Li and Fung Case Analysis

Introduction: The case for this week, Li and Fung: Internet Issues, proved to
be very interesting. I will first provide some basic background details for Li
and Fung, then do a brief summary of the case, and finally conclude with my
analysis and thoughts regarding the case study and the questions it poses.

Li and Fung Currently: Li and Fung is a global-trading group,

headquartered out of Hong Kong, China; Li and Fung supplies high-volume,
time-sensitive consumer goods. The majority of Li and Fungs business is
attributed to garments, and the remainder of sales belongs to the supply of
hard goods (fashion accessories, furnishings, gifts, handicrafts, home
products, promotional merchandise, toys, travel goods, and sporting goods).
Li and Fung is basically a supply chain manager across many countries and
producers, and they provide product design and development, raw material
and factory sourcing, production planning and management, quality
assurance and export documentation to shipping consolidation.
Case Summary: The case introduces us to Victor and William, the owners
and operators of Li and Fung Trading Company. The company was founded in
1906 by Williams grandfather, Fung Pak-Liu and his partner, Li To-Ming, as
an export trading company in Southern China selling to worldwide
merchants. In the 1970s, both Fung brothers (William and Victor) returned
from the United States after earning prestigious degrees from Harvard
Business School. After taking control of the family business, a transition
occurred: the business was not run as a family business anymore, but
rather it was run as a professionally managed corporation. Fast forward to
the year 2000: Li and Fung was a $2 billion global export trading company
with 3,600 staff worldwide, sourcing and managing the global supply chain
for high-volume, time-sensitive consumer goods. In the same year, %69
percent of sales were in the United States and 27% in Europe. Key customers
of Li and Fung included The Limited, Gymboree, American Eagle, Warner
Brothers, and Abercrombie and Fitch, to name a few. As stated previously, Li
and Fung offered soft and hard goods, and typically the hard goods rendered
a much higher profit margin. In essence, Li and Fung Travel Company
provided value-added services across the entire supply chain in a so-called
boarderless manufacturing environment (McFarland and Young, p.3). Victor
and William strongly believed in performance-based promotion and
compensation, and structured their companys systems accordingly.
Li and Fung saw its future growth coming from three aspects: Organic
growth, expansion through acquisition, and extension of its supply chain to
new markets via the internet. Beginning in 1997, Li and Fung began to
launch extranet sites that linked the company directly to a key customer and
was customized to that customers individuals needs. By 2000, 10 extranet

sites were in use; the use of each extranet site allowed Li and Fung to carry
out online product development as well as order tracking, obviating much
more of the cost and time necessary to send hard copies of documents back
and forth (McFarland and Young, p.6). William and Victor both decided that
resorting to E-commerce was essential; they believed that staying ahead of
the industry was always a strong-suit of Li and Fung, and expanding to the
internet was how they could maintain this advantage. William and Victor
decided to bubble in instead of bubbling out, meaning they wanted the
e-commerce strategy to come from within the strategy. As it turned out, the
actual strategy used was a combination of the two: William and Victor chose
Castling Group to spearhead their e-commerce strategy. Li and Fung invested
heavily in Castling Group to handle the e-commerce strategy, and thus
lifung.com was born. Lifung.com chose small and medium-sized enterprises
as their target market. SMEs desperately needed a company like lifung.com
to offer its services to fulfill its needs, such as differentiation of product at a
competitive price, reliable procurement, and up to date news and
information. Lifung.com would also receive a traditionally high margin in
return for its superior services. Li and Fung raised $250 million to begin the
B2B portal, lifung.com. The case concluded with many questions posed
towards the reader: What if the SMEs didnt utilize the B2B portal? Would Li
and Fungs offline operations migrate online? How would the integration of
lifung.com and veterans of Li and Fung go? Would Li and Fung spin off
lifung.com and take it public, or would it remain within the group?
Analysis/Conclusions: I thought this case was very interesting. It illustrated
the transformation of an old, family owned dynasty, to a very modern,
finely-tuned corporate machine. I think that we all would agree that William
and Victors choice to move a portion of their business to the internet was a
very wise decision. As they say, hindsight is twenty-twenty. Keep in mind the
case poses these questions in the year 2000, where the internet was still a
little unsure and under-developed. I think that William and Victor, along with
most of the other CEOs in the previous cases we have analyzed, were very
forward-thinking. I believe they saw the future of the supply chain
management/garment supply industry, and realized that they needed to
capitalize on the use of B2B internet uses. One way in which the case points
out a concept covered in chapter four of our textbook is the use of virtual
private networks, or VPNs. A VPN is a private network that uses a public
network such as the internet to connect remote sites or users. With a VPN,
users at remote sites are treated as if they were on a local network
(Pearlson and Saunders, p.106). As previously stated in the case summary, Li
and Fung began to use VPNs with their customers to speed up
communication about products and design-oriented work processes. This is a
great example of how Li and Fung used IS strategy to facilitate its business
strategy. Another key move that I believe that William and Victor undertook
was using the Castling Group to lead its e-commerce strategy. The solution
that Castling provided to the e-commerce strategy was not only a defense

that protected Li and Fung from local online sourcing companies, but it also
offered an offensive maneuver to expose new B2B markets and gain more
market share/expand sales. I think if Victor and William decided to forgo this
opportunity, they would be incurring a tremendous opportunity cost and
potential threat. I think that there is a great possibility that Li and Fungs
offline operations would migrate and become mostly online activities. As we
have all seen, this is being seen more and more currently in our corporate
society. Technology is always advancing, and IT systems are becoming
increasingly sophisticated and automated. The key for Li and Fung, in my
opinion, is to keep the old-way of thinking instilled in its corporate culture as
the business begins to shift its process entirely online. Finally, I think that Li
and Fung would keep lifung.com within the group as opposed to taking it
public. Victor and William made it clear in the case that they want Li and
Fung to stick to what they have always been known for: excellent supplychain management and supply strategies for customers, both behind and infront-of them.