Galanz

- Manufacturers and suppliers of microwave ovens

- 13th consecutive years being number one in China’s microwave oven market
- Number one in export sales volume and foreign exchange earnings for 10 years
- 1992  Entering the microwave oven industry
- From township enterprise
- 1998  Global number one in microwave oven production
- 2008  conglomerate with sales across China, Hong Kong, Seoul, North America

 Found in 1978
 Old Name: Guizhou Down Products Factory  New Name: Galanz Enterprise Group
 as they understand the down products industry having limited growth potential
 Price cutting strategy
 2001  entering air-conditioning market

 Galanz chose the Home Appliances industry at last  with initial focus on microwave
oven production

 1992  Galanz imported its first microwave oven assembly line and related
equipment from Toshiba Japan and started its own production

 1998  largest microwave oven production with 15% global market share in
production

 2000  30% global market share in production

 2002  40% global market share in product

Galanz progress development in 3 stages

1. Initial take-off (1992 – 1996)
Two turning points:
i. 1996  price cut
ii. 2001  entry into air-con market
Evolving from township enterprise to a global company
o Founder / Chairman Mr Qingde Liang managed to survive due to his
management concept of ‘a big family’, which motivated and inspired
employees
o Galanz success is attributed to Liang’s moral leadership, courage, wisdom and
vision
o Liang passing the CEO position to his son, Mr Chiuyin Leung

 Galanz imported a microwave production line and technologies from Toshiba Japan
 Galanz’s development strategy in the initial take-off focused on microwave
production based on OEM (original equipment manufacturer) model
 Concentrating its resources on efficient manufacturing without taking care of
branding and retailing  Galanz quickly earned a reputation as the specialist in
microwave oven manufacturer

- 3 shifts per day (non-stop throughout the year – increasing the utilization rate)
- Cheap cost of labour in Shunde, Guangdong
- Low cost of procurement due to easy access to Hong Kong for exporting
 Galanz’s competitive advantage in production cost > international competitors

Why western firms could not match Galanz low production cost explained by vice
president Yaochang Yu:
- Previously 5 days a week, now 4 days a week; 6 hours per day in France
- 24 hours non-stop in Galanz

With low labour and management costs  Galanz successfully secured a role as the
“Global manufacturer” along the global industrial chains of microwave oven
production

Seizing opportunity when multinational companies in Europe and US strategically

shifted manufacturing offshore to Asia, Galanz successfully integrated their advanced
technologies production lines and equipment at a very lost cost

OEM (original equipment manufacturer) model for firms from emerging economies
 attain new resources and capabilities by participating in the global value chain

OEM: only viable solution for companies like Galanz

- For companies without capacity for own R&D
- For companies without developed multinational sales network
 despite competitive advantages in low-cost production

OEM is low value-added and small profit margin

 substantially reduce risk of underutilization of high-fixed-cost investment for new
entrants
 speeding up the pace of absorbing advanced technologies
 fully utilize the existing sales channels owned by those multinational companies

Galanz’s take-off in China benefited from rising demands among urban households
with increasing disposable income
 strong consumer base for Galanz to take off in the microwave oven market in
China

2. Expanding / defending (1996 – 2001)

Securing cost leadership position in an increasingly competitive field

Price war to drive competitors out

 Started price reduction by 40% [vs Snowflake]
 1997  2nd reduction from 29% to 40%
 In total of 9 rounds of major price cut on microwave oven products

Expanding into the global market

Expansion into the global market: OEM model
 obtain scale economies while increasing its production capacity with less risk

First order from Fillony in France

Harvard from Britain  making Galanz no.1 microwave oven provider in Britain

Harvard: biggest customer of Galanz in Europe

2000  partner with GE

2002  work with Kmart and its sales volume grew dramatically to 1 million in the
US

Fully utilizing its expanding global market to increase its production capacity,
Galanz further reduces the average cost per unit

X targeting high profit margin  Galanz aggressive capacity expansion leverage

economies of scale in manufacturing to drive cost down

Using interplay of global and domestic market to increase production volume and
lower production cost thanks to economies of scale  effectively knock out
competitors

Vertical integration
Ability to maintain low price benefitted from its continuous efforts to vertically
integrate the industrial chains of microwave ovens, especially the key technologies
of production, e.g. production of magnetron vacuum tube (technological entry
barrier and high price component)

Magnetron Vacuum Tube exports to the EU, Japan and Korea

After vertical integration  production streamlines  production of magnetron

vacuum tube becomes the target of further savings  imperative

Galanz began R&D centers in China, the US, Korea, and Japan by April 2008 
gradually integrated the upstream of industrial chain of production

