Galanz Enterprises Group Co. Ltd. At a Glance Galanz Enterprises Group Co. Ltd.

. started its humble beginning as a manufacturer of down feather products owned by Shunde Township under the name Shunde Guizhou Feather Products Factory. The company was founded in 1978 by Liang Qingde, the former deputy chairman of the Industrial and Transportation Office of Shunde Product Factory from 1973 1978. The company produced down feather products for overseas clients to earn foreign exchange. At that time, the company was jointly owned by the Foreign Trade Department of Guangdong province and the Shunde government, with Liang Qingde as general manager. This gave the company the privilege to not only obtain an export quota but also to access public funds and thus resources for development. In 1980s, huge infrastructural changes coupled with the restriction of exporting products to other countries from China, caused the company to face potential risks. Thus in 1991, Liang Qingde made a strategic decision to search for new business opportunities with greater potential for growth. After analyzing the Chinese consumer market for a year, he made the decision to enter the electrical appliance market with the introduction of the microwave oven. Liang Qingde identified the microwave oven as a product with great potential in China, as they were all imported and sold at relatively high prices. He observed that microwave ovens had the potential to become popular and indispensible in modern cities in China, citing the rise of the Chinese economy due to change in living styles and habits of the Chinese people. Moreover, he recognized that this business will be an excellent business opportunity if produced and sold at an affordable price compared to that time market leaders, Toshiba, LG and Whirlpool. The lack of associated technology for manufacturing microwave ovens and technical expertise in China made Liang Qingde to think a lot to overcome the business challenges. In 1992, individual entrepreneurs were freed from state control with the further keyed up of the transformation of the centrally planned economic environment in the country by opening up Guangdong and Shanghai as industrialized areas. Since then, the Shunde local government had begun to offer more legal recognition and freedom to privately owned enterprises by protecting the property rights of production assets, innovation and capital, and attracting foreign investments and industrial manufacturing development in the area. These private ownership

rights enabled Liang Qingde to start up his new business in the manufacture of microwave ovens in 1992. Liang Qingde purchased the microwave oven production blueprint for US$0.3 million from Toshiba and searched for engineering professionals throughout the country to set up the factory. At last, he found a group of engineers who were knowledgeable of microwave oven technologies. The company produced its first microwave oven in 1992, and officially changed its name to Galanz Enterprises Group Co. Ltd. In 1993, 10,000 microwave ovens were produced and sold. The company further increased its business by selling 250,000 microwave ovens in 1995 in China, which represented 25.1% of the domestic microwave oven market. Earlier, Galanz had purchased all its magnetrons, a core component of the microwave oven, from foreign suppliers such as Toshiba and Panasonic. The rapid growth in the increase of the sales of the company had threatened these magnetron suppliers who decided to reduce the supply of magnetrons to the company. This made the company to initiate a major investment in magnetron R&D in 1997. Having conquered the domestic market, Galanz reached into the global market through the OEM (Original Equipment Manufacturer) method in 1998. This means that Galanz sells its products to other companies which will re-brand the products under their own names. OEM is proven to be a swift method of tapping into the global market for Galanz, while the other parties benefit from getting low manufacturing costs without having to set up their own operations in China. Eventually, the company was able to design and produce its own magnetrons to support its microwave oven production in 2000. The company was still short of the component, due to the tremendous growth in its microwave oven business. There on, the company quickly gained significant domestic market share. However, due to the tremendous growth in its microwave oven business, Galanz was still short of the component to meet the demand in the market. By the end of 2003, its magnetron factory had an annual production capacity of 16 million units or 67% of the total production requirement of 25 million units. Among total export volume of Galanz from the start of its global operation to 2003, the ratio of independent brands and OEM rose from 1:9 to 3:7. This shows a change in Galanz internationalization strategy, switching focus into getting consumer to recognize Galanz as an independent brand. The company started out with a clear competitive strategy based on cost leadership. It designed and

