OPERATION STRATEGY AT GALANZ

Case Analysis
on

Submitted To: Submitted By: Group-Three

Mr. Rabindra Silwal Ram Prasad Sapkota

Faculty Richa Shahi

Rojita Tamrakar
February 8, 2017
Sagun Shah
OPERATIONS STRATEGY AT GALANZ
Introduction:
Galanz is a Chinese manufacturer engaged in the manufacturing of microwave ovens. The
company was formed by Liang Zhaoxians father, Liang Qingde in 1978. The company is
headquartered in Shunde that is based in Guangdong province. Initially, the primary operations
and business of the company was related to manufacturing of down feather products under the
name Guizhou Down product factory. During that time, the companys main operations include
manufacturing of down feather products for the clients on a global level to earn foreign currency.
When the company was in the manufacturing of feather products, the companies in China were
not allowed to export any products without a quota. As mentioned in the case that the company
was owned by the foreign trade department of Guangdong province, the company had successful
in getting the its desired quota export of its products worth more than RMB 23 million in 1992.
Later, the company had transformed its business from manufacturing feather products to
microwave oven and accounts for more than 50% share in the market worldwide.

Case Overview:
Galanz was initially started with few number of workers producing feather product and rely on
foreign exchange in exporting its product. Several factors including high competition and market
changes, restriction of trading tariffs, institutional environmental changes as well as natural
disaster influenced the firm to shift its activity to electrical market.
Five major reasons why Liang shift to microwave ovens production are:
1. Although there were foreign competitors in the market, they do not know much about the
environmental changes in Chinese market.
2. Microwave price was high and unaffordable for the Chinese consumers.
3. Rapid economic development in China opened up potential growth opportunities in this
segment.
4. Changes in Chinese lifestyle and rising affordability.
5. Ease of manufacturing microwave oven that as it was invented in the 50s.
When Liang junior became major shareholder of Galanz he entered the microwave market
successfully because he knew the Chinese market better than the competitors, so he took the
initiative and started producing Galanz microwave by buying the blueprint of the microwave
from Toshiba for USD 300,000 and finding group of engineers from Shanghai which helped him
to start Galanz microwave manufacturer.

Galanz rapidly grew through its strategies and tactics starting from the stage of original
equipment manufacturing (OEM) to original design manufacturing (ODM) and subsequently
ventured into original brand manufacturing (OBM). Galanz utilized the resources well thus it
gained the advantage to compete with lower price. Innovation and research and development
played a major role in second and third stages of the companys expansion.

Case Analysis
1. Operations objective:
Galanzs operations objectives concept is similar to the concept of competitive advantage. In the
early years, Cost competitiveness or cost leadership was the main factors that made Galanz the
market leader and wipe-out their competitors. This strategy was fruitful because they continued
to enjoy the increasing market share in the Chinese domestic market and overseas over the time
period.
Subsequently, Galanz expanded their business through various Original Equipment
Manufacturing (OEM) agreements with customers and suppliers, Original Brand
Manufacturing (OBM) and Original Design Manufacturing (ODM), thus, making them
flexible in their business strategies.
Product and process reliability are critical as delivery and proper forecasting was important due
to their massive expansions of customer base at various locations, which includes overseas
market and to fulfill OEM obligations quality became increasingly important when Galanz
venture penetrate the overseas market.

Due the shortages of the main component of the microwave oven i.e. magnetron, Galanz
transform to ODM as well. The supply crisis has made them to develop their own magnetron and
venture actively into Research & Development (R&D). After seeing much success in their R&D,
Galanz decided to enhance their R&D capabilities and product innovation to remain competitive.
Their product innovation was not only restricted to microwave functionality but venturing into
other products as well.
We have segregated the evolvement of Galanz business to three (3) main segments as following:
Stage 1& 2 : Introduction & Growth 90s The Start-up & Early Success
Stage 3 : Maturity 2000s- The Drive for Self-Sufficiency and Branding
Stage 4 : Management of Decline Future of the Company

Following describes how the operations objectives importance changed over the years for
Galanz:
Stage 1&2: During the 90s The Start-up & Early Success
The main objective of Galanz when it started the microwave oven business was to deliver a low
cost microwave which can be afforded by most of the Chinese households. During the 90s,
microwave ovens were mostly imported and sold at relatively high prices because it was mainly
catered for high end market. During the initial stage, Galanz had to import equipment and
technology from overseas and purchased the microwave open blue print for USD$300,000 from
Toshiba who was then the market leader for microwave oven. Later Liang found local
professional engineers who had the experience and knowledge in microwave technologies to
help him.

