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CMBG 6104 OPERATIONS MANAGEMENT

Operations Strategy at Galanz

UNIVERSITY MALAYA FACULTY OF BUSINESS & ACCOUNTANCY Graduate School of Business Masters in Business Administration (MBA)

CMGB 6104 OPERATIONS MANAGEMENT OPERATIONS STRATEGY AT GALANZ (Ivey Case: 9B10D005)
Prepared for DR. KANAGI KANAPATHY

Prepared by RANJIT KAUR (CGA110114 ) GOPI KERISHNAN (CGA120011) MUHAMMAD ALI (CGA090112) NATASHA ABDULLAH SANI (CGA110021) SULOCANA SUPPRAMANIAM (CGA090103)

23 November 2012 Tuesday class (6.30pm - 9.30pm)

CMBG 6104 OPERATIONS MANAGEMENT

Operations Strategy at Galanz

TABLE OF CONTENTS Page 1.0 Case Summary 2.0 Question 1 3.0 Question 2 4.0 Question 3 5.0 Question 4 6.0 Question 5 7.0 References 3 4 6 16 18 22 28

CMBG 6104 OPERATIONS MANAGEMENT

Operations Strategy at Galanz

OPERATIONS STRATEGY AT GALANZ

1.0

Case Overview

Galanz is a Chinese company founded in 1978 by Liang Quingde, its headquarters is located in Shunde Guandong and initially started with few number of workers producing feather product and rely on foreign exchange in exporting its product. Several factors including high competition and market changes, restriction of trading tariffs, institutional environmental changes as well as natural disaster influenced the firm to shift its activity to electrical market.

There were also other factors that played a major role in making Liang shift to microwave ovens production. First, although there were foreign competitors in the market, they do not know much about the environmental changes in Chinese market. Second, microwave price was high and unaffordable for the Chinese consumers. Third, rapid economic development in China opened up potential growth opportunities in this segment. Forth, changes in Chinese lifestyle and rising affordability. Fifth, ease of manufacturing microwave oven that as it was invented in the 50s. When Liang junior became major shareholder of Galanz he entered the microwave market successfully because he knew the Chinese market better than the competitors, so he took the initiative and started producing Galanz microwave by buying the blueprint of the microwave from Toshiba for USD 300,000 and finding group of engineers from Shanghai which helped him to start Galanz microwave manufacturer.

Galanz rapidly grew through its strategies and tactics starting from the stage of original equipment manufacturing (OEM) to original design manufacturing (ODM) and subsequently ventured into original brand manufacturing (OBM). Galanz utilized the resources well thus it gained the advantage to compete with lower price. Innovation and research and development played a major role in second and third stages of the companys expansion.

CMBG 6104 OPERATIONS MANAGEMENT

Operations Strategy at Galanz

2.0

Question 1: What were the order winners/order qualifiers for Galanz in the microwave oven business during the early stage of its development?

Both cheap labor and land were success factors for Galanz to compete within and outside China. The competitive advantage of low price strategy made the microwave price affordable for an average household. Two tactics were applied by Galanz in order to achieve cost leadership strategy. First, by applying OEM agreement which produce parts like transformer for another company with very low price (cost price) utilizing the advantage of cheap labor and land (refer Table 1).

Table 1: Effective low cost production strategy at Galanz In Europe Cost of Producing USD 30 By Galanz USD 8 In Japan USD 20 By Galanz USD 5

Transformer per unit Saving per unit USD 22 USD 15

This tactic attracted firms to collaborate with Galanz due to the huge saving in production cost. On the other hand, the foreign firms (business partners) set their assembly technology and production lines to Galanz and give the right to Galanz to use the production line for itself after fulfilling the companys need. The agreement also includes providing Galanz the technology, training, expertise body and parts customization which benefited the company in short and long term. As a result of this tactic, Galanz has fully utilized its production. Second tactic is launching price war using price cutting mechanism base on average unit cost along its growth curve and as a result Galanz gained 70% of the domestic market. Another factor that helped Galanz to enter microwave production is the Company was given the advantage of obtaining the exporting quota as well as access to public funds. Liang was able to register the firm as collective enterprise owned by the foreign Trade Department of Guangdong province and the Shunde government and since the stable institutional environment helped Galanz to grow and start manufacturing in microwave industry.

