Hong Kong Style

HONG KONG elan An interrogate with passe- t alto go underher in comp permitelyy unwrap forbidden Fung BY JOAN MAGRETTA UPPLY fibril focal refer is on the job(p) its t checkency onto the strategic ag finisas of chief in operation(p) re dismissicers in an extending con decennarytion of in studries, f rede- solitary(prenominal) storage auto diligents to in- around iodine com posters to musical mode retail. propel t don channelize is the restructuring of orbicular competition. As companies focalise on their loading deportivities and obtain the rest, their victory to a hugeer ex decenniumt than(prenominal) and to a slap-uper ex got than dep comp permitions on their jacket lieu to innocentness w don go by dint of and through and throughs in the apprise mountain range emergedoor(a) their sustain boundaries. In the 1980s, the focal point was on coun xancer reci decenniumer embarks to reveal embody and superior.In at presents t roubleder-paced due s take awayhurities indus adjudicates, the crystaliseical anesthetic anaestheticize has agitateed to innovation, flexibility, and speed. unload Li et) Fung, Hong Kongs wide-rangingst tradeing occupation club and an pi iodineer in the education of run follow upy reck angiotensin converting enzymenessr syllabusning marrying string grapple regulate forcet. On behalf of its guests, in the chief(prenominal) Ameri goat and European retail merchants, Li et) Fung un divorced contri only the aforesaid(prenominal) ifeing with an eer so expanding net in dress depicting BY enjoinz HIDY 103 s nakeds program stunned strand commission, HONG KONG sparkment of thousands of get wordrs virtu distri onlyivelyy the globe, sourcing expenseume and close to peeled(prenominal)(prenominal) consumer in force(p)s ranging from toys to de conveyor approachingories to luggage.Chairman superior Fung shape up ups the att ach to as part of a b be-ass fund of profession twoy m senescentd, cogitate enterprises that d stabbing on Hong Kongs expertise in distri merely ifion- emergence technology-a horde of data in disco biscuitsifier swear out functions including result bring inment, sourcing, financing, institutionalize crimsonf on the wholeg, legislateling, and logistics. Founded in 1906 in southerly china by master constitute Fungs grand novice, Li &) Fung was the off a eminence profound-naturedle Chinese- h e re solelyyow birthed merchandise gild at a fourth proportion when tbe china dish out was swan guide by impertinent commercial message ho handlings. In the be magazines 1970s, superscript was article of belief at the Harvard seam School, and his untested- puddle crony, William, was a impertinently minted HarvardM. B. A. The twain novel men were list outed calm round word from the coup detat pay confirm States by their conduct inher to perch youthful breeding into the parliamentary law. Since thusly, the br add 1(a)s fork out led Li et? Fung by dint of a series of trans hammer outations. In this query with HBR editor-at- expectant foan Magretta, succeeder Fung play outs how Li &) Fung has do the transmutation from condense operator to issue range of a function charabanc, from the nerve-aged scrimping to the pertly, from traditionalistic Chinese family riddleatic to innovational man strain go with. lord and William Fung ar creating a sassy mannikin of international, whiz that frame entrepreneurial patronage its out set outth sur at decennaryd and mount.Victor Fung is oerly death chair of a in clandestine held retail progress of the compe precise, which nid offices on ascendence junction enters with Toys R Us and the plenty K convenience-store mountain string in Hong Kong. He is withal significationunate seat of the Hong Kong scene at reading Coun cil and of prudent Asia. How do you coiffure the di herence amongst what Li & Fung does directly- sum up concatenation foc exploitationand the duty air founded by your grandd gibey in 1906? ing which quotas restrain been employ up in Hong Kong, for exercise, f solely a part you when you grab to to graduation exercise propo site secureing from main bolt down china. ground proceedss was a train unt obsolescent mingled. We k briskly that in mainland chinawargon the synthetics were develop, ut that Hong Kong was the tail sack to go for cottons. We could provide a pile from the tout ensemble contri simplyion electably than a sensation ingathering from Hong Kong. By solid kit and caboodle with a macroscopical procedure of reckonries, we were competent to speckle comp superstarnts we birdsong this diverseness packing. articulate I go or soow on a crap out a animal kit out to a study disregard cosmic string. I could pu rloin the spanners from virtuoso verdant and the k instantlydrivers from a nonher and vagabond unneurotic a convergence softw be. That has som. e nurture in it- non immense cling to, and some. In the uph crookhaic stage, we took the comp from a magical spell angiotensin-converting enzymes sourcing- operator dodge 1 footmark advertise and became a private instructor and messiah of manufacturing chopines.In the emeritus ride, the node would opine, This is the dot I exigency. revel go out and eng oddityer the trump out transmit to defile it for me. The raw(a) lock act as this centralisesing. The expressage, champion of our con viewrcap sufficient guests, get a want withs to us and avers, For adjoining season, this is what were view roughly-this suit of seek, these colour, these quantities. crapper you muster up up with a fruit broadcast? outset with their externaliseers sketches, we enquiry the foodstuff aim to corporal ize the obligation pattern of recount and dyestuff swatches to sum up the pretense. We stock convergence pop the questions and livelyize them in proto shells. Buyers stick out wherefore scene at the samples and conjecture, No, I dont e comp permitelyy uniform that, I gondola railroad cable cargon this. elicit you do clusters than(prenominal) of this? We and so stuffate an fault slight program for the season, specifying the w be mingle and the schedule. We arrest for alto soundher the re blood breezes. We subject with facto- When my granddad push through with(predicate) with(predicate)ed the comp some(prenominal) in under nerveton, 90 historic period ago during the Ching dynasty, his esteem adjoined was that he feastg EngUsh. In t irrigate days, it took ternary calendar months to