Galanz:

A Legend in Chinas Home

Appliances Industry

12/2014-5700
This case was written by Weiru Chen, Visiting Professor of Strategy, Kuangzhen Wu, Research Associate, both at
INSEAD, and Lily Gu, Consultant at Accenture. It is intended to be used as a basis for class discussion rather than to
illustrate either effective or ineffective handling of an administrative situation.
Additional material about INSEAD case studies (e.g., videos, spreadsheets, links) can be accessed at
cases.insead.edu.
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Introduction
No scale no economies! No matter in the industry of microwave ovens or air-
conditioners, we (Galanz) have to position ourselves as an enterprise with scale,
targeting at becoming the best and the largest in the industry.

Chiuyin Leung, CEO and Vice Chairman of Galanz1

Galanz (Guangdong Galanz Group Co., Ltd) (Chinese: ; pinyin: Glnsh) is one of the
worlds leading manufacturers and suppliers of microwave ovens. In 2007, it had a total
output of over 25 million units2 and exports worth US$1 billion.3 It was the 13th consecutive
year that Galanz had been number one in Chinas microwave oven market, as well as number
one in export sales volume and foreign exchange earnings for 10 years successively.4

Entering the microwave oven industry in 1992, Galanz grew from a township enterprise to
become the number one brand in China in just three years.5 And by 1998, Galanz had become
the global number one in microwave oven production,6 just six years after its entry, and have
managed to keep this title till 20107. By 2008, Galanz had grown into a huge conglomerate
with 43,000 employees, 13 subsidiaries, 52 sales offices across China and branches in Hong
Kong, Seoul and North America. Its products were sold in 160 countries and regions around
the world. What fuelled Galanzs meteoric rise to become by 2008 the worlds largest
microwave oven manufacturing enterprise number one in both production and sales?8

In China, Galanz was known as the price butcher due to its aggressive price-cutting
strategy. From 1996 to 2003, it initiated nine rounds of price cutting in Chinas microwave
oven market, driving down the selling price of microwave oven from over CNY3,000 per
unit to CNY300. 9 What enabled Galanz to be so aggressive in cutting price? Can this
strategy be sustained?

In 2001, Galanz announced its entry into the air-conditioner market. Could it replicate its
successful growth model in this category? Would it ultimately claim victory in other
categories of home appliances, such as refrigerators, rice cookers and washing machines,

1 Leung Chiuyin: Fast! Fast! Fast! Sept 2, 2008, available from:

http://www.galanz.com.cn/newInfo.aspx?CateID=165&NewID=41972, accessed on Feb 6, 2009.
2 China Microwave Oven Market Survey and Predication Analysis Report 2007-2010, available from
www.9721.cn.
3 Galanz: pursue the target of a hundred-year enterprise and a world-class brand, June 24, 2008, available
from: http://www.galanz.com/NewsShow.aspx?ColId=102&SecId=103&id=363, accessed on Feb 6, 2009.
4 Ibid.
5 Galanz Milestones, http://www.galanz.com.cn/About.aspx?CateID=24, accessed on Feb 25, 2009.
6 Ge, Gloria L. and Ding, Daniel Z., A Strategic Analysis of Surging Chinese Manufacturers: The Case of
Galanz, Asia Pacific Journal of Management (2008) 25:667-683, Nov 10, 2007.
7 Listen closely to the market of home appliancesGalanz is determined to become the leader, May 28,
2010, EMIS datasource.
8 Galanz company profile, available from http://www.galanz.com/about.shtml, accessed on Feb 7, 2009.
Liang, Qingde: A story of a self-made man becoming the king in global microwave oven industry, available
from http://www.smelz.gov.cn/news/164639.htm, accessed on Feb 25, 2009.
9 Yin, Yuan and Xiao, Xingji, (Uncle Des Wisdom), Enterprise Management Publishing
House, October 2009.

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making it possible to achieve the dream of becoming the global number one in home
appliances?

The Birth and Growth of Galanz

Galanz was founded in 1978 as Guizhou Down Products Factory and was officially renamed
Galanz Enterprise Group in 1992, with annual sales of down products reaching CNY30
million (US$5.54 million at the exchange rate of US$1 = CNY5.51 in 1992) and total assets
reaching CNY1.8 billion (US$326.7 million). 10 Though profitable at that time, the top
management of Galanz realised that the down products industry had limited growth potential
and started looking for a more profitable industry with greater potential.

After a year of extensive study, Galanz finally chose the home appliances industry, with an
initial focus on microwave oven production. In September 1992, Galanz imported its first
microwave oven assembly line and related equipment from Toshiba Japan and started its own
production. In 1993, its first batch of 10,000 microwave ovens was produced; three years later
in 1995, its sales volume in China reached 250,000 units, becoming the number one in China
with a 25.1% market share in brand sales. By December 1998, Galanzs annual output of
microwave ovens had reached 4 million units, making it the worlds single largest microwave
oven manufacturer with a 15% global market share in production.11 By 2000, it enjoyed a
30% share of global production 12 and in 2002 its global share reached a record-breaking
40%.13 In 2004, Galanzs annual sales volume of microwave ovens reached 18 million units,
including 13 million exported units.14

Galanzs progress in the microwave oven industry can be roughly divided into three stages,
namely, initial take-off, expanding/defending, and further advances/diversification. An initial
round of price-cuts in 1996 was the first turning point and the entry into the air-conditioner
market in 2001 was the second. Evolving from a township enterprise to a global company,
Galanz experienced various challenges and difficult times, but the founder (and now
chairman) Mr Qingde Liang, managed to survive these thanks to his management concept of
a big family which motivated and inspired employees. Indeed Galanzs success is widely
attributed to his moral leadership, courage, wisdom and vision. Although he passed the CEO
position to his son, Mr Chiuyin Leung, his spirit continued to influence Galanzs
development.