CMBG 6104 OPERATIONS MANAGEMENT

Operations Strategy at Galanz

3.0

Question 2: Rank the importance of Galanzs operations objectives of cost, quality, flexibility, delivery, service and innovations. How did the importance change over the years?

Introduction According to J. Heizer and B. Render (2011), understanding a firm competitive advantage provides opportunity to grow. There are three (3) competitive advantages discuss by J. Heizer and B. Render (2011) as following:

Differentiation

Distinguishing the offerings of the organisations in a way that the customer perceives as adding value

Low cost leadership Response

Achieving maximum value as perceived by customers

A set of values related to rapid, flexible, and reliable performances

J. Heizer and B. Render (2011), has also defined the market to four (4) operations management product cycle as following:

CMBG 6104 OPERATIONS MANAGEMENT

Operations Strategy at Galanz

The concept of competitive advantage is similar with Galanzs operations objectives concept because Galanz used their various operations objective to seize opportunity and to continue to grow the business. The importance of their operations objectives at various stages of business cycles was according to their business objectives and priorities, competitive advantage, business environment, customers needs and opportunity available that they could seize.

In the early years, the common operations objectives for most of the companies including Galanz would be cost competitiveness and pricing war. Cost competitiveness i.e. cost leadership; operations objective was the main factors that made Galanz the market leader and wipe-out their competitors during the early years. This strategy was fruitful because they continued to enjoy the increasing market share in the Chinese domestic market and overseas over the time period.

Subsequently, Galanz expanded their business through various Original Equipment Manufacturing (OEM) agreements with customers and suppliers, Original Brand Manufacturing (OBM) and Original Design Manufacturing (ODM), thus, making them flexible in their business strategies.

Product and process reliability are critical as delivery and proper forecasting was important due to their massive expansions of customer base at various locations, which includes overseas market and to fulfill OEM obligations; and quality became increasingly important when Galanz venture and penetrate the overseas market.

Due the shortages of the main component of the microwave oven i.e. magnetron, Galanz transform to ODM as well. The supply crisis has made them to develop their own magnetron and venture actively into Research & Development (R&D). After seeing much success in their R&D, Galanz decided to enhance their R&D capabilities and product innovation to remain competitive. Their product innovation was not only restricted to microwave functionality but venturing into other products as well.

CMBG 6104 OPERATIONS MANAGEMENT

Operations Strategy at Galanz

We have segregated the evolvement of Galanz business to three (3) main segments as following: 90s The Start-up & Early Success 2000s- The Drive for Self-Sufficiency and Branding Future of the Company

Stage 1& 2 Stage 3 Stage 4

: : :

Introduction & Growth Maturity Management of Decline

Following describes how the operations objectives importance changed over the years for Galanz: Stage 1&2: During the 90s The Start-up & Early Success The main objective of Galanz when he started the microwave oven business was to deliver a low cost microwave which can be afforded by most of the Chinese households. During the 90s, microwave ovens were mostly imported and sold at relatively high prices because it was mainly catered for high end market. Liang Senior has identified that the microwave oven as a product with great potential that could ease the house chore of a regular Chinese household.

During the initial implementation stage, Galanz did not have the competitive edge in production technology because they did not have the microwave oven technology but only over supply of cheap labour and land. Thus, Liang Senior import equipment and technology from overseas and purchased the microwave open blue print for USD$300,000 from Toshiba who was then the market leader for microwave oven. He then found local professional engineers who had the experience and knowledge in microwave technologies to help him.

From 1996, Galanz adopted a low price strategy by repeatedly implementing series of price cutting strategies. The objective was to obtain and sustain cost leadership strategy to be the market leader, increase market share and remove competition. Cost leadership was the most important operational objective during this period.

CMBG 6104 OPERATIONS MANAGEMENT

Operations Strategy at Galanz

During this period as well, Galanz was also able to achieve operational productivities and economies of scale because they produce microwave oven in a mass volume which catered for basic household use.

To further achieve low cost production, Galanz has signed OEM contracts with microwave customers such as Fillony, French customers and others subsequently with the same business model concept. The business model was to supply microwave oven at cost and the customers allow Galanz to use the excess production facility to run their oven microwave oven production line.

Galanz aggressive pricing strategy has led many competitors withdraw from the market because it reaches a point where the price offered by Galanz was lower than the Galanz average product cost per unit.