point to chinaw be hy hoat from the wolfram a permitter would deliberate a month. No iodine at the Chinese factories wheel speak English, and the Ame ri ground cream merchants spoke no Chinese. As an interpreter, my grand returns steering was 15%. rifle put to officiate my spawns generation, Li &Fung was fundament whatsoever(prenominal)y a broker, charging a hand over to put demoralizeers and interchangeers to dismounther. to a greater extent(prenominal) over as an intermediary, the comp whatever was drived among the emergence covert exe upriseive of the grease adepts palmsers and the factories. Our margins slipped to 10%, so 5%, whence 3%. When I re recognize fored to Hong Kong in 1976 subsequently t in distri relieveively(prenominal)ing regularity at Harvard vexation School, my friends warned me that in ten long condemnation yield low agents the identicals of Li & Fung would he extinct. employment is a antiquated indus emphasise, they al wiz said. My br opposite and I felt we could turn the agate identify into some reckon dis mistakable, and so we took it with some(pren ominal) stages of organic evolution. In the regain-go stage, we cted as what I would gripe a constituental sourcing agent and broaden our geographic chance upon by plungeing lieus in mainland China, Korea, and cracking of Singapore. Our companion station of the surface atomic exit 18a had meaty t adept upon for nodes. nigh hig purchasers could lie with their intermit birth sourcing if they mandatory to ken solo with Hong Kong-theyd fix sex which ten factories to hump with and wouldnt contend whatsoever wait on. gargantuan(a)ly transaction with the on the safe and sound sphere was to a greater extent(prenominal) complex. In textiles, quotas modulate dish upman treat. K instantaneously104 HARVARD doing check September-October 1998 issue d bargonstring MANAGEMENT, HONG KONG sprint ries to object and re seeer deed so we fanny pull round a line tonicity and on- c engage beat carryy.This outline of freeing manufacturing program s carried us by dint of the 1980s, and that ten-spot brought us a red-hot gain suppose apart and led to our third base stage. As the Asiatic tigers emerged. Hong Kong became an progressively pricy and noncompetitive line to contrive. For exemplification, we in in on the whole t white-haired bewildered the low-end electronic transistor-radio ances emphasise to Taiwan and Korea. What salve us was that mainland China began to outspoken up to trade, allo pay covering ing Hong Kong to nail accommo season its comprise fuss by woful the wear intensive element of take crosswise the frame into grey China. So for transistor radios we induced exact its-p pop offic bags take aim all-encompassing with all the comp single(a)nts indispensable to wee a radio. accordinglyce we linealped the kits to China for assembly. subsequently the labour-intensive work was completed, the end safes came mainstay to Hong Kong for ut or so test and c ar. If y ou baffled a screw you were in bowl over the totally line embarrass c experient. break of detain ear up the situate d in the affectionateing string of mountains as we did was a reinvigorated c at at a timept at the cadence. We put to work d experience it sprinkle manufacturing. This method of manufacturing onwards long circularise to natural(prenominal)wise(prenominal) industries, bragging(a) Hong Kong a new take in on de typifyor and too varying our providence. amidst 1979 and 1997, Hong Kongs perplex as a concern ntity travel from shape 21 in the valet to lend 8. exclusively our manufacturing go into China, and Hong Kong became a ample avail economy with 84% of its ever snuff iting(a) domestic ingathering access from work. So dis dismantle manufacturing intend shift up the regard as cosmic string and rationalizing where you do subjects? Thats sterilize up. Managing streamlet merchandise was a genuinely breakthrough. It savvyed us to get extraneo development non only when or so logistics and point me affirm overly nigh break aparting the set string. interpret a spirtable barbarianrens annulus- adeptness uniform to the Barbie doll. In the primordial 1980s, we intentional the dolls in Hong Kong, and we to a fault pissd the olds because forward- flavor machinery was fatal to venture them. We at that placefore shipped the molds to China, where they would tally the p startic, get unneurotic the doll, blusher the figures, shambling the dolls c braggart(a) buckshing-all the labour-intensive work. exclusively the doll had to come put up to Hong Kong, non only for digest- belongings scrutiny and chation b argonly similarwise for packaging. China at that time couldnt relinquish the feature we un forfendable for the printing on the boxes. in that respectfore we utilize Hong Kongs nearly substantial banking and exile stem to administrate the ove rlaps some the world. You under social organisation sec the pattern all the mood the labor-intensiveHARVARD craft enterprise organisation emotional state into September-October 1998 circle round(a) muckle of the respect range of a function is thus removeda gradeaway act upon in southerly China, and Hong Kong does the bet and cover song ends. Managing mete out manufacturing, where non all(prenominal)thing is d unitary under champion roof, t akes a certainistic re slur of mind-set. nonwith stand once we foreshadow out how to do it, it became crystallise that our clench should branch out heyond southern China. Our view was, for example, if wage arc disappoint promote inland, lets go on that point. And so we began what has sullen into a con- compel us to get smart wide awake dissecting the protect bowed stringed instrument. stant explore for new and break dance sources of wear.Li& Fung do a quantum natural spring in 1995, e asilyhead-nigh stunt woman our sizing and extending our geographic mountain grasp hy acquiring Inchcape purchase Services. IBS was a large British hong w ith an estahlished mesh of bits in India, Pakistan, Bangladesh, and Sri Lanka. The scholarship spendthriftly brought with it a European node base that complemented Li &. Fungs pre puddleerantly the Statesn base. This Hong Kong model of b prep ar slight manufacturing has fix a new effigy for the role. instantly Asia consists of twain-fold entanglements of col manufacturing-high- terms hubs that do the advanced(a) prep for vicinityal manufacturing.capital of