Post on 29-May-2018
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Li & Fung founded in 1906 by Fung Pak-Liu
and Li Toming in Guangzhou, China.
1920s & 1930s expanded to warehousing and
handicrafts manufacturing
1945 Li sold his shares to Fung Family 1973 listed on HKSE
1988 privatized, streamlined and
incorporated in Bermuda
1995 acquiring Inchcape Buying Group
2000 2 billion dollar global trading
company
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It operates in 40 economies and employs
26,000 employees worldwide.
Li & Fung sources and manages the global
supply chain for and successful companies such
as The Limited, Warner Brothers, Avon, Bed,
Bath & Beyond, etc.
Li & Fung joined with the technologicallysavvy company Castling, to form lifung.com.
The intranet and extranet technologies were
successfully implemented at Li & Fung in 1995
and 1997 respectively.
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Value Chain Analysis model
The Value chain concept identifies activities,
functions, businessprocesses that have to be
performed in designing, production, marketing,
delivering, and supporting a product or service.
Value chain model - views the organization as
a chain, or series of processes and activities
each of which adds value to the product or
service for the customer
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Comprised of a global network of partners and
clients.
69% of total sales from the U.S.
Products include a mix of hard goods (quality
controlled products such as toys and sporting
goods) and soft goods (clothing and apparel).
y Profit margin for soft goods was between 6%- 8%.
y Profit margin for hard goods was between
10% - 30%.
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Porter's Generic Value ChainPorter's Generic Value Chain
M
InboundLogistics
>
Operations
>
Outbound
Logistics
>
Marketing &
Sales
>
Service
>
A
R
G
I
N
Firm Infrastructure
HR Management
Technology Development
Procurement
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The Value chain concept considers two main
types of activities:
PRIMARY Activities that creates value to
customers
SUPPORT Activities that support and facilitate
the primary ones
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The primary value chain activities
are: Inbound Logistics: the receiving and
warehousing of raw materials, and their
distribution to manufacturing as they arerequired.
Operations: the processes of transforminginputs into finished products and services.
Outbound Logistics: the warehousing anddistribution of finished goods.
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Marketing & Sales: the identification of
customer needs and the generation of sales.
Service: the support of customers after the
products and services are sold to them.
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These primary activities are
supported by: The infrastructure of the firm: organizational
structure, control systems, company culture,etc.
Human resource management: employeerecruiting, hiring, training, development, andcompensation.
Technology development: technologies to
support value-creating activities. Procurement: purchasing inputs such as
materials, supplies, and equipment.
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We can use the value chain model to:
plan for a better way of meeting customer
demands;
identify processes that add value;
identify processes that reduce cost.
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VALUE CHAIN IN LI & FUNG
For Li & Fung, the primary activities included:
receiving an order from the customer
Li & Fung utilized its global sourcing network
to place an order for raw material and send theraw material to the production center to plan
and design the product as per the customer
requirements.
After product planning, the order wasoutsourced to manufacturing factories.
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Contd
Manufacturing factories were chosen from itsworld wide system of factories so as to benefitfrom labor costs, quotas, laws, transportation
costs etc. Li & Fung generated revenues by charging a
commission to the factories it supplied rawmaterials to.
Through the new information systems and B2Bplatforms, customers could also make lastminute changes to their order requirements..
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Contd
This flexibility served to increase customer
satisfaction.
Further quality and order control was
maintained by keeping one central office in
Hong Kong to oversee this process.
Dedicated and professional teams also managed
the shipping and export of the products to
ensure that the finished products were delivered
in an efficient and timely manner
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Support activities play an important role of
making the delivery of the products possible.
For Li & Fung, an important support activity
included
the technology department in New York,
the 60 employees involved in managing the
IS/IT systems
the financial and administrative support
departments in Hong Kong
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VALUE CHAIN PROCESS OF LI &
FUNG
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The strong historical experience of Li & Fung, its
brand name, its well established reputation for
high quality low cost products and its continued
implementation of information systems andtechnologies, helped it achieve significant
competitive advantages through this efficient
value chain process.
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BENEFITS OF THIS VALUE
CHAIN To Li&Fung:
higher profits
lower risks
economies of scale.
To clients:
Timely
high quality differentiated products
low cost products
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Li & Fung Trading
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Li & Fung Trading Li & Fung RetailingIDS Group
Li & Fung Group
Export Sourcing Integrated-Distribution
ServicesRetailing
Li & Fung Group
USD14 billion in 2008
Soft & Hard goods
40 countries, 70 offices
(HKSE#494)
USD1.7 billion in 2008
Asian Distribution
Global Logistics
(HKSE#2387) (Privately held)
USD900 million in 2008
Toys R Us, Trinity, BLS
Circle K (HK GEM)
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Our China Advantage
Central Hub atChina inventoryholding,consolidation,labelling,
packaging andpalletization
Destination DCcross-dockingand bypass
Distribute in
China via 34IDSDCs/depots
ChinaGlobal Hub
International freight
Vendor delivery
Retail delivery
US hubEurope hub
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Sourcing Trend In 2008
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- A true Asian multinational
The IDS Group is a member of the Li & Fungfamilyy Founded 1906y First Chinese-owned company to engage in foreign tradey Turnover in excess of US$5 billion. 13,000 employees
y Recognised as a leader in supply chain management
Li & FungTrading
Sourcing and export-trading in soft and hardgoods. A supply chainmanagement company
serving Fortune 500 clients
Li & FungRetailing
Retail operator andlicense holder of
Toys'R'Us in Asean +Circle K convenience
stores in Greater China
IDS Group
Distribution services inmanufacturing, logisticsand marketing. A Value-Chain Logistics companyoperating in Asean and
Greater China
IDS Group
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ROLE PLAYED BY ALLIANCE AND
ACQUISITIONS IN LI FUNGS
GLOBALIZATION STRATEGY The company devised an accqisition strategy
to strengthen its position in the global trading
market.The strategy amied at expanding thesourcing network, product lines andcustomer base.
