Li & Fung : Case Study Analysis
This report aims to examine the Li & Fung business model and illustrate the challenges faced by the trading industry in the global market place.
It is concluded that:
It is recommended that Li & Fung :
• Li&Fung achieves operating margins consistently around or above 3% and has become the largest trading company in Hong Kong. • In 1997 the company had 2430 employees and sales of US$1.7 billion. • By 1998 the company’s trading operations encompassed a wide array of services. • Li&Fung’s success factors include focusing on efficiently managing the supply chain and a unique customer centric organizational structure. • The company faces the challenge of continuing to grow operations around the world.
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In 1997 Li & Fung was the largest trading company in Hong Kong, achieving sales of HK$ 13.3 billion. In 1998 the directors planned a three-year program to multiply the company’s revenues. The aim of the company was to expand its business by focusing on two major areas:
a. Continued growth of the company’s venture capital operations; and b. The expansion of sourcing operations globally.
This report will examine the sources of the company’s success, including the specific strengths that differentiate it from its competitors, its business culture, and its sourcing system. This report will also identify the challenges and issues the company might face in order to expand their business
a. Identify how Li & Fung are able to maintain margins three times those of the rest of the industry b. Distinguish the Li & Fung’s strengths and ascertain how it differs from traditional competitors. c. Ascertain the attributes of Chinese business culture exhibited by Li & Fung. d. Evaluate if the attributes of Chinese business culture are the company’s’ strengths. e. Categorize the benefits of the Li & Fung matrix sourcing system. f. Establish how the venture capital group contribute to Li & Fung’s growth. g. Identify the challenges faced by Li & Fung going ahead and specify the issues that it must address in order to expand. h. Ascertain how and where Li & Fung should expand to.
Question 1: How is Li & Fung able to maintain margins three times those of the rest of the industry? What are the specific strengths and how does it differ from more traditional competitors? The following outlines how Li & Fung are able to maintain margins exceeding those of it's competitors. 1. The company was restructured in a systematic way with the application of professional management techniques, this helps to ensure efficiency. 2. The Fung brothers who manage the company have built strong relationships with government contacts in Hong Kong and Beijing and were recognized for their business talents in and outside of Hong Kong. 3. Li&Fung incentivise through a profit sharing scheme which leads to higher productivity and innovation (Kato, Lee & Ryu, 2010) 4. The company’s trading operations encompasses a wide array of services, and is supported by an e-mail system to ensure communication efficiency between its global offices, this helps to rapidly respond to customer needs.
Specific strengths and differentiating factors
• Li&Fung has 100 years of experience; it is the largest exporter of textiles and clothing in the world (more than 42 offices in over 20 countries). • The stability of the company facilitates a loyal customer base. • Lower labor cost, this advantage helps Li & Fung improve its margins. • An effective regional sourcing network supported by an email system simplifies the communication process between its offices world-wide. This helps to...