CHAPTER 4 CASE DESCRIPTION AND ANALYSIS
1. C ASE C OMPANY
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Chapter 4 Case Description and Analysis
1. Case Company
Founded in Guangzhou in 1906,in the beginning was a traditional trading company dealing in Chinese products exportation, today Li & Fung Limited (“Li &
Fung” or “the Group”, SEHK: 494), the global consumer goods exporter, is a Hong Kong headquartered multi-national group and recognized as the world's leader in consumer goods design, development and sourcing. Li & Fung is a group of companies driving strong growth in three distinct core businesses – export sourcing through Li & Fung Limited, distribution through Integrated Distribution Services Group Limited and retailing through Convenience Retail Asia Limited, Trinity Limited and other privately held entities. From over 240 offices and distribution centers in the United States, Europe, Africa and Asia, the Group manages the supply chain for retailers and brands worldwide and sources from more than 40 economies.
The Li & Fung Group has a total staff of over 27,000, with a total revenue of US$15.98 billion in 2010. Table 2 lists the short history of Li & Fung. Table 2 lists a short history of Li & Fung.
Table 2 Short History of Li & Fung
Date Event
1. 1906 Fung Pak-Liu founded Li & Fung.
2. 1920s &
1930s
Li & Fung diversified into warehousing and the manufacture of handicrafts.
3. 1937 Fung Hon-Chu (son of the founder) established Li& Fung Limited.
4. 1943 Fung Hon-Chu took charge of Li & Fung.
5. 1948 Li & Fung’s headquarters moved to Hong Kong.
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was listed on the Hong Kong Stock Exchange.8. 1974 Victor Fung (Fung Kwok-king) rejoined Li & Fung.
9. 1988 The Group was Privatized and streamlined.
10. 1991 Incorporated in Bermuda.
11. 1992/7 Trading activities were listed on the HKSE.
12. 1995 Acquisition of Inchcape Buying Services (formerly Dodwell).
13. 1998 Li & Fung Distribution Group was established as a provider of supply chain services with a Pan-Asia focus.
14. 1999 Acquired export trading firms Swire & Maclaine and Camberley.
15. 2000 Buying agent Colby Group Holdings Limited.
16. 2005 Li & Fung Licensing was established to bring fashion and lifestyle brands into Asia.
17. 2010 Acquired Hong Kong-based Jackel Group, Hong Kong-based HTP, and substantially all of the assets of Cipriani Accessories Inc., and its affiliate, The Max Leather Group. Cipriani Accessories Inc.
(Source: [17], pp. 1-6 & [12], p. 89 & Li & Fung Group Web site [13])
Not only a trading company, today Li & Fung has evolved from a sourcing agent to a global supply chain manager by being an innovator in the development of supply chain management. Victor (Fung Kwok-king, chairman of Li & Fung) had commented about the service: “We have been changing. Now we’re orchestrating a whole production process that starts from raw materials all the way through to finished product…. Li & Fung does not own any of the boxes in the supply chain;
rather, we manage and orchestrate it from above. The creation of value is based on a holistic conception of the value chain.” ([17], p. 3) A source from "Li & Fung - The Orchestrator of Global Supply Chain Management", written by Mr. Chang Ka Mun and Li & Fung Research Centre, concluded following seven principles which constitute the pillar of Li & Fung's supply chain management:
1. Be customer-centric and market demand driven.
2. Focus on one's core competency and outsource non-core activities, in order
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to develop a positioning in the supply chain.
3. Develop a close, risk- and profit-sharing relationship with business partners.
4. Design, implement, evaluate and continuously improve the work flow, physical flow, information flow and cash flow in the supply chain.
5. Adopt information technology to optimize the operation of the supply chain.
6. Shorten production lead time and delivery cycles.
7. Lower costs in sourcing, warehousing and transportation.
These seven principles serve as a guideline for Li & Fung to resolve many complex decisions, e.g. which channels to use for customers and suppliers, whether to manage operations internally or outsource, and how to implement new technologies to optimize the supply chain etc. By mastering the supply chain, Li & Fung can provide better customer service and establish long-lasting supplier relationship, which becomes an enduring competitive advantage over its competitors and leads to market share gains. ([14]) Fig. 8 shows the value-added service Li & Fung provides.
Fig. 8 Li & Fung’s Total Value Added Package
(Source: [17], p. 17) According to the source, the number of Li & Fung’s customers and suppliers
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showed the complexity and its broad business scope, “Li & Fung’s core export-trading business encompassed a wide array of services that spanned the supply chain... In 2006, Li & Fung supplied its over 1,000 customers in both hard and soft goods from a coordinated network of 8,000 to 10,000 suppliers through a sourcing network of over 70 offices in over 40 countries and territories.” ([15], p. 4)
Talking about the value chain, William Fung (Fung Kwok-lun, managing director of Li & Fung) had stated that: “Nobody is going to pay you more unless you do more.”
([15], p. 6) According to the source, Li & Fung provided product planning, design services, and development in addition to its traditional raw material and factory sourcing for its soft-goods customers. And for upstream process, Li & Fung also supplied quality control, testing export documentation and logistics services. A statistic number about 2002, by moving up the value chain, Li & Fung had grown to sales of almost US$5 billion. ([15], p. 6)
Since 1995, the growth strategies for Li & Fung are a combination of an organic model, acquisitions, and use of E-Commerce technologies to integrate and simplify internal communication, and improve communication between company divisions and customers.
For organic growth, Li & Fung adopted a “three-year plan” system in 1996.
William described the system having been adopted directly from the economic planning system of the Chinese Communist Party, in his words: “allow[ed] the company to look ahead, but not too far ahead.” ([17], p. 5) And the results turned to be in investors favor, in 2000, Li & Fung outperformed the Hang Seng Index (HSI) by over 75%.
Through buying rival sourcing companies and suppliers, Li & Fung gained new client accounts and new knowledge of the value chain, and after operation integration, they can bring up the operating margins of these acquired units to create synergy and
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continue growing.
Had been Keeping an eye on avoid being disintermediated, Li & Fung took an Internet initiative of its own, an intranet to link the Group’s offices and manufacturing sites around the world was launched in 1995. Then in 1997, Li & Fung launched secure extranet sites, each site was customized and extended the link directly to a key customer. By 2000, 10 such extranets were in place. The software development of both intranet and extranet was outsourced, and the success laid the foundation of e-commerce solution, for further online presence, a new plan for B2B e-commerce portal was gradually rising to the surface.