Li and Fung: Case study

The Chinese company Li & Fung was created in the Guangzhou area in 1906. This is a family company founded by Fung Pak Liu, the grandfather of the actual director Victor Li. The first goal of Li & Fung when it had just been created was to act as a ‘broker’: Fung, who was an English speaker, was the intermediate between Chinese manufacturers and American or European buyers, as they didn’t speak Chinese. During the twenties and thirties, the company diversified its activity with proposing storage and high intensity labor force production. After the Second World War, Li & Fung was relocated in Hong-Kong and extended its activities in several fields as toys, apparels, plastic flowers and electronic products. The reason why Li & Fung’s history has been so long and so successful is thanks to a smart positioning and strategic management during all those years. The brand is now recognized as a reliable trading brand, having prospectives and looking forward while keeping the old efficient methods. Moreover, Li & Fung has a very strong corporate culture, but the fact is that this corporate culture is humble and works on the bases of meritocracy. Moreover, salary bonuses are calculated on profits and not as a fixed percentage, which makes every employee do the best he can. The company works on decentralization which helps managers to be in partial autonomy and also in centralization, with their centralized IT.

[...] This allows Li & Fung to be reactive and to be more efficient in a different way. Between 1993 and 2001, three 3-year plans lasted with success. The fact that the approaches are different and that set up goals have been and are still can be managed to attract investors. This is a good way for Li & Fung to be different from its competitors to attract funding because it is another way to increase its growth. Thanks to this vision, capitalization was about 6.6 billion dollars in 2000 and the price earnings ratio has been incredibly high Acquisitions strategy This is a very competitive strategy because it involves buying rival companies. [...]

[...] Moreover, it allowed Li & Fung to increase its economies of scale with offering premium services to SME, which represents a big market in the US and Europe. It provides to this special but powerful and important target premium services with no minimum quantity to order. In this way, SME can be more flexible in its inventory, and can also save money thanks to the replenishment inventory system. Those options are not proposed by Li & Fung competitors. This supply chain strategy allows the brand to reduce its production time and then its delivery time, which is a big plus point to the competitors who are not processing in the same way. [...]

[...] Companies’ outsourcing risks The fact that Li & Fung’s key clients are starting to outsource and go to cheap labor force countries is dangerous for the company. In fact, it means that key clients would not use Li & Fung anymore, with having raw materials, manufacturers and sourcing in the country where they are implemented. Even if Li & Fung tries its best to simplify the process with a smart e-commerce strategy these are things that cannot be avoided. So Li & Fung should reinforce its communication about its unique process, and its knowledge about import-export trade and supply chain management. [...]