Li & Fung is a one of the most successful trading company in Hong Kong.
It creates value to its clients by providing total supply chain solution services from raw materials to finished products. The organic growth and acquiring industry rivals strategy have contributed to Li & Fung’s success in the past. The disruptive e-Commerce phenomenon forces Li & Fung to review its business strategy. With the combination of the new e-Commerce challenge and its core historical strengths, Li & Fung saw the opportunities from small and medium-sized enterprise (SMEs).It had not been cost effective for Li & Fung to trade with SMEs since orders were small and often below factory minimums.
By aggregating the smaller orders via a B2B portal, Li & Fung hopes to utilize the economies of scale, thus expands the market-base. However, it leaves Li & Fung to an ambiguous situation that the new e-Commerce model may defeat its existing business model which serve the large corporate customers and disintermediate its intermediate role in the industry. The comprehensive sourcing network, decades-old relationship with the manufacturing enterprise and the dynamic company structure are the strengths of Li & Fung.The ability of own financing, well-educated management team and “no-inventory” model allows Li & Fung reacts quickly to the external environment.
The dominant buying power allows Li & Fung to have large bargain power against its segregated suppliers. The decentralized management model is backed up by its centralized IT, financial and administrative support. This structure allowed for adaptability and rapid reaction to the dynamic market. All core competences of Li & Fung differentiate itself from a typical internet portal company.The raise of e-Commerce forces Li & Fung responses to the trend and keeps its competitiveness. During the dot.
com era, typical internet startups can finance shortly and acquires an existing trading firm and become Li & Fung’s competitor overnight. It is possible to loss key employees to the internet companies due to attractive packages. It may cause brain-drainage to the company. Li & Fung always pay careful attention to the external factors. It realizes the internet is a disruptive phenomenon to its business model.
It used a 3 year planning approach to identify the gap between existing business and the new technology.It invested intensive resource to the IT system (i. e. intranet & extranet) to avoid being disintermediate. However, there was issue in Li & Fung’s B2B portal’s strategy.
Li & Fung was lack of initial knowledge on developing an e-Commerce B2B profile. It lacked of qualified personal and subject matter experts for the implementation. The B2B portal strategy and research was done poorly. The initial plan of developing the portal was based on Li & Fung’s “old-economy” model and it is not in touch with the SMEs’ actual requirements.This may lead to the malfunction of the SMEs portal business model. Recommendation: Li & Fung’s core competence is its long-history of sourcing experience.
Customers and suppliers used to have personal feeling with Li & Fung, which cannot be replace by the internet easily. According to the “20/80” rule-of-thumb”, 80% of revenue comes from 20% of major clients. Not only opening up a new and inexperience market, but Li & Fung should also use the disruptive internet technology to enhance the key clients’ experiences. It is easier to make sales with existing client rather than new clients.If the new market fails, Li & Fung could still have the key client as the backup. Its ability to find the most appropriate combination of suppliers and then exert its influence on factory owners, reserving production capacity and assuring output quality is largely independent of the information technology.
Li & Fung believes in “Bubble-in” strategy. It means create value internally instead of outsourcing the core-component. Therefore, the IT strategy can be focusing on improving internal operation to boost its productivity rather than seek business from the unfamiliar SMEs segment.It should implement its internet strategy align with its “old-economy” model to avoid the risk of moving away from its core-business It has large bargain power against its suppliers. Li & Fung should develop an internet strategy that include the suppliers in their existing business model – allow the suppliers exchange information with Li & Fung through a portal, so that Li & Fung can reduce the turn around time with clients’ requests. It should use IT as to enhance the leadership in total-supply chain solution, rather than compete with the other e-Commerce company.
