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Li and Fung

Global supply system for a connected world

Sector: Futuremakers
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Li & Fung is a global supply chain manager for brands and retailers. It was founded in 1906 in Guangzhou by Fung Pak-liu, an English teacher, and Li To-Ming, a local merchant whose family owned a porcelain shop. It started as an export trading company, exporting porcelain, fireworks, jade handicrafts and silk mainly to the USA. In 1937, Fung's son Fung Hon-chu opened the company's first branch office in Hong Kong, where it became based. In 1946 Li sold out to the Fung family.

In Hong Kong there is a great 100 year old business that explains our future potential. For much of the last century Li and Fung was focused on low-cost manufacturing of textiles. That was until salary levels grew, and places like Indonesia were able to achieve much lower cost bases.  The business reinvented itself as a virtual resource network, helping brands to find the right partners for the business, in terms of expertise, quality, and price.

Walk into a Li and Fung office in Sao Paulo or Istanbul, Barcelona or Toronto – or any one of their 300 offices in over 50 countries – and the small team of sourcing experts will help you find the best designers, manufacturers and distributors for your brand. Every pair of Levi jeans you buy are made with the help of Li and Fung, and around 40% of the world’s textiles. If you need finance, they’ll find you an investor, and if you need merchandising, processing or customer service, they can find the right partner for that too. Their business model can be based on fees, on commissions, or an agreed mix.

Actually, all you need is a good idea. Take it to Li and Fung and they can make it happen with you.

Clothing makes up around two-thirds of the business, with furniture and home furnishings, beauty and personal care products, fashion accessories and general merchandising, such as seasonal gifts, constituting the rest. employs about 22,000 people worldwide. It does product design and development, raw materials and factory sourcing and capacity building, vendor compliance and distribution. It has over 250 offices in 40 markets. It works with 15,000 suppliers to service 8,000 customers.

Li & Fung offers services in product design and development, raw materials and factory sourcing and capacity building, vendor compliance and distribution.

Historically, buyers have either purchased fully developed products from domestic importers or overseas traders (Principal Traders) or through their own in-house sourcing teams. Today, buyers source their products via all these channels through the company’s trading network either through agency-based sourcing or product-focused services across a wide range of product categories.

In a typical agency-based sourcing arrangement, a sourcing agent oversees product development, negotiation of price, the locating of factories, procurement of raw materials and components, quality control, factory compliance, order processing and manufacturing control and logistics. In a typical product-focused agreement, a buyer is presented with a collection of product samples for the customer’s target market designed and developed by the Principal Agent. The buyer selects a range of samples and negotiates the price with the Principal Trader. Once the order is finalized, the Principal Trader works with its vendor base to produce and deliver the products.

John Hagel uses Li & Fung as an example of a “pull platform” in the report “Business ecosystems come of age”. He describes such a platform connects participants with the “capabilities of others and make them available to their customers in ways that create significant value for platform participants and customers.” He writes that pull platforms are scalable and instead of becoming “unwieldy with greater numbers of participants, they become only more capable and valuable.” He says pull platforms are important owing to two factors: digitization and globalization. Although companies have seen the benefits in terms of lean manufacturing and inventory management, within well defined supply chains, the real potential of the pull-based approach has yet to be realised.

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