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Fung, which is a long-standing Hong Kong based company, has evolved from an export trading company to a coordinator of value-added services across the whole supply chain in a global, open manufacturing circumstance. Its corporate culture has enabled it to keep pace with the current trend of global business. The successful acquisitions and the venture capital make the company grows stably and rapidly. However, the company now faces some challenges coming from Asian financial environment and related policies.

High sensitive of the change in macro environment is essential for the company to success. At the same time, keeping Asia in an important position could take long time competitive advantages. Finally, the update of information and technology may bring more efficiency and effective within the organization. Introduction Li & Fung was the first export company that solely funded by Chinese capital in Chinese trade history. Fung Yiu-hing and Li To-ming founded it in 1906 in Guangzhou, China. The firm grew to be a limited company in Hong Kong on December 28, 1937.

The company expanded quickly to globalize by the leading of the second generation from the Fung family. The high-speed growth of Li & Fung Limited started when the third generation of Fung’s family took over the organization. The core parts of the company’s business are foreign trade, logistic, distribution and retail. Victor and William tried to restructure the company, use the modem human resource management, and utilized professional management skills to control the company without eliminating the Chinese style management.

Li & Fung Limited made use of acquisition to take over the competitors and expanded their suppliers and clients all over the world. The most famous and successful one is the acquisition of Inchcape Buying Services (IBS), which helped Li & Fung Limited to open the European market. At the same time, the brothers establish a venture capital corporation to accompany the suppliers and stable its supply chain. According to one anonymous (1999), Li & Fung is the world’s largest trade sourcing company and it pioneers a new model for multinationals.

By now, William and Victor want to expand the company from Asia based company into a region closer to their target market. With the new trend of the global economy, Li & Fung Limited will encounter more challenges and find a way out of a difficulty. Since its foundation, the company has establishes a culture that incorporates pragmatism and innovation. According to Msmith (2008), the progressive corporate culture, which blends traditional pragmatic reasoning with entrepreneurial innovation, has enabled adaptability and growth in a dynamic market.

Additionally, it combines the Chinese business culture (“Chineseness”) with the foreign operations. Not only is it expects loyalty and reward diligent, but it also has a reasonable and transparent bonus system, where bonuses were based solely on profit performance. Generally, the company is employee-concerned, where the workers and managers are treated as family. As is the vision of the corporation, they strive to use resources efficiently; to add business value for our customers and their suppliers; to focus on the health and wellbeing of our colleagues; and to positively impact our communities and societies (2013).

Analysis of Li & Fung Li & Fung’s outsourcing matrix suits particularly well to its global position and activity: To begin with, outsourcing teams are firstly divided into two main product categories: soft and hard goods. Since they “specialized” in a certain kind of good, they develop a certain expertise, which is an asset in their discussions with external agents. Besides, inside each category, the teams are divided depending on their geographical market. This organization displays an advantage in satisfying specific local needs.

Furthermore, connection and communication is established and fostered between the divisions, which know exactly whom to contact for each particular issue. Finally, Li & Fung is able to efficiently master the “4Cs” (connections, communications, control of quality, and consolidation of shipments), and obtain a competitive advantage because of their organizational chart. In terms of Li & Fung’s business model, it is “a virtual factory” or “private label manufacturing program”. This means that it specializes in providing product itself, not brand or promotion.

Although there is big scale merit in production of textile industry, it is difficult that each company has a big factory as there are lots of competitors and fashion of the clothes are always changing, as is thought by Swan (2008). As to company which has a talent of designing or marketing, it is better not to have its manufacturing and outsourcing. Maybe this is why Li & Fung is always required from many customers. Also, Li & Fung has developed the relationship through its network so that it can get such soft goods as textiles at high speed and excellent quality with the lowest cost.

Successful acquisition Li & Fung’s mergers have been the main way of expending their business. Among all the mergers, the biggest merger during 1994 to 1997, which is acquiring IBS, is the most successful and famous one even in the global range. The main reason why Li & Fung can get so many benefits from merger is based on the following reasons. The first reason is that, Li & Fung knows which company to merge. When Li & Fung choose companies, they will look for what the company is having at that time, the sourcing, the customers and the employees.

In this way, Li & Fung can complement the blank its current business. For example, although the margin of IBS was only 0. 8% and the combined average was 2. 2%, the sourcing supplement brought by IBS has make up the blank of Li & Fung’s South Asia, Europe, the Mediterranean and Latin America. The second reason is that Li & Fung knows how to merge. At that time Li & Fung is the largest world’s supplier of retailers and IBS was the second largest. So the merge was very difficult and was treat as an elephant eat elephant merger.

Especially for the huge difference between the two companies, Li & Fung was a U. S. – style Chinese-family business, While IBS was a British company. There would be a lot of unaccustomed and conflicts as expected. So Li & Fung created a transition team to review organizational processes and implement a unit-by-unit transition. Instead of doing the transition after the merger, Li & Fung did it ahead of the merger, in order of saving accustoming time. When the scale of the company increases, the operational mode of the company has to keep changing as well.

