Case – Li & Fung (A): Internet Issues

Li ( 利 ): ProfitFung ( 丰 ): Abundance

Case background (Part 1)

Time Line 1906 – founded by Mr. Li and Mr. Fung as an

export trading company 1920s & 1930s – expanded to warehousing and

handicrafts manufacturing 1945 – Li sold his shares to Fung Family 1973 – listed on HKSE 1988 – privatized, streamlined and incorporated

in Bermuda 1995 – acquiring Inchcape Buying Group 2000 – 2 billion dollar global trading company

Map of China

Shanghai – A Snap Shot

Case background (Part 2)

Cast of characters and their roles William and Victor Fung

Corporate Culture Soft vs. Hard Goods

Holistic Supply Chain Management

The IT architecture of an e-business

Problem Statement (Case Questions) How do the critical success factors for Li

and Fund’s traditional supply chain business compare with those for e-commerce supply chain? As its e-business evolved, what were the critical challenges? (Growth Strategy)

“Bubble In” or “Bubble Out”? (Sourcing Strategy)

What is the viable e-commerce model for new business venture at Li and Fund? (Business Model)

Analysis of Problem

Traditional versus Electronic Business Characteristics? Disruptive technology? Selling/Marketing? Operations? Corporate Culture How are long-term employees likely to

respond? Implications for the Fund Brothers? Separate versus integrate?

Alternative Solutions (Part 1)

Tripartite Growth Strategy Compare and contrast organic growth,

acquisition and e-commerce (EC). Single versus combination?

Alternative Solutions (Part 2)

“Bubble In” versus “Bubble Out” What did they choose? Why? Will you make the same sourcing decision?

Why? Why not? Bubble In, Bubble Out, or Mixed-Bubble? Why they decided to choose Castling?

Alternative Solutions (Part 3)

E-Commerce Model B2B? Benefits to SME? Chanel conflict? Offense versus Defense?

Criteria to Evaluate Alternatives Analyzing Frameworks

Porter’s Five Forces Model. EC on Five Forces?

How to apply the model in this case? Pros and cons of each sourcing appro

ach E-commerce Models

Brick-and-mortar Click-and-mortar Pure EC

Recommendations and Plan for Actions

Conclusion

Lessons Learned (e-commerce as a competitive strategy, sourcing strategy, business model)

Case Update

Porter’s five forces Model

26

Outsourcing

E-commerce Models*

To

From

 Customer

 Business

 Government

Customer Customer-to-Customer (C2C)

Customer-to- Business (C2B)

Customer-to-Government (C2G)

Business Business-to-Customer (B2C)

Business-to-Business (B2B)

Business-to-Government (B2G)

Government Government-to-Customer (G2C)

Government-to-Business (G2B)

Government-to-Government (G2G)

*Adopted from “E-commerce Operations Management” by Schniederjans and Cao (2002)

Case Update

Feb. 14, 2001: Test phase – StudioDirect targeted only the SMEs in the United States and focused mainly on “green-grass” products – golf apparel and accessories – distributed through golf clubs and sporting goods stores. Initially offline Online transactions

Early Nov. 2001: over 200 users had registered and more than 100 ordered regularly online. Breakeven – 600 SMEs Sales for the first half of 2001 – $5 million Estimated first year loss – $10 million

Reasoning of Loss: Slow Adoption rather than a flawed concept

Interim Remedies – Merging two existing offices in San Fransico and New York

Going Forward – What options for StudioDirect management?

Li & Fung Links

Li & Fung Limited homepage Homepage of Li & Fung Distribution

(Management) Limited Homepage of LF Venture Capital, the

venture capital arm of Li & Fung Limited

Annual reports of Li & Fung

Disruptive Technology Disruptive technologies - technologies that improve a product or service in ways that the market does not expect and they are particularly threatening to the leaders of an existing market, because they are competition coming from an unexpected direction.