Interesting Issue of Li & Fung

Family business to global business Rapid growth and expanding client base by acquisition Zero asset concept Create a customized value chain for different products L&Fs global network connects 15,000 suppliers. (design, sourcing, planning, distribution etc.)

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 on trading. L&F became one of the largest exporters of HK made goods (such as garments, toys, electronics and plastic flowers). In 1973, 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

History of Li & Fung (Cont)

From 1979-2009 - Since the 1990s, L&F viewed acquisitions as a means to sustain growth momentum - Convenience Retail Asia Ltd, which managed convenience chain stores and bakery shops in Retail area was listed in 2001 - Trinity Group, a high to luxury end menswear retailer was listed in 2009

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 largest consumer market in the next 30 years - Rising prices in China would bring inflationary pressures on consumer goods sold in developed economies and low cost labor pool would soon dry up - The growing domestic consumer market would be the new growth for the Chinese economy

Are networks and interfirm connections ubiquitous?

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 new service 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.

What are the competitive advantages of firms operation within global networks and value chains? What are the potential disadvantages?
L&F expands their resources base by developing the global network.
Internalization involves the adoption of other organisations or their risk Important to show company at each point of the chain that they can reply on. (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 operation within global networks and value chains? What are the potential disadvantages?
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 parties which are the determinants of the overall effectiveness of the organisation. (Hakansson H)

Building a networks involves expenditure of money and executive talents over many period of time. (Thorelli, H)

Do you know how many country of origins are involved in the value chain to produce this toy dog?

How does Li & Fung capture the network organizational 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 be beneficial to the value chain Suppliers perspective - Prove to L&F that they can create value to value chain and fulfill the orders

How does Li & Fung capture the network organizational form, 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 and manage 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. Customize value chain for every customer order. - Facilitate the information flow into the network to achieve a greater degree of vertical integration in the process (H.B. Thorelli)

How does Li & Fung capture the network organizational form, and how does it derive advantages from this?
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 to a 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 bargaining position: (Hakansson H)

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 for everything in the world (L&F could source and produce everything) -Formulated country-specific strategies instead of one-size-fit-all approach 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 customers every single need -Be up-to-dated for the manufacturing environment -Relationship with suppliers which will create value to the value chain

What is Li & Fungs global strategy and how does it generate distinctiveness?
Distinctiveness from its global strategy - Provide a tailor made solution to customers that the universal would not have - Fast growth with extensive coverage - Small, independent, entrepreneurial business units which will react quickly to the changing market conditions and customers demand - Division of Labour (H.B. Thorelli)

Thank You!