Li Fung

Li & Fung (A): Internet Issues Case
GBA 673/674 Class Discussion
Li & Fung (A): Internet Issues

What has been the historic strength and strategy of Li and Fung? What capabilities of Li and Fung does Studio-Direct.com leverage? What are the risks of this strategy? What advice would you give William and Victor Fung? Update the case/company information.
What has been the historic strength and strategy of Li & Fung?
100 years of history Publicly traded family company
Both William & Victor educated at HBS Victor earned Ph.D. & taught there for 4 years 1972 Returned to Hong Kong to modernize company management
Hong Kong Based Trading Company by 2000

69% sales USA 27% sales Europe Major retailers (the Limited, Gymboree, American Eagle, etc) Global sourcing network
What has been the historic strength & strategy of Li and Fung?
Holistic Supply Chain Management
48 offices in 32 countries Value-added services through entire supply chain borderless-manufacturing next slide Outsource manufacturing which requires less capital
Entrepreneurial structure
teams of product specialists in 90 separate, individual companies Meritocracy compensation performance based
What capabilities of Li and Fung does studiodirect.com leverage?

IT in 2000
10 secure customer Extranet sites (launched 1997)
Customized to needs of key customers Online product development, order tracking Customers could change order as it progressed
60 IT staff in Hong Kong development outsourced Outsourced Intranet/Extranet
Preferred narrow/deep connections to customers But saw how internet could transform industry studiodirect.com (gone by 2007)
80 staff Based in San Francisco Target:
Retailers under $100 M (20,000) Wholesalers under $50 M (2,800)
What are the risks of this strategy?

Costs to develop project could exceed budget Hong Kong too far from California Danger of feature creep in specifications which may raise development costs Backlash from import agents who could slash their fees enough to make project unprofitable.
Risks continued
Risks during diffusion of technology to new firms that could make rollout more costly.
Could try pilot project first
Could damage Li & Fungs reputation because they cannot provide all the goods to this set of customers Existing customers may resent addition of smaller competitors who will benefit from Li & Fungs value chain.
Would accommodate SMEs
offer them differentiated products with smaller order sizes, aggregating their orders with other SMEs 10-15% commission much lower
Where are they trying to situate themselves?
Update the case/company information.

Li & Fung Group today Recent growth
Ultimate middleman
Business Strategies Financials Top Competitors (Hoovers) Industries Global Network
Li & Fung LTD, today

Controlling shareholder of Li & Fung Group of Companies Li & Fung Group:
Li & Fung Limited Integrated Distribution Services Group LTD Convenience Retail Asia LTD (CRA)
Privately held retailing entities:

Li & Fung (Retailing) LTD Trinity & Branded Livestyle --Fashion retailing businesses Toys R Us, operated by Toys LiFung (Asia) LTD
Li & Fung Group today

Total of 24 K employees in 40 countries with revenues of US $8.5 B in 2005 Li & Fung Limited: Trading arm Li & Fung Retailing
Toys R Us
Integrated Distribution Services in Asia

Manufacturing, Logistics & Marketing
LF Investments (Private Equity) LF Group Properties
Li & Fung Complete Service Chain

http://www.lifung.com/eng/business/service_chain.php
What has been the historic strength & strategy of Li and Fung?
Strong culture
Relationships built on trust
The Ultimate Middleman

Core export trading business encompasses wide array of service spanning supply chain Adopt clients technology systems & dont force them to use Li & Fungs technologies.
2000: $4 B USA sales -Over 4,000 employees 2009: $14B USA revenue over 34,000 staff across 40 economies
Primary plans that propelled LI & Fungs recent growth
l 1. optimize pricing structure of each segment of supply chain w/o owning any of it
Squeeze more efficiency between factory & customer - eat the soft $3 Efficiencies in logistics, shipping, & customers Create more sophisticated value-added services for its customers to maximize profits To do this, launched US onshore strategy
2. Continue to acquire competitors

Dodwell, 1995 customer base in E. Asia, sourcing Swire Group 1999 access to China Colby Group 2000
The ultimate middleman - 2006