In 1995 it accquired INCHCAPE BuyingServices (also know as Dodwell)
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CONTI
In december 1999 it accquired SWIRE &MACLAINC and CAMBERLEY Enterprises.
In november 2000 it accquired Colby
Group Holdings Limited. In mid 2002 it accquired JANCO Overseas.
In OCT2003 it entered into alliance withNichimen for Japanese retailer.
In december 2003 accquired the sourcingbusiness of Hong Kong based FirstworldGarments Limited.
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USE OF ACCQUISITION
Creating a plug-and-play enterprise
This requires the appropriate technology
and the modular structure This approach has led to a very high
retention rates of managers afteracquisition and best practices ofacquisitions are absorbed to improve theoverall business
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USE OF I.T TO ENHANCE GLOBAL
COMPETITIVENESS
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Information Pipeline ViTAL
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What are the benefits of
knowledge management? Profitable growth through higher efficiency and innovation
y Preventing the waste of valuable resources - avoidreinventing the wheel
y Ensuring the use of leading-edge technology and thinkingacross the firm
y Increasing customer satisfaction through shorter lead-times and consistent behavior
y Creating a competitive cost structure
y Facilitating breakthrough and incremental innovationsthrough combination of technologies and ideas from
across and outside the firm An attractive workplace that encourages cross-functional co-
operation across the globe
y Attracting and retaining key individuals
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Organization Structure
Unlike many trading companies, which weredivided on the basis of geographic regions, Li& Fung was divided into divisions that werefocused on a single customer or a group of
customers. Victor Fung explainedwhy Li & Fung did not follow a geographicdivision.
"...It is hard for them (such companies) tooptimize the value chain. Their country unitsare competing against one another for business.
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On the other hand, Li & Fung believed itsdivisions were sufficiently small,entrepreneurial and empowered to take all therelevant merchandising divisions that were into
coordinating a production program for acustomer. When Li & Fung acquired a largecustomer, it often created a separate divisionto serve the customer . For a smaller customer, an existing division was assignedthe responsibility, but usually with a dedicatedteam. The divisional system aimed at meetingefficiently the customers design, quality,shipping and invoicing needs.
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Victor Fung, believed that trading companies could be runeffectively only when they were small. He felt that as thecompany grew in size, the challenge was to retain thespirit of a small company.
By making small, units the heart of our company, wehave been able to grow rapidly without becomingbureaucratic.... As the market changes, our organizationcan adjust immediately."
Li & Fung had made each product group executive
responsible for one country, to make him or her sensitiveto local needs.
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According to a Li & Fung executive,
Most customers dont want to deal with a
big company they want personalservice. With big trading companies,
customers have to go through lots of
bureaucracy. The division set up means
that the customers staff interact with Li&Fung staff directly at every level. Day to
day, it is like theyre dealing with a small
company or even their own buying office.
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Li & Fung believed that autonomy had tobe backed by discipline. While allowing thedivisions to operate with a great deal of
autonomy, Li & Fung had tightly centralizedsome functions. A standardized and fullycomputerized information system allowedheadquarters to keep track of orders and
their execution. Financial controls werestringent, especially in the case of workingcapital.The Hong Kong headquartersmanaged cash flows tightly.
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Li & Fung's day to day activities were handledby group product managers.Together with thetop management, they constituted the policycommittee of 30 people. The committeetypically met every 5-6 weeks and discussedvarious important issues such as ethicalpractices of suppliers and country of originregulations.The committee not only formulatedpolicies, but also prescribed operatingprocedures to implement them.
William Fung believed that the companysorganizational structure gave customers asmall companys efficiency with a largecompanys support.
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QUESTIONS???
1. Which one of the three growthstrategies did L&F follow in its earlierdays. Can you think of some Indian
Cos. which follow the same strategy
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2. Please use flow diagram charts todepict the value chain of some productsin the case. How did L&F optimize the
supply chains of its clients. Show a fewexamples on the slide throughappropriate process flow diagrams
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3. What kind of privileges andresponsibilities does a licensing rightcarry
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4.What are the 5 biggest export trading Cos ofthe world
1.Sogo shosha
2. Hong kong Dexi(xuzhou) import and export
company
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5. What are the biggest 5 export trading Cos ofIndia, China and Hongkong respectively
currently
INDIA
1.Bello jewels pvt ltd.
2. Prakash enterprises( alloys and steels)
3.Rishikesh Electronics ltd.(textile labs, chemicla
labs, knitting machines)
4. Aura Trading(generic drug)5. Bhawal Steel Agency
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6. If you can, please show how L&Fcreated a customer centric organizationto handle multiple clients at the same
time. You can use something that bringsout the flexible organizational system ofL&F
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7. Do the divisions so created above,related to the SBU concept studied inthe class. How? ( Hint: How do we
define an SBU and what are thecharacteristics)
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8. To pursue global expansion which oneof the three growth strategies did L&Fuse
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9. Please explain what are private labelsand how L& F help create them.This isavailable in chapter 16 of Kotler
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10. Use appropriate content about globalmarketing from Chapter 21
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11. Some Information about structure of anorganization is to be used from first fewpages of Kotler chapter 22. You can
show a comparative slide of the variousstructures companies typically use andthe one L& F used