Operations Management Introduction The aim of this case study is to analyze the operation strategy of Galanz and asses the potential growth opportunities for Galanz in the future in a global environment. Galanz Gorup based in China was established in 1978 to offer microwave oven, air conditioners and other household appliances (Galanz, 2011). It is a multinational company operating in more than 100 countries and regions in the world resulting in a well-known brand by being the largest professional microwave producer (Galanz, 2011).
As a result they are expanding rapidly with a growth rate more than 100% each year and thus increasing their global market share (Galanz, 2011). Through the years with the experience of manufacturing household products Galanz Group has also excelled in research of developing and improving the product features of their household appliances (Galanz, 2011). They have through their achievements been awarded with numerous of honours on national as well on international level (Galanz, 2011). [1] Q1. Liang Senior saw a great business opportunity on a trip to Japan in 1991. He saw the potential increasing demand for microwaves in China.
By that time microwaves was not affordable for most households in China but sooner or later the microwave will become popular in the modern cities for the Chinese households. Liang Senior exploited the business opportunity and after analyzing the Chinese market he decided to produce and sell microwaves at an affordable price. Liang Seniors vision of producing and selling microwaves at an affordable price became a reality in few years due to the changing lifestyle in modern cities in China and new ways of cooking and preparation of food. The low-cost strategy was the order winner for Galanz in the early stage of its development.
Galanz used the low price to enter and compete in the Chinese market which was dominated by large international brands, as Panasonic, Toshiba and LG. Galanz gained a large market share in few years and became one of the biggest players. Q2. Cost Cost is the most important objective for Galanz. The company out-competed the big players on the market by offering low price products. As Liang commented, “The main objective of the price war was to destroy our competitor’s confidence to compete with us when they realized that the market bore little investment value. The price war has been a line of defense for us.
Once at the top, Galanz began to adopt a new pricing strategy by pricing products based on the extent of market acceptance. Targets for product pricing and profit margins were determined by counting backwards[2]. ” This is the key success factor for Galanz, they outcompeted the rivals and gain a large market share by having a low-cost competitive strategy. Galanz faced a lot of challenges due to the changing trends in the home appliance market, so over the years Galanz are aware of the fact that they can’t continue on focusing on the low-cost strategy alone but also need to have supporting objectives. Quality
The quality objective became more important for Galanz during the years. In the beginning of the business Galanz experienced a lot of demand for their microwaves so the company focused on mass production and started a 24/7 production schedule and that necessitated frequent repairs of the high-output machinery. Galanz realized the effect of changing trends in the global environment and began to move focus from large scale mass production to small scale customized production with focus on quality. Flexibility Galanz made some major changes and therefore was required to be more flexible over the years, e. g. he challenge of being a “high volume – low variety” production to becoming a “low volume – high variety” producer requires a lot of flexibility in all parts of the company. Over the years Galanz are required to be more flexible in order of adapting the changing trends in the market. Delivery Galanz forecasted the demand of the standardized microwaves and strived to produce more than the demand to keep a large inventory and thus motivate sales people to sell more and work harder. The delivery demand was met after increasing the production by starting a 24/7 production and increasing the supply of microwaves by keeping large inventories.
This worked effectively in the earlier years for the Chinese domestic market, which required a low cost standardized product. Over the years, especially in the overseas market, Galanz experienced the changing preferences of customers and was required to customize their production according to the low volume and high variety product demand. The inventory was decreased in order to avoid suffering from a shortage of the demand of the product the customers wanted or unsold inventory for other products. Service Service is a very important part of a company’s value chain and Galanz became much more aware of this part over the years.
In the past Galanz was only operating OEM and did not have any contact with the end user / customer because the OEM clients handled them for Galanz. Galanz’s entrance in the ODM and OBM lead to more direct contact with the end user of the products which resulted in training of the employees and focus on workers technical skills, management skills, work attitudes and efficiency. Furthermore the expansion to overseas markets required a competitive level of service pool because of the diverse needs and expectations. Galanz could no longer just rely on low cost labor.
