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PrefacePrefaceCompeting Flat Out

As Thomas Friedman points out in The World Is Flat, a convergence of technology, globalization, and other forces has transformed the way we work. India, China, and other countries are an increasingly significant part of the global supply chain for manufacturing and services.¹ Geography, while not irrelevant, is no longer the obstacle it once was, and companies can stretch their manufacturing, customer service, and other business processes around the globe. This dispersion of the supply chain creates tremendous opportunities to change the way we do business in this world, and how we design and run our companies—if we are prepared to rise to this challenge.

Li & Fung was working in this flat world since the early 1980s, long before it had a name, and now produces more than two billion pieces of apparel, toys and other consumer items every year. Li & Fung now accounts for more than US$8 billion in garments and consumer goods for some of the best brands in the world. By the time of its one-hundredth anniversary in 2006, Li & Fung had become the world's largest sourcing company, growing at a compound annual rate of 23 percent for the last 14 years.

Yet Li & Fung does not own a single factory. It is a flat business for a flat world. The company started as a trading broker in Guangzhou (Canton) in 1906 during the Qing Dynasty and transformed itself into a Hong Kong–based exporter and then into a multinational corporation. Finally, the company reinvented itself for the flat world in a new role, as a "network orchestrator."² It is now the orchestrator of a network of more that 8,300 suppliers served by more than 70 sourcing offices in more than 40 countries and territories. The company indirectly provides employment for more than two million people in its network of suppliers, but only less than half a percent of these are on Li & Fung payroll.³ With this lean structure, each of the company's own employees generates about US$1 million in sales, earning a return on equity of more than 38 percent per year. As a family firm at the intersection of the East and West, the company is both deeply traditional and thoroughly modern. Recognizing its creative thinking and use of technology, Wired magazine placed Li & Fung among young upstarts such as Google, Apple, and Amazon on its 2005 "Wired 40" list.

Over the years, Li & Fung's innovations have attracted attention, from business school case studies to magazine articles and books.⁴ Now we are pleased to share more detailed insights from the transformations at the company and examine how they can help other enterprises to compete in a flat world. Victor and William Fung pioneered these transformations in the trading company founded by their grandfather, Mr. Fung Pak-liu. Wharton professor Jerry Wind has worked with them since 1998 on the company's triannual strategic review process and also offers broader perspectives from research and practice.

The flat world has ripped the lid off the corporation. It has broken through traditional national and organizational borders. It challenges the way we look at and run everything from enterprises to nations. Companies in manufacturing will find these innovations and shifts in thinking directly relevant. But the impact is not limited to manufacturing or to companies with offshore activities. The principles of network orchestration are relevant to any organization and industry (including services) that wants to take advantage of the opportunities presented by the forces flattening our world. The principles of network orchestration, discussed in this book, have applications in many areas, from managing strategic alliances (which have a poor track record of success) to services, to open innovation, to comarketing.⁵

As you read this, freighters and cargo planes are churning across the planet. High-speed information networks are whisking voice and information, and billions of dollars, instantaneously around the world. Looking down from the Li & Fung conference room on the thirty-fourth floor of Alexandra House, where we worked on the book, we could see the freighters steaming in and out of Hong Kong harbor. It is a hive of activity, and the pace of commerce just keeps increasing and evolving in new ways. Every day the view changes. It has been a tremendous adventure and education to have such a ringside seat on the emergence of this flat world and to be an active participant in its development.

These freighters are connecting points of the globe that have never been connected, in new and changing configurations. The ships and planes streaming across the world are rewiring the neural networks of commerce. How does your own thinking need to change to keep pace? Have you understood the implications of the flat world for your own business?

The flat world is here. Organizations that can embrace it and understand how it works will find that it offers many new opportunities. Those that cannot adapt quickly enough to these new realities will fall behind or be bought out by those that have learned how to compete in a flat world. The opportunities are as broad as the world. How do you need to remake your organization, management, and mindset to seize these opportunities?

Victor Fung William Fung Yoram (Jerry) Wind

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