Li and Fung Case

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Introduction

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Case I.1

Li & Fung (A): Internet Issues
“I’m not an Internet guy, I’m a business guy,” quipped William Fung, managing director of Li & Fung Trading Co. Clad in his chinos and black American Eagle T-shirt, Fung looked much more like a new economy entrepreneur than the selfdescribed offline, “old economy relic”: “I’m 51, I’m more than a grey hair in Internet terms, I’m a fossil.”1 Nor did lifung.com, his elder brother Victor’s new online company, resemble a typical Internet start-up, particularly with a 96-year-old parent born at the end of the Qing Dynasty. In August 2000, the day before beta launch of the new business-to-business (B2B) e-commerce portal, William described the challenges facing Li & Fung: About three or four years ago, Victor and I discussed the Internet and how it impacts us. Our starting point was a defensive posture: Would the Internet disintermediate us? Would we get Amazoned2 by someone who will put together all of the information about buyers and factories online? After a lot of research we realized that the Internet facilitates supply chain management and we weren’t going to be disintermediated. The key is to have the old economy know-how and yet be open to new economy ideas.

With a press conference the following day, William was confident of the Group’s performance and lifung.com’s prospects. But he knew that important issues remained unresolved: Was there any chance of channel conflict or cannibalization between the offline business and the start-up? How would the market react to the start-up once it was launched the following year? And how specifically would e-commerce ultimately transform his family’s century-old company?

Company Background3
Li & Fung was founded in 1906 by William’s grandfather, Fung Pak-Liu and his partner, Li ToMing in Guangzhou, China as an export trading company selling to overseas merchants. In the 1920s and 1930s the company diversified into warehousing and the manufacture of handicrafts. Shortly after Fung Pak-Liu passed away in 1943, his son Fung Hon-Chu assumed charge of the company. Two years later, silent partner Li ToMing retired and sold his shares to the company. The company retained Li’s surname, a homophone 3

(HBS #301-009) Professor F. Warren McFarlan and Senior Researcher Fred Young from the Asia-Pacific Research Center, 2000. 1 Rahul Jacob, “Inside Track: Traditional Values at the Click of a Mouse,” Financial Times, August 1, 2000, p. 14. 2 Online bookseller Amazon.com transformed the book industry forcing traditional book retailers to respond.

Some information in this section comes from previous Harvard Business School Case Studies: “Li & Fung: Beyond “Filling in the Mosaic”—1995–98,” (HBS Publishing No. 398-092) Michael Y. Yoshino, Carin-Isabel Knoop, Anthony St. George; January 1, 1998; and “Li & Fung (Trading) Ltd.,” HBS Publishing (No. 396-075) Gary Loveman, Jamie O’Connell, October 26, 1995.

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Introduction

for “profit” in Chinese, which, along with “Fung,” a homophone for “abundance,” had an auspicious ring when combined. Li & Fung relocated permanently to Hong Kong at the end of World War II, expanding its operations to include toys, garments, plastic flowers, and electronics. In the early 1970s, both Fung brothers had just returned from the United States: William had earned his MBA from Harvard Business School and returned to the business in 1972. Victor had recently completed his PhD in economics at Harvard University and, following a two-year stint teaching at Harvard Business School, rejoined the business in 1974. Their return heralded Li & Fung’s transition from a family-owned business to a professionally managed firm, with a planning and budgeting system in place for the first time. William and Victor, the third generation to run the company, felt that the next logical step in growing the company was to go public. In 1973, Li & Fung became the holding company for the Group and was listed on the Hong...
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