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SCMP Reporter

Manufacturing in Hong Kong between 1949 and 1979 was a blip in history.

  Now things are getting back to normal, according to Li & Fung.

  Group managing director William Fung says Hong Kong has always been an entrepot trading base.

  An accident of history saw manufacturing build up in Hong Kong.

  After China opened up in 1979, it took Hong Kong manufacturing about 20 years to move north.

  Now Hong Kong is returning to its traditional role as a trader and provider of services where numbers relating to exports and re-exports will no longer mean so much any more as the economy increasingly turns over to services.

  Li & Fung reckons it is well ahead of the game in this structural change.

  Hong Kong's strength, argues Mr Fung, is the 30 years experience and development of expertise in manufacturing.

  'Our view is we need to service the manufacturing needs of our customers. That is the future,' Mr Fung said.

  Li & Fung is a trading company, sourcing the manufacturing of products for customers and then organising shipping along with distribution of those products, from toys to T-shirts, to wherever they are needed.

  The company has developed a strong base as a trader between Asia and the United States.

  Last year's acquisition of Inchcape Buying Services brought in new manufacturing bases in India, the Mediterranean and Caribbean, along with massive consumer market distribution in Europe.

  It means low labour manufacturing has been diversified away from a dependence on China, while replenishment 'just-in-time' hubs are well placed to serve Europe and the US.

  'It was a great fit,' Mr Fung said.

  The acquisition of Inchcape diluted margins at Li & Fung from 3.4 per cent to 2.8 per cent.

  The annual margin at the acquired company is 0.8 per cent.

  Li & Fung intends to bring to its new purchase and Europe US-style distribution techniques.

  Country divisions have been abolished with a shift to centralised administration.

  Corporate memory and morale is being kept at the company by no mass firings while re-deploying people away from administration towards sales.

  Li & Fung is also planning to cut out the middlemen, by-passing buyers and dealing directly with customers, planning their manufacturing, shipping and replenishment from start to finish.

  Yesterday's placement, Mr Fung said, was intended to get the group balance sheet back in shape after last year's acquisition, setting gearing ratio from 120 per cent to 70 per cent.

  After including cash balances, analysts estimate, gearing went from 50 per cent to neutral.

  Mr Fung argues this keeps the gunpowder dry to allow the group to buy up more companies as opportunities come up.

  Hard-goods, in household and sports equipment, is due to be the next sector entry for the company, which has tended to be in the soft business of toys and textiles until now.



Service with a smile as Hong Kong reverts to playing traditional role