Case Study Description of Li & Fung (Trading) Ltd.
Li & Fung, one of the largest export trading companies in Asia, works primarily as an agent to connect U.S. and European manufacturers and retailers of nondurable, mass-market consumer goods with suppliers located all over East Asia who manufacture products according customer designs. Li & Fung's network of 2,000 suppliers in over a dozen countries is one of its most important competitive assets. This network consists of relationships with suppliers and knowledge of their capabilities and strengths. The network provides a number of benefits to customers, the most important being a wide variety of manufacturing options that differ by price, quality, and delivery time. Li & Fung's trading operations are organized into largely-independent, customer-focused divisions aided by regional branch offices. Its internal structure and incentives (especially compensation) are designed to motivate staff to customize service to each customer and to use the entire network to place each customer order with the supplier that most closely fits customer requirements. This design is especially important because of trading's low margins.
Swot Analysis of "Li & Fung (Trading) Ltd." written by Gary W. Loveman, Jamie O'Connell includes – strengths weakness that are internal strategic factors of the organization, and opportunities and threats that Li Fung's facing as an external strategic factors. Some of the topics covered in Li & Fung (Trading) Ltd. case study are - Strategic Management Strategies, Human resource management, Networking, Organizational structure, Supply chain and Technology & Operations.
Some of the macro environment factors that can be used to understand the Li & Fung (Trading) Ltd. casestudy better are - – technology disruption, central banks are concerned over increasing inflation, cloud computing is disrupting traditional business models, increasing household debt because of falling income levels, increasing energy prices, there is backlash against globalization, competitive advantages are harder to sustain because of technology dispersion,
digital marketing is dominated by two big players Facebook and Google, there is increasing trade war between United States & China, etc
Introduction to SWOT Analysis of Li & Fung (Trading) Ltd.
SWOT stands for an organization’s Strengths, Weaknesses, Opportunities and Threats . At Oak Spring University , we believe that protagonist in Li & Fung (Trading) Ltd. case study can use SWOT analysis as a strategic management tool to assess the current internal strengths and weaknesses of the Li Fung's, and to figure out the opportunities and threats in the macro environment – technological, environmental, political, economic, social, demographic, etc in which Li Fung's operates in.
According to Harvard Business Review, 75% of the managers use SWOT analysis for various purposes such as – evaluating current scenario, strategic planning, new venture feasibility, personal growth goals, new market entry, Go To market strategies, portfolio management and strategic trade-off assessment, organizational restructuring, etc.
SWOT Objectives / Importance of SWOT Analysis and SWOT Matrix
SWOT analysis of Li & Fung (Trading) Ltd. can be done for the following purposes –
1. Strategic planning using facts provided in Li & Fung (Trading) Ltd. case study
2. Improving business portfolio management of Li Fung's
3. Assessing feasibility of the new initiative in Technology & Operations field.
4. Making a Technology & Operations topic specific business decision
5. Set goals for the organization
6. Organizational restructuring of Li Fung's
Strengths Li & Fung (Trading) Ltd. | Internal Strategic Factors
What are Strengths in SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis
The strengths of Li Fung's in Li & Fung (Trading) Ltd. Harvard Business Review case study are -
Analytics focus
– Li Fung's is putting a lot of focus on utilizing the power of analytics in business decision making. This has put it among the leading players in the industry. The technology infrastructure suggested by Gary W. Loveman, Jamie O'Connell can also help it to harness the power of analytics for – marketing optimization, demand forecasting, customer relationship management, inventory management, information sharing across the value chain etc.
Highly skilled collaborators
– Li Fung's has highly efficient outsourcing and offshoring strategy. It has resulted in greater operational flexibility and bringing down the costs in highly price sensitive segment. Secondly the value chain collaborators of the firm in Li & Fung (Trading) Ltd. HBR case study have helped the firm to develop new products and bring them quickly to the marketplace.
Superior customer experience
– The customer experience strategy of Li Fung's in the segment is based on four key concepts – personalization, simplification of complex needs, prompt response, and continuous engagement.
Sustainable margins compare to other players in Technology & Operations industry
– Li & Fung (Trading) Ltd. firm has clearly differentiated products in the market place. This has enabled Li Fung's to fetch slight price premium compare to the competitors in the Technology & Operations industry. The sustainable margins have also helped Li Fung's to invest into research and development (R&D) and innovation.
High brand equity
– Li Fung's has strong brand awareness and brand recognition among both - the exiting customers and potential new customers. Strong brand equity has enabled Li Fung's to keep acquiring new customers and building profitable relationship with both the new and loyal customers.
Digital Transformation in Technology & Operations segment
- digital transformation varies from industry to industry. For Li Fung's digital transformation journey comprises differing goals based on market maturity, customer technology acceptance, and organizational culture. Li Fung's has successfully integrated the four key components of digital transformation – digital integration in processes, digital integration in marketing and customer relationship management, digital integration into the value chain, and using technology to explore new products and market opportunities.
