The Secrets of Li & Fung Limited

The Secrets of Li & Fung Limited

Created by: Shannon Campbell

December 13, 2012

What is the secret of Li and Fung’s success?  How do they operate?  How have they grown? What do apparel companies get out of working with Li and Fung? Why don’t companies just do it themselves? What are some future areas of development? How can we compete with Li & Fung?

What is the secret of Li and Fung’s success?  The beginning of Li and Fung’s success begins right at their roots in Guangzhou China in 1906. A few decades later, in 1937, they moved their headquarters to Hong Kong. When the Chinese were overtaken by the Communists in 1949, Li & Fung began working with Chinese emigrants who had previously declared Hong Kong as their home for their businesses. They then began to work with these companies, which ultimately transformed Li & Fung’s business into a garment trading company from its previous beginnings as a silk and porcelain trading company. In the 1970’s, Victor and William Fung began to re-design their families’ business through three phases. The first phase turned Li & Fung into a regional sourcing agent in Asian countries. The second phase included Li & Fung beginning to work with clients on their entire production plan. They then completed it’s third phase in the 1990’s. The third phase is one of the most important in that Li & Fung really focused onto increasing the efficiency on each level and portion of their supply-chain. This including everything from the dyeing of the yarn to what the final product was going to sell for. Ultimately, this is the secret of Li & Fung’s business success…adapting to their times and the demand for what business both needs and wants.

How do they operate?  Li & Fung focuses on three main networks; trading, logistics, and distribution. According to their website,(http://www.lifung.com/eng/business/) these three networks are vital to Li & Fung and their client’s overall success. Through trading, they have earned a growing network of over 15,000 suppliers in more than 40 economies, thus fulfilling 7,700 customers worldwide. Through logistics, the company offers a variety of services, with everything from warehousing to consolidation. And lastly, through distribution, it’s newest network created in 2005, Li & Fung has worked closely with a variety of brands and retailers to help in all aspects of the supply chain.

How have they grown? Li & Fung has grown to 26,000 staff members across 40 countries. Along with manufacturing and production, they also provide design, quality control, marketing, and distribution. In the 2000s’, Li & Fung expanded from strictly soft goods into health and beauty cosmetics, and then eventually spread into the high-end market in the 2000’s as well. This success in growth has two main branches, with one including their workers, and the other with Li & Fung’s response to demand.

Using acquisitions, Li & Fung has expanding its network of buying offices by paying for only a portion of the balance upfront, with the remaining payment spread over the next 3-5 years. The remaining payment would only be paid if the product reached a certain target for those remaining years. Ultimately, it created incentives for success for the management team. Their incentive programs for management is absolutely phenomenal, with out having any cap on what a manager can receive for a bonus. Managers can typically hire their own staff, and have a great sense of autonomy when it comes to their sector of Li & Fung. This helps their team grow, especially those in higher management positions.

Besides management, Li & Fung focuses on the need for their business as soon as it arises. For example, Turkey became a hotspot for many retailers that wanted cheap production costs and a shorter and closer geographical proximity (speaking more in the defense of European countries). Li & Fung saw this trend, and knew that the customers would prefer Turkey rather than Hong Kong because of the turnaround time when their products were being air frightened. Thus, Li & Fung opened a buying office in Turkey. Ironically, by 2008, Li & Fung became the largest exporter of garments from Turkey.

What do apparel companies get out of working with Li and Fung? Li & Fung’s “Filling the mosaic” campaign also works in already successful companies with their services. This for example, could help successful design and marketing firms, fill in the holes with their sourcing network. Because they offer all ends of the product development spectrum, businesses can pick and choose what they need help with through Li & Fung.

Why don’t companies just do it themselves? Many companies do not have all of the aspects they need in order to be fully successful. For example, a company could have the most leading and creative designers in the world, but this does not mean these designers have the business skills to source the fabric or notions for their designs, or know where to produce their creations. Thus, Li & Fung takes care of the missing gaps that some companies may have when creating, producing, manufacturing, or selling their product. It is not to say that all companies need a company like Li & Fung to help, but it does make things easier and more productive when there are fully trained professionals to help your company make sure that their products reach their full potential.

What future areas of development do we see for Li and Fung?

Although Li & Fung has dominated many markets and sectors throughout the world, the problem of recruiting foreign markets is and will always be a problem for any company. I see Li & Fung continuing their research in how to integrate themselves successfully into these new markets. Sustainability is also key, in which every company is focusing on in the next few years. According to their website’s page on sustainability, (http://www.lifung.com/eng/csr/csr1.php), they began their sustainability strategies in 2009,

“…Which engages our employees, customers, suppliers, industry partners and communities to address our common environmental and social challenges. These challenges include: the risks posed by climate change and resource scarcity on the environmental side; and on the social side, our aspiration to support and catalyze economic development and social progress in the areas in which we operate.”

It is a fairly new mission for Li & Fung, and I see it developing dramatically to keep up with international trade in the next few decades.

I also think Li & Fung will be indulging more into social media and pop culture to market their company’s products more effectively. Although they did do celebrity endorsements for Oxford industries acquisitions, it is always a good approach, for any company, to market their products using well-known names.

If you were a competitor of Li and Fung’s, what might be a good strategy to keep from being crushed by them?

If I were a competitor of Li & Fung, I would focus on building a company with less entrepreneurial spirit than Li & Fung. Many business executives indulge in competition, and although Li & Fung offers incentives, its incentives that anyone can achieve. The “power” complex lets many individuals work well to the best of their ability, and pushes their team further if it depends on their reputation. However, the strategy Li & Fung does take in their business works for them, and it proves to be successful in their situation. Depending on your business structure, sometimes Li & Fung’s approach works, and sometimes it does not.

However, I would focus on Li & Fung’s business structure in other aspects to prevent my business from being crushed (do what they do, bust better). I would do heavy research on new markets, adapt to my market’s surroundings, but I would also expand at a quicker rate to try to outrun Li & Fung (perhaps expand more heavily into Europe and the United States).