Second important element of operational objective during this period is to ensure timely delivery. In 1997, Galanz occupied 47.6% of the domestic market with sales reaching 1.25 million units, which were five times sales in 1996. By the end of 2002, its domestic sales were 4 million units, occupying 70% of the market share. Thus, delivery of products was also another critical element to ensure the products are always available in the Chinese domestic market.

During this period, Galanz was also having issues with the supply of microwave oven key component i.e. magnetron. Their suppliers such as General Electric, Toshiba and others, have reduced the magnetron supplies because Galanz was becoming their main competitor. Thus, Liang Senior embarked into research and development (R&D) activities to develop their own magnetron to remain cost competitive and ensure continuous supply.

During this period, other elements such as innovation, quality, flexibility, services and innovation were not important because the objective was to remain and sustain cost leadership and capture the market share. Galanz could implement this strategy easily during this period because microwave open product was new and the imported once was catered for high end market and expensive.
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Operations Strategy at Galanz

Innovation was not a priority for this period but it was important as Liang Senior has already embarked R&D activities especially for the supply of microwave oven key component i.e. magnetron. Thus, we rank innovation as the 3rd operational objectives importance during this period. Product design and development will be critical for future of the Company.

We rank flexibility at 4th as Galanz was embarking in OEM contracts. We rank services and quality at 5th and 6th, the least importance because during this period, there was no priority and attention towards services and the products were low quality with less variety. Stage 3: During the 2000s The Drive for Self-Sufficiency and Branding As mentioned above, the cost leadership strategy adopted by Galanz has made them market leader within a short a period of time. However, depending on low cost only could not sustain the business. During this period, Galanz must ensure products are accurately delivered to the customers timely and products needs to be at a certain acceptable standard to remain competitive to avoid being pushed from the market. At this point, Galanz made a decision to become World Brand from World Factory. In view of the market competitiveness, innovation was also an important element during this period.

During this period, Galanz business has grew so much that they were already having production planning issues. Production planning is crucial because Galanz has been strengthening its sales network in all parts of the world including China during the recent years. During this period, Galanz were developing a full range of low to high end products with more complicated configurations, thus the Company needs to be able to forecast accurately to produce the right products timely. Galanz was also actively involved in OEM and Original Brand Manufacturing (OBM) business which requires different perspective of production planning. Thus, delivery will be the most important operations strategy during this period as accuracy of the forecast and responsiveness plays key roles in companys business. In addition, they have also expanded their business to the overseas market and have acquired strategic partnership with multinational companies such as K-Mart and Wall-Mart for OEM deals.

CMBG 6104 OPERATIONS MANAGEMENT

Operations Strategy at Galanz

During the early years, Galanz was known as producing low quality products. Galanz realized that to continue to sustain long in the business, be a reputable company and penetrate into the overseas market, they must produce products branded products and good quality. If not, they will be gobbled by the larger multinational companies. Thus, they continued their effort to increase quality and also integrate its supply chain by manufacturing more of its components. Eventually, Galanz stayed on top in the domestic microwave oven markets and its quality earned acclaim among international players. During this period also, Galanz began to offer Galanz branded microwave oven to K-Mart and Wall Mart stores. In our view, during this period quality is equally as important as delivery during this period. Thus, delivery and quality is ranked 1st during this period. Galanz also wanted to be World Brand during this time.

During this period, Galanz has ventured into various products such as OEM, OBM and ODM that made them flexible. During this period, they have also expanded their business to the overseas market and have acquired strategic partnership with multinational companies such as KMart and Wall-Mart for OEM deals. OBM and OEM product versions were sold in the US, European, South America and African market. Ability to be flexible is the 3rd most important operations objective.

Galanz realize that they just cannot penetrate into overseas business and manage the Chinese domestic market using the old fashion. Galanz thus has opened 52 sales offices across China and branches were set up in major exporting countries to synchronise business all over the countries and ensure proper after-sales support. As Galanz continue to launch their business in overseas market, after sales service support become crucial and Galanz continue to put more priority in this area. They emphasize on customer service capabilities to ensure the customer services staff are appropriately trained in various aspects such as repair, handling complaints, warranty claims and others. Thus, Services have also become the 4th most important operations strategy. Cost, became the 5th important operations objective. Cost during this this period was not as important as the other because they have already captured their market share and what is important to Galanz was to ensure continuous sustainability.

