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Business

Li & Fung needs a new case study

The digital era has not been kind to the old-line supply chain manager

Li & Fung

HONG KONG -- For Li & Fung, a leading Hong Kong trading house with a history of more than a century, the next three years will be crucial.

Spencer Fung became group CEO in 2014. Earnings have been on the decline ever since. The company, which heavily relies on its global trading business, has failed to meet targets in its three-year management plan that began the same year Fung assumed the top post.

Now Fung is betting big on the next three-year plan.

Li & Fung was founded in Guangzhou, southern China, in 1906 by Fung's great grand-father. The company at the time exported silk products and ceramics.

In the 1930s, it forayed into Hong Kong. After World War II, growth came with exports of clothing, toys and fake flowers.

Fung's father, Honorary Chairman Victor Fung, and his younger brother and Group Chairman William Fung, joined the company in the 1970s. The father and sons formed partnerships with mainland China factories to coincide with the reforms and opening-up policies introduced by Deng Xiaoping, then China's supreme leader. The basis of a sourcing business was thus established.

The company's executives proved to be good problem-solvers. So good, in fact, that their supply network management method was used as a case study at Harvard Business School in the U.S.

But like so many businesses, Li & Fung has been disrupted by the internet; major distributors in the U.S. and Europe can now directly communicate with manufacturers across Asia.

The company has also been indirectly disrupted. Many of its clients, brick-and-mortar stores in the West, have gone out of business, unable to keep up with online empires like Amazon.com.

That old case study is now out of date, and Li & Fung's shares, once part of the Hong Kong's benchmark Hang Seng Index, have lost that honor.

After graduating from Harvard University, Spencer -- the fourth-generation Fung to lead the company -- started an internet company in Silicon Valley. Now Li & Fung's future -- as well as the fate of the company's 22,000 employees in more than 40 countries and regions -- depends on whether Spencer can come up with a supply chain management system that offers value in the digital era.

(Nikkei)

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