An Interview with Victor Fung
BY JOAN MAGRETTA
UPPLY CHAIN MANAGEMENT is Working its Way onto the
strategic agendas of CEOs in an expanding list of industries, from autos to personal computers to fashion retailing. Propelling that change is the restructuring of global competition. As companies focus on their core activities and outsource the rest, their success increasingly depends on their ability to control what happens in the value chain outside their own boundaries. In the 1980s, the focus was on supplier partnerships to improve cost and quality. In today's faster-paced markets, the focus has shifted to innovation, flexibility, and speed.
Enter Li et) Fung, Hong Kong's largest export trading company and an innovator in the development of supply chain management. On behalf of its customers, primarily American and European retailers, Li et) Fung works with an ever expanding network
PORTRAIT BY LANCE HIDY
SUPPLY CHAIN MANAGEMENT, HONG KONG STYLE
of thousands of suppliers around the globe, sourcing clothing and other consumer goods ranging from toys to fashion accessories to luggage. Chairman Victor Fung sees the company as part of a new breed of professionally managed, focused enterprises that draw on Hong Kong's expertise in distribution-process technology-a host of informationintensive service functions including product development, sourcing, financing, shipping, handling, and logistics. Founded in 1906 in southern China by Victor
Fung's grandfather, Li &) Fung was the first Chinese-owned export company at a time when tbe China trade was controlled by foreign commercial
houses. In the early 1970s, Victor was teaching at
the Harvard Business School, and his younger
brother, William, was a newly minted Harvard
M.B.A. The two young men were called home from
the United States by their father to breathe new
life into the company.
Since then, the brothers have led Li et? Fung
through a series of transformations. In this interview with HBR editor-at-large foan Magretta, Victor Fung describes how Li &) Fung has made the transition from buying agent to supply chain manager, from the old economy to the new, from traditional Chinese family conglomerate to innovative public company. Victor and William Fung are creating a new kind of multinational, one that remains entrepreneurial despite its growing size and scope.
Victor Fung is also chairman of a privately held
retailing arm of the company, which focuses on
joint ventures with Toys R Us and the Circle K convenience-store chain in Hong Kong. He is also chairman of the Hong Kong Trade Development
Council and of Prudential Asia.
How do you define the diHerence between what Li
& Fung does today-supply chain managementand the trading business founded by your grandfather in 1906?
ing which quotas have been used up in Hong Kong,
for example, tells you when you have to start buying from Taiwan. Understanding products was also more complex.
We knew that in Taiwan the synthetics were better,
but that Hong Kong was the place to go for cottons.
We could provide a package from the whole region
rather than a single product from Hong Kong.
By working with a larger number of countries, we
were able to assemble components; we call this "assortment packing." Say I sell a tool kit to a major discount chain. I could buy the spanners from one
country and the screwdrivers from another and put
together a product package. That has som.e value in
it-not great value, but some.
In the second stage, we took the company's
sourcing-agent strategy one step further and became a manager and deliverer of manufacturing programs. In the old model, the customer would
say, "This is the item I want. Please go out and find
the best place to buy it for me." The new model
works this way. The Limited, one of our big customers, comes to us and says, "For next season, this is what we're thinking about-this type of look,
these colors, these...