Li & Fung: Internet

Issues
Presented by
Tara Bellomy
Jeff Bookout
Jerry Harrison
Jeremy Schopper
Travis Tucker
Lesley Wilkerson
Jim Yancey
Li & Fung Outline
I. Overview of Company Jeff Bookout
II. Problem Identification Jeff Bookout
III. Business Model Jerry Harrison
IV. S.W.O.T. Analysis
Strengths Jeremy Schopper
Weaknesses Lesley Wilkerson
Opportunities Jim Yancey
Threats Jim Yancey
V. Strategic positioning Travis Tucker
VI. Alternatives & Recommendations Tara Bellomy
VII. Discussion and Questions ALL
Li & Fung Overview

LI & Fung Export Trading Company

 Li & Fung founded in 1906 by Fung Pak-Liu and Li Toming
in Guangzhou, China
 From 1920-1930 Diversified into Manufacturing and
Warehousing
 By 1974, owned and operated by the Fung brothers
 In the 1980’s expanded operations throughout the Asia-
Pacific
Li & Fung Overview
 By 1995 they expanded to offices around the globe
 Acquisition strategy
 Li & Fung evolved into a large global supply chain
 In 1995 Li & Fung launched an intranet to link corporate
offices
 In 1997 Li & Fung launched secure extranet’s
 Redefining the business strategy
 Targeting Small to Medium-sized Enterprises
Problem Identification
 Li & Fung needed to expand their supply
chain management component of their
business to on-line to expand their market
base.
Business Model
 What is the Business Model?
 Li & Fung will provide supply chain management
services that will determine what supplier in which
country will best maximize it’s clients quality and time
expectations at the lowest cost possible.
Business Model
Components of a Business Model

Source: Applegate, Lynda M., Robert D. Austin, and F. Warren McFarlan., Corporate Information Strategy and Management. Burr Ridge, IL: McGraw-Hill/Irwin, 2002.
Introduction Figure I-3
Business Model
 Concept:
 Li and Fung was to provide an online service that
would streamline the supply chain management
process for their established clients and at the
same time open an opportunity to enter into a new
market that was previously too costly to enter, the
SME (Small & Mid-Sized Enterprise) market.
Business Model
 Capabilities:
 (1) Well-educated management team
 (2) Well-established offline company
 (3) Owner financing
 (4) Vast sourcing and networking abilities
 (5) Economies of scales
Business Model
 Value:
 (1) Shorter ordering times
 (2) Reduced inventory cost
 (3) Quality assurance
 (4) Virtual manufacturing/more product design
services
 (5)Up-to-date fashion and market trend information
S.W.O.T. Analysis
STRENGTHS
 Established name and branding
 Integrated with client base
 Decentralized management
 Work in both hard and soft markets
 Internal capital
 Management is well educated and informed
S.W.O.T. Analysis
STRENGTHS
 Acquisition strategy (bought suppliers and
competitors)
 Flexible and interactive design process
 No inventory to Manage
S.W.O.T. Analysis
WEAKNESSES
 The initial lack of knowledge of developing an e-
commerce B2B profile.
 The initial lack of qualified personnel to implement
such a large undertaking.
 Did not know if a B2B portal would be beneficial to
the company because, in the beginning, market
research had not been done on the Small &
Medium-size Enterprise (SME) target markets.
S.W.O.T. Analysis
OPPORTUNITIES
 The internet allowed for a better/faster way to incorporate
a more streamlined supply chain management system
 Allow the customer to be able to be an intricate part of the
design process up to the point of product manufacture
 Allow SMEs to participate in the mainline of product
procurement while enjoying a smaller commission rate
 Could establish a business plan to develop markets in
which over stock products could be sold (Electronic Stock
Offer - eSO)
S.W.O.T. Analysis
THREATS
 Phasing the “middle man” out of the trading scheme
 Possible loss of key employees to other Internet companies through the promise
of greater wage compensation.
 Fear that an online company would acquire or partner with an old economy
trading company, becoming an overnight competitor.
 If the technology was outsourced, then the company could become dependent on
that outside company for their IT needs especially when an upgrade was needed
 The possibility of outside companies being able to access proprietary information,
strategy, or the complete Li & Fung business model
 Expanding the business into a new area that had not been tested opening the
company to a possible venture failure that not only could tarnish the companies
name to some degree, but also loose their investors startup capital
 The new e-commerce endeavor made some of their larger customers nervous in
that they were afraid that Li & Fung would be compromising their business by
working with their direct competitors.
Top Management’s
Strategic Positioning
 Market/Channel- customers to serve, needs
expectations to be met, and the channels to be
served
 Product- choice of products and services to offer, the
features of those offerings, and price charged
 Value Chain/Value network- activities it performs
within an extended network of suppliers, producers,
distributors, and partners
 Boundary- determines markets, products, and
businesses not to pursue
Competitive Analysis
Porter’s Five Forces
 Traditional Rivalry- most rivalry’s of Li & Fung have
been acquired
 Bargaining power of Suppliers- sold raw materials to
suppliers at premium
 Bargaining Power of Buyers- Efficient and considered
high value
 Threat of Entry- low threat of entry
 Threat of Substitute Products- possibilities of threat in
this area
Sustainable competitive
Advantage
 Sustainable advantage  Acquired most
occurs when barriers competitors
exist that make it  Sophisticated IT
difficult for competitors infrastructure
to imitate and/or  Target hard to serve
customers to switch customer segment
Competitive Advantage
 Customer base of traditional company
 Value created with IT infrastructure
 Controlling of the supply chain
 Captured smaller business segment with
startup “lifung.com”
Alternative Solutions
 Go online….or not?
 Pros- not going online would eliminate need for
training and extra capitol.
 Cons- not going online would leave the company
vulnerable to threats from competitors who could
steal management talent through influx of new
money.
Alternative Solutions
 Only target one type of customer.
 Pros- targeting only large companies or SMEs
would lead to servicing similar customers with
common needs.
 Cons- Li and Fung would lose any would be profit
produced from servicing only one type of business.
Alternative Solutions
 Ask large suppliers to invest in the new online
venture.
 Pros- not all of the success or failure of the new
web portal would be the result of Li and Fung’s
efforts.
 Cons- Li and Fung would lose some control over
internet management and design.
Alternative Solutions
 Do not keep tabs on manufacturing
electronically.
 Pros- customers and suppliers would still have that
personal feel that Li and Fung is known for.
 Cons- no information could be viewed in real time.
 Management would have to make time to visit with
suppliers and customers.
Recommendations
 Li and Fung should embark on the web portal
design and incorporate it into their brick and
mortar business.
 Go with the original plan- service both large
buyers as well as SMEs.
 Don’t ask suppliers for investment capitol,
use stock purchase for capitol.
 Keep tabs on suppliers electronically, in
person, and by phone or fax.
Group Questions
 What advice would you give Li and Fung’s
management to aid them in producing their
new web portal?
 What is Li and Fung’s most detrimental
weakness in building their online business?
 What is Li and Fung’s greatest strength?
Questions and Discussion