10 Ge, Gloria L. and Ding, Daniel Z., A Strategic Analysis of Surging Chinese Manufacturers: the Case of
Galanz, Asia Pacific Journal of Management (2008) 25:667-683.
11 30 big evens in Galanzs 30 years of history, available from http://www.galanz.com.cn/newInfo.aspx?
CateID=228&NewID=42119, accessed from Feb 15, 2009.
12 Galanz Microwave Oven Enjoys 30% Global Market Share, Peoples Daily, Dec 08, 2000, available from
http://english.peopledaily.com.cn/english/200012/08/eng20001208_57274.html.
13 Galanz Milestones, http://www.galanz.com.cn/About.aspx?CateID=24, accessed on Feb 25, 2009.
14 Galanz Group Co. Ltd. of Guangdong, available from http://www.cgfair.com/en/mycgfair/?show_com_id=
74042&page_id=6, accessed on Feb 25, 2009.

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Stage I: Initial Take-off (1992-1996)

In 1992, Galanz imported a microwave production line and technologies from Toshiba in
Japan, at the time the world leader in microwave production equipment and technology.15
Galanzs development strategy in the early days focused on microwave production based on
an OEM (original equipment manufacturer) model. By concentrating its resources on efficient
manufacturing without taking care of branding and retailing Galanz quickly earned a
reputation as the specialist in microwave oven manufacturing.16 It managed to operate three
shifts per day, almost non-stop throughout the year, greatly increasing the equipment
utilisation rate. This, in addition to the cheap cost of labour in Shunde, in Guangdong
province in southeast China and a low cost of procurement due to its easy access to Hong
Kong for exporting, meant that Galanzs competitive advantage in production cost was hard to
match by its international competitors.17 Yaochang Yu, vice CEO of Galanz, explained why
western firms could not match Galanzs low production cost:

In France, workers usually work for 6 hours a day. Previously they worked for 5
days a week and now only 4 days a week. Thus, the total weekly working hours
per worker in France is 24 hours. But in Galanz, the same production line is
working 24 hours non-stop. That means our one days production is equal to one
weeks production in France, let alone the drastic difference in salary between the
two countries.18

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 the
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 low cost.

OEM provides opportunities for firms from emerging economies to attain new
resources and capabilities by participating in the global value chain.19

In the early 1990s, OEM seemed to be the only viable solution for companies like Galanz
without the capacity to do their own R&D and develop multi-national sales networks, despite
competitive advantages in low-cost production. Though OEM is low value-added and has
smaller profit margins, it can substantially reduce the risk of underutilization of high fixed-
cost investments for new entrants in the manufacturing industry, speed up the pace of
absorbing advanced technologies, and fully utilize the existing sales channels owned by those
multinational companies. Indeed, the OEM strategy successfully helped Galanz achieve a high
production capability within a short time (see Exhibit 1) its capacity doubled or tripled
annually.

15 Ge, Gloria L. and Ding, Daniel Z., A Strategic Analysis of Surging Chinese Manufacturers: the Case of
Galanz, Asia Pacific Journal of Management (2008) 25:667-683.
16 Lang, Larry, (Defeat of Blue Ocean Strategy), the Eastern Publishing Co. Ltd., Jan 2008.
17 Ge, Gloria L. and Ding, Daniel Z., A Strategic Analysis of Surging Chinese Manufacturers: the Case of
Galanz, Asia Pacific Journal of Management (2008) 25:667-683
18 Zuo, Ann, From Competition to Integration, World Executive Digest, Vol. 2, 2001.
19 Ge, Gloria L. and Ding, Daniel Z., A Strategic Analysis of Surging Chinese Manufacturers: the Case of
Galanz, Asia Pacific Journal of Management (2008) 25:667-683.

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In Chinas microwave oven market, Galanz rapidly grew, from the first trial production in
1993 to the number one position with a 25.1% market share in 1995, rising to 34.5% in
1996.20 Galanzs take-off in China benefited from rising demand among urban households
with increasing disposable income, which grew year on year in the early 1990s. Galanz picked
the perfect time to enter the microwave oven manufacturing industry, coinciding with the
take-off of the Chinese economy. Chinas per capita income, both urban and rural, had risen
dramatically since 1990. From 1992-1996, per capita annual disposable income of urban
households increased on average by over 23%, while per capita net income among rural
household increased by 18.6% annually (see Exhibit 2). The urban population grew sharply
from 300 million people in 1990 to 374 million people in 1996 (see Exhibit 3).21 Per capita
annual expenditure on household goods and articles by urban households more than doubled
from CNY108.45 in 1990 to CNY263.36 in 1995 (see Exhibit 4). This provided a strong
consumer base for Galanz to take off in the microwave oven market in China.

Stage II: Expanding and Defending (1996-2001)

The rapid growth of Chinas microwave oven market in the early 1990s attracted attention
from both domestic and international competitors. As a result, the number of microwave oven
manufacturers in China quickly rose to almost 100 in 1996.22 With minimal barriers to entry,
Galanz now had to secure its cost leadership position in an increasingly competitive field.