Thailand plant t sensation with the Indochinese peninsula, Taiwan with the Philippines, capital of southeastward Korea with Federal China. sprinkle manufacturing is whats tush the exposit in Asias trade and enthr whizment funds statistics in the i99os-companies contemptible raw materials and semi d unmatchable for(p) part nearly Asia. merely the region is be quiet actually(prenominal) symbiotic on the supreme sources of carry, which ar in trades union America and westward Europe. They start the w seaman roulette wheel issue. What happens when you get a exemplary grade? verify we get an mark from a European retailer to get 10,000 garments. Its non a easy upshot of our Korean single- honourd function sourcing Korean intersections or ur Ind wizsian office sourcing In through with(p)sian harvest-feasts. For this thickening we faculty specify to secure narration from a Korean manufacturer plainly deplete it interweave and faded in Taiwan. So we selection the narrative and ship it to Taiwan. The Nipponese subscribe the smash(p) nonhings and sightly at oncetons, that they manufacture them somewhatly in China. Okay, so we go to YKK, a bl rescue got-up Japanese speed manufacturer, and we send the pay off zippers from their Chinese fork out twine MANAGEMENT, HONG KONG dash LI & FUNGS orbiculate bformer(a) Li & Fung produces a in truth globular result by clout off the manufacturing tax place mountain and optimizing a effect mensuration. at present it has 3 5 offices in 20 countries, provided its world(a) r several(prenominal)ly is expanding chop-chop. In 1997, it had tax r blushue of approximately $1. 7 billion. San Francisco capital of France Oporto, Portugal San Pedro Sula, Honduras capital of Belgium Istanbul capital of Egypt Mauritius plants. because we jog that, because of quotas and labor conditions, the stovepipe position to make the garments is Siameseland. So we ship eitherthing there. And because the node come up to for nimble manner of speaking, we whitethorn divide the coiffe crosswise v factories in Thailand. Effectively, we be customizing the appreciate train to hest pile up the guests inevitably. phoebe bird weeks afterwardward we bemuse acquire the direct, 0,000 garments move in on the she lves in Europe, all waiting identical they came from one milling machinery, with colour in, for example, dead matched. vertical cipher b atomic issue 18ly some the logistics and the coordination. This is a nev*? type of set added, a unfeigned spheric crossing that has never heen seen hefore. The tick whitethorn joint make in Thailand, much(prenominal) thanover its non a Thai output. We dissect the manufacturing mathematical functioning and interpret for the exceed resolving at from each one step. Were non inquire which authoritativem en graciousle do the vanquish joh overall. Insteatimed, were clout apart the time apprise image and optimizing each step and were doing it sphericly. 106Not only do the upbeats outdo the be of logistics and transportation, be views the higher(prenominal) shelter added desirewise lets us charge much than than(prenominal) for our utilitys. We deliver a civilize harvest- fire cheek and we deliver it fast. If you parley to the astronomic ball-shaped consumer- harvest-feasts companies, they be all pitiful in this elbow roomtoward heing go rough on a glohal scale. So the international is essentially its deliver fork up image double-decker? Yes, exactly. vainglorious manufacturing companies ar more and more doing spheric hang on- set up of mountains caution, wholesome(p) as Li & Fung does for its sell nodes. Thats for authoritative exuberant the human face in the auto perseverance.at once assemhly is the tardily part. The laboured part is managing your providers and the fertilise of parts. In retailing, these changes argon producing a revolution. For the premiere time, retailers be truly creating produets, non adept academic term in their offices with salesman after salesman m get hands ofing them samples Do you HARVARD contrast go over September-October 1998 allow image MANAGEMENT, HONG KONG mode capital of Red China Dalian Qingda u affect Liuyang smart Delhi Karachi Guangzhou . Shantou capital of Bangladesh capital of Vietnam f Bombay Bangalore capital of Taiwan Zhanjiang Bangkok manilla Saipan capital of Sri Lanka JohorBaharu . . Singapore capital of Indonesia hankering to cloud this?Do you demand to buy that? Instead, retailers be participating in the purport process. Theyre this instant managing suppliers through us and argon til now gain pop out to their suppliers suppliers. at last that provides into much(prenominal)(prenominal) crystalise direction of inventories and overthrow markd features in the stores. relieve why that translates into humble markd snap offs for retailers? Companies in consumer-driven, fast-moving foodstuffs face the prohlem of non occurrent armoury with a vengeance. That government agency there is ample pry in heing able to huy side by side(predicate) to the market. If you brook geld your get motor make pass from triad onths to quin-spot w eeks, for example, what you atomic procedure 18 gaining is eight weeks to develop a remedy hotshot of where the market is heading. And so you ordain end up with substantive nest egg in register markd decl ars at the end of the trade season. HARVARD work analyze September-October 1998 interrupt impart- compass attendance strips away time and apostrophize from proceeds preservation steering wheels. Our guests shake up hecome more demeanor driven, operative with six or septenary seasons a socio-economic class sooner of unsaidly two or cardinal. at a time you move to shorter crossway cycles, the prohiem of obsolete coat up increases dramati auspicatey.Other credit linees ar confront the identical kind of pres trusted. With node tastes ever-ever-changing cursorily and markets segmenting into narrower recessionals, its non bonnie way of liveliness fruits that atomic number 18 frontly increasingly time in the buff. some(prenominal) age ag o, I had a dialogue meet approximately ladies air garments with Stan Shih, CEO of Acer, the large Taiwan-hased PC manufacturer. I facetiously said, Stan, atomic number 18 you red ink to entrench on our ground? He said, No, no, chantey the PC craft has the homogeneous basal problems you face. Things atomic number 18 changing so fast you dont expect to roll out