CASE# 1

On
Operation Management

The Case Analysis - Operations Strategy at

Galanz

Submitted To:
Submitted By: Mr. Rabindra Silwal
Bishwo Vijaya Shrestha Lecture/Faculty- Operation Management
EMBA-FAll 2019 Student Ace Institute Ace Institute of Management
of Management
Case# 1 September-2020
Brief Introduction of Galanz
Galanz is a company, headquartered in Shunde, Guangedong province and founded on 1978
by Liang Zhaoxian’s father. It produced down feather products for overseas clients to earn
foreign exchange. Company was in profit but due to increasing competition, the global garment
industry faced dramatic infrastructural changes there was potential risks to its business. Due to
risk in business, the company started to search new business opportunities with greater
potential for growth. In 1991, the company has entered in the electrical appliance market. It
main business is the manufacture and sale of microwaves ovens. Galaz had previously relied
on the magnetrons designed and branded by its supplier during its earlier years of development
as a microwave oven manufactures for many foreign brands. Due to rapid growth of Galanz’s
microwave oven business had threatened these magnetron suppliers, who were in the
microwave oven market. To restrain their competition these suppliers decided to reduce the
magnetron supply to Galanz so Galanz decided to promote major investment in magnetron
R&D in 1997 and company started to produce own magnetrons in 2000. However, due to
tremendous growth in market, Galanz was not able to fulfil the demand and Galanz outsourced
the production to other OEM manufactures since by then its customers had begun to insist that
Galanz use its own branded magnetrons in Galanz-supplied microwave ovens. Galanz’s
capability of producing microwave ovens at a low cost, combined with its enhanced R&D
ability had allowed it to compete successfully with major players in the global electrical
appliance market.
Competitive and Operative Strategies of Galanz
1. Flexibility in production: The importance objective is flexibility which means the business
is able to produce new and better products as well as use of better technology for the production.
For example company used to produce down feather product and as per market opportunity it
switched to microwave oven. Switching from one product to another product need proper
market analysis otherwise it may result loss in business.
2. Low cost, low price and price war
Galanz’s had operations objective of cost, quality, flexibility, delivery, service and innovations.
It is well known fact, the operation management is a key function of any business organization.
The business has got its main strength in the form of low cost and eventually low pricing with
innovative products. Due to cheap labor and land in China, the low cost and price strategy was
successful in early years. Galanz continuously engaged in price wars by cutting prices until it
attained the leading position in both domestic and global market in 2003. The strategy of low
cost and mass production may not best. As per advancement on technology, development of
information system, globalization of market, demand rides on low volume with high variety
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Case# 1 September-2020
model. So mass production might be problem although mass production and low cost strategy
is key strategy of success of Galan’z in early year. On other hand, cost cutting strategy may not
work properly in overseas market. Lower brand awareness in overseas market, anti-monopoly
laws of foreign country may challenge low cost strategy for keeping product in top position in
market. For example, the Argentinean government launched an anti-monopoly lawsuit against
Galanz when its OBM microwave ovens reached a market share of 70 percent.
3. Operation Strategy
Galanz’s Operation strategy: 24/7 working production line Employees working three shifts in
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. Another operation strategy is OEM production line: It designed and executed
businesses strategy to help reach lower price through total use of the available output capacity,
the transport of output capacity from developed nations and economy of scale.
4. Operation excellence and Investment on Research and Development for self sufficiency
As per article, the demand of microwave oven has increased tremendously. There was a
problem of supply chain management and Galanz faced the shortage of magnetron due to high
demand and the suppliers have cut their supplies to Galanz. So Galanz started to invest on R&D
and able to produce its own magnetron with improved quality. After that Galanz was able to
transform from OEM to ODM. It was major achievement of Galanz. It was able to uplift itself