Supplied over 1,000 customers in both hard & soft goods from a network of 810 K suppliers Thru sourcing network of over 70 offices In over 40 countries & territories Soft goods clothes was 2/3 Hard goods toys, travel goods, fireworks, etc. Lower margin, higher lead times, but less competition in hard goods, so were moving into it
Business Strategy - 2006

Disciplined entrepreneurship
170 entrepreneurial profit centers w/ customer-centric focus Managers held accountable for goals
If met goals, were rewarded commensurately If failed to meet goals from conditions beyond their control, manager might be transferred
Transforming customer experience

Just-in-time sourcing, manufacturing of products for customers customer able to change orders
Information Technology a core strength

Managed logistics of supply chain process Centralized back-office systems Turn-key systems installed in any warehouse
Business Strategy - 2006:

Move up the value chain
Soft goods: Provided product planning, design services, development, raw material & factory sourcing Made creative suggestions to customers
Eating into Soft $3

Add value to customer throughout the value chain U.S. onshore strategy
2003-2006 Acquired 7 onshore US businesses Acquired 70,000 sq ft space in Manhattan fashion district 2006 almost US$ 1 B business
strategies
3-pronged US strategy
License recognized brands
Cannon, Royal Velvet, Disney, Levis
Acquire companies that produced Private label brands applied to hard & soft goods, foods Proprietary brands combination of first two
Grow Europe acquired large German catalog Increase hard goods, especially from China
Current: Li & Fung Limited

Interviews Li & Fung First Half Results:
Bloomberg Interview CNBC Interview
Global Sourcing Solutions for Your business Complete service supply chain Company image:
Rigorous compliance measures Enforces Supplier codes of conduct Business for social responsibility Member The FTSE4Good Index Series
Li & Fung Stock Chart (0494)

1/15/09
http://www.irasia.com/stocks/getchart.php?number=0494
Li & Fung (0494) Stock Quote 151 in Hong Kong $; Updated 16:10 HKT / 15 JAN 2009
Last Bid Ask Change % change Yesterday close 13.06 12.92 13.06 -0.06 -0.457 13.12 52 week high 52 week low P/E ratio Yield Lot Size Bid Spread 36.8 10.2 14.600 0.054364 2000 0.02
Open
High Low Volume Turnover
14.18
12.5 12.4 15,763,715 199,838,643
Ask Spread
0.02
Market capitalization 47,461.706.273
Top Competitors (Hoovers):

Available thru CPP library thru Lexis-Nexis Academic
SUPPLY CHAIN MANAGEMENT SERVICES APL Logistics Global Sources Connor & Associates Geodis GeoLogistics
Lets compare Li & Fung with its competitors
Industries
Transportation services
Logistics Services
Supply chain management services Warehouse & distribution services?
Industry Cluster Series

http://www.lifunggroup.com/research/china_industrialcluster01.htm

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Li & Fung (A): Internet Issues Case

GBA 673/674 Class Discussion

Li & Fung (A): Internet Issues

Hong Kong Based Trading Company by 2000

What capabilities of Li and Fung does studiodirect.com leverage?

60 IT staff in Hong Kong development outsourced Outsourced Intranet/Extranet

What are the risks of this strategy?

Where are they trying to situate themselves?

Update the case/company information.

Business Strategies Financials Top Competitors (Hoovers) Industries Global Network

Li & Fung LTD, today

Privately held retailing entities:

Li & Fung Group today

Integrated Distribution Services in Asia

LF Investments (Private Equity) LF Group Properties

Li & Fung Complete Service Chain

The Ultimate Middleman

Primary plans that propelled LI & Fungs recent growth

2. Continue to acquire competitors

The ultimate middleman - 2006

Business Strategy - 2006

Transforming customer experience

Information Technology a core strength

Business Strategy - 2006:

Eating into Soft $3

Current: Li & Fung Limited

Li & Fung Stock Chart (0494)

Market capitalization 47,461.706.273

Top Competitors (Hoovers):

Lets compare Li & Fung with its competitors

Industry Cluster Series

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