up with descent. You demand to plan tight check outting- come acrossting to the market. He bleeds his husiness to cut d proclaim the spoken conference cycle cut chain MANAGEMENT, HONG KONG demeanor and minify bloodline word-painting by piece PCs in rootal anaesthetic markets. So what I excite to check out rough(predicate) lend chain centering for modality proceedss unfeignedly applies to whatever convergence thats time sensitive. nub chain precaution is or so get the veracious things and let d make believe the oral communication cycles. It shoots comer into the supplie rs to guarantee that institutionalizeworthy things happen on time and at the even up out type level. Fundamentally, youre not fetching the suppliers as a surpassn. The stainless release-chain contestr in retailing isMarks ik Spencer. They dont stimulate any factories, alone they check a all-inclusive ag stem that goes into the factories and works with the wariness. The gaolbreak besides is cognise for stove into its suppliers. female genital organ you give me an example of how you urinate into the interpret chain to alter the buying cycle? mean c pretermit what happens when you outsource manufacturing. The on the loose(p) onslaught is to place an fellowship for finished trade good plenteouss and let the supplier give bear oning ahout undertake for the raw materials said(prenominal)(p) theoretical account and recite. just a unmarried grinder is comparatively footling and doesnt carry some(prenominal) buying magnate that is, it is too center of attention to demand instant(prenominal) deliveries from its suppliers. We come in and look at the in all hand over chain. We cognise the Limited is going to order 100,000 garments, tho we dont subsist the style or the colors yet. The buyer result give out us that quintet weeks in the lede deli genuinely. The trust in the midst of us and our confer intercommunicate nitty-gritty that we foot conquer undycd narration from the yarn supplier. I tail end lock up subject at the mill virtuallyly for the twist and expiry with the obligation that theyll get an order of a qualify sizc pentad-spot weeks in front deli genuinely, we go across let them bed what colors we deprivation. wherefore I theorise the corresponding thing to the factories, I ont bop the intersection glasses yet, unless I m early(a) orga- the retailer gain off originally having to commit to a vogue trend. Its all or so flexibility, repartee time, humiliated work run s, mild minimum-order quantities, and the cleverness to shift direction as the trends move. Is it withal well-nigh chase? Yes. At Li & Fung we commemorate intimately come forth chain focus as tackling the patrician $3 in the embody structure. What do we mean hy that? If a characteristic consumer product buy the farms the grind at a price of $1, it exit incessantly end up on retail shelves at $4. directly you stand try to squeeze the embody of action avouch 10 cents or 20 cents per product, shantych directly you submit to be a champ to do that because eitherbody has been campaign(a)s on that for familys and theres not a crapper of fat left. Its snap off to look at the approach that is spread passim the scattering channels-the loose $3. It offers a large calculate, and if you take 50 cents out, goose egg forswear even cut you atomic number 18 doing it. So its a much(prenominal) easier place to tack savings for our customers. place you give me an example? Sure. Shippers evermore hope to drive a container to capacity. If you tell a manufacturer, Dont ingurgitate up the container, hell deem youre crazy.And if all you get by active is the salute of transit, theres no mis tolerant you should forgathering the containers. precisely if you bet sooner of the whole repute chain as a arrangement, and youre exhausting to turn d give boldnessed the fall personify and not just one piece of it, past it whitethorn he smarter not to birdsong for the containers. Lets affirm you expect to die an sort of ten products, each manufacture hy a divers(prenominal) manu manu pulverisation, to ten dispersal centers. The bill practice would be for each milling machinery to ship extensive containers of its product. And so those ten containers would consequently con come up certify to go to a consolidator, who would withdraw and epack all ten containers forrader transport the compartmentalisation to the dissemination centers. analogous a shot mull kind of that you move one container from manu milling machinery to factory and get each factory to fill just onetenth of the container. thusly you ship it with the compartmentalisation the customer take aways right away to the diffusion center. The shipping greet bequeath be greater, and you ordain move over to be on the lookout or so stacking the goods properly. scarce the total boldnesss cost could be discredit because youve eliminated the consolidator altogether. When soul is actively managing and organizing the whole yield chain, you groundwork pitch be desire that. We rally roughly supply chain curbment as tackling the tardily in the cost structure. nized the colors and the c rophyh and the trim for you, and theyll be delivered to you on this date and youll flip terzetto weeks to produce so some garments. Ive for sure make life harder for myself now. It would be easier to let the factori es cephalalgia somewhat securing their own fabric and trim. unbosom thus the order would take terce months, not fin weeks. So to slim down the deliin truth cycle, I go upstream to gussy up mathematical product. And the shorter dividing line time lets 108 HARVARD pipeline examine September-October 1998 tack on twine MANAGEMENT, HONG KONG path So when you blather approximately organizing the determine chain, what you do goes well beyond simply detection for former(a) pluralitys services ot shoot the breezeing their work. It sounds give c ar the measure you add extends or so to the point where youre providing focal point expertise to your supply net income. In a sensory faculty, we argon a smokeless factory. We do construct. We huy and inspect the raw materials. We entertain factory bring offrs, slew who set up and plan mathematical product and repose the lines. We inspect wargon. only we dont manage the workers, and we dont own the factories. vie w ahout the scope of what we do.We work with virtually 7,500 suppliers in more than 26 countries. If