Second runner up prize in the John Molson MBA Case Writing Competition 2005, organized by the John Molson School of Business, Concordia University, Montreal, Canada

Li & Fung: The Global Value Chain Configurator

Li & Fung: The Global Value Chain Configurator
Case Code: BSTR149
Case Length: 30 Pages
Period: 1996-2004
Pub Date: 2005
Teaching Note: Available
Price: Rs.500
Organization: Li & Fung
Industry: Trading, FMCG
Countries : Hong Kong, US, Europe
Themes: Globalization
Li & Fung: The Global Value Chain Configurator
Abstract Case Intro 1 Case Intro 2 Excerpts

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 from the many trading restrictions in China. It would enhance the company's competitiveness and increase its share in the global market.

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."

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.

The company was well-placed to leverage China's leadership position in textile manufacturing and exports, as that country was the company's largest manufacturing hub, from where it sourced over US$ 2 bn worth products annually. Li & Fung had 16 offices in China, which it planned to take to 36 by 2007. The downside was that in early 2004, Li & Fung faced many challenges like a slowdown in its overall revenues and net profit growth, over dependence on the US market, declining share of revenues from the European market and negligible growth in revenues from the rapidly growing Asian markets....

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