Price War to Drive Competitors Out

In 1996, Galanz slashed the price of its products by 40% in China in response to an initial
price reduction in microwave ovens by its domestic competitor Snowflake. Beyond all
expectations, Galanzs sales volume increased three times to 650,000 units in that year and its
market share jumped to over 35%.23 Realising that the market potential for microwave ovens
in China was huge, Galanz further expanded its production capacities. The greater the output,
the lower the average cost (see Exhibits 5a and 5b). In this way, Galanz had more leeway to
further reduce the price of its products. In 1997, Galanz initiated another price war, with
reductions this time ranging from 29% to 40%. Subsequently, its sales volume in China rose
to 1.98 million units and its market share in sales to 47.6%. Price wars became Galanzs
strategy to defend its number one position in China. Since 1996, it initiated nine rounds of
major price cuts on its microwave oven products.24 Each price cut (ranging from 25% to 40%)
helped to grow both Galanzs market share and production volume, which in turn allowed it to
further trim the prices of its products.25

20 Galanz Enterprise Group Co., available from www.3693.tradebig.com, accessed on Feb 25, 2009
21 China Statistical Yearbook 2007, China Statistics Bureau, available from
http://www.stats.gov.cn/tjsj/ndsj/2007/indexeh.htm, accessed on Feb 11, 2009
22 Ge, Gloria L. and Ding, Daniel Z., A Strategic Analysis of Surging Chinese Manufacturers: the Case of
Galanz, Asia Pacific Journal of Management (2008) 25:667-683.
23 China Microwave Oven Market Survey and Predication Analysis Report 2007-2010, available from
www.9721.cn
24 Yin, Yuan and Xiao, Xingji, (Uncle Des Wisdom), Enterprise Management Publishing
House, October 2009.
25 Ge, Gloria L. and Ding, Daniel Z., A Strategic Analysis of Surging Chinese Manufacturers: the Case of
Galanz, Asia Pacific Journal of Management (2008) 25:667-683.

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According to Yaochang Yu, Galanzs price war strategy was intended to eliminate microwave
oven production among its competitors.26 Galanz exploited price wars to reduce the added
value of the microwave oven industry to an extent that other international competitors lost
interest in remaining in the industry once profit margins fell too low, and voluntarily withdrew
from the market.27 In this way, Galanz was able to secure its territory and at the same time
integrate the industrial chain of microwave oven production upstream in a more economical
way.

Expanding into the Global Market

The secret of Galanzs success in the price war in China lay in its expansion into the global
market based on OEM, which helped it to obtain scale economies while increasing its
production capacity with less risk. In Europe, in 1997 Galanz got a first order for 100,000
microwave ovens from Fillony in France. By the following year, its product share in France
had reached 25% and in 2003 Fillonys order reached 700,000 units. In 1999, Galanz got an
order for 100,000 microwave ovens from Harvard in Britain. The order increased to 400,000
units in 2000, and 1 million in 2003, making Galanz the number one microwave oven
provider in Britain. Harvard ultimately became Galanzs biggest customer in Europe. In the
US, Galanz started an OEM partnership with GE with an order for 100,000 microwave ovens
in 2000. In 2002, it began to work with Kmart and its sales volume in US grew dramatically
to 1 million.28

By fully utilizing its expanding global markets to increase its production capacity, Galanz
could further reduce the average cost per unit. Instead of targeting high profit margins,
Galanzs aggressive capacity expansion leveraged economies of scale in manufacturing to
drive costs down. The statement below by Yaochang Yu vividly depicts Galanzs pricing
mind-set.

When Galanzs production reaches 1 million microwave ovens, it will set the
price below the average cost of an enterprise with production of 500,000
microwave ovens. And when Galanzs production reaches 10 million microwave
ovens, it will set the price below the average cost of an enterprise with production
of 5 million microwave ovens.29

Using the interplay of global and domestic markets to increase production volume and
constantly lower production costs thanks to economies of scale, Galanz effectively knocked
out its competitors one by one and succeeded in building up a leadership position in the
microwave oven market.30

26 Zuo, Ann, From Competition to Integration, World Executive Digest, Vol. 2, 2001
27 Liu, Chunxiong and Lin, Mu, Galanz, right in 30s, China Marketing, Vol. 3, 2008
28 Chen, Biaojie, Galanzs Globalization, IT Manager, Vol. 18, 2003, available from http://www.ceocio.
com.cn/12/93/354/364/34014.html
29 Zuo, Ann, From Competition to Integration, World Executive Digest, Vol. 2, 2001
30 Ge, Gloria L. and Ding, Daniel Z., A Strategic Analysis of Surging Chinese Manufacturers: the Case of
Galanz, Asia Pacific Journal of Management (2008) 25:667-683

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Vertical Integration

While low price clearly played an important role in Galanzs rapid growth, its ability to
maintain low prices also benefited from its continuous efforts to vertically integrate the
industrial chains of microwave ovens, especially the key technologies of microwave oven
production, such as the production of magnetron vacuum tube, the key component in
microwave oven that could imply a technological entry barrier and high price component. In
1978, the cost of magnetron vacuum tubes was about 4%-5% of the total cost;31 by 2006 it
had increased to around 7% of the total cost (in some low-end models it was around 12%-
17%). Thus, once other parts of microwave oven production had been streamlined, the cost of
magnetron vacuum tubes inevitably became a target for further savings. In order to maintain
its low price strategy, producing Galanzs own magnetron vacuum tubes seemed to be
imperative.

Galanz began R&D in magnetron vacuum tubes starting in 1996, and by 2003 the first
magnetron vacuum tubes designed solely by the company were ready for the market. In 2008,
Galanzs annual production capacity of magnetron vacuum tube has reached over 16 million
units and it is already the largest magnetron vacuum tube manufacturer in the world, able to
export its related technology to the European Union, Japan and Korea.32

Galanz had established R&D centres in China, the US, Korea and Japan by April 2008. In this
way it gradually integrated the upstream of the industrial chain of microwave oven production
the R&D part. The added advantage was that since almost all parts of its microwave ovens
were made by Galanz itself, the respective average cost for every individual part would
decrease further as Galanzs production scale increased.

Integrating the upstream of the industrial chain of microwave oven production not only meant
that Galanzs gigantic production capacity strengthened its bargaining power over the price of
spare parts, but also that other competitors in the industry had to lower their prices (of spare
parts) in order to compete effectively in the price wars initiated by Galanz. Thus many
upstream suppliers had to cease operating because of declining profits from spare parts. In
some cases, Galanz took over these operations or hired key specialists who had been laid off
for its own R&D department. In this way, Galanz gradually integrated the production of
magnetron vacuum tubes, control circuits, adapters, compressors etc.

