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Lego tells Europe how to rebuild, brick by brick

From Juliet Mann, CNN
December 22, 2011 -- Updated 1726 GMT (0126 HKT)
STORY HIGHLIGHTS
  • The boss of Lego says Europe needs to face up to its harsh economic reality
  • Jorgen Vig Knudstorp believes Europeans think they are wealthier than they are
  • He says Europe needs to write-off some of its debt to avoid a stagnant economy for the next decade

(CNN) -- Lego boss Jorgen Vig Knudstorp, who pulled the iconic toy brand back into profit, says Europe needs to face up to its harsh economic reality.

Knudstorp believes Europeans think they are wealthier than they are, despite three years of a global financial crisis.

With the crisis continuing to roil markets and destabilize the banking sector, "it's about all of us recognizing that we have lost a bit of our wealth," he says.

Lego lost its way in the late 90s and went deeply into debt before rebounding to double digit growth under Knudstorp's leadership.

Knudstorp suggests European finance ministers could learn from Danish manufacturer's experience. "My piece of advice would be: face the truth -- that is what I learned the hard way in our company."

Knudstorp says Lego went too deeply into debt, as Europe has also done. According to Knudstorp, stemming the crisis will begin by saying: "Yes we are over-indebted, we are sorry, we screwed up."

He believes Europe needs to write-off some of its debt to avoid a stagnant economy for the next decade.

"I think we are moving from a 30 year period of just borrowing more and more money at the government level and also at the household level," Knudstorp says.

However, he says, Europe is entering a phase where raw material costs could increase while the availability for cheap labor around the world will decline.

At Lego, Knudstorp will be focused on ensuring the company adapts to the changing economic conditions, which he believes are crucial to ensure survival. Lego is also renewing its portfolio of products, and plans to launch toys specifically designed for girls.

But Knudstorp also emphasis the needs to keep things simple. "You need to challenge your organization all the time, to stay coherent, not make things too complicated," he says. "A lot of productivity is lost inside the company when things get complicated."

CNN's Emily Smith has contributed to this report.

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