Apply the Strategic Alignment Model (SAM) to analyze the IT (i.e., ERP) initiative at Li & Fung. As the SAM is not
a one-time event, please ensure that you specify which part of the case you are beginning your analysis from
and where you are ending your analysis. For this part of the case that you select, ensure that you answer the
following questions. Explain/justify your answers:
• Which domain drives which domain in which order?
• Is there any domain that is neglected or not addressed well?
• What should be the role of top management and IT management for the domain alignment perspectives
you are analyzing?
• Identify and
iefly describe how you would assess IT for the domain alignment perspectives specified in
your analysis.
Li & Fung (A): Internet Issues
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R E V : N O V E M B E R 9 , XXXXXXXXXX
________________________________________________________________________________________________________________
Professor F. Wa
en McFarlan and Senior Researcher Fred Young, Asia-Pacific Research Center, prepared this case. The authors thank the Global
Research Group and Camille Tang Yeh, Executive Director, Asia-Pacific Research Center, for their support. HBS cases are developed solely as the
asis for class discussion. Cases are not intended to serve as endorsements, sources of primary data, or illustrations of effective or ineffective
management.
Copyright © 2000 President and Fellows of Harvard College. To order copies or request permission to reproduce materials, call XXXXXXXXXX,
write Harvard Business School Publishing, Boston, MA 02163, or go to http:
www.hbsp.harvard.edu. No part of this publication may be
eproduced, stored in a retrieval system, used in a spreadsheet, or transmitted in any form or by any means—electronic, mechanical,
photocopying, recording, or otherwise—without the permission of Harvard Business School.
F . W A R R E N M C F A R L A N
F R E D Y O U N G
Li & Fung (A): Internet Issues
“I’m not an Internet guy, I’m a business guy,” quipped William Fung, managing director of Li &
Fung Trading Co. Clad in chinos and a black American Eagle T-shirt, Fung looked much more like a
new-economy entrepreneur than the self-described offline, old-economy relic: “I'm 51; I'm more
than a grey hair in Internet terms—I'm a fossil.”1 Nor did lifung.com, his elder
other Victor’s new
online company, resemble a typical Internet start-up, particularly with the founders having a 96-year
parent born at the end of the Qing Dynasty. In August 2000, the day before beta launch of the new
usiness-to-business (B2B) e-commerce portal, William described the challenges facing Li & Fung:
About three or four years ago, Victor and I discussed the Internet and how it impacts us.
Our starting point was a defensive posture: Would the Internet disintermediate us? Would
we get “Amazoned”2 by someone who will put together all of the information about buyers
and factories online? After a lot of research we realized that the Internet facilitates supply-
chain management and we weren’t going to be disintermediated. The key is to have the old-
economy know-how and yet be open to new-economy ideas.
With a press conference the following day, William was confident of the Group’s3 performance
and lifung.com’s prospects. But he knew that important issues remained unresolved: Was there any
chance of channel conflict or cannibalization between the offline business and the startup? How
would the market react to the start-up once it was launched the following year? And how specifically
would e-commerce ultimately transform his family’s century-old company?
Company Background4
Li & Fung was founded in 1906 by William’s grandfather, Fung Pak-Liu and his partner, Li To-
Ming in Guangzhou, China, as an export trading company in Southern China selling to overseas
merchants. In the 1920s and 1930s the company diversified into warehousing and the manufacture of
handicrafts. Shortly after Fung Pak-Liu passed away in 1943, his son Fung Hon-Chu took charge of
1 Rahul Jacob, “Inside Track: Traditional Values at the Click of a Mouse,” Financial Times, August 1, 2000, p. 14.
2 Online bookseller Amazon.com had decimated the ranks of independent booksellers by aggregating services and offering a
oader selection of stock at lower prices than the small bookstores could.
3 “Group” refe
ed to the group of companies that made up Li & Fung’s trading, retailing, and distribution businesses.
4 Some information in this section is drawn from the following Harvard Business School case studies: “Li & Fung: Beyond
Filling in the Mosaic—1995–1998,” HBS No XXXXXXXXXX, by Michael Y. Yoshino, Carin-Isabel Knoop, and Anthony St. George; and
“Li & Fung (Trading) Ltd.,” HBS No XXXXXXXXXX, by Gary Loveman and Jamie O’Connell.
