Li & Fung: Internet Issues

Presented by

Tara Bellomy

Jeff Bookout

Jerry Harrison

Jeremy Schopper

Travis Tucker

Lesley Wilkerson

Jim Yancey

Li & Fung Outline

I. Overview of Company Jeff Bookout

II. Problem Identification Jeff Bookout

III. Business Model Jerry Harrison

IV. S.W.O.T. Analysis

Strengths Jeremy Schopper

Weaknesses Lesley Wilkerson

Opportunities Jim Yancey

Threats Jim Yancey

V. Strategic positioning Travis Tucker

VI. Alternatives & Recommendations Tara Bellomy

VII. Discussion and Questions ALL

Li & Fung Overview

LI & Fung Export Trading Company Li & Fung founded in 1906 by Fung Pak-Liu and Li Toming

in Guangzhou, China From 1920-1930 Diversified into Manufacturing and

Warehousing By 1974, owned and operated by the Fung brothers In the 1980’s expanded operations throughout the Asia-

Pacific

Li & Fung Overview

By 1995 they expanded to offices around the globe Acquisition strategy Li & Fung evolved into a large global supply chain In 1995 Li & Fung launched an intranet to link corporate

offices In 1997 Li & Fung launched secure extranet’s Redefining the business strategy Targeting Small to Medium-sized Enterprises

Problem Identification

Li & Fung needed to expand their supply chain management component of their business to on-line to expand their market base.

Business Model

What is the Business Model? Li & Fung will provide supply chain management

services that will determine what supplier in which country will best maximize it’s clients quality and time expectations at the lowest cost possible.

Business Model

Source: A pplegate, L ynda M ., Robert D . A ustin, and F . W arren M cFarlan., Corporate I nformation Strategy and M anagement. B urr R idge, I L : M cGraw-H ill/I rwin, 2002.

C omponents of a B usiness M odel

I ntroduction F igure I -3

Business Model

Concept: Li and Fung was to provide an online service that

would streamline the supply chain management process for their established clients and at the same time open an opportunity to enter into a new market that was previously too costly to enter, the SME (Small & Mid-Sized Enterprise) market.

Business Model

Capabilities: (1) Well-educated management team (2) Well-established offline company (3) Owner financing (4) Vast sourcing and networking abilities (5) Economies of scales

Business Model

Value: (1) Shorter ordering times (2) Reduced inventory cost (3) Quality assurance (4) Virtual manufacturing/more product design

services (5)Up-to-date fashion and market trend information

S.W.O.T. Analysis

STRENGTHS Established name and branding Integrated with client base Decentralized management Work in both hard and soft markets Internal capital Management is well educated and informed

S.W.O.T. Analysis

STRENGTHS Acquisition strategy (bought suppliers and

competitors) Flexible and interactive design process No inventory to Manage

S.W.O.T. Analysis

WEAKNESSES The initial lack of knowledge of developing an e-

commerce B2B profile. The initial lack of qualified personnel to implement

such a large undertaking. Did not know if a B2B portal would be beneficial

to the company because, in the beginning, market research had not been done on the Small & Medium-size Enterprise (SME) target markets.

S.W.O.T. Analysis

OPPORTUNITIES The internet allowed for a better/faster way to

incorporate a more streamlined supply chain management system

Allow the customer to be able to be an intricate part of the design process up to the point of product manufacture

Allow SMEs to participate in the mainline of product procurement while enjoying a smaller commission rate

Could establish a business plan to develop markets in which over stock products could be sold (Electronic Stock Offer - eSO)

S.W.O.T. Analysis

THREATS

Phasing the “middle man” out of the trading scheme Possible loss of key employees to other Internet companies through the promise

of greater wage compensation. Fear that an online company would acquire or partner with an old economy

trading company, becoming an overnight competitor. If the technology was outsourced, then the company could become dependent

on that outside company for their IT needs especially when an upgrade was needed

The possibility of outside companies being able to access proprietary information, strategy, or the complete Li & Fung business model

Expanding the business into a new area that had not been tested opening the company to a possible venture failure that not only could tarnish the companies name to some degree, but also loose their investors startup capital

The new e-commerce endeavor made some of their larger customers nervous in that they were afraid that Li & Fung would be compromising their business by working with their direct competitors.

Top Management’sStrategic Positioning

Market/Channel- customers to serve, needs expectations to be met, and the channels to be served

Product- choice of products and services to offer, the features of those offerings, and price charged

Value Chain/Value network- activities it performs within an extended network of suppliers, producers, distributors, and partners

Boundary- determines markets, products, and businesses not to pursue

Competitive AnalysisPorter’s Five Forces

Traditional Rivalry- most rivalry’s of Li & Fung have been acquired

Bargaining power of Suppliers- sold raw materials to suppliers at premium

Bargaining Power of Buyers- Efficient and considered high value

Threat of Entry- low threat of entry Threat of Substitute Products- possibilities of threat

in this area

Sustainable competitive Advantage

Sustainable advantage occurs when barriers exist that make it difficult for competitors to imitate and/or customers to switch

Acquired most competitors

Sophisticated IT infrastructure

Target hard to serve customer segment

Competitive Advantage

Customer base of traditional company Value created with IT infrastructure Controlling of the supply chain Captured smaller business segment with

startup “lifung.com”

Alternative Solutions

Go online….or not? Pros- not going online would eliminate need for

training and extra capitol. Cons- not going online would leave the company

vulnerable to threats from competitors who could steal management talent through influx of new money.

Alternative Solutions

Only target one type of customer. Pros- targeting only large companies or SMEs

would lead to servicing similar customers with common needs.

Cons- Li and Fung would lose any would be profit produced from servicing only one type of business.

Alternative Solutions

Ask large suppliers to invest in the new online venture. Pros- not all of the success or failure of the new

web portal would be the result of Li and Fung’s efforts.

Cons- Li and Fung would lose some control over internet management and design.

Alternative Solutions

Do not keep tabs on manufacturing electronically. Pros- customers and suppliers would still have

that personal feel that Li and Fung is known for. Cons- no information could be viewed in real time. Management would have to make time to visit

with suppliers and customers.

Recommendations

Li and Fung should embark on the web portal design and incorporate it into their brick and mortar business.

Go with the original plan- service both large buyers as well as SMEs.

Don’t ask suppliers for investment capitol, use stock purchase for capitol.

Keep tabs on suppliers electronically, in person, and by phone or fax.

Group Questions

What advice would you give Li and Fung’s management to aid them in producing their new web portal?

What is Li and Fung’s most detrimental weakness in building their online business?

What is Li and Fung’s greatest strength?

Questions and Discussion