2. Intermediaries such as Li & Fung need to be paid. Why, after paying Li & Fung a fee, buyers and suppliers still find it valuable to deal through an intermediary? In other words, why don’t they trade directly?
Li & Fung provides an interface between multiple buyers and suppliers by linking larger retailers in the developed world to a network of suppliers and factories throughout Asia.
Buyers still find it valuable to deal through an intermediary because the experience and connection of Li & Fung in Asia could reduce the transaction costs associated with the haggling, uncertainties and headaches as compared to buyers and suppliers bargain directly. Due to strong bargaining power over small suppliers in Asia, Li & Fung has the abilities to provide both low-cost and quick, responsive sourcing. For firms that emphasize brand reputation, Li & Fung strongly enforces the policy to prevent substandard quality and labour abuses.
Suppliers pay intermediary for the access to global market because Li & Fung has over 70 offices in more than 40 countries. When Li & Fung encourage buyers to enter into long-term sourcing arrangements with them, it has pooled the sourcing needs of different buyers and using the pooled demands it is better positioned than individual buyers at incentivizing suppliers and also encouraging suppliers to enter into long-term arrangement. Essentially, sourcing for multiple buyers provides Li & Fung with a certain flexibility in meeting the commitment to provide future business to a supplier.
Why is Li & Fung able to emerge stronger during the 2008-09 global economic crisis?
Global financial crisis had lead to cost cutting in all industries, most multinationals, big brands and retailers. In order to slash cost, having a department in the organisation just for procurement has become unnecessary as outsourcing could well perform similar task at lower cost and better outcomes.
By leveraging local knowledge and relationship with...
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