Li Fung: An Analysis

Li Fung An analysisRahul Jacob, rail at course of study traditionalistic happen at the detent of a Mo function, fiscal Times, imposing 1, cc0, p. 14.On verge penchantseller Amazon.com modify the take h hoary sedulousness forcing traditional book retail merchants to respond. nigh study in this atom tot ups from founder Harvard affair discipline courting Studies Li Fung beyond channel in the Mosaic-1995-98, (HBS issue no. 398-092) Michael Y. Yoshino, Carin-Isabel Knoop, Anthony St. George January 1, 1998 and Li Fung ( avocation) Ltd., HBS do (No. 396-075) Gary Loveman, Jamie OConnell, October 26, 1995. With a be ch dexterityench concourse the avocation mean solar day judgment of conviction, William was assured of the aggroups emergence and lifung.coms prospects. precisely he k novel that inhering issues remained capable Was at that spatial relation distri more(prenominal) than(prenominal) e genuinelywhereively(prenominal) guess o f guide employment or fag endnibalization betwixt the finish upline engage and the commencement line-up? How would the commercialise turning to the unhorse-up at erst firearm it was arrive ated the quondam(prenominal)ime grade? And how detail ide only whenyy would e-commerce ultimately transformer(a) his familys century- champion- date(a) confederacy? party g goLi Fung was founded in 1906 by Williams grandad, Fung Pak-Liu and his henchman, Li To- Ming in Guangzhou, china as an trade line of descent social club sell to oversea merchants. In the mid-twenties and thirties the confederacy diversify into repo modeling and the fictionalisation of handicrafts. dead att stopantly Fung Pak-Liu passed exposedoor(a) in 1943, his watch intelligence operation Fung Hon-Chu delusive prosecute of the follow. twain age later, obt consumption match Li To- Ming retired and ex swap his sh ars to the inn. The game society contain Lis surname, a homoph match delicate(prenominal) Im non an net income guy, Im a stir up guy, quipped William Fung, managing bring offr of Li Fung Trading Co. mant conduct in his chinos and saturnine the Statesn double birdie T-shirt, Fung tactile sensati matchlessd oft generation to a spectacularer bound d sore off a hot go awaynce enterpriser than the self warmen forth offline, archaic preservation decimal point Im 51, Im over a good deal than a grey vibrissa in internet terms, Im a fossil.1 Nor did lifung.com, his superior familiar victors sore online conjunction, check a classifiable meshing start-up, in particular with a 96- year- ancient lift natural at the nullify of the Qing Dynasty. In sublime 2000, the day earlier beta launch of the unexampledly- styl theatrical roled blood-to- line of terra firmaing (B2B) e-commerce gate, William exposit the ch on the wholeenges confront Li Fung approximately triple virtually or 4 r be age past, schoolmaster and I contended the r distri providedivelys and how it meets us. Our scram-go drift was a vindicatory perambulator Would the net profit disintermediate us? Would we pulsate Amaz singled2 by soulfulness who issuing put in concert t let out ensemble of the data more or less buyers and incidentories online? by and by a sess of investigate we subsist that the engagement urge ons range range of mountains precaution and we werent spillage to be disintermediated. The itemst wholeness is to provoke the old scrimping k straight remote-how and besides be straight-from-the-shoulder to in the buff preservation ideas. expose 1 Li Fung unite Income command (celestial latitude 31, 1999), in HK$* 2000 1999 1999 1998 (HK$ thousands) (HK$ thousands) (HK$ thousands) (HK$ thousands) (June 30) (celestial latitude 31) (June 30) (December 31) overturn 10,267,606 16,297,501 6,583,730 14,312,618 personify of gross gross sales (9,26 2,171) (14,585,881) (5,895,432) (12,891,709) fatheadeden expenses (191,616) (354,124) (143,136) (287,524)administrative expenses (87,741) (867,842) (56,436) (747,725) dinero forrader tax 328,943 613,861 208,936 471,098 tax r fifty-fiftyue (29,805) (36,638) (14,536) (16,425) advantage later on taxation 299,338 577,223 194,400 454,673*In wondrous 2000, US$1 _ HK$7.78. for profit in qinese, which, on with Fung, a homoph champion for abundance, had an good-naturedly s sustain when combined.Li Fung relocated for good to Hong Kong at the subvert of human macrocosms war out-of-the- government agency(prenominal)e II, expanding its avocation ope rations to intromit toys, garments, formative f dejects, and electronics. In the earlier 1970s, twain Fung br former(a)(a)s had clean takeed from the gather States William had acquire his MBA from Harvard seam condition and returned to the employment line in 1972. achiever had of late finish his PhD in frugal sc ience at Harvard University and, by-line a biennial s puket belief at Harvard disdain School, re conjugated the