Economics
Economics
5th Edition
ISBN: 9781319066604
Author: Paul Krugman, Robin Wells
Publisher: Worth Publishers
Question
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Chapter 8, Problem 1BCQ
To determine

Why it was profitable for Li & Fung to go beyond brokering exports to becoming a supply chain manager.

Concept Introduction:

Export Broker: Export broker refers to an organization which works as a middleman between the producers of foreign countries and the domestic consumers. It helps foreign producers to reach the domestic markets and charge commission or fee in return.

Expert Solution & Answer
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Explanation of Solution

  • As the Asian economy changed, the L Company also expanded its business. In addition to being the export broker, it expanded its business to being a supply chain manager.
  • This is because the company was only involved in connecting the manufacturers with buyers and there was no contribution from the production and distribution. Hence, the revenue was low.
  • The L Company became the supply chain manager, with various expanded activities, such as allocation of production to a manufacturer, breakdown of production, production allocation to the inputs and allocation of final assembly of goods among suppliers.
  • With these activities, the contribution from production and distribution increased. As a result, the revenue of L Company increased.

Conclusion:

Thus, it was profitable for L Company to go beyond export brokering.

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