1. INTERNET ISSUES

2. Company Background  “Li” a homophone for “profit”; “Fung” a homophone for “abundance” in Chinese.  Founded in 1906 by Fung Pak-Liu & Li To-Ming in Guangzhou, China as export trading Co.  1920’s & 1930’s company diversified into warehousing and manufacture of handicrafts  After WWII expanded to include toys, garments, plastic flowers, and electronics.

3. Background Cont.  Fung brothers attended Harvard; William MBA & Phillip Ph.D in economics.  Became public in 1973 and listed on Hong Kong stock exchange  Throughout 1980’s expanded throughout the Asia- pacific region.  Privatized in 1988  After acquisitions expanded to Europe

4. Background Cont.  By 2000 Li & Fung was a $2 Billion global export trading company with 3,600 staff worldwide. 69% of sales in USA & 27% in Europe  Key Customers: the Limited, Gymboree, American Eagle, Warner Bros., A&F, Bed Bath & Beyond and more.  http://www.youtube.com/watch?v=UzwmlbAS8dg

5. Li & Fung Values

6. Holistic Supply Chain Management  More sophisticated than typical Hong Kong import- export trading company  Production process that starts from raw materials all the way through finished product.  48 offices in 32 countries providing value-added services across supply chain in a “borderless” environment

7. HSCM Cont.  Pieces to assemble product coming from various countries  Split large orders between factories/countries only to arrive on shelves as if from one factory. Determined by quotas and labor conditions.  End Result: supply chain customization shortening

8. HSCM Cont.  Li & Fung reduced matching and credit risks while offering quality assurance.  Through this global sourcing network and economies of scale could offer at a cheaper cost as well as more flexibility than its competitors. “Keep the culture so that it remains humble, agile, and responsive all the time and keep the people externally focused”

9. Organic Growth  Adopted a “three year plan” system adopted directly from the economic planning system of the Chinese Communist party. Look ahead but not too far ahead  Targeted at setting goals not focusing on moving goalposts by use of backward planning; identify gaps.

10. E-Commerce  Three year plan include introspective look at “whether we are still relevant, including whether or not we are going to be disintermediated”  Developed initiatives and launched internet link to track shipments in real time and digital imagery for online inspection and troubleshooting.

11. E-Commerce Cont.  Promoted quick response manufacturing with customers continuously changing order along the process  IT Division had 60 people all based in Hong Kong (1995) but intranet and extranet outsourced.  Became aware internet technology enhanced efficiency and improved communication

12. “Bubble In”  Not focused on outsourcing online operation or starting a dot-com division. “Bubble in” new e- commerce  Keep up with changes and monitor environment

13. The Castling Group  Internet startup company “that allows you to defend your king and simultaneously position your rook for attack”  Used the internet to defend the offline old economy against online companies threat to their market while extending their online presence  Meeting in San Francisco between Michael Hsieh Pres.(LF int.) & John Suh CEO (CG)

14. Partnership  Dec. 1999 Hsieh joined Castling’s board and Li & Fung invested in Castling.  Castling committed key managerial staff to Li & Fung  CG CEO Suh described Li & Fung as the perfect strategic partner  San Francisco based lifung.com’s management team staffed with Castling’s professionals

15. Partnership cont.  Suh steps down as CEO of Castling retaining position of non-executive chairman, and signs on as CEO of lifung.com  20% of lifung.com’s initial staff came from the Castling Group

16. 3 Stages  According to Suh, 3 stages to launch online venture: 1. The business strategy 2. The design built phase 3. The execution “Without trust you cannot move at the speed required”

17. Lifung.com  By 2000 40 full time professionals, 25 consultants, with 80 full time staff expected by years end  Focused on SME market (small and medium size enterprise) “We know just whom to target, we know the names and addresses of these retailers, we know how to reach them since they all read the same trade publications and go to the same trade shows”

18. Market size  Li & Fung’s research determined that 20,000 retailers and 2,800 wholesalers in the United States with a total market size of $54 billion were potential customers  Could now profitably aggregate small orders for SMEs via their B2B portal; previously not cost effective for Li & Fung as well as charge less.

19. New B2B Parameters  Announced March 27, 2000 that they would be committing $200 million to build the online business and proceed to outline how they would achieve $2 billion in sales by 2004  Next day raised $250 million by placement of 60 million shares through Goldman Sachs to fund the new venture

20. Principles behind lifung.com  Old economy standards  “business to business” model which took “back-to- basics” approach by implementing Li & Fung’s supply chain management knowhow to SMEs on a “Back-to-back” order basis. No inventory risk for Li & Fung.

21. E-commerce execution & components  Compartmentalize competing customers  Wide array of customization to clients  24 hours a day  Sun Microsystems for its hardware platform  Selectica for online configuration of products  Oracle for its database software  Broadvision for transaction system  Bulk freight specialist  Anderson consulting; system integrator to “wrap” entire package for a seamless experience

22. *Quiz Time* 1. What is the English translation of “Li & Fung”? 2. Where did the Fung brothers attend graduate school? 3. From whom did Li & Fung adopt planning system?

23. Answers 1. “profit” & “abundance” 2. Harvard 3. Chinese communist party