Customer Reviews

Competing in a Flat World: Building Enterprises for a Borderless World

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Victor and William Fung, group chairman and group managing director respectively of a Hong Kong-based multinational corporation specialized in sourcing, have partnered with Jerry Wind, a Wharton marketing professor and co-author of the illuminating The Power of Impossible Thinking: Transform the Business of Your Life and the Life of Your Business (2005) about strategic inflection points, to provide an exceptional how-to book focused on drilling down globalization to the level of existing businesses. The Fung brothers are authorities on the topic since their firm, Li & Fung, is one of the world's largest trading conglomerates managing the supply chain for high-volume, time-sensitive consumer goods through a network of sixty-six offices in over forty countries. Instead of investing in production facilities, the Fungs have mastered supply chain management by providing the convenience of a one-stop shop for customers through a coordinated package which runs the gamut from product design and development through raw material and factory sourcing, production planning and management, quality assurance, and export documentation to shipping consolidation.

Without the burden of unnecessary overhead, the Li & Fung business model has allowed the company to generate over $7 billion in annual revenue on an employee base of only 7,000. It is the unprecedented geographic flexibility of the firm's operations that epitomizes what Thomas Friedman talks about in his groundbreaking book, The World Is Flat: A Brief History of the Twenty-first Century, when he elaborates on how the combination of information technology and instantaneous telecommunications has rendered the traditional need for a local labor market obsolete. Through the brothers' own example, Li & Fung has by necessity, a non-hierarchal organizational structure that allows them to respond quickly to customer needs. With this insightful book, they encourage firms to orchestrate among a variety of contracted suppliers and maximize technology and logistics to make the production process as seamless as possible.

This intricate coordination effort has been made even more complex by the escalating growth of niche markets demanding an even greater variety of products than what has been offered before. The need to service these segments concurrently has given rise to dispersed manufacturing which translates into multiple sourcing at different stages of production. The co-authors manage to explain clearly the steps that companies need to take to optimize their supply chains. Different industries have different levels of flexibility, and the scope and depth of Li & Fung's 9,000-plus network will not apply to all who read this book. Wind is particularly effective in showing how the lessons learned by the Fung brothers can apply to the non-manufacturing sector. It is not only the dynamic nature of managing the supply chain that remains pertinent no matter what industry, but also adherence to a consistent perspective on the customers' holistic needs.

The co-authors outline the three dimensions that make for a successful framework of supply chain management. The first is to balance the firm's interests with those of the network create by creating "big-small" companies that combine scale and agility. The second is the move away from traditional notions of control toward a specifically network-centric viewpoint given that the suppliers and consumers are more empowered than ever to upset the cart. The third is currently the most nebulous, the paradigm shift in the strategies and competencies necessary to succeed in a flat world. The co-authors wisely view this last dimension as a work-in-progress, as customer needs and the expectation to respond to them continue to evolve at an even faster rate. This is strongly recommended reading for the forward-looking executive.

Those who have read Thomas Friedman's The World Is Flat no doubt recall an assertion he makes in his introduction to the second expanded version: "My use of the word `flat' does not mean equal (as in `equal incomes') and never did. It means equalizing, because flattening forces are empowering more and more individuals today to reach farther, faster, deeper, and cheaper than ever before, and that is equalizing power - and equalizing opportunity, by giving so many more people the tools and ability to connect, compete, and collaborate. In my view, this flattening of the playing field is the most important thing happening in the world today, and those that get caught up in measuring globalization purely by trade statistics - or as a purely economic phenomenon instead of one that effects everything from individual empowerment to culture to how hierarchical institutions operate - are missing the impact of this change."

Curiously, there is no reference in Friedman's book to Li & Fung, Hong Kong's largest export trading company, which has been "a flat business for a flat world" since the early 1980s. In an interview by Joan Magretta that appeared in the Harvard Business Review (September-October 1998), Group Chairman Victor Fung explains how Li & Fung reinvented itself to become and remain fast, global, and entrepreneurial. The company's new role (then and now) is to be a "network orchestrator."

