Li & Fung: Internet Issues Presented by Tara Bellomy Jeff Bookout Jerry Harrison Jeremy Schopper Travis Tucker Lesley Wilkerson Jim Yancey
Li & Fung Outline
Overview of Company Jeff Bookout
Problem Identification Jeff Bookout
Business Model Jerry Harrison
Strengths Jeremy Schopper
Weaknesses Lesley Wilkerson
Opportunities Jim Yancey
Threats Jim Yancey
Strategic positioning Travis Tucker
Alternatives & Recommendations Tara Bellomy
Discussion and Questions ALL
Li & Fung Overview
LI & Fung Export Trading Company
Li & Fung founded in 1906 by Fung Pak-Liu and Li Toming in Guangzhou, China
From 1920-1930 Diversified into Manufacturing and Warehousing
By 1974, owned and operated by the Fung brothers
In the 1980’s expanded operations throughout the Asia-Pacific
Li & Fung Overview
By 1995 they expanded to offices around the globe
Li & Fung evolved into a large global supply chain
In 1995 Li & Fung launched an intranet to link corporate offices
In 1997 Li & Fung launched secure extranet’s
Redefining the business strategy
Targeting Small to Medium-sized Enterprises
Li & Fung needed to expand their supply chain management component of their business to on-line to expand their market base.
What is the Business Model?
Li & Fung will provide supply chain management services that will determine what supplier in which country will best maximize it’s clients quality and time expectations at the lowest cost possible.
Li and Fung was to provide an online service that would streamline the supply chain management process for their established clients and at the same time open an opportunity to enter into a new market that was previously too costly to enter, the SME (Small & Mid-Sized Enterprise) market .
(5)Up-to-date fashion and market trend information
Established name and branding
Integrated with client base
Work in both hard and soft markets
Management is well educated and informed
Acquisition strategy (bought suppliers and competitors)
Flexible and interactive design process
No inventory to Manage
The initial lack of knowledge of developing an e-commerce B2B profile.
The initial lack of qualified personnel to implement such a large undertaking.
Did not know if a B2B portal would be beneficial to the company because, in the beginning, market research had not been done on the Small & Medium-size Enterprise (SME) target markets.
The internet allowed for a better/faster way to incorporate a more streamlined supply chain management system
Allow the customer to be able to be an intricate part of the design process up to the point of product manufacture
Allow SMEs to participate in the mainline of product procurement while enjoying a smaller commission rate
Could establish a business plan to develop markets in which over stock products could be sold (Electronic Stock Offer - eSO)
Phasing the “middle man” out of the trading scheme
Possible loss of key employees to other Internet companies through the promise of greater wage compensation.
Fear that an online company would acquire or partner with an old economy trading company, becoming an overnight competitor.
If the technology was outsourced, then the company could become dependent on that outside company for their IT needs especially when an upgrade was needed
The possibility of outside companies being able to access proprietary information, strategy, or the complete Li & Fung business model
Expanding the business into a new area that had not been tested opening the company to a possible venture failure that not only could tarnish the companies name to some degree, but also loose their investors startup capital
The new e-commerce endeavor made some of their larger customers nervous in that they were afraid that Li & Fung would be compromising their business by working with their direct competitors.
Top Management’s Strategic Positioning
Market/Channel - customers to serve, needs expectations to be met, and the channels to be served
Product - choice of products and services to offer, the features of those offerings, and price charged
Value Chain/Value network- activities it performs within an extended network of suppliers, producers, distributors, and partners
Boundary - determines markets, products, and businesses not to pursue
Competitive Analysis Porter’s Five Forces
Traditional Rivalry- most rivalry’s of Li & Fung have been acquired
Bargaining power of Suppliers- sold raw materials to suppliers at premium
Bargaining Power of Buyers- Efficient and considered high value
Threat of Entry- low threat of entry
Threat of Substitute Products- possibilities of threat in this area
Sustainable competitive Advantage
Sustainable advantage occurs when barriers exist that make it difficult for competitors to imitate and/or customers to switch
Acquired most competitors
Sophisticated IT infrastructure
Target hard to serve customer segment
Customer base of traditional company
Value created with IT infrastructure
Controlling of the supply chain
Captured smaller business segment with startup “lifung.com”
Go online….or not?
Pros- not going online would eliminate need for training and extra capitol.
Cons- not going online would leave the company vulnerable to threats from competitors who could steal management talent through influx of new money.
Only target one type of customer.
Pros- targeting only large companies or SMEs would lead to servicing similar customers with common needs.
Cons- Li and Fung would lose any would be profit produced from servicing only one type of business.
Ask large suppliers to invest in the new online venture.
Pros- not all of the success or failure of the new web portal would be the result of Li and Fung’s efforts.
Cons- Li and Fung would lose some control over internet management and design.
Do not keep tabs on manufacturing electronically.
Pros- customers and suppliers would still have that personal feel that Li and Fung is known for.
Cons- no information could be viewed in real time.
Management would have to make time to visit with suppliers and customers.
Li and Fung should embark on the web portal design and incorporate it into their brick and mortar business.
Go with the original plan- service both large buyers as well as SMEs.
Don’t ask suppliers for investment capitol, use stock purchase for capitol.
Keep tabs on suppliers electronically, in person, and by phone or fax.
What advice would you give Li and Fung’s management to aid them in producing their new web portal?
What is Li and Fung’s most detrimental weakness in building their online business?