Future Lessons for Business Leaders from Hong Kong

Insights from Victor Fung, honorary chairman of Li & Fung Ltd.

17/03/2016 Hong Kong

Victor Fung

Victor Fung: “You want to make sure that every single year your employees are relevant and ready to tackle the challenges of the future” / Photo: Wallace Chan

“Society has a major problem. We have to ask ourselves what is the impact of technology on society, and on jobs?

This was one of the main issues keynote speaker Victor Fung, Chairman of Li & Fung Ltd., one of the largest Chinese multinationals in trading, logistics and distribution, posited at an alumni event in Hong Kong.

“You don’t want to stop technology, but it could put a lot of people out of work. Companies have a tremendous responsibility to manage this, and need to rethink,” says Fung.

IESE Dean Jordi Canals opened the session by paying homage to Fung’s outstanding academic, business, political and social contributions that have gained him a solid international reputation.

Fung, a member of IESE’s International Advisory Board, completed his PhD in Business Economics from Harvard and stayed on as professor of Finance until his took over the family business, founded by his grandfather in 1906.

“When my grandfather founded the company 110 years ago, it was still the Qing dynasty. The arrival of the telegraph shocked him that people demanded an answer immediately. He was used to letters which took 60 days to arrive,” Fung shared.

“What is clear is that the new technology is coming in waves, and will be coming in more frequently, and with more impact in the next decades. So you have to get used to the idea of adapting all the time, riding the ups and downs of the waves. Your organization should have the mentality and culture to adjust.”


Bucking the Trend

For Fung, 30 years ago the economic opening of China heralded the globalization of production. Back then, he says, consumption mainly came from Western countries – the US and Europe – 84 percent according to the OECD.”

“But now, the growth rate of developing countries is a lot faster, and today it accounts for 30 percent. I foresee a continuous globalization of production, as well as significant globalization of consumption. By 2050, more than half the world’s consumers will come from non-OECD countries. That is a huge trend.”

At Li & Fung, the model of sourcing in the East to sell in the West, with China doing all the manufacturing for the world, is changing. “Supply chains have become are a lot more complex, nuanced and sophisticated. “It’s not so easy to decide where to locate your production. Today we produce in Italy and sell in China because ‘made in Italy’ has a real premium to the Chinese consumer.”

“You have to have a global view,” says Fung. “Understand the role of a major economy like China, both as a market and as a competitor. If you don’t sell to them, your competitors will.”

Fung also believes that the “One Belt, One Road,” initiative could be a great single access platform. “The maritime Silk Road which goes from coastal China all the way to SEA, South Asia, East Africa and Middle East has great potential. If they build the infrastructure they would create larger free trade areas, which is a big opportunity market. Studies show that 80 percent of non-OECD markets will make up for half of the global consumption in the next decade.”


A Complicated Game to Play

A challenge for a global marketer today for Fung, is to know what is happening in the developing economies as well as the non OECD countries. Thinking about what they want to buy and how to access them is crucial.

“But it isn’t that straight forward. In non OECD countries there are a myriad of SMEs. How do you connect with wholesalers in the Philippines that sell cigarettes by the stick?” he asks. “The Pay Pals of this world mean you can collect, but what about distribution and inventory? It really is a problem of B2b where most buyers come from the web.”

If you want to be a global player you have to come forward and think global. Developing and developed markets require different services from you. And there could be a lot of interplay between the two to build up an even more competitive volume,” maintained Fung.

Today, 400 of a total of 7,000 clients account for most of the volume of Li & Fung customers worldwide and all in Europe and the U.S. “The way forward is to manage working online to offline and vice versa. Only those who do this will survive,” he says.

At the end of the day, you have to go back to basics and ask how to serve the consumer better at every step of the transaction, a consumer one who has become more sophisticated and demanding because of all the gadgets, technology available.”

“What I can envision is a series of tight, small local markets, sometimes called hyper-localization, within each of which the deliveries to your small customers, the small ‘bs,’ will be totally ‘uberized,’ he speculates.


Supple, Swift Leadership

“You never know what is really going to happen and the only way is to test and re-test cheaply and quickly,” he warns. It’s about having a culture of rapid experimentation. Bringing prototypes to test markets in a rapid way, to focus groups and then back to zero, and prototyping again. That will really be the norm of the future. It’s the only way to stay on top.”

With the rise of Omni channel retailing, Li & Fung have recently converted a 2,500 m2 campus in Shanghai into a lab mall with pop up space dedicated to testing different models of this way of selling.

“They used to take three months to solve a problem. Now we put 10 guys in a room and give them two hours to come up with a solution.”


Rethinking Education

Finding the right staff is vital. At every level, employees do a mandated training in a top tier school. This is financed by the Chairman’s foundation so that even during hard times when the markets are down, training is sustained.

You want to make sure that every single year your employees are relevant and ready to tackle the challenges of the future. You are constantly updating your skill set, but your fundamental is your attitude, your character that will allow you to adapt,” says Fung.

“In adverse environments in fact, you have to step up your game by training. If you really want to be a long term player, you have to cut against the grain and you have to have character to do this.”

The World Bank predicts that there will be a million and a half new workers without training in the next decades. People will need to be retrained but in a massive way, calling for a “revolution” in education.

“Bismark invented the K-2-12 system which was meant to turn country boys into members of the industrial revolution. Shouldn’t we ask if we still need a K-2-12 system?” he asserts.

Technology has its advantages and disadvantages. One should be able to deal with its effects and adapt, think out of the box. “If you are going to put a lot of people out of jobs, you have to think about work sharing; you have to adjust to new jobs in the new economy. You have to redefine the meaning of work and leisure.”

“My father’s generation worked from sunrise to sunset, from dawn to dusk, and I am sure he was shocked when my generation didn’t work every day of the week and for such long hours,” says Fung.

“Similarly, we went through a lot of soul searching in our company when we decided to cut our 5.5 work week to just 5 days. People thought the whole system was going to collapse and nothing happened.”