into the high-end market and soon started providing ODM services to large OEM clients.
Strong R&D enabled Galanz to localize design and target market through continuous
innovations. Also it looked into creating global brand awareness by adopting OBM strategy.
Galanz had key strategy of low price so this caused international accusations such as product
dumping with low prices. Also Galaz slowly isolated from OEM customers it may resulted
market share loss in overseas market where brand value is more important than the cost of
product. Another challenges of today’s business is the product life. Product life is very short.
Company should aware on it. Galanz’s should give importance on product life in R&D of
product.
5. Strategic alliances for building brand awareness in Market
Galanz was able to shift from World Factory to World Brand by price war strategy, however,
it also created number of challenges. OBM have to bear the risk of poor forecasting and sales
whereas in OEM it bear by clients. The key success of Galanz was due to less variety of
products with mass production by proper utilization of opportunity of cheap labor and land in
China. In OBM model, mass production not good strategy and had to adopt to small and varied
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Case# 1 September-2020
demand with high product variety. So the company needed to be able to predict the demand
accurately and produce the right products in the right quantity at the right time to meet the
demands. Galanz needed to use good product design strategy rather than cost cutting. Galanz
should analyse socio-economic, political changes, targeted market segments and adaptation of
technological changes and adopt the strategy as per analysis. Also, using Lean Priciples and
Just in Time (JIT) inventory strategy would have been more appropriate for reduce the cost of
products.
Challenges of Galanz
1. Synchronization of Production with R&D as per market needs
Today’s business products have very less life. Products have been outdated in very short
period. It is one of the challenges of R&D department of any organization. It is very important
to synchronise market needs and product design otherwise product may be outdated before
coming in market. Other major problem that Galanz started to face with adopting new models
is with synchronizing production with the R&D department which was exacerbated with small-
scale production of customized products. To overcome such problems, using of quality
management tools such as Fishbone Diagram, MIS system can be used. Also it is very
important to reduce interdepartmental conflicts with in organization.
2. Providing competitive level of service
For OBM positioning, it is very important to provide competitive level of service to large pool
of end customers with customize need and expectations. It is very difficult task and challenges
faced by any OBM business organization. Sales supports like after-sales service, repair-
maintenance, warranty claim, hearing of customers problems need to be handled properly. For
such management, Galanz had to train qualified staff and establish a communication platform
to the handle end-user’s request.
3. Optimum combination of OEM, OBM and ODM
It is another challenge for Galanz, finding of optimum combination of OEM. OBM and ODM.
Although OEM and ODM virtually kept Galanz immune to the risks of market forecasts and
low inventory turnover rate, it was important for the company to invest in OBM in order to
keep up with Liang Junior’s strategy of global brand awareness. As a result, Galanz increased
its ratio of OBM to OEM in between 1997 and 2003 from 1:9 to 3:7. However, increase in
OBM seemed to inadvertently affect its OEM business as its customers started to get offensive
of the competition. For domestic market, Galanz need to continue cost cutting strategy while
for global market, low-cost strategy might not be work. So for overseas market Galanz need to
continue OEM. So it is very difficult to find optimum combination of OEM, ODM and OBM
for Galanz future growth.
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Case# 1 September-2020
Porter’s Five Forces Analysis for Galanz
1. Threat of New Entrants – Galanz’s low cost strategy and investment on R&D and
favourable environment of low cost strategy in China created huge barrier to entry for
new entrants with similar product in market. It is favourable situation of Galanz
however new competitor may entry in market with differentiating product with
customer satisfaction because today’s customers are not only price oriented and
customers are giving more importance on branding of products. There is still threat of
new entrants in market.

