Operations Strategy

at

By:
Gaurav Bisht
Jasmeet Kaur
Savpreet Ramana

Overview

Case Summary
Case Analysis
Conclusion
Answers to Questions

Case Summary

The largest microwave oven manufacturer in

the world.
Competed based on lowest cost through
efficient utilization of capacity and process
improvement.
Combining OBM, OEM and ODM to achieve
economy of scale.
60%-70% of the domestic in 2002 and 50% of
the international market share in 2007.

Past Growth Strategy

Opportunity sizing (domestic) and stable

technology.
Cost arbitrage (labour 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.

Recent Challenges

Low brand awareness in overseas markets.

Antitrust (Anti-monopoly) lawsuits.
Prioritization of the business models.
Conflicts of interest of OBM and OEM
businesses (Sales and Service networks).
Centralized decision making body and
compliance governance.
Customization production capabilities and
capacity challenges for magnetron production.
Inefficient production planning.

Case Analysis

Galanz most important objective was cost, it

only had an abundant supply of labour and
land.
Delivering quality product.
Became the leading company of the market.
The supplier refused to supply the most
important component magnetron to it.
It develop its own design, innovation.

In 1997, the company initiated major invest in

magnetron.
By 2000, the company was able to design and
produce its own magnetron.
The company was able to produce only 16
million units where the demand was 25 million
units in 2003.
Galanz found itself outsourcing part of the
magnetron production to other companies.
The problem was solved by outsourcing with
the Japanese company.

It produced oven for the domestic market with

its own brand name, while production
technology was produced from Japan.
It produced microwave ovens at low cost,
combined with its enhanced R&D ability had
allowed it to compete with major successful
players like Panasonic, Toshiba and LG.

Galanzs Operations Strategy

Introduction

Identification of potential product.

Blueprint purchased from world leader (Toshiba)
in microwave oven equipment and Technology
producer in early 1990s.
Factory set up with professional engineers with
ample knowledge of this technology.
Advantage of abundant supply of cheap labours
and land.
Cost leadership strategy to increase the market
share.

Growth

Cost leadership strategy.

Strategic alliance with other big appliance
companies and its suppliers.
Full utilization of resources.
Shift toward product oriented process.
Increase its production scale and reduce production
cost.
Tactics of price war to dominate to competitors in
domestic market.
Focus on enhancing the distribution of product.
Existing products improvement and design &
development of new product.
Strategic partnerships with multinational
companies.

OEM business in the international market

Employing OEM method was proven to be

success factor of Galanz
Reasons

Galanz went into global market using OEM

business.
Enabled the company to use its own
manufacturing equipments.
Galanz exceeded other chinese manufacturers.

OEM microwave ovens- the primary exports.

No brand recognition to the end users.
Investment in R&D and import of new technologies
allowed to cost reduction and differentiation.
Transfer from OEM to ODM after production of
magnetrons in own company.

OBM Dilemma

Increase demand for branded products

because of competition in MNCs.
Galanzs produced products at low cost with
good quality.
Exported products without any idea about
brand name to the end users.
Exploration of brand name to the users can be
possible through OBM business.

The company doesnt have to change its cost

leadership because price reductions increased
sales by about 100%.
The purposes of this price war were to
consolidate the industry by marginalizing
small, inefficient players before they had a
chance to grow and discourage new entrants.
A high profit margin in the industry would
encourage excessive entry.

Galanz may concentrate on a certain part in

the value chain and form strategic alliance to
do sales, production, R&D and market
together.
The first benefit is the Cost, second is the Low
Risk and third could be merger and
acquisition.

Priorities to achieve competitive advantage

High Quality
Fast Delivery
Reliable Delivery
Flexibility

Problems and Solutions

Problem
Increase in demand
Retrenchment by
suppliers
Handling of customer
complaint
Difficult in handling
cultural difference in
overseas market

Solution
Outsourcing of
Magnetrons
Transfer from OEM to
ODM
Company had to invest in
enhancing customer
service capabilities
Should adopt global
marketing strategy

In order to lead the company to greater success

Execute a joint venture.

Venture into wholly-owned subsidiary types to
international expansion.
Should try to setup a link Joint Venture with
another house appliances manufacturer such
as GE or its competitors like Sharp and/or
Panasonic.
Forming a Joint Venture would present Galanz
with various advantages.
They may also look for merger and
acquisition.

Future competitive strategy for the

combination of OEM, ODM and OBM
businesses.
Effective sharing of value chain activities.
Effective resource allocation for competitive
advantage.
Vertical relationship to adopt for magnetron
production.

Conclusion

Started with the concentration strategy at the

initial stage of establishment.
Followed a total cost leading strategy.
Carried out a corrective diversification
strategy on the precondition that it had
gained absolute competitive advantages in
the original field.
Main disadvantage is the lack of clear brand
strategy.
No value description and plan for its brand.

Answers to the Questions

Q.1 What were the order winners/qualifiers for Galanz in the

microwave oven business during the stage of its development?

Order Qualifiers:

Quality
Delivery

Order Winners:

Low Cost
Low Price

Q.2 Rank the importance of Galanzs operations

objectives of cost, quality, flexibility, delivery, service
and innovations. How has the importance changed
over the years?