Galanz also paid attention to develop its own sales channels while being careful to avoid anti-
trust or anti-dumping measures in the targeted countries and areas. As early as 1995, Galanz
set up an Overseas Market Department in charge of its global market. By 2008, it had over
3,000 overseas retailers and eight overseas subsidiary companies in areas including the US,
France and Canada.

31 Wong, Kenneth, Note on the Microwave Oven Industry, Ex 8, Harvard Business School, June 1 1983
32 Galanzs Thirty Biggest Events in 30 Years of History, available from http://www.galanz.com.cn/
newInfo.aspx?CateID=228&NewID=42119 accessed on Feb 15, 2009

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Low Price but Not Low Quality

For Galanz customers, we cant make you richer, but we can make your earned
money more valuable worthy more of our products.33

Qingde Liang, Chairman of Galanz

But low prices alone could not ensure Galanzs success in maintaining its leading position in
the microwave oven market both at home and abroad; quality was imperative. In order to
ensure the quality of its products, Galanz took three steps: 1) it set up a quality control group
on voluntary base to solve problems during production in order to maximize employees
initiatives; 2) it maintained a comprehensive quality management system encompassing
workshops, employees and equipment so as to optimize performance of the production lines
and reduce mistakes during the production process; 3) it provided the best after-sales service
across the country. For example, starting in 2002, Galanz offered life-time on-site
maintenance service for its microwave ovens.34

Meanwhile, it went all out on R&D. From 1998-2001, Galanz invested over CNY100
million annually on R&D; by 2002 the figure had reached CNY400 million. From 2002,
annual investment on R&D was maintained at 3% or above of Galanzs total sales revenues.
In order to attract specialists from abroad to research technologies for household appliances,
new materials and intelligent applications, Galanz set up a Household Appliances Research
Centre in its China headquarters in 1995, a Galanz Research Center in US in 1997, a Post-Doc
Scientific Research Lab in China, and a Galanz-Korea Research Centre in Seoul in 2006. As a
result, more than 600 patents and patented technologies were invented within a few years.35

With its high-quality products at low prices, Galanz continued to gain in popularity with
customers (see Exhibit 6), and gradually knocked out the big competitors both domestic and
international. In June 2006, LG announced that it would maintain only high-end products with
bigger profits in Chinas microwave oven market. 36 In the same year, Samsung ceased
production of microwave ovens in China. 37 And on June 15 of 2007, Haier announced a
shutdown of its microwave oven production line and its formal exit from the microwave oven
industry.38

33 Words from the President, Galanz company website, www.galanz.com.

34 Lang, Larry, (Defeat of Blue Ocean Strategy), the Eastern Publishing Co. Ltd., Jan 2008.
35 Yu, Liqi, Galanzs Three-Year Blue Ocean Experiment, Business Watch, Vol. 13, 2008, available from
http://www.galanz.com.cn/newInfo.aspx?CateID=13&NewID=41794, accessed on Feb 20, 2009.
36 LG shrunk its business extensively in Chinas microwave oven market due to serious loss for years,
available from http://www.sjzmbc.gov.cn/public/show.jsp?id=20060609097357, accessed on Feb 26, 2009.
37 Li, Yao, Foreign Branded Home Appliance Firms are shrinking in China, Beijing Modern Business
Today, June 16, 2006, available from http://www.kesum.cn/Article/ltcyyj/lsyyj/scyj/200606/21871.html.
38 Shi, Lei, Haier Group starts self-inspectionthe largest restructure in process, the Economic Observer,
June 30, 2007, available from http://finance.sina.com.cn/stock/s/20070701/13173742303.shtml

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Stage III: Diversification Trials (2001-present):

Replicating the Growth Model of the Microwave Oven Market

In 2001 Galanz entered the air conditioner industry, signalling a new era in its history. Its
business model strategically shifted from purely focusing on microwave oven production to
diversification, while retaining its grip on microwave ovens, with the ultimate target of
becoming number one in the home appliances market. Its intention to replicate the growth
model of microwave ovens to air conditioners became clear when it set an initial target for a
production base with a capacity of 5 million sets. The annual production of LG, the global
number one in sales volume, was then a mere 4.8 million sets.39

Pioneering a luxury model made of stainless steel, Galanz was already ranked among the most
powerful air-conditioner manufacturers list within the first year, with a sales volume of
400,000 units. In 2002, it started a price war in the air-conditioner marketcutting the price
of over 20 models by an average rate of 30%. Its sales volume that year rose to 1 million. By
December 2002, Galanz had an annual production capacity of 3 million sets and became the
number four exporter of air conditioners among Chinese competitors. In December 2003,
Galanz approved a CNY2 billion project to build the largest air conditioner manufacturing
base in the world with annual production capacity of 12 million units, in the hope of securing
a second global number one ranking after its microwave oven manufacturing success. In May
2005, phase one of Galanzs air conditioner manufacturing base officially started operation
with annual production capacity of 6.5 million sets.40 By 2007, its air conditioner production
and sales volume around the world exceeded 3.5 million units.41

Galanz also entered other home appliances categories, such as refrigerators, induction
cookers, washing machines etc., aiming to make small home appliances the third pillar of
Galanz after microwave ovens and air conditioners.42

In recent years, Galanzs home appliances are expanding its share in global
market by a growing rate above 100% each year and its output and sales of
electric roaster, cook and electromagnetic oven have reached the global level.43

Diversification has created another opportunity of growth for Galanz. In 2007

while the cost of materials increased, the rate of export tax rebates was decreased
and the cost of labour was increasing, the sales volume of Galanz has achieved a
growth of 70% and has reached CNY 22.1 billion.44