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Operations Strategy at Galanz

During this period also, Galanz realize that importance of R&D activities set up R&D microwave oven in overseas to improvise and showcase Galanz branded microwave oven. Innovation was slowly picking up during this period and became apparent during the later period of the year. During this period, innovation was also becoming an important factor of Galanz operations objective. During this period, Galanz capability of producing microwave oven at low cost, combined with enhanced R&D ability, has resulted in Galanz gaining more than 50% of the market share ovens in 2007. Galanz has successfully competed with major players such as Panasonic, Toshiba and LG. Even though, innovation is a critical component of the operations objective but it is ranked last because the innovation developed rapidly during later stage of period.

Stage 4: Future of the Company For the future of the Company, Liang realized that he had to address strategic issues to continue to be the market leader. Some of the issues include how Galanz should align the combination of OEM, OBM and ODM business segmentation, should he continue to be pervasive with low-cost strategy, should be focus R&D, focus on production and marketing and many more. His decision and action plan established to manage these issues is critical and he must assess the long term impact to the Company as well.

In our view and based on Galanz development, during this period, innovation is the most important operations objective for the future. As discuss above, by 2007, Galanz has gained more than 50% of the market share ovens due to enhanced R&D ability. Galanz has successfully competed with major players such as Panasonic, Toshiba and LG.

The R&D activities have been evolving during the 90s and 2000s even though; only that priorities were not given during the respective periods. In 1995, Galanz established the Research Insttute of Household Electrical Appliances in the Chinese headquarters and in 1997 established the Galanz American Research Center in the United States. Since 1997, Galanz had collaborated with South China of University of Technology, the Chinese Academy of Science and Guangdong to develop its own magnetrons. Subsequently, the team has continually enhanced the R&D capabilities, new product innovations and new technologies; such as, improved existing power
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supply specifications, express cooking, intelligent LCD menu and many more. Looking at the success innovation activities, investment in R&D represented more than 3% of annual revenue.

Innovation will continue to be the most important operations objective moving forward because of Galanz intention to be able to compete in various markets, match competitors products and achievement that they have gained due to innovation. Having a good pricing strategy is not good enough if the product does not meet customers needs in this new area and was not able to compete with other products that also provide similar functions or benefits to the customers. Ability to innovate is crucial for greater success in the dynamic global market place.

The 2nd operational objective is flexible. During the 2000s, Galanz has flexible business which includes OEM, OBM and ODM. However, to remain relevant, Galanz must be able to adapt and response to the market timely. Flexibility has also been demonstrated via the changes made to their management structure to accommodate their evolving business structure and strategy. After innovation and flexibility, quality will be the 3rd most important operations objective because of Galanz reputation in the market. Galanz over the years has established themselves from low quality manufacturer to high end quality manufacturer with the products being sold at renowned markets in the overseas market. The 4th and 5th operations objective would be delivery and services. The delivery and services must be accurate, timely and convenient for customers to request for assistance should there be any issues with the products. Delivery will always be more important the services because customers will not buy your product if your delivery system is poor, and thereafter, customers support services will not exist. Delivery and services ranked 4th and 5th because Galanz has reached some stability and competitive advantage during the 2000s.

Final operations objective are focus towards cost / pricing. During the early years, cost leadership was critical, however, over the years, innovation and quality has become more important because of Galanz reputation in the market. In addition, Galanz over the years has dominated the market share in the Chinese domestic market and overseas market as discuss above during the 90s and 2000s, thus cost and pricing may not be the most critical priority.
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Operations Strategy at Galanz

Galanz has been increasing their focus to enhance their products and improved quality, delivery and services. In addition, innovation and improvement to the supply chain management would benefit cost leadership strategy.

Summary of the Operations Objective Importance Following table rank the importance of Galanzs operations objectives at various stages.

Based on the above table, Galanzs operations objective started from being a Cost Leadership (Stage 1) to Response (Stage 2) to Differentiation (Stage 3).

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Operations Strategy at Galanz

4.0

Question 3: What are Galanzs competitive and operations strategies, and how does its operations strategy support its competitive strategy?

Galanz ventured into a business where the competition is tough. Galanz not only compete among the local products but also with international products such as LG, Panasonic and Samsung. Thus, Galanz has to focus on a competitive strategy to remain relevant in its market.

In China, the products are often imported and costly for its people. It is from here that Galanz came up with a business plan to venture into producing local microwave oven and sell it at affordable price. Galanz has focus on high volume and low variety strategy by producing a similar blueprint of microwave oven made affordable to its customers in China. Galanz uses the market advantage in understanding the market. In business, it is vital to be able to learn about the market and the opportunity. By understanding the market, Galanz was able to offer better products hence, better growth opportunities and to remain relevant in its market.

