enabling smes and developing economies to plug into...
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2014/SOM2/CTI/DIA3/019
Enabling SMEs and Developing Economies to Plug Into GVCs: Practice and Thoughts
Submitted by: Fung Group
Public-Private Dialogue on Building Asia Pacific Partnership Through Global
Value Chains Collaboration Qingdao, China
12 May 2014
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Gordon Lam 林至颖
•Chief Representative & General Manager - Southern China, Fung Group•Adjunct Professor, China Renmin University Business School•Vice President, Guangdong Society of Commerical Economics•Deputy Secretary-General, Guangdong Society of Logistics & Supply Chain•Ex-Part-time Member of the Central Policy Unit, Government of the Hong Kong, China
May 12, 2014 APEC Public-Private Dialogue, Qingdao, China
Enabling SMEs and Developing Economies to Plug Into GVCs: Practice & Thoughts
The 20th century rise of global supply chains
Source: Fung Global Institute
50s 60s 70s 80s 90s 2000s post→←pre 1940sDrivers of Change
Supply Chain Innovation
◊ Ford’s assembly line
◊ the rise of offshoring & outsourcing
Global Market Development
◊ global financial crisis
◊ Japan reindustrialized◊ US is the world’s largest consumer market
◊ export-driven rise of the four Asian Tigers◊ China joins the WTO
Trade Policy ◊ GATT created◊ Special regimes on textiles and clothing, mid 1950s-2005
◊ WTO created
Transportation & ICT Technology
◊ first smartphones
◊ personal computers◊ commercial fax machines
◊ shipping containers invented◊ commercial air freight
◊ automobiles invented
◊ commercial mobile phones◊ internet commercialized
◊ beginnings of the Toyota Production System
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Over 50% of trade is in intermediate, not final, goods
Source: UN Comtrade, WTO estimates
Intra-regional and major inter-regional imports of intermediate goods, 2008 (in billions of US$)
World non-fuel merchandise exports by typeof good, 1995-2009 (in billions of US$)
Global production sharing is the norm, not the exception
Case Study: A suit made in China and sold in the US
Source: Fung Global Institute Li & Fung case study
5%
4%
4%
1%
86%
Cost Breakdown by Economy Manufacturing Costs and Invisible Assets
Manufacturing
• Services (retail, logistics, banking, etc.)• Intellectual Property• Profits• Other Unknowns
Invisible Assets
9%
91%
USA
CHN
JPN
HKC
KOR
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economies must compete in capturing the value chain
Source: Fung Global Institute, adaptation of the “smiling curve” by Stanley Shih
Production Process
ValueAdded
R&D
design
manufacturing & assembly
parts & components logistics
marketing
customer services
Competitive Advantage
• education/legal institutions• proximity to market • low cost labor • education/legal institutions
• proximity to market
- Source from Asia- Sell to OECD
- Source from Asia- Sell in Asia + OECD
Changing patterns of Supply & Demand
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91%
Paradigm shift since the Financial Crisis
• Multinational Group based in Hong Kong, China• Established in Guangzhou in 1906• 2013 Group Turnover: Over USD 22 Billion• About 300 offices and DCs in more than
40 economies with 41,000 employees and a sourcing network of over 15,000+ suppliers
• Core competence: Supply Chain Management (SCM)• 4 core businesses: Global Sourcing, Logistics, Global Brands Distribution
and Retail• Harvard, Stanford, Wharton and many Chinese universities have
conducted and published multiple academic studies on Li & Fung’s SCM, Value Chain Model and Network Orchestration respectively
The Fung Group
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1906 – 1949A Canton-based China
Trader
1949 – 1979Exporter based in Hong Kong, China
1979 – 1995Emergence of a
Regional Company
1995 – 2006Evolution of a
Multinational Group
2006- TodayA Global Supply Chain
Group
The Fung Group has 108 years of history in GVC
The Fung Group was founded in Guangzhou, China and is now a global trading group of consumer non-durables, based in Hong Kong, China with supply chain management as its core competence.
The Li & Fung Supply Chain
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TRADING
Global and diversified customer base
LOGISTICS
Global and diversified customer base
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DISTRIBUTION
Global and diversified customer base
In contrast to the traditional adversial relationship, modern SCM emphases a close, risk- and profit-sharing relationship with business partners•A collaborative environment that is flexible and adaptable to the changing customer needs•Working with critical entities along the supply chain as a team to eliminate non value-added processes, and leveraging the capabilities of each team member to maximize value•Avoid wasting time in matching the right partners, improve product quality,shorten production lead-time and lower costs•Follow 30/70 Rule• - create loose-tight organizations• - becomes the orchestrator of the entire production process• - share responsibilities with suppliers
Manage a loosely coupled GVC network
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The Network: Universe of Suppliers
Order Fabric Cutting Sewing Packaging Delivery
Network orchestration
Zipper
Shellyarn
Leather
CrystalLining
Design Assembly
Performing ‘production slicing’ to identify the best location/ economy to undertake each stage of process, adding value along the way & integrating the entire supply chain
Dispersed manufacturing / Borderless manufacturing
USA
Austria
Japan
France
China
KoreaIndia
Italy
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$1 $4
ProductDesign
SourcingQuality
Assurance &Vendor
Compliance
Logistics Distribution/Wholesale
Marketing, Information &Management
Orchestrate and discover value along the supply chain
The cost that is spread throughout the distribution channels –the “Soft $3”
Soft $3
Value Added
Value Chain
Innovation
Product design
Product Developm
ent
Parts
Manufacturing
Assembly
Logistics
Marketing
Brands
Smiling curve
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91%
Vendor support services (VSS)
1.Code of Conduct
2.Supplier Guidelines
3.Monitoring Tools
4.Corrective Action
Plan
5.Capacity Building
Program
6.Supplier
Performance Report
Our Commitments for 2013
Shared commitment to sustainability & CSR
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Firms now face risks and uncertainty on a global scale
Source: Fung Global Institute
Natural disruptions• earthquakes• ash clouds• flooding
State• trade policy• regulation• fiscal policy• financial policy
Man-made disruptions• armed conflict
• labor unrest• terrorism
Customer dynamics• local tastes • disposable income levels• attitudes toward social/
environmental impact
Innovation• technology
• organization• business model
Endogenous• commoditisation• compliance/
reputation• inventory• financial
Anticipating the future evolution of supply chains
Source: Fung Global Institute
• A continent of new consumers is shopping the global market• Low wage jobs are leaving China; who will be next?
Shifting patterns of supply and demand
• Shocks are transmitted faster and further than ever before• Policy change and uncertainty has intensified side effectsThe changing nature of risk
• Population and higher incomes strain scarce resources• Social and environmental pressures rearrange priorities
Natural resource and social infrastructure
constraints
• Advances in knowledge and business adaptation sustain growth• Technologies such as cloud-computing, 3D printing, automationContinued innovation
Drivers of change for the 21st century supply chain:
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Gordon Lam 林至颖
•Chief Representative & General Manager - Southern China, Fung Group•Adjunct Professor, China Renmin University Business School•Vice President, Guangdong Society of Commerical Economics•Deputy Secretary-General, Guangdong Society of Logistics & Supply Chain•Ex-Part-time Member of the Central Policy Unit, Government of the Hong Kong, China
May 12, 2014 APEC Public-Private Dialogue, Qingdao, China
Enabling SMEs and Developing Economies to Plug Into GVCs: Practice & Thoughts
END. THANK YOU