or reducing financial risks. (2) Gradual reform may still work better than the “big bang” approach, and sequencing is very important for avoiding the painful financial volatilities that many other middle-income countries have seen. (3) The government should also focus more on improving the quality of other institutions, especially market discipline, to contain financial risks. (4) It is better for the central bank to participate in financial regulation. The new regulatory system should focus exclusively on financial stability and shift from regulating institutions toward regulating functions. It should also become relatively independent to increase accountability.

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About the Author 

This submitted article was written by  and  of Asia Pathways, the blog of The Asian Development Bank Institute was established in 1997 in Tokyo, Japan, to help build capacity, skills, and knowledge related to poverty reduction and other areas that support long-term growth and competitiveness in developing economies in the Asia-Pacific region.

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