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JANUARY 18, 2012
F. WARREN MCFARLAN
MICHAEL SHIH-TA CHEN
KEITH CHI-HO WONG
Li & Fung 2012
This is the year when we see a sea change in our environment. We face a whole brave new world, when Asia becomes an important market. Our simple model, a company which orchestrates the supply chain, sourced primarily from the developing parts of the world and sold to the developed parts of the world, has to be changed. — William Fung, Deputy Chairman of Li & Fung Limited
In August 2011, William Fung, who would become Chairman of Li & Fung Limited in May 2012, was about to attend the regular Li & Fung biannual meeting with its 150 top managers, many of whom flew into Hong Kong from all over the world. Three months earlier, William’s elder brother, Victor Fung, announced his retirement as Chairman after 23 years. Since 1989, the Fung brothers had turned Li & Fung from an Asia-based, family-run trading house into a global supply chain company managing intercontinental networks of manufacturers, suppliers, and distributors of consumer nondurable goods. During that period, Li & Fung grew its annual revenue from less than US$500 million to US$16 billion, yielding a compound average growth of over 20% each year (Exhibits 1 & 2 provide the consolidated profit and loss accounts and balance sheet statements for 2001 – 2010 respectively). All of this was achieved in an “asset light” manner, where the company avoided owning any piece of the supply chain it managed. Li & Fung’s phenomenal growth was facilitated by its Three-Year Plans, a strategic planning exercise the brothers introduced to discipline the company to define a new set of “zero-based” objectives every three years. Central to the Three-Year Plan was Li & Fung’s continued efforts in acquisitions, to aim to “fill in the mosaic” where management saw the next growth opportunities to be. The acquisitions brought the company not only new growth engines but also the talent to catalyze and to lead, including the newly appointed Chief Executive Officer, Bruce Rockowitz, who joined Li & Fung as result of a major acquisition made in 2000.
Mid-way through the 2011-13 Three-Year Plan, William Fung and Rockowitz had to steer Li & Fung to reach a target of $1.5 billion core operating profit in 2013, more than double the $725 million made in 2010. The company was also in the midst of a sea change both externally and internally. China, from where about 50% of the products were sourced, was undergoing a transformation characterized by profound changes in its economic and demographic environments, substantial rises in labor wages and raw material costs. Coupled with macroeconomic uncertainty in the developed economies, Li & Fung had to find a way to maintain its double-digit growth in revenues and operating profits.
In late 2010, Li & Fung undertook a major reorganization. Replacing its decade-long practice of reporting its activities by product categories and customers’ geographic locations, the company ________________________________________________________________________________________________________________ Professor F. Warren McFarlan, Dr. Michael Shih-ta Chen, Executive Director of HBS Asia Pacific Research Center, and Senior Researcher Keith Chi-ho Wong prepared this case. Professor McFarlan is on the board of Li & Fung. HBS cases are developed solely as the basis for class discussion. Cases are not intended to serve as endorsements, sources of primary data, or illustrations of effective or ineffective management. Copyright © 2012 President and Fellows of Harvard College. To order copies or request permission to reproduce materials, call 1-800-545-7685, write Harvard Business School Publishing, Boston, MA 02163, or go to www.hbsp.harvard.edu/educators. This publication may not be digitized, photocopied, or otherwise reproduced, posted, or transmitted, without the permission of Harvard Business School.
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