Swot Analysis of Li & Fung Ltd
Part I. Backgrounds Study: Headquartered in Hong Kong, Li & Fung Limited’s extensive global sourcing network covers more than 80 offices in more than 40 economies around the world. The global trading company supplies high-volume, time-sensitive consumer goods.
Particularly, garments make up a large part of its business which also covers the sourcing of hard goods such as fashion accessories, furnishings, gifts, handicrafts, home products, promotional merchandise, toys, sporting goods and travel goods.
Li & Fung plays the role as a supply chain manager across many producers and countries, covering over 80 offices and over 13,000 employees in more than 40 economies across North America, Europe and Asia. They provide product design and development, raw material and factory sourcing, production planning and management, quality assurance and export documentation to shipping consolidation.
SWOT analysis is a strategic planning method used to evaluate the Strengths, Weaknesses, Opportunities, and Threats involved in a project in a business venture. It involves specifying the objective of the business venture or project and identifying the internal and external factors that are favorable and unfavorable to achieve that objective. Part II. SWOT Analysis Strengths of Li & Fung Limited Strength is defined as the “characteristics of the business or team that give it an advantage over others in the industry”.
The following part will analyze Li & Fung Ltd’s strengths in seven aspects, which are: flexible adjustments in supply, minimization of production cost, expertise in cost control, diversification of risk, complete chain of service, advanced information system and management, and low information cost. 1. Flexible adjustments in supplies Li & Fung Limited (“Li & Fung” in the following) itself does not involve any production activity, all the goods they provided to the customers are not produced by them. Instead, they have growing network of early 11,000 international suppliers in more 26 cities and countries around the world, such as United Kingdom, United State, Russia and Mainland China (see Figure 1). Therefore, it allows Li & Fung Limited to adjust its supplies to meet the frequent changes in world’s demand. Figure 1: Global distribution of Li & Fung suppliers 2. Minimization of production cost Li & Fung Limited keeps on finding the production firms that offers the lowest cost. As one product has many components, the company tries to purchase them from different suppliers.
With the help of its global distribution of local suppliers, the purchase team of Li & Fung can compare the prices of each required components, and find out the lowest purchase price. It allows the company to minimize the cost (see Figure 2). Figure 2: Global purchase cost control of Li & Fung / components’ supply Even in the same region, which is more economically convenient for transporting. Li & Fung also tries to control the purchase cost according to the development among near suppliers.
Take the example of mainland China, rising raw material and labor costs in China due to inflation and the need for a fairer distribution of income, respectively, have inevitably impacted the overall cost of production. The Group had anticipated that the southern and central, coastal manufacturing areas of China would become more expensive, so it began shifting some of its business to other country, such as India. 3. Expertise in cost control Li & Fung Limited has also set up many offices in over 40 countries, in each office, there are a professional team of experts which are well-comprehended the information of the local production factories.
It enables them to search for the high-quality, cost-effective sourcing markets. Moreover, once they find the new supplier, the managing team will take time to understand the firm’s operation well and check the product quality carefully. Since they have knowledge of the operation of similar or related suppliers, to certain degree, it prevents the possibility of having low quality products. 4. Diversification of risk There is a well-known saying that “do not put all your eggs into the same basket”.
Li & Fung Limited has engaged in export trading of many different kinds of both hardgoods and softgoods, such as fashion accessories, furnishings, gifts, handicrafts, toys, sporting goods and traveling goods (see Figure 3). If one of them becomes unpopular, they can easily shift their focus on the other goods. Then, it does not affect the company’s profit won’t be impacted by the drop in sales or consumer loyalty of one single goods. Figure 3: Diversity in Li & Fung’s multiple brands supply 5. Complete chain of service In the past, Li & Fung used to do simple searching of products.