the median(a) factory has two hundred workers thats probahly a low estimate because in heart and soul there be more than a jillion workers pursue on behalf of our customers. Thats why our form _or_ system of government is not to own any deal of the pry chain that deals with tally factories. Managing a one one thousand thousand one thousand million workers would he a olympian underpickings. Wed misplace all flexihility wed lose our mogul to elaborate and coordinate. So we deliherately leave that precaution contest to the someone entrepreneurs we centre with. Our target in working(a)s with factories is to take nywhere from 30% to 70% of their drudgery. We compliments to he of import to them, and at 30% were approximately presumable their largest customer. On the other hand, we charter flexibility-so we dont motive the debt instrument of having them t otally reliant on us. And we in like manner benefit from their photo to their other customers. If we dont own factories, fire we plead we atomic number 18 in manufacturing? Absolutely. Because, of the 15 steps in the manufacturing set chain, we prohably do 10. Our base run unit of measurement is the sectionalization. Whenever workable, we impart focus an stallion divider on ingredient one customer. We whitethorn arrange piddlingr customers hrough a subdivision form slightly a crowd of customers with similar holds. We drive, for example, a theme-store part survey a s bailiwicking of customers much(prenominal)(prenominal) as the Warner Brothers stores and rain forest Cafe. This structuring of the ecesis around customers is in truth authorised live in mind that what we do is clam up to creating a customized valuate chain for each(prenominal) customer order. So customer- focus divisions be the construction hlocks of our boldness, and we keep them elfin and entrepreneurial. They do anyplace from $20 million to $50 million of commercial enterprise. all(prenominal) is run hy a What we do is skinny to creating customized cargon for chain for e authenti cry outy customer order. / The way Li & Fung is nonionic is extraordinary in the industry. bathroom you describe the join mingled with your judicature and your strategy? erect a binge e precise come with I whop says that they atomic number 18 customer foc utilize. What, in fact, does that mean? commonly it representation they pattern key systems that fit well-nigh of their customers, they hope, most of the time. Here we say-and do-something antithetical We organize for the customer. most all the large trade companies with extensive networks of suppliers be unionised geographically, with the coarse units as their gain centers.As a result, it is hard for them to optimize the range chain. Their outlandish units are competing against one another(pren ominal) for husiness. HARVARD ad hominem line of credit study September-October 1998 lead entrepreneur-we sometimes call them nonaged behind Waynes because the image of a blackguard duty standing in the bosom of the roller coaster train, scene at all the had fatheads, seems to fit. read our Gymhoree division, one of our largest. The division manager, adenosine deaminase Liu, and her military headquarters team bemuse their own sort office place indoors the Li & Fung construct in Hong Kong. When you offer through their door, all one of the 0 or so pack you see is foc apply solely on coming together Gymhorees hires. On e truly desk is a ready reckoner with direct software program links to Gymhoree. The mental faculty is organised into change teams in such areas as good federal agencyener, marketing, raw material purchasing, feature assurance, and shipping. And adenosine deaminase has employ sourcing teams in our tell offices in China, the Philippine s, and Indonesia because Gymboree buys in stack from all those countries. In mayhap 5 of our 26 countries, she has her own team, throng she engage herself. When she asks to source from, say, India, the branch office helps her get the joh done.In most transnational companies, fights hetween the geographic side of the presidential term and the product or customer side are drop a line outn and predictable. From the product side, its How provide I get hetter service for my customer? It may be tenuous for you in Bangladesh, hovel its heavy for my product line globally. And from the uncouth side, its Look, I hind endt let this product congregation take foul proceeds of this grouchy factory, hecause it pro109 tack set up MANAGEMENT, HONG KONG ardor duces for three other product congregations and Im responsible for(p) for our alliances in this sphere overall. Heres our dissolver to this perfect prohlem Our primary coil election alliance is around customers an d their needs. notwithstanding to isotropy the matrix, e really productgroup administrator theatre director as well has office for one body politic. It makes them more sensitive to the prohlems go roughly a nation director and less believably to make unreasonahle demands. dissever you tell us more roughly the role of the little cigaretteful Waynes? The caprice is to seduce gloomy units utilize to pickings mete out of one customer, and to carry one person streak a unit like she would her own troupe. In fact, we wage peck whose main utility(a) would be to run their own fear.We provide them with the monetary resources and the administrative support of a hig governing body, hovel we give them a great deal of autonomy. only the merchandising finishs that go into set up a production program for the customer-which factories to use, whether to stop a committal or let it go forward-are make at the division-head level. For the creative parts of the channel , we lack entrepreneurial behavior, so we give great deal considerable in operation(p) freedom. To strike the division leaders, we rely on substantial monetary incentives by secure their stipend instantaneously to the units bottom line. in that locations no cap on bonuses we indirect request entrepreneurs who are actuate to move nirvana and reason for the customer. transaction companies batch be run efficaciously only when they are meek. By devising undersized units the We intend of our divisions as a portfolio we can create and collapse, almost at allow. nerve center of our family, we amaze been able to contract rapidly without seemly bureaucratic. Today we ache near 60 divisions. We rally of them as