Company Overview:

1906: Li & Fung was founded by Fung Pak-Liu and Li To-Ming. Export trading company in South
China Selling to overseas merchants.
1920s-30s: Diversified into warehousing and manufacturing of handicrafts.
After WWII: Relocated to Hong Kong Permanently, expanding its operations to include toys,
garments, plastic flowers and electronics
1973: Li and Fung became the holding company for the group and was listed on HKSE
1988: The group was privatized and stream lined
1991: incorporated in Bermuda
1992: trading activities were listed in HKSE
1995: Acquisition of Inchcape Buying Services (expansion in Europe and shifting its sourcing
network beyond East Asia to include Indian Subcontinent, Mediterranean and Caribbean basin
1997: Partnered with Castling
2000: 2 bln USD Global trading company. Group Chairman: Victor Group MD: William
2000: Inclusion in Morgan Stanley Country Index for Hong Kong. Inclusion in HIS and FTSE
World Index Hong Kong Section (Result of the Three years plan). 19th largest Hong Kong stock
trading with a company record P/E of nearly 60
2000: Creation of B2B portal lifung.com
2001: Electronic Stock Offer(eSO)
Employees: 3600 staff
Sales: 69% from US and 27% Europe
Product Mix: Hard and Soft Goods.
Hard Goods: Fashion accessories , festive or holiday products, furnishing, giftware, handicrafts,
home products, fireworks, sporting goods, toys and travel goods
Soft Goods: apparel including Knit Garments for men, women and children
1998: total sales- Hard goods 22.5% Soft Goods 77.5%
1999: total sales- Hard Goods 25%
2000: 15% of group sales was generated from Raw Material Sourcing
Margins: Soft Goods 6-8% and hard goods 10-30%

Supply Chain Management:

Borderless Manufacturing Environment: 48 offices in 32 countries, Li & Fung does not own any of
the boxes in the supply chain. They Just manage and orchestrate it from above.
5 of the 48 offices were Hubs: Hong Kong, Taiwan, Korea, Thailand and Turkey
Services offered:
Reduced inventory cost due to faster turnaround time
Reduced matching and credit risk
Quality assurance to customers
Lower cost due to Economies of scale
Flexible Sourcing due to Global Sourcing Network
 Raw Material Sourcing: Li & Fung offered raw material to its suppliers ensuring greater quality
control and brought larger and thus more cost effective amounts of raw materials thereby producing
cost savings for each manufacturers.

Tripartite Growth Strategy

Organic Growth: Three Year Plan System: Setting up of a fixed Three Years Plan moving goal post
which allowed the company to look ahead but not too far
Inorganic Growth through acquisitions: Acquisition Strategy was based on buying rival sourcing
companies there by gaining new cliens, integrating their operations.
1995: Inchcape Buying Services
1995: Dodwell acquisition brought access to sourcing markets in Indian Subcontinent and
European Export Market
1999: Swire Group and Camberley Acquisition
Extension of supply chain to new markets via Internet/ E-Commerce:
Bubble In
1995: Intranet Link to connect Groups offices and manufacturing sites around the world
1997: Extranet sites that linked the company directly to a key customer and were customized to
that customers individual needs. This offered a great degree of flexibility to the customer.

Competitive Threats

The biggest that Li and Fung Identified was Internet Pure Plays. During 1999 Internet pure plays did about
28 to 30 mln $s in sales whereas Li & Fung 11 bln$s. It was not the size that was the threat but the fact that
investors are throwing money at them. The biggest weppon was the money that they had. At one point of
time they could have hired away the entire management of Li an Fung.

Strength: They had identified that and adopted the fact that in order to survive for a long time they have to
inculcate the external environmental changes that could affect their business.

For growing in e-commerce front Victor wanted to the strategies to come from within the company (Bobble
In: No risky dependency on outsider). To better grasp fundamental of embarking on a new IT venture, Li and
Fung added 2 new Technical Directors to its board: CEO of a technology company and the other an
academician.

Castling

Castling : An B2C Internet Start-up company looking for opportunities in B2B segment

LF International Inc.offered 5% of its stake to Castling and subsequently funded Castling as well as
lifung.com. In return Castling key managerial staff to lifung.com To identify the target market, a top-bottom
market research was performed.

Target Market: SMEs in the US with turnover of less than 50 mln$

SME Target: B2B3 Parameter

B2B3 Parameters: The online company lifung.com would adopt a Business-to-Business model which took
a back to basic approach by implemention Li & Fungs supply chain management know-how to SMEs on a
back-to back order basis. (No inventory risk for Li & Fung)

Concentrated on the bottom line.

Problems

Lack of economies of scale in SMEs

Paid the Most: For this reason SMEs had to pay SMEs had to pay higher margins from 25-30% to
the importers.
Served the Least: SMEs were offered a limited range of options
SMEs lagged behind large retailers in identifying fashion trends

Principle Behind

Lifung.com aggregated the smallers orders from SMEs through the B2B portal for economies of
scale
As a result they could offer array of products with options of limited mass customization
Charged 6-8% margin for apparels and 12% for hard goods as compared to 25-30% that the charged
earlier.
Lifung.com allowed SMEs to reduce their inventory levels and used the system for replenishment
buying

Future Ventures: Electronic Stock Offer (eSO)

Expand its online B2B penetration A new platform Electronic Stock Offer (eSO)
Target the other side of the butterfly model
Aggregate suppliers : Aimed at creating an efficient system for reaching out into Li & Fungs
supplier base . Posting suplus stocks on the internet
A more efficient and cost-effective platform for Li & Fung to sell to buyers primarily interested in
purchasing seconds
Bring buyers & suppliers together
Principle:
Buyers dont have confidence at anonymous suppliers. Intermediate the virtual exchange. Add value
to e-commerce transaction by virtue of the old economy network, brand, and reputation.