After the merger, Li & Fung’s scale is twice as big. Li & Fung changed its mode into a more efficient and suitable one. It assigned managers to customer groups and not countries. This has made the management to be more professional and make the production more efficient. The merger has made the sourcing matrix of Li & Fung more mature. The margin of Li & Fung was higher than those of other companies due to their regionally coordinated sourcing services. Small Venture Capital Arm In 1986, Li & Fung established a small venture capital group in order to improve and perfect the whole supply chain.

LFI invested in companies, which could assist the Li & Fung’s sourcing services. Magretta (1998) indicates that Victor said “A big piece of our corporate development is plugging those holes-the phrase we use is “filling in the mosaic” – and we use venture capital to do it. ” LFI pay the same attention on the companies’ management system as the product when they were choosing the company to invest. Biers (2000) said, “Its venture activity has remained modest by industry standards, with just two or three new investments a year, each typically of just a few million dollars or less. The CEO of LFI mentioned that they only invested in companies that had at least $3 million profit, lack of resource and kept the control of the company. At the same time, they were looking for the young and creative companies that owned by people with design and marketing talent. The most successful capital injection is the investment to a promotional company; Cyrk Inc. LFI spent $200,000 in order to take 30% shares in Cyrk Inc. during 1990. At the very start, Cyrk Inc. provided service of T-shirt print.

Three year after the capital injection, the sales volume raised 20 times more than before through capitalized on its logo and promotional design capabilities. In this case, they made contract with Philip Morris to produce a full line of promotional clothing. Five years later, LFI sold their shares of Cyrk Inc. for about $65 million. After spending a great deal of investment in America, LFI transferred their sight to the European market. As a result of diverse culture and language, it was more difficult to invest in several companies to cover the whole European market.

The complex situation required the managers in European have more experience and different strategies for different countries. During the process of helping these companies, they gain experience about the selection of the collaborate companies and create more opportunities to broaden their business fields. At the same time, Li & Fung can gain high reputations among the growing companies, because the goal of the LFI is not acquire these companies. In this case, these companies could unconstrained develop themselves. And Li & Fung could not only maintain the good relationship with both potential partners and current partners.

Challenges & Recommendations For Li & Fung, although it is already the largest export company in the world, it is still facing a lot of challenges. According to the trend of international Economics, Asian Financial Crisis will be gone. By then, the labor cost of Li & Fung will not be as low as now. So margin will be lower in the coming future. But even if the Asian market has recovered, its labor cost is still lower than other countries; also the gap between the wealthy and poor is huge. Most of people are living under average level, which will bring a low cost of labor.

Also Asian has a large population, which will involve a large number of rich people, whose price sensitivity is low and needs are high. They can purchase the products, which have been produced in Asian. So Li & Fung could give more attention to Asian Market, instead of giving it up. Policies of trade protection, which have been published by governments in different countries, will also be a huge challenge to Li & Fung. Under this circumstance, all that Li & Fung can do is to prevent before it or actively adjust after the coming of policies.

Li & Fung should do market research and macroeconomics analysis regularly in order to choose the very best sourcing places. Also, it ought to try to find outstanding suppliers in different economic regions and different fields, so that the risk will be shared. Thereby, Li & Fung should closely monitor the changes of economics and adjust it in time. With the development of technology, information system is playing an important role in supply chain management. In this case, Li & Fung could establish a proprietary information network that enabled clients to view the status of an order.

This will improve their customer relationship management. At the same time, they could set up a powerful database to do data mining, which could collect the data of suppliers and consumers, in order to calculate the shortest time and distance and lowest cost in operation. Also they can collect the data of customers, so that they can know better of market needs and offer better service. Overall, for Li & Fung, challenges and chances are coexisting. If it could continue to reflect, to improve, it would keep up with the trend of world economics and update information and technology timely.

References 1. Biers, D. (2000). Thinking small. Far Eastern Economic Review, 163(46), 48-48. Retrieved from http://search. proquest. com/docview/208225120? accountid=9744 2. Li & fung pioneers a new model for multinationals. (1999). Strategic Direction, 15(6), 24-25. Retrieved from http://search. proquest. com/docview/218626878? accountid=9744 3. Li & Fung: Beyond “Filling in the Mosaic”, 1998-1998(HBS Case 9-398-092). 4. Magretta, J. (1998), Fast, global, and entrepreneurial: Supply chain management, hong kong style: An interview with victor fung.

Harvard Business Review, 76(5), 102-114. Retrieved from http://search. proquest. com/docview/227758445? accountid=9744 5. Mismith068 (2008, 12). Li and Fung Case Analysis. StudyMode. com. Retrieved 12, 2008, from http://www. studymode. com/essays/Li-Fung-Case-Analysis-185365. html 6. Swan (2008, 9). Agri-Future; trendspotting & future thinking. Retrieved 9, 2008, from http://swan-futurethinking. blogspot. ca/2008_09_01_archive. html 7. Sustainability (2013, 3). Retrieved March 14, 2013 from http://www. lifung. com/eng/csr/csr1. php

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