39 Liu, Chunxiong and Lin, Mu, Galanz, right in 30s, China Marketing, Vol. 3, 2008
40 Galanz Milestones, http://www.galanz.com.cn/About.aspx?CateID=24, Suppliers BackgroundGalanz
Group Guangdong, available from http://www.cgfair.com/en/mycgfair/?show_com_id=74042&page_id=6
and Galanzs 30 biggest events in 30 years of history, available from
http://www.galanz.com.cn/newInfo.aspx?CateID=228&NewID=42119 accessed on Feb 15, 2009.
41 Galanz has entered its initial phase of its diversified kingdom, July 15, 2008, available from
http://www.galanz.com/NewsShow.aspx?ColId=102&SecId=103&id=384, accessed on Feb 18, 2009
42 Galanz company profile, www.galanz.com
43 Galanz Company Profile, available from http://www.galanz.com/about.shtml.
44 Galanz has entered its initial phase of its diversified kingdom, July 15, 2008, available from
http://www.galanz.com/NewsShow.aspx?ColId=102&SecId=103&id=384, accessed on Feb 18, 2009

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Despite the currency appreciation, the US sub-prime crisis, and the global financial crisis in
2008, Galanz managed to maintain its high growth momentum. Total sales reached CNY28
billion and exports amounted to US$1 billion.45 Its sales volume of small home appliances
alone tripled that year.46

Chinas Home Appliances Market

The home appliances market consists of various product categories: air conditioners,
refrigeration appliances (including fridges, freezers and fridge freezers), cooking appliances
(including cookers, microwaves, ovens, cooker hoods, food processors and toasters), washing
appliances (including washing machines, clothes dryers and washer-dryers), heaters (which
include space heaters and water heaters), vacuum cleaners, and dishwashers.

With disposable income of both urban and rural households dramatically increasing since the
1990s (see Exhibit 2), expenditure on household goods rose accordingly (see Exhibit 4) and a
strong market base was in position for take-off in China. For example, in 1999 about one in
ten urban households owned microwave ovens; in 2006 more than half of urban households
had microwave ovens (see Exhibit 7). With a population of 1.3 billion people and a booming
economy, China was already the worlds largest home appliances market.47 In 2007, Chinas
home appliances market generated total revenues of US$20.6 billion, with a compound annual
growth rate of 8.4% for the period spanning 2003-2007. Compared to Japan (0.1%) and South
Korea (2.2%), China also had the fastest growing home appliances market. Within the market,
cooking appliances turned out to be the most lucrative category with total revenues in 2007 of
US$9.3 billion, accounting for 45.1% of the markets overall value, compared to sales of
refrigeration appliances which generated revenues of US$7.6 billion, representing 37% of the
markets aggregated revenues (see Exhibit 8).48

Air Conditioner Market

Though air conditioners originated in the US, 49 China now has the worlds largest base for air
conditioner production. Technological barriers to the production of air conditioners are not
high, especially for the low-end type. Recent technology trends involve speedier cooling,
noise control and energy saving.50

In 2007, Chinas air conditioner output amounted to 69.82 million units, accounting for 77.8%
of the worlds total. 51 Coinciding with Chinas rapid economic growth, more and more urban
households owned air-conditioners. In 1990, air conditioner ownership per 100 urban

45 Galanz company profile, available from http://www.galanz.com.cn/About.aspx?ColId=94&SecId=97

46 Galanzs sales volume of induction cookers can exceed 15 million sets in 2009, www.yidaba.com
47 Farhoomand, Ali and Tao, Zhigang, Chinas Home Appliances Industry 2004, HKU376, 2005 by the
Asian Case Research Centre, the University of Hong Kong, p2
48 Datamonitor, Household Appliances in China, published in September 2008
49 History of Air Conditioning, available from http://www.allsands.com/history/objects/airconditioning_
vsb_gn.htm, accessed on Feb 26, 2009
50 Zhang, Haiyuan, Galanzs Industrial Extension, from Selected Cases of Pecking University, China
Citic Press, July 2008
51 Chinas air conditioner sales growth down, big brands market share up, Xinhua IT & Telecom News,
Xinhua News Agency, September 12, 2008

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households was only 0.34 units; in 2007 the figure had reached almost 95.1 units (see
Exhibit 7).

The home market for air conditioners was dominated by a few brands. The top three home
brands in 2008, Gree (34.4%), Midea (23.6%) and Haier (10%) dominated the market with a
joint market share of 68%. As for exports of air conditioners, during the period from August
2007 to July 2008, Midea topped the export list with 6.732 million units, while Gree followed
just behind with export volume of 6.29 million units. Haier and Chigo ranked numbers three
and four with export volume of 2.2 million units and 2.1 million units respectively.52

Rice Cooker Market

Rice cookers are one of the most mature products exported among Chinas small home
appliances. In 2008, China exported over 25 million rice cookers, a 10% rise compared to
2007, and 40% of rice cookers were exported to Southeast Asia. Indonesia, Thailand and the
US were the three countries that imported most rice cookers from China. The top three export
brands were Midea, Elecpro and Makepolo. Safer, energy-saving and computerised rice
cookers were among new trends.53

Within China, the rice cooker industry was one of the first to develop among small home
appliances, with Midea and Supor the top two brands and Povos and Galanz fighting for the
third54. With low entry barriers, the market was disorderedthere were numerous brands but
only a few manufacturers. Inconsistent quality and lack of after-sales service were big
concerns. The reach of the sales network was also a problem: most firms put too much
emphasis on the first and second tier market, relying exclusively on big electronic chain stores
such as Gome or Yongle, while third and fourth tier markets were underdeveloped.