Furthermore, Galanz has also has successfully penetrate its market by having its own technology and able to reduce the total cost of manufacturing. Implementing its strategic international alliance, Galanz has integrated its production equipment and technology as an advantage that enabled the company to be the major player in the market. Its strategic advantage in creating a niche in the market as well as having cost leadership has set Galanz at the top of its market.

This has been proved during 1996 where Galanz had implemented a low-price strategy in the production capacity expansion. It has also enhanced its sales volume by cutting its price and reducing its operation cost. Furthermore, the company is known for making low price high margin production. The manufacturing and labor cost has lower cost than average. Galanz applied supply- chain strategy whereby the company obtains partnering relationship with international supplier and provide cheaper production offered by Galanz. This mechanism implemented by Galanz in their success story is using vertical integration in purchasing. Vertical integration refers to the ability to produce goods previously purchased or actually buying a supplier or a distributor. Many of their western counterparts began to outsource the production to them due to low price and also high volume production. Efficiency plays
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important role when Galanz expanded its production capacity and maximize its operation hours to 24hours a day,365 days a year hence, it boost Galanz production capacity and improve its production scale.

Besides operation strategies that have been part of Galanz success story, its management specifically under the leadership of Liang Senior and Liang Senior, both have been very particular in its vision and also concern on strategic relationship with its allies and suppliers. In the globalization age, Galanz have envisaged potential market within China and also outside its country. As a result, Galanz has become the dominant player in its industry. It has successfully transformed its direction to become as known brand next to its competitors such as LG, Panasonic and Samsung.

Galanz has designed and developed its own magnetrons and switch its business directions from Made in China to Created in China. This is part of innovation that Galanz being proud of. Innovation lead to being different in the industry and with the innovation, Galanz has advanced its business globally. The company has increased andenhance its internal R&D structure to facilitate new product design and development. With its new technology structure, Galanz has focus on producing new features and technologies in their products.

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5.0

Question 4: Should Galanz develop its OBM business in the International market. Should Galanz continue its OEM and ODM businesses?

Comparison of OEM & ODM v. OBM business

OEM & ODM Development Based on manufacturing rules and product specification provided by the client

OBM Based on own products technical and design specifications. Specifications are done by the R&D department. R&D capacity is vital. Design is solely based on internal R&D team or sometimes acquired from another player. Target market and scope is assessed before design is conducted.

Design

Marketing

ODM design is provided by client internal R&D team. The design is patented. The Intellectual Property is the clients competitive advantage. OEM is also based on the clients specifications. The OEM and ODM client conduct their on sales forecasting, cost control and production planning. Branding is done by their own marketing department. Clients formulate marketing strategies based their target market. ODM and OEM producer does not engage in marketing and brand promotion

Distribution

Galanz will need to create own brand to market the product. Galanz also has to develop sales forecasting and production planning capability to ensure that supply and demand are matched. The company will need to strengthen its brand image and awareness to position and compete against other players. Substantial capital will need to be pumped in initially to capture the market and woo customers. Clients have an established Distribution will be based on distribution network in which Galanzs own distribution the products are distributed network or through through their own chain or partnerships with other through value-added player. distributors.
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Customer Service

Clients have their own after sales support centres.

Galanz will need to establish its own cost efficient sales network or outsourced this function. After sales service is crucial to promote brand loyalty. Production planning and sales forecasting is done internally. Products need to have a distinctive element to differentiate from the rest of the products in the market hence products are highly varied with different specifications.

Production

OEM and ODM producer will produce product on a large scale basis for a few clients depending on its capacity. OEM and ODM clients reduce manufacturing costs due to low cost environment (low labour cost) of the producer and also the economies of scale achieved by this producers.

Expand its OBM business. Galanz should develop and expand its OBM business in the international market as returns higher profit margins. The OBM business could also act as a way to diversify its product offerings. Diversification is important to manage risks and exploit opportunities.