Learning organization
- Li Fung's is a learning organization. It has inculcated three key characters of learning organization in its processes and operations – exploration, creativity, and expansiveness. The work place at Li Fung's is open place that encourages instructiveness, ideation, open minded discussions, and creativity. Employees and leaders in Li & Fung (Trading) Ltd. Harvard Business Review case study emphasize – knowledge, initiative, and innovation.
Low bargaining power of suppliers
– Suppliers of Li Fung's in the sector have low bargaining power. Li & Fung (Trading) Ltd. has further diversified its suppliers portfolio by building a robust supply chain across various countries. This helps Li Fung's to manage not only supply disruptions but also source products at highly competitive prices.
Innovation driven organization
– Li Fung's is one of the most innovative firm in sector. Manager in Li & Fung (Trading) Ltd. Harvard Business Review case study can use Clayton Christensen Disruptive Innovation strategies to further increase the scale of innovtions in the organization.
Strong track record of project management
– Li Fung's is known for sticking to its project targets. This enables the firm to manage – time, project costs, and have sustainable margins on the projects.
Diverse revenue streams
– Li Fung's is present in almost all the verticals within the industry. This has provided firm in Li & Fung (Trading) Ltd. case study a diverse revenue stream that has helped it to survive disruptions such as global pandemic in Covid-19, financial disruption of 2008, and supply chain disruption of 2021.
Training and development
– Li Fung's has one of the best training and development program in the industry. The effectiveness of the training programs can be measured in Li & Fung (Trading) Ltd. Harvard Business Review case study by analyzing – employees retention, in-house promotion, loyalty, new venture initiation, lack of conflict, and high level of both employees and customer engagement.
Weaknesses Li & Fung (Trading) Ltd. | Internal Strategic Factors
What are Weaknesses in SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis
The weaknesses of Li & Fung (Trading) Ltd. are -
Need for greater diversity
– Li Fung's has taken concrete steps on diversity, equity, and inclusion. But the efforts so far has resulted in limited success. It needs to expand the recruitment and selection process to hire more people from the minorities and underprivileged background.
Employees’ incomplete understanding of strategy
– From the instances in the HBR case study Li & Fung (Trading) Ltd., it seems that the employees of Li Fung's don’t have comprehensive understanding of the firm’s strategy. This is reflected in number of promotional campaigns over the last few years that had mixed messaging and competing priorities. Some of the strategic activities and services promoted in the promotional campaigns were not consistent with the organization’s strategy.
High cash cycle compare to competitors
Li Fung's has a high cash cycle compare to other players in the industry. It needs to shorten the cash cycle by 12% to be more competitive in the marketplace, reduce inventory costs, and be more profitable.
High dependence on star products
– The top 2 products and services of the firm as mentioned in the Li & Fung (Trading) Ltd. HBR case study still accounts for major business revenue. This dependence on star products in has resulted into insufficient focus on developing new products, even though Li Fung's has relatively successful track record of launching new products.
Increasing silos among functional specialists
– The organizational structure of Li Fung's is dominated by functional specialists. It is not different from other players in the Technology & Operations segment. Li Fung's needs to de-silo the office environment to harness the true potential of its workforce. Secondly the de-silo will also help Li Fung's to focus more on services rather than just following the product oriented approach.
Capital Spending Reduction
– Even during the low interest decade, Li Fung's has not been able to do capital spending to the tune of the competition. This has resulted into fewer innovations and company facing stiff competition from both existing competitors and new entrants who are disrupting the industry using digital technology.
Compensation and incentives
– The revenue per employee as mentioned in the HBR case study Li & Fung (Trading) Ltd., is just above the industry average. Li Fung's needs to redesign the compensation structure and incentives to increase the revenue per employees. Some of the steps that it can take are – hiring more specialists on project basis, etc.
Slow to strategic competitive environment developments
– As Li & Fung (Trading) Ltd. HBR case study mentions - Li Fung's takes time to assess the upcoming competitions. This has led to missing out on atleast 2-3 big opportunities in the industry in last five years.
High operating costs
– Compare to the competitors, firm in the HBR case study Li & Fung (Trading) Ltd. has high operating costs in the. This can be harder to sustain given the new emerging competition from nimble players who are using technology to attract Li Fung's 's lucrative customers.
Aligning sales with marketing
– It come across in the case study Li & Fung (Trading) Ltd. that the firm needs to have more collaboration between its sales team and marketing team. Sales professionals in the industry have deep experience in developing customer relationships. Marketing department in the case Li & Fung (Trading) Ltd. can leverage the sales team experience to cultivate customer relationships as Li Fung's is planning to shift buying processes online.
