OPERATIONS MANAGEMENT

ACE INSTITUTE OF MANAGEMENT

REPORT ON
“SUGGESTION ON OPERATIONAL STRATEGY FOR GALANZ”

SUBMITTED BY: SUBMITTED TO:

RISHAV LAL SHRESTHA MR. RABINDRA

SILWAL

MRINAL LABH

SUNSAY GUBAJU

EMBA 2019(Fall)
Introduction

The Galanz company had started as a down feather production in China during the early
1970s. The company’s original name was Guizhou Down Product factory founded by Liang
Zhaoxian. During that industrial era, the Chinese government helped the privately owned
enterprises to export and gain competitive advantage also in the global market.

With increasing globalization and modernization, during CEO Liang Senior visit to Japan, he
sensed the requirement of fast cooking and heating of foods for growing white and blue
collared Chinese people. And thus, embarked on a journey to avail low-cost microwave
ovens in the domestic market.

After the technological development of microwave ovens in the US during the 1950's, there
were not many technological innovations with this product and thus, the price was
unaffordable for the mass domestic market. The prices of LG, Toshiba and Whirlpool ranged
from RMB 1000 to RMB 3000, which made the CEO envision its own product to win
through cost leadership strategy.

Through low labor and land cost advantages in China, the company purchased a blueprint and
production lines worth $300,000 from Toshiba. And then, started purchasing different core
components like magnetrons required for production of microwave ovens from LG and
Toshiba who were also having a presence in the microwave oven business in the Chinese
market.

Due to low cost of products, the annual sales of Galanz products in the domestic market show
an exponential growth. Threatened by a surge in demand for the Galanz product in the
Chinese market, the suppliers of magnetron, LG and Panasonic stopped providing the core
component so as to cut the competition.

This made Galanz think of producing its own magnetrons. But this was not possible for the
time being as it had traditionally only invested in building capacity for its final product but
now it required to build a company with Research & Development capability to innovate and
design its own product.

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Galanz and its competitive strategy
Then CEO, decided to make the company an Original Equipment Manufacturing (OEM)
manufacturer and also embark the path of innovation through continuous learning
methodologies. This strategy helped them transition itself from OEM to Original Design
Manufacturing (ODM) manufacturer and from then it started designing its own products and
manufacturing own core components at their own manufacturing facility. This also helped
them get recognized in the domestic market as being self-sufficient and innovators.

As the surge in demand made them short on magnetrons, annual sales demand had risen to 25
million units, but the estimated production capacity was 16 million units annually creating a
production deficit of 9 million units. Therefore, now they are required to increase their
production capacity.

This led to a new strategy to increase their production capacity. Thus, they asked their OEM
clients to transfer their production and assembly lines to the Galanz facility. Through this
strategy they were able to meet demands of their OEM clients in the same low cost pricing
and then use the extra free equipment of their lines for manufacturing additional products for
other clients. Through this exciting deal they were also able to attract domestic OEM clients
to transfer their Production and domestic lines.
Through this approach they were able to produce microwave ovens at much more
competitive prices and fully throw out the rival companies from the domestic market. Now
Galanz decided to involve itself in the overseas market also. Presently, they were working
domestically on three modes OEM and ODM, and OBM (Original Branding manufacturing)
but in the overseas market they had to depend upon the imported countries’ channel for
marketing and distribution. They had initially collaborated with Walmart and Kmart to
introduce their products in the US market.

At Walmart stores, the Galanz brand was not found recognizable by the end consumers but
their products were high in quality and inexpensive. Therefore, they sensed its brand in the
overseas market also. Therefore, now their major aim was to transform itself to an OBM
manufacturer in the overseas market.

But still they faced an imbalance in production due to lack of magnetrons availability which
the CEO has decided to outsource their designed and branded magnetrons. To survive in a

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growing market, they have to wisely prioritize and distribute their products to match demands
of their OEM clients and at the same time balance production of their OBM and ODM
products in the domestic and overseas market.

Galanz and its operational strategies:

Whenever there is another company having the same product in the market then the price
factor plays a very huge beneficial role for the competition. Similarly, we can see that
Galanz’s major competitive strategy was low-cost production due to which they were able to
sell their product at a very low price compared to other companies. Galanz also invested 3%
of their total revenue in research and development. They were able to bring innovation and
new technology such as led light, touch screen, etc which helped them in creating their name
as the new and best brand in china. They also started their production of magnetrons after the
shortage of them and their suppliers were unable to provide them as required which has made
them enter into an OEM business and ODM business. It has helped them to reduce their cost
in production. Such operation strategies have given enormous support in their competitive
strategies.