2. Threat of Substitute – Microwave oven technology from its beginning phase to till
date has very little advancement and changed. In today’s fast paced world, people rely
on equipment like microwave oven to quickly heat up and prepare their meal. So, it
would be safe to say that there is little or no threat of substitution for this commodity.
However a substitute with better features and function may threat the present
microwave oven.

3. Bargaining Power of Buyers - As per Galanz competitor strategy, Galanz introduced

price war to destroy the confidence of competitor and it helped to get higher share in
market position. The price war has been last line of defense”. Galanz was offering
microwave oven at a price less than 300 RMB where as other competitors were offering
at 3000 RMB, this reduces the bargaining power of its buyers in OBM model in the
domestic market of China. And as they were focusing on low cost in OEM model of
their business, they were offering at a very cheap price that there buyers cum
competitors could not refuse.

4. Bargaining Power of Suppliers - Galanz has large number of supplier about 3000 all
around the world to supply the company with necessary resources at the required time.
Having a large number of suppliers reduces their bargaining power. But may difficult
to quality controls.

5. Industry Competition - Galanz was successful to destroy the confidence of its

competitors by entering in the price war and focusing on mass production and following
low cost strategy. And by the end of 2002 Galanz occupied 70% of market share which
led to decrease in competition within the Industry. However, low cost strategy may not
work for overseas market.

SWOT Analysis of Galanz

Based on information available in article a SWOT analysis has been carried. Strength,
weakness, opportunity and threats have listed as below.
STRENGTHS:- Large market shares both in domestic and global market, Mass production
capacity, Own R&D facility, Developed own magnetron, 90% vertically integrated, Closely
located suppliers are the strength of Galanz.
WEAKNESS:-Nascent marketing, sales & service infrastructure, demand forecasting &
production planning almost non-existent, inflexible production lines, R&D issues causing
delay in new launches.working with large number of suppliers for very small share of
outsourcing, poor brand awareness are weakness of Galanz.

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Case# 1 September-2020
OPPORTUNITIES: Build brand and improve margins, Sustain relationship with existing
OEM/OBM customers, Move to international markets are opportunities for growth of Galanz.
THREATS: Other low cost player can poach its domestic market, other brand players may
launch products with support from other Chinese low cost players ,other international brands
may poach market share, as focus shift to international market are threats for Galanz.

Recommendation
 Galanz is transforming from OEM/ODM to OBM. So cost leadership may not work
for OBM and Galanz need to shift from cost leadership to differentiation. Also it
need to invest on supply chain management and distribution network, service after
sales because OBM directly link with end customers. On other hand it is
recommended for joint venture with more establish brands which shall help in
overseas market.
 Galanz should develop its OBM business in the international market because it help
Galanz to get world recognized brand image. It help to penetrate in other countries
where Galanz is currently not present. It also help for quality control and cost
reduction. It is very difficult to copy the product by other competitor. OBM
business also gives higher returns and higher profit margin Yes, Galanz should
continue its OEM/ODM businesses because these businesses help Galanz to get
economies of scope. These businesses did not require Galanz to invest in brand
building thus high profit and price can be kept at lower side which shall give
competitive advantage. So Galanz should develop OBM business in international
market and continue its OEM and ODM business for higher profit, keep higher
market position.
 Mr. Liang should keep low cost strategy effective to hold higher market position.
For international and national market position, combination of OEM, OBM and
ODM should be applied for production. Low price and high quality shall give
competitive advantage. Also Mr. Liang should give importance on brand value
because foreign customer may give more value for brand than cost so company also
give importance on OEM of overseas market. Also Mr. Liang should give more
importance in customer relationship management for long business run. So
company need to invest more resources in customer relationship management.
These are the major things to be done by Mr. Liang for his company to greater
success. In my opinion, company should not change cost leadership strategy in
national market but for international market company should also give importance
on brand value.

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Case# 1 September-2020
 Company can use resource on research and development for innovating low cost
production methodology and also company can design differentiate products with
products of competitor which may help to gain competitive advantage in market
place.
 Galanz also need to invest on quality of labor rather that its’ cost, and decentralize
it’s management style in order to empower it’s employees with more decision
making capacity. It shall help for growth of OBM.

 Right products in the right quantity at the right time is basic principle of any
business. It need to practice to be relevant and successful in the future in any
business. For this, it needs to invest in process and capacity design in order to strike
a right balance between the market demand and it’s supply capacity. This can be
done with in-depth study and analysis of socio-economic and political conditions
and changes, technological breakthroughs and being aware of its own competitive
advantage and life-cycle of products. In other words, any business should do SWOT
analysis and make business decision as per SWOT analysis.
 Total Quality management (TQM) is a tools for building brand awareness in
customers so investment in TQM need to be done for future growth of business.
Galanz can look into differentiation and customization through focusing into
specific market segment in order to demand premium prices. This is only possible
through TQM concepts such as continuous improvement, employee empowerment
and using various TQM tools such as Pareto Principle, Fishbone Diagram and
Statistical Process Control.

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