The added advantage: since almost all parts of the microwave are produced by
Galanz – further decrease average cost as Galanz’s production scale increases

Integrating upstream of industrial chain of production

= strengthen its bargaining power over the price of the spare parts
= competitors also have to lower their price to effectively compete in the price
initiated by Galanz
 = upstream suppliers had to cease operating because of declining profits from spare
parts  Galanz took over those operations or hired key specialists
 gradually integrated the production of
- magnetron vacuum tubes,
- Control circuits,
- adapters,
- compressors

Galanz paid attention to develop its own sales channels while being careful to avoid
anti-trust or anti-dumping measures in the targeted countries or areas
 Set up Overseas Market Department (having over 3000 overseas retailers and 8
overseas subsidiary companies including the US, France and Canada

Low price =/ Low quality

Low price + imperative quality

Ensure quality of products

1. Setting up quality control group on voluntary base to solve problems during
production to maximize employees’ initiatives
2. Maintaining a comprehensive quality management system encompassing
workshops, employees and equipment to optimize performance of production
lines and reduce mistakes during the production process
3. Providing the best after-sales service across countries
e.g. started in 2002, Galanz offered life-time on-site maintenance service for its
microwave ovens

Setting up Household Appliances Research Center in China headquarters in 1995

Setting up Galanz Research Centre in 1997
Post-Doc Scientific Research Lab in China
Galanz-Korea Research Centre in Korea in 2006
 To attract specialists from abroad to research technologies for household appliances
 To attract materials and intelligent equipment
 More than 600 patents and patented technologies were invented

High quality at low prices  gaining popularity and knocking out big competitors both
domestically and globally
- LG only maintained high-end production
- Samsung ceased production
- Haier shut down production line and exiting microwave oven industry

3. Further advances / diversification (2001 – present)

2001  entering air-con market

Strategy: shifting from purely focusing on microwave to diversification, while retaining its
grip on microwave ovens  targeting number one in home appliances market
 annual production capacity of 3 million sets and became the no.4 exporter of air-con
among Chinese competitors

Galanz also entered other home appliances, e.g. refrigerator, induction cooker, washing
machine  aiming to make small home appliances 3rd pillar of Galanz after microwave and
air-con [tripling sales volume of small home appliance that year]

Challenge
- Currency appreciation
- US sub-prime crisis
- Global financial crisis in 2008
Galanz maintaining high growth momentum, reaching CNY 28 billion and exporting
amounted to USD 1 billion

China’s home appliance market

 Increasing disposable income of both urban and rural household
 expenditure on household goods increases

Air conditioner
Air-con originated in the US
 China: largest base for air-con production
 Low-end technological barrier
 New trend: speedier cooling, noise control and energy saving

1990 air-con ownership per 100 urban household owned: 0.34 units
2007 air-con ownership per 100 urban household owned: 95.1 units

Home appliances dominant brands:

- Gree
- Midea
- Haier
 68 %
- Chigo

Rice cooker
China exported over 25 million rice cookers, 10% rise compared to 2007, 40% exported to
Southeast Asia
Thailand, Indonesia and the US  3 main countries that imported most rice cooker

Top 3 exporters of rice cooker:

- Midea
- Elecpro
- Makepolo
New trends: safer, energy-saving and computerized

1. Midea
2. Supor
Galanz & Povos fighting for the third

Problems:
 Inconsistent quality
 Lack of after-sales service
Most brands focus heavily on the first second tier market, relying exclusively on big
electronic chain stores, e.g. Gome / Yongle, while 3rd and 4th tier markets were
underdeveloped

Dishwasher market
Originated in Europe – firstly invented in Germany in 1929
US  no.1 position both production and penetration rate

China started development and production of dishwasher – first automatic dishwasher

developed by Little Swan
- Little Swan
- Haier
- Midea
- Aucma
 production lines

Popularity among Chinese customers remained low and limited by

- price,
- kitchen space,
- cost of water and electricity,
- special detergent used,
- general lifestyle and consumption trends

Low penetration rate in China  less than 1% compared to 70% in EU and US countries

Future outlook
1999  Galanz’s sales reaching 70% market share in Argentina
Local microwave oven manufacturer united to file anti-dumping lawsuit and 200% tariffs
imposed on Galanz products
 losing Argentina market, losing 180k orders

Galanz avoided anti-trust or anti-dumping lawsuits in global market

 achieving 50% global markets share in production, winning title of ‘global manufacturer’

Galanz’s strength:
- high production volume

Galanz’s weakness:
- weak profit margin
- difficult to invest more in R&D

Targeting to become a global grand instead of global manufacturer

Aggressive competitor on microwave oven market: Midea
Midea – larger in size and more experienced in home appliance market
 carefully controlling its cost