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Li & Fung – the "Made in China" giant you have never heard of

Li & Fung is a very important company based in Hong Kong and it’s one of the biggest players in the retail market in the world. Its manufacturing counts around ten thousand sites all over the world. It’s a trading house, a special type of business that facilitates transactions between a home country and foreign countries.

Li & Fung is also a one-stop shop, meaning it is a shop where many different types of products such as beauty products, clothes, toys, furniture, sporting goods, and many others can be found. Li & Fung doesn’t own its factories, allowing them to move productions to benefit from the cheapest locations. These structures allow them to save time and money and increase the level of trust.

Outsourcing by Li & Fung

Li & Fung realizes outsourcing, a situation in which a company employs another organization to do a portion of production. Outsourcing is the business practice of hiring a party outside a company to perform services and create goods that traditionally were performed in-house by the company's own employees and staff.

Their outsources are of three types:

• Off-sourcing
• Near-sourcing
• Onshoring: It consists of opening a base in the country to which you want to export and, in this way, they become importers. This allows them to be geographically close to their customers.

Advantages and disadvantages

The system has:

• Advantages: Best price on the market, no need for specific competences, financial benefits, strategic optimization, better management, and market discipline.
• Disadvantages: Inflexible, can’t directly control the business, partner could share information/secrets, loss of expertise, dependence on the supplier, loss of control over costs, and shared risks.

The purchasing department

The purchasing department is very important for this type of activity in order to:

• Purchase materials at the lowest possible costs while maintaining quality
• Maintain a good relationship with suppliers
• Place orders with suppliers and arrange delivery dates
• Keep records of orders placed
• Receive and check deliveries of goods against orders
• Coordinate with all the departments of the organization

Retail

A shop that sells goods to the public in relatively small quantities for use or consumption.

One-stop shop

A wholesaler where you can find everything. Advantages of a one-stop shop for customers include saving time (because you can find all you need in only one shop), saving money (they usually have low prices), and a high level of trust.

Daihatsu dismantling "Toyota Way" as market changes

Daihatsu is an automotive company partially owned by Toyota (51%), but it has a different type of product and target consumer. In 2011, after the launch of the new mini car Mira, Daihatsu advisor decided to cut manufacturing costs by dismantling the business model called "Keiretsu" because it wasn’t efficient anymore. Keiretsu wasn’t efficient due to high prices, a high number of intermediaries, low profit, slowness, and absence of specialization.

Keiretsu is a system based on an informal but close commercial relationship between a manufacturer and its suppliers. There are many actors working together, and no one company is the leader.

With increasing competition and the growth of emerging countries, cost reduction has become increasingly important. To achieve this, it is necessary to reduce production costs by looking for new suppliers, stimulating competition, reducing raw material costs, eliminating gadgets, and exploiting economies of scale.

The new minicar MIRA was eco-friendly, had a low price, was a city car, and was light.

Toyota was unable to compete against its competitors in China and India due to its higher prices. Daihatsu can give an important lesson to Toyota regarding:

• Foreign pressure because Daihatsu produces cars in demand in the Asian market. For example, it specializes in 'Kei' cars, which are lightweight cars that account for 40% of the Japanese car market.
• Account system: Daihatsu is improving the office's knowledge and skills on cost evaluation.
• On-time delivery: Daihatsu produces directly in the countries where it sells, eliminating in this way the middlemen who generate extra costs.

From niches to riches: Anatomy of the Long Tail

Long Tail is a strategy that focuses on offering more products for fewer customers. The long tail is based on niche products. In this way, there is a huge variety of products online that can satisfy the diverse interests of customers.