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Li Fung A: Internet Issues Case

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Li Fung A: Internet Issues Case

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    1. Li & Fung (A): Internet Issues Case GBA 673/674 Class Discussion

    2. 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.

    3. What has been the historic strength and strategy of Li & 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

    4. 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

    6. What capabilities of Li and Fung does studiodirect.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)

    7. 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.

    8. 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

    10. Update the case/company information. Li & Fung Group today Recent growth Ultimate middleman Business Strategies Financials Top Competitors (Hoovers) Industries Global Network

    11. Li & Fung LTD, today Controlling shareholder of Li & Fung Group of Companies Li & Fung Group: Li & Fung Limited Integrated Distribution Services Group LTD Convenience Retail Asia LTD (CRA) Privately held retailing entities: Li & Fung (Retailing) LTD Trinity & Branded Livestyle --Fashion retailing businesses Toys “R” Us, operated by Toys LiFung (Asia) LTD

    12. 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

    13. Li & Fung Complete Service Chain http://www.lifung.com/eng/business/service_chain.php

    14. What has been the historic strength & strategy of Li and Fung? Strong culture Relationships built on trust The “Ultimate Middleman” Core export trading business encompasses wide array of service spanning supply chain Adopt clients technology systems & don’t force them to use Li & Fung’s technologies. 2000: $4 B USA sales -Over 4,000 employees 2009: $14B USA revenue – over 34,000 staff across 40 economies .

    15. Primary plans that propelled LI & Fung’s recent growth l optimize pricing structure of each segment of supply chain w/o owning any of it Squeeze more efficiency between factory & customer - “eat the soft $3” Efficiencies in logistics, shipping, & customers Create more sophisticated value-added services for its customers to maximize profits To do this, launched US onshore strategy Continue to acquire competitors Dodwell, 1995 – customer base in E. Asia, sourcing Swire Group 1999 – access to China Colby Group 2000

    16. The “ultimate middleman” - 2006 Supplied over 1,000 customers in both hard & soft goods from a network of 8-10 K suppliers Thru sourcing network of over 70 offices In over 40 countries & territories Soft goods – clothes was 2/3 Hard goods – toys, travel goods, fireworks, etc. Lower margin, higher lead times, but less competition in hard goods, so were moving into it

    17. Business Strategy - 2006 Disciplined entrepreneurship 170 entrepreneurial profit centers w/ customer-centric focus Managers held accountable for goals If met goals, were rewarded commensurately If failed to meet goals from conditions beyond their control, manager might be transferred Transforming customer experience Just-in-time sourcing, manufacturing of products for customers – customer able to change orders Information Technology a core strength Managed logistics of supply chain process Centralized back-office systems Turn-key systems installed in any warehouse

    18. Business Strategy - 2006: Move up the value chain Soft goods: Provided product planning, design services, development, raw material & factory sourcing Made creative suggestions to customers “Eating into Soft $3” Add value to customer throughout the value chain U.S. onshore strategy 2003-2006 Acquired 7 onshore US businesses Acquired 70,000 sq ft space in Manhattan fashion district 2006 almost US$ 1 B business

    19. strategies 3-pronged US strategy License recognized brands Cannon, Royal Velvet, Disney, Levi’s Acquire companies that produced Private label brands – applied to hard & soft goods, foods Proprietary brands – combination of first two Grow Europe – acquired large German catalog Increase hard goods, especially from China

    20. 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

    21. Li & Fung Stock Chart (0494) 1/15/09

    22. Li & Fung (0494) Stock Quote 151 in Hong Kong $; Updated 16:10 HKT / 15 JAN 2009

    23. 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

    24. Industries Transportation services Logistics Services Supply chain management services Warehouse & distribution services? Industry Cluster Series http://www.lifunggroup.com/research/china_industrialcluster01.htm

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