For the exclusive use of M. Harthi, 2022.
This document is authorized for use only by Mashor Harthi in Advanced Information Systems - Spring 2022 taught by V.T. Raja, Oregon State University from Apr 2022 to Jun 2022.
XXXXXXXXXXLi & Fung (A): Internet Issues
2
the company. Two years later, silent partner Li To-Ming retired and sold his shares to the company.
The company retained Li’s surname, a homophone for “profit” in Chinese, which, along with “Fung,”
a homophone for “abundance,” had an auspicious ring when combined.
Li & Fung relocated permanently to Hong Kong at the end of World War II, expanding its
operations to include toys, garments, plastic flowers, and electronics. In the early 1970s, both Fung
others had just returned from the United States: William had earned his MBA from Harvard
Business School and returned to the business in 1972. Victor had recently completed his Ph.D. in
economics at Harvard University and, following a two-year stint teaching at Harvard Business
School, rejoined the business in 1974. Their return heralded Li & Fung’s transition from a family-
owned business to a professionally managed firm, with a planning and budgeting system in place for
the first time. William and Victor, the third generation to run the company, felt that the next logical
step in growing the company was to go public. In 1973, Li & Fung became the holding company for
the Group and was listed on the Hong Kong Stock Exchange. Throughout the 1980s, Li & Fung
expanded its regional network of offices throughout the Asia-Pacific region as more sources of
supply emerged in the rapidly industrializing Asian economies. In 1988 the Group was privatized
and streamlined, incorporated in Bermuda in 1991, and its trading activities were listed on the HKSE
in July XXXXXXXXXXWith the 1995 acquisition of Inchcape Buying Services5 (formerly Dodwell), Li & Fung
expanded its customer base in Europe while simultaneously shifting its sourcing network beyond
East Asia to include the Indian sub-continent, the Medite
anean, and Cari
ean basins.
By 2000, Li & Fung was a $2 billion global export trading company with 3,600 staff worldwide,
sourcing and managing the global supply chain for high-volume, time-sensitive consumer goods.
(Exhibit 1 shows 1999 Li & Fung financial data.) By 2000, 69% of Li & Fung’s sales were in the United
States and 27% in Europe. Key customers included The Limited, Gymboree, American Eagle, Warner
Brothers, Abercrombie & Fitch, and Bed, Bath, & Beyond. Tesco, Avon Products, Levi-Strauss, and
Reebok had become customers within the last two years; Royal Ahold, Guess Jeans, and Bebe had
signed on in 2000.
Li & Fung’s product mix included hard and soft goods. Soft goods refe
ed to apparel, including
woven and knit garments for men, women, and children. Hard goods included fashion accessories,
festive or holiday products, furnishings, giftware, handicrafts, home products, fireworks, sporting
goods, toys, and travel goods. Hard goods provided higher margins than soft goods because, despite
a generally lower item value per unit, they required higher value-added services for orders that were
also usually much smaller than soft goods orders. Hard goods items such as watches, shoes,
suitcases, kitchenware, or teddy bears required an inspector for quality control evaluation for even
the smallest batch order, thereby greatly increasing what Li & Fung could charge. Margins for soft
goods were roughly 6% to 8%, while margins on hard goods ranged anywhere from 10% to 30%,
depending on the degree of complexity involved in sourcing raw materials. Li & Fung attempted to
expand its sale of hard goods. In 1998 soft and hard goods contributed 77.5% and 22.5% of total sales,
espectively, while the proportion of hard-goods sales grew to 25% in 1999 and was projected to
increase to 27% in 2001 and 29% in 2002.
Holistic Supply-Chain Management
Although Li & Fung described itself as a trading company, by 2000 it was far more sophisticated
than a typical Hong Kong import-export trading company and had come a long way from its roots in
matching Chinese manufacturers with Western buyers. In Victor’s words:
5 For details, see Acquisitions on page 5.
For the exclusive use of M. Harthi, 2022.
This document is authorized for use only by Mashor Harthi in Advanced Information Systems - Spring 2022 taught by V.T. Raja, Oregon State University from Apr 2022 to Jun 2022.
Li & Fung (A): Internet Issues XXXXXXXXXX
3
We have been changing. Now we're orchestrating a whole production process