Li & Fung: The Global Value Chain Configurator

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Case Details:

Case Code : BSTR149
Case Length : 30 Pages
Period : 1996-2004
Organization : Li & Fung
Pub Date : 2005
Teaching Note : Available
Countries : Hong Kong, US, Europe
Industry : Trading, FMCG

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This case study was compiled from published sources, and is intended to be used as a basis for class discussion. It is not intended to illustrate either effective or ineffective handling of a management situation. Nor is it a primary information source.

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Customer-Centric Organizational Structure

Li & Fung had an organizational structure that masked its size. In line with the transformation of the company's business strategy during the 1980s, Li & Fung revamped its organizational structure to manage its global sourcing network better and meet customer needs. The company discarded its traditional structure of geographic division as it found inefficiencies in this. During this period, all large trading companies in the world with vast supplier networks were organized geographically with country units as profit centres...

Leveraging it and the Internet

To leverage the potential of IT, Li & Fung took many initiatives through the mid 1990s. It tied up its global network of offices with intranet since 1995, to enable free information flow. In 1998, the company began creating dedicated extranet sites for major customers. These sites enabled the company to interact with customers, track their orders, help in product development and perform many other tasks in a cost efficient manner.

The extranet also enabled customers to track their orders and gain access to related information through Li & Fung's Electronic Trading System, known as XTS, which was linked to Li & Fung's global network of offices...

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Global Expansion

During the late 1990s, with the growing popularity of private label brands, shortening product life cycles and acute competition in the retailing industry, companies had to focus on their supply chain processes. As many companies did not have expertise in SCM and outsourcing was a cost-efficient alternative, the demand for companies that offered SCM services increased. Li & Fung, which already had an impressive sourcing network and SCM expertise, increased efforts to position itself as a global consumer goods trading company...

The Challenges

By the end of 2003, Li & Fung emerged as one of the few global consumer goods trading companies with geographical flexibility and depth of expertise required for success in the fiercely competitive business environment of the early 21st century. In the fiscal year ending December 31, 2003, the group's revenues amounted to HK$ 42.6 bn, a 14.3% rise over HK$ 37.3 bn in 2002.

Net profits amounted to HK$ 1.22 bn in fiscal 2003, a 13.2% increase over the HK$ 1.08 bn in fiscal 2002. In December 2003, the share price of Li & Fung was quoting around HK$ 13 (See Exhibit VII for Li & Fung's Five-year Stock Price Chart). However, according to company sources, revenues and profits were below expectations...

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Exhibit I: Li & Fung's Major Subsidiaries and Associated Companies
Exhibit II: Exports and Imports of Services in Hong Kong (2000-02)
Exhibit III: Hong Kong's External Trade Performance
Exhibit IV: Li & Fung's Supply Chain
Exhibit V: Li & Fung's Global Sourcing Network
Exhibit VI: Li & Fung's Code of Conduct for Suppliers
Exhibit VII: Li & Fung's Five-Year Stock Price Chart(August 1999 - July 2004)
Exhibit VIII: A Note on Hong Kong's Export Trade Industry
Exhibit IX: Li & Fung - Consolidated Statements Of Income (1997-2003)

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