Li & Fung is the world’s largest sourcing and logistics company.  Li &Fung acts as a matchmaker between the factories of poor countries and the vendors of affluent countries.  Li & Fung handles the logistics for over 30% of American retailers, including Sears, Macy’s, JC Penney, and Kohl’s.  With sweatshop disasters, and increased customer awareness, Li & Fung is now seeking workers in South America and sub-Saharan Africa to stitch clothing for just a few dollars a day.

Li & Fung is based in Hong Kong.  The company owns no factories, sewing machines, or fabric mills.  Rather, its top asset is its 15, 000 suppliers in over 60 countries.  Li & Fung is considered the Walmart of purchasing; yet some critics also call it the “sweatshop locator.”

Li & Fung has been accused of labor violations and tied to the deadly accidents in warehouses in several countries last year.  Critics have argued that Li & Fung arranged for the production of clothing at a factory where 29 workers were killed.  It has been faulted with working with a factory in Cambodia where hundreds of workers were sickened. Last year, Li & Fung was responsible for garments produced at the Tazreen Fashions Factory where 112 people died in a fire after many of them were ordered to continue working even after the alarms went off.

Li & Fung is accused of feeding the West’s insatiable desire for cheaper clothing.  And employee advocates say that Li & Fung make accountability more challenging by adding another layer of insulation between retailers and poorly treated workers; this allows retailers to avoid bad publicity and legal liability when things go wrong.

However, sourcing companies are constantly at a crossroads.  Companies like Li & Fung are expected to find low-cost factories for clients yet also blow the whistle if factories violate safety standards. According to Li & Fung, the company makes it best effort to weed out bad factories, but it doesn’t always succeed.  Li & Fung conduct rigorous on-site audits.  In the case of Tazreen, Li & Fung had hired a new subsidiary that placed orders at the factory, but the changes that Li & Fung had demanded had not been made at the time of the fire, eleven weeks later.  Li & Fung uses its network and long history (it was founded in 1907) to help ensure compliance with local labor standards.  Li & Fung also sends undercover informants to factories to check for violations like blocked exits or child labor violations.  However, it does not publicly release these reports.

Companies like Tommy Hilfiger use Li & Fung because of its buying power.  Li & Fung is better able to extract deals than if companies like Tommy Hilfiger were to source themselves.

Li & Fung also absorbs liabilities for retailers.  For example, a container arrived in the U.S. with 500,000 Tweety Bird shirts for Disney that were the wrong shade of yellow.  The sourcing company, not the factory, get the unhappy call.  When protests or political unrest causes delays, it is the sourcing agent that has to cover the cost of the lost time.

Consumers might balk at Li & Fung, yet they are not willing to accept the higher costs associated with not using companies like Li & Fung.

Discussion Question:

What does Li & Fung do for retailers?

 

SOURCE: Ian Urbina and Keith Bradsher, New York Times, August 7, 2013