Li & Fung

Li & Fung Limited
Public company
Traded as SEHK: 0494
Industry Supply Chain Management
Founded 1906 (1906)
Headquarters Hong Kong
Key people
 William Fung, Executive Chairman, Spencer Fung, Group Chief Executive Officer
Products Apparel, household goods, furnishings, toys, health and beauty products
Revenue $18.83 billion (2015)
Website www.lifung.com

Li & Fung Limited (Chinese: 利豐有限公司; Jyutping: Lei6fung1jau5haan6gung1si1) is a global supply chain manager primarily for US and EU brands, department stores, hypermarkets, specialty stores, catalogue-led companies, and ecommerce sites.

Li & Fung was founded in 1906 in modern-day Guangzhou and is headquartered in Hong Kong. As of 2016, apparel makes up around two-thirds of the business, with furniture and home furnishings, beauty and personal care products, fashion accessories and general merchandizing, such as seasonal gifts, constituting the rest.

Today, Li & Fung 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.[1]

It is a constituent member of the Hang Seng Index, MSCI Index Series, FTSE4Good Index Series, and the Hang Seng Corporate Sustainability Index Series.[2]

It is a member of the Fung Group.

History

1906-1970

Li & Fung was founded in 1906 in Guangzhou (Canton) by Fung Pak-liu (d. 1943), an English teacher, and Li To-ming, a local merchant whose family owned a porcelain shop[3] It started as an export trading company, exporting porcelain, fireworks, jade handicrafts and silk mainly to the United States.

In 1937, Fung's son Fung Hon-chu opened the company's first branch office outside of mainland China in Hong Kong. It was incorporated later that year in Hong Kong. Li sold his 300 shares of the company in 1946,[4] leaving the company in the hands of the Fung family. In 1951, due to a United Nations trade embargo on China, Hong Kong started manufacturing textiles and plastics. With this change, Li & Fung began exporting garments, toys, wigs and plastic flowers.

1970-2000

By the early 1970s, Li & Fung's broker role was being squeezed by both manufacturers and importers, the rise of competing Asian Tiger economies as low-cost production locations and major Western retailers engaging directly with Asian suppliers. William and Victor Fung, the sons of Fung Hon-chu, returned from the US to work on modernizing the company. Starting in China and Asia, sources from countries closer to target markets were sought out: Mexico, Honduras and Guatemala, for the US; Turkey, Egypt and Tunisia for Europe.

In 1973, Li & Fung was listed on the Stock Exchange of Hong Kong. In 1988 the Group was privatized and streamlined, incorporated in Bermuda in 1991, and its trading activities were listed on the HKSE in July 1992.[5]

In 1995, Li & Fung acquired Inchcape Buying Services (formerly known as Dodwell & Co.). It was part of Inchcape plc, a British trading company with a network of offices in India, Pakistan, Bangladesh, and Sri Lanka. The acquisition of Inchcape Buying Services expanded the company's customer base while simultaneously shifting its sourcing network beyond East Asia to include the Indian sub-continent, the Mediterranean, and Caribbean basins.[6] Four years later, in 1999, Li & Fung acquired Swire & Maclaine and Camberley.[7]

Since 2000

In 2000, Li & Fung became a constituent member of the Hang Seng Index and acquired the Colby Group. Bruce Rockowitz joined the company, serving as its CEO and president between 2004 and 2014.

In 2011, IDS, a member of the Fung Group, was privatized, becoming Li & Fung's logistic business.

In 2014, Spencer Fung, son of Victor Fung, became CEO and president and the company spun out its global brands and licensing business. Global Brands Group was listed on the Stock Exchange of Hong Kong as a separate entity in July. Li & Fung acquired freight forwarding company China Container Line.[8]

In 2015, Li & Fung entered into a joint venture with two department store operators in China, Beijing Wangfujing Department Store Group Co Ltd and Shanghai Bailian, with the aim of setting up as many as 300 stores and developing its own private labels.[9]

In 2016, Li & Fung announced it would sell its non-core distribution business to Dah Chong Hong for $350 million. [10]


Organization

Li & Fung operates a trading and a logistics business.[11]

Trading

Li & Fung offers services in product design and development, raw materials and factory sourcing and capacity building, vendor compliance and distribution. It has over 250 offices in 40 markets, connecting some 15,000 suppliers with 8,000 customers through its services.

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.[12]

Logistics

In 2011, IDS, a member of the Fung Group, was privatized, becoming Li & Fung's logistics network. As of 2015, it has 20.1 million square feet of space and delivers 100 million units of consumer products each day. The company provides distribution center management services, transport management, freight forwarding, omni-channel and order management services.[13]

Sustainability

Industry Collaboration

Following the Tazreen Fire in 2012 and Rana Plaza collapse in 2013, global fashion retailers and brands set up the Accord on Fire and Building Safety in Bangladesh, and the Alliance for Bangladesh Worker Safety to improve working conditions in Bangladesh. Li & Fung sits on the advisory board of both bodies.[14] The Accord covers 1,600 factories in Bangladesh and over half of the Bangladeshi garment workforce while the Alliance covers nearly 700 factories and around 1.28 million workers.

