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.

Galanz’s Operation’s Strategy

Introduction Identification of potential product. Blueprint purchased from world leader (Toshiba)

in microwave oven equipment and Technology producer in early 1990’s.

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 product’s 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. Galanz’s 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 doesn’t 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 SolutionsProblem Solution

Increase in demand Outsourcing of Magnetrons

Retrenchment by suppliers

Transfer from OEM to ODM

Handling of customer complaint

Company had to invest in enhancing customer service capabilities

Difficult in handling cultural difference in overseas market

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 Galanz‘s 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: Low price of Microwave Oven High quality

Operation Strategies 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 Design Manufacturer

Original Brand 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 work very closely, thus they don’t need to focus much on customer service.

OBM must keep themselves open to their customer so that customer can interact them at any time.

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/newsinfo.aspx?catid=17%7C139%7C16012

http://www.docstoc.com/docs/100242190/Operations-Strategy-at-GALANZ

http://www.globeco.ro/wp-content/uploads/vol/split/vol_1_no_2/geo_2013_vol1_no2_art_016.pdf

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