Innovation In the early stage of Galanz entrance in the microwave production with focus on OEM, Galanz had a close cooperation with other microwave producers in the market. After entering the market as ODM and OBM Galanz gained a huge success and soon became a threat to the big players in the market. The close cooperating partners became close rivals and ended the cooperation with Galanz by stopping the supply which was a benefit in Galanz value chain. This shorten of supply motivated Galanz to invest in their own R&D in order to design and develop its own magnetrons.
This action was token in 1997, when Galanz started out with collaboration with South China University of Technology, and three years after in 2000 Galanz launched its own Galanz-made magnetron. Galanz shifted its business direction: “Made in China ( Created in China” Galanz was now able to start mass production with its own magnetrons and was no longer dependent on other suppliers. Galanz prioritized R&D a lot in the years after launching its first own created magnetron and the ranking of Innovation was an essential part of the company’s goal.
The trends are changing and Galanz are aware of the importance of innovation in a globalized world where new technologies and change of trends are very unpredictable. In order to survive in this environment Galanz is recommended to continue investing and prioritizing the R&D part in the value chain. Over the years Galanz ranked Cost as the most important objective when entering the market but soon realized that it could not rely on the cost benefit alone, and other objectives was necessary to keep the market position which was threatened by the rivals. Galanz ranked Innovation and quality much higher over the years.
Flexibility, delivery and service are also core components in the value chain and got a higher ranking over the years. Q3. Every company has its own competitive and operation strategies. However the company should manage these strategies to make them supporting each other to achieves its goals and beat other competitors. Galanz started from a small manufacturer operated by Shunde Township Galanz Enterprises Group Co. Ltd. Galanz now is a world-class manufacturer of microwave ovens production. At the earlier age of Galanz, the company was ordering the magnetrons from Japanese supplier, such as Toshiba and Panasonic and assembling it in Chain.
Since 1993, Toshiba was the main supplier for Galanz; all magnetrons were designed and branded by the suppliers. Galanz has adopted several competitive and operation strategies to lead the company to be a pioneer in microwave ovens industry in the market place. Galanz started out with clear competitive and operation strategies, one of the strongest competitive strategies was the leadership cost strategy. At the start, Galanz has managed to obtain supplies of cheap labor and land, which allowed the company to break down the price of the product. Moreover Galanz made the prices of the products affordable to all Chinese people.
In the early 1990’s, the international companies like Panasonic and Toshiba stepped inside Chinese market and they started to offer their products at very high price, which was not affordable to Chinese people. The range of the prices was form RMB 1,000 to RMB3, 000. Therefore Galanz made a call to break down the prices by 30-40 percent. Thus, Galanz managed to produce its cheapest product by RMB300. Galanz called this period of time which was between 1996– 1998 the war price and Galanz kept maintaining the war price strategy to defeat the other competitors, as result all foreigners’ brands retreated from the Chinese microwave oven market.
Furthermore, Liang (CEO) commented: “The main objective of the price war was to destroy our competitor’s confidence to compete with us when they realized that the market bore little investment value. The price war has been line of defence for us. ”[3] (See Figure 2 on the price war). During war price, Galanz faced a lack of raw materials (OEM) because of the huge demand for its products and because of the incarceration of the magnetrons by the supplier. Toshiba decided not to provide Galanz for any raw materials so Galanz had to seek for another supplier to maintaining the production.
After negotiations with the providers Galanz managed to get only 3000 million of raw materials per annum from the suppliers. Galanz decided to defend its name in the market place, so Liang made decision to create its own magnetrons. In 1997, Liang made a contract with the South China University of Technology to create the magnetron in China; by 2000, the engineers of South China University had made the first magnetron for Galanz. At that stage Galanz transferred form OEM (Original Design Manufacturing) to ODM (Original Design Manufacturing), after that the company started the mass production strategy.