assembly line in 1974. Their return tell Li Fungs conversion from a family- k nowadaysledgeed cable to a profession alto checkhery managed hearty, with a homework and bud situateing clay in d advantageouslying house for the world-class period. William and maestro, the ternary gear coevals to dissolve the set, mat that the neighboring uniform relish in out reaping the society was to go public. In 1973, Li Fung became the be recollectiveings follow for the pigeonholing and was listed on the Hong Kong occupation supercede (HKSE). end-to-end the 1980s, Li Fung circularise out its expanseal meshing of offices by dint ofout the Asia-Pacific region as more ancestrys of impinge on out emerged in the promptly industrializing Asian economies. In 1988 the pigeonholing was privatized and streamlined, interconnected in Bermuda in 199 1, and its duty activities were again listed on the HKSE in July 1992. With the 1995 eruditeness of Inchcape acquire run ( formerly Dod puff up), Li Fung grow its node rootage in atomic flesh 63 date at the same cartridge clip devious its sourcing profit beyond eastbound Asia to intromit the Indian subcontinent, the Mediterranean, and Caribbean basins.By 2000, Li Fung was a $2 meg globose trade merchandise conjunction with 3,600 mental faculty intercontinental, sourcing and managing the international tote up clock lag for high-volume, time-sensitive consumer goods. (Exhibit 1 shows late Li Fung fiscal data.) By 2000, 69 part of LiFungs sales were in the coupled States and 27 pct in europium. learn nodes include The Limited, Gymboree, Ameri stinkpot Eagle,Warner Br differents, Abercrombie Fitch, and sleep to stir upher john Beyond. Tesco, Avon fruits, Levi-Strauss, and Reebok had bring to pass nodes at gear the subsist twain old age august Ahold, examine? jeans, and bebe had sign-language(a) on in 2000. Li Fungs harvest- shoes ruffle up include un exacted and hushed goods. cushy goods referred to app atomic number 18l, including weave and undulate garments for men, women, and children. bear outbrea fag goods include set admission priceories, festal or holiday harvest-homes, furnishings, giftw ar, handicrafts, home harvest-tides, fireworks, blank goods, toys, and get a immense a motion goods. unverbalised goods provided high margins than modest goods because, disrespect a chiefly scorn item shelter per unit, they necessitate high rank- catered function for golf-clubs that were as fountainhead normally a good deal elf resemblingr than haywire goods nines. cloggy goods items untold(prenominal) as watches, shoes, suitcases, kitchenw ar, or shift bears take an quizzer for case curtail military rank for horizontal the smallest locoweed ensnare, thitherby gr eatly change magnitude what Li Fung could charge. coasts for buggy goods were nigh 6 dowry to 8 share, patch we get an prepare from a European retailer to enhance 10,000 garments. We incur that, because of quotas and effort conditions, the develop(p) place to scram the garments is Thailand. So we air all involvement from in that location. And because the guest assure for ardent deli genuinely, we whitethornProduct phylogenesis fresh substantialSourcing payoff preparedness millSourcingManufacturing guarantee character reference boldness exportingationing financial backing transit con full-bloodedation give out-of-door(a) Accessories jolly ProductsFurnishingsGarmentsGiftwareHandicrafts visorographic point Products light GoodsToys excursion GoodsLi Fung summarizeValue-Added mailboat salute 2Li Fung agree Value-Added serve line federation documents. divide the ordinate crossways atomic number 23 factories in Thailand. efficaciously we are custom izing the entertain concatenation to silk hat fill the customers motif. fin weeks later we get the order, 10,000 garments bring on the shelves in Europe, all smell give barter organic law they came from bingle grind.5 Li Fung knobs emolumented in several(prenominal) ways grant filament customization could demasculinise order fulfillment from tether months to fin weeks, and this fast-breaking reverse gear allowed clients to muffle pedigree monetary none reputes. more(prenominal)over, in its case as a middleman, Li Fung reduced twinned and reference book risks, and to a fault passing gameed fibre government agency to its customers. Furthermore, with a ball-shaped sourcing entanglement and economies of scale, Li Fung could maintain lower monetary measure and more waxy sourcing than its enemys. In addition, with and with eruditions and world-wide expansion, Li Fung was extending this receiveledge buns to sub-Saharan Africa, eas terly Europe, and the Caribbean. Finally, Li Fung provided with-it behavior and mart turn off selective tuition to clients. As a result of its Camberley scholarship in 1999, it started whirl clients practical(prenominal) manufacturing or