Back ground of the case study
 Opportunities

after getting export company license from the Ministry of Commerce of the Peoples Republic of China (China) does it mean?

 What

◦ The Export company can export China-sourced goods worldwide and can import raw material for manufacturing in China. ◦ Free from many restrictions to enhance competitiveness and increase global business ◦ Provide complete supply chain solutions ◦ Neighbor country China is the biggest textile manufacturer ◦ Export from China to US doubled from 2001 to 2003 and still promising high

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Introduction Recent facts and figures Issues in the case Business model Strategic Business units – how it is different? Porters Value Chain Ansoffs Matrix Flow chart for production SWOT analysis Strategy for global expansion IT & Internet implementation Success factors Challenges of Li & Fung Alternatives Recommendations Learnings


Key Dates:
1906: Fung Pak-liu and Li To-ming begin exporting jade and porcelain in Guangzhou, China. 1937: Li & Fung Limited is formally established in Hong Kong. 1949: When China turns Communist, Pak-liu's son Fung Honchu reinvents the company to export goods manufactured in Hong Kong. 1973: Hon-chu's sons William and Victor persuade him to list Li & Fung on the Hong Kong Stock Exchange; the Fung brothers institute a more modern management style. 1979: China opens up for trade, and Li & Fung develops a trading network throughout East Asia. 1989: The Fung brothers buy out family shares and take Li & Fung private in a management buyout. 1992: After being reorganized to focus on trade, the export division of Li & Fung is relisted. 1995: Li & Fung acquires the British trading company Inchcape Buying Services.

5% Export $327 billion (China 49%) .5%.HONG KONG ECONOMY Highly dependent on international trade Partner with mainland china 1/3rd listed companies of Hong Kong are Chinese company (60% Market cap) Tourism one of the major business GDP agriculture 0% Services 92. Industry 7. import $345 billion (China 46%) .

Net Profit 12% 80 offices in 40 countries 3 yr plan In India 6-8% business . Mark & Spencers. Operating profit 29%.. Europe 27% Presently supplier of Wallmart.Li & Fung at present $14 billion revenue Total no of employee 13408 worldwide (77 % in abroad) Revenue from US 64%. Espirit Holdings Inc etc. Target Corp.










doing away with the intermediateries Due to low cast labor many manufacturers in Hong Kong relocated their factories to Southern China How to source from more and more countries? Difficult to optimize value chain .Issues in the case Trading Margin went down to 3 % as buyers and sellers started dealing directly.




quality) Product Mix of Manufacturing & delivery Ensuring quality and on-time delivery Dispersed Manufacturing [ From 1983 ] To find the right manufacturer for the specific product with most attractive combination of cost and quality Dissecting the value chain and optimizing every step of the chain .Business Model Regional Sourcing Agent [ 1970 . color.1978 ] Using knowledge and reach to provide value for customers Quotas to be used effficienly Big Buyers to get materials from whole region Manager & Delivery Of Production Program [ 1979 .1982 ] Specification (look.

Li & Fung Business Model Li & Fung Value Chain added activities Such as Design and QC Low-end activities Such as Manufact In Hong Kong In the best possible location across the w .

Production Flow Chart [W & WO IT] Consumer Needs Copnsumer Product Design Product Development Wholesaler THE SUPPLY CHAIN Local Forwarding Consolidation Raw Material Sourcing Factory Sourcing Customer Clearance Forwarder Consolidation Shipping Control Manufacturing Controlling .

.Continued…. Example Levi ’ s of Dispersed Manufacturing .

Global Supplier Network (delivery within 6 weeks) .

to remain as a important customer to the supplier. SWOT analysis of suppliers . to search for new suppliers Suppliers evaluation method.The SCM Strategy For more efficiency they started organized production and small production run Utilizing 30% to 70% of factory capacity of suppliers to ensure flexibility.

OSG Operation Team for Levi’s Operation Team for Kohl’s Administrativ e Finance Human Resource Pr o Operation Team for Abercrombie & Fitch Operation Team for group of small customers Pr of it Porters Value Chain in Li & Fung fi t .

Each division HK$30 million to HK$50 million Each division run by an independent entrepreneur with all the departments required Company is highly Conservative in Finance and operating procedure  .

Gifts. travel Goods Hard Goods (30%) Products Soft Goods (70%) Garments . Furnishings. Home Products.Li & Fung Product Lines Fashion Accessories. Footwear. Handicrafts. Sporting Goods. Stationary. Promotional Merchandise. Toys.

Major Customers  Kohl’s Department store chain  Abercrombie & Fotch  Ann Taylor  Disney  American Eagle Outfitters  Guess  Laura ashley jeans  Levis’  Reebok  The Limited  Warner Brothers .

infrastructure and labour developments The political and regulatory environment Rising cost levels in some markets .CHALLENGES          High dependency on large retailers Consolidation in North American Retail Industry “Antisurge” Quotas Needs of the market are changing very rapidly The initial plan of developing a B2B portal was based on the old economy model. change was not sufficiently accounted for Manufacturing.

Business Expansion Apart from trading business Li & Fung started focusing on following business Retailing and distribution business with privately held companies Venture capital Investment holding Property investment  .

Ansoffs Matrix for Li & Fung Expansion Strategy Pro d u cts E xi n g sti N ew Marketing Segments N ew E xi n g sti .