From 1996, Galanz adopted a low price strategy by repeatedly implementing series of price
cutting strategies. The objective was to obtain and sustain cost leadership strategy to be the
market leader, increase market share and remove competition. During this period, Galanz was
also able to achieve operational productivities and economies of scale because they produce
microwave oven in a mass volume. To further achieve low cost production, Galanz has signed
OEM contracts with microwave customers such as Fillony, French customers and others
subsequently with the same business model concept. Galanz aggressive pricing strategy has led
many competitors withdraw from the market because it reaches a point where the price offered
by Galanz was lower than the Galanz average product cost per unit.

Second important element of operational objective during this period is to ensure timely delivery.
In 1997, Galanz occupied 47.6% of the domestic market with sales reaching 1.25 million units,
which were five times sales in 1996. By the end of 2002, its domestic sales were 4 million units,
occupying 70% of the market share. Thus, delivery of products was also another critical element
to ensure the products are always available in the Chinese domestic market.

During this period, Galanz was also having issues with the supply of microwave oven key
component i.e. magnetron. Their suppliers such as General Electric, Toshiba and others, have
reduced the magnetron supplies because Galanz was becoming their main competitor. Thus,
Liang Senior embarked into research and development (R&D) activities to develop their own
magnetron to remain cost competitive and ensure continuous supply. We rank innovation as the
3rd operational objectives importance during this period. Although innovation was not in priority
it was needed for R&D activities.

Stage 3: During the 2000s The Drive for Self-Sufficiency and Branding
As mentioned above, the cost leadership strategy adopted by Galanz has made them market
leader within a short a period of time. However, depending on low cost only could not sustain the
business, so Galanz ensure products are accurately and timely delivered to the customers and all
their products must be at a certain acceptable standard. At this point, Galanz made a decision to
become World Brand from World Factory. In view of the market competitiveness,
innovation was also an important element during this period.

During this period, Galanz business has grew so much that they were already having production
planning issues. Galanz has been strengthening its sales network in all parts of the world
including China during the recent years. During this period, Galanz were developing a full range
of low to high end products with more complicated configurations, thus the Company needs to
be able to forecast accurately to produce the right products timely. Galanz was also actively
involved in OEM and Original Brand Manufacturing (OBM) business which also requires
production planning. Thus, delivery was the most important operations strategy during this
period as accuracy of the forecast and responsiveness plays key roles in companys business. In
addition, they have also expanded their business to the overseas market and have acquired
strategic partnership with multinational companies such as K-Mart and Wall-Mart for OEM
deals. So quality was given equal importance as delivery. Thus, delivery and quality is ranked 1 st
during this period.
Galanz has ventured into various products such as OEM, OBM and ODM that made them
flexible. OBM and OEM product versions were sold in the US, European, South America and
African market. Ability to be flexible is the 2nd most important operations objective.

Galanz realize that they just cannot penetrate into overseas business and manage the Chinese
domestic market using the old fashion. Galanz thus has opened 52 sales offices across China and
branches were set up in major exporting countries to synchronize business all over the countries
and ensure proper after-sales support. So they emphasize on customer service capabilities to
ensure the customer services staff are appropriately trained in various aspects such as repair,
handling complaints, warranty claims and others. Thus, we rank services as the 3 rd most
important operations strategy.

Stage 4: Future of the Company

For the future of the Company, Liang realized that he had to address strategic issues to continue
to be the market leader. Some of the issues include how Galanz should align the combination of
OEM, OBM and ODM business segmentation, should he continue to be pervasive with low-cost
strategy, should be focus R&D, focus on production and marketing and many more. In our view
and based on Galanz development, during this period, innovation is the most important
operations objective for the future. As we know from case; by 2007, Galanz has gained more
than 50% of the market share ovens due to enhanced R&D ability. Galanz has successfully
competed with major players such as Panasonic, Toshiba and LG.

The 2nd operational objective is flexible. During the 2000s, Galanz has flexible business which
includes OEM, OBM and ODM. However, to remain relevant, Galanz must be able to adapt and
response to the market timely. Flexibility has also been demonstrated via the changes made to
their management structure to accommodate their evolving business structure and strategy.