implemented operations system to help achieve lower cost through economy of scale, the transfer of production capacity from developed countries and full utilization of the available production capacity. Galanz found itself having to outsource part of the magnetron production to other OEM manufacturers since by then its customers had begun to insist that Galanz use its own branded magnetrons in Galanz-supplied microwave ovens. Galanzs capability of producing microwave owns at low cost, combined with its enhanced R&D ability, had allowed it to compete successfully with major players such as Panasonic, Toshiba and LG in the global electrical appliance market. It gained a leading position with more than 50% of the global market share in microwave ovens in 2007. Its brand name was well known in China and overseas. Products in both OEM and OBM versions were sold in the U.S., European, South American and African markets. The total sales volume of all types of Galanz microwave ovens climbed from 2 million units in 1997 to 22 million units in 2005. Its revenue increased from RMB2.96 billion in 1999 to RMB18 billion in 2006. The company currently has 13 subsidiaries, 52 sales offices in China and branches in Hong Kong, Seoul and North America. The Key Success Factors It is undisputable that one of Galanz strength is the ability to produce goods with a substantially lower cost. Its initial method of internationalization made Galanz to outperform other Chinese manufacturers. 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. Management Structure: The company is now led by Led by Liang Zhaoxian, the vice-chairman and chief executive officer. The company adopted a highly centralized decision-making and execution system that only had three levels of personnel: senior directors, general managers and operations staff. The company grew from 20 employees in 1993 to more than 10,000 employees in 2003.

Marketing Channel: Galanz had been strengthening its sales network in all parts of the world, including China, during recent years. There were 52 sales offices across China and branches were set up in major exporting countries. Cultural differences in overseas markets and getting market information know-how hampered the success of popularizing Galanz with global consumers. The Success of Strategic Analysis of Galanz: Galanzs growth period in the overall strategy is focused on the core point: the large-scale industries operating resources transferred to the new option of "microwave oven" project, from the original evacuation out of the industry to focus all resources operation of this new "point", and take the road of specialization. The companys performance in this area is very prominent by further reducing overall manufacturing costs through constantly developing new products and know-how; use of the total cost of low cost to market good quality products; and the key components of development basis. Galanz adopted a puerile strategy to achieve maximum size and the highest concentration of manufacturing industries to enhance the market competitiveness and reduce business risk. Galanz into microwave oven industry has always maintained overall cost leadership strategy, and it is so often a significant price reduction in its cost. Economies of scale, simply, is that while increasing the input of all factors of production, expand production scale, by the scale of operations, and achieve extraordinary development of enterprises. Under the direction of cost leadership strategy, Galanz has defeated many corporations in price wars. Galanz has continuously initiated 7 attacks to its antagonists in price wars within a short period of only five or six years. It has repeated using the strategy of price reduction and has minimized the profit of microwave oven industry. It defeated its antagonists by ceaselessly setting up higher and higher barrier for competition, and growed gradually by raising the threshold of microwave oven industry and by adopting the strategy of small profits but quick turnover. The price wars have built a barrier for Galanz and the microwave oven industry to survive in the competitive world, have formed a Galanz-centered game rule, and have had the foreign brands that are capable of competing with Galanz be forced to retreat from the competition of

Chinese market, which has been left for Galanz only. At the same time, the price wars have also made the domestic enterprises, which have great strength and want to make more profits through multi-polar operation, flinch to enter into the microwave oven industry, and have avoided the competition with other manufacturing enterprises which have the low labor force cost and resources of production elements similar to Galanz in the same industry. In addition, Galanz has realized its brand operation in the process of taking its monopoly position through price wars. Strictly speaking, Galanz is a manufacturing enterprise. The greater its manufacturing scale is, the lower its average cost will be. Galanz reduced its price by about 40% in August 1996 and October 1997 respectively. Of course, in some peoples eyes, Galanz makes its great achievement only through price wars, so it is also called as butcher and killer. However, as a matter of fact, to compete with antagonists by use of price could be dated back to a long time ago. Galanz is only good at using price, such a marketing tool. In the overall development period of Galanz, regarding the selection of breaking point during the transformation from garment industry to the household appliance industry, both the formulation of market promotion strategy and grasping of opportunity have fully revealed the wisdom of Galanz. However, since 1998, Galanz has no longer reduced its price by such a great margin. The reason for this phenomenon is that the greater the manufacturing scale is the more limited the space for cost reduction will be. Galanzs potential advantage in price reduction has faded away.