For example, a customer wants product X, and then their task is to find a factory that can do that. Now, Li & Fung expand their business. It provides a complete and one-stop shopping service for customers, that means from product design and development; through raw material and factory sourcing, production planning and management, quality assurance, and export documentation; to shipping. All the process is processed by them and it brings more revenue to them (see Figure 4 at the right). Figure 4 : Supply Chain 6. Advanced information system and management
Li & Fung has established sophisticated & Internet-based systems to link up all its business partners, including customers, producers, distributors, logistics service providers etc. The application of IT aims to provide more value-added services, shorten lead-time, lower cost and enhance flexibility. 7. Low information cost From past to now, Li & Fung has still continue to grow because customers were much easier to identify than suppliers. Usually, Suppliers were large in amount, fragmented, smaller and located in emerging markets. So, Li & Fung serve as a database of these suppliers, it could source the goods easier than customers.
Li & Fung significantly lowers the information cost of the customers, that’s why the company still grows. Weaknesses of Li & Fung Limited Weakness is the “characteristics that place the firm at a disadvantage relative to others”. The following part will analyze Li & Fung Ltd’s weaknesses in four aspects, which are: No self-owned factory, No self-owned shipping port, Over dependence on US Market, Vast and complicated supplier network. 1. No self-owned factory Aforementioned, Li & Fung does not own any production firm. There is no doubt that it is good for the company to have a flexible supply of inventory.
Nevertheless, the production cost will be passively controlled by other. If the whole price level of a region rise, it takes some times to search a new suppliers. 2. No self-owned shipping port Li & Fung does not own any shipping port. All the goods and materials are transported by other shipping agents. In contrast, one of their main competitors, Hutchison Whampoa, has their private port. It will be more flexible in the shipping schedule and more easy in cost control. 3. Over dependence on US Market According to turnover report (see Figure 5), from 2006 to 2009, the turnover from USA and Europe is over 90%.
In Contrast, the proportion from China is even less than 1%. In recent years, there are many financial problems in USA and Europe, a good example is the subprime mortgage crisis. If the economy of USA and Europe recover slowly, the demand for export service decline, it will likely affect the profit of the company. Figure 5 4. Vast and complicated supplier network Li and Fung has the network of nearly 11,000 international suppliers in more 26 cities and countries around the world, they were large in amount, fragmented, smaller and located in emerging markets.
To manage them, it is very time-consuming and costly. The process takes many staffs as there is still a lot of human factor in business relationship. It cannot yet be replaced by technology. It incurs high labour cost. Opportunity of Li & Fung Limited Opportunity means the “external chances to make greater sales or profits in the environment”. 1. China market Nowadays, every companies glare at China like a tiger eyeing its prey. China, As the world’s second biggest economy and one of the highest potential of leading country in future, it is profitable to set up its own brands and reputation in China.
In order to get more market share, previously, Li & Fung will become a sourcing agent for Li Ning Co. brands in local and foreign markets. They will responsible for sourcing for a range of products including running, basketball and lifestyle lines. 2. Improvement in IT & Internet Technology is improving at the tremendous speed by leaps and bounds. The advanced tele-communication and internet certainly enhance Internal & External Communication. It can consolidate the global network with the “infinite” suppliers. Also, more works can be progressed by the computer instead of people. It can reduce the labour cost at the same time. . Lower cost in the developing countries The continue emergence of the developing countries enable Li & Fung to source the new market which offer the lower purchase cost. On the other hand, in these developing countries, like India, usually provide a pool of cheap labour. It lowers the labour cost too. Threats of Li & Fung Limited In SWOT model, threat refers to the “external elements in the environment that could cause trouble for the business”. Under the background of post financial crisis time, I consider certain exist trends or disputation may potentially threaten Li & Fung Ltd’s future development in the global market. . Rise of trade protectionism around the world In recent years, there is a rising trend of trade protectionism, especially in western countries. Increasing amount of tariffs or quotas on the importation of foreign goods and services have been installed by many countries or economic bodies in order to protect domestic interest and local enterprises. The actions of putting sizable tariffs on other country’s major part or even entire line of exports would be regarded as “highly unusual” at the time before global financial crisis in 2008. However, it is quite common today.