The company has also achieved huge business from the market by selling its product at a very
low price as compared with their competitor. It has destroyed their competitor in the
microwave business but it could not be for a long term. The R & D department helped Galanz
to introduce quality products at cheaper rates. In doing so, the company could continue its
low-cost strategy.

Galanz’s strategy of introducing OBM in the international market

OBM strategy was targeted at the domestic market and had been winning the competitive
advantage in China. Low brand awareness or recognition in the international market led to
fewer sales units through OBM rather than OEM which we can see from Exhibit 1. From this
table, we can also see that OEM itself is going well overseas, so introducing OBM in
international business was not producing fruitful results concerning revenue. But OBM
strategy definitely helped galanz to leave its mark in the international market.

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Galanz and technology use:

The innovative technologies like options of boiling, steaming and touchpads has helped them
to attain product differentiation compared to their other competitors. Through producing
customizable products, they are able to follow market target strategy. For example, Toyota, a
Japanese automobile manufacturer, had to study the road conditions and consumer needs of
the US market before developing an automobile feasible for their conditions. Similarly,
Galanz also had set up a Research & Development facility in the US to study the consumer
needs of that market.

Though they did all the required enhancements in mass production, they could have been
more focused on establishing modular or flexible assembly and production lines to produce
differentiated products for their captured diversified marketplace. Through excelling in
Japanese management practices like Just in time, they could effectively and efficiently
manage their supply chain and reduce costs. They follow the push strategy which leads on
producing surplus inventories due to improper demand forecasting methodologies. Rather the
current position requires them to follow a pull strategy as their market requires diversified
products for ever changing customer needs.

Galanz was able to match sales as demand for their product grew with the aid of their R&D
department. Galanz was also able to localize the design of its items to fit its target market
thanks to the technology. Galanz's success was due to technology's involvement in expanding
and enhancing the quality of its manufacturing while also decreasing the cost of production.

From the initial stage, the CEO had made a wise decision to purchase overseas production
lines and technologies in their capacity. They had also made overseas companies and their
suppliers transfer lines & educate and train in the technical expertise areas. Through
recruiting engineers to develop a cutting-edge research center is also noteworthy. Using
information management systems in their facility helped them reduce communication transfer
time and cut costs. Through availing updated technologies for production and investing 3% of
annual revenue in research and development, they are able to stand self-sufficiently with
strengthening differentiation market strategy.

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Challenges faced by Galanz and they overcame it

To begin with, the firm did not produce its own magnetrons. Instead, it purchased them
straight from competitors like LG and Panasonic. Fearing the threat that Galanz was posing
in terms of competitiveness, the magneton suppliers reduced their supply. In order to meet
this difficulty, Galanz formed an OEM with the goal of producing its own magnetrons.

Microwave oven manufacturing technologies and technical knowledge were not accessible in
China. This posed a significant challenge for the corporation in its attempt to enter the
microwave market. Liang Senior went one step further, ensuring that microwaves were
manufactured in China rather than being imported, by bringing in the necessary technology
and experience.

Mr. Liang’s achievements for GALANZ

The credit for the company's success can be given to Mr. Liang as he made a number of
achievements in securing the success. First and the foremost is that he initiated to establish a
microwave oven manufacturing company which at a time was not introduced at all. There
was no China company to bring technical expertise in China to manufacture microwaves. He
carried out the initial project planning and scheduling. Another important achievement by Mr.
Liang was his successful effort to sign a contract with overseas companies to outsource
magnetrons. He also created an Original Equipment Manufacturing model whereby the
company would be manufacturing its own magnetrons, instead of outsourcing the production.

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Suggestion to Galanz
To adapt with growing needs whether it be customers or their organizational structure,
organizations need to reduce inter and intra-departmental communication barriers through
changing its organizational culture from highly bureaucratic to implementing a flatter &
flexible chain of command mechanisms. Collaborative decision-making tactics should be
entailed which would require inputs from the bottom hierarchical level staffs to make
decisions. This path will take them to continuously evolve and help them stay a learning
organization.

The firm has been able to develop a low-cost approach that has allowed it to outperform most
of its competitors, causing others to exit the industry entirely. Use of product segmentation
strategy would be even more effective for the future of the company. Introduction of premium
microwave or industrial microwave for high end customers will further aid in the increment
of revenue for the company.

Galanz can venture towards developing different products as well as having an established R
& D team. They are well known as an electronic product selling company, so introducing a
fridge, TV, induction stove, washing machine in their product category will bring additional
revenue for the company.