Risks that are associated with the OBM business are: Difficulties in forecasting demand and supply High variety designs and models with lower volume production runs High overheads Risks of being labeled as a competitor to existing OEM and ODM customers

Galanz has transformed into the largest microwave manufacturer in the world, with strong commitment to R&D, expertise in manufacturing, logistics and quality control, and brand recognition in the international market. These strengths had turned into Galanzs competitive advantage to further help grow and develop the OBM market. Increased investments in innovation and branding could help overcome the risks associated with the OBM business and ensure the competitive advantage is fortified.
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Through innovation, efficiency and profitability could be gradually increased. The company should also ensure that the ratio of OBM to OEM/ODM business is constantly in check to make sure that both businesses exists in harmony and without cannibalizing the current OEM and ODM customers Continue developing its OEM and ODM business as well. Galanz should continue the OEM/ODM business as the company has gained vast experience and increased efficiency in this segment. The OEM/ODM business also provides an attractive low risk environment for the company. Galanz do not need to manage supply and demand forecasting as it is done by the customers. Galanzs advantage of being able to provide low cost overheads will continue to position the company to be an industry leader in this high volume and low variety segment.

Global business environment is ever changing. The OEM/ODM customers will be constantly on the look-out for other countries where the costs are much cheaper or even totally withdraw from the microwave oven business and venture into other more profitable businesses. As such, it is vital for Galanz to be involved in both the OEM/ODM and OBM business to cushion any impact on changes in the business environment and be increase agility.

The Electric and Electronics is scale-intensive industry, OEM/ODM businesses are crucial to fully utilize Galanzs existing production capacity. ODM adds value with its patented intellectual property which can be act as additional competitive advantage against other players in the market.

Galanz should build upon its advantage of low cost overheads through scale efficiency to solidify its relationship with its OEM customers. At the same time, the company should continue to grow its ODM business to stay ahead of the curve and provide additional offering to customers and also consolidate its OEM/ODM business. The OBM business could provide an additional avenue to use and enhance its present expertise to tap into potential opportunities in the emerging markets.

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6.0

Question 5: 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 advantages in the marketplace?

In the new era of global operations, collaboration and partnership can help broaden Galanzs business and drive it to greater success. Galanz needs an even better understanding of differences in culture and of the way business is handled in different countries. Improved understanding and customized products can help in meeting cultural needs in foreign markets. Understanding market requirement can lead to diversification of customer base and smooth the business cycle. Galanz may use different strategy and product line in different countries by segregating the developed and developing countries market segment. Based on our research, Galanz has actually started tackling this issue. A recent check showed that Galanz is supported by global strategic partners and 1000 overseas distributors. Galanz sells its products to nearly 200 countries and regions in the world and its sales and service network spreads over the world.

Also, in the emerging and competitive marketplace, Galanz could not depend on a single product (e.g. microwave oven) business. Galanz need to diversify its product options to gain market share. Realizing the importance of this, we found out that since early 2000s, Galanz has actually ventured into producing other product line like air conditioner, household appliances and relevant industries. In fact, household appliances is the third pillar industry of Galanz after microwave oven and air conditioners. Following is Galanzs mission and strategy:a) Mission- Self realization. Self is generalized and includes the enterprises, departments, all processes and individuals. b) Strategy- Grow stronger, more professional and more diversified rapidly in fields involved and builds No. 1 enterprise in the world.

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We feel that Galanz has a good mission and strategy in place. On top of that, Liang should introduce an unique strategy in production and global perspective in order to lead his company to greater success. Apart from Cost leadership strategy, Differentiation & Response strategy should also be incorporated to further catapult the company. Strategic approaches to Galanzs competitive advantage:-

a) Cost leadership In respect with this, cost leadership strategy remains a good strategy because the savings can be invested in improved products and retraining of existing workers. A low cost strategy does not imply low value or low quality. This has been greatly portrayed by Galanz in achieving outstanding achievement in their business. Looking at the current state of their business, Galanz can still use this strategy for their OEM & ODM business to cater for the local demand.

b) Differentiation At the same time, differentiation by focus on R&D and innovation can drive Galanz to greater heights. For example, Galanz can invent on electricity saving products. New technologies, new design, new manufacturing processes & commitment to customers can help in Galanzs success. Galanz, in recent years, has invested over RMB1billion into the R&D in total, and the investment on technology is always more than 3% of the annual turnover. In 1995 and 1997, Galanz Group established the Research Institute of Household Electrical Appliance and Galanz American Research Center in the headquarters of China and in America respectively. Over these years, Galanz has gained more than 600 R&D achievements, e.g. sphere microwave technology, microwave enhanced compensation technology, multiplex technologies of microwave leakage prevention, light-wave technology and so on.