That’s why some even argue and doubt their legality under international trade law. These actions will certainly threaten Li & Fung’s global supply trading business, which need to buy and sell goods from one part of the world to another. On the one hand, the extra effort on processing newly added legal or regulational examination and approval might slow down the trading and transporting speed; on the other hand, the business cost is likely to increase because more and more human forces or resources are required to handle problems when trading goods globally. 2. Disputation of currency exchange rates
Moreover, the hot disputation on currency exchange rate can be regarded as another potential threat to Li & Fung’s global trading business. In order to recover fast from the weak and weary economic status, the US government carried out a quantitative easing approach to maintain its trading competitiveness around the world. In the early November 2010, Federal Reserve Board has just announced QE2. More cheap money for investors to play with suggests a further cheapening of the currency of US dollar and higher asset prices in other regions, typically those developing countries.
Increasing asset prices could be a headache to Li & Fung, since its profit is quite sensitive to the goods purchase costs. Today, the prices of raw materials, manufactured goods and labor forces are no longer that significantly cheap in developing countries or regions like mainland China, India or Latin America, especially in garments industry. Hence, the ups-and-downs of global currency exchange rates may worsen the situation and become another risk to the global expending strategy Li & Fung. 3.
Former entered competitors Comparatively speaking, Li & Fung is not the earliest bird who stepped in China market, though it recently emphasizes its strategic turn from US & Europe market to mainland China. Thus in the market of mainland China, Li & Fung Ltd has to face some strong competitors in the future years, such as Hutchison Whampoa Limited, another huge international corporation originates from Hong Kong and led by Li Ka-Shing and his business group. Part III. Competitive advantages of Li & Fung Limited
Competitive advantage is defined as the distinctive edge comes from the organization’s core competencies because the organization does something the others cannot do or does it better than others. In the following, I have considered three points that give Li & Fung to have Competitive advantages. 1. Li & Fung’s customized service One of the Li & Fung seven principles is customer-centric and respond accordingly to the market demand. Li & Fung will first know the customer’s needs comprehensively. Then, the product will be designed and developed. The process will go on until the shipment is completed.
It gives the high degree of freedom to customers, as all the process are actually controlled by them. If they have any problem or opinion, they are free to adjust. Also, the staffs in Li & Fung are well-trained as they know that human capital is the key factor to the growth and profitability of business. The quality of service and staffs are exclusive in Li & Fung, but not the other competitors in this industry. Because of the customized service and excellent service, It is not surprising that Li & Fung cut the direct relationship between suppliers and customers.
Li & Fung act the role as middleman, They know much about information of the demand and supply side. Finally, both suppliers and customers become reliant on Li & Fung. This relationship doesn’t easily change. 2. Global sourcing network Li & Fung plays the role as a supply chain manager across many producers and countries, covering over 80 offices and over 13,000 employees in more than 40 economies across North America, Europe and Asia. It enable them look for the high-quality, cost-effective product. Their global network is much larger than the other competitors, so Li & Fung can do better in this industry. . Economies of scale Aforementioned, Li & Fung covers more than 80 offices in more than 40 economies around the world. The company set up over 80 offices and employ 13,000 employees. It can enjoy economies of scale, for examples, discount from bulk purchase of materials from the firms, increasing the specialization of manager, increasing degree of division of labour, lower-interest rate charged when obtaining loan from banks and having access to a greater choices of financial instruments, spreading the cost of advertisement over a large amount of goods. Part III.
Suggestions on strategic approach in Li & Fung Limited future development 1. Focus on the China Market China is known for its large population and rich in natural resources. China has a population of more than 1. 1 billion, The Chinese economy has been upsurging since 50’s, and particular in recent decades, the implementation of “open door” policy and the economic reform have given a great influence on Chinese economic development. It caused a significant increase in the living standards of the Chinese people, and has also led to further economic construction.
These changes in turn have created an larger consumer market in China. As the economies of USA and Europe grow slowly and the market is already well-established, it is of vital importance of Li & Fung to increase the market share in china in order to increase the gross profit in the following years For example, Li & Fung can cooperate with the well-known brands in China, such as the another famous sports brand, Anta. 2. Develop the online commercial service Like the success of Alibaba. om, Alibaba is the global leader in e-commerce for small businesses that includes business-to-business international trade, online retail and payment platforms and data-centric cloud computing services. It has more than 8 million small and midsize companies using its business-to-business online marketplace. In this example, I believe that Li & Fung can imitate this kind of e-commerce. They are experienced in this field. It is profitable to expand their service to online service. It may bring a new market and higher profit to company