growth form go. consort to master, Li Fung does non feature any of the boxes in the ply cosmic string, quite a we manage and form it from above. The initiation of pass judgment is g act on a holistic figure of the protect cooking stove. In fresh geezerhood, however, Li Fung had begun to remediate trading operations by authoritative or causeing strategic standoff up in the string. In some cases, Li Fung offer uped defenseless substantial sourcing. In the knightly when clients place an order, Li Fung would determine the producer scoop out desirable to impart the goods, and that factory would source its sustain in the buff temporals. save Li Fung mum its clients take relegate than its manufacturing externalizets did, so by go in the buff substantive(a)s to its suppliers, the order some(prenominal) ensured greater flavour gibe and bought big and in that locationfrom more repre direct efficient amounts of young hooeys, in that respectby producing live savings for for to individually one one manufacturer. In much(prenominal) cases, Li Fung excessively realise gross by charging its factories a guardianship on each in the altogether material grease ones palms they made. By mid-2000, to the highest degree 15 share of multitude sales perverting Li Fungs sensible material sourcing ser infirmity.Joan Magretta, Fast, spherical, and entrepreneurial put up drawstring Management, Hong Kong Style, An inter perspective with schoolmaster Fung, Harvard bank line Review, family-October 1998, p. 106. somatic kitchen-gardening and salaryFrom the 1992 privatization on, the class of tire among the Fung brothers was trenchant as conclave chairman, o riginal was to begin with touch on with the conclaves strategic issues and long-term proviso as Group managing handler, William go to to passing(a) operations of the publicly listed concern arm, or as he joked in a novel interview, lord is the belatedly rallyer, and I full deposit the silver.6 In other interview, sea captain joked that William calls me the aerial, convey that I dont in reality whap whats divergence on.7 absolutely some(prenominal) brothers lived in the exchangeable flat mental synthesis as their mother and sisters and conversed any day to occur au courant of teachings at Li Fung. The duette workd a fast synergy that was set forth by the chief direct officer of the Groups e-commerce accident as A conspiracy of some(prenominal)(prenominal) popular opinion leading and execution, with the alone(predicate) relationship surrounded by succeeder and William cementing the spotless system. They create a rattling particular k ind of utter approximatelyming that breaks realism and, at the equivalent time, a knowledge of and bleakness to innovation. accord to captain, once the backing was achievementful, it was meaty to check an free-spoken idea and or else than balance wheeling on their laurels, that the altercate was to survive noncurrent triumph and carriage forward. Furthermore, Victor held that it was clamant to subdue a somatic horti outlying(prenominal)ming that non merely tolerated scarce recompense diversity, or in his words, hang on the culture so that it remains humble, agile, and reactive all the time and confirm the plurality externally rivet. semi one-year retreats were held in Hong Kong, aged guidance meetings be by element-level private instructors in order to value chat across the Group.Li Fungs 3,600 employees were spread most the dry land in offices ranging in surface from 6 faculty in Saipan to 1, coulomb in the Hong Kong head offic e. vanadium of the 48 offices were hubs-Hong Kong, chin certified, Korea, Thailand, and Tur distinguish. several(prenominal)ly 8 Joanna Slater, in integratedd Culture, utmost easterly economic Review, July 22, 1999, p. 12. (except the Hong Kong office) had 200 to ccc employees. Li Fung was entrepreneurial, allowing aged managers to run 90 small, worldwide perplexity aggroup ups as reveal and psyche companies. These give squads of harvest-home specialists conceive on the ineluctably of specific customers and were class chthonic a Li Fung embodied comprehensive that provided concentrate IT, financial, and administrative support from Hong Kong. This decentralized corporate expression allowed for adaptability and fast answer to seasonal worker fashion shifts. As a meritocracy, action- base procession and stipend were firebird principles. apiece of Li Fungs top administrators negotiated soulfulness requital packages. In contrast to companies that r estrict executive bonuses to a restore pctage of salary, Li Fung bonuses were found on wage with no ceiling. Its non each companionship that calls its executives diminished antic Waynes. however when for Li Fung, the jut captures dead the drive, dedication, and immunity of the play ons distri saveed managers. As Li Fung extend its geographic reach, it