Supply Chain Management
Li & Fung: Battling the Global Supply Chain Challenge

Article Details
Pub. Date : Dec 2020
Product Name : The IUP Journal of Supply Chain Management
Product Type : Article
Product Code : IJSCM21220
Author Name : Hadiya Faheem and Debapratim Purkayastha
Availability : YES
Subject/Domain : Strategic
Download Format : PDF Format
No. of Pages : 22

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Abstract

The case discusses global supply chain giant Li & Fung Limited's (Li & Fung) evolution from a regional sourcing agent to a global supply chain manager supplying apparel, accessories, and other products to global retailers. The company became a 'one-stop shop' for Western retailers by delivering a 'global value-added package', including product design and development, raw material and factory sourcing, production planning and management, quality assurance, and shipping consolidation. While the company tasted success as a supply chain manager, its inability to grasp e-commerce and several digital trends proved to be catastrophic for the company and led to a decline in its revenues. The rapid expansion of fast-fashion brands such as Spanish apparel retailer Zara SA (Zara) and Swedish multinational clothing retail company Hennes & Mauritz AB (H&M), also shook up Li & Fung's traditional sourcing business as retailers began directly communicating with factories to reduce their costs. To add to its troubles, the US announced trade restrictions on Chinese imports in mid-2018. Though the trade war had a huge impact on Li & Fung, it maintained that it was prepared to weather the storm. The company said that its global network of production in 50 countries, decades-long relationships with factories outside China, and its ability to quickly move to production countries would enable a smooth transition out of China. Despite Li & Fung's optimism, analysts wondered how the company would tackle the challenge of the US-China trade war and continue with its supply chain management dominance in global markets.
If you stay status quo and don't change, new forces will come in and eat up your value year after year. And that's what happened to us. We didn't change fast enough. Now that we're innovating on digital and building a faster global network, we're providing value. We're not at the bottom yet, but I can actually see the bottom for the first time in many years.i

- Spencer Fung, CEO of Li & Fung Limited, in July 2019


Description

In March 2019, global supply chain giant, Li & Fung Limited (Li & Fung), announced that it would source less than half of its goods from China for the year 2019. Li & Fung attributed its decision to rising manufacturing costs in the country and the heightened trade restrictions between China and the US. The Sino-US trade war began in July 2018 with the US imposing tariffs on Chinese goods worth US$34 bn. This was a bid by the US President, Donald Trump (Trump), to dissuade American consumers and businesses from buying products from China. China retaliated by imposing 25% tariffs on US$34 bn worth of US goods.ii Headquartered in Hong Kong, Li & Fung was started in 1906 in Guangzhou by Fung Pak-Liu and Li To-ming as an export company that supplied apparel, accessories, and other products to global retailers. The company was a 'one-stop shop' for Western retailers that delivered a 'global value-added package', including product design and development, raw material, and factory sourcing, production planning and management, quality assurance, and shipping consolidation. For the financial year (FY) ended 2018, the company's turnover stood at US$12.7 bn.iii

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