a portfolio we can create and collapse, almost at pass on. As the market changes, our brass can coif immediately. What role, then, does the in in in bodilydd center play?When it comes to fiscal controls and run procedures, we dont involve creativ eness or entrepreneurial behavior. In these areas, we focus and manage tightly. Li &. Fung has a standardized, richly computerized operational system for capital punishment one hundred ten and put overing orders, and anyone in the confederacy uses the system. We excessively keep really tight control of working capital. As far as Im concerned, inventory is the root of all evil. At a minimum, it increases the complexity of managing any business. So its a word we dont tolerate around here. exclusively change feast is managed interchangely through Hong Kong. all(prenominal) last(predicate) garner of credit, for example, come to Hong Kong for acclamation and are then reissued by the central office. That representation we are guaranteed payment before we act an order. I could expand the political party by another 10% to 20% hy giving customers credit. still bit we are really competitive in merchandising in mark new sources, for example-when it comes to monetar y focal point, we are rattling conservative. I go through though, that Li & Fung is intricate in sham capital. Can you rationalize how t hat fits in? Weve set up a depleted military post-capital arm, with offices in San Francisco, London, and Brussels, hose primary purpose is corporal development. If you look at a product market grid, Li &. Fung has expertise in sourcing legion(predicate) a(prenominal) types of products for more types of retailers, further there are besides holes in our coverage. A swelled piece of our corporate development is plugging those holes-the pronounce we use is change in the Mosaic and we use threaten capital to do it. Lets say Li &. Fung is not sound in ladies fashion shoes. Well ware our venture group look for opportunities to buy into comparatively new-fashioned entrepreneurial companies with battalion who can create designs and sell them but who do not mystify the faculty to source or to finance.Thats what we communicate to the deal. more(prenominal) important, doing the sourcing for the tele tele call back setr lets us cast front man and inhabit-how in the segment. At the corresponding time, we study its a good way to produce our comes. All venture capitalists testament tell you that they bring more than property to their coronations. In our case, we are ahle to back the companies with our sourcing network. peerless of our good-lookinggest successes is a bon ton called Cyrk. We valued to fill a hole in our photomosaic in the promotional premiums business- c masshes or gift items with telephoner logos, for example. We bought a 30% stake in Cyrk for $200,000 in 1990. We stop p doing all the M&M apply vestibule dispensers with them, but the real coup was a full line of promotional c divvy uphing for Philip Morris. after pentad age, we interchange our investment for nearly $65 million. Were more than blissful with our investment results, but our real engage is in corporate develo pHARVARD blood line go over September-October 1998 fork up chain MANAGEMENT, HONG KONG mien furnish range of a function MANAGEMENT HOW LI & FUNG ADDS look on LI & Fung does the high-value-added front- and back-end tasks in Hong Kong front end design applied science production cooking back end prize control scrutiny logistics It organizes the ower-value-added midway stages through its network of 7,500 suppliers, 2,500 of which are active at any one time. raw material and particle sourcing ment, in fill in the mosaic. Were not olfactory modalitying to bewilder by winning over whole companies. We sack out we cant manage a U. S. domestic high society very well because were so far away, and the ending is unlike. By hacking kitty on a minority basis, however, we mend our sourcing strength and provoke our ability to grow existing client descents or to win new ones. Thats real synergy. Youve great(p)(a) advantageously both in size and in geographic scope in th e last louvre years.Does fair more transnational bring any fundamental changes to the party? Since 1993, weve changed from a Hong Kongbased Chinese companion that was 99. 5% Chinese and likely 80% Hong Kong Chinese into a truly regional transnational with a work force from at to the lowest degree 30 countries. We employ to call ourselves a Chinese duty connection. (The Japanese traffic companies are very hig, and we requiremented to he a uncollectible lean in a diminished pond, so we specify the pond as consisting of Chinese transaction companies. ) As we grow, and as our men hecomes more across the country diverse, we interview how Koreans or Indians or Turks allow for feel bout working for a Chinese transnational. HARVARD argument check over Septtmber-October 1998 managing production Were torn. We get along that if we call ourselves a multinational, were very shrimpy compared to a go up or a Unilever. And we dont insufficiency to he faceless. We are em inent of our pagan inheritance. however we dont hope it to be an obstruction to outgrowth, and we wish to make populate homely that culturally we wee-wee a very out-of-doors computer architecture. We position ourselves now as a Hong Kong-based multinational art alliance. Hong Kong itself is hoth Chinese and very cosmopolitan. In fin years, weve come a ong way in re presupposeing our identity. As we grow and conk more multinational, the last thing we fatality to do is to run the fellowship like the better-looking multinationals. You survive where you feed a corporate form _or_ system of government on medical examination leave or house allowances or you do it. How do you avoid setting policies, a path that would seem inevitable lor most companies? We stick to a simple entrepreneurial convention. For the senior ranks of the phoner, the mobile executives, we en money in-that is, we translate the value of benefits into horse figures-as much as we can. coin gives individuals the most fiexihiiity. I annot design a form _or_ system of government to fit 1,000 sight, so when UI preparation grasp MANAGEMENT, HONG KONG path in interrogative we give wad gold quite. You postulate a car? You find you be a car? Wed sooner give you the money and let you manage the car. You buy it, you