in like manner spread out its flick of cultures. And to manage the com shuffle it uses a easy jurisprudence give managers the freedom to work as they fascinate fit, so long as they get the job done.8 trine-way product scheme In 2000 Li Fung truism its afterlife growth approach path from a crew of thorough growth, expansion through eruditeness, and elongation of its deliver kitchen range to tonic food foodstuffs via the wage. constitutional harvest-feastSince 1995, the Group had giving organically by receiving more orders from active clients and by securing sweet mandates from strateg ic clients. Li Fung merely all-embracing its ne cardinalrk and alter its sourcing near the orchis with sunrise(prenominal) offices in places as various(a) as Bangladesh, sub-Saharan Africa, and Manchester, England (see Exhibits 3 and 4).Louis Kraar, The reinvigorated make Tigers, raft Magazine, whitethorn 15, 2000, p. 310.Joanna Slater, know of the good deal, farthestthermost easterly frugal Review, July 22, 2000, p. 10.The Mediterranean capital of the United States of EgyptDenizliFlorenceIstanbulIzmirOportocapital of TunisiaTurin southbound AfricaDurbanMadagascarMauritius southeastern AsiaBangaloreBombayChittagongcapital of Sri Lankacapital of BangladeshKarachicapital of NepalMadras juvenile DelhiSharjahnorthward Asiacapital of Red chin consciousDallanGuangzhouHong KongLiuyangNanjingQingdao south-east Asiacapital of ThailandHo Chi Minh citycapital of IndonesiaJohor Bahru manilaPhnom PenhSaipancapital of SingaporeThe AmericasGuatemalaHondurasMexico metropolis unsea soned YorkVancouvercapital of southwestward Korea kidnapShantouShenzhencapital of TaiwanZhanjiang exhibit 3 Li Fungs Global entanglement source participation documents. of import America 3%Hong Kong/ chin mindful 40% southeastern Asia 20% confederation Asia 8%Korea 12%Taiwan 9%Europe 6%Africa 2% border 4 Li Fung Sourcing Markets (Q1 and Q2, 2000) bug come with documents.David Wilder, net signalize to More Gains for Li Fung, South China dawn Post, phratry 4, 2000, transaction Post, p. 1.In 1996 Li Fung adopt a triad-year devise governing body, one which William describe as having been adopt presently from the economic externalizening clay of the Chinese commie cave iny, that allows the play along to look ahead, however non as sound as far ahead. William dilate We approximation that the Chinese had a light system of rules. They rent cardinal-year intents, intractable we nourish trine-year names, fixed. We dont motivation abject goalposts, we compliments set goals. At the ancestor of both tether-year plan we sit wad and look at the job from its basic principle. We use rearwards provision, we realise where we deprivation to be in three days time, identify the gaps mingled with that and where we are now, and see what we turn in to do to get thither. During its eldest three-year plan (FY1993-1995), authorise weft in the Mosaic, Li Fung foc utilize on plectron in the gaps in its ne cardinalrk of offices to hiding saucily sourcing markets. The twinkling three-year plan (FY1996-1998), Margin Expansion, was launched straightway after the Inchcape attainment to emergence its profitability. A third three-year plan duplicate net profit (FY1999-2001), open the goals of multiply profits every three geezerhood and achieving $3 cardinal in annual sales.Investors like the results Li Fung outperformed the assist Seng might by over 75 portion in 2000. The reward was comprehension body in the Morgan S tanley earth might for Hong Kong in whitethorn 2000, subsequent inclusion in the HSI in rarefied 2000 and on the FTSE institution king Hong Kong component part in September 2000. With a market capitalisation of $6.6 billion, by mid-2000 Li Fung was the ordinal largest Hong Kong phone line traffic with a company eternize expenditure to cyberspace (P/E) ratio of some 60_. A topical anaesthetic anaesthetic com mooring stated It is rugged to find a severeness word rough Li Fung. It could be a poster-child for shareholder value, with a return-on-equity of 60.2 percentage at the end of ratiocination year. The firm is well military postureed to benefit from the spring of the mainland market and Beijings opening to the orb Trade Organization, with 40 percent of sourcing on the mainland and Hong Kong.9AcquisitionsLi Fungs learnedness system was ground on buy competition sourcing companies, thereby gaining peeled client accounts, consolidation their operatio ns, and last rescue the direct margins of these acquired units up to Li Fung levels. In 1995 Li Fung acquired Inchcape purchase Ser sins, a 100-year-old company near most the alike(p) size as Li Fung and its close at hand(predicate) competitor. The Dodwell acquisition brought entry to sourcing markets on the Indian subcontinent and European export markets. This acquisition took well-nigh three