Dishwasher Market

Dishwashers originated in Europe the first was invented in Germany in 1929 but the US
holds the number one position both in production and penetration rate. China started
development and production of dishwasher much later and the first automatic dishwasher was
developed by Little Swan. Until 2009, only a few companies like Little Swan, Haier, Midea
and Aucma had production lines. Popularity among Chinese customers remained low, and
was limited by price, available kitchen space, the cost of water and electricity, the special
detergent required, and general lifestyle and consumption trends. The penetration rate in key
cities in China was less than 1% compared to 70% in European and American countries.

52 Chinas air conditioner sales growth down, big brands market share up, Xinhua IT & Telecom News,
Xinhua News Agency, September 12, 2008
53 Rice Cooker Industry Market Survey and Investment Strategy Analysis Report, Dec.10, 2009, www.
Chinaccm.com
54 Sales Ranking of Small Home Appliance in China Urban Market, China Appliance Maganzine, April 26,
2010.

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Looking into the Future
From World Plant to World BrandTo Do or Not To Do?

In 1999, when Galanzs brand sales reached 70% market share in Argentina, the local
microwave oven manufacturers united to file an anti-dumping lawsuit and consequently 200%
tariffs were imposed on Galanz products. As a result, Galanz lost an order for 180,000
microwave ovens and the Argentine market, which Galanz had been working on for five years,
was ruined.55

Galanz learned its lesson. It became more cautious in global expansion, targeting production
rather than branding, focusing more on market share in production than brand sales. In some
market economies its brand sales were strictly pegged below 40% of market share. In this way,
Galanz successfully avoided anti-trust or anti-dumping lawsuits in its global market, achieved
its target of 50% of global market share in production, and won the title of world
manufacturer.56

But drawbacks were apparent. Not only had Galanz lost brand market share in the global
market, it also lost huge profits to other multinational companies when it was confined to a
manufacturing role. Moreover, Galanzs weakness in its own brand made it difficult to invest
more in R&D, despite its huge production volume, given the lower profits earned.57 Since
2002, annual investment on R&D had been maintained at 3% of total sales revenues. However,
many multinational companies such as Carrier and Sharp were now spending 6%-8% of
revenue on new product development.58 In order to sustain its growth, Galanzs development
strategy evolved from its previous world manufacturer target to becoming a world brand.
In 2006, the proportion of exports of Galanzs own brand reached close to 50% and in 2007
this number grew to over 60%.59 This compared to the proportion of OEM and Galanzs own
brand 6 to 4 which had been carefully maintained since Argentinas anti-dumping lawsuit
in 1999. In France alone, it opened five Galanz chain stores with its own brand and planned to
open 80 more in 2008.60

Targeting the domestic market, Galanz bid CNY200 million to advertise on prime time of
CCTV in 2010, breaking with its previous conservative strategy in advertising. 61 Whether
Galanzs brand strategy would succeed in fuelling further growth was still hard to say, as
Yaochang Yu, vice president of Galanz Group, commented:

55 Ling, Zi, Galanzs Double Identity, Sino Foreign Management, Vol. 3, 2002, available from
http://www.emkt.com.cn/article/62/6272.html, accessed on Feb 26, 2009
56 Sino Finance, July 10, 2002, available from http://finance.sina.com.cn/jygl/20020710/231023.html,
accessed on Feb 26, 2009
57 Zheng, Lei, Drawbacks of Galanz Internationalization, New Finance & Economics Monthly, Vol. 12,
2006, available from http://www.hotce.com.cn/Count/NewCount.aspx?id=9124 , accessed on Feb 10, 2009.
58 Dawar, Niraj and Yuang, Peter, Midea: Globalization Challenge for a Leading Chinese Home Appliance
Manufacturer, Ivey Management Services, The University of Western Ontario, 2000
59 Galanz Qingde LiangFrom World Manufacturer to World Brand, Jan 10, 2009, available from
http://www.galanz.com.cn/newInfo.aspx?CateID=165&NewID=42491, accessed on Feb 18, 2009
60 Ibid.
61 www.chineaa.com, Nov. 20, 2009

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 Galanz needs time to transfer from a global manufacturing brand to a worldly
recognised consumer brand and it may take 30 years for this company to build
a world brand and it is not easy work as it is a process of accumulation.62

Mideas Aggressive Attack in the Microwave Oven Market

Midea, founded in 1968, has one of the largest white goods manufacturing and export bases in
China. Compared to Galanz, Midea is larger in size and more experienced in the home
appliances market. In 2007, Mideas sales revenue across all products hit a record of CNY75
billion, and its export sales reached US$3.12 billion, compared to Galanzs figures of
CNY22.1 billion and US$1 billion respectively. 63 And while Galanz was celebrating its sales
reaching CNY30 billion in 2009, Midea already tripled this number in 2008,

In 1999, Midea broke the cost stranglehold created by Galanzs price wars since 1996 and
successfully entered the microwave oven industry thanks to technological cooperation with
Toshiba from Japan. It followed Galanzs pricing by carefully controlling its costs, but put
more focus on technological innovations. In 2004, Midea invented the steam microwave oven
and in 2005 it ceased production of low-end microwave ovens and refocused the competition
in the industry from price to technology and innovation. It was, however, costly to compete
fiercely with Galanz in microwave oven market. After making a loss for over 6 years
continuously, at last in 2007, Midea started to turn a profit and was already ranked number
two in Chinas microwave oven industry with a market share of 44.6%, hot on the heels of
Galanz with brand sales of 45.2% and maintained its number two position in 2008 too
(Exhibit 9 and 10).