service it. The customary multinational termination is to admit experts to do a study. thus they write a manual on car self-command and take in ten people to shell out the manual. If you ask yourself whether you would rather vex a package of benefits or its equal in cash, m. ayhe youll say, I dont want such a gauzy car, chanty Id prefer to send away more money on my home leave.Cash gives individuals a give out more freedom. Thats our simplifying principle. month is still doing so this month. The charge of 30 not only shapes our policies sea chantey excessively translates them into in operation(p) procedures we animadvert provide he hard-hitting in thefield. And then they hecome a vehicle for implementing what weve find out on when they return to their divisions. at that place are hardly a(prenominal)er businesses as old as work. insofar the magnetic core of what you do at Li & Fung-managing development and relationships-sounds like a good interpretation of tbe learning economy. How do you steady down the new economy with the old?At one level, Li &. Fung is an nurture node, fiipping culture hetween our 350 customers Since you head for the hills in so umteen countries, do you and our 7,500 suppliers. We manage all that today turn over to magnate cash alikes to payoffal anaesthetic economies? with a lot of phone calls and faxes and on-site visits. Thats the guts of the club. shortly we go forth need wheresoever we give-up the ghost, we get married local rules and hest practices. We do not want conformity for begin- a educate education system with very blustering architecture to fi le different protocols level managers. If they say in Korea, We dont rom suppliers and from customers, one rohust want bonuses hut everyhody gets i 6 m onths enough to work in Hong Kong and novel York-as salary, thats the market. What we do would probwell as in places like Bangladesh, where you cant ahly drive the HR department in a multinational crazy. only it works for us for the top people, we fig- unceasingly count on a good phone line. ure out a cash equivalent for henefits, and for the loI live with a picture in my mind of the holy person bargainer for cal supply, we follow local hest practices. Its pretty if todays world. The principal is an executive habiliment e do things other than from country to country. a mettle helmet and a movement jacket. exactly in one hand is a And rememher, we are an incentive-driven commachete and in the other a very sophisticate personalpany. We try to make the variant component of computer and communication device. From one com pensation as hig as possible and to extend that side, youre getting reports from suppliers in fresh principle as far down into the organization as possi- uphill countries, where the quality of the inforhle. Thats the entrepreneurial approach. mation may he poor. From the other side, you ight apply extremely correct point-of-sale knowledge from the coupled States that allows you to reAs you spread out geographically, how do you hold plenish automatically. In other words, youre mathe organization together? The company is managed on a day-after-day hasis by neuvering between areas that lay down a lot of transmitted the product group managers. along with the top up to do-youre flake through the underbrush, so to speak-and areas that are already intelligibly fo centering, they form what we call the insurance committee, which consists of intimately 30 people. We cused on the 21st century. mate once every louvre to six weeks.People flee in As the sources of supply explode, managing inforfrom around the region to discourse and agree on polimation fathers increasingly complex. Of course, cies. Consider, for example, the topic of compliwe possess a lot of hard data about surgical procedure and ance, or good sourcing. How do we make sure our ahout the work we do with each factory. yet what suppliers are doing the right thing-by our cuswe really want is effortful to pin down a lot of the tomers standards and our own-when it comes to most blue-chip entropy resides in peoples issues such as child lahor, environmental protecheads.What kind of pose does the possessor substantiate? tion, and country-of-origin regulations? Do we work well together? How good is their interCompliance is a very hot topic today-as well it nal attention? That kind of organizational retrospect is a lot harder to retain and to share. We should be. Because our inspectors are in and out of see the capturing of such development as the succeeding(a) the factories all the time, we in all likelihood give a hetter frontier. You could look at us as a very sophisticated window on the prohlem than most companies. If IT system. So thats the red-brick side of who we are. we find factories that dont comply, we wont work ith them. However, because there is so much subcontracting, you cant break that everyone is doWbat about the more traditional side? ing the right thing. That is, you do to make sure In the data age, there is an impersonality that a supplier that was operating properly last that seems to say that all the old-world thoughts 112 HARVARD business freshen September-October 1998 put up kitchen stove MANAGEMENT, HONG KONG entitle about relationships dont matter anymore. Were all interpreted with the notion that a beamy young guy ean bring his great opinion to the Internet, and its okay if no one knows him from Adam. pay?Maybe. and at the same time, the old relationships, the old values, still matter. I count they matter in our tr ansaction with suppliers, with eustomers, and with our own staff. near now were so big, three of our divisions could be seheduling work with the same factory. We could be fight ourselves for factory capacity. So Im in the process of creating a database to track systematically all our supplier relationships. We need something that everyone in the company ean use to check into the instruction execution accounting of all our suppliers. mavin of my colleagues said, Wed better guard that with our lives, because if somebody ever ot into our system, they could distinguish one of the companys superior assets. Im not so worried. soul office steal our database, but when they call up a supplier, they dont curb the long relationship with the supplier that Li & Fung has. It makes a divergency to suppliers when they know that you are dedicate to the business, that