li & fung 2006

Li & Fung 2006

What factors contributed to Li & Fung’s success in the past?

• Intense planning & scrutiny of core sourcing business

Two Primary plans

Not owning any piece of the supply chain Acquisition of competitors

1. Cost Savings from the efficiencies 1. Broadened customer base

2. Sophisticated value-added services 2. Better management team3. Enhanced

product Offerings

4. Portfolio balance

Value Equation

V - P

P - C

C

Maximize profitsProfits

Changes that they made to deal with the

sweeping changes in their client industries 1. Expanded its range of product (1937)

2. Offices beyond Hong Kong ( 1979)

3. Family owned business to professionaly managed company

4. Mergers and acquisitions

5. 3- Yr. business planning ( eg cyclical fashion industry)

6. Experience and expertise-dedicated team, just in Time Coordination, timely information (to keep stores “fresh)

7. Including IT ( Customer Centric)

8. Moving up in the value chain

9. Eating into soft $ 3

10. Onshore US supply chain strategy

Business Model

Geographic Markets

• Europe was Fragmented and less homogenous than US.

• European Retailers were not used to sophistication.

• Retailers had own offices, difficult to garner business.

• Multiple agents and supply chains, business was smaller

• Buyers opted to diversify so they had more no of vendors.

Product/Services

• Longer lead time & more labor intensive

• Hard goods Customer price less in comparison to soft goods.

• Garmented industry crowded and less opportunity for growth, whereas it is possible in hard goods.

Issues & Recommendations

• Major Issues

– Overreliance on US Market

– Diversified European Market

– Global Saturation of demand for soft goods

– Unbalanced Portfolio

Value Proposition• Key Parameters for tapping Potential Value

– Reduced Markdown– Quality– Lead time– Optimum Pricing

• Brand Management (Three Pronged Strategy for Value Addition)

• Propel Virtual JIT Coordination Concept

• Customer Centric Focus– IT Advantage– Customized Supply Chain Consulting

Product PortfolioLi & Fung Trading Operating Groups

S.No. Operating Group Region Scope/Channel1 Soft goods / Apparel United States + Non-Europe Brands2 Soft goods / Apparel United States + Non-Europe Specialty Stores3 Soft goods / Apparel United States + Non-Europe Big Box Stores4 Soft goods / Apparel Europe All Retaliers5 Hard goods All Regions Brand/Specialty Stores

Including but not limited to: Big Box StoresAutomobile accessoriesBedding goodsFashion accessoriesFireworksFootwearFurnishingsGiftsHandicraftsHome ProductsKitchenwearPromotion MerchandiseToysStationery / Paper craftsSporting GoodsTravel Goods

7 U.S. Onshore Strategy U.S All Retaliers

Product Focus

• Issues– Global Saturation of demand for Soft Goods

• Focus– Hard goods need to be diffused primarily– Target Large Hard Goods Companies also

• Eg: Nike, Tommy Hilfiger etc..

Geographic Resolution

• Issues– European market is highly fragmented– Outsourcing is not preferred in European markets

• Resolution– Focus on Global Players majorly dealing with markets

like India, China and the like.– Location advantage also inherent in above places

Recommendations

• Go for forward and backward integration.

• Capture markets in growing economies.

• From consumers to industrial products also.

• Start an onshore in Europe taking the learning from the US market.

ComparisonFinancials

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1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005

Year

Per

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Profit/Sales

Growth in sales YOY

Year 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005

Profit %age 3.64 9.02 2.35 2.37 2.8 3.18 3.54 3.44 2.16 2.9 2.84 3.24 3.22

Growth in sales   13.8 50.45 35.78 6.64 7.24 13.86 53.35 31.80 13.17 14.34 10.65 17.9

Thank You!