Denmark's Lego to end Flextronics outsourcing deal

COPENHAGEN, July 1 (Reuters) - Europe's largest toy maker Lego said on Tuesday it would end its existing outsourcing agreement with manufacturing services giant Flextronics (FLEX.O) next year to focus instead on internal production.

"During the past year it has become increasingly obvious to the two parties that it would be more optimal for the Lego Group to manage its global manufacturing set up," Lego said in a statement.

It was only two years ago that Lego, the world's fifth-largest toy company by sales, announced the outsourcing of most of its production to Flextronics over three years, shifting from Western European plants to low-cost countries and cutting over 1,000 jobs.

The family-owned, unlisted company -- founded 76 years ago as a maker of wooden toys -- said it and Flextronics had agreed Lego would take over production from Juarez, in Mexico, and Nyiregyhaza, in Hungary.

"At the Nyiregyhaza facility, the Lego Group is in negotiations with Flextronics to take over the plant and people," the company said.

Juarez production will move to a new Lego site in Monterrey, Mexico, during first quarter of 2009, it said.

"With this decision, the LEGO supply chain will be developed faster through going for the best, leanest and highest quality solution at all times," Lego global supply chain head Iqbal Padda said.

Lego is facing intense global competition and the challenge of children outgrowing traditional toys earlier in favour of electronic gadgets, though it also receives significant royalties from Lego-branded computer games.

Lego has its own production sites in Billund, Denmark, and Kladno, Czech Republic, and cooperates w