In this book, Victor Fung, William Fung, and Yoram (Jerry) Wind explain how to build an enterprise for a borderless world, one that can "embrace the flat world" and understand how it works so as to take full advantage of the many new opportunities it offers. "Those that cannot adapt quickly enough to these new realities will fall behind or be bought out by those who have learned how to compete in a flat world. The opportunities are as broad as the world." They then pose the question to which their book is a rigorous and eloquent response: "How do you need to remake your organization, management, and mindset to seize these opportunities?"

The material is carefully organized and then presented within twelve chapters, followed by a Conclusion in which they ask their reader, "Are you ready to compete flat out?" Those who read, absorb, and then apply Fung, Fung, and Wind's advice will be well-prepared to answer that question in the affirmative.

Of special interest to me is what they have to say in Part III as they focus on value creation. Specifically, in Chapter 9, how to capture the "soft 3$"by looking beyond the factory:

"Markdowns are a flaw in the manufacturing process. They mean that a product has lost value because it was not the right product at the right time at the right place."

"In a flat world of unpredictable demand, avoiding markdowns, stockouts, and expensive whipsaws in the supply chain is harder and more important."

And then in Chapter 10, how to sell to the source by bridging marketing and operations:

"For companies that are sourcing from China, India, and other emerging markets, sometimes insights from emerging consumer markets come from the floors of their own factories or call centers."

"The challenge is to ride the wave of consumer market growth without getting too far ahead or behind."

"Sourcing can [also] offer insight into many different areas, including regulations and policies, risks, competition, detailed market information, and market shifts."

As I hope these brief excepts indicate, Fung, Fung, and Wind are relentless empiricists and hardcore pragmatists who identify the "what" of "flat-out competition" but devote most of their attention to explaining the "how" of achieving and then sustaining success.

Who will find this book to be of greatest value? In my opinion, they include decision-makers in organizations that are preparing to become a global network "orchestrator" or have only recently initiated efforts to become one; also, decision-makers in other organizations that are part of supply chains of one or more orchestrators. Moreover, I think this book should be required reading in undergraduate and graduate schools of business it will help the next generation of C-level executives to help their organizations to take full advantage of opportunities that, by then, are certain to have increased in terms of their nature and number as well as their potential ROI and, yes, their peril.

Those who share my high regard for this volume are urged to check out Vijay Mahajan and Kamini Banga's The 86 Percent Solution: How to Succeed in the Biggest Market Opportunity of the Next 50 Years, Kenichi Ohmae's The Next Global Stage: The Challenges and Opportunities in Our Borderless World, and C.K. Prahalad's The Fortune at the Bottom of the Pyramid: Eradicating Poverty Through Profits as well as Enterprise Architecture as Strategy: Creating a Foundation for Business Execution co-authored by Jeanne W. Ross, Peter Weill, and David Robertson, Dean R. Spitzer's Transforming Performance Measurement: Rethinking the Way We Measure And Drive Organizational Success, Richard Ogle's Smart World: Breakthrough Creativity and the New Science of Ideas, and Harvard Business Review on Managing the Value Chain.