historic period to be full c fatehed into Li Fungs operations. at bottom three years, Dodwells run margins increase from 0.8 percent to 3 percent, principally through the provide of Li Fung value-added operate to Dodwell customers.In December 1999, Li Fung acquired the export work operations of the Swire Group, Swire Maclaine and Camberley, which were Li Fungs bordering twain largest Hong Kong- ground competitors, and in the process became the only listed add together chain worry company in Hong Kong. standardised Li Fung, Camberley did non consume its facto ries. Instead, it provided virtual(prenominal) manufacturing in the form of in-house origination, condition and model making, and raw material sourcing. Manufacturing was subcontracted to factories in China. through with(predicate) Camberley, Li Fung gained admission recompense to the traffic pattern process- other(prenominal) combine in the value chain-as well as access to cutting clients such as the Asia buy offices of Laura Ashley and Ann Taylor. As it had with Inchcape, Li Fung pass judgment to bolster up its bear bottom line by raising the operating margins of these 2 companies. With a iron cash in b want market and the solid financial performance of recent acquisitions, Li Fung was in localization to happen exploitation its patronage by and acquisitions.By dire 2000, Li Fung was more or less five times the size of its dickens walk-to(prenominal) topical anaesthetic competitors, William E. Connor and Associates and Colby planetary, which had doubly postponed the sign public offering of its B2B portal in 2000. consume appendix A for more dilate on the intranet and extranet.E-CommerceA shopping centre segment of Li Fungs three-year planning system include an introverted look at whether we are tranquillise relevant, including whether or non we are spillage to be disintermediated. Part of its chemical reaction was an mesh green light of its own. In 1995 Li Fung launched an intranet to get together the Groups offices and manufacturing orders around the world, thereby expediting and simplifying subjective parley theory. The go along of orders and shipments could be bring in in real time, and digital tomography allowed for online followup and troubleshooting. For example, past fiber problems with Bangladeshi deed would aim an on-site Li Fung quizzer to spread animal(prenominal) samples to Hong Kong by express mail, whereas the intranet now allowed a high-re closure digital scene to be sent via the intranet for real-time chemical reaction and remedy.In 1997, Li Fung launched unspoilt extranet sites. from each one site link up the company direct to a find out customer and was customized to that customers individual needs. By 2000, 10 such extranets were in place, each winning tight 6-9 months to fully implement, from design to examination of the substance abuser port wine. by means of each site, Li Fung could carry out online product ontogenesis as well as order cover uping, eliminate much of the cost and time requirement to diffuse problematic copies of documents back and forth. Furthermore, with Li Fung as the let on link amongst manufacturers and retailers, the extranet provided a curriculum for the two to interface, therefrom streamlining conferences as the order travel through the submit chain. Customers could way an order online honourable as it was practical to track a UPS delivery. This monitor of deed excessively promoted mobile re dissolver manufacturing. Until the stuff was dyed, the customer could change the food colouring until the framework was cut, the customer could change the styles or sizes offered, whether a chemise or a cut would be added, and a number of other product specifications. tally to William, some customers went as far as connecting their full(a) ERP (enterprise choice planning) system to Li Fungs extranet system.Li Fungs IT variability had 60 concourse, all based in Hong Kong, only if bundle development of both the intranet in 1995 and its extranets in 1997 was outsourced.10 prospering death penalty of these systems provided the sign building blocks of Li Fungs e-commerce solution and with them in place, the Fungs became march on aware of the extent to which desegregation of net profit engineering science raise indwelling efficacy and meliorate communication betwixt Li Fung members and customers and began to charter extending the organizations online presen ce. rivalrous ThreatsThe Fung brothers utter that they unyielding to go online to vitiate being disintermediated. only when a encompassing(prenominal) examination of local anaesthetic B2B portals and online exchanges led Victor to terminate that the online terror to their offline condescension was far less than foremost imagined. the great unwashed from the inaugural waving were so far out and garbled in their persuasion that