Operation strategy at Galanz History of Galanz

In the history of development for private businesses in China, Galanz is a brand that cannot be forgotten among the Chinese brands in the world market. Galanz is the first company in China that has positioned itself as a Global Manufacturing Facility. Mr. Leung Chiuyin, president of Galanz believes that the biggest advantage of Made in China is due to the low cost of labor and Galanz has the advantage of low cost as this is mainly based on the low cost of labor and production scale for this company. This company has grown from a small township factory that employed seven or eight workers into a large company that employs over 40,000 employees. Its products in the world cover over 50% market share and it has become a real champion in China. It is worthwhile to study and introduce the legendary history and creative spirit of Galanz. The year 1992 has historical significance to Galanz. In this year, Galanz seized a historical opportunity with its insight and changed from the manufacture of textile products to the manufacture of household electric appliances. The transition of the manufacturing center in the world has brought unprecedented space for development to the manufacturing industry in China. In 1978, China was at the initial stage of economic development and the opening-up and reform of the state brought a great number of opportunities to the development of economy. On September 28 in this same year, a small township factory with seven or eight employees was established in Shunde, Guangdong province. This factory was the predecessor of Galanz which was engaged in manufacturing water washed down feathers with goose feathers, duck feathers and chicken feathers. This small township factory struggled for survival with hard work and it later changed to the compensation trade mode of OEM processing textile products for companies in Hong Kong and for the state-owned foreign trade companies in China. The fact has proved that Galanz is correct in its judgment. Depending on this advantage, Galanz trial produced 10,000 units of microwave ovens in 1993 and it increased the production volume to 100,000 units in the following year. In the third year, it produced 200,000 units of microwave ovens and became No. 1 in China due to its 25.1% market share. In the year 2007, the production and sale of microwave ovens exceeded 25 million units. 1998 was the first year for Galanz to initiate internationalization which was to become No. 1 in the production and sale of microwave ovens. The export volume in that year achieved US$ 100 million. In 2000, its market share of microwave ovens in the world reached 30%. In 2001, the production and sales of microwave ovens for Galanz around the world reached 10 million units. In 2005, the production and sales of microwave ovens for Galanz around the world reached 21,130,000 units with the market share being 50%. In 2006, the production and sales of microwave ovens for Galanz around the world reached 23,700,000 units. In 2007, the production and sales of microwave ovens for Galanz around the world reached 25,830,000 and its market share in Europe exceeded 50%. Its market share in South America and Africa exceeded 70%. Galanz has maintained the No. 1 sales of microwave ovens in the world for consecutive ten years and its fame as a Famous China Brand is known around the world.
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Operation strategy at Galanz

Since 2000, Galanz has invested RMB 1.5 billion in research and technology development, in building the microwave technology research centers in China and abroad, in sourcing highstandard technical professionals in China and abroad, in new technology development, in new material application and in new product development. Currently, the magnetron which is the key component for microwave ovens and more than 90% of the parts used for manufacturing the microwave ovens have been independently developed and manufactured by Galanz and they have achieved the international standards in this industry. It has opened 5 franchise stores in France and plans to open 80 franchise stores in this year. Galanz believed that the manufacturers in China were competitive in the cost of production and manufacturing. The products that were made in China and were exported to the overseas countries had converted the excessive labor force of China into competitive products through the OEM mode and the strategy of exporting products to the world market quite suited the situation of China. Based on this understanding, Galanz concluded that it would position itself as a production workshop in the world market and sought to link to this market by using this workshop as a platform. Being people oriented, Galanz has set a good example in promoting its brand culture and shouldering social responsibilities in the past years. It has exhibited its noble quality and concept in becoming a Worldwide Citizen Brand. In the early stage company used Cost Leadership Strategy. The company even launched a price war so that it could dominate the domestic market of Microwave Oven. It adopted a low price strategy by repeatedly implementing cycles of price cutting and production capacity expansion. It cut the price by 30 40 percent. Galanz did not have any competitive advantages in production technology. The only thing that Galanz had was an abundant supply of cheap Labor and Land. So, following the low price strategy was only the way to compete in the market. After the price war, Galanz started facing the problem in shortage of Magnetrons. The supply crises of Magnetrons motivated Galanz to design and develop its own magnetrons. To enhance quality, the research team of Galanz successfully launched first magnetron with improved mechanical design. Galanz was renowned by their low cost and good quality in the market. The production of magnetron was increasing day by day. The company was highly benefited by its R& D activities, so it decided to invest more than 3% of annual revenue in R&D. Galanz remained top in the domestic market as well its production quality earned praise among international players. Strategic partnership with MNCs such as K- Mart and Wal- Mart helped the company to enter in international market. Galanz has been able to strengthen its sales network in all parts of the world, including China, during the recent years. There were 52 sales offices across China. So as per the need of the market, the strategies of a company need to be changed. In case of Galanz, in early stage they have focused in lowering the cost of the Microwave Oven. After some period of time they were concerned with cost as well as quality. R&D has helped them to
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Operation strategy at Galanz

enhance their quality and make them well known in the international market as well. To gain the competitive advantages Galanz must maintain its quality of the Microwave Oven, must be flexible, must be able to deliver the product on time by maintain its cost.

