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Case Analysis Li Fung

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Case Analysis Li Fung

University of the Philippines Visayas

College of Management[pic 2]

Li & Fung: Global Value Chain Configurator

(A Case Study)

In Partial Fulfillment of the Requirements in Mgt. 190: Strategic Management

Submitted to:

Prof. Evelyn Belleza

Submitted by:

Lovely De la Torre


STATEMENT OF THE PROBLEM

How could Li & Fung increase sales thereby increasing the annual growth rate of its revenues?

POINT OF VIEW

The case study is done through the point of view of Victor Fung, the Group Non-Executive Chairman and William Fung, the Group Managing Director of Li & Fung.

TIME PERIOD

        2005

OBJECTIVES

  • To speed up revenues and net profit growth
  • To expand market and geographic reach
  • To reduce over dependence on US market and open up revenue opportunities
  • To maintain its position as a premier global trading company

AREAS OF CONSIDERATION

  1. Background

  1. (History)

Li & Fung was founded in 1906 by Fung Pak-Liu and Li To-ming making it the oldest trading company in Hong Kong. They began exporting porcelain and silk and later added up bamboo, jade, ivory, rattan, ware, fireworks, and handicrafts. In 1990s, language barrier between Chinese and U.S. buyers led them to be the top trading company as mediators are essential.

However, they ceased trading for some years due to the disruption of World War II during the early 1940s. Pak-Liu’s son Fung Hon-chu restarted trading operations in 1949 which had come under British control. Trading business was at its peak during the mid 1900s transforming China into a manufacturing economy. Li & Fung began exporting garments, electronics, plastic flowers and toys and was soon Hong Kong’s biggest exporter.

In early 1970s, trading business began to struggle because of stiff competition from other manufacturing economies in Asia. Trading margin went down by 3%. Hon-chu called his sons William and Victor who are both from Harvard. They modernized and rebuilt Li & Fung into a well-structured organization. With the opening up of Chinese economy in 1979 brought about the relocation of manufacturing factories from Hong Kong to Southern China, and the industrialization of underdeveloped Asian countries. The company then established a regional network of sourcing offices in Asian countries.

In 1989, trading margins decreased further, thus Li & Fung made the company private again and restructured into a diversified group with export trading and retail as its core businesses. It continued to expand its business and established sourcing offices across the world.

By the 20th century, it was a premier global trading company with its revenues coming from North America, Europe, East Asia and the South Hemisphere. Export trading remained its major business but was also involved in retailing and distribution, venture capital, investment holding, and property investments.

  1. Li & Fung’s Major Subsidiaries and Associated Companies

Held Directly

Place of Incorporation and Operation

Issued and Fully Paid Share Capital

Principal Activities

Li & Fung (B.V.I.)Limited

British Virgin Islands

US$400,010

Marketing services and investment holding

Basic & More fashion Limited

Hong Kong

HK$1,000,000

Export trading

Black cat Fireworks Limited

England

GBP1,200,000

Wholesaling

Cumberley Enterprises Limited

Hong Kong

HK$250,000

Apparel exporting

Civati Limited

Hong Kong

US$450,000

Export trading

Colby International Limited

Hong Kong

HK$1,500,000

Exporting of garments and sundry goods

Colby Tekstil ve Dis Tiearet Limited Sirketi

Turkey

TL50,000,000,000

Export trading

CS International Limited

Hong Kong

HK$1,000,000

Provision of export assistance service

Dodwell (Mauritius) Limited

Hong Kong

HK$500,000

Export trading

Golden Gate Fireworks Inc.

U.S.A.

US$600,000

Commission agent and investment holding

GSCM (HK) Limited

Hong Kong

HK$140,000

Export trading

Hillung Enterprises Limited

Hong Kong

HK$300,000

Export trading

International Sourcing Group, LLC

U.S.A

US$300,000

Trading of apparel

Janco Overseas Limited

Hong Kong

HK$760,000

Buying agent

Kariya Industries Limited

Hong Kong

HK$1,000,000

Manufacturing and trading

LF Maclaine (Thailand) Limited

Thailand

Baht4,000,000

Export trading

Li & Fung Agencia De Compras em Portugal, Limitado

Portugal

PTE20,000,000

Export trading

Li & Fung (Exports) Limited

Hong Kong

HK$8,610,000

Export trading

Li & Fung (Fashion Accessories) limited

Hong Kong

HK$600,000

Export trading

Li & Fung (India)

India

Rupees64,000,200

Export trading

Li & Fung (Italia)

Italy

Lire90,000,000

Export trading

Li & Fung (Korea) Limited

Korea

Won200,000,000

Export trading

Li & Fung (Korea) Limited

Mauritius

Rupees1,250,000

Export trading

Li & Fung Mumes sillik, Pazarlama Limited

Turkey

TL25,000,000,000

Export trading

Li & Fung (Philippines) Inc.

The Philippines

Peso500,000

Export trading

Li & Fung (Properties) Limited

Hong Kong

HK$1,000,000

Property investment

Li & Fung Taiwan Holdings Limited

Taiwan

NT$287,996,000

Investment holding

Li & Fung Taiwan Investments Limited

British Virgin Islands

US$4,912,180

Investment holding

Li & fug (Taiwan) Limited

Taiwan

NT$63,000,000

Export trading

Li & Fung (Thailand) Limited

Thailand

Baht6,000,000

Export trading

Li & Fung (Trading) Limited

Hong Kong

HK$10,000,200

Export trading and investment holding

Li & Fung Trading (Shanghai) Limited

The People’s Republic of China

RMB50,000,000

Export trading

Li & Fung (Zhamiang) Limited

The People’s Republic of China

US$1,999,055

Packaging

Lloyd Textile Trading Limited

Hong Kong

HK$1,000,000

Export trading

Maclaim Limited

Hong Kong

HK$5,570,150

Export trading

Perfect Trading Inc.

Egypt

LE2,480,000

Export trading

Shin Fung Fireworks Company Limited

Hong Kong

HK$1,200,000

Export trading

The Millwork Trading Co., Ltd.

U.S.A.

US$1,331,000

Distribution and wholesaling

Toy Island Manufacturing Company Limited

Hong Kong

HK$62,000,000

Design and marketing

Verity Enterprises Limited

Hong Kong

HK$2,000,000

Export trading

WS Trading Limited

Hong Kong

HK$1,000,000

Export trading

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