Case Study: Li Fung Business

With the growing of the online business, the existing business model of Li-Fung has been challenge as increasingly more B2B portals and online exchange begins to merge. A new way of performing business is required. This circumstance is to check out the Li-Fung traditional business model and analysis the new IT strategy that LI & Fung possessed implemented and what type of risk and suggestion can be given.

Li-Fung Background and its success

Li & Fung (following will show as LF) could outperform its opponents within the same industry for reasons that originated from its effective management, romantic relationships with suppliers and customers, and functions. LF has a very long and solid experience into doing sourcing business; the company was founded more than 100years. The company strategy is to source and deal with the global resource chain for High level and time very sensitive consumer goods. By employed in both Hard and Soft line, LF could avoid market risk associated with only focusing on one category. Further, the Holistic Supply Chain Management was one of LF primary strength as it offers value-added services across the whole supply chain process. Such supply string customization provide shorter order turnaround time from 3 months to 5 weeks which in result in less inventory cost for the customers. Further, LF lifestyle also reduce the matching and credit risk and offering QA to its customer. The given economic of range and global network that LF is equipped with, helped to give a lower cost plus more versatile sourcing than its rigid competitors. Further, LF comes with an extensive knowledge platform globally through acquisitions of rival sourcing companies. Furthermore, Li & Fung provided up-to-date fashion and market pattern information to its clients, which made the clients more versatile to changes in their industries

IT road of Li-Fung

As early on as 1995, LF acquired launched an intranet to link the whole group office buildings and manufacturing sites to simplify and expedite the internal communication. Real-time and digital image features allowed online inspection and troubleshooting. In 1997, secure extranet sites were launched to web page link the client with the business. Online product development and real time tracking are possible. Customization promptly is now not ever again a fantasy. LF staffed approx 60 people within the IT office and getting the development of both the intranet and extranet outsourced.

Threats from the WEB

LF accepted the threats from the web companies as the followings: 1. Built with well of cash surplus, online companies can use those to damage the offline companies by acquiring them or their staff. 2. Off-line competitors spouse with a dot-com and be a significant rival in a nutshell time.

IT STRATEGY OF Li-Fung (E-commerce)

LF decided that an E-commerce strategy is necessary for LF. LF further chose the only way to compete is to use the system in-house. LiFung. com was set up to create the in-house e-commerce incubation team by financing through Castle group. THE COMPLETE team was made up with both Castle and Li-Fung personnel. The Business Strategy of Lifung. com was to focus on the SME market which is the small vendors/wholesalers. Further LF recognized that these SMEs got needs of diversification of products at a competitive price. Also, they are lack of current market information that could help them to make important decisions and they were currently dished up at the cheapest priority in the old business model. These were scheduled to that the traditional model wasn't inexpensive to achieve this task. With new B2B Site, LF can group the SMEs small orders in order to provide this customer with limited amount of customization, small batch purchasing, and differentiated product range with a competitive price. Further the Business is prepared to charge 10-15% of the commission rate in which the SMEs used to pay much more. Li-Fung. com interacts with LF to be one of its Group's key customers which connected the old business model with the new one. Further, interior training courses and daily contact with new technology helped to demystify the fear of LF's veterans. LF identified such IT strategy that would defend their position against online threats while simultaneously extending operations in to the SME (small-medium venture) market sector. Finally, plan was also made forward that in the future the dot. com can serve the provider more efficiently by aggregating the suppliers to post their inventory surplus on the net as well.

RISK of E-commerce

Although many benefits are associated with going online, risks come with the new strategy. The potential risks are differentiated into the following area: Competitor, industry, Customer, People, and Financial. Economically, the cost of setup is enormous and LF would go into major financial problem if the project is not really a success. People sensible, existing LF employees would have some resent against this dot. com business which would lead to lower working moral and higher employee turnaround rate. Speaking of the rival, this business design hurdle is not high; opponents could develop a much similar one over night. Industry standardization of the software and hardware will further lower the benchmark and making the machine of Lifung. com obsolete. Further by linking the inner system to the web, LF is subjected to an increased rate of pathogen episodes/security breach that would disrupt the entire system that might tremendous damage LF. Within the region of customer, existing offline key customer (major importers, wholesalers) concern with Lifung. com will affect their business by the motto of " eradicating the middleman". Finally the complete business design is developed under the assumption of able to aggregate small requests to allow customization and competitive price. In case the orders are not sufficient to justify, LF could only choose between satisfying their customer at the cost of ruin their overall margin; or by rejecting the order on the risk of tarnishing LF long set up reputation.


In view of all benefits and risk that the e-commerce that are presented, I would suggest that a period integration. Stage 1, Beta unveiling of the machine to "test this" of the new market. In this initial stage, dedicated marketing/sales team are grouped to target the united states SME (whereas that market can adopt easier). Stage 2, Assimilate the E-commerce using their Key existing customers which permit the Key existing customer to benefit from the same process. Stage 3, integrate the entire E-commerce module within its infrastructure to improve its outstanding resource string management system. If at any stage that the management locates that the job is not ever again feasible, then it is strongly recommended to cut the losses. Because of the possible complains of the prevailing customer, LF will offer certain exclusivity for the main element customers on some design in which would help the main element customer to keep competitive. Also, some further discount on the commission system could be offered to key customer for greater bulk ordering. As the technology being developed, it will always be an option to consider the use of a more standardized platform( off the shelf product) that can effectively linked with LF intranet/extranet as the set up cost would be nominal and maintenance as well. To the end, LF should not loss its concentrate on what it is proficient at: the whole holistic supply string management system that LF has put in place for the past 10 years that made its success. In view of the possible failing of the machine, an option is by using Distributed DBMS. The Distributed database is several databases which relates to each other and they all have the same information. However, they can have different plans and different management with them. That is why, if one of these in anywhere encounters failure, the others still will keep on working no end user gets error triggered by that failure. These databases might be at different area of the globe with the least distributed information.

Finally, security measures is an important. In order to avoid unauthorized utilization, administrators can put secure gates on a few of these layers. Gateways are of help for one of these layers and firewall for the other one. Antivirus, anti spam, anti worm, and etc are useful for the last top layer which is software coating and can be programmed. E-commerce is no longer an aesthetic gesture, but a necessary and vital area of the future. Inability to acknowledge and embrace technology can leave a company subjected to competitive dangers and efficient obsolescence.

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