Li & Fung Expansion Options .

Customer base.  In December 1999 they acquired (Swire & Maclaine) for Design process Expertise which adds customers like (Laura Ashley & Ann Taylor)  In November 2000 they acquired (Colby Group Holdings LTD) Which already had strong recognition in the market which helped them to become the Largest consumer goods exporter in HongKong. They got double profit compared to previous year. Acquisition:  In 1995 they acquired Inchape (Dodwell) which established South Asia . Caribbean where previously Li & Fung had no presence. Product line. this acquisition doubled it coverage especially in north America.  Li & Fung already have SCM expertise and followed acquisition strategy to strength its position in global trading market that expands its sourcing N/W. .Expansion:  During 1990s companies focused on Supply chain process for efficiency  SCM offering companies charge more so companies move towards outsourcing. Mediterranean.

so they made alliance with Nichimen corporation to offer higher value for Japanese Retailers. .  They identified Japan as Potential Market since fashion retailing business was booming. so they focused to expand their customer base to non US Market such as Asia and southern Hemisphere.  In early 2000 they interested to improve their profits in Hard goods to strengthen its position so in December 2003 they acquired Hong Kong based 1st world garment LTD & US based International Porcelain LTD for US $ 27 billion which strength their Hard goods business. Contd…  In 2003 they acquired remaining (1/3)rd of the New York based garments to increase profits.

was formed as an e-commerce subsidiary which allowed placement of highly individualized orders  Customers could cancel their orders before the production .Leveraging IT and the Internet   1995 Integrated its global network of offices with Intranet 1998 Started creating Extranet sites for its customers o Customers could track their orders o Could make last minute changes  2000 Web-based communication system  started  2000 Entered e-commerce market thro’ its B2B initiatives StudioDirect Inc.

Success Factors In Early Days Language barrier [Traders] Labor intensive consumer product [Refugees to China] In Recent Days SCM [Total $4 & Hit the $3 leaving $1] Customer Centric [Internal & External] (Specialized Group OSG) Supplier Relation & Management (30% -70%) Separate Business Units [Flexi & Strength] (Small & Big) Unit Head & Incentives Labor & Incentives .

Success Factors Focus on efficiently managing the supply chain Unique customer centric organization structure Leveraging IT and the Internet Global expansion strategies  .


More than 30 offices around china Diversified portfolio of goods (Soft & Hard goods) Lower Labor cost Effective Regional Network SCM Expertise earlier to other competitors Ensuring Quality and On – time Delivery More Ethical and customer oriented approach Electronic Trading System called as XTS supports trading. Strengths:                World’s Largest exporter of textile and clothing. StudioDirect Addressing Medium and small sized Retailers Built Barriers to new Entry Power to influence suppliers and manufacturers because of strong relationship and trust Private label manufacturing for large customers Faster response to customer requirement  .

 . Failed to build opportunity given by Inchape to make string presence in Europe. which failed to give expected response Failed to come up with effective strategy to increase revenue in European market. Weakness:             Over dependence on US Market. Obsolete Inventory at times which require Efficient SCM Manufacturers dependent on company. Poor business performance in holiday seasons Miscalculation in StudioDIrect . Vast supplier network makes it tough to maintain.

 Opportunity: IT & Internet Strategy to enhance Internal & External Communication.  Lower labor cost in developing countries  Exposure to New suppliers outside US Markets     Threats:       Early Stiff Competition External environmental problems Like Transformations Lack of Cooperation leading Loss of Customers Emergence of Internet making companies redundant Depending on Large retailer causes threat in long Run Anti surge Quota in China which would restricted annual Growth of imports. .

44 0.15 0.40 0.36 0.58 Weight 11% 12% 10% 8% 16% Ratings 4 3 4 3 3 Weighted Score 0.10 0.EXTERNAL FACTOR EVALUATION MATRIX Opportunities Global Expansion New Customers Low Cost Labours Growth of Asian Markets Diversification Threats New Competitors Government policies E-Commerce Price Rise Economic Downturn Total Weighted Score 10% 5% 8% 5% 15% 100% 1 3 2 2 1 0.48 .15 2.16 0.10 0.24 0.

20 0.12 0.12 0.12 0.13 .32 0.15 0.12 0.20 0.30 0.48 0.40 0.48 3.12 0.INTERNAL FACTOR EVALUATION MATRIX Internal Strength Largest SCM provider Supply to Major Retails Good Reputation Strong Management Good Image Increasing cash flow Loyal Employees Minimal complaints Access to cheap services Financial ratios Internal Weakness Saturated Market Little Diversification International Market Total Weighted Score Weights 10% 12% 4% 8% 4% 5% 4% 3% 4% 5% 10% 15% 16% 100% Rating 4 4 3 4 3 3 3 4 3 4 2 2 3 Weighted Score 0.

By 2003 Li & Fung became a cutting edge sourcing company One of nest professionally run companies in Hong Kong Company committed to excellence and high standards in corporate governances   .

Learnings From The Case Respond to change swiftly Explore the entire world Respect the individuals Share responsibility judicially Discuss to know the true needs [Customers & Suppliers] Choose the right people Do mergers & alliances judiciously Above all Decision Making with calculated risk is the Key .

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