2. AGENDA
Li&Fung Group: History, Core Businesses, Figures
The Global Network: GVC
Li & Fung ltd: Integrated Supply Chain Manager
Business Strategies: How Li & Fung creates value
3. Why is Li&Fung interesting?
EXCELLENT
ORGANIZATIONAL
MANAGEMENT OF EFFICIENCY
THE GLOBAL INNOVATION:
&
VALUE CHAIN CELLULAR
CUSTOMIZATION
“Smokeless Factory”
STRUCTURE
4. Li&Fung Group History
1906-1949
• A CANTON-BASED CHINA TRADER
• Founded by Mr. Fung Pak-Liu and Mr. Li To-Ming
• It traded porcelain, silk, bamboo, jade, ivory, handicraft and fireworks
1949-1979
• A HONG-KONG-BASED EXPORTER
• Labor-intensive consumer products: garments, toys, electronics and plastic flowers on top of its original
product lines
• The Third generation of the Fung family, Victor and William, returned from education in the US to enter the
family firm and started modernizing and rebuilding the business
1979-1995
• A REGIONAL COMPANY
• Opening up of China in 1979 and rapid industrialization of less developed Asian countries
• Heavy investments were made in establishing a regional network of offices
Since 1995
• EVOLUTION OF A MULTINATIONAL GROUP
•Enhancement of customer base, management team, product offerings and geographic reach through acquisitions
•Two major acquisitions: 1995 Inchcape Buying Services, 1999 Swire & Maclaine Limited and Camberley Enterprises Limited
•Expansion on the sourcing side: growing presence in Indian sub-continent and in Caribbean and Mediterranean basins
5. The Group
LUXURY MENSWEAR RETAIL
CONVENIENCE RETAIL BUSINESS:
BUSINESS: • Leader in China
A network of over 500 • Network of prime
outlets locations and up-market
•Circle K convenience store malls in major cities
chain
INTEGRATED DISTRIBUTION
• Saint Honore cake shops REVENUES: 1,645$ mil.
SERVICES:
Three core business in Asia: ROE: 11.1%
• Manufacturing REVENUES: 3,349.326$ mil
• Logistics ROE: 11.57%
• Marketing
REVENUES: 1,802.06$ mil
ROE: 17.46%
EXPORT TRADING BUSINESS:
•Hard goods
(fashion accessories, toys,
fireworks, etc.)
•Soft goods
(garments and apparel)
REVENUES: 12$ bn
ROE: 18.97%
6. Global Reach, Local Presence
Headquartered in
Hong Kong
Over 80 offices in
more than 40
economies worldwide
13.400 staff
11.000 international
suppliers
Group chairman:
Victor K. Fung
8. Financial Performance
“Despite uncertainty and volatility in our principal Positive results during last Three year Plan
consumer markets, the Group achieved record profits 2009 respect to 2008:
• Group turnover decreased by 6%
in 2009 driven by its effective cost control measures”
V.Fung, Financial Report 2009
• Core Operating Profit increased by 29%
• Shareholders’ profit increased by 39%
Target: sustainable growth
9. Non Financial Performance
“Hong Kong
Corporate
Governance
“Global 2000: Excellence
The World’s Awards 2009”
Biggest public The asset corporate
Companies”
Platinum Award 2009
Ranked number By Asset Magazine
888 in Forbes’
2009
“Corporate
Governance Asia CG AND
“Fabolous 50”
Recognition MANAGEMENT Companies
Awards 2009” COMPANY By Forbes Asia
By CG Asia AWARDS
Journal
“FT Global 500” “Asia’s best-
Companies managed
“Long-term Companies
By Financial
vision N°4” 2009”
Times
“Innovation N°5”
“Corporate
Reputation N°9”
By Wall Street
Journal
10. The Global Network
“Two or more organizations involved in long-term relationships”1
Composition: Nodes & Links
OPEN MARKET HETERARCHIES HIERARCHIES
UBIQUITY
“Networks are described by an entire web of linkages between system members”
Mutual Interdependence is built on:
Power, Influence, Trust, Expertise and Information Flow
E.g. Franchising, Distribution Channel Systems
MULTI-CONSTITUENCY
LONG-TERM VIEW
DYNAMISM
1Networks: Between Markets and Hierarchies, H.B. Thorelli, Strategic Management Journal
11. Global Value Chain (1)
A NEW FORM OF INTEGRATION IN THE GLOBAL ECONOMY
• “Networked approach…helps to see beyond the linear progression of the
product or service in question to reveal the complex circulation of capital,
knowledge and people that underlies the production of all goods and services”
Coe, N.M., Dicken, P. and Hess, M. 2008.
