Galanz is the largest microwave oven manufacturer in the world. It pursued a strategy of low-cost production through economies of scale and process improvements. This allowed it to gain 60-70% of the domestic market share in China by 2002 and 50% of the international market by 2007. However, Galanz now faces challenges such as low overseas brand awareness and capacity issues. It must determine the best strategy going forward for its OEM, ODM, and OBM businesses to maintain competitive advantage.

1. Operations Strategy
at
By:
Gaurav Bisht
Jasmeet Kaur
Savpreet Ramana

2. Overview
 Case Summary
 Case Analysis
 Conclusion
 Answers to Questions

3. 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.

4. 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.

5. 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.

6. 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.

7.  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.

8.  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.

9. 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.

10.  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.

11. 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.

12.  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.

13. 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.

14.  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.

15.  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.

16. Priorities to achieve competitive advantage
 High Quality
 Fast Delivery
 Reliable Delivery
 Flexibility

17. Problems and Solutions
Problem 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

18. 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.

19.  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.

20. 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.

21. Answers to the Questions

22. 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

23. 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).

24.  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)

25. 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.

26.  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.

27. 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.

28. 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
OBM must keep themselves open to
their customer so that customer can

29.  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.

30. 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.

31. 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.

32. References
 Galanz Home Page:
http://www.galanz.com/pages/newsinfo.aspx?catid=17%7C13
9%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

33. Thank You