Introduction
Asia has been in trials and financial crisis, which has enhanced the formation of a new Asian Corporation. This has been a transformation and good companies that have enabled the region to revitalize, and to become more competitive. (Fang 1999, p 276).
Main Text
Li & Fung 2006. Li means-“profit” and Fung means “Abundance.
Li & Fung Company has been changing dramatically from small scale to large scale, though fundamental philosophy never changed. This has been enhanced by the fundamental strategies and a planning process. The company seemed to be broaden itself as a full service global business in distribution retail and sourcing. The company never owned any supply chain but it ensured optimal pricing structure of each of its global supply chain segment.
Though the company was effective for years at the factory level, the company focused on how to gain efficiency on supply chain between the consumer and the factory. With this, they meant in customs logistics and shipping and still they was kin to maximize profits by innovating more services, apart from to save costs from those efficiencies. They launched an onshore presence in US which granted it greater control of supply chain and because it gave them a chance to partner with its customers thus customized strategies and services. (Penang 2003, p 203)
LI & Fung became more versatile when offering to its customer’s creation of an import market and development of proprietary brands as a result of onshore strategy.
Li & Fung on continued to acquire competitors. In the 1st Hundred years, the company was founded in China and was financed entirely by the Chinese capital and was directly engaging in China exports. At the start, its main trade items were silk and porcelain and later others like jade, fireworks, handicrafts, bamboo and rattan ware were added. Since fireworks held a special place in the company’s history, Victor, Fung Pak-Lik & Li TO-ming the founders of the company ensured that fireworks remained export items despite gaining little revenue. During the World War II, the trading halted, though it had already established itself as a limited company. The World War II, made the trading to stop for some time. (Levy 1949, p 309)
Later the company’s goods for export range expanded as a result of increase of refugees changing the Hong Kong’s economy into a vital manufacturing centre for labour intensive consumer products. The refugees increase was triggered by the rise of communist party in the mainland China in 1949. The included goods were plastic flowers, electronics and toys.
Opening up of the company in China in 1979, enhanced rapid industrialisation of Asia, which was less developed country. The partners invested and got the supplies from the factories in southern China and other Asian regions. They expanded on sourcing side by innovating greater presence in Caribbean and Mediterranean basins as well as in India subcontinent. Art from the sourcing model, they diversified into distribution business by forming a privately held business, Li & Fung (distribution) limited (Li & Fung (Distribution). This acquired marketing services in Asia-pacific region where it provided services in three core businesses. It was then re-organized to integrated Distribution services (IDS) group. (Shenkar 1991, p 137)
The company’s strategy which was disciplined entrepreneurship was shared among many entrepreneurial profit centres which enhanced a centric customer focus. The company was ready to give incentives bonus plans as well as competitive compensation to its staff which reinforced that customer culture. The partners could test business theories and management since the management team could get new strategies and thoughts and come up with a process that made managers accountable for their goals due to the culture of three-year business planning that they had instituted, the institutionalizing the process and creating a core culture of discipline entrepreneurship. Defined goals of the plan were concrete-casted, while with the unmet goals, the process was used to determine the reason of failure.
The Li & Fung had had organized its strategies as three-pronged US strategy. These include:
- Licensing recognized brands, whose focus was to create an already recognized brand by monitoring sourcing product delivery, pricing warehousing, designing products, branding of brands like Disney, Royal among others which gained twice the range compared to when sourcing material to produce similar products.
- Private label- whose focus was to get companies which majored in producing processed products with a peculiar design. This applied to both soft and hard goods.
- Proprietary brands-whose focus was to prepare already recognized brand for a retailer. Establishing this was a very successful strategy for retailers.
The company decided address the issue of being cognizant of it’s over reliance on the US market despite the market being very strong and with encouraging growth with the broad range of customers’ demands, retailers and products. This needed a series of mergers and acquisition to rebalance the portfolio. Bearing this in mind, and with the recent growth, the company was in a state of taking on bigger outsourcing deal. Among which they acquired Karstaal Quelle’s sourcing arm, a deal which brought the company over US $1 billion additional revenues and also sourcing customers that had outsourced to Karstadt Quelle.
The middleman market was very weak, along the world; hence the company had many chances to unite the industry. The company used both small and medium sized sourcing offices with specific peculiar areas e.g. home textile among others. This clearly meant that the company needed hard-goods to enhance its portfolio, despite the fact that these hard goods financially generated less income in the company, their processing was time consuming, labour intensive and customer pricing was lower compared to soft good, they saw a bigger ability to grow in the area as in the garment industry was becoming crowded faster and chances for acquiring sources was hard.
Initially in 1992 after re-listing of the company on Hong Kong stock exchange the hard goods accounted a low percentage (10%) of the total trading business and this raised to 30% total trading revenues by the year 2006. The sources of raw material of the company were Vietnam, whose goods included wood, gardening items, shoes and sea glass, southeast Asia, whose items included furniture and wood products, India and Pakistan gave home textile and a little of handicraft items made of metal(Ghauri 2003, p 415)
China continued to be major supplier of hard-goods since it supplied more than 80%, and were of good quality and of wide varieties. These goods however were produced in various regions of China, where by southern part composed of Hong Kong produced goods with sophisticated design since the factories had the best experience, and accounted for around 60% of the company’s hard goods sourcing within China, and with expensive labour, best value products.
The central part of the China which mainly Shanghai had cheaper labour than the southern region. This region majored with home decorative, ceramics. Glass among others and its coastal area had a port that enhanced convenience in sourcing of hard-goods. With the Northern par of the region constituting of Qingdao the labour and infrastructure were cheaper as compared to southern parts of China, and mainly produced ceramics and glasses among others. Northern China constituted around 10% of the company’s hard goods sourcing within China. The western China which constitutes Chengdu, produced about 5% hard-goods sourcing within China.
After the 1st hundred years of the company meeting its three-year plan, successfully, it was ready to start its next century. However, it had a number of challenges such as unbalanced portfolio, overlying on US market and the high demand of soft goods globally, these challenges brought about issues like, the necessity of new areas of business to enter, and also the need to check the possibility of availability of more supply efficiencies to be analysed to be found.
Conclusion
Li & Fung are typical Chinese business. This is because after setting a three-year plan, the company successfully achieves its goal despite the many challenges. The company enhances its development by creating many links with other countries, trying to combine both soft-goods and hard-goods for maximum profit making and or rather broadening the business model. The partners enhance the growth of the company by also coming up with various strategies to enhance monitoring of management of the company thus leaving few (if any) chances of not achieving its goals.
References
Shenkar (1991). Organization and Management in China, 1979-1990, M.E.Sharpe, United States. Pg 137.
Ghauri P, Jean-Claude, (2003). International Business Negotiations, Atmarald Group, London . Pg 415.
Fang T (1999). Chinese Business Negotiating Style, SAGE, New York. Pg 276.
Levy J, Kuo-Heng, (1949). The Rise of the Modern Chinese Business Class: Two Introduction Essays. New York. pg 309.
Penang K, (2003). Chinese Business in the Making of a Malay State, 1882-1941. Newyork.pg 39.