Li&Fung’s choice: The Buyer-driven Commodity Chain
Branded
Marketers
Traders
Retailers
Factories
Oversea “Industries in which large retailers,
Buyers branded marketers and branded
manufacturers play the central roles in
Branded
setting up decentralized production networks in
Producers
a variety of exporting countries”
G. Gereffi, International trade and industrial upgrading in the apparel commodity chain
12. ADVANTAGES Global Value Chain (2)
DISADVANTAGES
- Complex Coordination and Integration
EFFICIENCY:
- Labor Specialization (core competences) - Need for intensive strategic fit of managerial
- Global scale and scope styles, goals and objectives
- Cost Savings due to location advantages
- Lower levels of tied-up capital - Quality control ex-post
- Access to complementary resources
- Industrial upgrading : - Heavy investments of time, money and
Technology Transfer, Info Exchange, Best Practices leverage,
resources
Knowledge & Learning on a global scale
- Power allocation problems and conflict of
FLEXIBILITY:
interests: “different kinds of interests within the
- Broad relations with all sets of actors
firm try to pursue their own strategies”
- Global Integration & Local Responsiveness Coe, N.M., Dicken, P. and Hess, M. 2008.
- Supply diversification: bargaining power
- Buying cycle shortening - Exposure to environmental variables on a
much more extensive geographical base
MARKET DEVELOPMENT:
- Global focus: new countries & new clientele
- Getting to market faster
- International recognition
13. Li&Fung Business Evolution
“When my father started the company in 1906 Li & Fung
was basically a broker charging a fee to put buyers and
sellers together. My brother and I felt we could turn the
business into something different , and so we took it
through several stages of development”
“Fast, Global, and Entrepreneurial: Supply Chain
Management, Hong Kong Style” J Magretta HBR
STAGE 2
STAGE 1 STAGE 3 STAGE 4
MANAGER AND DELIVERER OF
REGIONAL SOURCING AGENT DISPERSED MANUFACTURING INTEGRATED SUPPLY CHAIN
MANUFACTURING PROGRAMS
“This is the item I want. Please go “Managing dispersed production It’s about buying the right things
“For next season this is what we’re
out and find the best place to buy forces us to get smart about and shortening the delivery cycles
thinking about. Can you come up
it for me” dissecting the value chain”
with a production program?”
- GEOGRAPHICAL - CUSTOMIZATION of the - DISSECTING the VC - IMPLEMENTING A
EXPANSION: offices in value chain to best - RATIONALIZING COMPLETE SERVICE
Taiwan, Korea, Singapore meet the customer’s activities’ allocation CHAIN
needs
- ASSORTMENT PACKING:
- PRODUCTION PROGRAM
assembling the best - SOURCING
components provided in - MONITORING
the whole region
14. Stage 2:
Customization
WHAT HAPPENS WHEN LI & FUNG GESTS AN ORDER?
1) Understand the costumer idea
2) Develop a production program
3) Search the market to find the right type of materials,
colours & quantities
4) Take the product concept & realize some prototypes
5) create an entire program for the season specifying the
product mix and the schedule.
6) Contract for resources working with factories to plan
and monitor production ensuring quality and one time
delivery
FINAL ORDER
Customization
15. Stage 3:
Dissecting & Rationalizing the VC
The labor intensive middle portion of the value chain is done
in Southern China and Hong Kong does the front and back ends
“MOVING UP THE VC”:
For its soft goods
customers the company
provides product
planning, design services
and development in
addition to its traditional
raw material and factory
sourcing. It supplies also
quality control, testing,
export, documentation
and logistics services.
