Anticipate Change and Reinvent Yourselves is Key to Survival,
¡@¡@It may sound a bit out of this world, but this is what it takes to survive in today's competitive business environment, said Dr.William Fung, Group Managing Director of Li & Fung Ltd. This also represents the core value which his company brings: sourcing the highest-quality, lowest-priced goods for customers around the world and deliver them in the shortest time possible.
¡@¡@He was speaking to a packed audience of students, alumni and professors of The Chinese University of Hong Kong's EMBA and MBA Programmes, at the "Talking to CEOs" show co-hosted by Mr. Robert Chow Yung of RTHK and Professor Andrew Chan, Director of the University's EMBA Programme, on March 18, 2003.
¡@¡@Li & Fung is running a de facto global "smokeless, virtual factory", according to Dr. Fung. It is a prime example of the service industry in a fiercely competitive area. Operating 67 offices in 40 countries with over 5,300 employees and an annual (2002) turnover of HK$33 billion also poses a management challenge. Professor Chan noted that supply chain management (SCM) is not a new concept, and Li & Fung is certainly not the only company providing such service. Many have fallen by the wayside, yet Li & Fung has flourished, doubling profits every three years for the past six years. What is the magic formula of success?
¡@¡@The company has a great foundation, said Dr. Fung, built by a partnership of Li and Fung in 1906. The company's management concept is to take the best of breeds in western and traditional Chinese philosophy. In his view, management is essentially a "people" issue. Some elements of western management style -- such as those advocated and practised by ex-GE Chairman Jack Welch, i.e. annual elimination of the bottom 10% performers to boost employee productivity -- may sound good in theory, but are not necessarily in the long-term interest of the company.
¡@¡@He subscribes to his father's view that management is a two-way street: you look after your employees and they will look after you. It is also important to accept that people are not machines and no one can maintain 100 per cent efficiency at all times.
¡@¡@Even though Li & Fung as a multinational corporation seeks to adapt to the local culture, certain core values, such as that described above, remain integral to its company culture.
¡@¡@The key to managing a geographically diverse company is good training for staff and good communications at all times. Teamwork is crucial. In a 5,300-employee company, it is unrealistic to expect all decisions to come from one or two persons.
¡@¡@He and elder brother Victor, whom he refers to as a visionary, recognize that most people in Hong Kong want ultimately to be their own boss. They have, therefore, structured Li & Fung to cater for these "Intrepreneurs". There are 130 units in the company, each structured as a self-contained profit center, run by an entrepreneur who is very good at his particular line of business. Li & Fung provides the infrastructure, facilities and other forms of support such as IT, HR, administration and finance. In short, the objective is to "give wings to these tigers so they can fly."
¡@¡@Professor Chan noted that Dr. Fung, as the company CEO, is not the highest-paid executive on the payroll. Does it bother him?
¡@¡@No, responded Dr. Fung, with vigor. "It is in fact a good thing because it means that the company is doing well". A CEO's job, in his view, is to always keep an open mind, and help staff achieve their objectives.
¡@¡@What's Li & Fung's competitive edge?
¡@¡@Ability to adjust constantly to the changing dynamics of the marketplace, have the vision to judge where the world is going and position the business accordingly, said Dr. Fung. Most organizations have rotational five-year business plans. However, Li & Fung has found that fixed three-year plans are more realistic in the contemporary business world. It is absolutely essential to anticipate change, strive for constant improvement and be prepared to reinvent the company, to start from zero base if necessary, and above all, institutionalize the change.
¡@¡@Dr. Fung was emphatic about the potential of the Pearl River Delta and opportunities for supply chain management services. The market is huge, he stressed. A SCM service provider should have sights on not just the Pearl River Delta, but also the entire world. A new entrant to this market, however, would be well-advised to start small and focus on a specific product or country.
¡@¡@A "radical outsourcing" concept is taking root in the U.S. now, he pointed out. The increased competition and social compliance and environment-related requirements imposed by developed countries have heightened the need for service providers like Li & Fung. Take Disney as an example. It used to have five sourcing sites around the world with 300 employees. To cope with the vast-expanded product lines, it would now need 18 sourcing sites in order to cover the vastly-expanded product lines. After due consideration, it decided that it would be far more cost-effective to hire Li & Fung for the job.
¡@¡@What particular skill set must the SCM service provider possess?
¡@¡@Professional and technical skills of the products in question plus marketing skills are the pre-requisites - these are the "value-add" that the SCM provider brings.
¡@¡@In this connection, China is significant both as the supplier for the rest of the world and as a consumer market. In line with its obligations under the WTO, China will open its market in three years. This transition offers huge potential because the market is not mature yet, thus providing opportunities for Hong Kong companies. However, the window of opportunity is small - probably two or three years.
¡@¡@Dr. Fung has no doubt about Hong Kong's competitive advantages. At the macro level, economies around the world are facing problems with the exception of China, and Hong Kong is very lucky to be at the doorstep of this market. Hong Kong can serve as China's window to the world for newly listed Chinese corporations. Shanghai, on the other hand, can help foreign companies to market to China's domestic market.
¡@¡@How is Li & Fung reacting to the current difficulties?
¡@¡@Every generation would face one turmoil or another, said Dr. Fung. The goal is to make the company flexible so that it can withstand turmoils. He believes that the model of vertically integrated corporations is out of date, and future companies would be part of an inter-connected network.
¡@¡@There will always be ups and downs in life, he reminded the audience, but what goes down will always come up again. He thinks that Hong Kong's young people are well positioned. While the standard has dropped somewhat, still they have generally good language skills and flexible attitude. Overall, he is very optimistic about the future.
¡@¡@And Dr. Fung has good reasons to be optimistic. Less than a week after the "Talking to CEOs" show, Li & Fung announced its 2002 final results. Its net profits rose 38 per cent to surpass $1 billion on a record turnover of HK$37 billion.
¡@¡@Dr. William Fung is Group Managing Director of Li & Fung Limited, a third-generation family concern that he has helped transform into a multinational trading company with a sourcing network of over 30 countries and an annual turnover of more than US$4 billion. US-based BusinessWeek magazine ranked him among the world's Top 25 Managers in 1995, and one of the 50 Stars of Asia in 2000. Together with his brother, Dr. Victor K. Fung, he was also awarded the Emerging Markets CEO of the Year by Euromoney in 2000.
¡@¡@In the public service arena, Dr. Fung has held key positions in major trade associations. He is the past Chairman of the Hong Kong General Chamber of Commerce, the Hong Kong Exporters' Association and the Hong Kong Committee for Pacific Economic Cooperation Council (PECC).
¡@¡@Dr. Fung graduated from Princeton University with a Bachelor of Science degree in Engineering and also holds an MBA degree from the Harvard Graduate School of Business. He was conferred an Honorary Doctorate of Business Administration by the Hong Kong University of Science and Technology in 1999. Currently, he is also a Council Member of The Chinese University of Hong Kong and a Court Member of the University of Science and Technology.
¡@¡@Dr. Fung is also Non Executive Director of HSBC Holdings PLC, CLP Holdings Limited, chinadotcom corporation and Vtech Holdings Limited.