Li & Fung is a long-standing Hong Kong based company that that has evolved from an export trading company to a coordinator of value-added services across the entire supply chain in a global, open manufacturing environment. They assess the clients’ product and delivery needs and orchestrate supply, manufacture and delivery in a very tailored and specialized way (Claremont Conversation Online, 2008). In the prevailing business environment, it has not been cost effective to trade with SMEs since production orders were below the factory minimums. Through the implementation of an internet portal, they have secured their position with the SME market while maintaining economies of scale.
Description of the Case
The Li and Fung case analyzes the challenges, solutions, and potential issues associated with implementing the internet into their fundamental business strategy. This analysis starts by chronicling the history of the company from its inception in 1906. The study of Li and Fung’s background provides a clear understanding of the evolutionary processes that helped forge the fundamental structure and framework that defines the company’s culture. The transition from a small family-run export trading company to a global production machine with forty-eight offices in thirty-two countries exemplifies a business model that anticipates change, encourages diversity, and fosters communication.
The extension of the holistic supply-chain management model has allowed Li and Fung to incorporate value-added services throughout their entire production process. The “total value-added package model” creates a borderless manufacturing environment that promotes efficiency, customizes mass production, and lowers inventory costs. Moreover, their progressive corporate culture, which blends traditional pragmatic reasoning with entrepreneurial innovation, has enabled adaptability and growth in a dynamic market.
Li and Fung employ a tripartite growth strategy as standard to measure future growth in three-year increments. These measures include extending organic growth from networking and diversifying their global positioning; acquiring rival sourcing competitors through securing investor confidence with solid cash flows and proven operating performance; and designing an introspective approach to their technological infrastructure using the internet to expedite and simplify internal and external communication.
The outlook for growth seems promising. In the U.S. and Europe, trends towards casual wear and private labels are predicted to increase over the next five years. Furthermore, many retailers are turning to sourcing companies to keep cost low. Both of these factors provide a market for the “limited mass customization” model that intends to capture both economies of scale and the SMEs. The B2B business model employed traditional economic standards with “back-to-basics” approach through a “back-to-back” basis. Analysis of the Company’s Goals and Strategy
Tripartite Growth Strategy:
The tripartite growth strategy analyzes future growth based on the following three criteria: organic growth, acquisitions and expansion, and extension of supply chain model via e-commerce and internet. Organic Growth:
Since 1995, the Group has grown organically by receiving more business from existing customers while securing new mandates from strategic clients. Li and Fung continue to extend their global network from Bangladesh to Sub-Saharan. Li and Fung’s network encompasses virtually every part of the global economy, which has enabled them to diversify their sourcing markets from Asia to Africa. Although forty percent of its sourcing remains in the company headquarters in Hong Kong, globalization continues to dominate the composition of their sourcing markets. Acquisitions and Expansion:
The strategy for expansion through acquisition is based on buying rival sourcing companies. There are inherent benefits...