Taylor O'Neill

Case Study 4

1. What are the benefits to Li & Fung’s customers of working with the company?
Why do companies such as The Limited outsource the coordination of
manufacturing to Li & Fung, rather than do it themselves?
Customers of Li & Fung benefit from working with the company because
they are getting quality products for a decent cost. Li & Fung’s
independent suppliers are in 40 different countries and each one of these
countries is more efficient in certain stages in the manufacturing of the
products. Li & Fung are using the comparative advantage theory to their
own advantage, which is why companies like The Limited outsource the
coordination of manufacturing to Li & Fung. Li & Fung has pretty much
mastered the manufacturing process and The Limited knows that, so
instead of doing all of the organizing, shipping, timing etc. they just hand
it off to Li & Fung.
2. Li & Fung does no manufacturing itself. What then is its role? How does the
company create value?
The company is pretty much just the manager. It assigns what factories are
going to produce what, where things will be ultimately shipped etc. They
do this to keep the price of the garments as low as possible and with a low
cost of the garment they make more of a profit off of retail sales. The
company also makes money off of other companies like The Limited,
because they are paying Li & Fung for setting up all of their
manufacturing.
3. What do you think drives the choices that Li & Fung make about who should
produce what for its clients?
I think that price and quality affect the choices of who is producing what
for its countries. The company uses its independent suppliers location to
their advantage, as said in the case study, all of the pieces of the products
were sent to Thailand to be shipped out because transportation costs were
lower there. This may change, maybe next year it will be cheaper to be
shipped from India and in that case Li & Fung will probably send all of
the pieces of the products to be assembled and shipped out from China.
Because of their huge range in independent suppliers they have options of
manufacturers to produce their products in, so they choose the ones that
produce high quality with a fair price.
4. What is the source of Li & Fung’s competitive advantage in the global economy?
Li & Fung’s competitive advantage in the global economy is the fact that
they are global. They have independent suppliers in 40 countries who each
have an absolute advantage over one another on the production of certain
things meaning that Li & Fung is getting each piece of their product from
the most efficient place and putting them all together to make the
cheapest, high quality garment.