li&funglogo.gifLi & Fung, the HK-based trading firm that supplies western fashion chains like Gap, has been dropped from oh-so-cool Wired magazine's Wired 40
hip list of companies. Its fault, apparently, is to stick to its
knitting. “With China making the leap to exporting computers and cars,
T-shirts are unimpressive,” yawns Wired.

EngagingChina begs to differ. Despite the noise
coming from the Shanghai car show this week, it will be many years
before China's car industry makes an impact outside of its admittedly
huge domestic market.

In the computer industry, China's only world-class player, Lenovo, is hardly a great example of export-driven success. EngagingChina
will be interviewing Bill Amelio, president and CEO of Lenovo, tomorrow
so we will run a dedicated a story on the world's third largest PC
maker later this week.

Just to bring readers up to speed, Lenovo bought IBM's loss-making
PC division in 2004 in a bid to project the company onto the world
stage. But the jury is still out on the wisdom of the deal. The company
remains heavily dependent on China where it gets around 40% of its
revenues. In the strategically-important US market, Lenovo's shipments
dropped 4% in the latest quarter.

And the task of turning around the IBM business is taking a long time — another round of job losses was announced last week.

Wired drools about how Lenovo, which does make the Wired 40, is
leveraging “low-cost Chinese R&D into cool features like laptops
secured by facial recognition.” But laptops are commodity items these
days and Lenovo recognises its business biggest challenges lie less in
inventing cool technology and more in strengthening its supply chain
and streamlining channels to market.

These latter areas are where Li & Fung truly excels and the
reason why the HK firm has been so successful at linking hundreds of
factories in India and Asia with major customers like Gap and the
Limited in the west.

Once a simple trading outfit, Li & Fung is now riding the
globalisation trend to stunning effect, both to find customers and
source goods. The share of goods sourced from China is reducing in
favour of cheaper countries and is now 46%. Li & Fung reported its
results this week and impressive reading they make.

In 2006, turnover rose
22% to 8.7bn — it has tripled in the past ten years — and it is well
on track to reach $10bn by the end of this year. Profits rose by a
similar amount. Admittedly, two thirds of the growth comes from
acquisitions but the rest is from organic growth.

In recent months, Li & Fung has acquired the sourcing arm of
German department-store giant KarstadtQuelle and the global sourcing
operations of Tommy Hilfinger. The latter deal, unveiled last month, is
an example of the growing trend for “extreme outsourcing” whereby
retailers seek to realise cost savings by entrusting their global
supply chains to specialist operators.

While little known to the wider world, Li & Fung has become a
text-book example in using the supply chain and information technology
as a competitive weapon.

More on Li & Fung in this Forbes story and this Financial Times article.

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