Galanz was able to produce goods with a substantially lower cost. 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 exceed other Chinese manufacturers. Having established itself as a major player in the global market, Galanz now has more resources and expertise to search even further in the international level. OEM microwaves oven were the Primary exports without any brand recognition to the end users. The technical capability of Galanz was established through investment in R & D and learning through importing the most advanced technologies allowed to reduce costs and provide differentiation. The company transformed from OEM to ODM (original design manufacturing) after the production of magnetrons by themselves. Having conquered the domestic market, Galanz reached into the global market through the OEM (Original Equipment Manufacturer) method in 1998. 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. Recently, Galanz has been starting to promote its own independent brand. This shows a change in Galanz internationalization strategy, switching focus into getting consumer to recognize Galanz as an independent brand. Aside from its success in the microwave market, Galanz has been trying to expand its product portfolio, introducing other household appliances from then on. The company currently has 13 subsidiaries, 52 sales offices in China and branches in Hong Kong, Seoul and North America.

The Key Success Factor of Galanz

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.
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Operation strategy at Galanz Further Internationalization Steps

Having established itself as a major player in the global market, Galanz now has more resources and expertise to probe even further in the international level. At this stage, Galanz could possibly execute a JV agreement or even venture into wholly-owned subsidiary types of international expansion to reap even greater profit. The company may not grow rapidly in the coming years if it stays as being an OEM exporter. The alternatives of further internationalization steps for Galanz are discussed thoroughly below.

Joint Venture Agreement

Over the years Galanz has been doing OEM partnership with well-known brand names in home appliances such as GE and Kenmore. While its OEM partners received global recognition Galanz as a brand remained somewhat unfamiliar outside of China market. Galanz needs to further market its brand globally in order to grow further. One possible solution is to setup a link JV with another house appliances manufacturer. The best option is forming a link JV with GE. The terms of the JV can be structured such that Galanz will manufacture the products while GE will utilize its existing distribution network to market the products. Galanz can retaliate by approaching other companies to try to form a joint venture, while at the same time proposing to terminate its OEM contract with GE. Forming a JV presents several advantages to Galanz. It provides a quicker way of going global and a surer market than opening a wholly-owned subsidiary abroad. Moreover, Galanz brand will be exposed to a readily large pool of the JV partners existing customers, creating a perception that Galanz is a brand of comparable level with the brand of the JV partner. After some period when Galanz brand has been widely recognized through the JV, Galanz may intensify its internationalization process further by committing to open a wholly-owned subsidiary and sells its products under its own Galanz brand. Galanz can try to approach companies such as Sharp or Panasonics to negotiate an acquisition deal. Should Galanz be able to secure an acquisition deal, Galanz will be able to straight away deals with the global business of its target company, resulting in prompt global recognition of Galanz brand. As compared to proposing a JV, this method allows greater strategic control for Galanz, granting access to the assets and resources of the target company. On the other hand, it will be harder to strike an acquisition deal as compared to proposing a JV, and the amount of money and resources needed to secure an acquisition deal is a lot higher.

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Operation strategy at Galanz Conclusion

From the case we found that the success of Galanz lied in few major factors They followed a through total cost leading strategy; the cost consciousness is reflected in every implementation. It carries out a correlative diversification strategy on the precondition that it had gained absolute competitive advantages in the original field. 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.

Recommendation
Based on above analysis below are some recommendations to overcome current challenges faced by Galanz and develop strategy to continue its future business growth. Galanz should develop its OBM business in the international market because of the competition among the MNCs i.e. increasing demand for the branded products. Not only this, Galanzs products were very cheaper but with good quality. The goods were exported, the end consumer even liked the product due to its quality but they had no idea about its brand name, so, to explore the users about its brand, Galanz should develop its OBM business. I think the company may not grow if it is continues OEM and ODM business because OEM products were replaced by OBM products because of brand consciousness in the users. ODM would not be useful to develop due to short product life cycle. The company should focus on cost leadership and enter in the international market i.e. follow the strategy same as of Toyota. Toyota entered into the US market by focusing on the cost leadership. Later on when it established its market then it introduced the premium products. Develop customized production/assembly in developed markets and for developed markets. Continue major investments in innovation in technology and production Invest resources in customer resources planning. Implement efficient production planning systems by maintaining inventory level regarding to demand forecasting Develop strong service networks and distribution channel
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