Lack of clear differentiation of Li Fung's products
– To increase the profitability and margins on the products, Li Fung's needs to provide more differentiated products than what it is currently offering in the marketplace.
Opportunities Li & Fung (Trading) Ltd. | External Strategic Factors
What are Opportunities in the SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis
The opportunities highlighted in the Harvard Business Review case study Li & Fung (Trading) Ltd. are -
Reforming the budgeting process
- By establishing new metrics that will be used to evaluate both existing and potential projects Li Fung's can not only reduce the costs of the project but also help it in integrating the projects with other processes within the organization.
Creating value in data economy
– The success of analytics program of Li Fung's has opened avenues for new revenue streams for the organization in the industry. This can help Li Fung's to build a more holistic ecosystem as suggested in the Li & Fung (Trading) Ltd. case study. Li Fung's can build new products and services such as - data insight services, data privacy related products, data based consulting services, etc.
Buying journey improvements
– Li Fung's can improve the customer journey of consumers in the industry by using analytics and artificial intelligence. Li & Fung (Trading) Ltd. suggest that firm can provide automated chats to help consumers solve their own problems, provide online suggestions to get maximum out of the products and services, and help consumers to build a community where they can interact with each other to develop new features and uses.
Lowering marketing communication costs
– 5G expansion will open new opportunities for Li Fung's in the field of marketing communication. It will bring down the cost of doing business, provide technology platform to build new products in the Technology & Operations segment, and it will provide faster access to the consumers.
Changes in consumer behavior post Covid-19
– Consumer behavior has changed in the Technology & Operations industry because of Covid-19 restrictions. Some of this behavior will stay once things get back to normal. Li Fung's can take advantage of these changes in consumer behavior to build a far more efficient business model. For example consumer regular ordering of products can reduce both last mile delivery costs and market penetration costs. Li Fung's can further use this consumer data to build better customer loyalty, provide better products and service collection, and improve the value proposition in inflationary times.
Building a culture of innovation
– managers at Li Fung's can make experimentation a productive activity and build a culture of innovation using approaches such as – mining transaction data, A/B testing of websites and selling platforms, engaging potential customers over various needs, and building on small ideas in the Technology & Operations segment.
Learning at scale
– Online learning technologies has now opened space for Li Fung's to conduct training and development for its employees across the world. This will result in not only reducing the cost of training but also help employees in different part of the world to integrate with the headquarter work culture, ethos, and standards.
Finding new ways to collaborate
– Covid-19 has not only transformed business models of companies in Technology & Operations industry, but it has also influenced the consumer preferences. Li Fung's can tie-up with other value chain partners to explore new opportunities regarding meeting customer demands and building a rewarding and engaging relationship.
Developing new processes and practices
– Li Fung's can develop new processes and procedures in Technology & Operations industry using technology such as automation using artificial intelligence, real time transportation and products tracking, 3D modeling for concept development and new products pilot testing etc.
Loyalty marketing
– Li Fung's has focused on building a highly responsive customer relationship management platform. This platform is built on in-house data and driven by analytics and artificial intelligence. The customer analytics can help the organization to fine tune its loyalty marketing efforts, increase the wallet share of the organization, reduce wastage on mainstream advertising spending, build better pricing strategies using personalization, etc.
Redefining models of collaboration and team work
– As explained in the weaknesses section, Li Fung's is facing challenges because of the dominance of functional experts in the organization. Li & Fung (Trading) Ltd. case study suggests that firm can utilize new technology to build more coordinated teams and streamline operations and communications using tools such as CAD, Zoom, etc.
Reconfiguring business model
– The expansion of digital payment system, the bringing down of international transactions costs using Bitcoin and other blockchain based currencies, etc can help Li Fung's to reconfigure its entire business model. For example it can used blockchain based technologies to reduce piracy of its products in the big markets such as China. Secondly it can use the popularity of e-commerce in various developing markets to build a Direct to Customer business model rather than the current Channel Heavy distribution network.
Harnessing reconfiguration of the global supply chains
– As the trade war between US and China heats up in the coming years, Li Fung's can build a diversified supply chain model across various countries in - South East Asia, India, and other parts of the world. This reconfiguration of global supply chain can help, as suggested in case study, Li & Fung (Trading) Ltd., to buy more products closer to the markets, and it can leverage its size and influence to get better deal from the local markets.
Threats Li & Fung (Trading) Ltd. External Strategic Factors
What are Threats in the SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis
The threats mentioned in the HBR case study Li & Fung (Trading) Ltd. are -
High dependence on third party suppliers
– Li Fung's high dependence on third party suppliers can disrupt its processes and delivery mechanism. For example -the current troubles of car makers because of chip shortage is because the chip companies started producing chips for electronic companies rather than car manufacturers.
Aging population
– As the populations of most advanced economies are aging, it will lead to high social security costs, higher savings among population, and lower demand for goods and services in the economy. The household savings in US, France, UK, Germany, and Japan are growing faster than predicted because of uncertainty caused by pandemic.