After innovation and flexibility, quality will be the 3rd most important operations objective
because of Galanz reputation in the market. Galanz over the years has established themselves
from low quality manufacturer to high end quality manufacturer with the products being sold at
renowned markets in the overseas market. Along with quality, Delivery will always be more
important the services because customers will not buy your product if your delivery system is
poor, and thereafter, customers support services will not exist.

Final operations objective are focus towards cost / pricing. During the early years, cost
leadership was critical, however, over the years, innovation and quality has become more
important because of Galanz reputation in the market. In addition, Galanz over the years has
dominated the market share in the Chinese domestic market and overseas market as discuss
above during the 90s and 2000s. Galanz has been increasing their focus to enhance their products
and improved quality, delivery and services. In addition, innovation and improvement to the
supply chain management would benefit cost leadership strategy.

2. Competitive and Operation Strategy:

Galanz ventured into a business where the competition is tough. Galanz not only compete among
the local products but also with international products such as LG, Panasonic and Samsung.
Thus, Galanz has to focus on a competitive strategy to remain relevant in its market.

In China, the products are often imported and costly for its people. It is from here that Galanz
came up with a business plan to venture into producing local microwave oven and sell it at
affordable price. Galanz has focus on high volume and low variety strategy by producing a
similar blueprint of microwave oven made affordable to its customers in China. Galanz uses the
market advantage in understanding the market. In business, it is vital to be able to learn about the
market and the opportunity. By understanding the market, Galanz was able to offer better
products hence, better growth opportunities and to remain relevant in its market.

Furthermore, Galanz has also has successfully penetrate its market by having its own technology
and able to reduce the total cost of manufacturing. Implementing its strategic international
alliance, Galanz has integrated its production equipment and technology as an advantage that
enabled the company to be the major player in the market. Its strategic advantage in creating a
niche in the market as well as having cost leadership has set Galanz at the top of its market.
This has been proved during 1996 where Galanz had implemented a low-price strategy in the
production capacity expansion. It has also enhanced its sales volume by cutting its price and
reducing its operation cost. Furthermore, the company is known for making low price high
margin production. The manufacturing and labor cost has lower cost than average. Galanz
applied supply- chain strategy whereby the company obtains partnering relationship with
international supplier and provide cheaper production offered by Galanz.

This mechanism implemented by Galanz in their success story is using vertical integration in
purchasing. Vertical integration refers to the ability to produce goods previously purchased or
actually buying a supplier or a distributor. Many of their western counterparts began to outsource
the production to them due to low price and also high volume production. Efficiency plays
important role when Galanz expanded its production capacity and maximize its operation hours
to 24hours a day,365 days a year hence, it boost Galanz production capacity and improve its
production scale.

Besides operation strategies that have been part of Galanz success story, its management
specifically under the leadership of Liang Senior and Liang Junior, both have been very
particular in its vision and also concern on strategic relationship with its allies and suppliers. In
the globalization age, Galanz have envisaged potential market within China and also outside its
country. As a result, Galanz has become the dominant player in its industry. It has successfully
transformed its direction to become as known brand next to its competitors such as LG,
Panasonic and Samsung.

Galanz has designed and developed its own magnetrons and switch its business directions from
Made in China to Created in China. This is part of innovation that Galanz being proud of.
Innovation lead to being different in the industry and with the innovation, Galanz has advanced
its business globally. The company has increased and enhance its internal R&D structure to
facilitate new product design and development. With its new technology structure, Galanz has
focus on producing new features and technologies in their products.

3. Galanzs OBM business in International Market:

Comparison of OEM & ODM with OBM business
OEM & ODM OBM
Development Based on manufacturing rules and Based on own products technical
product specification provided by and design specifications.
the client Specifications are done by the
R&D department. R&D capacity
is vital.
Design ODM design is provided by client Design is solely based on internal
internal R&D team. The design is R&D team or sometimes acquired
patented. The Intellectual Property from another player. Target market
is the clients competitive and scope is assessed before
advantage. OEM is also based on design is conducted.
the clients specifications.
Marketing The OEM and ODM client Galanz will need to create own
conduct their on sales forecasting, brand to market the product.
cost control and production Galanz also has to develop sales
planning. Branding is done by forecasting and production
their own marketing department. planning capability to ensure that
Clients formulate marketing supply and demand are matched.
strategies based their target The company will need to
market. ODM and OEM producer strengthen its brand image and
does not engage in marketing and awareness to position and compete
brand promotion against other players. Substantial
capital will need to be pumped in
initially to capture the market and
woo customers.
Distribution Clients have an established Distribution will be based on
distribution network in which the Galanzs own distribution network
products are distributed through or through partnerships with other
their own chain or through value- player.
added distributors.
Customer Service Clients have their own after sales Galanz will need to establish its
 support centres. own cost efficient sales network or
outsourced this function. After
sales service is crucial to promote
brand loyalty.
Production OEM and ODM producer will Production planning and sales
produce product on a large scale forecasting is done internally.
basis for a few clients depending Products need to have a distinctive
on its capacity. OEM and ODM element to differentiate from the
clients reduce manufacturing costs rest of the products in the market
due to low cost environment (low hence products are highly varied
labour cost) of the producer and with different specifications.
also the economies of scale
achieved by this producers.

