Li & Fung cuts China’s role in supply chain as it shifts sourcing to cheaper markets in Southeast Asia
- China accounted for 51 per cent of Li & Fung’s total sourcing business in 2018, down from 54 per cent in 2016
- Company’s move to buy goods from countries like Vietnam helped it to minimise impact of US-China trade war
Global supply-chain giant Li & Fung will source less than half of its goods from China this year for the first time in 15 years as the company looks elsewhere amid rising manufacturing costs and the trade war.
China accounted for 51 per cent of Li & Fung’s total sourcing business in 2018, down from 54 per cent in 2016, according to chief executive Spencer Fung.
“It gives us an advantage and helps our customers to mitigate the risk of US tariffs on Chinese goods and increasing labour costs in China,” Fung said during a press conference.
The 113-year-old Hong Kong company supplies apparel, accessories and other products to global retailers. It generates nearly 80 per cent of its revenue from the US for its main supply chain management business.
Chairman William Fung said that Li & Fung had started shifting some of the sourcing from China to Southeast Asian countries such as Vietnam because of cheaper labour costs even before the US-China trade had started.
As a result, the company suffered minimal impact from the trade war, he said.
Li & Fung now sources from about 50 countries across Africa, Europe, Asia and the Americas.
The remarks were made after the Hong Kong-listed company reported a 20 per cent year on year decline in core operating profit to US$285 million in 2018, which is higher than the consensus estimate of US$270 million according to analysts polled by Bloomberg.
Earnings per share plunged by 26 per cent to 1.5 US cents.
The company cited “record store closures and customer bankruptcies” in the US and Europe as the main reason behind the slump.
More than a dozen US retailers from department stores to sellers of wedding dresses filed for bankruptcy last year, as e-commerce continues to weigh on the business of traditional bricks-and-mortar shops.
Some of the most famous closures include mattress giant Sears and footwear companies Rockport and Nine West.
Spencer Fung said the macro environment will continue to be challenging in 2019, and the company is seeking to win more customers and improve efficiency through a series of internal restructuring.
The company will issue a dividend of 4 HK cents per share.