Instability in the European markets
– European Union markets are facing three big challenges post Covid – expanded balance sheets, Brexit related business disruption, and aggressive Russia looking to distract the existing security mechanism. Li Fung's will face different problems in different parts of Europe. For example it will face inflationary pressures in UK, France, and Germany, balance sheet expansion and demand challenges in Southern European countries, and geopolitical instability in the Eastern Europe.
New competition
– After the dotcom bust of 2001, financial crisis of 2008-09, the business formation in US economy had declined. But in 2020 alone, there are more than 1.5 million new business applications in United States. This can lead to greater competition for Li Fung's in the Technology & Operations sector and impact the bottomline of the organization.
Increasing international competition and downward pressure on margins
– Apart from technology driven competitive advantage dilution, Li Fung's can face downward pressure on margins from increasing competition from international players. The international players have stable revenue in their home market and can use those resources to penetrate prominent markets illustrated in HBR case study Li & Fung (Trading) Ltd. .
Environmental challenges
– Li Fung's needs to have a robust strategy against the disruptions arising from climate change and energy requirements. EU has identified it as key priority area and spending 30% of its 880 billion Euros European post Covid-19 recovery funds on green technology. Li Fung's can take advantage of this fund but it will also bring new competitors in the Technology & Operations industry.
Capital market disruption
– During the Covid-19, Dow Jones has touched record high. The valuations of a number of companies are way beyond their existing business model potential. This can lead to capital market correction which can put a number of suppliers, collaborators, value chain partners in great financial difficulty. It will directly impact the business of Li Fung's.
Easy access to finance
– Easy access to finance in Technology & Operations field will also reduce the barriers to entry in the industry, thus putting downward pressure on the prices because of increasing competition. Li Fung's can utilize it by borrowing at lower rates and invest it into research and development, capital expenditure to fortify its core competitive advantage.
High level of anxiety and lack of motivation
– the Great Resignation in United States is the sign of broader dissatisfaction among the workforce in United States. Li Fung's needs to understand the core reasons impacting the Technology & Operations industry. This will help it in building a better workplace.
Consumer confidence and its impact on Li Fung's demand
– There is a high probability of declining consumer confidence, given – high inflammation rate, rise of gig economy, lower job stability, increasing cost of living, higher interest rates, and aging demography. All the factors contribute to people saving higher rate of their income, resulting in lower consumer demand in the industry and other sectors.
Increasing wage structure of Li Fung's
– Post Covid-19 there is a sharp increase in the wages especially in the jobs that require interaction with people. The increasing wages can put downward pressure on the margins of Li Fung's.
Trade war between China and United States
– The trade war between two of the biggest economies can hugely impact the opportunities for Li Fung's in the Technology & Operations industry. The Technology & Operations industry is already at various protected from local competition in China, with the rise of trade war the protection levels may go up. This presents a clear threat of current business model in Chinese market.
Technology acceleration in Forth Industrial Revolution
– Li Fung's has witnessed rapid integration of technology during Covid-19 in the Technology & Operations industry. As one of the leading players in the industry, Li Fung's needs to keep up with the evolution of technology in the Technology & Operations sector. According to Mckinsey study top managers believe that the adoption of technology in operations, communications is 20-25 times faster than what they planned in the beginning of 2019.
Weighted SWOT Analysis of Li & Fung (Trading) Ltd. Template, Example
Not all factors mentioned under the Strengths, Weakness, Opportunities, and Threats quadrants in the SWOT Analysis are equal. Managers in the HBR case study Li & Fung (Trading) Ltd. needs to zero down on the relative importance of each factor mentioned in the Strengths, Weakness, Opportunities, and Threats quadrants.
We can provide the relative importance to each factor by assigning relative weights. Weighted SWOT analysis process is a three stage process –
First stage for doing weighted SWOT analysis of the case study Li & Fung (Trading) Ltd. is to rank the strengths and weaknesses of the organization. This will help you to assess the most important strengths and weaknesses of the firm and which one of the strengths and weaknesses mentioned in the initial lists are marginal and can be left out.
Second stage for conducting weighted SWOT analysis of the Harvard case study Li & Fung (Trading) Ltd. is to give probabilities to the external strategic factors thus better understanding the opportunities and threats arising out of macro environment changes and developments.
Third stage of constructing weighted SWOT analysis of Li & Fung (Trading) Ltd. is to provide strategic recommendations includes – joining likelihood of external strategic factors such as opportunities and threats to the internal strategic factors – strengths and weaknesses. You should start with external factors as they will provide the direction of the overall industry. Secondly by joining probabilities with internal strategic factors can help the company not only strategic fit but also the most probably strategic trade-off that Li Fung's needs to make to build a sustainable competitive advantage.