Porter’s 5 Forces:
We are using porter’s 5 forces to analysis Li & Fung Co. They are bargaining
power of suppliers, bargaining power of customers, competitors, partners and
Bargaining power of suppliers:
Li & Fung has a Global SOURCING Network of 67 Offices in 40 Countries. For
example: North Asia, Southern Africa, and North America. So the suppliers have
strong bargaining power due to sizable volume of sourcing contracts it places with
Bargaining power of customers:
Consumers' bargaining power is large due to our target customers are SME (small and
medium-sized enterprise). There are 20,000 retailers and 2,800 wholesalers in United
States. Then consumers are becoming more value-focused because the economy is
The main competitors of Li & Fung are Inchcape Buying Services (a 100 year-old
company) and Swire & Maclaine and Camberley (The next two largest Hong
The strategy of Li & Fung is buying rival sourcing companies for example, in 1995 Li
& Fung acquired Inchcape Buying Services, a 100 year-old company roughly the
same size as Li & Fung and its closest competitor. Also in 1999, Swire & Maclaine
and Camberley which were Li & Fung’s next largest Hong Kong-based competitor
were acquired by Li & Fung.
The advantages of acquisitions include gaining new client account, integrating their
operation and eventually bringing the operating margins. Second it gain “new links”
in the value-chain. It has expanded five times the size of its two closest local
competitors, by August 2000.
Bringing the operating margins (increased from 0.8% to 3%.). Li & Fung become the
only listed supply chain management company in HK, knowledge base to
sub-Saharan Africa, Eastern Europe, and Caribbean provide up-to-date fashion and
market trend information to clients. In 1999 offer virtual manufacturing, or product
The purpose of partnership is use Internet to both defend the offline, old economy
companies against online companies. In December 1999 Hsieh joined Castling’s
board and LF International invested in Castling. And CEO of Castling Group is an
Internet start-up company so that CEO can bring their experience to Li & Fung that
how to extend their online business.
The second purpose of enter castling is to success “bubble in” strategy. As Li & Fung
say that e-commerce strategy should come from within the company. It created a risky
dependency on outsiders, particularly if future design changes were required, and also
provided outsiders with proprietary information, strategy, and the entire business
model. With the partnership, 20% of lifung.com’s initial staff came from Castling
amount to an in house E-commerce incubation team that success “bubble in strategy”.
Li & Fung are using three technologies to operate their business. They are Intranet,
Extranet and B2B portal.
In 1995, Li & Fung launched an Intranet to link the Group’s offices and
manufacturing sites around the world, thereby expediting and simplifying internal
Advantages of intranet:
The progress of orders and shipments could be tracked in real time. Digital imagery
allows for online inspection and troubleshooting. For example, past quality problem
with Bangladeshi production would require on-site Li & Fung inspector to send
physical samples to Hong Kong by express mail, whereas the Intranet now allowed a
high resolution digital photo to be sent via the Intranet for real time response and
In 1997, Li & Fung launched secure extranet sites. Each site linked the company
directly to a key customer and was customized to that customer’s individual needs.
Furthermore, it’s also link between manufacturers and retailers, the extranet provided
a platform for two to interface thus streamline communications as the order moved
through the supply chain.
The advantages of extranet:
Li & Fung could carry out online product development as well as order tracking,
obviating much of the cost and time necessary to send hard copies of docuements
back and forth. So the non-value added activities can be eliminated Furthermore, it
provides a platform for Retailers and Manufacturer to interface that it can promoted
quick response manufacturing. For example, customer can change the color until the
fabrics was dyed.
It also can satisfy key customers individual needs. Example: Customer could track an
order online just as it was possible to track a UPS delivery.