Li & Fung

A critique of the case â€Å"Li & Fung (A): Internet issues† is presented below in light of the following two key methodologies: SWOT analysis Porter's five forces model A SWOT analysis of Li and Fung: Strengths of the firm Reputable name and branding. Well informed and educated management Tightly integrated supply chain management with client base. Established decentralized management style Ability to operate in both hard and soft markets. Existing internal capital Successful acquisition strategy (bought suppliers and competitors). Flexible and interactive design process. No inventories to manage. Weaknesses Lack of initial knowledge on developing an e-commerce B2B profile. Lack of qualified personnel and subject matter experts to implement such a large undertaking. Poor information gathering and research prior to adopting the B2B portal strategy Insufficient knowledge about the behavior of SMEs in similar portals The initial plan of developing a B2B portal was based on the old economy model, change was not sufficiently accounted for. Opportunities The internet is a true enabler to incorporate a more streamlined supply chain management system. Allow customers to be able to be an intricate part of the design process up to the point of product manufacture. Allow SMEs to participate in product procurement while enjoying a smaller commission rate. Ability to establish a business plan to develop markets in which surplus products could be sold (Electronic Stock Offer – eSO) Threats Phasing the â€Å"middle man† out of the trading scheme is a risky strategy and an attempt to alter an existing market mechanism. Possible loss of key employees to other Internet companies through the promise of greater wage compensation for newly acquired skills. Fear that an online company would acquire or partner with an old economy trading company, becoming an overnight competitor. If the technology was outsourced, then the company could become dependent on that outside company for their IT needs especially when an upgrade was needed. The possibility of outside companies being able to access proprietary information, strategy, or the complete Li & Fung business model. Exposing the business to a new business environment with insufficiently prepared change strategies Service quality issues in an area where the firm has never operated before could tarnish its reputation and result in loss of value The new e-commerce endeavor made some of their larger customers nervous in that they were afraid that Li & Fung would be compromising their business by working with their direct competitors. Porter's five forces model: Traditional Rivalry – most of Li & Fung’s rivals have been acquired. Bargaining power of suppliers – sold raw materials to suppliers at a premium. Bargaining power of buyers – efficient and considered high value. Threat of new entrants – low threat of entry. Threat of substitute products- possibilities of threat in this area. Business Concept Li & Fung is a long standing Hong Kong based company that that has evolved from an export trading company to a coordinator of value-added services across the entire supply chain in a global, open manufacturing environment. They assess the clients’ product and delivery needs and orchestrate supply, manufacture and delivery in a very tailored and specialized way. Capabilities Li & Fung achieve their high level of service through an executive relationship of two close brothers who form a unique synergy of strategy and execution. In addition, they give senior managers sufficient autonomy to respond to needs of specific customers. They are aided by a centralized IT as well as financial and administrative support in Hong Kong. Managers have their own compensation package, and bonuses are based on profits with no ceiling. There is great incentive to achieve goals. Li & Fung use a three year planning approach in which a goal is established and a gap analysis aids in identifing steps to get there. Each three year plan had a short name or slogan for the ultimate goal. Through strategic acquisitions to expand reach of service into new markets such as Europe and India, Li & Fung had grown to nearly five times that of its closest competitor by 2000. Value The value Li & Fung provided its clients is the view and reach into a global range of choices for performing tasks. Through their knowledge of the various raw materials suppliers, manufacturers and shippers, Li & Fung could provide a high degree of quality and reliability in all aspects of order fulfillment. This knowledge coupled with sophisticated centralized information management made its services quick and reliable. Threat of Competitors The threat of e-commerce over the Internet was not as direct as expected. The brothers were concerned about disintermediation but found that most Internet businesses were not well conceived. Instead they learned that the threat came from the hype of Internet businesses capturing more investment capital thus enabling those companies to invest greatly in their companies and hire away talent from Li & Fung, for example. Continuing Threats In the next three year plan, Li & Fung will need to assess the possibility and cost/benefit of end-to-end supply chain communications based on improved technology in developing countries. Li & Fung maintain their own staff, on the ground, with each supplier, thus ensuring valid business data in their system. From a market assesment viewpoint they will have to prove the value of that cost versus other entrants into this field that may assess suppliers differently. Channel conflict would continue to be a threat with each increasing IT improvement. They will also need to attend to the legacy clients and how they fare against the B2B portal. Li & Fung 1. What has been the historic strength and strategy for Li and Fung? Since Li and Fung was founded in 1906, the company has more than 100 years of history and it is the main historic strength of Li and Fung. It accumulated lots of information and experience, which other competitors couldn’t have owned without such a strong historic background. Li and Fung is a publicly traded family company. Speed, Solidarity, authenticity, trust, and control are the benefits to running a family business.For example, in a family business, people can think something in the morning and begin working on it in the afternoon; after all, the family is a natural team. Trust is essential in all business and family businesses get a high level of trust among family members. In the early 1970s, Fung brothers who were both educated at Harvard Business School returned from the United States. Fung brothers’ returned heralded Li and Fung’s transition from a family- owned business to a professio nally managed firm, with a planning and budgeting system in place for the first time.As more source of supply emerged in the rapidly industrializing Asian economies, Li and Fung expanded its regional network of offices throughout the Asia-Pacific region and this can be contributed to the fact that Li and Fung was Hong Kong based. By 2000, Li and Fung became a $2 billion global export trading company sourcing and managing the global supply chain for high-volume, time-sensitive consumer goods. 69% of Li and Fung’s sales were in the United States and 27% in Europe.With 48 offices in 32 countries, the company provided value-added services across the entire supply chain in a so-called â€Å"borderless† manufacturing environment. Therefore, Li and Fung clients benefited in several ways: supply-chain customization could shorten order fulfillment from three months to five weeks, and this faster turnaround allowed clients to reduce inventory costs. Moreover, in its role as a mi ddleman, Li and Fung reduced matching and credit risks, and also offered quality assurance to its customers.Furthermore, with a global sourcing network and economies of scales. Li and Fung could offer lower cost and more flexible sourcing than its competitors. Li and Fung even started offering clients virtual manufacturing, or product design services. Li and Fung was entrepreneurial, allowing senior managers to run 90 small, worldwide management teams as separate and individual companies. These dedicated teams of product specialists focused on the needs of specific customers and were grouped under a Li and Fung corporate mbrella that provided centralized IT, financial and administrative support form Hong Kong. This decentralized corporate structure allowed for adaptability and rapid reaction to seasonal shifts. In Li and Fung, performance-based promotion and compensation were cardinal principles. Each Li and Fung’s top executives negotiated individual compensation packages. L i and Fung bonuses were based on profits without ceiling.