Stage 3 - Dispersed manufacturing
“Fast, Global, and Entrepreneurial: Supply Chain Management, Hong Kong Style”
J. Magretta
16. Stage 4:
Integrated Supply Chain
Li & Fung offers a Complete Service Chain
acting as an extension of its customer’s
business to manage all aspects of its global
supply chain
“We deliver a sophisticated
product and we deliver it fast”1
1“Fast, Global, and Entrepreneurial: Supply Chain Management, Hong Kong Style. An Interview with Victor Fung”j. Magretta
17. Li&Fung’s Integrated SCM
7 PILLARS:
Customer-centric and market demand driven
Focus on one score competency and outsource non-core activities
Close, risk and profit-sharing relationship with business partners
Design, implement, evaluate and improve the several flows: work,
physical, information and cash flows in the supply chain
IT to improve efficiency of the SC’s operation
Shorten production lead time and delivery cycles
Lower costs in sourcing warehousing and transportation
18. Li&Fung’s Cellular Structure
Beyond MNEs: Global Coverage & Customer Responsiveness
• SMALL CUSTOMER-FOCUSED DIVISIONS
“what we do is close to creating a customized value chain for every customer order” J.Magretta
• DISCIPLINED ENTREPRENEURSHIP: “Little John Waynes” and three-year plan
• CELL ORGANIZATION: CUSTOMER BUSINESS AND COUNTRY BASED
• TIGHT CENTRALIZATION:
- Financial Management
- Operating Procedures (Standardized fully computerized OS)
• INCENTIVE DRIVEN COMPANY: local rules and best practices, variable remuneration system
Customer
Customer
Similar needs
Customer
Customer
“Hungry”Factories
Customer
The 30%-70% RULE
19. IT INVESTMENTS:
Managing information and relationships
INTRANET
It tied up its global network of offices with intranet since 1995
to enable free information flow
EXTRANET
In 1998, the company began creating dedicated extranet sites for
major customers
Benefits:
From the firm’s perspective, these sites enabled the company to:
• Interact with customers
• Track their orders
• Help in product development
• Improve cost efficiencies
From the customer’s perspective, these sites enabled the company to:
• Track their orders
• Gain access to Li & Fung's global network of offices
PLUG & PLAY MODEL for sophisticated IT and centralized back-office systems
IT INVESTMENT
20. Li&Fung’s Corporate Strategies (1)
“SMOKELESS FACTORY”
Li & Fung does not own any portion of the value chain that deals with running factories
Assembly in China
Lining in
Yarn Taiwan
in Korea
“We are a smokeless factory. We do
design. We buy and inspect the raw
materials. We have factory managers,
Filler BY people who set up and plan
productiona nd balance the lines (…)
in China If we don’t own factories, can we say
MADE IN HONG KONG we are in manufacturing? Absolutely.”
Fast, Global, and Entrepreneurial: Supply Chain
Management, Hong Kong Style. An Interview with
Victor Fung ,by Joan Magretta HBR
Zipper
in Japan
Label, elastic and
string in HONG
KONG
21. Li&Fung’s Corporate Strategies(2)
“EATING INTO THE SOFT $3”
Customer service expansion Greater margins
Goal: Control
Cost already more services
squeezed to $1 closer to the
customer
FACTORY U.S. CONSUMER
Cost of production = $1 Price Paid= $4
“SOFT $3”
Opportunity lies here to gain
greater margins by providing
more value- added services
22. Li&Fung’s Corporate Strategies(3)
U.S. ON-SHORE STRATEGY: “Filling the Mosaic”
• “Filling the Mosaic” through venture capital to foster corporate development
• Over 70% of customer base located in the U.S.
• Existing U.S. On-shore presence
Goal: -Closer relationship
More Margins - CLOSER RELATIONSHIP TO
to improve margins
THREE-PRONGED U.S.
Focus: IMPROVE MARGINS
Additional services in the -Stickiness between
- STICKINESS BETWEEN
LI&FUNG Fung and best
Li & AND BEST
unexploited areas of the Supply
Chain:
-LICENSING RECOGNIZED BRANDS
customers
CUSTOMERS
STRATEGY
BENEFITS
(Disney, Levi’s)
- CLOSENESS TO to
-Closeness
-PRIVATE LABEL
-PROPRIETARY BRANDS information
INFORMATION
(Stella McCartney’s, K-Mart, Karl - PENETRATION OF THE the
Lagerfeld, H&M) -Penetration of
ACQUISITIONS IMPORT MARKET
import market
23. To sum up:
sources of Li & Fung’s distinctiveness
EFFICIENCY & FLEXIBILITY
TRUST
HIGH COORDINATION OF THE “DISPERSED VALUE CHAIN”
LOWER MARKDOWNS FOR RETAILERS
INVESTMENT IN IT
“THINK LIKE A BIG COMPANY, ACT LIKE A SMALL ONE”
