Walmart’s Supplier Says Chinese Factories in ‘Desperate’ State

A VPN is an essential component of IT security, whether you’re just starting a business or are already up and running. Most business interactions and transactions happen online and VPN
Walmart’s Supplier Says Chinese Factories in ‘Desperate’ State

Li & Fung Ltd. Group CEO Spencer Fung discusses how the U.S.-China trade spat is affecting the global supply chain.

The world’s largest supplier of consumer goods says China’s factories are getting “urgent and desperate” as worried U.S. retailers accelerate a move out of the country amid heightened trade tensions.

China will see more factory shutdowns as the trade war that’s roiled the global supply chain exacerbates an exodus, said Spencer Fung, chief executive officer of Li & Fung Ltd. The company, which designs, sources and transports consumer goods from Asia for some of the world’s biggest retailers including Walmart and Nike, is being pushed by American clients to shift production out of China.


Spencer Fung

Photographer: Bobby Yip/Bloomberg

“U.S. clients are definitely very, very worried,” Fung said in an interview with Bloomberg. “Everyone is making razor-thin margins already and most people have a huge percentage in China. So if the biggest source increases the price by 25%, they are worried,” he said, referring to the scale of tariffsthreatened on all Chinese imports to the U.S. by President Donald Trump.

Though Fung didn’t specify Walmart by name, the U.S. retailer is the company’s second-biggest customer after Kohl’s, accounting for 7.6% of revenue, according to Bloomberg data. A spokeswoman for Walmart declined to comment.

Seismic Shift
Because of its position as middleman connecting American retail giants to low-cost Asian factories, Li & Fung has a unique, ground-level perspective of the seismic shifts taking place around the world due to the trade war. Although the U.S. and China have resumed talks on a deal, there are growing signs that the global supply chain, long reliant on China as the factory to the world, is being permanently transformed. Intel has said it’s reviewing its global supply chain, while others including Apple and Amazon are reportedly doing the same.

“Nobody’s investing, nobody’s buying. The trade war is causing people to stop investment because they don’t know where to put the money,” the Silicon Valley-trained CEO said. “Many people put the money into Vietnam with one tweet,” he said, referring to Trump’s habit of announcing American trade policy over the social media tool.

The Hong Kong-based supply chain and logistics provider, which relies heavily on trade between the world’s two biggest economies to make its fortune, will see China’s contribution to its total sourcing fall from 59% in 2015 to less than half this year for the first time.

‘Completely Full’
While Chinese factories suffer, manufacturers in other Asian hubs become beneficiaries — up to a point. American retailers have already taken up all the manufacturing capacity in Vietnam in their rush out of China, said Fung, highlighting the lack of scale that prevents other destinations from fully substituting for China’s manufacturing might.

“Vietnam, for example, is full, completely full,” he said. “There’s no extra capacity for the U.S. companies to get in.”


A clothing factory in Bac Ninh province, Vietnam.

Photographer: SeongJoon Cho/Bloomberg
Chinese factories, meanwhile, are lowering asking prices in their desperation, creating an opportunity for European and Japanese consumer brands. Li & Fung is advising its non-U.S. clients to move in and take advantage of the mature supply chain and lower costs.

“It is a buying opportunity for European and non-U.S. retailers,” Fung said, “In China, there are a lot of factories with less and less orders. They’re offering actually pretty good prices to anybody.”

Li & Fung, which started its trading business 113 years ago, has seen a steep profit declinein the last five years as the rise of e-commerce platforms like Alibaba and Amazon cut out the middleman, and its retail clients faced waves of store closures. Fung said that core operating profit will continue to decline this year, but he stressed that he’s “seeing the bottom.”

The company’s shares, which fell 71% last year, climbed 2.7% in Hong Kong trading Wednesday, breaking a six-day losing streak.

Fung, whose great-grandfather Fung Pak-Liu established the company in 1906, sees the havoc currently being wreaked in the established global supply chain as an opportunity for Li & Fung’s re-emergence. Its 50-country sourcing network means it can nimbly shift out of China as clients desire, and its investment in technology like 3D virtual sampling will cut costs and save time, he said.


An employee works on a 3D graphic rendering.

Photographer: Bobby Yip/Bloomberg
The company is at the tail-end of a three-year restructuring plan that simplified its structure through divesting non-core businesses and streamlining operations.

“It’s like you’re flying a plane, you’re losing altitude,” said Fung. “But now one after another, I see the indicators turning green. I can actually see that the altitude loss is reducing and we’re actually pulling that plan back up”.…tens-chinese-factories-existence-li-fung-says
Finance Team

Finance Team

Leave a Replay

0 0 votes
Article Rating

This is a demo advert, you can use simple text, HTML image or any Ad Service JavaScript code. If you're inserting HTML or JS code make sure editor is switched to "Text" mode.

Notify of

Inline Feedbacks
View all comments

About Me

Lorem ipsum dolor sit amet, consectetur adipiscing elit. Ut elit tellus, luctus nec ullamcorper mattis, pulvinar dapibus leo.

Recent Posts

Follow Us

Weekly Tutorial

Sign up for our Newsletter

Click edit button to change this text. Lorem ipsum dolor sit amet, consectetur adipiscing elit