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The Li & Fung Company

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The Li & Fung company, one of the most successful and famous organizations in Hong Kong dealt with sporting equipment, textiles, household items, toys, and other types of consumer goods (Li & Fung, 1995). It was founded about a century ago; its branches were located overseas across about forty countries (Vedpuriswar, 2004). This business had both advantages and disadvantages. This essay is an attempt to analyze the organization problems, conduct SWOT analysis for internal environment and PEST for the external one, and to draw conclusions and recommendations regarding their business. 

Problems of the Organisation

The main problem of the Li & Fung Company is connected to the globalization questions. The reason for such a global expansion of the Li & Fung was the pressure from the retailer representing the European and the U.S. sides. It was connected with cutting the costs by going to some cheaper locations for sourcing.  At the result, the company entered the market of Africa South and Asia. Shortening of the life cycles of their products was considered as another driver of their globalization.

The Li & Fung Company extended its sourcing network quite often with the aim of accessing the new locations that were low in cost. By doing so, Li & Fung considered its manufacturing capabilities, wage levels and proximity to customers as the main factors.

Those new operations required some time for profit generation as more travel costs and supervision was needed. Moving overseas, the Li & Fung Company faced to deal with various restrictions on national trade.

As the textiles were one of the most important products of the Li & Fung Company, the Multi Fibre Agreement was a major block of their business.  According to this agreement, every country with a lower cost is provided with an annual quota of products that are the textiles in relation to the export to the countries with a higher cost. The governments of the countries where the Li & Fung company was going to export decided to divide those quotas among various players. Thus, some years later, the Li & Fung gathered large quotas for different goods in various countries, which gave an opportunity to provide greater value to their consumers.

The biggest failure in attempt to enter new market is associated with Japan. First, the Japanese contracts were characterized by the ambiguity, and that was not very comfortable for Li & Fung. The second reason for such failure lied in the unwillingness of Japanese retailers to take responsibility for the goods that were overstocked.

The Li & Fung Company has faced the challenges in the U.S. market, which was one of the most important to them. The increase of the retailers’ dominance such as Wal-Mart was one of the strategic concerns because of the possibility of putting pressure on the margins of the Li & Fung.

SWOT of the Internal Environment

The main Strengths, Weaknesses, Opportunities, and Threats of Li & Fung business are:

-         Spreading of its chain value in different countries;

-         Time efficiency between obtaining and execution of their orders;

-         Product innovation abilities;

-         ISO 9001:2000 certification.

S

-         Time sensitiveness of the business;

-         Competitive disadvantages;

-         Sophisticated value chain;

-         Quality control;

-         Application of information technologies.

W

 O

-         Adoption of  information technology;

-         Launching of various technology initiatives;

-         Reconfiguration of value chain;

-         Reduction of dependence on a single production point.

T

-         Entry of new competitors;

-         Globalization of business;

-         Organization structure;

-         Dependence on structure, on guiding principles, on managing a system;

-         Closure of the business.

PEST of the External Environment

As we see from the aforementioned facts, in order to avoid the problems connected with the expansion of business, it is essential to analyze the external environment before making business decisions or creating any business plans. PEST analysis is the method of achieving such aim. It helps to investigate various political, economic, social and technological impacts on certain business (The Times, 2013).

An ability to analyze its own business is quite vital, however, the actions of the competitors are inseparable to be aware of as well. All those aspects are important when considering any state of change. 

Political changes result in the influence of the governments’ impact. In this case, it is associated with the aforementioned set quotas, which significantly influence the business of the companies. The opening or closure of the Li & Fung’s major markets can result in changes in the public spending priorities or even the relationships with other countries. Moreover, as these political changes are tied up with legal ones quite closely, governments’ impact can result in legislative impact of those countries as well. It may affect consumer and environmental protection legislation, the law on health & safety issues and other employment questions.

Economic changes are the ones that are closely connected to the social issues. The difficulties of the economy influence not only general business development of the company but in every country within the Li & Fung business it is reflected differently. Moreover, the other economic changes, which may affect the company, are the changes in the inflation, wage and interest rates. The Li & Fung business is going to be more encouraged to expand only when the economic conditions are favourable.

Social factors are directly connected with the behavioural patterns, lifestyles and tastes of the countries where the Li & Fung is expanding. The most essential aspect is to consider a change in the behaviour of consumers, which can result from alterations in styles and tastes. Coming to grips with local cultures while expanding is one of the main problems the Li & Fung experienced. Thus, an understanding of social change is essential in order to give their business a good feeling of the market situation in future.

Technological changes and modern communication technologies in particular in the Li & Fung are quite significant as well. The Li & Fung possesses a global sourcing network linked electronically via the Intranet with the aim of quick information sharing among its employees on the worldwide level. Dissemination of the corporate information is possible through an established direct electronic connection with regulatory bodies through the Internet. This established electronic communications enables to save time in the sharing of the big portions of information.

Recommendations and Conclusion

As we see on the example of the Li & Fung Company, prompt global expansion has both advantages and disadvantages in developing its business. The question on globalization itself is quite controversial. Moreover, is various countries, such expansion also provokes particular organization structure development. 

On the one hand, it is essential to have an individual approach to the customers or groups. However, on the other hand, such method is not always beneficial when considering such a big company like the Li & Fung. Thus, in order to succeed faster, such organisations need to keep track on the most recent management tutorials and be aware of the newest modern technologies that are relevant for their business and be willing to change for their future progress.

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