Hong Kong-based garment and textiles exporter Li & Fung said the company will continue its model of growth through mergers and acquisitions (M&A) this year, despite the US economic downturn.

After the company's annual general meeting yesterday, Li & Fung's chairman Victor Fung said the company had already set aside $100 million to make small-sized acquisitions this year. "It has been our long standing policy and it will continue," he told reporters yesterday.

He said the company looks to acquire companies that have either a niche in the hard goods export sector or in a regional network. "Our strategy is to purchase companies that can compliment and expand the scope of our existing export business," Fung said.

He also added that given the downturn in the US economy, Western Europe and Russia would be the preferred areas for future acquisitions. Other than small-scale M&As, the exporter is also looking for large-scale purchases in both the US and Europe.

"We are also looking at larger M&As that could provide us with an export base in those regions," the chairman said. To finance these big buys, Fung said the company will seek funding from the market. He, however, declined to give further details.

The lull in the US economy had spurred concerns for the export sector as consumers become more cautious in their spending. However, Li & Fung said the number of orders from both US and Europe had actually increased in the first quarter.

Fung admits that the US economy is faced with a double challenge of weak consumption and currency, but maintains that the company's other major market - Europe - is still relatively healthy.

"This is mainly due to our extensive sourcing networks worldwide," Fung said. He explained the large network gives Li & Fung an edge to source products from multiple markets, thereby limiting the impact of an economic slowdown in any single market.

2008 a tough year

The dwindling consumer spending in the US is certainly a cause for concern for Hong Kong's export sector, since the US is still the biggest market for consumer goods.

Fung recognizes the challenges ahead, but said that the company remains cautiously hopeful that the recession in the US economy would not last for too long.

"For the year 2008, we are still hopeful that the US economy might recover a bit in the latter quarters given the stimulating effects of the approaching presidential election," Fung said.

Li & Fung's stock gained 3 percent or HK$0.90 yesterday to close at HK$30.

(HK Edition 05/22/2008 page2)