Galanz’s production volume was 4. 5 million units, but by the end of 2001, the production rose to 30 million units. The company’s breaking-down cost mechanism depended on the setting of average unit cost of production. “That means when production volume stood at 2million units, the price was put based on the average cost of producing 0. 8 million units. When production volume stood at 8 million units, the price was set based on the average cost of producing 5 million units. When production reached 15 million units, the price set was based on the average cost to producing 12 million units, and so on”. Galanz’s case study ) Additionally, Galanz managed to utilize its resources in a very efficient way that the workers were working 3 shifts per day, whole the week and throughout the year, while other international companies were operating their workforce 30-40 hours per week. So this strategy had increased the production capacity and reduced production cost and that made the other competitors retreat from the competitive environment. Furthermore, this is how the mass production strategy and utilization strategy supported the cost leadership strategy.
After all stages that the company went through, Liang started thinking about international market, and also he knew that globalization is an excellent way to distribute his products to all over the world. However he had wariness about the company’s (ODM) microwave ovens had no brand recognition, so he made a partnerships strategy with one of multinational companies to transfer the OEM to OBM and that give the products a brand worldwide. Further expand OBM sales, the company had to establish sales and services networks in the target markets either on its own or through its strategic partners.
In 1997 Galanz started to invest in R&D in the USA. The investment was around %3 of the annual revenue. However when Galanz started to produce its own magnetron, Galanz gave more initiation to investing in R&D to develop its products by putting new features and technology to suit the modern lifestyle. As a result, the Galanz’s technical capability created via both investment in R&D and via importing and learning the most advanced technologies from foreign partners, allowed the company to provide differentiated features in its products as well as decrease costs. See figure 1). Galanz has been pushing its production based on its own forecasting, in fact the company has been pushing the production more than the forecasted demand, because Galanz is confident about its position in the market and using very effective competitive strategies by supporting it with successful operation strategies made Galanz a very successful and distinguished in the market of microwave ovens. Figure 1 Figure 2 Q4. It is obvious that as well as the additional costs and benefits related to an OBM strategy, there are signi? iant risks associated with an OEM strategy. Therefore, Galanz shifted from OEM to an OBM strategy in 2003. However it faced with poor brand awareness. Also it had some governmental limitation in importing countries, the company was charged of monopolizing by dumping low price products. The company finally was coped with that weak awareness in overseas market by set up sales and service networks in target markets by on its own or via its strategic partners. After the company developed its OBM sales, Galanz worried that it might become a competitor of its OEM ustomers, so it made sense in some of Galanz’s OEM customers which had felt endangered by the new situation and might better cut their OEM order from Galanz. Therefore Galanz must be careful during its OBM sales broadening, that did not harm to the interests of its OEM customers in its attempt to expand its OBM sales. Organizational structure and systems During the 1993-2003 Galanz joined to the global market. Then it becomes as a well-known company in the microwave oven markets. Galanz, at the same point, made resolution to transform itself from OEM to OBM.
In the high export volume and back of high production, it remain stable at the bottom of the global value chain, generally discloses in: be low on price-based competition, of a property brand and dilute independent creativity and innovation ability. I. Galanz‘s OEM development main advantages primarily accounted on is cost of labor and microwave trade’s gathering effect. Reviewer due to the existing circumstances at residence and overseas, OEM approach is faced with a lot of crisis, such as : The development of RMB exchange rate method • Frictions and barriers growing in worldwide trade • Price of raw material rising • Low cost labor has been becoming extinct II. The core competence’s essence is a particular fundamental capacity of enterprises, which is greater of competitors’, inescapable competitive nowadays, customers are allowing to get unique product or service and value which actually better than other competitors‘. BRAND is the platform of forming core competence. III. Galanz, still at basic stage, however its OBM approach has developed as shows in below : Low control • Low brand level • Low brand worth • Low technology • Weak export potential IV. Galanz‘s environment for OBM is still not perfect, but going to OBM is an avoidable movement. The five main factors that restricting the evolution: • Group service organism ( Imperfect • Market surroundings ( Undeveloped • Awareness of develop and care for brand ( Low • Enterprises and complexity in attracting abilities ( Weak • Tough competition ( From well-know international brands Hence, totally stop OEM approach to approve OBM method is not achievable to implement.
