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Tales from the Development Frontier
Box 3.2 Li & Fung Trade Company Li & Fung Trade Company of Hong Kong SAR, China, provides services ranging from trading services to supply chain management. Dating to 1906, the company is well known for innovations in foreign trade. Li & Fung Trade Company (Li & Fung), a professional FTC affiliated with the Li & Fung Group, has, over the years, boldly transformed the business model reflected within its services. According to the evolution of the services and value added provided by the firm, the development of Li & Fung can be divided into five stages: procurement agency, procurement company, borderless manufacturing provider, virtual manufacturing provider, and comprehensive supply chain management agency (figure B3.2.1). During the first two stages, Li & Fung acted as an intermediary. Taking advantage of its expertise in language communication, its client network, its sources of supply, and its knowledge of the trade policies of different countries, Li & Fung bridged the gap between customers and suppliers. During these stages, commissions were the company’s main source of profits. The business model was similar to that of conventional Chinese FTCs. At the third and fourth stages, borderless provider and virtual provider, the company’s role changed dramatically. Li & Fung no longer searched for buyers according to the requirements of suppliers, nor did it search for suppliers according to the requirements of buyers; instead, it became the manager and executive agent for the plans of manufacturing firms. More important, it implemented a service model centered on clients and designed an optimal supply chain for each client. In the borderless production model, by breaking through the existing value chain, Li & Fung
Figure B3.2.1 The Five Stages of Li & Fung’s Development comprehensive
added value created by Li & Fung
virtual
borderless
procurement
procurement
1906
present
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