Li&fung case study


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Li&fung case study

  1. 1. Nicol Destre 627261 Priscilla Martella 630601Li&Fung Michela Rossi 627451 Beatrice Ruospo 630641 Giulia Romana Penna 627391
  2. 2. AGENDALi&Fung Group: History, Core Businesses, Figures The Global Network: GVC Li & Fung ltd: Integrated Supply Chain Manager Business Strategies: How Li & Fung creates value
  4. 4. Li&Fung Group History1906-1949• 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 fireworks1949-1979• 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 business1979-1995• 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 officesSince 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. 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. 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
  7. 7. Li&Fung’s ClientsSource: Li&Fung Group website,
  8. 8. Financial Performance“Despite uncertainty and volatility in our principal  Positive results during last Three year Planconsumer 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. 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. 10. The Global Network“Two or more organizations involved in long-term relationships”1Composition: 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. 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 ChainBrandedMarketers 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 inProducers a variety of exporting countries” G. Gereffi, International trade and industrial upgrading in the apparel commodity chain
  12. 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. 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’reout 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. 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 & quantities4) Take the product concept & realize some prototypes5) 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. 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. 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”11“Fast, Global, and Entrepreneurial: Supply Chain Management, Hong Kong Style. An Interview with Victor Fung”j. Magretta
  17. 17. Li&Fung’s Integrated SCM7 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. 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. 19. IT INVESTMENTS: Managing information and relationshipsINTRANETIt tied up its global network of offices with intranet since 1995to enable free information flowEXTRANETIn 1998, the company began creating dedicated extranet sites formajor 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 & Fungs global network of officesPLUG & PLAY MODEL for sophisticated IT and centralized back-office systems IT INVESTMENT
  20. 20. Li&Fung’s Corporate Strategies (1) “SMOKELESS FACTORY” Li & Fung does not own any portion of the value chain that deals with running factoriesAssembly 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. 21. Li&Fung’s Corporate Strategies(2) “EATING INTO THE SOFT $3”Customer service expansion Greater margins Goal: Control Cost already more servicessqueezed 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. 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 marginsTHREE-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 CUSTOMERSSTRATEGY 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
  24. 24. Thanks for your attention!
  25. 25. QUESTIONS?