It is advised to operate in all three modes because the maximum annual sales could be
observed through OEM clients. Therefore, if they accurately forecast the demands of their
different clients and transform their manufacturing facility with shortened production line
change-over times, and produce mixed-products in the production lines, they would be able
to meet demands of all their clients.

The management trends from Toyota named The Toyota way is a well-known and respected
way of running an organization. They should learn best practices like Just in time, Kanban
and Kaizen, etc. from this well-established management strategy. It is advised that they form
a collaborative culture in the organization in which quality issues are given the highest
priority whether they be product based, Employee-relationship based or production based.
Because if problems are detected and reported regularly without any hindrances, this will
help them attain the highest reliable and likeable product in the global platform. Through this

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approach they will be able to have a flexible and adaptable working environment, which will
help the employees of the organization stay satisfied and retain them for longer durations.

Through this approach they will also be able to reduce costs by not only developing
themselves but also developing their suppliers in the value chain. The company needs to find
value based works through capturing end consumer data from the fields. Because, to sustain
in an ever changing customer requirements sector, they would need to keep themselves
updated through innovating new cutting edge technological enhancements. As the growing
technological research could wash away the existing products in a short period. Therefore,
their focus must not only be on innovating their products but also the production lines so that
they could follow cost leadership strategy in the marketplace.

Outsourcing self-designed and branded magnetrons presently is the only option to meet the
production deficit of 9 million units, but in the long run they would either need to increase
their production capacity or prioritize clients (OEM, ODM or OBM) or develop their
outsourced partners to produce high standard components as required. To help their suppliers
or partners grow, firstly, they have to become highly effective and efficient through
transforming themselves into a lean organization. Further they would have to analyze the cost
of outsourcing if the quantity of outsourced components increases.

Outsourcing in the long run will make them dependent on their suppliers, and previously they
had faced challenges in procuring the main components for microwave oven production
through suppliers. Because it could be estimated that their present production capacity would
remain stagnant and the demands will surge in coming years which will create a huge
opportunity loss as their existing or non-existing customers would switch to their rival
brands. Before the gap between demand and supply surpasses uncertainty, Galanz has to
modify itself and not get fully dependent on their outsourced suppliers.

As now they have become major players in all the three modes of operation namely OEM,
ODM and OBM they need to expand their reach and presence in the customer service sector
through establishing standard easy accessible customer point of contacts both physically and
virtually.
Prioritization should be based on accurate forecasts, the one which will help to provide
maximum annual sales ie. presently OEM (export) and then at the same time not lose its

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ground in the OBM sector. Therefore, as discussed it needs to expand its customer service in
all the oversea key areas. Through surveying the market needs at unexplored areas will help
them establish themselves as a recognizable brand. Through this they could be able to bring
more creativity and end user required products to the desired market. User friendly & reliable
products, accessible & quick response customer service points, will help them to become a
people’s brand.

Challenges help one to find opportunities, and thus Galanz has been practicing to improve
itself by introducing products which are high in quality and low in cost. It has taken crucial
steps in developing itself from an OEM to an ODM and OBM both in domestic and global
platforms. The right technology at the right time for the right thing has helped to achieve
competitive advantage not only in the cost but also in product differentiation. They would
have to increase their Aftersales presence in domestic and international areas now, so as to
retain their loyal customers and build a long term interpersonal relationship with their end
users and partners.

Price discrimination strategy could be implemented so that their product will be favored in
countries with lower and higher per capita income. This will also help the company increase
their revenue.

They need to adapt to growing needs whether it be customers or their organizational

structure. They need to reduce inter and intra-departmental communication barriers through
changing its organizational culture from highly bureaucratic to implementing a flatter &
flexible chain of command mechanisms. Collaborative decision making tactics should be
entailed which would require inputs from the bottom hierarchical level staffs to make
decisions. This path will take them to continuously evolve and help them stay a learning
organization.

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References:

● IvyPanda. (2019, June 13). Operations Strategy at Galanz. Retrieved from

https://ivypanda.com/essays/operations-strategy-at-galanz/
● Hoskisson, R. E., & Hitt, M. A. (1990). Antecedents and performance outcomes of
diversification: A review and critique of theoretical perspectives. Journal of
management, 16(2), 461-509.
● "Operations Strategy at Galanz Case Study." Graduateway, 12 Dec 2016,
https://graduateway.com/operations-strategy-at-galanz-case-study/
● Ansoff, H. I. (1965). Corporate strategy: An analytic approach to business policy for
growth and expansion. McGraw-Hill Companies.
● Yang won, Li. “Operational Strategy at Galanz.” Operational Strategy at Galanz

vol.1, no. 2, 2017, pp. 1–15.

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