Walmart - L&F Offspring
January 28, 2010 by Jules
JV soon a unit of Walmart
Walmart created waves in Asia a few weeks ago with the announcement that it would shift its sourcing to direct from indirect, hoping in the process to save ultimately USD 4-12 billion per year in sourcing costs, out of USD 100 billion currently.
This prompted a few questions:
- Why it was not done before. European groups reaped these benefits a long time ago. 4-12 billion a year would be a lot to pay to insulate yourself from the risk of lawsuits in the US market. Other US groups have moved in the other direction, with for example Liz Claiborne outsourcing its sourcing to Li & Fung last year because the cost of its own organisation was too high.
- What shape it would take.
The answer to the second question just came, with the announcement that Wall-Mart would setup a JV with Li and Fung. The JV will be called WSG. Walmart sourcing global perhaps?
Li and Fung President Bruce Rockowitz says in today's Financial Times “Walmart is so large and can bring a lot of value to Li & Fung,” adding that WSG will initially employ “hundreds” of people. “WSG will be a mini-Li & Fung.”
But the most salient news is that Walmart will have the option to buy out Li & Fung in 2016 to become sole owner of WSG. This sounds a lot like a technology / knowledge transfer, from China to the US for once. It also answers the first question: Chinese companies are notoriously more frugal than their US counterparts, and Walmart probably hopes to get the L&F DNA in its new unit.
In: Market News