Develop OEM and OBM approach simultaneously is the most reasonable way. V. From present analysis, a realistic upward trend of OEM approach is expected, which means that shifting from OEM to ODM to OBM. On explanation the convenient circumstances of Galanz, it had better to bear these three methods equally. The performance of OBM approach in Galanz should base on making brand gap, and beside with exact brand situation and plentiful brand association. The key to brand building is brand positioning that acting’s an essential component of directing.
Brand association concludes brand process, chains brand‘s development and is classify itself from other brands. Q5. The biggest challenge for Galanz is to craft and execute a strategy that focus on the objectives which has gained the success of the company in the past years. Galanz need to focus on partnerships, investors, customers and technology suppliers. Liang, needs to look at the advantages and disadvantages of those partnerships which has gone through a lot of changes during the growth of the company. Galanz has to be aware of its competitors in terms of their weaknesses and strengths.
This information can be useful for Galanz to set the objectives for the future. Galanz has been the marketleader for many years and to maintain the position in the market, Galanz need to improve their core competencies continuously. Furthermore, a focus or highly related diversification strategy could be an option for Galanz too. This means that Galanz has to spread its investments and reduce risks within a portfolio and increase the variety of their products. It has to focus on its technology innovation because it is one of the most important things for Galanz.
Galanz have to keep building their brand and continue keeping the position of that worldwide (OBM). If Galanz wish to expand they have the opportunity of exploiting new products and new markets. The other thing could be positioning itself as a global supplier. I. e. Galanz has to create an image of themselves or an identity globally in the minds of their target markets. This positioning has to be about Galanz being the global supplier. It is very much about their brand, products and organization. Moreover, Galanz should focus on expanding their product range so that they have a variety which the customers can choose between.
Galanz’s overall strategy is specialized strategy – they have been concentrating on one core point. When looking at Galanz’s success story, then it is clear that their focus was on low-cost, price war, low labor cost, etc. Galanz should keep their strategy because it is their core competitiveness. That is what they have been doing for years now and the results were growth and a big advantage for a long period. I. e. Galanz’s competitive power lies in its prices. Galanz should do what it does best and have been doing best through the years, namely to keep the cost-leadership strategy. They have to be in the mindsets f the customers for producing products with quality to a low price – they have to produce good value for money to the customers. This is important if they want loyal customers and to stay in their minds with this psychological identification of their brand, products and prices. The OEM made it possible for Galanz to develop its production and their globalization process went quick. This large scale of production made Galanz to use cost-leadership strategy. But the missing point is that Galanz focused on production rather than on innovation and marketing when they were making up their competitive advantage.
So Galanz has to be aware of its brand strategy too. Our recommendation for Galanz is to focus on their current position in the global market and focus on the objectives discussed in Q2. All objectives change over time and Galanz will benefit in adapting the changes in the global environment. Cost, innovation, quality, service, delivery and flexibility are Galanz’s capabilities and resources, and to gain competitive advantage in the marketplace they need to continue improving these objectives. Galanz shouldn’t focus on expanding to other countries, but rather prioritize the objectives and strength the position in a rapid changing world.
References Main reference : • IVEY CASE: 9B10D005 • Operations Management, 10th edition – Heizer & Render – Pearson • www. Galanz. com • http://www. galanz. com/about. shtml Other references: • KYMENLAAKSON AMMATTIKORKEAKOULU, University of Applied Sciences, International Business/International Trade. • https://publications. theseus. fi/bitstream/handle/10024/13987/Xu_Qiao. pdf? sequence=1 • http://www. 21tradenet. com/news_2011-7-29/218992. htm ———————– [1] http://www. galanz. com/about. shtml [2] [pic]! Pfghtu›? I-*+de? «oo45xyn? I? »¦? ›”‡zpcVLVpVBVpVpVph-!? CJOJQJh