Partnership and initiatives

Li & Fung is a founding member of the Sustainable Apparel Coalition (SAC) and has been involved in the development of the Higg Index. The Index helps organizations standardize how they measure and evaluate environmental performance of apparel products across the supply chain at the brand, product, and facility levels.[15]

In 2012, Li & Fung, through the Fung Group, started working with the Business for Social Responsibility (BSR) to train female workers in Bangladeshi factories in the basics of health, nutrition and financial planning.[16] They later extended the HERProject to Cambodia, India and Vietnam.[17]

Between 2011 and 2014, Li & Fung supported CARE International's Hemaya project.[18] The project targets women working in garment factories in Qualified Industrial Zones (QIZs) around the northern cities of Irbid, Al Mafraq and Az Zarqa, where many textile factories are located. Hemaya is part of a larger effort by CARE Jordan to promote linkages between local employment opportunities and the local female workforce in the face of Jordan’s low rate of female participation in the workforce which has one of the lowest in the world.

Criticism

Following the Tazreen Fire in 2012 and Rana Plaza collapse in 2013, attention was drawn to the role of Li & Fung as a supply chain intermediary in factory sourcing and its influence on worker rights and safety.

In August 2013, The New York Times reported that Li & Fung's "great bargaining power" allowed it to pressure suppliers and manufacturers to lower costs, often utilizing a "take it or leave it" approach when it made an offer. Critics said that factories would cut corners in order to meet the offer. The article also said that Li & Fung had been tied to labor violations and had been accused by activists of depressing wages in developing countries and failing to investigate factory conditions. [19]

In December 2014, a Clark University paper criticized the company's network of suppliers as a "dispersion" strategy that was contradictory to worker safety. The paper concluded that this strategy prevented workers from obtaining a living wage and would always encourage buyers to use factories based in countries with weak government enforcement of regulation.[20]

Case Studies

In his chapter entitled Li & Fung, Ltd.: An agent of global production (2001), Cheng used Li & Fung Ltd. as a case study in the international production fragmentation trade theory through which producers in different countries are allocated a specialized slice or segment of the value chain of the global production. Allocations are determined based on "technical feasibility" and the ability to keep the lowest final price possible for each product.[21]

In his chapter on platforms in the report "Business ecosystems come of age" (2015), John Hagel III[22] uses Li & Fung as an example of a "pull platform" that 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 realized. [23] [24]

See also

References

  1. ↑ http://www.lifung.com/wp-content/uploads/2014/05/2014-Annual-Report.pdf
  2. ↑ http://www.lifung.com/wp-content/uploads/2014/05/Information-for-investors.pdf
  3. ↑ http://blog.citigroup.com/2012/08/citi-turns-200-client-relationship-lasts-over-a-century.shtml
  4. ↑ http://www.scribd.com/doc/45030897/Case-Study-Li-Fung
  5. ↑ Stitches in time, Forbes, 1999
  6. ↑ http://www.hardlife.nl/sammenhang.nl/bestanden/Bijlage16.pdf
  7. ↑ http://www.irasia.com/listco/hk/lifung/press/p991229.htm
  8. ↑ http://www.joc.com/international-logistics/logistics-providers/li-fung/li-fung-buys-china-container-line_20140325.html
  9. ↑ http://www.reuters.com/article/2015/06/23/li-fung-jointventure-idUSL3N0Z926F20150623
  10. ↑ http://www.scmp.com/business/article/1940718/li-fung-sells-its-asia-consumer-and-healthcare-distribution-business-dch
  11. ↑ "Li & Fung Profile". Forbes. Retrieved 31 March 2015.
  12. ↑ http://www.lifung.com/investors/financial-reports-presentations/
  13. ↑ http://www.lflogistics.com/services/order-management-services
  14. ↑ http://www.just-style.com/analysis/li-fung-highlights-need-for-change-in-the-supply-chain_id121037.aspx
  15. ↑ http://www.apparelcoalition.org/higgindex/
  16. ↑ http://herproject.org/funders
  17. ↑ http://www.lifung.com/wp-content/uploads/2015/03/ar2014_11.pdf
  18. ↑ http://www.carejo.org/index.php/care-s-work/women-empowerment/hemaya-talbots
  19. ↑ Ian Urbina; Keith Bradsher (7 August 2013). "Linking Factories to the Malls, Middleman Pushes Low Costs". The New York Times. Retrieved 8 August 2013.
  20. ↑ http://commons.clarku.edu/cgi/viewcontent.cgi?article=1030&context=mosakowskiinstitute
  21. ↑ Cheng, Leonard K. (2001). Leonard K. Cheng, Henryk Kierzkowski, eds. Li & Fung, Ltd.: An agent of global production in Global Production and Trade in East Asia. Springer. pp. 317–323. ISBN 978-1-4613-5647-9.
  22. ↑ John Hagel III
  23. ↑ Hagel III, John. (2015). Business ecosystems come of age. Deloitte University Press. pp. 80–81.
  24. ↑ http://dupress.com/articles/platform-strategy-new-level-business-trends/
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