The phrase, "flat world" is one of those that would have been best left unused, substituted by a more accurate one. In databases, a flat file is one where the data is in one large file with no relationship connections. When there are multiple entities with connections between them, we use the term relational database. Also, the phrase "flat world" seems to mean that everyone operates on the same level surface, which is hardly the case. There are now and always will be advantages to locating specific business activities in one location over another.
In the context of business and this book, the phrase "flat world" is used to refer to the situation where business entities have complex relationships with entities in other countries. The manufacturing process is one where the phrase "country of origin" for a product no longer has any real meaning. The parts that are created to make the final product are often manufactured in several different countries and in many cases different steps in the assembly are performed in different countries. In this situation, the only phrase that is applicable is, "country from which the finished product is shipped."
This modern world means that there are companies that serve the role of what the building trades call "general contractor." This is the person or company who organizes all of the steps in the building of a home, from the first spade of excavation until the last bit of landscaping. The general contractor may not even so much as pound a single nail in the construction, yet is essential to the development of the final product.
This book is generally a case study of a company called Li & Fung that is the manufacturing equivalent of a general contractor. Having relationships with organizations literally around the world, Li & Fung is the brains and organizational prowess behind the manufacture of many goods without actually doing any manufacturing themselves. This requires an enormous amount of organization and timing, as segments of the end product are assembled in different countries, following the path of least cost. Those segments must then be shipped to sites in other countries, where the supply must be timely enough to keep the next plant functioning.
If you are interested in the way business will be done from now on, then this is the book for you. As a political junkie, I listen to some of the candidates for the American Presidency state how they are going to repeal American trade agreements, specifically NAFTA. This is of course ridiculous, the multilateral trade agreements are what have made this distributed assembly possible and any unilateral action would lead to a trade war and a very severe economic downturn. If you are a doubter, read this book and learn how deep the international relationships are between companies.

Li & Fung may be the biggest company you've never heard of, but it's likely you use things that have been touched by them at some point every day. In the book Competing in a Flat World: Building Enterprises for a Borderless World, Dr. Victor K. Fung, Dr. William K. Fung, and Yoram (Jerry) Wind examine the unique business model of the company, and how it succeeds in today's competitive environment.
Contents:
Preface: Competing Flat Out
The Orchestration Imperative
Part 1 - Focus - Firm and Network: Orchestrate the Network; Compete Network Against Network
Part 2 - Management - Control and Empowerment: Take Responsibility for the Whole Chain (Whether You Own It or Not); Empower "Little John Waynes" to Create a Big-Small Company; Establish the Three-Year Stretch to Balance Stability and Renewal; Build the Company Around the Customer; Follow the 30/70 Rule to Create Loose-Tight Organizations
Part 3 - Value Creation - Specialization and Integration: Capture the "Soft $3" By Looking Beyond the Factory; Sell to the Source by Bridging Marketing and Operations
Part 4 - Implications for Policy and Practice: Policy - Building a Borderless Business in a World of Nation-States; Practice - A Lever to Move the World
Conclusion - Are You Ready to Compete Flat Out?; Appendix - About Li & Fung; Notes; Index
Li & Fung is a supply chain management company that's been in existence for over 100 years. They specialize in being able to take an order for something like a production run of polo shirts for a major retailer, source all the raw materials, contract with factories that can create the shirts and package them, ship the product to the required location, and manage every step in between, all at a pace that would have been considered impossible not too many years ago. They are able to do this by creating vast networks of companies that have committed to work with them and respond at a moment's notice. Li & Fung have the systems in place to know where they can find the necessary supplies in the required volumes, find the quickest means to get those supplies to the designated production factory, and to find what factories in the network have the capabilities and capacities to fill the specific order. All of this comes together in such a way that Li & Fung doesn't have to own much of anything in the end-to-end chain. They bring value by orchestrating the entire network for the customer, and by knowing how to move things around the network so that production costs are low and response time is trimmed down to the bare essentials. Competing In a Flat World discusses each of these aspects of the Li & Fung business model, the challenges they face, as well as how their "flat world" model makes it nearly impossible for any one company to compete with them or to hold them hostage to demands at any point in the cycle.
If your business is one where you have to rely on other entities to produce your products, taking a thoughtful look at what Li & Fung has done might well open your eyes to a new way of managing your business. The examples in the book are real and numerous, and little of the material strays out of the practical realm. And if you're working with Li & Fung already, this can serve as an insightful look into what drives their business model, and how you fit into their world.