Expansion of its OBM business.

Galanz should develop and expand its OBM business in the international market as returns
higher profit margins. The OBM business could also act as a way to diversify its product
offerings. Diversification is important to manage risks and exploit opportunities.
Risks that are associated with the OBM business are:
Difficulties in forecasting demand and supply
High variety designs and models with lower volume production runs
High overheads
Risks of being labeled as a competitor to existing OEM and ODM customers

Galanz has transformed into the largest microwave manufacturer in the world, with strong
commitment to R&D, expertise in manufacturing, logistics and quality control, and brand
recognition in the international market. These strengths had turned into Galanzs competitive
advantage to further help grow and develop the OBM market. Increased investments in
innovation and branding could help overcome the risks associated with the OBM business and
ensure the competitive advantage is fortified.
Through innovation, efficiency and profitability could be gradually increased. The company
should also ensure that the ratio of OBM to OEM/ODM business is constantly in check to make
sure that both businesses exists in harmony and without cannibalizing the current OEM and
ODM customers

Continue developing its OEM and ODM business as well.

Galanz should continue the OEM/ODM business as the company has gained vast experience and
increased efficiency in this segment. The OEM/ODM business also provides an attractive low
risk environment for the company. Galanz do not need to manage supply and demand forecasting
as it is done by the customers. Galanzs advantage of being able to provide low cost overheads
will continue to position the company to be an industry leader in this high volume and low
variety segment.

Global business environment is ever changing. The OEM/ODM customers will be constantly on
the look-out for other countries where the costs are much cheaper or even totally withdraw from
the microwave oven business and venture into other more profitable businesses. As such, it is
vital for Galanz to be involved in both the OEM/ODM and OBM business to cushion any impact
on changes in the business environment and be increase agility.

Galanz should build upon its advantage of low cost overheads through scale efficiency to solidify
its relationship with its OEM customers. At the same time, the company should continue to grow
its ODM business to stay ahead of the curve and provide additional offering to customers and
also consolidate its OEM/ODM business. The OBM business could provide an additional avenue
to use and enhance its present expertise to tap into potential opportunities in the emerging
markets.

Recommendation:
In the new era of global operations, collaboration and partnership can help broaden Galanzs
business and drive it to greater success. Galanz needs an even better understanding of differences
in culture and of the way business is handled in different countries. Improved understanding and
customized products can help in meeting cultural needs in foreign markets. Understanding
market requirement can lead to diversification of customer base and smooth the business cycle.
Galanz may use different strategy and product line in different countries by segregating the
developed and developing countries market segment.

In the emerging and competitive marketplace, Galanz could not depend on a single product (e.g.
microwave oven) business. Galanz need to diversify its product options to gain market share.
Realizing the importance of this, we found out that since early 2000s, Galanz has actually
ventured into producing other product line like air conditioner, household appliances and
relevant industries. In fact, household appliances is the third pillar industry of Galanz after
microwave oven and air conditioners.

We feel that Galanz has a good mission and strategy in place. On top of that, Liang should
introduce a unique strategy in production and global perspective in order to lead his company to
greater success. Apart from Cost leadership strategy, Differentiation & Response strategy should
also be incorporated to further catapult the company.

