Furiously Fast Fashions

Industry Standard, The, June 11, 2001 by Joanne Lee-Young, Megan Barnett

In recent years, a conga line of U.S. retailers have turned to Li & Fung. Among its clients are Abercrombie & Fitch, American Eagle Outfitters, Ann Taylor, Disney, Guess, Kohl's, Laura Ashley Jeans, Levi Strauss, the Limited, Reebok and Warner Bros. "It is the world's biggest supply sourcing company" says Salomon Brothers retail analyst Mark Rosenfeld in Hong Kong. With revenues growing 32 percent to $3.2 billion in 2000, Li & Fung, which is listed on the Hong Kong Stock Exchange, continues to gain market share in the United States. Almost 70 percent of its sales last year were in America. "For certain products, especially seasonal ones, they can do a better, faster job," says Babur Rafiq, who heads Levi's Asian sourcing operations in Singapore.

Hong Kong is the center of the garment outsourcing industry. Most of the companies located there own and run factories across Asia that weave, cut and sew garments. But Li & Fung is a different kind of outsourcer. Run by William and Victor Fung, Hong Kong natives who both graduated from Harvard University, the 95-year-old trading house that once sold ceramics and fireworks overseas doesn't own a stitch when it comes to making garments. No factories, no machines, no fabrics. Instead, the Fungs deal only in information, relying on a far-flung network of more than 7,500 suppliers in 37 countries, from Madagascar to China to Guatemala. "There are no secrets in the actual manufacturing. I mean, a shirt is a shirt" says William Fung, the managing director. "We would rather build on something proprietary, like what information it takes to make that shirt faster or more efficiently."

As an order comes in -- cotton shirts for Levi Strauss, dresses for Laura Ashley -- Li & Fung uses personalized Web sites and e-mail to fine-tune specifications with the customer. It then takes those instructions and feeds them into its intranet to find the right supplier of raw materials and the right factory for assembling the clothes.

Fingering fabric swatches at Li & Fung's headquarters, division manager Ada Liu explains how she juggled a pants order for a major American clothing brand. She had the fabric woven in China because the factories there could dye it the dark green indigo she needed, and she chose fastenings from factories in Hong Kong and Korea because they are the most durable. Then she sent the raw materials to Guatemala for sewing. "For simple things like pants with four seams, Guatemala is great." says Liu. "They can do things quickly, and it's close to the U.S. Delivery takes only a few days." And if production problems arise in Guatemala, Li & Fung can tap into its worldwide network and send the order to another country to avoid delays.

As a garment moves through production, retailers can make last-minute changes to orders on the Web site, which tracks the entire production process. About five years ago, when the company was run by phone and fax, Li & Fung would get an order for 50,000 khaki cargo pants - and deliver the goods five months later. Now, until the material is woven, the customer can cancel the order online. Until the fabric is dyed, the retailer can change the color. Until it is cut, the client can change the design or size. "There are generally fewer mistakes and disputes now when we have to make changes because the communication is clearer. That makes [adjustments] easier to do," explains Liu.