The collaborative effort of Victor K. Fung (Group Chairman of Li & Fung and Vice Chairman of the International Chamber of Commerce), William K. Fung (Group Managing Director of Li & Fung and former Chair of the Hong Kong General Chamber of Commerce), and Yoram 'Jerry' Wind (Lauder Professor and Professor of Marketing at The Wharton School, University of Pennsylvania and a lecturer on global marketing and business strategy), "Competing In A Flat World: Building Enterprises For A Borderless World" focuses on how an business can be successful access a global market for its goods and services from manufacturing to sales. The template is Li & Fung which has produced more than $8 billion in garments and other goods for nationally and internationally recognized brands -- all without owning a single factory. Reader swill learn how to successfully compete 'network vs network; how to crate a 'big-small' company combing scale and agility; how to forge 'loose-tight' relationships with suppliers; how to balance control with empowerment, stability with renewal; how to deal with such issues as politics and terrorism. A fascinating study founded upon real-world experience and a remarkable attention to detail, "Competing In A Flat World" is to be considered essential reading for anyone contemplating doing business in today's increasingly global economy.

As somebody who had lived in Hong Kong for decades experiencing the evolution of its textile and clothing industry, I did expect much more from this book about how Li&Fung turned itself to be debatably one of the most successful trading house, supply chain or "network orchestrator" as the authors crown themselves in the world. Little had been talked about how it had taken advantage of the opening of Mainland China and the pool of low cost Textile and Clothing human resources in the Greater China Region, and what edges Li&Fung had built and enjoyed to thrive beyond the thousands of trading house in the region. Disappointedly, the authors had been too busy to associate themselves with the "Flat World" euphoria and to "theorize" their work for a higher position in the academia and consultancy arena (Perhaps that's the fault of Wind, and not of the Fung's), or they had been too careful not to disclose their business secrets. For those who read more and better about the "Flat World" on a "strategic" level, I strongly recommend "A Whole New Mind by Daniel Pink". For those who expect the Fung's to tell you how to copy their success formula, or learn how to enhance your own supply chain or trading house practice, please give this a pass.

Yes, the global communications and logistics systems does make it easier and even necessary to involve the globe in your manufacturing, marketing, and distribution systems. The idea of the "Flat World" is now in everyone's vocabulary, but I think it is a bit overdone. Just because information CAN be communicated anywhere, made in more places than ever before, and shipped from and to almost anywhere, does not mean that anywhere is equivalent everywhere.

Still, I think this book is interesting in the way they describe using your expertise to market and build just what the customer wants using global infrastructure by orchestrating the resources of a number of firms rather than building your own infrastructure and having to market to utilize your capacity rather than focusing on customer needs and desires.

We are seeing the problem with this theory, though. As American and European manufacturers moved their plants to other parts of the world, these places predictably learned. They are now either buying up Western brands or creating their own and bringing them to market in the West. Oops. They didn't stay in their role in the back of the orchestra, did they.

So, while this idea has some merit, the old rules of manufacturing, marketing, and aggressively competing in the marketplace with every tool (weapon) available still apply. You would be smart to think through handing the keys of your kingdom over to third parties based on these concepts. Rather than merely supporting your efforts, they may decide to push you aside and move in.

Reviewed by Craig Matteson, Ann Arbor, MI

We all know that an incredible proportion of American consumption is created overseas. "Competing in a Flat World" helps the reader understand some of the less obvious advantages. For example, assembly of store-level orders now also takes place in foreign lands, reducing total labor (no longer requires U.S. warehouse stocking and order-picking; allows cross-docking) and costs (store-level assembly costs now take place using cheaper overseas labor). (I wonder if they are also preparing the UPS/FedEx shipping labels for each box?)

"Competing in a Flat World" also provides insights into how foreign production is managed. Variable supply chains are created according to need - eg. speed, total quantity. The "conductor's" focus shifts from utilizing one's capacity to answering a customer need, and the manufacturer becomes much more closely aligned to its customers. Supply-chain integration also minimizes vertical integration problems for involving disparate degrees of scale economy.

