As companies are shifting to procuring directly from China and setting up long term relationships with suppliers rather

than relying on middle men like Li & Fung, LI and Fung has to shift from its traditional business model and core competency into unknown territory of direct production by buying up brands. IN the first half of 2013 li and Fung spent $432 million on five deals and also has done ten deals in the last year. However, the acquisitions have not proved to be profitable as Li & Fung recorded the lowest return on assets since it listed in 1992. The growth in US li and fungs top contributor of revenue has been stagnant and is set to decrease, the company has started to restructure its business and has appointed a new CEO for the LF US division. Companies like Walmart have started to buy goods directly from manufacturers and Walmart has cancelled deal with Li & Fung to supply to its overseas stores. The key point of conflict for LI and Fung at the moment is whether to concentrate on existing core competencies of being a middle men or as the CEO opined, Li & Fung also can manage logistics, communications and quality checks with factories or focus on acquisitions and head down the route of being a FMCG goods manufacturer. Walmart and Li & Fung setup a unit called direct sourcing group two years ago setup only to serve needs of Walmart, Walmart terminated the contract to supply goods to international location although Li & Fung would still be supplying to domestic locations. Walmart and other retailers are interested in fostering relationships with manufacturing companies. Due to reducing complexity and globalization, models like that of li and fung are going obsolete. Li & Fung said Wal-Mart had terminated its option to buy Direct Sourcing Group, a unit the middleman set up two years ago solely to serve the world's largest retailer. Li & Fung said it would continue to supply products for Wal-Mart's Sam's Club operations and for certain categories of Wal-Mart's domestic and international operations. The Hong Kong Company said Wal-Mart no longer needed the option to buy Direct Sourcing because of the companies' "strong" partnership. The distribution network which owns all the brands had already taken a toll in 2012 recording a 113% drop in core operating profir since 2012 (Refer Exhibit no)