Fung and Tata Comparison Essay

Found in 1906, the Fung Group, widely known as Li & Fung, was a Hong Kong-based multinational company with its core businesses built along the global supply chain. It employed over 43000 people across 40 economies worldwide, with total revenue of US$23billion. Though the Fung Group was solely engaging in the supply chain industry while the Tata Group was operating in many different industries, the corporate structures of the two groups were similar in many ways, and they also allowed high flexibility and dynamic of the diversified business functions but still maintained the benefits of centralization of resources.

Fung Holdings (1937) Ltd, a privately held entity, was the primary holding company of the Fung Group. Established as a trading firm in 1937, Fung Holdings was the major shareholder of many subsidiary companies engaging in different but interconnected functions in the supply-chain. There were three major companies in the Fung group covering the whole end to end supply-chain functions: Sourcing-Trading, Logistics, Distribution and Retailing. (App1)

Structure: Flat, Diversified and Interconnected functional network

Li & Fung Ltd, listed on SEHK, was engaging in the trading and distribution services with managing a coordinated network of 20000 suppliers and 1200 brand products. Its core sourcing-trading value was in aggregating buying power, just-in-time sourcing, coordinating with multiple production locations, and shortening delivery cycles. In complementary to its role as sourcing agent, Li & Fung Ltd owned a subsidiary called LF Logistics, which was a strong product distributor by managing a global logistics network that offered door-to-door logistics solutions, including warehousing, transport, repacking, freight forwarding, custom brokerage, hubbing and consolidation.

Another business function in the Fung group was the brand management and product distribution. Global Brands Group Holding Ltd, which was also listed on SEHK, was one of the world's leading companies for designing, developing, marketing and selling products under a diverse array of controlled and licensed brands and a wide range of product categories. Its customers primarily were retailers, from department stores to specialty retailers and e-commerce channels, in the Americas, Europe and Asia.

Fung Retailing Limited operated the Group's fourth core business of retailing. It owned two SEHK-listed entities: Convenience Retail Asia Limited and Trinity Limited. And other privately-held companies like Branded Lifestyle Holdings Limited, Fung Kids (Holdings) Limited and Toys"R"Us (Asia) were also in the retailing business of diversified products.

The full coverage of the supply-chain functions in the Fung Group created a very strong corporate level advantage in the industry over its competitors which were normally participating in one or two functions. Synergy was promoted through the close interaction among the diversified business sectors. But like the Tata Group, each business sector was housed in a separate company which had its own distinct CEO and management team. (App2) Affiliated to the Business Group, these individual companies were either private or publicly-listed companies, and were operating independently with their own P&Ls, strategies, and assessment tools. The Group’s corporate business philosophy was “to build a large, multinational company by aggregating small, independent, entrepreneurial business units”. Under the above three streams, the Fung Group managed a portfolio of over 300 profit centers, many of which were headed by entrepreneurs who sold their businesses to the Group and yet stayed behind to run the businesses. These units remained small, nimble and reacted quickly to the changing market.      

Centralized Group Services to create Synergy  

In spite of its pursuit of agility and flexibility, like the Tata Group, the Fung Group also set a series of initiatives at the corporate level to develop a cohesive alliance. The Fung Group Executive Office worked with each of the subsidiary companies to define their vision and high-level business strategies. The Group’s “3-year plan” gave all the sectors the business direction in the coming years, and at the same time reduced the conflicts among the units. Collaboration among sectors was also facilitated. For example Cross-selling and Services Integration were very common for a single customer of different business units.  

In addition, the Group evolved the below major corporate services to help centralization of resources for all the business sectors. With a better economy of scale, it greatly reduced the operation cost and improved the efficiency of each sector. (App 3)   

The Operation Support Group (OSG)

Like the Tata Services Ltd, an operation support group existed in the Fung Group to serve as the back office base, administering four central functions for all business sectors worldwide: IT, Finance, Human Resources and General Administrative Services. It took care of all the back-end needs so that the front-end business units could focus on their core competencies.

The Central Information System

A strong and sophisticated information system was developed to maintain the Group’s vast supply-chain network and the information flow. In 1990s, the Group had already established a company-wide intranet linking all critical company operations. An EDI system was also developed to link up the key components of the supply-chain, so as to provide tracking capability, streamline the flow of business information and closely control the supply and logistics activities. Such IT infrastructure allowed the company to be customer-centric and also enabled fast integration of newly acquired business.

The Fung Academy  

Similar to Tata group’s TBEM, the Fung Academy was set up to drive the improvement of the organization. The Academy formulated the business excellence models and cultivated talent, accelerated learning and developed future capabilities in companies across the Group. This was accomplished in three ways: Leadership Development, the spreading of Sustainability Best Practices and the fostering of a culture of Innovation and Experimentation.

The Tata Group used the “loose but supportive” corporate strategy on its highly diversified business portfolios while the Fung group used the similar approach in multi-functions of a single industry. In conclusion, the Fung Group created the below corporate level advantages using such structural and management strategy: