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Interesting Issue of Li & Fung

Family business to global business

Rapid growth and expanding client base byacquisition

Zero asset concept

Create a customized value chain for differentproducts

L&Fs global network connects 15,000suppliers. (design, sourcing, planning,distribution etc.)

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History of Li & Fung Founded in 1906 in Guangzhou by Fung Park Liu and his

partner, Li To Ming, exported jade, ivory, handicrafts, firework,porcelain and silk.

In the 1950s, L&F sold all its factories and focused solely ontrading.

L&F became one of the largest exporters of HK made goods

(such as garments, toys, electronics and plastic flowers). In1973, L&F went publics and listed on HKSE

In 1989, L&F had been privatized and restructured into 2 core

areas: Export trading and Retail Throughout the 1980s, L&F evolved into a supply chain

manager which oversaw the entire production process

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History of Li & Fung (Cont)

From 1979-2009

- Since the 1990s, L&F viewed acquisitions as a means tosustain growth momentum

- Convenience Retail Asia Ltd, which managedconvenience chain stores and bakery shops in Retailarea was listed in 2001

- Trinity Group, a high to luxury end menswear retailerwas listed in 2009

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History of Li & Fung (Cont)

From 2009 onwards

William Fung (Deputy Chairman of L&F Limited) believed:

- China will overtake USA to be the world largestconsumer market in the next 30 years

- Rising prices in China would bring inflationary pressureson consumer goods sold in developed economies andlow cost labor pool would soon dry up

- The growing domestic consumer market would be thenew growth for the Chinese economy

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No business is an island (Hakansson H)

The entire economy can be viewed as a network of organisations

with nodes and links (Thorelli, H) L&F coordinates a network of 15,000 suppliers

Two or more organisation involved in long-term relationship Network (Thorelli, H)

L&F Distribution network get closer to customer and offers newservice between factories and the selling floor.

Power, influence, trust, expertise, and information flow along the

links of the network. (Thorelli, H) The network idea is especially applicable in industrial marketing and

to the marketing of complex service.

Are networks and interfirm connections ubiquitous?

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L&F expands their resources base by developing the globalnetwork.

Internalization involves the adoption of other organisations or their risk

Important to show company at each point of the chain that they can replyon. (Thorelli, H)

L&Fs knowledge of the region had value for customers Power, influence, trust, expertise and information flow (Thorelli, H)

Easy to look for quality and best pricing option

Flexible operation; More options for client; Division of Labour (Thorelli, H) No teo sets of parties are alike (Hakansson H)

What are the competitive advantages of firms operationwithin global networks and value chains?

What are the potential disadvantages?

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Disadvantage:

Copy cat; Confidential leakages

If one link broken, may have ripple effect on the others.

Relied on other parties resources and performance

Activities taking place between organisation and the other partieswhich are the determinants of the overall effectiveness of theorganisation. (Hakansson H)

Building a networks involves expenditure of money and

executive talents over many period of time. (Thorelli, H)

What are the competitive advantages of firms operationwithin global networks and value chains?

What are the potential disadvantages?

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Do you knowhow many

country oforigins are

involved in thevalue chain to

produce thistoy dog?

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How does Li & Fung capture the networkorganizational form, and how does it derive

advantages from this?

Capturing the network organizational form

Li & Fungs perspective- L&F exerts its power to influence the suppliers

(H.B. Thorelli)

- Verify and ensure the members (suppliers) would bebeneficial to the value chain

Suppliers perspective

- Prove to L&F that they can create value to value chainand fulfill the orders

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How does Li & Fung capture the network organizationalform, and how does it derive advantages from this?

Organize and manage the value chain and network

- Work as a smokeless factory. Do design, buy and inspect raw material and

have factory managers to plan production but do not own factory andmanage workers

- Take 30% to 70% of the production from suppliers

- Be their largest customer with 30%

- Reduce their dependent with less than 70%- To avoid one-sided dependence an organization may wish to restrict

interaction with a given party in favor of extension of its networks, as in

the case of split sourcing (H.B. Thorelli)

- Be customer focused. Operate division to serve one customer. Customizevalue chain for every customer order.

- Facilitate the information flow into the network to achieve a greater degreeof vertical integration in the process (H.B. Thorelli)

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Advantages derived through network

- Cross selling potentials

- With customers coming from different networks and numerous countries,cross selling opportunities arise (cross selling its service, different products toa single customer)

- One-stop shop services for customers

- Want something customers do not want to do on their behalf

- Cost reduction

- Drive down the costs by gathering buying power

- the effectiveness of the business organization is determined by its bargainingposition: (Hakansson H)

How does Li & Fung capture the network organizationalform, and how does it derive advantages from this?

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What is Li & Fungs global strategy and how

does it generate distinctiveness?

L&F global strategy

-Create a customized value chain for each customer order foreverything in the world (L&F could source and produce everything)

-Formulated country-specific strategies instead of one-size-fit-allapproach as in countries and expanding customer base through

acquisition (Duplication strategy: Gerog von Krogh and Michael A.Cusmano)

-Maintain good relationship with customers by serving the customersevery single need

-Be up-to-dated for the manufacturing environment

-Relationship with suppliers which will create value to the value chain

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Distinctiveness from its global strategy

- Provide a tailor made solution to customers that the universal wouldnot have

- Fast growth with extensive coverage

- Small, independent, entrepreneurial business units which will reactquickly to the changing market conditions and customers demand- Division of Labour (H.B. Thorelli)

What is Li & Fungs global strategy and how

does it generate distinctiveness?

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Thank You!