Growth in Other Home Appliances Markets and More

Galanz gave up the price war in 2005 and shifted its focus to innovation. From 2005 to 2008,
it experienced four major reforms which prepared the company structurally for a strategic
shift from world workshop to world brand.64

Whether it could replicate its growth model in the microwave oven industry to the air
conditioner category was another question. At the current stage, Galanz was not strong
enough to compete with the top three in Chinas air conditioner marketGree, Midea and
Haier, which combined to occupy 68% of the market share in 2008. 65 But Galanz was
growing substantially in the global market, as illustrated by the increase in its sales volume
from 400,000 units in 2001 to 3.5 million units in 2007.66 With its continued devotion to

62 The Revolution of a World Brand: the Globalization of Galanz, Oct 28, 2008, available from
http://www.galanz.com/NewsShow.aspx?ColId=102&SecId=103&id=636, accessed on Feb 18, 2009
63 Midea Group Profile, http://global.midea.com.cn/midea/about/aboutMideaGroupProfile.jsp, accessed on
Feb, 2009. And Galanz has entered its initial phase of its diversified kingdom, July 15, 2008,
http://www.galanz.com/NewsShow.aspx?ColId=102&SecId=103&id=384, accessed on Feb 18, 2009
64 Galanz has entered its initial phase of its diversified kingdom, July 15, 2008,
http://www.galanz.com/NewsShow.aspx?ColId=102&SecId=103&id=384, accessed on Feb 18, 2009.
65 Chinas air conditioner sales growth down, big brands market share up, Xinhua IT & Telecom News,
Xinhua News Agency, September 12, 2008
66 Galanz has entered its initial phase of diversified kingdom, available from
http://www.galanz.com/NewsShow.aspx?ColId=102&SecId=103&id=384, accessed on Feb 20, 2009

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professionalism and large-scale production, would its dream of becoming number one
ultimately be realized?

In line with the company goal, the home appliances industry would be Galanzs third pillar of
growth. Was the growth model replicable to other home appliances, such as rice cookers and
dish washers? Which products could be Galanzs next growth spur? Was Galanzs dream of
making the global top five in white goods within five to ten years achievable? 67

Galanz has been thinking of IPO since long ago.

67 White goods refers to heavy consumer durables such as air conditioner, refrigerators, stoves etc., which
used to be available only in white enamel finish.

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 Exhibit 1
Annual Production of Microwave Ovens 1993-2007
Galanz Annual China Annual
Annual
Year Production Production Galanz %
Increase Rate
(10,000 units) (10,000 units)
1993 1 N/A
1994 10 900%
1995 25 150%
1996 65 160%
1997 200 208%
1998 570 185%
1999 827 45%
2000 935 13%
2001 1056 13%
2002 1288 22% 2270.9 56.72%
2003 1574 22% 3660.4 43.00%
2004 1976 26% 4392.5 44.99%
2005 2113 7% 4931.9 42.84%
2006 2370 12% 5570 42.55%
2007 2503 6% 6627 37.77%

Source: www.chinabgao.com and China Microwave Oven Market Analysis (Jan. 2009),
compiled by the writers.
Exhibit 2
China per Capita Annual Income of Urban and Rural Households 1990-2007
Per Capita Annual Annual Per Capita Annual Net Annual
Year Disposable Income of Increase Income of Rural Increase
Urban Households (CNY) Rate Households (CNY) Rate
1990 1510.2 * 686.3 *
1991 1700.6 12.61% 708.6 3.25%
1992 2026.6 19.17% 784.0 10.64%

1993 2577.4 27.18% 921.6 17.55%

1994 3496.2 35.65% 1221.0 32.49% Stage I

1995 4283.0 22.50% 1577.7 29.21%
1996 4838.9 12.98% 1926.1 22.08%
1997 5160.3 6.64% 2090.1 8.51%

1998 5425.1 5.13% 2162.0 3.44%

1999 5854.0 7.91% 2210.3 2.23%
Stage II
2000 6280.0 7.28% 2253.4 1.95%
2001 6859.6 9.23% 2366.4 5.01%

2002 7702.8 12.29% 2475.6 4.61%

2003 8472.2 9.99% 2622.2 5.92%
2004 9421.6 11.21% 2936.4 11.98%
Stage III
2005 10493.0 11.37% 3254.9 10.85%
2006 11759.5 12.07% 3587.0 10.20%
2007 13785.8 17.23% 4140.4 15.43%
Source: China Statistical Yearbook 2008, China Statistics Bureau, compiled by the writers.

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 Exhibit 3
Chinas Urban Population 1990-2007 (in 10,000 persons)

65000
60000
55000
50000
45000
40000
35000
30000
25000
20000
15000
10000
5000
0

Urban Population (in 10,000 persons)

Source: China Statistical Yearbook 2008, China Statistics Bureau, available from
http://www.stats.gov.cn/tjsj/ndsj/2008/indexeh.htm, accessed on Jan 28, 2010, compiled by the writers.

Exhibit 4
Per Capita Annual Consumption Expenditure on Household Goods of Urban
Households 1990-2007 (in CNY)

700.00 601.80
600.00 498.48
500.00 446.52
374.49
400.00
300.00 263.36
200.00 108.45
100.00
0.00
1990 1995 2000 2005 2006 2007

Source: China Statistical Yearbook 2008, China Statistics Bureau, available from
http://www.stats.gov.cn/tjsj/ndsj/2008/indexeh.htm, accessed on Jan 28, 2010, compiled by the writers.

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 Exhibit 5
The Relationship of Galanzs Annual Production and
Average Price of Microwave Ovens in China 1994-2008

Exhibit 5a

3000

2500 2319 2370 2503

2287 2113
1976
2000 1929
1524 1574
1500 1660 1658 1307 1226 1288

1000
1056 1155 552 533
827 935 934
500 570 825 693 618
10 25 65 200
0
1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008

Average Price of Microwave Ovens in China (CNY/unit)

Galanz Annual Production (10,000 units)

Exhibit 5b
Average Price of Microwave Ovens

2600
2400
2200
2000
(CNY/unit)

1800
1600
1400
1200
1000
800
600
400
200
0
10 25 65 200 570 827 935 1056 1288 1574 1976 2113 2370 2503

Galanz Annual Production 1994-2007 (in 10,000 units)

Note: The average price of microwave ovens in China used as a proxy for average cost of microwave ovens in
China
Source: www.chinabgao.com

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 Exhibit 6
Chinese Customers Satisfaction for the Brands of Microwave Ovens in 2007

Whirlpool, Galanz,
Samsung, 63.47% 85.62%
65.48%
Midea,
84.91%
Sanyo, Panasonic,
68.72% 78.12%
Haier, LG , 77.06%
70.20%

Galanz Midea Panasonic LG Haier Sanyo Samsung Whirlpool

Source: China Microwave Oven Market Survey and Predication Analysis Report 2007-
2010, available from www.9721.cn, translated by the writers.

