Li-Fung eats the peak group

TOO LATE FOR A NEW START

The Hong Kong company Li & Fung is almost unknown in Germany. If we look at a shirt at Karstadt or look around for new kitchen appliances in the department store, there is a high probability that we will all come into contact with goods that have passed through the hands of Li & Fung.

The large Chinese trading house buys all over Asia for the well-known brands all over the world, organizes the supply chains and puts the orders on the shelves just in time in the USA and Europe.

When I visited the then head of the trading house, Victor Fung, in his office on the 32nd floor of Alexandra House in Hong Kong in 1996, business was fantastic. The former Harvard professor told me that his company was “at the forefront” of globalization. At the time, “Business Week” counted him among the “25 best managers in the world”.

Today his son Spencer runs the time-honored "Hong", as the Chinese call a trading company. In 1906, his great-grandfather went into business for himself in Guangzhou. Globalization made Asia great and the Fungs rich. For three years, however, Spencer Fung has been fighting against the decline of his business. Li & Fung still has a turnover of almost 16 billion euros. But profits keep falling and falling. The "Financial Times" just recommended the clan to sell the company "as long as there is still something to sell".

The decline of the Hongs is a lesson in digitization. For decades, the strength of the trading houses was their network of small, cheap suppliers in the region. Victor Fung proudly spoke of 5,000 factories producing for him 20 years ago. At the time, it was impossible for western corporations to establish supply relationships with small businesses in Asia themselves. Today, digital platforms ensure direct exchange between producers in China or Vietnam and retail chains in Europe.

Or the factories in Asia make a deal with Amazon and sell their goods worldwide via the online giant. Nobody needs the middleman anymore. This is why Li & Fung suffers.

The lesson for German companies is obvious: business models that thrive on lack of transparency and fragmented markets will disappear sooner or later. For decades, for example, a screw dealer like Würth was one of the most successful German medium-sized companies. In the long run, however, Würth also has to reinvent itself as a digital company.

There are still high entry barriers for digital competitors in some industries. This applies, for example, to the trade in highly toxic chemicals. The global market leader, the German Brenntag from Mülheim, benefits from this. But now the first start-ups are breaking into these areas themselves.

After three disastrous years, Li & Fung is now spending 150 million euros on the complete digitization of business operations. The program eats up almost two thirds of the annual profit - and is still possibly far too little. Many examples show that if old business models are eroded by new, digital competitors, it is almost always too late to start over.

CategoriesEconomyTags150 million euros, digitization of business operations, Financial Times, business operations, Guangzhou, Hong Kong company Li & Fung, lack of transparency, Li & Fung, Spencer