In the recent ten years, Galanz's core competitive

power lies in one point: its low price/cost.
First of all, it constantly develops new products and
proprietary technologies(Flexibility);
Second, it launches high quality and low price
products to enlarge its market share by making use of
its advantage in total cost (small profits but quick
turnover);
Thirdly, it begins to develop key components and parts
by applying its own technology by investing more in
R&D, and puts them into production to further reduce
the total cost of manufacture. Thereby Galanz set up
an entrance barrier which is a key in such
strategy(Innovation).

The equipment that Galanz has introduced through OEM,

great-batch production, low labor force cost, big span of
control and monopoly on the party of purchaser have made
Galanz get an advantage in cost for a long period: the reason
why it could reduce its prices so frequently much lower than
its antagonists', and it has a sufficient space for making
profits.

Fourthly, Galanz's scientific marketing strategy was a great

competitive power (Service and Delivery).
Furthermore, it had developed new functions of microwave
oven and improved the consumption environment for its
global customers . Then Galanz has set up a strong
marketing network not its own distribution channel but in
cooperation with commercial agents in different places. It
also consolidate its market by ceaselessly launching new and
different products and improving its service quality and
service level (warranty, trans-regional maintenance service)

Q.3 What is the role technology has played in

the success of Galanz?

Galanz is undergoing transference from production scale

to high technology, from professionalism to
diversification, from manufacturing to creativity and from
a worldwide manufacturing facility to a global brand.
Galanz has invested heavily in key technologies and
development of key components. The uniqueness of
Galanz is to control the key technologies and key
components lead them to Made in China to Created in
China
Galanz believes that key technologies have great
importance in its development and high-end products will
enable it to take the global market.
First mover advantage in technological innovation in
Light wave ovens in 2001.

Galanz has increased its investment in product research and

development and has strengthened the innovations. Every
year, Galanz has invested 5% of its annual turnover in
research and development and has set up five research and
development centers in Hong Kong, USA, South Korea,
Zhongshan and Shunde. It plans to set up the sixth research
and development center in Japan.

By 2007, Galanz has made over 760 achievements related

with microwave ovens, to include spherical microwave
technology, microwave enhancing and compensation
technology, microwave leakage prevention technology, light
wave technology, aerobic cooking technology, etc. which
have become a landmark for this industry. Galanz has
registered over 1000 patents, to include more than 10
international patents and over 700 authorized patents.

Q.4 What are Galanz competitive and operations strategies, and

how does its operations strategy support its competitive strategy?

Competitive Strategies:

Operation Strategies

Low price of Microwave Oven

High quality
24/7 working production line
Employees working 3 shifts in production line

Economies of Scale gained by having low cost

and large number of available labour helped
Galanz to work for 24/7 working production
line by which they are able to produce much
lower price Microwave Oven with good quality.

Q.5 What is the difference between OEM/ODM versus OBM in

terms of production, design, marketing, distribution and
customer services?

OEM /ODM

OBM

Original Equipment Manufacturer/ Original Brand Manufacturer

Original Design Manufacturer
OEM, manufactures/design
products or components that are
purchased by another company
and retailed under that
purchasing company's brand
name.

Selling the product of the second

company under its own brand just
adds a virtual extrinsic value to
the product.

OEM/ODM take order from their

purchaser/business customer

OBM forecast demand for end

customers

Either OEM or their purchaser

arrange distribution system

They need to manage distribution

system to take competitive
advantage among its competitors

OEM and their business customer OBM must keep themselves open
work very closely, thus they dont to their customer so that

OEM/ODM vs OBM in overseas market

Overseas consumers were not familiar with Galanz

as a brand of microwave ovens.
Strategic partnership with multinational
companies such as K-Mart and Wal-Mart were
confined to OEM deals.
Liang junior began to offer Galanz- branded
microwave ovens to superstores.
Technical support from Fillony to help Galanz set
up R&D centers overseas to showcase Galanz
branded microwave ovens in the country.
Ratio of Galanz OBM and OEM microwave ovens
rose from 1:9 to 3:7 from 1997 to 2003.

Q.6 Should Galanz develop its OBM business in the International

market? Should Galanz continue its OEM/ODM businesses?

Yes, Galanz should develop its OBM business in

the international market.

It help Galanz to get world recognized brand image.

It help to penetrate in other countries where Galanz
is currently not present.

Yes, Galanz should continue its OEM/ODM

businesses

These businesses help Galanz to get economies of

scope.
These businesses did not require Galanz to invest in
brand building thus high profit and Galanz can price
Microwave oven at lower side.

Q.7 What should Liang do to lead his company to

greater success? Should the company change its
overall cost leadership strategy? How should the
company set priorities and utilize its resources and
capabilities to gain competitive advantage in the
market place?

Effectiveness of low cost strategy- company can

increase the price of new products.
Combination of OEM, OBM and ODM
a)should have a balance between OEM and ODM
in the overseas market.
b)foreign customer value brand more than cost.
c) focus should be more on OEM, but at the same
time improve the OBM business step by step.
d) Need to invest more resources in customer
relationship management.

References

Galanz
Home Page: http://www.galanz.com/pages/n
ewsinfo.aspx?catid=17%7C139%7C16012
http://www.docstoc.com/docs/100242190/Oper
ations-Strategy-at-GALANZ
http://www.globeco.ro/wpcontent/uploads/vol/split/vol_1_no_2/geo_2013
_vol1_no2_art_016.pdf

Thank You