Exhibit 7
Chinas Ownership of Major Durable Consumer Goods
per 100 Urban Households at Year-end

Item 1990 1995 1999 2000 2005 2006 2007

Microwave Oven (unit) N/A N/A 12.15 17.6 47.61 50.61 53.39
Air Conditioner (unit) 0.34 8.09 24.48 30.8 80.67 87.79 95.08
Washing Machine (set) 78.41 88.97 91.44 90.5 95.51 96.77 96.77
Refrigerator (set) 42.33 66.22 77.74 80.1 90.72 91.75 95.03
Source: China Statistical Yearbook 2008, China Statistics Bureau, available from
http://www.stats.gov.cn/tjsj/ndsj/2008/html/J1010e.htm, accessed on Feb 26, 2009, compiled by the writers.

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 Exhibit 8
China Household Appliances Market Segmentation: %Share, by Value, 2007

Cooking App,
45.10%

Dishwashers,
1.10%
Vacuum cleaners,
1.20%
Heating App,
1.40% Refrigeration
Washing App, App, 37.00%
14.20%

Source: Household Appliances in China, by Datamonitor, published in September 2008.

Exhibit 9
Market Share of Major Microwave Oven Brands in China in 2007

Others, 8.1%
Haier, 2.1%

Galanz, 45.2%
Midea, 44.6%

Galanz Midea Haier Others

China Microwave Oven Market Survey and Predication Analysis Report 2007-2010, p28. (Note: the data used in
this exhibit was based on end of year data.)

Exhibit 10

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Market Share in Sales Volume of Major Microwave Oven Brands in China in May 2008

Midea, 41.1%

Panasonic, 3.4%

LG, 2.5%
Other, 5.5%
Sanyo, 1.5%
Haier, 1.4%
Others, 0.1%

Galanz , 50.0%

Source: The Analysis Report of Chinas Industry of Microwave Oven, January 2009, EMIS database.

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 Appendix
Microwave Oven Market Evolution

The microwave oven technology was initially pioneered in the US and patented by the Raytheon
Company in the 1940s, but commercializing efforts were not rewarding due to the dauntingly high
price of the newly invented microwave ovens. Unexpectedly, Japanese sensed the great market
potential of microwave ovens and seized the opportunity. Japanese companies refined and perfected
the technology and were able to produce and sell microwave ovens at a much cheaper price. As a
result, Japan became the first big manufacturers of microwave ovens in 1970s. When Japanese cheap
and small sized microwave ovens flooded back to U.S. market, U.S. home appliances makers started to
catch up by investing heavily in R&D of microwave ovens. 68 Consequently, the U.S. household
penetration of microwave ovens soared from 0.1% in 1971 to 9% by 1978.69

The microwave oven industry, similar to all other home appliances industries, mainly consists of three
parts: R&D, Manufacturing and Sales (marketing and distribution). Usually, the first and the last parts
are more value-added and require more capital while the centre part is less value-added and requires
more labours.70 Since 1960s, with the quickening pace of economic globalization and free trade, more
and more multi-national companies started to disperse parts of or all of their manufacturing process to
different locations around the world to take advantage of differentials in the cost and quality of factors
of production, including labour, energy, land and capital. The globalization of production had spurred
the rapid growth of industrial capabilities in a wide range of developing countries like Korea and
China.71

In 1980, Samsung from Korea made its debut in the US microwave oven market by partnering with
J.C. Penny, one of the biggest retailers in the U.S. By the end of 1981, Samsung had increased its
microwave oven production a hundredfold over the previous year, from just over 1,000 to 100,000 and
in 1982 Samsungs annual microwave oven production again reached 200,000. Starting 1983,
Samsung became the OEM (Original Equipment Manufacturer) of GE Appliances and its microwave
oven production rose to over 1 million units in 1984.72 Korea, after Japan and the US, became another
star in the arena of the global microwave oven market. In 2000, Samsung, for the first time, obtained
the title of global number one in microwave ovens with a global market share in sales reaching
over 24%.73

68 Magaziner Ira C. and Patinkin Mark, Fast Heat: How Korea Won the Microwave War, Harvard Business
Review, No. 89114, January-February 1989.
69 Wong Kenneth, Note on the Microwave Oven Industry, Harvard Business School, 9-578-185, 1983.
70 Zheng Lei, Drawbacks of Galanz Internationalization, New Finance & Economics Monthly, Vol. 12,
2006, available from http://www.hotce.com.cn/Count/NewCount.aspx?id=9124 , accessed on Feb 10, 2009
71 Gloria L. Ge and Daniel Z. Ding, A Strategic Analysis of Surging Chinese Manufacturers: The Case of
Galanz, Asia Pacific Journal of Management (2008) 25:667-683, Nov 10, 2007.
72 Ira C. Magaziner and Mark Patinkin, Fast Heat: How Korea Won the Microwave War, Harvard Business
Review, No. 89114, January-February 1989.
73 Samsung Annual Report 2000, available from http://www.samsung.com/sg/aboutsamsung/corporateprofile/
ourperformance_/annualreports_old.html accessed on Feb 10, 2009.

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