Strategic approaches to Galanzs competitive advantage:-

a) Cost leadership
In respect with this, cost leadership strategy remains a good strategy because the savings
can be invested in improved products and retraining of existing workers. A low cost
strategy does not imply low value or low quality. This has been greatly portrayed by
Galanz in achieving outstanding achievement in their business. Looking at the current
state of their business, Galanz can still use this strategy for their OEM & ODM business
to cater for the local demand.

b) Differentiation
At the same time, differentiation by focus on R&D and innovation can drive Galanz to
greater heights. For example, Galanz can invent on electricity saving products. New
 technologies, new design, new manufacturing processes & commitment to customers can
help in Galanzs success. Besides, Galanz can differentiate the company from the
competitors by providing a better service to customers. In regards to this, Galanz has
taken a good effort in setting up sales office and branches where they are doing business.
This will help them stay closer and connected with the customer. Galanz could also adopt
internet technology in enhancing their business to virtual customer. This can help them
increase their market share at a global level. At the same time, this will provide a
platform to communicate with customers regarding product enquiry, warranty, service
and so on.

c) Response
Galanz should be more flexible in competing in response to the market demand. They
have to provide a more reliable and quick response in terms of product development and
delivery. In respect with this, Galanz is lack in terms of its ability to match changes in a
marketplace where design innovations and volume fluctuates substantially especially in
the OBM business. They have to pay more attention in this aspect if they want to build a
sustainable competitive advantage. At the same time, Galanz should not compromise on
the speed in product development, speed in production and speed in delivering.

Strategic Options
It is now time for Galanz to pursuit in international dimension. The best strategy it can use is the
Transnational Strategy where this strategy has high local responsiveness and high cost
advantage. This strategy exploits the economies of scale and learning, as well as pressure for
responsiveness, by recognizing that core competence does not reside in just the home country but
can exist anywhere in the organization. Transnational describes a condition in which material,
people, and ideas cross national boundaries. Through this, Galanz will have the potential to
pursue all three operations strategies (i.e., differentiation, low cost, and response).

In order to explore this opportunity, Galanz must embark upon its weaknesses like unpopular
brand. An aggressive branding and advertisement work need to be carried out before Galanz
could capture global market. At the same time, Galanz must ensure a smooth supply chain
 management in the organization. Based on the case study, Galanz has used Vertical Integration
strategy in its supply chain management. This is where Galanz vertically integrate its supply
chain by manufacturing about 90% of its components. But, due to capacity constraint, Galanz
has outsourced part of the production of Galanzs designed and branded magnetrons to a
Japanese manufacturer.

However, Galanz must continuously monitor and control the outsourced vendor so that there will
be no drop in quality of the product. Also, Galanz must provide support, knowledge and training
to the vendor to ensure the sufficient understanding about the product. Most importantly, Galanz
must ensure that outsourcing does not increase the cost and affect its status as low cost leader.
But, the positive aspect is that Galanz can gain outside expertise (Japan is well-known of its
technology advancement). At the same time, Galanz can focus more on its operations and core
competencies by introducing new products and services. We believe through some of the
proposed strategy, Galanz can achieve greater success persisting to the business concept of
Greatness originates from creativity and the business tenet of Working hard to move
customers, Galanz is speeding its step towards a global brand and a world-class enterprise.

Conclusion

It is undisputable that one of Galanz strength is the ability to produce goods with a substantially
lower cost. What causes Galanz to outperform other Chinese manufacturers is its initial method
of internationalization. The choice of employing OEM method was proven to be a crucial
success factor. By using OEM, Galanz went into the global market inexpensively by avoiding the
costs associated with promoting its brand and establishing a distribution network. It also enabled
the company to use the OEM partners manufacturing equipment to produce its own branded
products to be sold in the domestic market. These advantages are the key reason why Galanz was
able to surpass other Chinese manufacturers. There are key summary of findings of case:

Opportunity sizing (domestic) and stable technology

Cost arbitrage (labor and assets)

Transfer of production lines and 4X operating time

 Adoption of penetration pricing strategies leveraging economies of scale

Actualization of R&D investments

Collaboration with large retailers, as K-Mart and Wal-Mart

Development of overseas R&D facilities

However, the main disadvantage of Galanzs strategy is the lack of clear brand strategy, although
Galanz has already obtained a huge success in microwave oven market, but there is no value
description and plan for its brand.

Reference:

1. http://www.referenceforbusiness.com/management/Ob-Or/Order-Winning-and-Order-
Qualifying-Criteria.html#b
2. http://karlknapp.com/resources/wikisummaries/supplychain_mgt/order_winners_qualifier
s.html
3. http://www.galanz.com/
4. http://www.youtube.com/watch?v=eWg3VDofbhY