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Li & Fung Company’s Strategic Management Coursework

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Updated: Jun 11th, 2022

Porter introduced the concept of five forces that seeks to analyse the competition in an industry. The model asserts that there are four forces that have to be assessed to determine the condition of the fifth force. The threat of new entrants shows the possible repercussions of the openness of the industry which is high in the industry. China’s membership in the World Trade Organization opened the doors for local textile manufacturers to export. This event will ensure that textile commodities from China are accorded with protection and charged with low tariff rates. There is a possibility that even small players will venture into textile export because of the low cost in transporting products.

The emergence and threat of substitutes shows the low tendency, but suddenly emerging alternative retail firms. At present, there are no immediate substitutes that can potentially replace textile. But the emergence of new materials will make it hard to control the market. Consumer preference on textile products varies. Hence it is difficult to maintain consistency when it comes to design and materials. Moreover, the emergence of fashion creates several alternatives in the industry. Success in the textile industry is highly dependent on firms’ capacity to adjust. These changes are important considerations in making a move in the industry.

The bargaining power of the consumers determines the capacity of the consumers to purchase the goods and price sensitivity. Clothing is one of the major necessities of individuals. Thus most households allocate a significant portion of their income for such products. Based on simple economic assumptions, an increase in income will improve available resources of households to purchase clothes. Recent trends suggest that there is increase in income in most markets where textile products are available. Price is a fundamental element that ascertains the saleability of a textile product. Pricy textile goods are often left for high end individuals. But there are several textile producers that sell cheap clothes.

The bargaining power of the suppliers shows the capabilities of the supplier to meet the demand of the industry. Textiles are one of the staple industries of China. Its vast natural resources assure sufficient supply of materials for textile manufacturing. The supply is considered as one of the strengths of the industry. Aside from the abundance of supply, most suppliers sell their materials at cheap prices. Suppliers are partly responsible for the low-cost products distributed by textile manufactures based in China. Manpower is also one of the advantages provided by the textile industry. China houses the largest workforce in the world. This means that the quantity of production is assured.

The competition in the textile industry is intense. There are several established firms and small players are also making their presence felt. The huge global textile market presents an opportunity for firms in Hong Kong and China to expand. The reduction in costs to transport and distribute textile commodities even makes the competition stiffer. Moreover, the sufficient supply of textile materials creates more opportunity for expansion. Surviving in the industry is the primary concern of most manufacturers. The changing views of consumers on textile products complicate the already intricate industry. This competition level is expected to intensify as more producers come into the picture.

Li Fung has reinvented the traditional supply chain used by textile manufacturers. Instead of the usual single-location production, Li Fung created the SCM strategy. This technique is used to improve the response of the company in rush bulk orders. In addition, the firm can efficiently respond to sudden increased demand in retail stores. In addition, Li Fung follows a customized supply chain for its various clients. This is done to ensure high quality of finished products and lower cost. Moreover, Li Fung is constantly evaluating other alternative suppliers to boost its network and flexibility in production.

One of the company’s focuses is to connect with its customers. To further emphasize on this strategy Li Fung changed its organizational structure. The previous structure was concerned with the operational activities of Li Fung. Prior to its current structure, Li Fung experienced problems in optimizing areas where its products are highly demanded. The current structure is more concentrated on catering the needs of huge customer and retail clients. This method has allowed Li Fung to determine the exact demand of their consumers. The structure is also efficient because there was clear direction and purpose in each of the divisions created. Li Fung also promoted an entrepreneurial culture to boost consumer interaction.

The advent of the Internet is one of the most important developments in the textile industry. Li Fung considered the availability of technology as critical in improving its processes. The use of telephones and fax machines has enabled Li Fung to improve its internal and external communications. Customers were enabled to track down their orders. In addition, the company is updated with the changes in price movements and sales. Li Fung also engaged in creating customized products for its clients. The Internet served as an avenue for customers to specify textile designs. This enabled the Li Fung business to more consumer guided. The Internet is also used to make orders and product announcements.

There are several expansion methods used by textile manufacturers. The usual strategy involves establishing Li Fung in different global locations. Acquisition of foreign textile companies is a viable alternative. Instead of being predictable in its acquisitions, Li Fung followed an unconventional route. Li Fung decided to acquire an exporter of hard products. The strategy of Li Fung is to control the market controlled by its new property. In addition, buying ventures of Li Fung focused on proximity. The closeness of firms acquired by Li Fung to its production site is an important requirement.

Li Fung recognizes the value provided by globally established brands. These brand names already have a strong following in the market. In addition, being partners with known textile manufacturers is a plus in the revenue of Li Fung. The strategy also shortens the production cycle of the firm. This translates to fewer expenses on overhead and advertising. Li Fung is a major supplier of companies such as Levi Strauss and Official Pillotex. Being identified with these firms is important to the reputation of the firm. Li Fung considers this move as a strategy of improving consumer perception of its products. It also helps in its initiatives to market its products.

Although these strategies define Li Fung’s competitive edge, there are certain trade-offs that need to be explained. In implementing the SCM strategy, there is a possibility that the product quality will be affected. Conventional supply chain systems, however, promote systematic quality assurance procedures. In addition, the consumer-centric organization structure will affect the culture maintained by the firm. This can cause problems in the internal interaction of entities. The massive use of the Internet is a major investment. The cost of penetrating the World Wide Web is high. Finally, focus on establish brands endangers the creativity established by Li Fung.

The global outsourcing initiative of Li Fung is a strategy to limit cost. Labor in Hong Kong is expensive compared with China, Vietnam, India, and the Philippines. These economies also provide a huge quantity of workforce. Li Fung needs to address the rising demand by boosting its production capabilities. Transportation of raw materials and secondary products has also improved significantly. The cost of delivering finished products from its global locations to target markets has decreased. Moreover, Li Fung can gain access to raw materials available in the countries where it operates.

There are several drawbacks associated with outsourcing. The most pressing issue is quality assurance. There are no guarantees that the workers from these countries will be as good as Li Fung’s homegrown personnel. Some of these workers are unskilled hence unfamiliar with the processes of textile manufacturing. Another concern on outsourcing is the integration of Li Fung culture in these locations. Most of these areas have practices that are contrary to Li Fung values. These contradicting beliefs will hinder the goals of Li Fung to create a unified firm. The process of monitoring these outsourcing sites is also tedious. Constant follow-up is needed to ensure that deadlines and production targets are met.

These are important challenges that are being addressed by Li Fung. To ensure the uniformity of products, Li Fung has assigned the manufacturing of products to foreign sites. The Hong Kong office is more concerned with the design and distribution of the textile goods. The bulk of production initiatives are slated in these overseas locations. Li Fung also hired local managers to supervise their foreign subsidiaries. This allows more fluidity in communications and better leadership. The promotion of an entrepreneurial culture is important in making all personnel involved with Li Fung’s success. The presence of these local managers also ensures better supervision of production goals.

In terms of benefits and costs, Li Fung maintains that outsourcing is a positive aspect for the company. The savings gained from such strategy is important for the company. In addition, Li Fung is enabled to expand its supply network. Outsourcing also allows Li Fung to establish its presence in markets where it outsources. Li Fung, however, is faced with some concerns related to its outsourcing strategies. Quality assurance and cultural integration are major issues that need to be addressed. But the current programs and strategies implemented by Li Fung will ensure that the company makes the most out of global outsourcing.

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