Li & Fung: Internet

Issues
Presented by
Tara Bellomy
Jeff Bookout
Jerry Harrison
Jeremy Schopper
Travis Tucker
Lesley Wilkerson
Jim Yancey

Li & Fung Outline

I.
II.
III.
IV.

V.
VI.
VII.

Overview of Company
Jeff Bookout
Problem Identification
Jeff Bookout
Business Model
Jerry Harrison
S.W.O.T. Analysis
Strengths
Jeremy Schopper
Weaknesses
Lesley Wilkerson
Opportunities
Jim Yancey
Threats
Jim Yancey
Strategic positioning
Travis Tucker
Alternatives & Recommendations Tara Bellomy
Discussion and Questions
ALL

Li & Fung Overview

LI & Fung Export Trading Company

Li & Fung founded in 1906 by Fung Pak-Liu and Li Toming

in Guangzhou, China
From 1920-1930 Diversified into Manufacturing and
Warehousing
By 1974, owned and operated by the Fung brothers
In the 1980s expanded operations throughout the AsiaPacific

Li & Fung Overview

By 1995 they expanded to offices around the globe

Acquisition strategy
Li & Fung evolved into a large global supply chain
In 1995 Li & Fung launched an intranet to link corporate
offices
In 1997 Li & Fung launched secure extranets
Redefining the business strategy
Targeting Small to Medium-sized Enterprises

Problem Identification
Li

& Fung needed to expand their supply

chain management component of their
business to on-line to expand their market
base.

Business Model
What

is the Business Model?

Li & Fung will provide supply chain management

services that will determine what supplier in which
country will best maximize its clients quality and time
expectations at the lowest cost possible.

Business Model
Components of a Business Model

Source: Applegate, Lynda M., Robert D. Austin, and F. Warren McFarlan., Corporate Information Strategy and Management. Burr Ridge, IL: McGraw-Hill/Irwin, 2002.

Introduction Figure I-3

Business Model
Concept:

Li and Fung was to provide an online service that

would streamline the supply chain management
process for their established clients and at the
same time open an opportunity to enter into a
new market that was previously too costly to
enter, the SME (Small & Mid-Sized Enterprise)
market.

Business Model
Capabilities:

(1) Well-educated management team

(2) Well-established offline company
(3) Owner financing
(4) Vast sourcing and networking abilities
(5) Economies of scales

Business Model
Value:

(1) Shorter ordering times

(2) Reduced inventory cost
(3) Quality assurance
(4) Virtual manufacturing/more product design
services
(5)Up-to-date fashion and market trend information

S.W.O.T. Analysis
STRENGTHS

Established name and branding

Integrated with client base
Decentralized management
Work in both hard and soft markets
Internal capital

Management is well educated and informed

S.W.O.T. Analysis
STRENGTHS

Acquisition strategy (bought suppliers and

competitors)
Flexible and interactive design process
No inventory to Manage

S.W.O.T. Analysis
WEAKNESSES

The initial lack of knowledge of developing an ecommerce B2B profile.

The initial lack of qualified personnel to implement
such a large undertaking.
Did not know if a B2B portal would be beneficial to
the company because, in the beginning, market
research had not been done on the Small &
Medium-size Enterprise (SME) target markets.

S.W.O.T. Analysis
OPPORTUNITIES

The internet allowed for a better/faster way to

incorporate a more streamlined supply chain
management system
Allow the customer to be able to be an intricate part of
the design process up to the point of product
manufacture
Allow SMEs to participate in the mainline of product
procurement while enjoying a smaller commission rate
Could establish a business plan to develop markets in
which over stock products could be sold (Electronic
Stock Offer - eSO)

S.W.O.T. Analysis
THREATS

Phasing the middle man out of the trading scheme

Possible loss of key employees to other Internet companies through the promise
of greater wage compensation.
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
Expanding the business into a new area that had not been tested opening the
company to a possible venture failure that not only could tarnish the companies
name to some degree, but also loose their investors startup capital
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.

Top Managements
Strategic Positioning

Market/Channel- customers to serve, needs

expectations to be met, and the channels to be
served
Product- choice of products and services to offer,
the features of those offerings, and price charged
Value Chain/Value network- activities it performs
within an extended network of suppliers, producers,
distributors, and partners
Boundary- determines markets, products, and
businesses not to pursue

Competitive Analysis
Porters Five Forces

Traditional Rivalry- most rivalrys of Li & Fung have

been acquired
Bargaining power of Suppliers- sold raw materials to
suppliers at premium
Bargaining Power of Buyers- Efficient and
considered high value
Threat of Entry- low threat of entry
Threat of Substitute Products- possibilities of threat
in this area

Sustainable competitive
Advantage

Sustainable advantage
occurs when barriers
exist that make it
difficult for competitors
to imitate and/or
customers to switch

Acquired most
competitors
Sophisticated IT
infrastructure
Target hard to serve
customer segment

Competitive Advantage
Customer

base of traditional company

Value created with IT infrastructure
Controlling of the supply chain
Captured smaller business segment with
startup lifung.com

Alternative Solutions
Go

online.or not?

Pros- not going online would eliminate need for

training and extra capitol.
Cons- not going online would leave the company
vulnerable to threats from competitors who could
steal management talent through influx of new
money.

Alternative Solutions
Only

target one type of customer.

Pros- targeting only large companies or SMEs

would lead to servicing similar customers with
common needs.
Cons- Li and Fung would lose any would be profit
produced from servicing only one type of
business.

Alternative Solutions
Ask

large suppliers to invest in the new online

venture.

Pros- not all of the success or failure of the new

web portal would be the result of Li and Fungs
efforts.
Cons- Li and Fung would lose some control over
internet management and design.

Alternative Solutions
Do

not keep tabs on manufacturing

electronically.

Pros- customers and suppliers would still have

that personal feel that Li and Fung is known for.
Cons- no information could be viewed in real time.
Management would have to make time to visit
with suppliers and customers.

Recommendations
Li

and Fung should embark on the web portal

design and incorporate it into their brick and
mortar business.
Go with the original plan- service both large
buyers as well as SMEs.
Dont ask suppliers for investment capitol,
use stock purchase for capitol.
Keep tabs on suppliers electronically, in
person, and by phone or fax.

Group Questions
What

advice would you give Li and Fungs

management to aid them in producing their
new web portal?
What is Li and Fungs most detrimental
weakness in building their online business?
What is Li and Fungs greatest strength?

Questions and Discussion