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					Li & Fung (A): Internet Issues
            Case
         GBA 673/674
        Class Discussion
 Li & Fung (A): Internet Issues
• What has been the historic strength
  and strategy of Li and Fung?
• What capabilities of Li and Fung does
  Studio-Direct.com leverage?
• What are the risks of this strategy?
• What advice would you give William
  and Victor Fung?
• Update the case/company information.
  What has been the historic strength
    and strategy of Li and Fung?
• 100 years of history
• Publicly traded family company
   – Both William & Victor educated at HBS
   – Victor earned Ph.D. & taught there for 4 years
   – 1972 Returned to Hong Kong to modernize company management
• Hong Kong Based
• Trading Company – by 2000
   –   69% sales USA
   –   27% sales Europe
   –   Major retailers (the Limited, Gymboree, American Eagle, etc)
   –   Global sourcing network
What has been the historic strength
   & strategy of Li and Fung?
• 2000: $4 B USA sales
   – Over 4,000 employees
• Acquisitions:
   – Dodwell in 1995 expanded customer base in Europe & Shifted
     sourcing to East Asia, Mediterranean & Caribbean
   – Swire Group in 1999 access to China
• Product mix in 2000
   – 77% Soft goods – margins 6-8%
   – 23% hard goods – more expensive, requires more quality
     control – margins 10-30%
• Economies of scale – flexible sourcing
• Dramatic growth
What has been the historic strength
   & strategy of Li and Fung?
• Holistic Supply Chain Management
  – 48 offices in 32 countries
  – Value-added services through entire supply chain –
    borderless-manufacturing –next slide
  – Outsource manufacturing which requires less capital
• Entrepreneurial structure –
  – teams of product specialists in 90 separate, individual
    companies
  – Meritocracy – compensation performance based
   What capabilities of Li and Fung
     does lifung.com leverage?
• IT in 2000
   – 10 secure customer Extranet sites (launched 1997)
      • Customized to needs of key customers
      • Online product development, order tracking
      • Customers could change order as it progressed
   – 60 IT staff in Hong Kong– development outsourced
   – Outsourced Intranet/Extranet
• Preferred narrow/deep connections to customers
• But saw how internet could transform industry
• studiodirect.com (gone by 2007)
   – 80 staff Based in San Francisco
   – Target:
      • Retailers under $100 M (20,000)
      • Wholesalers under $50 M (2,800)
     What are the risks of this
            strategy?
• Costs to develop project could exceed
  budget – Hong Kong too far from
  California
• Danger of feature creep in specifications
  which may raise development costs
• Backlash from import agents who could
  slash their fees enough to make project
  unprofitable.
                Risks continued
• Risks during diffusion of technology to new firms
  that could make rollout more costly.
  – Could try pilot project first
• Could damage Li & Fung’s reputation because
  they cannot provide all the goods to this set of
  customers
• Existing customers may resent addition of
  smaller competitors who will benefit from Li &
  Fung’s value chain.
  – Would accommodate SMEs
     • offer them differentiated products with smaller order sizes,
       aggregating their orders with other SMEs
     • 10-15% commission much lower
       Li & Fung Group today
• Total of 24 K employees in 40 countries with
  revenues of US $8.5 B in 2005
• Li & Fung Limited: Trading arm
• Li & Fung Retailing
  – Toys R Us
• Integrated Distribution Services in Asia
  – Manufacturing, Logistics & Marketing
• LF Investments (Private Equity)
• LF Group Properties
      Current: Li & Fung Limited
• Interviews Li & Fung First Half Results:
  – Bloomberg Interview
  – CNBC Interview
• “Global Sourcing Solutions for Your business”
• Complete service supply chain
• Company image:
  –   Rigorous compliance measures
  –   Enforces Supplier codes of conduct
  –   Business for social responsibility
  –   Member The FTSE4Good Index Series
Li & Fung Stock Chart (0494)




  http://www.irasia.com/stocks/getchart.php?number=0494
 Li & Fung (0494) Stock Quote 11 Jan 2007
              in Hong Kong $
Last              14.2          52 week high         36.8
Bid               14.1          52 week low          10.82
Ask               14.2          P/E ratio            15.870
Change            .016          Yield                0.05
% change          1.14%         Lot Size             2000
Yesterday close   14.04         Bid Spread           0.02
Open              14.18         Ask Spread           0.02
High              14.44         Market capitalization 51,603,830,721
Low               14.04
Volume            10,391,766

Turnover          148,028,422
     Top Competitors (Hoovers):
       Available thru CPP library thru Lexis-Nexis Academic

•   SUPPLY CHAIN MANAGEMENT SERVICES
•   APL Logistics
•   Global Sources
•   Connor & Associates
•   Geodis
•   GeoLogistics


• Let’s compare Li & Fung with its
  competitors
                        Industries
• Transportation services
   – Logistics Services
       • Supply chain management services
       • Warehouse & distribution services?
• Industry Cluster Series
• http://www.lifunggroup.com/research/china_industrialcluster01.htm
             Global Network
•   More than 80 offices in over 40 countries
•   Almost 10,000 suppliers worldwide
•   More than 14,000 staff worldwide
•   Annual turnover > $11 Billion U.S.
•   100 years of trading history.