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1 Global Sourcing. 2 Outline  Li & Fung 3 Li & Fung.

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Presentation on theme: "1 Global Sourcing. 2 Outline  Li & Fung 3 Li & Fung."— Presentation transcript:

1 1 Global Sourcing

2 2 Outline  Li & Fung

3 3 Li & Fung

4 4 What Do You Think?  What is the probability for the life of a company over 100 years?  Would a tenured professor in Harvard Business School come back to help his sunset family business?

5 5 What Do You Think?  What is the main business of a US$-14 b company, semi-conductor or apparel?  What is the profit margin of a semi-conductor manufacturer? An electronics manufacturer? An apparel trader?  What is the rate of return of a semi-conductor manufacturer? An electronics manufacturer? An apparel trader?

6 6 What Do You Think?  How many employers are there for a semi- conductor manufacturer? An electronics manufacturer? An apparel trader?

7 7 A Company to Survive 100 Years  four-full-page advertisement by IBM for her 100 th birthday four-full-page advertisement by IBM for her 100 th birthday  “  “Nearly all the companies our grandparents admired have disappeared. Of the top 25 industrial corporations in the United States in 1900, only two remained on that list at the start of the 1960s. And of the top 25 companies on the Fortune 500 in 1961, only six remain there today...”

8 8 Dropping the Professorship of Harvard Business School for a Sunset Business  trading firm as a sunset business in Hong Kong  yes, the third generation leaders of Li & Fung did so  1972: the younger brother, William Fung, came back after an MBA from HBS  1974: the elder brother, Victor Fung, came back after being a tenured associate professor from HBS (29 then, a PhD from HBS at 25 years old)

9 9 Main Business of US$14 B Companies  What is the main business of a US$-14 b company, semi-conductor or apparel? semi-conductorapparelsemi-conductorapparel

10 10 Three Companies from 2002 to 2006 ROE for share holders Profit Margin 19.4%27.2%30.7% 29.7%6.7%3.1% TSMCFoxconnLi & Fung

11 11 Snapshots of Companies Financial Performance (2010) Number of Employees Li & FungFoxconnTSMC # of Employees 27,000 (2011) 920,000 (2010) 30,000 (2010) Li & FungFoxconn(2011)TSMC revenue net profit totalassets HK$ bUS$ bUS$13.98 b (2010) HK$4.28 bUS$2.77 bUS$ 5.55 b (2010) HK$ bUS$57.16 bUS$20.43 b (2009)

12 12 How to Compare These Companies  Li & Fung  a trading firm without any factory  2 million working for her (orders)

13 13 Li & Fung Li & Fung  1906: founding Li & Fung by Fung Pak-liu ( 馮柏燎 ) and Li To-ming ( 李道明 )  1906: founding Li & Fung by Fung Pak-liu ( 馮柏燎 ) and Li To-ming ( 李道明 ) for trading jade, porcelain, and fire-crackers  1931: crippling of the company by nephew  1938: moving the headquarter to Hong Kong as Canton occupied by Japan  1946: death of founder Fung; controlling of the company by Fung Hon-chu ( 馮漢柱 ); breaking up with founder Li  1949: turning the company to export goods from Hong Kong  1988: management buyout by two Fung brothers from family members  1995: buying competitor Inchcape Buying Services  1995: buying competitor Inchcape Buying Services ( 英之傑, HK$450 m)  2000: buying competitor Colby (HK$ 2.2 b)  2007: annual revenue over US$10 b  35 acquisitions and mergers in 1993 to 2008

14 14 Global Supply Chain Management  customers of LI & Fung: large retailers  role of Li & Fung: co-ordinate suppliers, manufacturers, logistics surface providers of the supply chain to fulfill customer orders

15 15 The Gymboree Corporation The Gymboree Corporation  retail chain of nearly a thousand stores for children's apparel and 500 stores for music toys in north America and Mexico  sourcing team  headquarter: Hong Kong, with teams also in Philippines, Indonesia, and China  members: more than 200  sourcing factories: 150 factors in 12 countries  the whole set up being employees of Li & Fung

16 16 The Gymboree Corporation The Gymboree Corporation  an idea by Gymboree to launch a brand for babies and toddlers  Li & Fung identified and sourced  20 factories with the skill set (e.g., 14 stitches per inch) and production volume (e.g., small volume of 300 to 500 units per style)  material: fine linens, cashmere, etc.  non-garment products such as watches, etc.

17 17 Capturing the Soft $3

18 18 Capturing the Soft $3  hard to squeeze the $1 from manufacturing  to capture the soft $3  consolidation and flawless execution  e.g., moving from Free on Board to Landed Duty Paid  improvement in coordination to minimize markdowns  requiring real-time sales information and quick response in production  creative reengineering of the chain

19 19 The 30/70 Rule to Form a Loose-Tight Organization  too loose relationship: weak in control, commitment, and communication  too tight relationship: loss of flexibility and of desire to learn, and heavy responsibility  30/70 principle: taking 30% to 70% of the capacity of a contract manufacturer

20 20 “Little John Waynes”: A Big-Small Company  flexibility of small companies and yet still well controlled system  200 Little John Waynes: cost centers which make most decisions themselves but will centralized information, accounting, and personnel, and financial systems  incentive scheme: 30% income fixed and 70% merit based

21 21 From Sourcing Agent to Brand Administrator  provide more branding and designing services  changing from working for brand owners to working as brand owners  acquisition of brand owners  providing all sorts of service for anyone to develop their own brands  retailers  celebrities, such as designer Karl Lagerfeld for H & M, and Martha Stewarts with K-Mart Karl Lagerfeld Martha Stewarts Karl Lagerfeld Martha Stewarts


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