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OM in the News: Li & Fung, The Most Important Company You Never Heard Of

August 9, 2013
Li & Fung workers protesting unpaid wages

Li & Fung workers protesting unpaid wages

Li & Fung — the most important company that most American shoppers have never heard of — has long been on the cutting edge of globalization, chasing cheap labor to garment factories first in China, then elsewhere in Asia, including Bangladesh. Now, with sweatshop disasters there drawing international scrutiny, the business is looking for the next best place where it can steer apparel buyers seeking workers to stitch clothing together for a few dollars a day.

As the world’s largest sourcing and logistics company,” writes The New York Times (Aug. 8, 2013), “Li & Fung plays matchmaker between poor countries’ factories and affluent countries’ vendors, finding the lowest-cost workers, haggling over prices and handling the logistics for 1/3 of the retailers found in the typical American shopping mall, including Sears, Macy’s, JCPenney and Kohl’s.”

The Hong Kong merchandiser owns no clothing factories, no sewing machines and no fabric mills. Its chief asset is the 15,000 suppliers in over 60 countries that make up a network so sprawling that an order for 500,000 bubble skirts that once took 6 months from drawing board to store shelf now takes 6 weeks at a sliver of the price.

“If globalization is a race to the bottom, where lowest wages win,” says an A.F.L.-C.I.O. spokeswoman, “Li & Fung is the sherpa showing companies the fastest route down that slope.” Li & Fung’s ability to exert pressure on factories can have unfortunate consequences, adds a labor advocacy group executive: “Every extra penny you squeeze from a factory is a step closer to that factory cutting the kind of corners that lead to deadly disasters.”

Meanwhile Li & Fung’s CEO says his company is considering South America and sub-Saharan Africa as possible places for growth. “I wouldn’t write Bangladesh off,” he said. “It still has some of the cheapest labor in the world. For factories to get safer, clothing prices would have to go up. So far, consumers have just not been willing to accept higher costs.”

Discussion questions:

1. What is the firm’s role in the apparel supply chain?

2. What risks do clothing companies take in depending on Li & Fung?

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