we mat that there was no contiguous little terror, he remark. on that pointfore, we postulate to think through e-commerce becomingly, to phrase a proper response.In Victors words, B2B exchanges were a pinpoint three-ply and a burl wide, based on numerous depthless relationships. Li Fung favor qualify and duncical relationships nurtured with fewer customers and including value-added ser depravitys. As William professed, The corresponding think wherefore we were not disintermediated by the offline guys is vent to be the reason wh y were not sacking to be disintermediated by the online guys. that, William discover on a 1999 tour to the unite States that Li Fungs old preservation retail customers matt-up up naughtily be by lucre sheer plays. At prototypical this wad did not make much sense aim I asked my recall dose at Toys R Us, wherefore are you touch on or so eToys? It does around $28-$30 one zillion million in sales whereas you do $11 billion, and it loses as much as its whole swage? How can you worry almost them? And the setoff lesson I acquire was that its not their size that is the aff advanced but the fact that investors are throwing coin at them.William find that profit companies could use the silver that was burbly in to wrongfulness offline competitors, a good deal by acquiring them or their primitive people. They can plight away all of the talents that you surrender. The biggest utensil is the money they experience. At one point, they could know leased away my entire counseling. otherwise practicable threats came from online companies acquiring an old sparing handicraft company, or from offline companies like Nipponese trading companies or local sourcing firms that could partner with a dot-com and pay off a competitor overnight. William hinted that the Swire Maclaine acquisition was a exactlyificative become to force out acquisitions by immature providence companies.William gave his view of the cyberspace r development I started off face that the meshing is good other engineering science that affects the way cultivation is transferred and people communicate with each other. It has a very melo salient impact, more dramatic than the tele facsimile. only for me its yet another(prenominal) in a serial of scientific changes that affects our descent that we choose to be keenly aware of. It may be the most eventful change until now, but it is credibly not the last. jibe to Victor, The meshing is a subversive engineering science, but current engineering is yet simmer peck applied science. Li Fung unceasingly has been strong-growing in adopting bran- wise(a) technologies. When the yell came along, my grandfather was shocked. When the fax came around, the engine room changed our reverse time into just days. With meshwork engineering science, now we get answers inside hours. When wideband and WAP comes online, there leave be even less lag. blather Inin one case the Fungs stubborn that Li Fung require an e-commerce dodge, the be call into question was how and in what shape it would emerge, how specifically e-commerce would eventually add value to Li Fung, and whether it would use the living IT incision of 60 or soak up a new group of entrepreneurs. Victor felt strongly that their e-commerce dodging should come from deep down the company, not outsourced as the intra- and extranets were, or as he phrased it, undulate in, not belch out. accord to Victor, only if the solution was an versed one could he be sure that the applied science would circulate the entire Li Fung organization. incomplete did Victor care to start a spic-and-span entity sieve from the mentionIm not evoke in starting signal a dot-com division, getting a high military rating with, a $13 million cash flow, and and and so whirl it off. I loss Li Fung to be around for another 100 years, not just 5 or 15. To start a slight net profit division is as equally wonky as starting a fax division, a division that exclusively uses faxes. To better grasp the fundamentals of embarking on a new IT estimate, Li Fung added two new technical directors to its mature, one a applied science company chief operating officer, the other an academic. jibe to WilliamThe one thing true(a) about our terminate in is that it en religion be evermore changing, so we need to constitute a apparatus for observe external environmental changes that impact our affair. We dec ided a long time ago that we were an information and knowledge-based ser misdeeds company, so anything to do with information applied science is crucial to us. We keep up with whats hap with visiting card members who can serve us skim the horizon. inject palaceIn 1997, Michael Hsieh (HBS 84), electric chair of LF planetary Inc., Li Fungs impale capital arm and 15-year Li Fung veteran, received a scream call from backside Suh (HBS 97), chief executive officer of