It's tough to make a living as a Hong Kong middleman. Just ask William Fung, the 51-year-old group managing director of trading company Li & Fung. Back in the 1970s, he recalls, his family-run company supplied blue jeans to Gap Inc. for $28 a pair. Today, with customers constantly demanding that Fung keep his costs down, that same pair of blue jeans is going to the Gap for--you guessed it--$28. "The pressure is tremendous," says Fung.
But he keeps finding ways to ease the cost squeeze. Li & Fung, whose U.S. clients include Toys `R' Us, Avon, and Gymboree, has sailed smoothly through the Asian crisis into the Asian recovery, all the while profiting in a notoriously low-margin business. Sales rose 14% last year, to $2.1 billion, and profits were $74 million--up 26%. Fung predicts even better times ahead. "In the last three years, we doubled our profits," he says, "and we will double them again in the next three years."
Fung is part of a high-powered team. His older brother Victor is Li & Fung's chairman and one of Hong Kong's consummate insiders: chairman of Hong Kong's Airport Authority, the city's Trade Development Council, and Prudential Asia's direct-investment arm. Day-to-day operations at Li & Fung are William's responsibility.
The brothers can thank their grandfather for picking the right market when he started nearly a century ago. While others in British-ruled Hong Kong tried to link up with big English firms, the Fung family focused on products for free-spending Americans. That U.S. concentration has seen the company through three generations. "Our tendency has always been to work with the Yankee traders," says Fung, who graduated from Princeton University in 1970; at the ceremony, he wore an armband to protest the killings at Kent State. He went on to Harvard Business School.
To slash costs, the Fungs play a global game. Now operating in 30 countries, they are adept at buying components from high-cost countries and assembling them cheaply elsewhere. To sell a ski jacket to a customer, Fung gets microfiber from South Korea, lining from Taiwan, tags and labels from Hong Kong, and zippers from Japan, then finds a factory to put them together in China. "That's a multinational joint venture," he says.
The Internet, Fung insists, won't change his tactics. While a host of dot-coms is creating online exchanges that match Asian suppliers with Western buyers, Fung says they won't undermine his business. "People want fewer suppliers, not more," he says.
He is always looking for new frontiers: most recently Swaziland and Madagascar, now that a new U.S. law makes it easier to export to the U.S. from Africa. Where there is a cost-cutting opportunity, you can bet Fung is not going to miss it.