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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"In an age when the Internet is supposedly going to eliminate the middleman, here's a middleman, an old Asian trading company that has made itself indispensable." 1

- An Article in Forbes.

"We deliver a new type of value added, truly global product that has never been seen before. We're pulling apart the value chain and optimising each step - and we're doing it globally." 2

- Victor Fung, Chairman, Li & Fung, in June 2000.

Strengthening its Fort

In January 2004, Li & Fung Limited (Li & Fung), a Hong Kong based global consumer goods trading giant, announced that Li & Fung Trading (Shanghai), its wholly-owned subsidiary, had been granted an export company license by the Ministry of Commerce of the People's Republic of China (China).

After receiving the license, Li & Fung Trading (Shanghai) became the first wholly owned foreign trading company to be offered direct export rights in China. The company was authorized to export China-sourced goods directly to customers worldwide and import raw materials for manufacturing in China. Li & Fung was until then dependent on its Chinese partners for exporting from China. According to William Fung (William), managing director, Li & Fung, the license freed the group companies (See Exhibit I for Li & Fung's Major Subsidiaries & Associate Companies) from the many trading restrictions in China. It would enhance the company's competitiveness and increase its share in the global market.

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William said, "With the ability to directly export products from China to our customers worldwide, Li & Fung is now able to offer an even more complete supply chain service."3

After China joined the World Trade Organization (WTO) in 2001, it emerged as the world's largest exporter of textile and clothing. The country also consolidated its position as one of the world's largest and fastest growing manufacturing economies. According to the US International Textiles Association, export of textiles and clothing from China to the US doubled from US$ 6.5 bn in 2001 to US$ 11.6 bn in 2003. With export quotas among WTO members proposed to be eliminated from January 2005, China would be free of restrictions on quantity of exports to the US, enabling further growth. In this light, analysts felt Li & Fung stood to benefit significantly from its new license as it was one of the world's leading textile export traders, and the largest to the US.

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1] "Stitches in Time,", June 09, 1999.

2] "Winning at a Global Game: Part Five of an Eleven Part Series,", June 10, 2000.

3] "First Hong Kong Trading Firm to Gain China Licence,", February 2004.


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