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Guo Li

on 14 February 2015

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Transcript of LI&FUNG


Trend Analysis

Dispersed Manufacturing

Value Proposition Analysis



Major Trends that are Affecting Li & Fung Business
Stages of Development
Dispersed Manufacturing Reasons
Emerging Asian tigers in 1980s
Expensive and uncompetitive
Businesses lost to Taiwan & Korea
Trade opened up in China  moving production to China
Dispersed Manufacturing = breaking up the value chain
Value Proposition Analysis
Company Profile
Global multinational headquartered in Hong Kong
More than 100 years of history since 1906
Over 28,000 employees worldwide
Orchestrates over 15,000 suppliers in more than 40 economies to service about 7,700 customers

Changes in China
The opening up of China's consumer market

The increase of its average minimum wage by 13% per year

Re-location of labor-intensive manufacturing

Factory and Worker Safety
In 2012, a factory fire in Bangladesh killed more than 100 people.
In 2013, the Rana Plaza factory collapsed killing 1135 people.
The Internet
A new wave of consumer behavior
Direct communication between big retailers and factories
The increased competition from e-commerce
Core Operating Profit: amid difficult growth
Due to macro-economic headwinds and internal restructuring costs in the US market
Dispersed Manufacturing
Good source of supply
Relatively close distance between different stages
Good network of logistics & transportation
Good development of IT
Good knowledge of the capability of its suppliers & manufacturers
Able to design, source, purchase & deliver products
Effective & successful supply chain management
Dispersed Manufacturing
Resources & Competencies
Dispersed Manufacturing
Risks & Challenges
More than one strategic partner may be involved in the production  hard to manage
Control the
lead time and quality
Manage the flow of parts and materials along the production chain
China is
less cost competitive
 move to alternative low cost countries or inland China
is increasing
Increase the complexity in supply chain design
Li & Fung Value Proposition
Holistic Supply-Chain Management system
Experts in supply-chain management and network orchestration.
Focus on 3 core business segments:
Step 1: Ensure greater quality control

Step 2: Buy larger and more cost-effective amounts of raw materials (due to quality control)

Step 3: Produce cost savings for clients

Competitive Value Proposition
Li & Fung (Lifung.com) added value that competitors like Globalsources.com and Alibaba.com could not add through:

back-end logistics infrastructure
reliable procurement
market knowledge
product differentiation
brand reputation

Li & Fung customers benefited in many ways due to the following strategies and processes:
Supply chain customization
Shortened order fulfillment from three months to five weeks
Virtual manufacturing (Lifung.com)
Product design services

Faster turnaround
allowed clients to reduce inventory costs

"Middleman" role
reduced matching and credit risks
offered quality assurance

Global sourcing networks and economies of scale
offered lower cost and more flexible sourcing than competitors

Acquisitions and global expansion
Extended knowledge base to Sub-Saharan Africa, Eastern Europe, and the Caribbean
Provided up-to-date fashion and market trend information to clients.

Sell to Emerging Markets
Focus on Organic Growth

Slowdown in Consumer Spending in the US
and Europe Market
Improve Efficiency of Global Supply Chain
Add value to both suppliers and customers
Suppliers: Provide skills, services
Customers: Enhance multi-channel sourcing platform

The role as middleman
Balance between increasing input costs and penny-pinching customers

local competitors
Unfamiliar with local market

Unfamiliar with China markets
Local competitors

China : World’s largest consumer market
Increasing minimum wage (about 13% per year) - boost domestic consumption
Creating Li & Fung subsidiaries to sell to China in addition to just sourcing from them

Step 2
Step 1
Step 3

Bozarth, C. & Handfield, B. (2008), Introduction to operations and supply chain management. Boston: Pearson Education.
Fung, V. (2008), Competing in the flat world: the Li & Fung Experience, Sun Yun-Hsuan Management Forum.
irasia.com. (1999), Li & Fung to acquire Swire & Maclaine and Camberley. Retrieved 2014, from Li & Fung Limited: http://www.irasia.com/listco/hk/lifung/press/p991229.htm
Li & Fung (2013), Annual Report 2013, Li & Fung Limited, Hong Kong.
Magretta, J. (1998), Fast, global, and entrepreneurial: supply chain management, Hong Kong style – An interview with Victor Fung. Harvard Business Review 76, no.5, pp102-109.
McFarlan, F. W. & Young, F. (2005), Li & Fung (A): Internet issues. Harvard Business School.
Ross, R., Patternson, D., Yadegari, B. & Wegemer, C. (2014) A critical corporate profile of Li & Fung, Clark University Clark Digital Commons: Mosakowski Institute for Public Enterprise.
Van Weele, A. J. (2014), Purchasing & supply chain management, New York: Cengage Learning.
Zhang, A., Luo, H. & Huang, G. Q. (2013), A bi-objective model for supply chain design of dispersed manufacturing in China, Int. J. Production Economics, vol. 146, pp 48 - 58.
The official website of Li & Fung http://www.lifung.com
The official website of Alibaba Group http://www.alibabagroup.com/en/global/home
IMF, World Economic Outlook http://blog-imfdirect.imf.org/2013/12/02/china-fastest-growing-consumer-market-in-the-world/
BBC NEWS ASIA http://www.bbc.com/news/world-asia-27107860
Li & Fung's Clients
Previous acquisitions
Accumulated capital, resources, network
World No.1 souring position

Put all risks on Core company
Slow growth pace


Focus on Organic Growth
Role of Middleman
Conducted By

Guo Li, Choi-sim So, Ibrahim Sabbah, Tingting Huang
David Beckham visited
Li & Fung Hong Kong Office
Networks of Dispersed Manufacturing in Asia
Li & Fung’s Total Value Added Package
Source: Company documents
Source: Tristan Chua, Wui Kiat Heng, “Li & Fung,” Goldman Sachs Global Equity Research, June 21, 2000, p. 10
Sell to Emerging Markets
Lifung.com offered many customization options for its customers
Variety of specifications
Display a high resolution, rotating image of your product.
Online ordering (available 24 hours a day)

Source: Company documents
Capturing customer value (simplified way)
Full transcript