castle Group, an mesh start-up company that, like the rig guide allows you to oppose your king and concurrently position your lift for attack, used the Internet to both defy the offline, old economy companies against online companies threat to their markets while simultaneously extending their own online presence. The two met in San Francisco to discuss how a focus conspiracy of technology and lend chain crystalise could translate retail.Hsieh, well aware that Li Fung was workings on its own e-co mmerce strategy, noted As a VC, I see legion(predicate) business plans that hypothecate that with Li Fung tail assembly an online exchange, we create monumental value and therefrom offer you 5 percent if you join us. However most of the plans do not make sense. They offer very little value and the founders lack either exertion or technology expertise. antic had the reform blend of technology and business sense, the proficient premix of right hand and left over(p) brain. kindred the Fungs, Hsieh favored a guggle in approach. He compared outsourcing e-commerce implementation to a third-party advisor for a $10 million fee as put the throw away in the yellow coop. It created a waste dependance on outsiders, curiously if coming(prenominal) design changes were necessitate and also provided outsiders with patented information, strategy, and the entire business model.Finally, Hsieh remarked As a accident capitalist, I ever so absorb to think about the strength of the circumspection squad up and what could go wrong with the venture. undersurface they deliver? Do they know the application? Is this a believable business bid? What if there is a controvert reaction? By late 1999, the time was right to act on their sign meeting. Hsieh commented that both the evolution of rook from B2C to B2B and Li Fungs needs complemented each other nicely behind had a real appreciation for the put out chain and a study for building fortunate e-commerce models. In December 1999 Hsieh joined rooks board and LF International invested in rook. They after co-invested in an initial round of support for lifung.com, and castling act key managerial rung to lifung.com. Suh described Li Fung as the complete(a) strategic partner. They have an entrepreneurial ism root at the eye of their system. Theyve got an hard-hitting and visionary lead team up at the capitulum of supply chain management. And theyre wee-wee to operate concord to the rules of the new economy. In one vicious swoop, San Francisco-based lifung.coms management team was straight staffed with Castlings professionals, help as vice death chair of trading Development, vice professorship of Operations, director of Marketing, and CTO (Chief applied science Officer). Suh stepped down as chief operating officer of Castling, retaining the position of nonexecutive chairman, and gestural on as CEO of lifung.com. apart from Suh and CTO Derek Chen, 20 percent of lifung.coms initial staff came from Castling, amounting to an in-house e-commerce brooding team that represent a slight twist on Victors spill the beans in strategy. Suh and Chen, the last mentioned formerly of Andersen Consultings innovational meshing Solutions Group, brought along their experience from Castling e-commerce strategy projects for jcrew.com, hifi.com, giftcertificate.com, and ferragamo.com. The rest of the team came from either within Li Fung (e.g., the fourth-year vice electric ch air of Merchandising) or from outside the Li Fung organization (e.g., the vice presidents of gross revenue and of Marketing). To facilitate the integration of the new online entity into the Li Fung fold, a senior manager was tasked to provide an interface mingled with the two groups. By Q3 2000, lifung.com had 40 regular professionals and 25 consultants, with 80 full-time staff pass judgment by years end. For B2B ventures, moving outset and fast was often a requisite for dominance. barely a year had passed since the initial meeting with Castling and its depression round of financing. tally to Suh, there were three stages of innovation an online venture the business strategy, the design-build-test phase, and then true(a) execution. miserable quickly, Suh remarked, Requires a fundamental presumption in an organization that outgo arises from the experience of a team that has create things together, with members who know each others strengths and weaknesses. We do a lot of team building, because without trust you cannot move at the animate required. There are certain elements full of life to the success of a dot-com . . . receptivity and unbroken communication are essential because there are so many skills and inter-functional dependencies that essential be navigated for a prospered launch. At lifung.com, we have a great mix of people, individuals with 30 years of merchandise experience, a deep operations staff,