Li & Fung Strategy Case Essay

4761 Words Mar 24th, 2011 20 Pages
Li & Fung

STRATEGY CASE- 3

HIMANI GUPTA ROLL No. 15 PGDM-IB
4/1/2011

(Q1) Explain briefly Li & Fung’s business model today. Comment on the sources of its competitive advantage. Is it sustainable? Why?
Business Strategy
Li & Fung uses the holistic supply chain management (SCM) strategy to benefit their clients by shortening order fulfillment from months to weeks which allows clients to reduce the amount of inventory they hold. In addition they remained as the middle man, which allowed them to reduce matching and credit risks. Business Model
Li & Fung’s supply chain management services offer Total Value-Added Package: from product design and development, through raw material and factory
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Is the competitive advantage sustainable? Why?
Sustainable advantage occurs when barriers exist that make it difficult for competitors to imitate and/or customers to switch.
• The company has high retention ratios and at the same time is able to attract new clients by offering competitive advantages of lower costs and flexible products through its efficient and virtual production process.
• Li & Fung has acquired most competitors through mergers and acquisitions. It has a sophisticated IT infrastructure.
• Li & Fung maintains minimal financial leverage and has no debt on the balance sheet.
• Li & Fung has a well established and a sophisticated IT infrastructure
• Li & Fung works hard to serve customer segments and provide a wide range of services, which are not offered by the customer segments and provide a wide range of services, which are not offered by the customers.

(Q2) At one time, many of Li & Fung’s customers performed their own logistics and purchasing functions in-house. Now they outsource those functions to Li & Fung. Why? What is the value added that an intermediary such as Li & Fung delvers to its customers?

ANSWER : Li & Fung, a Hong Kong trading house that in 1998 had global sales of $2 billion and offices in over 20 countries (but had no production facilities of its own). The typical trading arrangement is for a foreign manufacturer or retailer to approach Li & Fung with a product they

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