The "bad news" is that the book sometimes detracts from its value with muddled logic. An example is contending trade deficits no longer matter because the "country of origin" is now (more) dispersed. (What does that have to do with concern over trade deficits?) Another is overstating the reduced the advantage of nearby suppliers - many Chinese cities are focused manufacturing clusters that specialize in a particular product such as socks. A third is contending that large customer power is reduced in the new relationship world - actually it is greater because they have greater ability to substitute for any particular supplier.

Regardless, the book's new insights make it valuable reading.

What is supply chain orchestration? It's an outsourced service that some use in fragmented supply markets to have someone else select and manage a supply chain for each purchase order. For example, a retailer wants to offer a supply of pants in various styles and sizes. Rather than bid among hundreds of suppliers for raw material, zippers, buttons, sewing, and packaging, the retailer might hire a supply chain orchestrator to perform those roles for a fixed price per garment. Although buying the supplies well would save some money, the big gain comes in putting the supplies together so efficiently that large costs like markdowns, needing lots of inventory in shipment, and last minute air freight are reduced.

Who does this sort of thing? Li & Fung, an eight-billion-dollar firm is in this business, and co-authors Dr. Victor K. Fung and Dr. William K. Fung share their perspectives among plenty of examples of how others try to perform the same functions with less good results.

Many such books end up seeming like advertisements for the firm being described in part, but Competing in a Flat World escapes that narrow message with plenty of description of general principles for strategy and operations. The key differences between traditional management efforts and this new business model are summarized on page 194 in table 12-1. If you don't have time to read the whole book, start with that exhibit.

The book's insights build on the observations of Thomas Friedman in The World Is Flat in describing the implications for business of converging technology, globalization, and the reduced effect of distances on costs and performance. If you thought that the Friedman book was interesting, this one will fascinate you more by drawing out more valuable points.

Because of the involvement of Wharton professor, Yoram (Jerry) Wind, the book has a professional academic feel without being inaccessible. There are many figures to illustrate the conceptual points that make the book easier to comprehend.

I was pleased to see that the authors appreciated that being good at supply chain orchestration will eventually require a focus on providing the same kinds of products to customers in the nations who are the low-cost producers for the offerings . . . a point that most Western-based businesses miss. I was also glad to see that the book drew on the idea of global contests to develop better models, but the discussion was pretty perfunctory. In many cases, such contests will be more important in global competition than supply chain orchestration will be.

I thought that the book didn't go far enough into getting into the specifics of how knowledge is acquired, tested, validated, retested, and distributed into a large organization that is a supply chain orchestrator. As a result, it's hard to know how important the value-added is for customers.

Many global commodities trading companies have often played similar roles in acquiring and distributing food, energy, and metals. I was surprised that the book ignored those organizations which provide similar streams of capability.

But for an introduction to network orchestration issues and opportunities, it would be hard to find a better book today.

The world is changing and, I guess, I am just slow to adapt.

Value is one of those concepts. It took me a while to accept the concept of Intellectual Property as having value as an asset. But, once I did, I became an ardent proponent.

Then along comes this book. It stands my concept of value on their ear. Victor K. Fung, William K. Fung and Yoram (Jerry) Wind posit that value is created not by the collection of traditional assets - factories, patents, brands, etc. - but rather by orchestrating resources and networks you do not control. Success is no longer defined by what an organization can do for itself. Rather, by the resources to which it can connect, its dexterity in doing so and the trust it leaves in the wake.

The key to success in this new "flat" world, they say, is the ability to:

1. Design and manage networks.
2. Control through enablement.
3. Create value through integration.

Thus, managers must learn to:

1. Compete "network to network."
2. Create networks balance "big company" economies of scale with "small company" quickness.
3. Forge loose-tight relationships with suppliers.
4. Balance control with enablement.
5. Balance stability with renewal.
6. Manage outside variables such as politics and terrorism.

This is a thought-provoking book that challenges every concept I held on what a business is and how it should be run. If you are competing in the world, each chapter will challenge your thinking and your plans.