Li & Fung in 2004

Case Analysis: Li & Fung Trading Co.

Herbie Smedlap

Kennesaw State University

IS 8700

October 5, 2009

Background

Li & Fung, one of the oldest trading companies, now operates as the largest operating Supply Chain Management Company in Hong Kong. Founded in 1906, Li & Fung was originally established in Guangzhou, China as an export trading company selling to overseas merchants. Li & Fung began their export trading business by partnering with the U.S. to export porcelain and silk. From the 1920's to 1930's Li & Fung expanded into manufacturing and warehousing. In 1973, due to the insistence of Fung's son, Li & Fung transformed from a family business to a publically traded company on the Hong Kong Stock Exchange. The goal was clear; transform the company to a modern corporation. Family members who weren't directly involved in the day to day business were now able to extract value from their share holdings. Decision making was voted upon by leadership versus established over dinner. The next step after becoming public was to revolutionize the company from a trading company to a global supply chain management company. Li & Fung is a worldwide company with over 13,000 employees in over 80 offices. Li & Fung's strategy has paid off in growth. In 2000 they were a $2 Billion global export trading company and in 2005 Li & Fung posted revenues of $8.5 billion.

Business Strategy

Li & Fung uses the holistic supply chain management (SCM) strategy to benefit their clients by shortening order fulfillment from months to weeks which allows clients to reduce the amount of inventory they hold. In addition they remained as the middle man, which allowed them to reduce matching and credit risks.

Business Model

Li & Fung's supply chain management services offer Total Value-Added Package: from product design and development, through raw material and factory sourcing, production planning and management, quality assurance and export documentation to shipping consolidation. The company determines which supplier manufactures which element at the lowest cost possible to shorten order fulfillment and provide competitive prices to their customers.

Problem

Li & Fung need to expand their holistic supply change management strategy to an online venture to avoid disintermediation.

SWOT Analysis

Strengths

(1) Conduct business in hard and soft market

(2) Integration with client base

(3) Decentralized corporate structure

(4) Managers followed entrepreneurial structure

(5) Acquisition strategy

(6) No physical inventory

(7) Customer with private labeling

Weaknesses

(1) Lack of B2B knowledge

(2) Lack of B2B SME's

(3) The unknown