Besides, Galanz can differentiate the company from the competitors by providing a better service to customers. In regards to this, Galanz has taken a good effort in setting up sales office and branches where they are doing business. This will help them stay closer and connected with the customer. Galanz could also adopt internet technology in enhancing their business to virtual customer. This can help them increase their market share at a global level. At the same time, this
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will provide a platform to communicate with customers regarding product enquiry, warranty, service and so on.

c) Response Galanz should be more flexible in competing in response to the market demand. They have to provide a more reliable and quick response in terms of product development and delivery. In respect with this, Galanz is lack in terms of its ability to match changes in a marketplace where design innovations and volume fluctuates substantially especially in the OBM business. They have to pay more attention in this aspect if they want to build a sustainable competitive advantage. At the same time, Galanz should not compromise on the speed in product development, speed in production and speed in delivering. Setting priorities and utilizing its resources and capabilities to gain competitive advantages in the marketplace

Analysis and understanding of both the external and internal factors can help Galanz find the optimum use of its resources. SWOT analysis can help set priorities and utilize its resources and capabilities to gain competitive advantages in the marketplace. A SWOT analysis is a formal review of the internal Strengths and Weakness and the external Opportunity and Threats. With SWOT analysis, Galanz can position itself, through its strategy, to further develop its competitive advantage.

Strengths Low cost producer

Weakness Unpopular brand Limited production capacity Less response time

Opportunities Market developments Innovation & technology development Global influences

Threats Competitive market Sustaining internal capabilities & low cost player Innovation in technology & idea
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Because no firm does everything exceptionally well, a successful strategy requires determining the firms critical success factors and core competencies. Key success factors (KSF) are those activities that are necessary for a firm to achieve its goals. In this case, Galanz KSF is their low cost strategy. On the other hand, low labor cost and low land cost are the core competencies that allow Galanz to develop a competitive advantage. Galanz should allocate its resources and capability to solidify its strengths and opportunities and at the same time address its weaknesses and threats.

Strategic Options It is now time for Galanz to pursuit in international dimension. The best strategy it can use is the Transnational Strategy where this strategy has high local responsiveness and high cost advantage. This strategy exploits the economies of scale and learning, as well as pressure for responsiveness, by recognizing that core competence does not reside in just the home country but can exist anywhere in the organization. Transnational describes a condition in which material, people, and ideas cross national boundaries. Through this, Galanz will have the potential to pursue all three operations strategies (i.e., differentiation, low cost, and response).

In order to explore this opportunity, Galanz must embark upon its weaknesses like unpopular brand. An aggressive branding and advertisement work need to be carried out before Galanz could capture global market. At the same time, Galanz must ensure a smooth supply chain management in the organization. Based on the case study, Galanz has used Vertical Integration strategy in its supply chain management. This is where Galanz vertically integrate its supply chain by manufacturing about 90% of its components. But, due to capacity constraint, Galanz has outsouced part of the production of Galanzs designed and branded magnetrons to a Japanese manufacturer. In order to ensure continuity in supplies, Galanz can adopt a joint venture or keiretsu networks with its suppliers.

However, Galanz must continuously monitor and control the outsourced vendor so that there will be no drop in quality of the product. Also, Galanz must provide support, knowledge and training to the vendor to ensure the sufficient understanding about the product. Most importantly, Galanz
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Operations Strategy at Galanz

must ensure that outsourcing does not increase the cost and affect its status as low cost leader. But, the positive aspect is that Galanz can gain outside expertise (Japan is well-known of its technology advancement). At the same time, Galanz can focus more on its operations and core competencies by introducing new products and services. We believe through some of the proposed strategy, Galanz can achieve greater success persisting to the business concept of Greatness originates from creativity and the business tenet of Working hard to move customers, Galanz is speeding its step towards a global brand and a world-class enterprise.

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CMBG 6104 OPERATIONS MANAGEMENT

Operations Strategy at Galanz

7.0 References 1. Heizer, J and Render, B (2011), Operations Management, 10th Edition, Pearson Education Inc. : New Jersey 2. http://www.referenceforbusiness.com/management/Ob-Or/Order-Winning-and-OrderQualifying-Criteria.html#b 3. http://karlknapp.com/resources/wikisummaries/supplychain_mgt/order_winners_qualifier s.html 4. http://www.galanz.com/ 5. http://www.youtube.com/watch?v=eWg3VDofbhY

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