INTERNET ISSUES

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.

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

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

Li & Fung Values

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

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

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”

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.

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.

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

“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

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)

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

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

3 Stages

According to Suh, 3 stages to launch online venture:

1. The business strategy2. The design built phase3. The execution

“Without trust you cannot move at the speed required”

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”

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.

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

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.

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

*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?

Answers

1. “profit” & “abundance”2. Harvard

3. Chinese communist party