youve been reward your commitments for 90 years. I look there is a similar traditional dimension to our customer rela tionships. In the old days, my father used to read every telex machine from eustomers. That made a huge going away in a business where a detail s petite(a) as the victimize zipper color could lead to bleak delays for customers. Today William and I continue to read faxes from customers-certainly not every one, but enough to keep us in personal toucb with our customers and our operations on a passing(a) basis. done close attention to detail, we try to curb our heritage of customer service. As we wipe out change a family business into a modernistic one, we have tried to act up the opera hat of what my father and granddad created. There is a family flavour in the company thats rocky to describe. We dont care much for titles and hierarchy.Family life and the companys business displace over into each other. When staff members are in Hong Kong to do business, my perplex ability have tea with their families. Of eourse, as we have freehanded we have had to change. My dra w cant know everyone as she once did. plainly we hold on to our wish to economize the intimacies that have been at the heart of our most lucky relationships. If I had to capture it in one phrase, it would be this stand for like a big company, act like a slight one. A usance OF fundament In the companys early years, Li & Fung dealt in porcelain and other trnditidnal Chinese products, inclLidinK bamboo nd rattan cane ware, hack and os handicrafts-and fireworks. Li ik Funjs maneuver of paper-sealed fireerackers in 1907 to replaee the traditional mudsealed cracker was a major breakthrough. At that time, the U. S. import duty on firecrackers was hased on weight. The paper-sealed fireeraekers not only ineurred lower unport duties by universe light source but as well eliminated the problem of excessive dust produced by the discharge of the mud-sealed variety. Li &. Fungs paper-sealed manufaeturing process has contract the industrys standard. i Is the suppuration vastness o f education technology good or rubber for your bnsiness?Frankly, I am not wretched that the business will HARVARD line of merchandise check September-October 1998 113 SUPPLY drawing string MANAGEMENT, HONG KONG hyphen be more reliant on entropy technology. The evolution value of dispersed manufaeturing makes us reach even further around the globe, and IT helps us follow through that reach of the company. As western companies work to keep competitive, supply chain management will become more important. Their need to serve little niche markets with more grass changes in products is displace us to establish new sources in less developed countries.Were forge into new emerge centers of production, from Bangladesh to Sri Lanka to Madagascar. Were now get in northern Africa in Egypt, Tunisia, Morocco. Were start down in South Africa and moving up to some of the equatorial countries. As the global supply network becomes larger and more far-flung, managing it will requ ire scale. As a handsome intermediary, our margins were squeezed. notwithstanding as the number of supply chain options expands, we add value for our customers by use information and relationships to manage the network. We help companies journey through a orld of spread out choice. And the expanding power of IT helps us do that. So the middle where we operate is broadening, fashioning what we do more semiprecious and allowing us to deliver a better product, which translates into better prices and better margins for our customers. In fact, we think export trade is not a sunset(a) industry but a growth business. Was the professional management readying you and William brought with you from the joined States cooperative in run an Asiatic family business? Its an arouse question. For my prototypical 20 years with the company, I had to put aside-unlearn, in act-a lot of what I had well-educated in the atomic number 74 about management. It just wasnt relevant. The Li & Fun g my grandpa founded was a regular time-worn Chinese family conglomerate. until now today, most companies in Asia are gird on that model. scarcely a lot has changed in the last five years, and the current Asiatic monetary crisis is going to transform the region even more. Now, kind of of managing a few relationshipsthe essence of the old model-were managing large, complex systems. It used to be that one or two big decisions a year would determine your success.In the 1980s, for example, many of the Asian tycoons were in asset-intensive businesses like real nation and shipping. You would make a very small number of very big decisions-you would acquire a piece of land or decide to build a supertanker-and you were done. And access to the deals guessed on your connections. 114 The Li & Fung of today is quite different from the company my grandpa founded in 1906. As it was in a lot of family companies, people had a sense over the years that the companys purpose was to serve a s the familys livelihood. cardinal of the first things William and I did was to persuade my father o separate possession and management by taking the company puhlic in 197 3. When our margins were squeezed during the 1980s, we felt we inevitable to make melodramatic changes that could best be done if we went back to universe a private company. So in 1988, we undertook Hong Kongs first management buyout, interchange off assets, and re rivet the company on its core duty business. ulterior we took our export trading business world again. Im sure some of our mentation ahout governance structure and focus was influenced by our western sandwich training. precisely Im more taken with(p) by the changes In the companys decision make.Right now in this building, we belike have 50 buyers reservation hundreds of individual transactions. Were making a large number of small decisions instead of a small number of big ones. I cant be involved in all of tbem. So today I depend on struct ure, on head principles, on managing a system. Of course, I think relationships are still important, but Im not managing a single key relationship and using it to leverage my finished enterprise. Instead, Im running a very focused business using a systems approach. Thats why I say that in the last five years, everything I versed in business educate has come to matter. Li &